<PAGE> 1
================================================================================
UNITED STATES 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
For the year ended December 31, 1996
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-7067
UNITED COMPANIES FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Louisiana 71-0430414
--------- ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4041 Essen Lane
Baton Rouge, Louisiana 70809
---------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (504) 924-6007
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<S> <C>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- --------------------------------
Common Stock, Par Value $2.00 NEW YORK STOCK
EXCHANGE
6 3/4% PRIDES (SM), Convertible Preferred Stock, NEW YORK STOCK
Par Value $2.00 EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. 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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as reported on the New York Stock Exchange as of March 5, 1997 was
$596,883,646.
The number of shares of $2.00 par value stock issued and outstanding as of
March 5, 1997 was 28,494,326 excluding 1,159,682 treasury shares.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's Definitive Proxy Statement to be prepared pursuant to
Regulation 14A and filed in connection with solicitation of proxies for its
Annual Meeting of Shareholders, to be held May 14, 1997, is incorporated by
reference into Part III of this Form 10-K.
================================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
United Companies Financial Corporation (the "Company" or "UCFC"), founded
in 1946, is a financial services holding company engaged in consumer lending.
The Company's lending operations primarily are focused on the origination,
purchase, sale and servicing of first mortgage, non-conventional, home equity
loans which are typically not loans for the purchase of homes. These home
equity loans, which are fixed and variable rate mortgage loans, are made
primarily to individuals who may not otherwise qualify for conventional loans
which are readily marketable to government-sponsored mortgage agencies or
conduits and available through most commercial banks and many other lending
institutions. The Company's home equity loan originations are accomplished
primarily through the following distribution channels: (i) a retail branch
network conducted through United Companies Lending Corporation(R) ("UC
Lending"), (ii) a wholesale operation conducted through UNICOR MORTGAGE(R),
Inc. and through GINGER MAE(R), Inc., a division of UC Lending, each of which
offer home equity loan products, and (iii) a bulk loan purchase program
conducted through Southern Mortgage Acquisition, Inc. ("SMA"), which from time
to time purchases pools of home equity loans from other lenders. In addition,
the Company's lending operations include manufactured housing loan products
offered through its wholly owned subsidiary, United Companies Funding, Inc.
("UCFI"). These manufactured housing contracts are made primarily to finance
the purchase of new or used manufactured homes and are typically secured by a
first lien security interest in the manufactured homes. The Company also began
offering in mid-1996 a secured credit card product which is presently targeted
to the Company's home equity loan customer base. These credit card loans are
typically secured by a second lien, behind the Company's first lien, on the
borrower's residence.
Loan production is funded principally through loan facilities pending loan
sales. Substantially all of the home equity loans and manufactured housing
contracts originated or purchased by the Company are sold in the secondary
market principally through securitization transactions under Company sponsored
shelf registration statements.
In addition to its lending operations, the Company was historically engaged
in insurance operations. During 1996, the Company sold all of the outstanding
common stock of United Companies Life Insurance Company ("UCLIC"), its life and
annuity insurance subsidiary, and United General Title Insurance Company
("UGTIC"), its title insurance subsidiary. See Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Discontinued
Operations and Note 11 to the Notes to Consolidated Financial Statements.
The Company was incorporated in the State of Louisiana in 1946 and its
principal offices are located in Baton Rouge, Louisiana. It currently has
approximately 2,500 employees.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. This Annual Report on Form
10-K contains forward-looking statements that reflect the Company's current
views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including those identified below, which could cause actual results to differ
materially from historical results or those anticipated. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of their dates. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The following non- exclusive factors
could cause actual results to differ materially from historical results or
those anticipated: (1) changes in the performance of the financial markets, in
the demand for and market acceptance of the Company's products, and in general
economic conditions, including interest rates; (2) the presence of competitors
with greater financial resources and the impact of competitive products and
pricing; (3) the effect of the Company's policies; and (4) the continued
availability to the Company of adequate funding sources.
2
<PAGE> 3
Distribution network. At December 31, 1996, the Company's lending
activities were primarily conducted through the following distribution
channels:
UC LENDING, the Company's retail operation, consisted of 185 offices
in 42 states at year end 1996. During 1996, UC Lending originated
$1.1 billion in home equity loans compared to $939.1 million for 1995,
representing an increase of 18%. During 1996, UC Lending strengthened
its branch network by opening 45 new offices while closing 10 offices,
ending the year with 185 offices in 42 states. Also in 1996, UC
Lending focused on employee training programs, which included training
over 1,000 originators.
UNICOR, one of the Company's wholesale operations, produced $570.1
million in home equity loans in 1996 compared to $423.0 million for
1995, representing an increase of 35%. UNICOR continued to target the
broker and correspondent community and was successful in adding an
additional 770 brokers and correspondents for a total at year end 1996
of approximately 2,840. Geographically, UNICOR expanded its
operations to an additional 4 states for a total of 48 at year end.
GINGER MAE, another of the Company's wholesale operations which
operates through financial institutions (banks, thrifts and credit
unions), produced $118.9 million in home equity loans in 1996 compared
to $50.8 million in 1995. GINGER MAE increased the number of
financial institutions it serves from 240 at year end 1995 to 342 in a
total of 26 states at year end 1996.
SOUTHERN MORTGAGE ACQUISITION, which purchases home equity loans in
bulk, produced $441.4 million in home equity loans in 1996 compared to
$128.6 million for 1995.
UNITED COMPANIES FUNDING, the Company's manufactured housing lender,
completed its first full year of operations by producing $118.8
million in contracts in 1996. The manufactured housing unit
originates loan products through dealers and directly to the consumer.
At year end 1996, UCFI operated in 31 states through 1,725 dealers.
Products and Production. The Company's principal products are home equity
loans with a fixed amount and term to maturity, which are secured by a first
lien mortgage on the borrower's residence. Typically the proceeds of the loan
will be used by the borrower to refinance an existing first mortgage in order
to finance home improvements or for debt consolidation. These types of loans
are commonly referred to as "B" and "C" grade loans. These loans are distinct
from home equity revolving lines of credit, which are generally secured by a
second mortgage and typically carry a floating interest rate. The Company
offers fixed rate and adjustable rate ("ARM") home equity loan products.
In addition to home equity loans, the Company offers manufactured housing
loan products made primarily to finance the purchase of new or used
manufactured homes. These contracts are typically secured by (i) a security
interest in the manufactured home purchased with the proceeds of such contracts
or (ii) with respect to certain of the contracts, liens on the real estate to
which the related manufactured homes are deemed permanently affixed.
The Company also began offering in mid-1996 a secured credit card product
which is presently targeted to the Company's home equity loan customer base.
These credit cards are typically secured by a second lien, behind the Company's
first lien, on the borrower's residence.
3
<PAGE> 4
The following table reflects loan production by distribution network by
product type for the periods indicated:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------- -----------------------
AVERAGE AVERAGE AVERAGE
AMOUNT LOAN SIZE AMOUNT LOAN SIZE AMOUNT LOAN SIZE
------------- --------- ------------- --------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Home Equity
UC Lending
Fixed . . . . . . . . . . $ 680,481 38 $ 740,707 37 $ 679,466 38
ARM . . . . . . . . . . . 430,374 69 198,369 78 11,560 90
------------- ------------- ----------
1,110,855 939,076 691,026
UNICOR
Fixed . . . . . . . . . . 542,845 56 337,802 50 146,832 48
ARM . . . . . . . . . . . 27,259 107 85,208 104 45,248 97
------------- ------------- ----------
570,104 423,010 192,080
GINGER MAE
Fixed . . . . . . . . . . 115,079 71 44,497 59 9,864 55
ARM . . . . . . . . . . . 3,805 131 6,351 115 201 101
------------- ------------- ----------
118,884 50,848 10,065
SMA
Fixed . . . . . . . . . . 42,139 72 7,709 50 1,739 38
ARM . . . . . . . . . . . 399,306 111 120,894 156 13,911 58
------------- ------------- ----------
441,445 128,603 15,650
UCFI
Fixed . . . . . . . . . . . 3,170 52 - - - -
Manufactured housing --
chattel contracts
UC Lending . . . . . . . . 1,289 18 - - - -
UCFI . . . . . . . . . . . 115,631 30 887 - - -
------------- ------------- ----------
116,920 887 -
Total Production . . . $ 2,361,378 $ 1,542,424 $ 908,821
============= ============= ==========
</TABLE>
As of December 31, 1996, approximately 96.8% in aggregate principal amount
of the home equity loans owned and/or serviced by the Company were secured by a
first mortgage with the remaining 3.2% in aggregate principal amount secured by
second or multi-property mortgages. During 1996, approximately $2.2 billion in
first mortgage home equity loans and $67 million in second mortgage and
multi-property home equity mortgage loans were originated or acquired by the
Company. In the case of most home equity loans for home improvements, the loan
proceeds are disbursed to an escrow agent which, according to guidelines
established by the Company, releases such proceeds upon completion of the
improvements or in draws as the work on the improvements progresses. The
weighted average interest rate on home equity loans produced during 1996 was
11.2%, compared to 11.6% during 1995. Costs incurred by the borrower for loan
origination, including origination points and appraisal, legal and title fees,
are often included in the amount financed.
The Company's principal market for its home equity loans is individuals who
may not otherwise qualify for conventional loans which are readily marketable
to the government-sponsored mortgage agencies or conduits and available through
most commercial banks and many other lending institutions. Loans to such
borrowers may present a greater credit risk and therefore produce higher loan
origination fees and interest rates as compared to loans to customers of banks
and thrifts. The Company believes that its customers generally place a higher
priority on the amount of the monthly payment and prompt credit approval than
on the interest rate and origination fees associated with the loan. Management
of the Company believes that any greater credit risk arising out of making
loans to these borrowers is compensated by higher fees and interest rates.
There are generally numerous competitors for these borrowers in each of the
Company's geographic markets. Principal competitors include recognized national
and regional lenders. The Company believes that prompt underwriting and
response to loan applications provides a competitive advantage in loan
originations.
4
<PAGE> 5
The Company's manufactured housing lending program is primarily conducted
through UCFI. UCFI may (i) purchase contracts from approved manufactured
housing dealers ("indirect financing"), (ii) originate contracts directly with
individual owners or purchasers of manufactured homes ("direct financing") or
(iii) make bulk purchases of contracts originated or acquired by other lending
institutions or finance companies. These contracts are generally secured by a
security interest in the manufactured home purchased with the proceeds of the
loan. Through its affiliates, UCFI also originates contracts ("land and home
contracts") which, in addition to being secured by security interests in the
manufactured homes, are secured by liens on the real estate to which the
manufactured homes are deemed permanently affixed. Manufactured home contracts
are generally subject to minimum down payments of approximately 10% of the
amount financed and the term of the contracts do not exceed 30 years. At
December 31, 1996, UCFI was licensed to conduct business in 31 states.
Through its regional managers, UCFI purchases manufactured housing
contracts from manufactured housing dealers. UCFI's regional managers contact
dealers located in their region and explain UCFI's available financing plans,
terms, prevailing rates and credit and financing policies. If the dealer
wishes to use UCFI's available customer financing, the dealer must make an
application for dealer approval. Upon satisfactory results of UCFI's
investigation of the dealer's creditworthiness and general business reputation,
UCFI and the dealer execute a dealer agreement. As of December 31, 1996, the
dealers with which UCFI has entered into dealer agreements are located in 31
states.
UCFI provides indirect financing only for manufactured homes which are
manufactured by an approved manufacturer. Approval may be requested by a
dealer or a manufacturer. If UCFI's review of the manufacturer's
creditworthiness and general business reputation is satisfactory, UCFI will
approve the manufacturer's products as being eligible for indirect financing.
All contracts that UCFI purchases from dealers are written on forms
provided by UCFI and are purchased on an individually approved basis. The
dealer submits the customer's credit application and purchase order to UCFI's
executive offices where UCFI's underwriters make an analysis of the
creditworthiness of the proposed buyer. If the application meets UCFI's
guidelines and the credit is approved, UCFI purchases the contract after the
manufactured home is delivered and set up and the customer has been contacted
by telephone to obtain the customer's approval of the manufactured home and the
delivery and set-up of the manufactured home.
Financing is also provided directly to individuals who own or wish to
purchase manufactured homes. The customer's credit application is submitted to
UCFI or one of its affiliate's executive offices where the underwriters make an
analysis of the creditworthiness of the customer. A customer's application
will also be accepted over a toll-free telephone number established for that
purpose. If the telephone application receives preliminary approval, it is
further processed as with other customer applications.
Manufactured housing contracts originated or acquired by other lending
institutions or finance companies may also be purchased by the Company. Each
contract so purchased will be re-underwritten prior to the purchase thereof
using the then-current underwriting standards.
Underwriting. Home equity loans. Supervision of the underwriting staff is
centralized, however, each of the Company's distribution networks for home
equity loans has its own staff of underwriters in order to provide better
service to its respective customers. Regardless of the manner of origination,
all home equity loans are underwritten (or, in the case of bulk purchases, are
re-underwritten) prior to approval and funding utilizing substantially similar
underwriting guidelines. The underwriting function is centralized at the home
office. Underwriting guidelines are modified from time to time. The following
is a description of the current underwriting guidelines, which are not
materially different from prior guidelines.
The underwriting process is intended to assess the prospective borrower's
ability and willingness to repay the loan and the adequacy of the real property
security as collateral for the loan granted. On a case-by-case basis, home
equity loans may be made which vary from the underwriting guidelines; however,
such variations are approved by the home office underwriting department.
5
<PAGE> 6
The Company originates fixed-rate home equity loans with original terms to
maturity not to exceed: 360 months for single family, owner occupied first
mortgages; 360 months for single family, non-owner occupied first mortgages;
360 months for single family, combination owner occupied/rental property first
mortgages; and 180 months for single family, owner occupied second mortgages.
The fixed-rate loan amounts generally do not exceed $500,000 in the case of
loans secured by first liens, and $150,000 in the case of loans secured by
second liens, in each case unless a higher amount is specifically approved by
the applicable underwriters.
All of the fixed-rate home equity loans are fully amortizing, except for
Balloon Loans which comprise 5.6% of the portfolio. UNICOR originates and the
Company's other distribution networks may originate fixed-rate loans with an
original term to maturity ranging from 60 to 240 months and a longer
amortization schedule ranging from 180 to 360 months ("Balloon Loans").
Balloon Loans must be secured by first liens on residential properties. UNICOR
and GINGER MAE also originate fixed-rate home equity loans which provide that
the interest rate may decrease by one percentage point if the borrower makes
the first 12 consecutive monthly payments without a delinquency. At that time,
the monthly payments will be recalculated to fully amortize the loan at the
reduced rate over the remaining term to maturity. Adjustable rate home equity
loans generally amortize fully over a period not to exceed 360 months. The
maximum loan amount for adjustable-rate home equity loans is $500,000 unless a
higher amount is specifically approved by the applicable underwriters.
The homes used for collateral to secure the home equity loans may be owner
occupied, non-owner occupied rental properties or a combination of owner
occupied rental properties, which in any case are one-to-four family residences
(which may be a detached or semi-detached row house, townhouse, a condominium
unit or a unit in a planned unit development). In addition, such loans may be
secured by single-family owner occupied manufactured or mobile homes with land
if the manufactured or mobile homes are permanently affixed and defined as real
estate under applicable state law. Certain loans may be secured by a leasehold
interest and the improvements thereon. Second mortgages are generally
permitted only for fixed-rate home equity loans and generally are limited to
one-to-four family owner occupied property. Such a loan secured by a second
mortgage typically will not be made if the first mortgage is a balloon or an
individual or owner financed mortgage.
In general, the value of each property proposed as security for a home
equity loan is required to be determined by a current appraisal from an
independent appraiser who has been approved by the home office. The Company
requires that the appraisal provide an adequately supported estimate of the
value of the property proposed as security for the requested home equity loan
and a complete, accurate description of the property. In some cases, the
appraisal is subject to completion of improvements which are to be made with
the proceeds of the home equity loan. The property is analyzed, based on the
appraisal, to determine its acceptability as security for the loan requested.
Manufactured housing contracts. The underwriting of manufactured housing
contracts focuses primarily on the borrower's willingness and capacity to repay
the debt. The analysis includes application of a credit scoring system and a
review of the applicant's paying habits, length and likelihood of continued
employment, and certain other factors. The Company's current underwriting
guidelines for conventional contracts limit the maximum loan size to $200,000
in the case of chattel contracts (i.e., manufactured housing installment sales
contracts and manufactured housing installment loan agreements) and $300,000 in
the case of land-and home contracts (i.e., contracts where the manufactured
home is deemed permanently affixed to the real estate on which it is located).
Appraisals on used manufactured homes are performed by employees of the Company
or by independent appraisers approved by the Company. The appraisals of such
independent appraisers are validated by the Company's personnel through a
review of the National Automobile Dealers Association base values and on-site
inspections. The Company applies substantially the same loan-to-value ratio,
appraisal and other underwriting standards and procedures to the land-and-home
contracts as are applied to other home equity loans.
Loan-to-Value. Home equity loans. The total amount of a home equity loan
generally includes origination fees, credit life insurance premium, if any,
prepaid interest and other closing costs (such as the cost of an appraisal
report and title insurance premiums). Loan-to-value is the percentage equal to
the note amount divided by the lesser of appraised value or the purchase price
of the real estate. For fixed-rate and adjustable rate home equity loans
originated through the Company's wholesale operations, the maximum
loan-to-value is 90%, with the maximum for rural properties generally
6
<PAGE> 7
being 80%. For home equity loans originated through the branch network, an
Underwriting Loan-to-Value Ratio, as described below, is utilized. The total
amount of a home equity loan, net of the origination fees, credit life
insurance premium, if any, prepaid tax and insurance escrow, real estate tax
service fee, loan application fee and prepaid interest, is defined as the "Cash
Out." The "Underwriting Loan-to-Value Ratio" for underwriting purposes is the
Cash Out divided by the appraised value or purchase price of the property,
whichever is less. The Cash Out with respect to fixed-rate and adjustable-rate
loans originated through the branch network is limited to 90% of the lesser of
the applicable appraised value or purchase price of the property.
Generally, the maximum Underwriting Loan-to-Value Ratio is 80% for a loan
with a second mortgage on the property. With respect to rural properties, the
maximum Underwriting Loan-to-Value Ratio (utilizing only up to ten acres and
the improvements thereon) is 80%. The maximum Underwriting Loan-to-Value Ratio
generally applicable to non-owner occupied homes is 75% and is generally 80%
for owner occupied manufactured/mobile homes with land. Because the
Underwriting Loan-to-Value Ratio is based on the Cash Out rather than the
actual principal balance of the related loan, the loan-to-value ratio of such
loan will be higher and could be substantially higher than the Underwriting
Loan-to-Value Ratio. However, the loan-to-value ratio may not exceed 100%.
Manufactured housing contracts. The "Value" used to calculate the original
loan-to-value ratios of the contracts originated by UCFI is equal to (i) in the
case of a chattel contract on a new manufactured home, the total cost of such
manufactured home (allowing for the standard industry dealer markup of 30%),
including sales and other taxes, filing and recording fees imposed by law and
premiums for related insurance and optional equipment up to 25% of the base
invoice and set-up fees, (ii) in the case of a chattel contract on a used
manufactured home, either the total delivered sales price for such manufactured
home, if available, or its appraised market value, plus, in either case, each
of the following to the extent that the inclusion thereof does not exceed the
appraised value of the manufactured home: sales and other taxes, filing and
recording fees imposed by law and premiums for related insurance, or (iii) in
the case of real estate securing a land-and-home contract, the total sales
price of the real estate and the manufactured home together. "Value" used to
calculate the original loan-to-value ratios of manufactured housing contracts
originated by other distribution networks of the Company or acquired from third
parties will equal the lesser of the appraised value or, in the case of a
purchase, the purchase price of the manufactured home and the related real
estate to which the manufactured home is permanently affixed.
With respect to conventional chattel contracts for new manufactured homes,
the Company may finance up to the lesser of (a) 95% of the cash sale price
(including taxes, fees and insurance) of the manufactured home or (b) 130% of
the manufacturer's invoice price of the manufactured home plus 100% of taxes,
license fees and freight charges, 100% of the dealer's cost of additional
dealer-installed equipment (not to exceed 25% of the base price of the
manufactured home), and up to $1,500 of set-up costs per module. With respect
to used manufactured homes, the Company may finance up to 100% of the lesser of
(a) the total delivered sales price of the manufactured home (including taxes,
fees, insurance and up to $1,500 of set-up costs per module), or (b) the
appraised value of the manufactured home. Taxes, fees, and insurance may be
included in the amount financed up to a maximum of 100% of the appraised value
of the used manufactured home. The guidelines in this paragraph may be
exceeded when the Company's underwriters deem it appropriate.
Creditworthiness. Home equity loans/manufactured housing contracts.
Verification of personal financial information for each applicant is required.
The applicant's total monthly obligations (including principal and interest on
each mortgage, tax assessments, other loans, charge accounts and all scheduled
indebtedness) generally should not exceed 50% of a borrower's gross monthly
income. In the case of adjustable-rate home equity loans, the debt ratio
calculation is based upon the principal and interest payment amount utilizing
the maximum rate on the second change date. Generally, the borrowers are
required to have two years of employment with their current employer or two
years of like experience. Applicants who are salaried employees must provide
current employment information in addition to recent employment history. This
information is verified for salaried borrowers based on written confirmation
from employers, or a combination of a telephone confirmation from the employer
and the most recent pay stub and the most recent W-2 tax form. A self-employed
applicant is generally required to provide copies of complete federal income
tax returns filed for the most recent two years. Re-verification of the
foregoing information is generally not undertaken for home equity loans
purchased through the bulk purchase program of the Company.
7
<PAGE> 8
A credit report by an independent, nationally recognized credit reporting
agency reflecting the applicant's credit history is required. The credit report
should reflect all delinquencies of 30 days or more, repossessions, judgments,
foreclosures, garnishments, bankruptcies and similar instances of adverse
credit that can be discovered by a search of public records. Verification is
required to be obtained of the first mortgage balance, if any, its status and
whether local taxes, interest, insurance and assessments are included in the
applicant's monthly payment. All taxes and assessments not included in the
payment are required to be verified as current. A borrower's mortgage payment
history should generally reflect no more than three payments over 30 days
delinquent in the last twelve months; however, in some cases, a borrower is
permitted to have no more than five payments over 30 days delinquent in the
last twelve months and one payment over 60 days delinquent in the last twelve
months. Credit analysis is subjective and subject to interpretation in the
underwriting process.
Other requirements. The Company generally requires title insurance
coverage on each home equity loan or land and home manufactured housing
contract it originates.
The borrower is required to obtain property insurance in an amount
sufficient to cover, in the case of a first mortgage, the new loan and in the
case of a fixed-rate second mortgage, the new loan and any prior mortgage. If
the sum of an outstanding first mortgage, if any, and the fixed-rate home
equity loan exceeds the lesser of replacement or insurable value, insurance
equal to the lesser of replacement or insurable value may be accepted. The
Company requires that its name and address are properly added to the "mortgagee
clause" of the insurance policy. In the event the policy does not provide for
written notice of policy changes or cancellation, an endorsement adding such
provision is required. The borrower is required to obtain flood insurance to
the extent such insurance is available under the Flood Disaster Protection Act
of 1973, as amended.
After a loan is underwritten, approved and funded, the mortgage loan
packages are reviewed by home office loan review personnel. A random sample of
the mortgage loan packages are subsequently subjected to a quality control
audit.
Loan sales and securitizations. Substantially all of the home equity loans
and manufactured housing contracts originated or purchased by the Company are
sold. Since 1985, the Company has sold home equity loans originated by it in
the secondary market, initially in transactions with government-sponsored
mortgage agencies or conduits, later in private placement transactions with
financial institutions and, since the second quarter of 1993, through shelf
registration statements filed with the Securities and Exchange Commission by
subsidiaries of the Company. Approximately $5.2 billion of pass-through
certificates backed primarily by first mortgage home equity loans originated or
purchased by the Company through its distribution networks have been issued
under the registration statements and publicly sold since 1993. During 1996, a
subsidiary of the Company filed a shelf registration statement with the
Securities and Exchange Commission for the sale of manufactured housing
contract pass-through certificates. The registration statement was declared
effective in September of 1996 and the Company issued and publicly sold
approximately $164 million of such certificates during the third and fourth
quarters of 1996. The Company intends to continue to effect securitization
transactions on a quarterly basis, but the amount and timing of sales of
securities under the shelf registration statements will depend upon market and
other conditions affecting the operations of the Company.
The following table reflects certain information regarding home equity loan
production and sales during the indicated periods:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Home equity loan production . . . . . . . . . . . . $ 2,244,458 $ 1,541,537 $ 908,821
Home equity loan sales . . . . . . . . . . . . . . $ 2,245,406 $ 1,471,868 $ 977,653
Average coupon on loans sold . . . . . . . . . . . 11.20% 11.67% 11.80%
Interest spread retained on loans sold . . . . . . 4.80% 4.98% 4.49%
</TABLE>
The weighted average interest spread on loans sold (the difference between
the stated rate on the loan and the rate paid to purchasers, less certain
recurring fees) is determined without regard to expected credit losses.
Servicing rights are retained on substantially all loans sold.
8
<PAGE> 9
The Company's home equity loan securitization transactions are credit
enhanced and the certificates issued pursuant thereto have received ratings of
"Aaa" from Moody's Investors Service, Inc., "AAA" from Standard & Poor's, a
division of The McGraw-Hill Companies, Inc. and "AAA" from Fitch Investors
Service L.P. Credit enhancement is achieved in part through a guaranty
provided by a third party insurer and by subordinating an amount (the
"Subordinated Amount") of the excess interest spread retained by the Company to
the payment of scheduled principal and interest on the certificates should
there be a shortfall in collections from borrowers in the form of monthly
mortgage payments during any given period. If cumulative payment defaults
exceed the Subordinated Amount, the third party insurer is obligated to pay any
further losses experienced by the owners of the pass-through certificates. The
Company has, from time to time, used the Financial Guaranty Insurance Company
and MBIA Insurance Corporation as third party insurers. Credit enhancement for
one of the manufactured housing securitization transactions was achieved in
part through a guaranty provided by a third party insurer and by a
senior/subordinated structure for the other transaction. The certificates
issued pursuant to the manufactured housing securitizations have received
investment grade ratings by nationally recognized rating agencies.
Each pooling and servicing agreement that governs the distribution of cash
flows from the pooled loans requires the establishment of an account (the
"Reserve Account") that may require an initial deposit by the Company.
Thereafter, a portion of the excess interest is deposited in the Reserve
Account. There are no events that will require the aggregate deposits to the
Reserve Account to exceed the related Subordinated Amount. To the extent that
losses are incurred on the loans underlying the pass-through certificates
issued in a securitization transaction, such losses are paid out of the related
Reserve Account to the extent that funds are available.
The Company derives a significant portion of its income by realizing gains
upon the sale of home equity loans and manufactured housing contracts
(sometimes referred to collectively herein as "loans") due to the excess
servicing income of such loans. Excess servicing income represents the excess
of the interest rate payable by a borrower on a loan over the interest rate
passed through to the investor acquiring an interest in such loan, less the
Company's normal servicing fee and other applicable recurring fees. When loans
are sold, the Company recognizes as current income the present value of the
excess servicing income expected to be realized over the anticipated average
life of the loans sold less future estimated credit losses relating to the
loans sold. At December 31, 1996, the Company's balance sheet reflected
capitalized excess servicing income of approximately $426 million. The
Company's allowance for loan losses includes an allowance of approximately
$73.1 million for loans serviced. The capitalized excess servicing income is
computed using prepayment, default and interest rate assumptions that the
Company believes market participants would use for similar instruments at the
time of sale. The weighted average discount rate used to determine the present
value of the balance of capitalized excess servicing income on home equity
loans reflected on the Company's balance sheet at December 31, 1996, was
approximately 10%. The Company is not aware of an active market for this kind
of receivable. No assurance can be given that this receivable could in fact be
sold at its stated value on the balance sheet.
Capitalized excess servicing income is amortized over the lesser of the
estimated or actual remaining life of the underlying loans as an offset against
the excess servicing income component of servicing income actually received in
connection with such loans. Although management of the Company believes that it
has made reasonable estimates of the excess servicing income likely to be
realized, it should be recognized that the rate of prepayment and the amount of
defaults utilized by the Company are estimates and actual experience may vary
from these estimates. The Company periodically reviews its prepayment
assumptions in relation to current rates of prepayment and, if necessary,
writes down the remaining asset to the net present value of the estimated
remaining future excess servicing income. Rapid increases in interest rates or
competitive pressures may result in a reduction of excess servicing income,
thereby reducing the gains recognized by the Company upon the sale of loans in
the future.
The gain recognized by the Company upon the sale of loans will have been
overstated if the excess servicing income actually received by the Company is
less than originally assumed. An acceleration of future prepayments and/or
delinquencies could result in capitalized excess servicing income amortization
expense exceeding realized excess servicing income, thereby adversely affecting
the Company's servicing income. Conversely, if the rate of prepayment and/or
delinquencies is less than the amount assumed in determining loan sale gains,
servicing income will be positively affected in future periods.
9
<PAGE> 10
The ability of the Company to sell loans and/or mortgage-backed securities
in the secondary market, or an alternative source of funding loan production,
is essential for continuation of the Company's loan origination operations. A
prolonged, substantial reduction in the size of the secondary market for home
equity loans may adversely affect the Company's ability to sell its loan
originations and/or mortgage-backed securities in the secondary market with
consequent adverse impact on the Company's profitability and future
originations. Moreover, market and other considerations could affect the timing
of the Company's securitization transactions and delays in such sales could
reduce the amount of gains recognized from the sale of loans in a given
quarter.
Loan Servicing. The Company retains the servicing on substantially all
loans it originates. The following services are performed for investors to
whom the Company has sold loans and for which it has retained servicing:
investor reporting; collecting and remitting periodic principal and interest
payments to investors and performing other administrative services, including
maintaining required escrow accounts for payment of real estate taxes and
standard hazard insurance; determining the adequacy of standard hazard
insurance; advising investors of delinquent loans; conducting foreclosure
proceedings, and inspecting and reporting on the physical condition of the
mortgaged properties securing the mortgage loans; and disposing of foreclosed
properties. The Company is generally obligated to advance interest on
delinquent loans to the secondary market investors at the applicable
pass-through rate until satisfaction of the note, liquidation of the mortgaged
property or charge off of the loan. To the extent that the amount recovered
through liquidation of collateral is insufficient to cover the unpaid balance
of the loan, the Company incurs a loss until such losses aggregate the limit
specified in the related loan sale agreement. In connection with its servicing
activities, the Company sends to borrowers monthly statements that specify the
fixed payment amount and due date in the case of fixed-rate home equity loans
and the adjusted payment amount and due date in the case of adjustable-rate
home equity loans and the late payment amount, if any. With respect to
adjustable-rate home equity loans, the Company provides written notices to
borrowers of upcoming rate adjustments reflecting the adjusted payment amounts.
The Company, as master servicer, is required under each loan sale agreement
to service the mortgage loans or manufactured housing contracts, as the case
may be, either directly or through sub-servicers. Substantially all servicing
activities are centralized at the home office.
The contractual balances of loans owned and/or serviced, excluding real
estate owned and/or serviced, by the Company were as follows for the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Owned and serviced:
Home equity . . . . . . . . . . . . . . . . $ 4,040,138 $ 2,701,481 $ 1,683,698
Commercial . . . . . . . . . . . . . . . . - 251,241 274,413
Manufactured housing . . . . . . . . . . . 115,137 888 -
Other . . . . . . . . . . . . . . . . . . . 46,846 58,554 74,294
------------ ------------ ------------
Total . . . . . . . . . . . . . . . $ 4,202,121 $ 3,012,164 $ 2,032,405
============ ============ ============
</TABLE>
Under the terms of the sale of UCLIC, servicing of commercial real estate
loans owned by UCLIC and pass-through certificates owned by third parties and
UCLIC which are backed by commercial real estate loans originated by the
Company were transferred from the Company to UCLIC at the closing of the sale
in July, 1996.
At December 31, 1996, the Company's home equity portfolio of properties
acquired in foreclosure or for which deeds in lieu of foreclosure have been
accepted and held by the Company pending disposition represented approximately
$7.8 million (excluding the allowance for loan losses attributable to these
properties). This amount may include the first mortgage balance, delinquent
first mortgage payments and certain advances made on the property.
When the Company believes that borrowers with existing loans with the
Company are likely to refinance such loans due to interest rate changes, equity
build-up or other reasons, the Company actively attempts to retain such
borrowers through solicitations of such borrowers to refinance with the
Company. Such refinancings generate fee income and servicing income for the
Company.
10
<PAGE> 11
Delinquency and Loss Experience. The following two tables set forth
information relating to delinquency, default and loan loss experience for the
home equity loan portfolio serviced by the Company (including loans owned by
the Company) as of the dates and for the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Number of home equity loans . . . . . . . . . 88,491 69,723 52,289
Dollar amount of home equity loans . . . . . $ 4,040,138 $2,701,481 $1,683,698
Delinquency period(1)
30-59 days . . . . . . . . . . . . . . . . 3.39% 2.73% 2.13%
60-89 days . . . . . . . . . . . . . . . . 1.31% 0.61% 0.46%
90 days and over . . . . . . . . . . . . . 0.71% 0.28% 0.17%
Defaults
Foreclosures in process . . . . . . . . . . 3.36% 2.78% 3.01%
Bankruptcy . . . . . . . . . . . . . . . . 1.83% 1.75% 1.90%
</TABLE>
- ------------
(1) The dollar amount of delinquent home equity loans as a percentage of the
total "dollar amount of home equity loans" as of the date indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1996 1995 1994
--------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Average dollar amount of home equity loans
outstanding during period . . . . . . . . . . . $ 3,370,810 $ 2,192,590 $ 1,404,419
Net losses
Gross Losses(1) . . . . . . . . . . . . . . . . $ 19,484 $ 13,818 $ 12,745
Recoveries(2) . . . . . . . . . . . . . . . . . (2,371) (1,597) (1,051)
--------------- -------------- --------------
Net Losses(3) . . . . . . . . . . . . . . . . . $ 17,113 $ 12,221 $ 11,694
=============== ============== ==============
</TABLE>
(1) "Gross Losses" are amounts which have been determined to be uncollectible
relating to home equity loans for each respective period.
(2) "Recoveries" are recoveries from liquidation proceeds and deficiency
judgments.
(3) "Net Losses" means "Gross Losses" minus "Recoveries".
Delinquent manufactured housing contracts (which for purposes hereof
includes land and home contracts and chattel contracts) totaled $2.5 million,
or 1.47% of the manufactured housing contracts owned and/or serviced at
December 31, 1996.
The above delinquency, default and loan loss experience represents the
Company's recent experience. However, the delinquency, default and net loss
percentages may be affected by the increase in the size and relative lack of
seasoning of a substantial portion of the portfolio. In addition, the Company
can neither quantify the impact of property value declines, if any, on the home
equity loans nor predict whether, to what extent or how long, such declines may
exist. In a period of such declines, the rates of delinquencies, defaults and
losses on the home equity loans could be higher than those theretofore
experienced in the residential mortgage lending industry in general. Adverse
economic conditions (which may or may not affect real property values) may
affect the timely payment by borrowers of scheduled payments of principal and
interest on the home equity loans and, accordingly, the actual rates of
delinquencies, defaults and losses. As a result, the information in the above
tables should not be considered as a basis for assessing the likelihood, amount
or severity of delinquencies, defaults or losses in the future on home equity
loans and no assurance can be given that the delinquency, default and loss
experience presented in the tables will be indicative of such experience on
home equity loans.
11
<PAGE> 12
OTHER OPERATIONS
The Company has developed an office park which includes its home office
building and investment properties owned by the Company. The Company owns
three office buildings which have approximately 350,000 square feet of which
130,000 square feet were used by the Company and its subsidiaries at December
31, 1996. In addition, United Companies Realty and Development Co., Inc. ("UC
Realty"), a wholly owned subsidiary of the Company, is a general partner in the
ownership of a 100,000 square foot office building, also located in the office
park. All of the investment properties were approximately 100% leased at
December 31, 1996. UC Realty manages each of these properties as well as an
additional 58,000 square foot building in the park owned by a third party.
During 1996, UC Realty began construction of a 103,000 square foot office
building, also located in the office park, substantially all of which will be
used by the Company. The Company also operates a homeowners insurance agency
and engages in telecommunications business which provides telephone service to
the home office and tenants in the office park, neither of which are material
to its operations.
DISCONTINUED OPERATIONS
For a discussion of Discontinued Operations, see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Discontinued Operations and Note 11 to the Notes to Consolidated Financial
Statements.
GOVERNMENT REGULATION AND LEGISLATION
The Company's operations are subject to extensive regulation, supervision
and licensing by federal and state authorities. Regulated matters include,
without limitation, maximum interest rates and fees which may be charged by the
Company, disclosure in connection with loan originations, credit reporting
requirements, servicing requirements, federal and state taxation, and multiple
qualification and licensing requirements for doing business in various
jurisdictions. The Company believes that it maintains all requisite licenses,
permits and approvals which are material to its operations and is in compliance
in all material respects with applicable federal and state regulations.
The Company's loan origination activities are subject to the laws and
regulations in each of the states in which those activities are conducted. The
Company's activities as a lender are also subject to various federal laws
including the Truth-in-Lending Act, the Real Estate Settlement Procedures Act,
the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act and the Fair
Credit Reporting Act.
In the course of its business, the Company may acquire properties securing
loans that are in default. There is a risk that hazardous or toxic waste could
be found on such properties. In such event, the Company could be held
responsible for the cost of cleaning up or removing such waste, and such cost
could exceed the value of the underlying properties.
There are currently proposed various laws, rules and regulations which, if
adopted, could impact the Company. There can be no assurance that these
proposed laws, rules and regulations, or other such laws, rules or regulations,
will not be adopted in the future which could make compliance much more
difficult or expensive, restrict the Company's ability to originate, broker or
sell loans, further limit or restrict the amount of commissions, interest and
other charges earned on loans originated or sold by the Company, or otherwise
adversely affect the business or prospects of the Company.
COMPETITION
As a marketer of credit products, the Company faces intense competition.
Traditional competitors in the financial services business include other
mortgage banking companies, commercial banks, credit unions, thrift
institutions, credit card issuers and finance companies. Many of these
competitors in the financial services business are substantially larger and
have more capital and other resources than the Company. Competition can take
many forms including convenience in obtaining a loan, customer service,
marketing and distribution channels and interest rates. In addition, the
current level of gains realized by the Company and its existing competitors on
the sale of its and their non-conventional loans could
12
<PAGE> 13
attract additional competitors into this market with the possible effect of
lowering gains on future loan sales as the result of increased loan origination
competition.
ITEM 2. PROPERTIES
The Company's executive offices are located in its home office building in
Baton Rouge, Louisiana. The Company occupies all of its home office building
which has approximately 94,000 square feet. The executive offices of the
Company's mortgage lending subsidiaries are located at the Company's home
office building and adjacent investment property. At December 31, 1996, the
retail division of the Company's mortgage lending operations were conducted in
42 states from 4 locations owned by the Company in 4 cities and from 181
additional leased offices in 179 cities. The offices owned or leased range in
size from approximately 1,000 square feet to 3,650 square feet; leases expire
from 1997 to 2002, excluding renewal options. Operations of the Company's
manufactured housing lending subsidiary are based in Minneapolis, Minnesota in
leased offices totaling approximately 34,000 square feet. During 1996,
aggregate annual rental expense for leased office space was approximately $6.5
million. Management believes that the properties are adequately maintained and
insured, and satisfactorily meet the requirements of the business conducted
therein.
ITEM 3. LEGAL PROCEEDINGS
The nature of the Company's business is such that it is routinely involved
in litigation and is a party to or subject to other items of pending or
threatened litigation. Although the outcome of certain of these matters cannot
be predicted, management of the Company believes, based upon information
currently available, that the resolution of these various matters will not
result in any material adverse effect on its consolidated financial condition.
The remaining affairs of the Company's subsidiary, Foster Mortgage
Corporation ("FMC"), a discontinued operation, are now being concluded under
the supervision of a bankruptcy court. On December 21, 1993, the institutional
lenders under FMC's primary credit facility (the "FMC Institutional Lenders")
filed a petition in the U.S. bankruptcy court to cause the remaining affairs of
FMC to be concluded under the supervision of the bankruptcy court. The FMC
Institutional Lenders filed and the bankruptcy court approved a plan of
liquidation for FMC providing for the appointment of a trustee selected by the
FMC Institutional Lenders. The FMC Institutional Lenders allege that FMC has
certain claims against the Company, including a claim with respect to the
Company's alleged failure to remit all sums due FMC regarding federal income
taxes under a tax agreement among the Company and its subsidiaries, including
FMC, estimated by the FMC Institutional Lenders to range from $2 million to $29
million. FMC and the Company executed, subject to the approval of the
bankruptcy court, a settlement agreement relating to payments between FMC and
the Company in connection with the federal income tax benefits resulting from
FMC's losses and to certain prior intercompany payments between FMC and the
Company. The settlement agreement included a release by FMC in favor of the
Company of any and all claims relating to federal income taxes. The FMC
Institutional Lenders opposed the proposed settlement agreement. At the
conclusion of a hearing on the proposed settlement on August 18, 1994, the
bankruptcy court approved the portion of the settlement providing for a net
payment by the Company of $1.65 million to FMC in satisfaction of the federal
income tax benefits resulting from FMC's losses and the release of any claims
regarding federal income taxes. The bankruptcy court declined to approve the
other portion of the proposed settlement relating to payments received by the
Company from FMC within twelve months of the bankruptcy filing. If the Company
were required to refund such payments, the Company has estimated the potential
additional loss to be $1.9 million, net of tax benefits. The decision of the
bankruptcy court on the settlement was appealed by the FMC Institutional
Lenders to the U.S. District Court which affirmed the bankruptcy court's
decision. The FMC Institutional Lenders then appealed this decision to the U.S.
Fifth Circuit Court of Appeals. In a decision rendered on November 9, 1995,
the U.S. Fifth Circuit Court of Appeals reversed the district court, vacated
the settlement between FMC and the Company and remanded the matter back to the
district court for further proceedings. The trustee under the plan of
liquidation has filed an adversary proceeding in the bankruptcy proceedings
against the Company seeking avoidance of alleged preferential payments totaling
$3.72 million and has also instituted a suit in federal court against the
Company alleging claims under the tax agreement estimated by the trustee to
range from $2 million to $29 million. On November 22, 1996, the district court
referred the case to the bankruptcy court for adjudication. The bankruptcy
court has not yet scheduled the case for trial. Management of the Company does
not believe that any additional amounts are owed by the Company to FMC
13
<PAGE> 14
or the trustee and is vigorously contesting the claims which have been brought
against it for such amounts by the trustee. The Company did not guarantee any
debt of FMC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
Common Stock Prices and Dividends
On September 20, 1996, the Company's Common Stock began trading on the
New York Stock Exchange (the "NYSE") under the symbol "UC". Prior to that
date, the Company's Common Stock traded on the National Association of
Securities Dealers Automated Quotation System/National Stock Market ("the
Nasdaq Stock Market") under the symbol "UCFC". The following table sets forth
for the periods indicated the high and low sale prices of the Company's Common
Stock as reported on the NYSE subsequent to September 20, 1996 and on the
Nasdaq Stock Market prior to this date and the per share cash dividends
declared. All amounts have been adjusted for stock dividends.
<TABLE>
<CAPTION>
SALES PRICES
------------------------------ CASH
HIGH LOW DIVIDENDS
------------ ------------ -------------
<S> <C> <C> <C>
1996
First Quarter . . . . . . . . . . . . . . . . . $ 32.750 $ 22.25 $ .07
Second Quarter . . . . . . . . . . . . . . . . 36.750 28.00 .07
Third Quarter . . . . . . . . . . . . . . . . . 39.250 28.50 .07
Fourth Quarter . . . . . . . . . . . . . . . . 34.625 25.00 .08
-------------
Total . . . . . . . . . . . . . . . . . $ .29
=============
1995
First Quarter . . . . . . . . . . . . . . . . . $ 18.250 $ 11.375 $ . 05
Second Quarter . . . . . . . . . . . . . . . . 23.375 11.375 .05
Third Quarter(1) . . . . . . . . . . . . . . . 36.750 22.125 .05
Fourth Quarter . . . . . . . . . . . . . . . . 37.375 25.500 .05
-------------
Total . . . . . . . . . . . . . . . . . $ .20
=============
</TABLE>
__________
(1) On August 23, 1995, the Company announced a 100% Common Stock dividend
payable on October 20, 1995, to stockholders of record on October 9,
1995.
The Company has declared and paid regular quarterly cash dividends on
its Common Stock since 1974. While the Company intends to continue to pay
regular quarterly cash dividends on its Common Stock, its ability to do so will
be subject to its earnings, financial condition, capital and regulatory
requirements, credit facility restrictions and such other factors as the
Company's Board of Directors may consider relevant. (See Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources.)
Number of Common Equity Security Holders
APPROXIMATE NUMBER OF COMMON EQUITY SECURITY HOLDERS
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF SHAREHOLDERS
TITLE OF CLASS AS OF MARCH 5, 1997
-------------- -------------------
<S> <C>
Common Stock, $2.00 par value 3,082
</TABLE>
15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below are derived from the
Company's audited Consolidated Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (1)(2)
----------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues . . . . . . . . . . $ 356,874 $ 260,289 $ 182,538 $ 123,876 $ 84,814
Total expenses . . . . . . . . . . 223,017 157,624 107,544 83,450 68,014
----------- ----------- ----------- ----------- ----------
Income from continuing
operations before income
taxes . . . . . . . . . . . . . 133,857 102,665 74,994 40,426 16,800
Provision for income taxes . . . . 47,665 37,740 26,298 13,751 6,164
----------- ----------- ----------- ----------- ----------
Income from continuing
operations . . . . . . . . . . . 86,192 64,925 48,696 26,675 10,636
Income (loss) from
discontinued operations(1) . . . (4,532) 4,543 838 (15,100) (390)
------------ ----------- ----------- ----------- -----------
Net income . . . . . . . . $ 81,660 $ 69,468 $ 49,534 $ 11,575 $ 10,246
============ =========== =========== =========== ===========
PER SHARE DATA (4):
Primary:
Income from continuing
operations . . . . . . . . . . $ 2.69 $ 2.13 $ 1.71 $ 1.19 $ .54
Income (loss) from
discontinued operations . . . (.14) .15 .03 (.68) (.02)
------------ ----------- ----------- ----------- -----------
Net income . . . . . . . . $ 2.55 $ 2.28 $ 1.74 $ .51 $ .52
============ =========== =========== =========== ===========
Fully Diluted:
Income from continuing
operations . . . . . . . . . . $ 2.64 $ 2.10 $ 1.71 $ 1.13 $ .54
Income (loss) from
discontinued operations. . . . (.14) .15 .03 (.64) (.02)
------------ ----------- ----------- ----------- -----------
Net income . . . . . . . . $ 2.50 $ 2.25 $ 1.74 $ .49 $ .52
=========== =========== =========== =========== ==========
Weighted average shares
outstanding
Primary . . . . . . . . . . . . 31,994 30,501 28,490 22,208 19,834
Fully diluted . . . . . . . . . 32,676 30,903 28,490 23,706 19,834
Cash dividends . . . . . . . . . . $ .29 $ .20 $ .1818 $ .1546 $ .1364
Book value per
common share . . . . . . . . . . $ 11.73 $ 9.47 $ 7.38 $ 5.73 $ 4.85
Return on common equity
(continuing operations) . . . . . . 26.5% 26.2% 27.4% 21.1% 11.5%
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ----------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA -- YEAR END:
Temporary
investments -- reserve
accounts . . . . . . . . . . . $ 251,183 $ 155,254 $ 81,980 $ 27,672 $ 7,627
Loans . . . . . . . . . . . . . . 122,891 74,877 51,598 66,417 70,067
Capitalized excess servicing
income . . . . . . . . . . . . 426,393 280,985 174,031 105,907 60,678
Total assets . . . . . . . . . . 1,002,516 760,184 514,197 389,499 323,001
Notes payable . . . . . . . . . . 425,671 265,756 223,668 165,500 191,100
Total liabilities . . . . . . . . 582,239 407,710 312,112 236,132 226,744
Stockholders' equity . . . . . . 420,277 352,474 202,085 153,368 96,258
OTHER DATA:
Total loan production . . . . . . $ 2,361,378 $ 1,542,424 $ 908,821 $ 539,868 $ 301,234
Home equity loan production . . . 2,244,458 1,541,537 908,821 539,868 301,234
Average home equity loan
size . . . . . . . . . . . . . 56 49 41 39 28
Home equity loans
serviced -- year end(3) . . . 4,040,138 2,701,481 1,683,698 1,125,139 819,448
Total loans serviced --
year end(3) . . . . . . . . . 4,202,121 3,012,164 2,032,405 1,568,781 1,367,822
Average coupon on home equity
loans produced . . . . . . . . 11.2% 11.6% 11.7% 11.8% 13.4%
Loan origination fees as % of
home equity loans . . . . . . 3.7% 4.4% 5.9% 7.0% 7.9%
Weighted average interest
spread retained on home
equity loans sold . . . . . . 4.80% 4.98% 4.49% 6.06% 4.56%
- ----------
</TABLE>
(1) On July 24, 1996, the Company sold 100% of the capital stock of its
wholly-owned life insurance subsidiary, United Companies Life
Insurance Company ("UCLIC") and on February 29, 1996, the Company sold
100% of the capital stock of its wholly-owned title insurance
subsidiary, United General Title Insurance Company ("UGTIC").
Previously, on May 7, 1993, the Company announced its decision to
dispose of the net assets and operations of Foster Mortgage
Corporation ("FMC"), a wholly-owned subsidiary of the Company. The
operations of UCLIC, UGTIC and FMC have been reclassified as
discontinued operations and the prior years' financial statements of
the Company included herewith have been restated accordingly.
(2) During the third quarter of 1995, the Company implemented, on a
prospective basis, the provisions of FASB Statement of Financial
Accounting Standards No. 122 ("SFAS No. 122") which revised the method
of accounting for mortgage servicing rights on loans originated by the
Company. SFAS No. 122 requires that a mortgage banking enterprise
recognize as separate assets rights to service mortgage loans for
others that have been acquired through either the purchase or
origination of such loans. Prior to the adoption of SFAS No. 122, the
Company recognized late charges and other ancillary income when
collected and charged costs to service mortgage loans when incurred.
(3) Excludes real estate owned and/or serviced.
(4) All share and per share data have been adjusted to reflect stock
dividends.
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis should be read in conjunction with the
Company's Consolidated Financial Statements and accompanying Notes presented
elsewhere herein and identifies the major factors which influenced the results
of operations of the Company during the indicated periods.
The Company's lending operations primarily consist of the production
(by origination or purchase), sale and servicing of first mortgage,
non-conventional, home equity loans. In the fourth quarter of 1995, the Company
expanded its lending operations to include additional manufactured housing loan
products. Fundamental to the profitability and funding of the Company's lending
operations is the sale of loans with servicing rights retained. The majority of
the Company's revenue is derived from the gain recognized on the sale of loans
and the recognition of net loan fees at the time of sale of the loans. Net loan
fees on loans owned by the Company are recognized over the lives of the loans
as an adjustment to yield using the interest method.
The Company sells substantially all of its loan production in public
securitization transactions through shelf registration statements of its
subsidiaries. During 1996, 1995 and 1994, the Company sold publicly $2.2
billion, $1.5 billion and $973 million, respectively, of pass-through
certificates backed by its home equity loans and, during 1996, $164 million of
pass-through certificates backed by its manufactured housing contracts.
The Company's lending operations are interest rate sensitive and,
therefore, fluctuations in and the level of interest rates can have a variety
of effects on the Company's profitability. In particular, significant changes
in interest rates may impact the volume of loans produced, and will influence
the funding costs of such production and the amount of gain recognized on loans
sold in the secondary market. During periods of declining interest rates the
lending operations will generally experience an increase in profitability as
the interest spread should widen both on loans held by the Company as an
investment and on loans sold in the secondary market.
The weighted average interest spread on home equity loans sold to
third parties (the difference between the stated rate on the loan and the rate
paid to purchasers, less recurring fees) was 4.80%, 4.98% and 4.49% in 1996,
1995 and 1994, respectively. The weighted average interest spread on loans
sold is determined without regard to credit losses, which are provided for
separately by the Company.
Although historically a lower interest rate environment has not
resulted in a significant increase in the level of prepayment of loans
originated and serviced by the Company, a significant and sustained reduction
in interest rates could cause prepayments to increase, and thereby result in a
contraction of the amount of loans owned and serviced and an accelerated
amortization of capitalized excess servicing income. Increased prepayments
reduce the time period during which the Company receives excess servicing
income and other servicing income with respect to prepaid loans. Increased
amortization of capitalized excess servicing income is a current charge to
earnings. Likewise, if delinquencies or liquidations were to occur sooner in
the portfolio of loans sold by the Company and/or with greater frequency than
was initially assumed, capitalized excess servicing income amortization would
occur more quickly than originally anticipated, which would have an adverse
effect on servicing income in the period of such adjustment. In contrast, an
increase in the level of interest rates for an extended period of time could
adversely affect the ability of the Company to originate loans, as well as the
profitability of the loan origination program, by increasing the cost of
funding and reducing the interest spread on loans retained and loans sold. If
actual prepayments with respect to loans sold occur more slowly than estimated
at the time of sale, total income would exceed previously estimated amounts;
however, no adjustments would be made to capitalized excess servicing income on
the Company's consolidated balance sheet as such income would be recognized
prospectively. (For further discussion of loan sale gains and capitalized
excess servicing income see Note 1.2 to Notes to the Consolidated Financial
Statements.)
DISCONTINUED OPERATIONS
United Companies Life Insurance Company
On February 2, 1996, the Company signed an agreement to sell all of
the outstanding capital stock of its wholly-
18
<PAGE> 19
owned life insurance subsidiary, United Companies Life Insurance Company
("UCLIC"), subject to approval by the Company's shareholders, regulatory
authorities and the satisfaction of certain other conditions. In June, 1996,
the Company's shareholders approved the sale, and in July, 1996, regulatory
approval was obtained and the remaining conditions to closing the transaction
were satisfied. The sale was concluded on July 24, 1996. The sales price of
$167.6 million was comprised of approximately $110 million in cash (including a
$10 million cash dividend paid by UCLIC immediately prior to the closing) and
UCLIC real estate and other assets which were distributed to the Company prior
to the closing. The real estate distributed includes portions of the United
Plaza office park, including the Company's home office. In addition, the
Company purchased a convertible promissory note from PennCorp Financial Group,
Inc. ("PennCorp"), the parent of the purchaser, for $15 million in cash and
converted the note into 483,839 shares of the common stock of PennCorp. The
Company recorded a net loss of $6.8 million on the transaction. As a result of
the sale, the assets (including $67 million of assets transferred to the
Company by UCLIC immediately prior to closing) and the operations of UCLIC have
been classified as discontinued operations.
Subsequent to the closing, the Company received notification from the
purchaser alleging that it is entitled to a $2.2 million reduction in the sales
price. The Company denies that the purchaser is entitled to any reduction. In
addition, at December 31, 1996, the Company had not received payment of a $2.5
million intercompany receivable due from UCLIC at the date of sale.
United General Title Insurance Company.
On April 10, 1995, the Company made a decision to dispose of its
investment in United General Title Insurance Company ("UGTIC"), a wholly owned
subsidiary of the Company, and, on May 1, 1995, approved a formal plan of
disposal. The decision to dispose of UGTIC was independent of the consummation
of the sale thereof pursuant to the definitive stock sale agreement signed on
August 11, 1995. As a result, the operations of UGTIC have been classified as
discontinued operations, and, accordingly, the consolidated financial
statements and the related notes of the Company segregate continuing and
discontinued operations. The sale was concluded on February 29, 1996.
The definitive stock sale agreement provided for the sale of 100% of
the stock of UGTIC and contains a provision making the Company liable to UGTIC
for claims from defalcations and fraud losses incurred by UGTIC which are
unknown and occur prior to closing and are discovered within 24 months
thereafter. The Company is also liable, up to $4.2 million, for policy claims
paid over a ten year period after closing that exceed certain specified levels.
The Company recorded a loss from discontinued operations (net of income tax
benefit) of $3.5 million in 1995 and $1.1 million in 1996 in connection with
the sale of UGTIC.
Foster Mortgage Corporation
On May 7, 1993, the Company decided to divest its subsidiary Foster
Mortgage Corporation ("FMC"). As of November 30, 1993, the servicing rights
owned by FMC, which constituted substantially all of its assets, were sold. On
December 21, 1993, the institutional lenders under FMC's primary credit
facility (the "FMC Institutional Lenders") filed a petition in the U.S.
bankruptcy court to cause the remaining affairs of FMC to be concluded under
the supervision of the bankruptcy court. The FMC Institutional Lenders filed
and the bankruptcy court approved a plan of liquidation for FMC providing for
the appointment of a trustee selected by the FMC Institutional Lenders. The FMC
Institutional Lenders allege that FMC has certain claims against the Company,
including a claim with respect to the Company's alleged failure to remit all
sums due FMC regarding federal income taxes under a tax agreement among the
Company and its subsidiaries, including FMC, estimated by the FMC Institutional
Lenders to range from $2.1 million to $29 million. FMC and the Company
executed, subject to the approval of the bankruptcy court, a settlement
agreement relating to payments between FMC and the Company in connection with
the federal income tax benefits resulting from FMC's losses and to certain
prior intercompany payments between FMC and the Company. The settlement
agreement included a release by FMC in favor of the Company of any and all
claims relating to federal income taxes. The FMC Institutional Lenders opposed
the proposed settlement agreement. At the conclusion of a hearing on the
proposed settlement on August 18, 1994, the bankruptcy court approved the
portion of the settlement providing for a net payment by the Company of $1.65
million to FMC in satisfaction of the federal income tax benefits resulting
from FMC's losses and the release of any claims regarding federal income taxes.
The bankruptcy court declined to approve the other portion
19
<PAGE> 20
of the proposed settlement relating to payments received by the Company from
FMC within twelve months of the bankruptcy filing. If the Company were required
to refund such payments, the Company has estimated the potential additional
loss to be $1.9 million, net of tax benefits. The decision of the bankruptcy
court on the settlement was appealed by the FMC Institutional Lenders to the
U.S. District Court which affirmed the bankruptcy court's decision. The FMC
Institutional Lenders then appealed this decision to the U.S. Fifth Circuit
Court of Appeals. In a decision rendered on November 9, 1995, the U.S. Fifth
Circuit Court of Appeals reversed the district court, vacated the settlement
between FMC and the Company and remanded the matter back to the district court
for further proceedings. The trustee under the plan of liquidation has filed an
adversary proceeding in the bankruptcy proceedings against the Company seeking
avoidance of alleged preferential payments totaling $3.72 million and has also
instituted a suit in federal court against the Company alleging claims under
the tax agreement estimated to range from $2 million to $29 million. On
November 22, 1996, the district court referred the case to the bankruptcy court
for adjudication. The bankruptcy court has not yet scheduled the case for
trial. Management of the Company does not believe that any additional amounts
are owed by the Company to FMC or the trustee and is vigorously contesting the
claims which have been brought against it for such amounts by the trustee under
the plan of liquidation. The Company did not guarantee any debt of FMC.
1996, 1995 AND 1994 RESULTS OF OPERATIONS
Net income for 1996 was $81.7 million ($2.50 per share based on 32.7
million weighted average shares outstanding) compared to $69.5 million for 1995
($2.25 per share based on 30.9 million weighted average shares outstanding) and
$49.5 million for 1994 ($1.74 per share based on 28.5 million weighted average
shares outstanding). The increase in net income in 1996 resulted primarily
from an increase in the amount of loans sold and the gain and fees recognized
in connection therewith. Net income for 1996 was reduced by losses of $4.5
million recognized in connection with the Company's decisions to divest its
insurance subsidiaries, United Companies Life Insurance Company and United
General Title Insurance Company. Net income for 1995 and 1994 was increased by
$4.5 million and $.8 million, respectively, as the result of net income earned
by these subsidiaries.
Revenues. The following table sets forth information regarding the
components of the Company's revenues for the years ended December 31, 1996,
1995 and 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------- -------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Loan sale gains . . . . . . . . . . . . . . . . . . .$ 199,030 $ 142,156 $ 86,735
Finance income, fees earned and other loan income . . 139,622 105,398 89,172
Investment income . . . . . . . . . . . . . . . . . . 13,156 7,403 2,963
Other . . . . . . . . . . . . . . . . . . . . . . . . 5,066 5,332 3,668
------------- -------------- ------------
Total . . . . . . . . . . . . . . . . . . .$ 356,874 $ 260,289 $ 182,538
============= ============== ============
</TABLE>
Loan sale gains approximate the present value for the estimated lives
of the loans (which includes for purposes hereof manufactured housing
contracts) of the excess of the contractual rates on the loans sold over the
sum of the pass-through rate paid to the buyer, a normal servicing fee, a
trustee fee, a surety bond fee, if any, in securitization transactions. Loan
sale gains for 1996, 1995 and 1994 was reduced by $47.6 million, $27.9 million
and $19.3 million, respectively, to provide for estimated future losses on
loans sold. The increase in the amount of loan sale gains was due primarily to
a $774 million and a $494 million increase in the amount of home equity loans
sold during 1996 and 1995, respectively, which increase was partially offset by
a decrease in the interest spread retained by the Company and an increase in
the constant prepayment rate used in the computation of loan sale gains in
1996. Loan sale gains in 1996 was increased by $12.0 million as the result of
the securitization and public sale of approximately $164 million in
manufactured housing contracts. Loan sale gains are reduced by estimated
future credit losses on loans sold, transaction expenses and loan acquisition
premiums. In addition, as further discussed in Note 1.2(c), during the third
quarter of 1995, the Company implemented a new accounting pronouncement which
required the capitalization of mortgage servicing rights on loans originated or
purchased by the Company. Loan sale gains in 1996 includes the capitalization
of mortgage servicing rights in the amount of $20.9 million compared to $6.0
million in 1995.
20
<PAGE> 21
The Company from time to time enters into interest rate hedge
mechanisms to manage its exposure to interest rate changes in connection with
the securitization and sale of its loans. The Company closes out the hedge
position to coincide with the related loan sale and recognizes the results of
the hedge transaction in determining the amount of the related loan sale gain.
Loan sale gains were increased in 1996 by approximately $.8 million and reduced
by approximately $5.5 million in 1995 as the result of hedge transactions.
There were no open hedge positions at December 31, 1996 or 1995.
The following table presents information regarding loan sale
transactions for the periods indicated.
<TABLE>
<CAPTION>
HOME EQUITY LOANS MANUFACTURED HOUSING CONTRACTS
------------------------------------- --------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------------- --------------------------------
1996 1995 1994 1996 1995 1994
----------- ---------- ------- ------------ ------- -------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans sold . . . . . . $ 2,245,406 $1,471,868 $ 977,653 $ 163,999 $ - $ -
Average coupon . . . . 11.20% 11.67% 11.80% 11.20% - -
Interest spread
retained . . . . . 4.80% 4.98% 4.49% 3.55% - -
Loan sale gains . . . . $ 187,029 $ 142,156 $ 86,735 $ 12,001 $ - $ -
</TABLE>
Fluctuations in and the level of market interest rates will impact the
interest spread retained by the Company on loans sold (which includes for
purposes hereof manufactured housing contracts) and, potentially, the amount of
its loan sale gains. An increase in the level of market interest rates will
generally adversely affect the interest spread on loans sold, whereas such
interest spread generally widens during a declining interest rate environment.
The effect of actions which may be taken by the Company during a rising
interest rate environment to mitigate the impact on earnings of fluctuations in
market rates, such as increasing the coupon rate charged on its loan products,
will generally lag the impact of market rate fluctuations. In connection with
loan securitization transactions, the Company has used a prefunding feature
which "locks in" the pass-through rate that the Company will pay to the
investor on a predetermined amount of loans for future delivery. The Company is
obligated for the difference between the earnings on the prefunded amount and
the pass-through interest paid to the investor during the period from the date
of the closing of the securitization transaction until the date of delivery of
the loans. In connection with the securitization transactions which closed in
the fourth quarter of 1996, approximately $16.3 million was held in a
prefunding account for purchase of the Company's loans and contracts during the
first quarter of 1997. Such loans and contracts were delivered in February,
1997.
Finance income, fees earned and other loan income was comprised of the
following items for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Servicing fees earned . . . . . . . . . . . . $ 135,599 $ 89,410 $ 62,807
Loan origination fees . . . . . . . . . . . . 84,608 68,442 56,576
Loan interest . . . . . . . . . . . . . . . . 21,482 9,238 685
Other loan income . . . . . . . . . . . . . . 10,032 8,576 7,347
Amortization . . . . . . . . . . . . . . . . (112,099) (70,268) (38,243)
------------ ------------ ------------
Total . . . . . . . . . . . . . . . $ 139,622 $ 105,398 $ 89,172
============ ============ ============
</TABLE>
The increase in servicing fees earned reflects the growth in the
portfolio of loans serviced for third parties. The average portfolio of loans
serviced for third party investors was $3.4 billion, $2.5 billion and $1.8
billion for 1996, 1995 and 1994, respectively.
Loan origination fees in excess of direct origination costs on each
loan held by the Company are recognized over the life of the loan or earlier at
the time of sale of the loan to a third party. During 1996, 1995 and 1994, the
21
<PAGE> 22
Company sold approximately $2.2 billion, $1.5 billion and $978 million,
respectively, in home equity loans and recognized approximately $44.1 million,
$36.0 million and $32.5 million, respectively, in net loan origination fees
(which relate primarily to fixed rate retail production) in connection with
these sales.
The Company estimates that nonaccrual loans reduced loan interest for
1996, 1995 and 1994 by approximately $21.7 million, $13.3 million and $10.3
million; respectively. The Company is generally obligated to advance interest
on delinquent loans serviced for third party investors until satisfaction of
the note, liquidation of the collateral or charge off of the delinquent loan.
During 1996, the average amount of non accrual loans owned and/or serviced by
the Company was $166 million compared to approximately $105 million and $81
million in 1995 and 1994, respectively.
Other loan income primarily includes insurance commissions and
ancillary loan income.
Investment income totaled $13.2 million for 1996 compared to
investment income of $7.4 million and $3.0 million during 1995 and 1994,
respectively. Investment income is primarily related to interest earned on
temporary investments reserve accounts. Investment income in 1996 also
includes approximately $2.4 million in unrealized gain on investments
classified as trading securities.
Other income relates to income earned by the Company's
telecommunications business and property management with respect to its office
park and overhead reimbursement from discontinued operations prior to their
disposition.
Expenses. The following table presents the components of the Company's
expenses for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Personnel . . . . . . . . . . . . . . . . . $ 96,313 $ 70,762 $ 52,421
Interest . . . . . . . . . . . . . . . . . 38,626 25,559 13,362
Loan loss provision . . . . . . . . . . . . 14,049 11,973 8,398
Other operating . . . . . . . . . . . . . . 74,029 49,330 33,363
------------- ----------- -----------
Total . . . . . . . . . . . . . . $ 223,017 $ 157,624 $ 107,544
============= =========== ===========
</TABLE>
The increase in personnel costs are primarily associated with the
expansion of the Company's lending operations. Approximately 23% of the
increase in personnel costs in 1996 compared to 1995 is related to the startup
of the Company's manufactured housing lending operations. The remaining
increase is primarily related to expansion of the Company's other lending
distribution networks and incentive compensation related to an increase in home
equity loan production.
The Company's loan sale agreements generally provide for the
subordination of cash and excess interest spread relating to the loans sold.
Such subordination relates to credit losses which may occur after the sale of
the loans and continues until the earlier of the payment in full of the loans
or the termination of the agreement pursuant to which the loans were sold.
Regardless of the structure of the loan sale transaction, the Company estimates
the amount of future losses under the loan sale agreements and provides a
reserve for such loss by reducing the amount of loan sale gain recognized. For
estimated losses on the Company's owned portfolio, the Company establishes an
allowance for loan losses through a charge to earnings. The increase in the
loan loss provision is primarily related to an increase in the amount of charge
offs in the portfolio of home equity loans owned and/or serviced. During 1996,
1995 and 1994, the Company charged off $19.5 million, $13.8 million and $12.7
million in home equity loans, respectively.
Interest expense for 1996 increased approximately $13.1 million
compared to 1995 principally due to an increase in the average amount of debt
outstanding, primarily warehouse financing. Interest expense for 1995
increased approximately $12.2 million compared to 1994 primarily as a result of
an increase in the weighted average interest rate and an increase in the
average amount of debt outstanding.
22
<PAGE> 23
Other operating expenses increased approximately $24.7 million and
$16.0 million during 1996 and 1995, respectively, primarily as the result of
costs associated with the expansion of the Company's lending operations.
During 1996, 1995 and 1994, advertising expense totaled $12.9 million, $9.0
million and $3.1 million and occupancy and equipment expenses were $15.6
million, $10.9 million and $8.0 million, respectively.
ASSET QUALITY AND RESERVES
The quality of the loans owned and those serviced for third parties
significantly affects the profitability of the Company. The values of and
markets for these assets are dependent on a number of factors, including
general economic conditions, interest rates and governmental regulations.
Adverse changes in such factors, which become more pronounced in periods of
economic decline, may affect the quality of these assets and the Company's
resulting ability to sell these assets for acceptable prices. General economic
deterioration can result in increased delinquencies on existing loans and
reductions in collateral values.
Substantially all of the home equity loans and manufactured housing
contracts produced by the Company are sold in securitization transactions in
which securities backed by these loans and contracts ("pass-through
certificates") are publicly offered and sold, with servicing rights retained.
The purchasers of the pass-through certificates receive a credit enhanced
security which is provided in part in home equity loan securitizations through
a guaranty provided by a third party insurer or, in connection with the initial
manufactured housing contract securitization, through a senior/subordinated
structure. Credit enhancement for the pass-through certificates is also
provided by subordinating a cash deposit and the excess interest spread
retained by the Company to the payment of scheduled principal and interest on
the certificates. The subordination of the cash deposit and the excess
interest spread retained by the Company relates to credit losses which may
occur after the sale of the loans and contracts and generally continues until
the earlier of the payment in full of the loans or termination of the agreement
pursuant to which the loans and contracts were sold. If cumulative payment
defaults exceed the amount subordinated, a third party insurer, except in the
initial manufactured housing securitization, is obligated to pay any further
losses experienced by the owners of the pass- through certificates. Such
losses are borne first by the subordinated pass-through certificates in the
Company's initial manufactured housing contract securitization.
The Company is also obligated to cure, repurchase or replace loans and
contracts which may be determined after the sale to violate representations and
warranties relating to them and which are made by the Company at the time of
the sale. The Company regularly evaluates the quality of the loan portfolio
and estimates its risk of loss based upon historical loss experience,
prevailing economic conditions, estimated collateral value and such other
factors which, in management's judgment, are relevant in estimating the credit
risk in owned and/or serviced loans. For loans and contracts sold, the Company
records a provision for the estimated amount of credit losses at the time of
sale, and records such amount on its balance sheet in the allowance for loan
losses. Estimated losses on the owned portfolio are also provided for by an
increase in the allowance for loan losses through a charge to current operating
income. At December 31, 1996, the allowance for loan losses was $77.2 million.
The maximum recourse associated with sales of home equity loans and
manufactured housing contracts according to terms of the sale agreements
totaled approximately $854 million at December 31, 1996, of which amount
approximately $842 million relates to the subordinated cash and excess interest
spread. Should credit losses on loans and contracts sold materially exceed the
Company's estimates for such losses, such consequence will have a material
adverse impact on the Company's operations.
At December 31, 1996, the contractual balance of home equity loans
serviced was approximately $4.0 billion, substantially all of which are owned
by and serviced for third party investors. The portfolio is geographically
diversified. Although the Company services loans in 50 states, at December 31,
1996 a substantial portion of the home equity loans serviced were originated in
California (9.6%), Ohio (7.8%), Louisiana (7.8%) and Florida (7.6%),
respectively, and no other state accounted for more than 7% of the serviced
portfolio. In addition, at December 31, 1996, the Company serviced
approximately $115 million of manufactured housing contracts, 46% of which were
originated in Texas, 13% in South Carolina and 11% of which were originated in
each of the states of Georgia and North Carolina. The risk inherent in
geographic concentrations is dependent not only upon regional and general
economic stability which affects property values, but also the financial
well-being and creditworthiness of the borrower.
23
<PAGE> 24
The following table provides certain contractual delinquency and
default information for home equity loans serviced as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------- --------------------------- ----------------------------
% OF % OF % OF
CONTRACTUAL CONTRACTUAL CONTRACTUAL CONTRACTUAL CONTRACTUAL CONTRACTUAL
BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
----------- ----------- ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Home equity loans
serviced . . . . $ 4,040,138 $ 2,701,481 $ 1,683,698
=========== ============ ============
Delinquency
- -----------
30-59 days . . . $ 136,976 3.39% $ 73,723 2.73% $ 35,844 2.13%
60-89 days . . . 53,124 1.31 16,471 0.61 7,745 0.46
90+ days . . . . 28,663 0.71 7,562 0.28 2,818 0.17
----------- ----------- ------------ ------------ ------------ ------------
218,763 5.41 97,756 3.62 46,407 2.76
----------- ----------- ------------ ------------ ------------ ------------
Defaults
- --------
Foreclosures in
process . . . 135,779 3.36 75,104 2.78 50,738 3.01
Bankruptcy . . . 73,887 1.83 47,285 1.75 32,058 1.90
----------- ----------- ------------ ------------ ------------ ------------
209,666 5.19 122,389 4.53 82,796 4.91
----------- ----------- ------------ ------------ ------------ ------------
$ 428,429 10.60% $ 220,145 8.15% $ 129,203 7.67%
=========== =========== ============ ============ ============ ============
</TABLE>
The contractual balances exclude home equity real estate owned and/or
serviced which totaled $53.7 million, $30.1 million and $20.6 million at
December 31, 1996, 1995 and 1994, respectively. The charge off rate on the
average home equity loan portfolio for 1996, 1995 and 1994 was .51%, .56% and
.84%, respectively.
In connection with the sale of UCLIC discussed in Note 11 to the Notes
to Consolidated Financial Statements, the servicing of substantially all of the
commercial real estate mortgage loans was transferred to UCLIC. The table
above excludes these loans which, prior to this transfer of servicing, were
serviced without recourse.
The following table provides certain contractual delinquency and
default data with respect to the Company's home equity loans serviced, by year
of loan origination, as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------------------------------------
DEFAULTS
DELINQUENCY ----------------------------- TOTAL
CONTRACTUAL ---------------------------------- FORECLOSURES BANK- DELINQUENCY
YEAR OF ORIGINATION BALANCE 30-59 60-89 90+ TOTAL IN PROCESS RUPTCY TOTAL & DEFAULTS
- ------------------- ----------- ----- ----- ----- ----- ---------- ------ ----- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990 & prior . . . $ 75,252 5.12% 1.20% 1.22% 7.54% 5.97% 4.85% 10.82% 18.36%
1991 . . . . . . . 38,114 5.26% 0.97% 0.83% 7.06% 5.45% 6.59% 12.04% 19.10%
1992 . . . . . . . 63,842 4.74% 1.74% 1.97% 8.45% 5.87% 5.40% 11.27% 19.72%
1993 . . . . . . . 199,037 4.39% 1.28% 1.07% 6.74% 4.94% 5.05% 9.99% 16.73%
1994 . . . . . . . 451,224 5.15% 1.58% 0.92% 7.65% 4.70% 6.37% 11.07% 18.72%
1995 . . . . . . . 1,069,818 4.75% 2.12% 1.17% 8.04% 2.64% 6.26% 8.90% 16.94%
1996 . . . . . . . 2,142,851 2.11% 0.86% 0.35% 3.32% 0.20% 0.95% 1.15% 4.47%
-----------
Total . . . . . $ 4,040,138 3.39% 1.31% 0.71% 5.41% 3.36% 1.83% 5.19% 10.60%
===========
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------------------------------------------
DEFAULTS
DELINQUENCY ----------------------------- TOTAL
CONTRACTUAL ---------------------------------- FORECLOSURES BANK- DELINQUENCY
YEAR OF ORIGINATION BALANCE 30-59 60-89 90+ TOTAL IN PROCESS RUPTCY TOTAL & DEFAULTS
- ------------------- ----------- ----- ----- ----- ----- ---------- ------ ----- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 & prior . . . $ 68,275 3.39% 0.95% 0.34% 4.68% 5.51% 4.83% 10.34% 15.02%
1990 . . . . . . . 44,862 3.76% 0.47% 0.19% 4.42% 5.46% 5.56% 11.02% 15.44%
1991 . . . . . . . 57,815 4.22% 0.74% 0.36% 5.32% 5.35% 5.84% 11.19% 16.51%
1992 . . . . . . . 98,473 3.81% 0.90% 0.89% 5.60% 5.96% 6.22% 12.18% 17.78%
1993 . . . . . . . 298,882 3.72% 0.58% 0.39% 4.69% 3.63% 4.55% 8.18% 12.87%
1994 . . . . . . . 668,797 4.03% 0.90% 0.40% 5.33% 2.29% 4.45% 6.74% 12.07%
1995 . . . . . . . 1,464,377 1.74% 0.45% 0.16% 2.35% 0.41% 1.12% 1.53% 3.88%
------------
Total . . . . . $ 2,701,481 2.73% 0.61% 0.28% 3.62% 2.78% 1.75% 4.53% 8.15%
============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------------------------------------------------------
DEFAULTS
DELINQUENCY ----------------------------- TOTAL
CONTRACTUAL ---------------------------------- FORECLOSURES BANK- DELINQUENCY
YEAR OF ORIGINATION BALANCE 30-59 60-89 90+ TOTAL IN PROCESS RUPTCY TOTAL & DEFAULTS
- ------------------- ----------- ----- ----- ----- ----- ---------- ------ ----- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 & prior . . . $ 64,458 2.34% 0.83% 0.55% 3.72% 6.07% 4.11% 10.18% 13.90%
1989 . . . . . . . 33,938 3.11% 0.54% 0.47% 4.12% 4.96% 6.67% 11.63% 15.75%
1990 . . . . . . . 64,682 3.16% 0.49% 0.47% 4.12% 5.83% 6.37% 12.20% 16.32%
1991 . . . . . . . 85,793 3.14% 0.77% 0.48% 4.39% 5.31% 6.36% 11.67% 16.06%
1992 . . . . . . . 146,178 3.41% 0.54% 0.40% 4.35% 5.58% 6.20% 11.78% 16.13%
1993 . . . . . . . 422,453 2.97% 0.66% 0.19% 3.82% 1.82% 3.96% 5.78% 9.60%
1994 . . . . . . . 866,196 1.27% 0.28% 0.02% 1.57% 0.27% 1.21% 1.48% 3.05%
------------
Total . . . . . $ 1,683,698 2.13% 0.46% 0.17% 2.76% 3.01% 1.90% 4.91% 7.67%
============
</TABLE>
The above delinquency, default and loan loss experience represents the
Company's recent experience. However, the delinquency, default and net loss
percentages may be affected by the increase in the size and relative lack of
seasoning of a substantial portion of the portfolio. In addition, the Company
can neither quantify the impact of property value declines, if any, on the home
equity loans and manufactured housing contracts nor predict whether or to what
extent or how long such declines may exist. In a period of such declines, the
rates of delinquencies, defaults and losses on the home equity loans and
manufactured housing contracts could be higher than those theretofore
experienced in the residential mortgage lending industry in general. Adverse
economic conditions (which may or may not affect real property values) may
affect the timely payment by borrowers of scheduled payments of principal and
interest on the home equity loans and manufactured housing contracts and,
accordingly, the actual rates of delinquencies, defaults and losses. As a
result, the information in the above tables should not be considered as the
only basis for assessing the likelihood, amount or severity of delinquencies,
defaults or losses in the future and no assurance can be given that the
delinquency, default and loss experience presented in the tables will be
indicative of such experience.
LIQUIDITY AND CAPITAL RESOURCES
The principal cash requirements of the Company's lending operations arise
from loan originations, deposits to reserve accounts, repayments of
inter-company debt borrowed under the Company's senior notes and short-term
borrowings, payments of operating and interest expenses, and income taxes
related to loan sale transactions. Loan production is funded principally
through proceeds of warehouse facilities pending loan sales. At December 31,
1996, the Company had three secured warehouse facilities available for its home
equity loan product: (i) a
25
<PAGE> 26
warehouse facility provided by a syndicate of commercial banks (the "Commercial
Bank Warehouse"), (ii) a warehouse facility provided by the investment bank
which acted as lead underwriter for the Company's fourth quarter home equity
loan securitization (the "Investment Bank Warehouse"), and (iii) a warehouse
facility provided by UCLIC (the "UCLIC Warehouse"). In June, 1996, the
Commercial Bank Warehouse was increased from $150 million to $350 million and
the lenders' commitment was extended from May, 1997 to May, 1998. As of
December 31, 1996, $7.1 million was outstanding under the Commercial Bank
Warehouse. The Investment Bank Warehouse was directly related to the fourth
quarter home equity loan securitization, initially provided for funding up to
$500 million of eligible home equity loans for such securitization and
terminated upon the closing of the last delivery of loans under the prefunding
accounts relative to this securitization. As of December 31, 1996, $150
million was available and no amounts were outstanding under the Investment Bank
Warehouse. The UCLIC Warehouse, which was established upon the sale of UCLIC,
provides for the purchase of up to $300 million in first mortgage residential
loans and has a maturity of July, 1999. The Company has the right for a
limited time to repurchase certain loans which are eligible for securitization
and as of December 31, 1996, $16.6 million in loans eligible for securitization
were funded under this facility. In addition, the Company had a manufactured
housing contract warehouse which was directly related to the fourth quarter
manufactured housing securitization and was provided by the investment bank
which acted as lead underwriter for such securitization (the "Manufactured
Housing Warehouse"). The Manufactured Housing Warehouse initially provided for
funding up to $150 million of eligible manufactured housing contracts and
terminated upon the closing of the last delivery of contracts under the
prefunding accounts relative to this securitization. As of December 31, 1996,
$50 million was available and no amounts were outstanding under the
Manufactured Housing Warehouse.
Substantially all of the home equity loans and manufactured housing
contracts originated or acquired by the Company are sold. Net cash from
operating activities of the Company in 1996 and 1995 reflects approximately
$2.5 billion and $2.7 billion, respectively, in cash used for loan originations
and acquisitions of home equity loans and manufactured housing contracts. The
primary source of funding for loan originations is derived from the
reinvestment of proceeds from the ultimate sale of these products in the
secondary market which totaled approximately $2.5 billion and $2.7 billion in
1996 and 1995, respectively. In connection with the sale transactions in the
secondary market, third-party surety bonds (except in the case of the initial
manufactured housing contract securitization) and cash deposits by the Company
as credit enhancements have been provided. The loan sale transactions have
required the subordination of certain cash flows payable to the Company to the
payment of principal and interest due to certificate holders. In connection
with these transactions, the Company has been required, in some instances, to
fund an initial deposit, and thereafter, in each transaction, a portion of the
amounts receivable by the Company from the excess interest spread has been
required to be placed and maintained in a reserve account to the extent of the
subordination requirements. The subordination requirements generally provide
that the excess interest spread is payable to a reserve account until a
specified level of cash, which is less than the maximum subordination amount,
is accumulated therein. The capitalized excess servicing income of the Company
is subject to being utilized first to replenish cash paid from the reserve
account to fund shortfalls in collections from borrowers who default on the
payment of principal or interest on the loans and contracts underlying the
pass-through certificates issued until the total of the Company's deposits into
the reserve account equal the maximum subordination amount. After the
Company's deposits into the reserve account equal the maximum subordination
amount for a transaction, the subordination of the related excess interest
spread (including the guarantee fee payable therefrom) for these purposes is
terminated. The excess interest spread required to be deposited and maintained
in the respective reserve accounts will not be available to support the cash
flow requirements of the Company until such amount exceeds the maximum
subordinated amount (other than amounts, if any, in excess of the specified
levels required to be maintained in the reserve accounts, which may be
distributed periodically to the Company). At December 31, 1996, the amounts on
deposit in such reserve accounts totaled $251 million. In April, 1996, a
subsidiary of the Company entered into a letter of credit and reimbursement
agreement with the domestic branch of an international bank pursuant to which
the bank issued a letter of credit to replace a substantial portion of the cash
previously required to be maintained in the reserve accounts for five loan
securitization transactions consummated in 1993 and 1994. As a consequence,
$40 million was released from the related reserve accounts to the Company, and
these proceeds, net of transaction costs, were used to pay down outstanding
debt of the Company in April, 1996.
26
<PAGE> 27
RATINGS.
The Company, since 1994, has sold publicly three senior unsecured note
offerings which total in the aggregate $325 million. At December 31, 1996, all
of these senior notes, which have varying maturities, were rated "BBB" by Duff
and Phelps Credit Rating Co., and Fitch Investors Service, L.P., "BBB-" by
Standard & Poor's, a division of the McGraw-Hill Companies, Inc. and "Ba1" by
Moody's Investor Services, Inc. In addition, the certificates issued in
connection with the Company's home equity loan and manufactured housing
contract securitization transactions have received investment grade ratings
from one or more of these rating agencies.
ACCOUNTING STANDARDS.
In June, 1996 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities" ("SFAS No. 125"). SFAS
No. 125 focuses on control of the financial asset and provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125 provides certain
conditions that must be met to determine that control of the financial asset
has been surrendered. SFAS No. 125 requires that servicing assets and other
retained interests in the transferred assets be measured by allocating the
previous carrying amount between the assets sold, if any, and retained
interests, if any, based on their relative fair values at the date of transfer.
Implementation of SFAS No. 125 will require the Company to change the method of
calculating the gain on sale of loans. In addition, the retained interest will
be classified as a trading security under the provisions of SFAS No. 115 and,
as such, will be recorded at fair value with the resultant unrealized gain or
loss recorded in the results of operations in the period of change in value.
The statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. The
Company's analysis of the provisions of SFAS No. 125 is not complete at this
time and, therefore, the Company cannot estimate the impact of SFAS No. 125 on
the Company's financial results for the year ending December 31, 1997.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. This Annual Report on Form
10-K contains forward-looking statements that reflect the Company's current
views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including those identified below, which could cause actual results to differ
materially from historical results or those anticipated. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of their dates. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The following non-exclusive factors
could cause actual results to differ materially from historical results or
those anticipated: (1) changes in the performance of the financial markets, in
the demand for and market acceptance of the Company's products, and in general
economic conditions, including interest rates; (2) the presence of competitors
with greater financial resources and the impact of competitive products and
pricing; (3) the effect of the Company's policies; and (4) the continued
availability to the Company of adequate funding sources.
27
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
United Companies Financial Corporation:
We have audited the accompanying consolidated balance sheets of United
Companies Financial Corporation and its subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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, such consolidated financial statements present fairly,
in all material respects, the financial position of United Companies Financial
Corporation and its subsidiaries at 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.
As discussed in Note 1.2(c) of the Notes to the Consolidated Financial
Statements, in 1995, the Company changed its method of accounting for mortgage
servicing rights to conform with Statement of Financial Accounting Standards
No. 122.
As discussed in Note 11 of the Notes to the Consolidated Financial
Statements, on July 24, 1996, the Company sold all of the outstanding capital
stock of its wholly-owned subsidiary, United Companies Life Insurance Company.
As a result, the accompanying Consolidated Financial Statements present the
accounts of United Companies Life Insurance Company as discontinued operations.
DELOITTE & TOUCHE LLP
Baton Rouge, Louisiana
February 28, 1997
28
<PAGE> 29
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1995
---------------- ---------------
ASSETS (IN THOUSANDS)
- ------
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,064 $ 5,284
Temporary investments -- reserve accounts . . . . . . . . . . . . . . . . . . 251,183 155,254
Capitalized excess servicing income . . . . . . . . . . . . . . . . . . . . . 426,393 280,985
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,891 74,877
Investment securities
Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,418 -
Available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,510 219
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . 61,483 36,897
Property -- net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,323 15,239
Net assets of discontinued operations . . . . . . . . . . . . . . . . . . . . - 163,293
Capitalized mortgage servicing rights . . . . . . . . . . . . . . . . . . . . 23,806 5,813
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,445 22,323
---------------- ---------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,002,516 $ 760,184
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 425,671 $ 265,756
Deferred income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 52,971 41,692
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 77,243 51,454
Managed cash overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27,052
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,354 21,756
---------------- ---------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 582,239 407,710
---------------- ---------------
Stockholders' equity:
Preferred stock, $2 par value;
Authorized -- 20,000,000 shares; Issued -- 1,955,000 shares of
6 3/4% PRIDES(SM) ($44 per share liquidation preference) . . . . . . . 3,910 3,910
Common stock, $2 par value;
Authorized -- 100,000,000 shares; Issued -- 29,627,734 and
29,302,246 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,255 58,604
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 184,397 179,848
Net unrealized gain on securities, net of income taxes . . . . . . . . . . 48 37
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,579 122,816
Treasury stock and ESOP debt . . . . . . . . . . . . . . . . . . . . . . . (17,912) (12,741)
---------------- ---------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 420,277 352,474
---------------- ---------------
Total liabilities and stockholders' equity . . . . . . . . . . . $ 1,002,516 $ 760,184
================ ===============
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 30
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Loan sale gains . . . . . . . . . . . . . . . . . . . . . $ 199,030 $ 142,156 $ 86,735
Finance income, fees earned and other loan income . . . . 139,622 105,398 89,172
Investment income . . . . . . . . . . . . . . . . . . . . 13,156 7,403 2,963
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 5,066 5,332 3,668
------------ ----------- ------------
Total . . . . . . . . . . . . . . . . . . . . . . 356,874 260,289 182,538
------------ ----------- ------------
Expenses:
Personnel . . . . . . . . . . . . . . . . . . . . . . . . 96,313 70,762 52,421
Interest . . . . . . . . . . . . . . . . . . . . . . . . 38,626 25,559 13,362
Loan loss provision . . . . . . . . . . . . . . . . . . . 14,049 11,973 8,398
Other operating . . . . . . . . . . . . . . . . . . . . . 74,029 49,330 33,363
------------ ----------- ------------
Total . . . . . . . . . . . . . . . . . . . . . . 223,017 157,624 107,544
------------ ----------- ------------
Income from continuing operations before income taxes . . . 133,857 102,665 74,994
Provision for income taxes . . . . . . . . . . . . . . . . 47,665 37,740 26,298
------------ ----------- ------------
Income from continuing operations . . . . . . . . . . . . . 86,192 64,925 48,696
Income (loss) from discontinued operations:
Income from discontinued operations, net of income tax
expense of $1,651, $2,980 and $491, respectively . . . 3,199 6,020 838
Loss on disposal, net of income tax benefit of $868
and $794, respectively . . . . . . . . . . . . . . . . (7,731) (1,477) -
------------ ----------- ------------
Total . . . . . . . . . . . . . . . . . . . . . . (4,532) 4,543 838
------------ ----------- ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 81,660 $ 69,468 $ 49,534
============ =========== ============
Per share data:
Income from continuing operations . . . . . . . . . . . . $ 2.64 $ 2.10 $ 1.71
Income (loss) from discontinued operations . . . . . . . (.14) .15 .03
------------ ----------- ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 2.50 $ 2.25 $ 1.74
============ =========== ============
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 31
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from continuing operating activities:
Income from continuing operations . . . . . . . . . . . . . . . . $ 86,192 $ 64,925 $ 48,696
Adjustments to reconcile income from continuing operations to net
cash provided by continuing operating activities:
Increase in accrued interest receivable . . . . . . . . . . . . (24,586) (14,603) (6,535)
Decrease (increase) in other assets . . . . . . . . . . . . . . 1,578 6,805 (9,437)
Increase (decrease) in other liabilities . . . . . . . . . . . 6,301 (5,843) (1,425)
Increase in capitalized excess servicing income . . . . . . . . (273,236) (187,624) (111,820)
Amortization of capitalized excess servicing income . . . . . . 128,275 80,670 43,706
Investment losses . . . . . . . . . . . . . . . . . . . . . . . - 56 29
Loan loss provision . . . . . . . . . . . . . . . . . . . . . . 42,181 29,311 22,282
Increase in capitalized mortgage servicing rights . . . . . . . (20,872) (5,986) -
Amortization of capitalized mortgage servicing rights . . . . 2,879 173 -
Amortization and depreciation . . . . . . . . . . . . . . . . . 4,571 2,815 1,504
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 11,273 31,952 15,022
Proceeds from sales and principal collections of loans held for
sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,481,500 2,671,761 1,891,869
Originations and purchases of loans held for sale . . . . . . . (2,534,441) (2,707,549) (1,889,043)
Increase from trading securities . . . . . . . . . . . . . . . (17,418) - -
------------- ------------ -------------
Net cash provided (used) by continuing operating
activities . . . . . . . . . . . . . . . . . . . . . . . (105,803) (33,137) 4,848
------------- ------------ -------------
Cash flows from discontinued operating activities . . . . . . . . - 1,569 (2,934)
------------- ------------ -------------
Cash flows from investing activities:
Increase in temporary investments -- reserve accounts . . . . . (95,929) (73,274) (54,308)
Proceeds from sales of available-for-sale securities . . . . . 413 95 -
Purchase of available for sale securities . . . . . . . . . . . - (76) -
Proceeds from disposition of insurance subsidiaries . . . . . . 106,870 - -
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (11,417) (9,627) (4,037)
------------- ----------- -------------
Net cash used by investing activities . . . . . . . . . . . (63) (82,882) (58,345)
------------- ----------- -------------
Cash flows from financing activities:
Proceeds from senior debt and mortgage loan . . . . . . . . . . 102,593 103,219 125,192
Decrease in revolving credit debt . . . . . . . . . . . . . . . - (72,163) (82,838)
Increase (decrease) in debt with maturities of three months or
less . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,100 (14,750) 14,250
Increase in warehouse loan facility . . . . . . . . . . . . . . 4,351 19,321 -
Proceeds from ESOP debt . . . . . . . . . . . . . . . . . . . . 6,350 6,283 -
Payments on ESOP debt . . . . . . . . . . . . . . . . . . . . . (1,179) (321) -
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . (13,897) (8,677) (5,050)
Increase (decrease) in managed cash overdraft . . . . . . . . . (27,052) 1,100 828
Proceeds from issuance of stock . . . . . . . . . . . . . . . . - 83,254 4,545
Increase in unearned ESOP compensation . . . . . . . . . . . . (5,171) (2,313) (2,434)
Proceeds from exercise of stock options and warrants . . . . . 1,551 3,086 542
------------- ------------ -------------
Net cash provided by financing activities . . . . . . . . . 114,646 118,039 55,035
------------- ------------ -------------
Increase (decrease) in cash and cash equivalents . . . . . . . . 8,780 3,589 (1,396)
Cash and cash equivalents at beginning of period . . . . . . . . 5,284 1,695 3,091
------------ ------------ -------------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 14,064 $ 5,284 $ 1,695
============= ============ =============
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 32
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION> NET TREASURY
ADDITIONAL UNREALIZED STOCK AND TOTAL
PREFERRED COMMON PAID-IN GAIN (LOSS) RETAINED ESOP STOCKHOLDERS'
STOCK STOCK CAPITAL ON SECURITIES EARNINGS DEBT EQUITY
---------- --------- ----------- -------------- ------------ ----------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 . . $ 50,740 $ 50,942 $ 59,988 $ (8,302) $ 153,368
Net income . . . . . . . . . . 49,534 49,534
Dividends paid . . . . . . . . 5,184 37,263 (47,497) (5,050)
Increase in ESOP debt . . . . . (2,222) (2,222)
Common stock options
exercised . . . . . . . . . . 398 1,749 2,147
Treasury shares acquired . . . (604) (604)
Common stock issued . . . . . . 600 3,945 4,545
Common stock warrants
exercised . . . . . . . . . . 160 230 390
Mark-to-market adjustment on
investments . . . . . . . . . $ (23) (23)
---------- --------- ----------- -------------- ------------ ----------- -------------
Balance, December 31, 1994 . . 57,082 94,129 (23) 62,025 (11,128) 202,085
Net income . . . . . . . . . . 69,468 69,468
Dividends paid . . . . . . . . (8,677) (8,677)
Increase in ESOP debt . . . . . (1,613) (1,613)
Common stock warrants
exercised . . . . . . . . . . 704 696 1,400
Common stock options
exercised . . . . . . . . . . 818 5,386 6,204
Preferred stock issued . . . . $ 3,910 79,344 83,254
Release of ESOP shares . . . . 293 293
Mark-to-market adjustment on
investments . . . . . . . . . 60 60
---------- --------- ----------- -------------- ------------ ----------- -------------
Balance, December 31, 1995 . . 3,910 58,604 179,848 37 122,816 (12,741) 352,474
Net income . . . . . . . . . . 81,660 81,660
Dividends paid . . . . . . . . (13,897) (13,897)
Increase in ESOP debt . . . . . (5,171) (5,171)
Common stock options
exercised . . . . . . . . . . 651 4,002 4,653
Release of ESOP shares . . . . 547 547
Mark-to-market adjustment on
investments . . . . . . . . . 11 11
---------- --------- ----------- -------------- ------------ ----------- -------------
Balance, December 31, 1996 . . $ 3,910 $ 59,255 $ 184,397 $ 48 $ 190,579 $ (17,912) $ 420,277
========== ========= =========== ============== ============ =========== =============
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 33
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. ACCOUNTING POLICIES
1.1 Principles of Consolidation. The consolidated financial statements
include the accounts and operations of United Companies Financial Corporation
and subsidiaries (the "Company" or "United Companies"), all of which are
wholly-owned. All significant intercompany balances and transactions have been
eliminated in the consolidated financial statements.
1.2 Loan Accounting. The Company originates and purchases loans (which
includes for purposes hereof manufactured housing installment loan and
installment sale contracts) for its own portfolio and for sale and/or
securitization in the secondary market. Loans held for sale are carried at
lower of cost or market.
1.2(a) Loan Sales. The Company sells substantially all loans which it
originates or purchases and generally retains the servicing rights on loans
sold. At the time of sale, the Company recognizes a gain on loans sold in an
amount equal to the present value of the difference between the interest spread
retained by the Company and a normal servicing fee and other expenses over the
estimated life of the loan. Under the sales/servicing agreements, the buyer
receives the principal collected on the loan and an agreed upon rate of return
on the outstanding principal balance; the Company retains the excess of the
interest at the contractual rate over the sum of the rate paid to the buyer
(the "pass-through" rate) and, where applicable, the trustee fee and surety
bond fee. Generally, this interest spread retained by the Company differs
significantly from a normal servicing fee and is reflected on the Company's
balance sheet as a receivable, capitalized excess servicing income. Capitalized
excess servicing income is calculated using prepayment, default and interest
rate assumptions that the Company believes market participants would use for
similar financial instruments at the time of the sale but is not reduced for
estimated credit losses under recourse provisions of the sale. Such estimated
credit losses are provided at the time of sale by reducing the amount of gain
recognized and are included in a liability on the Company's balance sheet as
allowance for loan losses. The Company has developed its assumptions based on
experience with its own loan portfolio and available market data. For home
equity loans the Company uses prepayment assumptions based on the prepayment
experience of its owned and serviced loan portfolio. Prepayment assumptions
for manufactured housing contracts are based on comparable industry prepayment
statistics. The weighted average discount rate used by the Company to determine
the present value of expected cash flows from excess servicing arising from
loan sale transactions occurring in 1996, 1995 and 1994 was 10%. The Company
believes that the capitalized excess servicing income recognized at the time of
sale does not exceed the amount that would have been received if it were sold
in the marketplace.
In calculating loan sale gains, the Company considers current economic and
market conditions at the date of sale. In subsequent periods, the Company
reviews as of each balance sheet date its prepayment assumptions in relation to
current rate of prepayment and, if necessary, revises its estimates using the
original discount rate. Any losses arising from adverse prepayment experience
are recognized immediately. Favorable experience is recognized prospectively.
1.2(b) Nonrefundable Loan Fees. Loan origination fees and incremental
direct costs associated with loan originations are deferred and recognized over
the lives of the loans as an adjustment to yield, using the interest method.
Unamortized costs and fees are recognized upon sale of the loan or related
asset-backed securities to third parties.
1.2(c) Loan Servicing. The Company generally retains the right to service
loans it originates or purchases and subsequently sells or securitizes in the
secondary market. Fees for servicing loans are generally based on a stipulated
percentage of the outstanding principal balance of such loans. Prior to the
adoption of Statement of Financial Accounting Standards No. 122 ("SFAS 122"),
"Accounting for Mortgage Servicing Rights", the Company recognized late charges
and other ancillary income when collected and charged costs to service mortgage
loans when incurred. The Company implemented the provisions of SFAS 122 in the
third quarter of 1995 and, in connection therewith, changed its method
33
<PAGE> 34
of accounting for mortgage servicing rights to recognize as separate assets
rights to service loans for others that have been acquired through either the
purchase or origination of such loans.
1.2(d) Allowance for Loan Losses. The Company's loan sale agreements
generally provide for the subordination of cash and excess interest spread
relating to the loans sold. Such subordination relates to credit losses which
may occur after the sale of the loans and continues until the earlier of the
payment in full of the loans or the termination of the agreement pursuant to
which the loans were sold. In connection with the securitization and sale of
pass-through certificates, the interest retained by the Company is generally
subordinated to a limited extent to the sold certificates and will be used to
fund a reserve account, thereby providing a credit enhancement to the holders
of the certificates. Regardless of the structure of the loan sale transaction,
the Company estimates the amount of future losses under the loan sale
agreements and provides a reserve for such loss in determining the amount of
gain recorded on the sale.
The Company provides for estimated loan losses on loans owned by
the Company by establishing an allowance for loan losses through a charge to
earnings. The Company conducts periodic reviews of the quality of the loan
portfolio and estimates the risk of loss based upon historical loss experience,
prevailing economic conditions, estimated collateral value and such other
factors which, in management's judgment, are relevant in estimating the
adequacy of the Company's allowance for loan losses. While management uses the
best information available in conducting its evaluation, future adjustments to
the allowance may be necessary if there are significant changes in economic
conditions, collateral value or other elements used in conducting the review.
1.2(e) Other. Loans are placed on a nonaccrual status when they are past due
150 days.
1.2(f) Property Acquired in Satisfaction of Debt. The Company records
properties received in settlement of loans ("real estate owned") at the lower
of their market value less estimated costs to sell ("market") or the
outstanding loan amount plus accrued interest ("cost"). The Company
accomplishes this by providing a specific reserve, on a property by property
basis, for the difference between market and cost. Market value is generally
determined by property appraisals performed either by Company personnel or
independent appraisers. The related adjustments are included in the Company's
provision for loan losses.
1.3 Temporary Investments -- Reserve Accounts. In connection with its
loan sale transactions, the Company has made initial cash deposits and has
subordinated certain related cash flows payable to the Company to the payment
of scheduled principal and interest to investors. The amounts on deposit are
invested in certain instruments as permitted by the loan sale agreements and
earnings thereon accrue to the Company. To the extent amounts on deposit exceed
specified levels required by the subordination requirements, distributions are
made to the Company, and, at the termination of the transaction, any remaining
amounts on deposit will be distributed to the Company.
1.4 Property. Property is stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line and accelerated methods over the
estimated useful lives of the assets.
1.5 Income Taxes. The Company and its subsidiaries file a consolidated
federal income tax return. The Company allocates to its subsidiaries their
proportionate share of the consolidated tax liability under a tax allocation
agreement whereby each affiliate's federal income tax provision is computed on
a separate return basis. Deferred income taxes are provided for the effect of
revenues and expenses which are reported in different periods for financial
reporting purposes than for tax purposes. Such differences result primarily
from providing for loan losses, loan income, loan sale gains and depreciation.
1.6 Cash Equivalents. For purposes of the Statements of Cash Flows, the
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. At December 31, 1996,
cash equivalents totaled $.8 million with interest rates ranging from 3% to
8% per annum.
1.7 Financial Instruments. The Company from time to time enters into
interest rate hedge mechanisms to manage its exposure to interest rate changes
in connection with the securitization and sale of its loans. The Company closes
out the hedge position to coincide with the related loan sale and recognizes
the results of the hedge transaction
34
<PAGE> 35
in determining the amount of the related loan sale gain. The Company did not
have any open hedge positions at December 31, 1995 or 1996.
1.8 Accounting Standards. On October 23, 1995, the Financial
Accounting Standards Board (the "FASB") issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). SFAS No. 123 encourages, but does not require, the recognition of
compensation expense for grants of stock, stock options and other equity
instruments to employees based on a fair value method of accounting. Companies
are permitted to continue to apply the existing accounting rules contained in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"); however, companies that choose to retain this method of
accounting are required to provide expanded disclosures of pro forma net income
and earnings per share in the notes to financial statements as if the new fair
value method of accounting had been adopted. The provisions of SFAS No. 123 are
effective for fiscal years beginning after December 15, 1995. The Company has
elected to continue to apply the accounting rules contained in APB 25 and to
comply with the additional disclosure requirements as set forth in SFAS No.
123. See also Note 9.
In June, 1996 the FASB issued Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities" ("SFAS No. 125"). SFAS No. 125 focuses on
control of the financial asset and provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. SFAS No. 125 provides certain conditions that must be
met to determine that control of the financial asset has been surrendered.
SFAS No. 125 requires that servicing assets and other retained interests in the
transferred assets be measured by allocating the previous carrying amount
between the assets sold and the retained interests, if any, based on their
relative fair values at the date of transfer. Implementation of SFAS No. 125
will require the Company to change the method of calculating the gain on the
sale of loans. In addition, the retained interests will be classified as a
trading security under the provisions of SFAS No. 115 and, as such, recorded at
fair value with the resultant unrealized gain or loss recorded in the results
of operations in the period of change in value. The statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
after December 31, 1996, and is to be applied prospectively. Earlier or
retroactive application is not permitted. The Company's analysis of the
provisions of SFAS No. 125 is not complete at this time and, therefore, the
Company cannot estimate the impact of SFAS No. 125 on the Company's financial
results for the year ending December 31, 1997.
1.9 Reclassifications. Certain prior year amounts have been
reclassified to conform with the current year presentation. Such
reclassifications had no effect on net income.
1.10 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.
2. CAPITALIZED EXCESS SERVICING INCOME
A summary analysis of the changes in the Company's capitalized excess
servicing income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
-------------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year . . . . . . . . . $ 280,985 $ 174,031 $ 105,917
Capitalized excess servicing income . . . . . 273,236 187,624 111,820
Amortization of capitalized excess
servicing income . . . . . . . . . . . . . (128,275) (80,670) (43,706)
Other . . . . . . . . . . . . . . . . . . . . 447 - -
-------------- ------------ --------------
Balance, end of year . . . . . . . . . . . . $ 426,393 $ 280,985 $ 174,031
============== ============ ==============
</TABLE>
The carrying value of capitalized excess servicing income is analyzed
quarterly by the Company to determine if
35
<PAGE> 36
actual prepayment experience has had any impact on the carrying value of this
asset. If necessary, the Company revises its prepayment estimates using the
original discount rate. Any losses arising from adverse prepayment experience
are recognized immediately. Favorable prepayment experience is recognized
prospectively. The weighted average discount rate used by the Company to
determine the carrying value of Capitalized excess servicing income was 10% in
1996, 1995 and 1994.
3. LOANS
3.1 Loans Owned. The following schedule sets forth the components of
Loans owned by the Company at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Home equity loans . . . . . . . . . . . . . . . . $ 99,849 $ 67,673
Manufactured housing contracts . . . . . . . . . 7,397 234
Credit card receivables . . . . . . . . . . . . . 1,543 -
Commercial loans . . . . . . . . . . . . . . . . 477 479
Conventional loans . . . . . . . . . . . . . . . 123 323
---------- ----------
109,389 68,709
Real estate owned:
Home equity . . . . . . . . . . . . . . . . . 7,752 8,469
Commercial and other . . . . . . . . . . . . . 8,342 2,982
Manufactured housing . . . . . . . . . . . . . 372 -
Nonrefundable loan fees . . . . . . . . . . . . . (2,945) (4,950)
Other . . . . . . . . . . . . . . . . . . . . . . (19) (333)
---------- ----------
Total . . . . . . . . . . . . . . . . . $ 122,891 $ 74,877
========== ==========
</TABLE>
Included in Loans owned at December 31, 1996 and 1995 were
nonaccrual loans totaling $6.6 million and $5.7 million, respectively.
3.2 Loans Serviced. The following table sets forth the loans serviced
by the Company for third parties at December 31, 1996 and 1995, by type of
loan. Substantially all of these loans were originated by the Company. As
discussed in Note 11 "Discontinued Operations", the servicing of the commercial
real estate mortgage loans was transferred to United Companies Life Insurance
Company ("UCLIC") in July, 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
-------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Home equity . . . . . . . . . . . . . . . . . $ 3,940,289 $ 2,632,630
Manufactured housing . . . . . . . . . . . . 107,741 -
Commercial . . . . . . . . . . . . . . . . . - 250,762
Conventional . . . . . . . . . . . . . . . . 44,649 58,215
-------------- -------------
Total . . . . . . . . . . . . . . . $ 4,092,679 $ 2,941,607
============== =============
</TABLE>
3.3 Loan Loss Allowance. The Company provides an estimate for future
credit losses in an Allowance for loan losses for loans owned by the Company
and for loans serviced for others.
36
<PAGE> 37
A summary analysis of the changes in the Company's Allowance for
loan losses is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year . . . . . . . . . . . . . . $ 51,454 $ 34,478 $ 24,190
Loans charged to allowance
Home equity . . . . . . . . . . . . . . . . . . . . . (19,484) (13,818) (12,745)
Commercial and other . . . . . . . . . . . . . . . . . (3,190) (97) (141)
Manufactured housing contracts . . . . . . . . . . . . (28) - -
---------- ---------- ------------
Total . . . . . . . . . . . . . . . . . . . . . (22,702) (13,915) (12,886)
Recoveries on loans previously charged to
allowance . . . . . . . . . . . . . . . . . . . . . 2,410 1,643 1,100
---------- ---------- ------------
Net loans charged off . . . . . . . . . . . . . . . . (20,292) (12,272) (11,786)
Loan loss provision on owned and serviced loans . . . . . 42,181 29,311 22,282
Commercial loan reserve transferred
and reserve reclassification . . . . . . . . . . . . . 3,900 (63) (208)
---------- ---------- ------------
Balance at end of year . . . . . . . . . . . . . . . . . $ 77,243 $ 51,454 $ 34,478
========== ========== ============
</TABLE>
As of December 31, 1996, approximately $3.9 billion of home equity
loans sold were serviced under agreements substantially all of which provide
for the subordination of cash and excess interest spread owned by the Company
for credit losses. The maximum recourse associated with sales of home equity
loans and manufactured housing contracts according to terms of the loan sales
agreements was approximately $854 million at December 31, 1996, of which $842
million relates to the subordinated cash and excess interest spread. The
Company's estimate of its losses on home equity loans, based on historical loan
loss experience, was approximately $65.4 million at December 31, 1996 and is
recorded in the Company's allowance for loan losses. In addition, the maximum
recourse associated with the sale of approximately $164 million of
manufactured housing contract pass-through certificates according to the
related contract sale agreements was approximately $12.8 million. The
Company's estimate of its losses on these contracts, based on industry loss
statistics, was approximately $7.7 million and is also recorded in the
Company's allowance for loan losses. Should credit losses on loans sold with
limited recourse, or subordination of cash and excess interest spread owned by
the Company, materially exceed the Company's estimate for such losses, such
consequence will have a material adverse impact on the Company's operations.
3.4 Concentration of Credit Risk. The Company's serviced portfolio is
geographically diversified. Although the Company services mortgage loans in 50
states, at December 31, 1996, a substantial portion of home equity loans
serviced were originated or acquired in California (9.6%), Ohio (7.8%),
Louisiana (7.8%) and Florida (7.6%), respectively, and no other state accounted
for more than 7% of the serviced portfolio. The portfolio of manufactured
housing contracts serviced were originated primarily in Texas (45.7%), South
Carolina (13.2%), Georgia (11.2%) and North Carolina (11.0%). The risk
inherent in such concentrations is dependent not only upon regional and general
economic stability which affects property values, but also the financial
well-being and creditworthiness of the borrower.
3.5 Commitments. The Company uses a prefunding feature in connection
with loan securitization transactions. At December 31, 1996 approximately $16.3
million was held in a prefunding account for the purchase of the Company's
loans during the first quarter of 1997.
4. INVESTMENT SECURITIES.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 115, the Company classifies securities in one of three
categories: "held-to-maturity", "available-for-sale" or "trading". Securities
classified as held-to-maturity are carried at amortized cost, whereas
securities classified as trading or available-for-sale are recorded at fair
value. The adjustment, net of applicable income taxes, for securities
classified as available-for-sale is recorded in "Net unrealized gain (loss) on
securities" and is included in Stockholders' equity on the consolidated balance
sheets and the adjustment for securities classified as trading is recorded in
"Investment income" in the statements of income.
37
<PAGE> 38
At December 31, 1996, the Company's investment securities consisted of
common stock classified as trading securities with a cost of $15.0 million and
a carrying value of $17.4 million. Net unrealized gains on trading securities
included in investment income was $2.4 million for the year ended December 31,
1996. The Company's available-for-sale portfolio included an investment in a
limited partnership and other securities with a cost of $17.4 million and a
carrying value of $17.5 million.
5. PROPERTY -- NET
Property is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land and buildings . . . . . . . . . . . . . . . . . . . $ 36,145 $ 10,603
Furniture, fixtures and equipment . . . . . . . . . . . . 21,008 19,511
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . 57,153 30,114
Less accumulated depreciation . . . . . . . . . . . . . . (10,830) (14,875)
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . $ 46,323 $ 15,239
============ ============
</TABLE>
Rental expense on operating leases, including real estate, computer
equipment and automobiles, totaled $9.6 million, $7.7 million and $6.3 million
during 1996, 1995 and 1994, respectively. Minimum annual commitments at
December 31, 1996 under noncancellable operating leases are as follows (in
thousands):
<TABLE>
<S> <C>
1997 . . . . . . . . . . . . . . . . . $ 8,972
1998 . . . . . . . . . . . . . . . . . 7,003
1999 . . . . . . . . . . . . . . . . . 3,926
2000 . . . . . . . . . . . . . . . . . 1,644
2001 . . . . . . . . . . . . . . . . . 1,007
Thereafter . . . . . . . . . . . . . . 2
-------------
Total . . . . . . . . . . . . $ 22,554
=============
</TABLE>
6. NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
9.35% Senior unsecured notes due November, 1999 . . . . . . . . $ 125,000 $ 125,000
7% Senior unsecured notes due July, 1998 . . . . . . . . . . . 100,000 100,000
7.7% Senior unsecured notes due January, 2004 . . . . . . . . 100,000 -
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . 47,100 -
Warehouse facility . . . . . . . . . . . . . . . . . . . . . . 23,672 19,321
ESOP debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,133 5,962
Subordinated debentures . . . . . . . . . . . . . . . . . . . . 10,000 10,000
Mortgage loan . . . . . . . . . . . . . . . . . . . . . . . . . 5,473 5,473
Construction loan . . . . . . . . . . . . . . . . . . . . . . . 3,293 -
------------- ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 425,671 $ 265,756
============= ============
</TABLE>
In December, 1996 and in July, 1995, the Company publicly sold $100 million
and $100 million, respectively, of its senior unsecured notes. The notes
provide for interest payable semi-annually and are not redeemable prior to
maturity. The notes rank on a parity with other unsecured and unsubordinated
indebtedness of the Company. The net proceeds from the sale of the notes were
used for working capital purposes and, in 1995, to repay the principal amount
of indebtedness outstanding under the Company's existing revolving credit
facility with a group of banks.
38
<PAGE> 39
At December 31, 1996, the Company had three secured warehouse facilities
available for its home equity loan product: (i) a warehouse facility provided
by a syndicate of commercial banks (the "Commercial Bank Warehouse"), (ii) a
warehouse facility provided by the investment bank which acted as lead
underwriter for the Company's fourth quarter home equity loan securitization
(the "Investment Bank Warehouse"), and (iii) a warehouse facility provided by
UCLIC (the "UCLIC Warehouse"). In June, 1996, the Commercial Bank Warehouse
was increased from $150 million to $350 million and the lenders' commitment was
extended from May, 1997 to May, 1998. As of December 31, 1996, $7.1 million
was outstanding under the Commercial Bank Warehouse. The Investment Bank
Warehouse was directly related to the fourth quarter home equity loan
securitization, initially provided for funding up to $500 million of eligible
home equity loans for such securitization and terminated upon the closing of
the last delivery of loans under the prefunding accounts relative to this
securitization. As of December 31, 1996, $150 million was available and no
amounts were outstanding under the Investment Bank Warehouse. The UCLIC
Warehouse, which was established upon the sale of UCLIC, provides for the
purchase of up to $300 million in first mortgage residential loans and has a
maturity of July, 1999. The Company has the right for a limited time to
repurchase certain loans which are eligible for securitization and as of
December 31, 1996, $16.6 million in loans eligible for securitization were
funded under this facility. In addition, the Company had a manufactured
housing contract warehouse which was directly related to the fourth quarter
manufactured housing securitization and was provided by the investment bank
which acted as lead underwriter for such securitization (the "Manufactured
Housing Warehouse"). The Manufactured Housing Warehouse initially provided for
funding up to $150 million of eligible manufactured housing contracts and
terminated upon the closing of the last delivery of contracts under the
prefunding accounts relative to this securitization. As of December 31, 1996,
$50 million was available and no amounts were outstanding under the
Manufactured Housing Warehouse.
The Company also has arrangements with banks providing for short-term
unsecured borrowings of up to $148 million, $47 million of which was
outstanding at December 31, 1996. Borrowings under these lines of credit bear
interest at market or prime rates. Notes payable at December 31, 1996 include a
$5.5 million mortgage loan on an office building adjacent to the Company's home
office building. In addition, at December 31, 1996, notes payable includes
$3.3 million borrowed under a $10 million committed line of credit for the
construction of an office building adjacent to the Company's home office
building.
In May, 1993, United Companies Lending Corporation ("UC Lending"), a wholly
owned subsidiary of the Company, entered into a subordinated debenture
agreement with UCLIC. In connection with this agreement, UC Lending borrowed
$10 million from UCLIC, $3 million of which matures in 1998 and bears an
interest rate of 6.05% per annum, $3 million of which matures in 2000 and bears
an interest rate of 6.64% per annum and $4 million of which matures in 2003 and
bears an interest rate of 7.18% per annum.
The Company made payments for interest of $36.9 million, $23.0 million and
$11.8 million during the years ended December 31, 1996, 1995 and 1994,
respectively.
7. INCOME TAXES
The provision for income taxes attributable to continuing operations is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current . . . . . . . . . . . . . . . . . . . . . . . $ 36,391 $ 5,788 $ 11,276
Deferred . . . . . . . . . . . . . . . . . . . . . . 11,274 31,952 15,022
----------- ----------- ----------
Total . . . . . . . . . . . . . . . . . . . $ 47,665 $ 37,740 $ 26,298
=========== =========== ==========
</TABLE>
39
<PAGE> 40
Reported income tax expense attributable to continuing operations differs
from the amount computed by applying the statutory federal income tax rate to
consolidated income from continuing operations before income taxes for the
following reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax at statutory rate . . . . . . . . . . $ 46,850 35,933 $ 26,248
Differences resulting from:
State income taxes . . . . . . . . . . . . . . . . . . 770 511 (72)
Other . . . . . . . . . . . . . . . . . . . . . . . . . 45 1,296 122
------------- ------------- -------------
Reported income tax provisions . . . . . . . . . . . . . $ 47,665 $ 37,740 $ 26,298
============= ============= =============
</TABLE>
The significant components of the Company's net deferred income tax
liability at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Allowance for loan losses . . . . . . . . . . . . . . . $ - $ 904
Nonrefundable loan fees . . . . . . . . . . . . . . . . 1,030 1,732
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,075 850
------------- -------------
2,105 3,486
------------- -------------
Deferred income tax liabilities:
Loan income . . . . . . . . . . . . . . . . . . . . . . 41,320 42,883
Mark-to-market adjustment . . . . . . . . . . . . . . . 873 20
Mortgage servicing rights . . . . . . . . . . . . . . . 8,332 2,034
Real estate . . . . . . . . . . . . . . . . . . . . . . 4,150 241
Allowance for loan losses . . . . . . . . . . . . . . . 401 -
------------- -------------
55,076 45,178
------------- -------------
Net deferred income tax liability . . . . . . . . . . . . $ 52,971 $ 41,692
============= =============
</TABLE>
Payments made for income taxes during the years ended December 31, 1996,
1995 and 1994 were $31.0 million, $2.6 million and $26.9 million, respectively.
At December 31, 1996 and 1995, the Company had a current income tax
receivable of $1.0 million and $13.5 million, respectively, included in "Other
assets".
8. CAPITAL STOCK
The Company has authorization to issue up to 100,000,000 shares of its
$2.00 par value common stock. There were 28,468,052 and 28,142,564 shares
outstanding at December 31, 1996 and 1995, respectively, excluding 1,159,682
treasury shares. The Company also has authorization to issue 20,000,000 shares
of preferred stock of which 1,955,000 shares are currently issued (see
discussion of "PRIDES(SM)" below). Included in the authorized preferred stock
are 1,000,000 shares of Series A Junior Participating preferred stock and
800,000 shares of Cumulative Convertible preferred stock, none of which is
outstanding.
On June 16, 1995, the Company concluded the sale of 1,955,000 shares of its
Preferred Redeemable Increased Dividend Equity Securities(SM), 6 3/4%
PRIDES(SM), Convertible Preferred Stock, par value $2.00 per share
("PRIDES(SM)"), at a price per share of $44.00. Dividends on the PRIDES(SM) are
cumulative and are payable quarterly in arrears on each January 1, April 1,
July 1 and October 1. Net proceeds to the Company were approximately $83.3
million. The net proceeds from the sale of shares of PRIDES(SM) were used for
general corporate purposes.
40
<PAGE> 41
The PRIDES(SM) rank prior to the Company's common stock as to payment of
dividends and distribution of assets upon liquidation. The shares of PRIDES(SM)
mandatorily convert into shares of common stock on July 1, 2000 (the "Mandatory
Conversion Date") on a two share to one share basis (as adjusted for the 100%
common stock dividend paid October 20, 1995), and the shares of PRIDES(SM) are
convertible into shares of common stock at the option of the holder at any time
prior to the Mandatory Conversion Date on the basis of 1.652 of a share of
common stock for each share of PRIDES(SM), in each case subject to adjustment
in certain events. In addition, the Company has the option to convert the
shares of PRIDES(SM), in whole or in part, on or after July 1, 1998 until the
Mandatory Conversion Date, into shares of its common stock according to a
formula.
On August 23, 1995, the Company's Board of Directors declared a two-for-one
common stock split effected in the form of a 100% stock dividend on outstanding
stock which was distributed October 20, 1995, to stockholders of record on
October 9, 1995. All per share amounts, numbers of shares and related amounts
for all periods presented in the accompanying financial statements and notes
thereto have been retroactively adjusted to reflect this transaction. During
1996 and 1995, the Company paid cash dividends on its common stock in the
amount of $8.1 million and $5.5 million, or $.29 and $.20 per share,
respectively. In addition, during 1996 and 1995, the Company paid cash
dividends on its PRIDES(SM) in the amount of $5.8 million or $2.97 per share
and $3.1 million or $1.61 per share, respectively.
On July 27, 1994, the Board of Directors authorized the redemption of the
rights under the rights plan of the Company adopted in 1989 (the "1989 Rights
Plan") and approved a new rights plan (the "1994 Rights Plan"). In connection
with the redemption, the rights under the 1989 Rights Plan (the "1989 Rights")
were redeemed at a price of $.0039526 per 1989 Right with the aggregate
redemption price payable to each holder of the 1989 Rights to be rounded up to
the nearest $.01. In approving the 1994 Rights Plan, the Board of Directors
declared a dividend distribution of one preferred share purchase right for each
outstanding share of the Company's Common Stock. The rights under the 1994
Rights Plan will become exercisable only upon the occurrence of certain events
as specified therein (primarily certain changes in ownership of the Company).
At December 31, 1996 and 1995, 1,159,682 shares of the Company's common
stock, or 4% of the issued common stock, were held as treasury stock at a cost
of $6.8 million.
9. EMPLOYEE BENEFIT PLANS
9.1 Employee Stock Ownership Plan. All employees who meet minimum age and
service requirements participate in the Company's Employee Stock Ownership Plan
("ESOP"). The Company makes annual tax deductible contributions to the ESOP
which are used to purchase additional shares of the Company's common stock or
to pay debt service on shares acquired with the proceeds of loans ("leveraged
shares"). The ESOP's leveraged shares are initially pledged as collateral for
the debt incurred in connection with the acquisition of such shares. As the
debt is repaid, the shares are released from collateral and allocated to plan
participants. Contributions are allocated among participants based on years of
service and compensation. Upon retirement, death or disability, the employee or
a beneficiary receives the designated common stock.
The Company's cash contributions to the ESOP were $3.0 million, $2.3
million and $2.2 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Shares held by the ESOP at December 31, 1996, 1995 and 1994 were
approximately 3.7 million, 4.0 million and 4.7 million, respectively. During
1995, the ESOP was granted a $10 million line of credit from a financial
institution, which line of credit was increased to $12 million during 1996. At
December 31, 1996 the ESOP had notes payable with a balance of $11.1 million
under this line of credit. Because the source of the loan payments is primarily
contributions received by the ESOP from the Company, such debt is included in
the Company's notes payable with a corresponding reduction of stockholders'
equity. In accordance with Statement of Position 93-6 ("SOP 93-6"), leveraged
shares purchased subsequent to December 31, 1992 are, upon release, reflected
as compensation expense based on the then current market price of the shares.
Shares which have not been committed to be released are not considered
outstanding for purposes of the computation of earnings per share. Prior to
1995, 165,000 shares of the Company's common stock were considered outstanding
of which 132,000 shares at December 31, 1996 were not considered outstanding
for earnings per share purposes. At December 31, 1996, approximately 142,000
shares of common stock were committed to be released under the terms of the
loan agreement. At December 31, 1996,
41
<PAGE> 42
approximately 50,000 shares of common stock accounted for under the provisions
of SOP 93-6 were committed to be released resulting in additional compensation
expense of approximately $1.4 million during 1996. At December 31, 1996, the
ESOP had approximately 780,000 leveraged shares, of which approximately 458,000
were accounted for under the provisions of SOP 93-6. The fair value of the
458,000 leveraged shares accounted for under the provisions of SOP 93-6 was
$12.2 million at December 31, 1996.
9.2 Stock Option Plans. At December 31, 1996, the Company had four
stock-based compensation plans, which are described below. The Company applies
Accounting Principles Board Opinion 25 ("APB25") and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plans as the exercise price of all stock
options granted thereunder is equal to the fair market value at the date of
grant. The compensation cost that has been charged against net income for
restricted stock issued under the 1993 Stock Incentive Plan was $1.4 million
and $.4 million for 1996 and 1995, respectively. Had compensation costs for
the Company's stock-based compensation plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the
method of Financial Accounting Standards Board Statement No. 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income As reported . . . . $ 81,660 $ 69,468
Pro forma . . . . . 81,118 68,917
Primary earnings per share As reported . . . . 2.55 2.28
Pro forma . . . . . 2.54 2.26
Fully diluted earnings As reported . . . . 2.50 2.25
per share Pro forma . . . . . 2.48 2.23
</TABLE>
On November 11, 1996, the Board of Directors approved and adopted, subject
to shareholder approval, two additional stock option plans, the 1996 Long Term
Incentive Compensation Plan and the 1996 Non-Employee Director Stock Plan.
There were no awards granted under either of these plans in 1996.
Fixed Stock Options. The Company has four fixed stock option plans. Under
the 1986, 1989, and 1993 employee stock option plans and the 1993 Non-Employee
Director Stock Option Plan (the "1993 Director Plan"), the Company may grant
options for up to 1.1 million, .8 million, 1.3 million and .9 million shares of
common stock, respectively. The term of the 1986 plan has expired and no new
options may be awarded thereunder. At December 31, 1996, 11,234 and 182,464
shares of common stock were available for award under the 1989 and 1993 plans,
respectively, and 599,200 shares of common stock were available for award under
the 1993 Director Plan. Under the four plans, the exercise price of each
option equals the fair market value of the Company's stock on the date of grant
and the maximum term of an option is 10 years. Under the 1986 and 1989
employee plans, the options become exercisable two years from the grant date,
and under the 1993 plan, the options become exercisable three years from the
grant date. Options awarded under the 1993 Director Plan become exercisable
three years after the date of grant.
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 for
grants in 1995: dividend yield of 1.2%; expected volatility of 27%; risk-free
interest rate of 5.95%; and expected life of 5.4 years. The following
assumptions were used for options granted in 1996: dividend yield of 1.2%;
expected volatility of 45%; risk-free interest rate of 6.47%; and expected life
of 5.4 years.
A summary of the status of the Company's four stock option plans (excluding
the restricted stock awards) as of
42
<PAGE> 43
December 31, 1996 and 1995, and changes during the periods ending on those
dates is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1996 1995
------------------------------ ------------------------------
WEIGHTED AVERAGE WEIGHTED-AVERAGE
FIXED OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------- --------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,831,860 $11.51 1,699,446 $ 5.90
Granted 58,700 33.19 584,700 22.55
Exercised (279,488) 5.55 (409,092) 4.11
Canceled (39,842) 15.83 (43,194) 10.75
---------- ----------
Outstanding at end of year 1,571,230 13.27 1,831,860 11.51
========== ==========
Weighted-average fair value of options
granted during the year $ 15.63 $ 7.60
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ----------------------------
RANGE OF WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------- ----------- ------------------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$2 to $7 829,434 5.4 $ 5.04 829,434 $ 5.04
$15 to $16 10,998 7.7 15.91 - -
$16 to $23 633,398 8.2 21.04 - -
$31 to $34 97,400 9.2 32.53 - -
------------ -----------
Total 1,571,230 7.8 13.27 829,434 5.04
============ ===========
</TABLE>
Restricted Stock Awards. As part of the Company's 1993 Incentive Plan, the
Company may award restricted stock to selected executives and other key
employees. While the 1993 plan only requires a vesting period of six months,
awards of restricted stock have generally been made with vesting periods from
one year to four years contingent upon the attainment by the Company of certain
return on equity requirements.
The following table summarizes information about restricted stock awards
during the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1996 1995
------------------------------- -------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RESTRICTED STOCK AWARDS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------------------- --------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year . . . . . . . . . . . . . . 80,000 $ - - $ -
Granted . . . . . . . . . . . . 3,000 - 80,000 -
Lapse of restriction . . . . . (46,000) - -
Canceled . . . . . . . . . . . - - -
---------- ----------
Outstanding at end
of year . . . . . . . . . . . . . . 37,000 - 80,000 -
========== ==========
Weighted-average fair
value of restricted stock
granted during the year $ 34.00 $ 18.86
</TABLE>
43
<PAGE> 44
As of December 31, 1996, the 37,000 shares of restricted stock outstanding
had a purchase price of zero and a weighted-average remaining contractual life
of nine months.
9.3 Employees' Savings Plan and Trust. The United Companies Financial
Corporation Employees' Savings Plan and Trust is designed to be a qualified
plan under Sections 401(a) and 401(k) of the Internal Revenue Code. Under the
plan, employees are allowed to defer income on a pre-tax basis through
contributions to the plan and the Company matches a portion of such
contributions. The Company's matching contributions totaled $1.5 million, $1.3
million and $1.0 million during 1996, 1995 and 1994, respectively. Employees
have five investment options, one of which is to invest in the Company's common
stock. The plan held 537,117 shares and 567,971 shares of the Company's common
stock at December 31, 1996 and 1995, respectively.
9.4 Deferred Compensation Plans. Postretirement benefits are provided
to eligible executive and senior officers of the Company under a deferred
compensation plan. The cost (benefit) of this plan during 1996 and 1995 was
$(.1) million and $.2 million, respectively. The Company calculated its
postretirement benefit obligation as of December 31, 1996 using a weighted
average discount rate of 7.1%. A reconciliation of the funded status of the
deferred compensation plan as of December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NET DECEMBER 31,
1996 CHANGE 1995
-------------- ------------ ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated postretirement benefit cost . . . . . . $ 1,771 $ (141) $ 1,912
Plan assets . . . . . . . . . . . . . . . . . . . . -- -- --
-------------- ------------ ---------------
Funded status . . . . . . . . . . . . . . . . . . . 1,771 (141) 1,912
Unrecognized transition obligation . . . . . . . . (1,070) 68 (1,138)
-------------- ------------ ---------------
Accrued postretirement benefit cost . . . . . . . . $ 701 $ (73) $ 774
============== ============ ===============
</TABLE>
10. DISCLOSURE ABOUT FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107")
requires that the Company disclose the estimated fair values of its financial
instruments, both assets and liabilities recognized and not recognized in its
financial statements.
SFAS No. 107 defines financial instruments as cash and contractual rights
and obligations that require settlement in cash or by exchange of financial
instruments. Fair value is defined as the amount at which the instrument could
be exchanged in a current transaction between willing parties other than in a
forced or liquidation sale.
The carrying value and fair value of the Company's financial assets and
liabilities at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- ---------- ------------ -----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 14,064 $ 14,064 $ 5,284 $ 5,284
Temporary investments -- reserve accounts . . . . . . . 251,183 251,183 155,254 155,254
Loans . . . . . . . . . . . . . . . . . . . . . . . . . 106,425 111,000 65,606 67,140
Capitalized excess servicing income . . . . . . . . . . 426,393 426,393 280,985 280,985
Capitalized mortgage servicing rights . . . . . . . . . 23,806 26,000 5,813 6,525
Financial liabilities:
Notes payable . . . . . . . . . . . . . . . . . . . . . 425,671 431,000 265,756 280,277
Allowance for loan losses . . . . . . . . . . . . . . . 77,243 77,243 51,454 51,454
Managed cash overdraft . . . . . . . . . . . . . . . . - - 27,052 27,052
</TABLE>
The above values do not reflect any premium or discount from offering for
sale at one time the Company's entire holdings of a particular financial
instrument. Fair value estimates are made at a specific point in time based on
relevant
44
<PAGE> 45
market information, if available. Because no market exists for certain of the
Company's financial instruments, fair value estimates for these assets and
liabilities were based on subjective estimates of market conditions and
perceived risks of the financial instruments. Fair value estimates were also
based on judgments regarding future loss and prepayment experience and were
influenced by the Company's historical information.
The following methods and assumptions were used to estimate the fair value
of the Company's financial instruments:
Cash and cash equivalents. The carrying amount of cash and cash equivalents
approximates their fair values because these assets generally mature in 90 days
or less and do not present any significant credit concerns.
Temporary investments -- reserve accounts. The carrying value of temporary
investments is considered to be a reasonable estimate of fair value.
Loans. The fair value of the Company's loan portfolio was determined by
segregating the portfolio by type of loan and further by its performing and
nonperforming components. Performing loans were further segregated based on the
due date of their payments, an analysis of credit risk by category was
performed and a matrix of pricing by category was developed. Loans which had
been identified for sale were valued at their estimated sales price, which
includes the estimated value of the portion of the interest and fees which are
not sold with the securities backed by the loans. Loans which were current but
not identified for sale approximate the remaining principal balance which is
believed to represent an estimate of market discount from similar loans
identified for sale. The fair value of delinquent loans was estimated by using
the Company's historical recoverable amount on defaulted loans. Real estate
owned property is excluded from this disclosure because it is not considered a
financial instrument.
Capitalized excess servicing income. The value of capitalized excess
servicing, which relates to the excess interest retained on loans sold, was
estimated by discounting the future cash flows, adjusted for prepayments and
estimated losses on loans sold with recourse. The carrying value is considered
to be a reasonable estimate of fair value.
Capitalized mortgage servicing rights. The fair value of capitalized
mortgage servicing rights was based on the present value of estimated future
cash flows related to servicing income. In estimating the fair value of these
rights, the Company made assumptions which included the cost of servicing per
loan, the discount rate, an inflation rate, ancillary income per loan,
prepayment spreads and default rates.
Allowance for loan losses. In estimating the fair value of the allowance
for loan losses, the Company estimated the timing of cash flows and discounted
these cash flows using a risk-free interest rate.
Notes payable. Notes payable consists primarily of amounts payable for the
Company's senior unsecured notes. The fair value of the senior unsecured notes
is based upon the estimated current rate offered to the Company for debt of the
same remaining maturity.
The fair values presented herein are based on pertinent information
available to management as of December 31, 1996. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date and, therefore, current estimates of
fair value may differ significantly from the amounts presented herein.
11. DISCONTINUED OPERATIONS
United Companies Life Insurance Company. On February 2, 1996, the Company
signed an agreement to sell all of the outstanding capital stock of its
wholly-owned life insurance subsidiary, United Companies Life Insurance Company
("UCLIC"), subject to approval by the Company's shareholders, regulatory
authorities and the satisfaction of certain other conditions. In June, 1996,
the Company's shareholders approved the sale, and in July, 1996, regulatory
approval was obtained and the remaining conditions to closing the transaction
were satisfied. The sale was concluded on July 24, 1996 and resulted in a loss
on the disposition of $6.8 million which was recorded in the Company's
financial statements for the three months and six months ended June 30, 1996.
The sales price of $167.6 million was comprised of
45
<PAGE> 46
approximately $110 million in cash (including a $10 million dividend paid by
UCLIC immediately prior to the closing) and UCLIC real estate and other assets
which were distributed to the Company prior to the closing. The real estate
distributed includes portions of the United Plaza office park, including the
Company's home office. In addition, the Company purchased a convertible
promissory note from PennCorp Financial Group, Inc. ("PennCorp"), the parent of
the purchaser, for $15 million in cash and converted the note into 483,839
shares of the common stock of PennCorp. As a result of the sale, the assets
(including $67 million of assets transferred to the Company by UCLIC
immediately prior to closing) and the operations of UCLIC have been classified
as discontinued operations.
In connection with the sale of UCLIC, the Company entered into an agreement
with UCLIC which will provide a facility for the purchase of up to $300 million
in first mortgage home equity loans. The agreement provides that the Company
shall have the right for a limited time to repurchase certain loans which are
eligible for securitization. The agreement also has a sublimit of up to $150
million for loans that are not eligible for securitization.
Subsequent to the closing, the Company received notification from the
purchaser alleging that it is entitled to a $2.2 million reduction in the sales
price. The Company denies that the purchaser is entitled to any reduction. In
addition, at December 31, 1996, the Company had not received payment of a $2.5
million intercompany receivable due from UCLIC at the date of sale.
During 1995 and 1994 revenues of UCLIC were $144.5 million and $138.1
million, respectively, and net income of UCLIC was $8.0 million and $5.9
million, respectively.
United General Title Insurance Company. On April 10, 1995, the Company made
a decision to dispose of its investment in United General Title Insurance
Company ("UGTIC"), a wholly owned subsidiary of the Company, and, on May 1,
1995, approved a formal plan of disposal. The decision to dispose of UGTIC was
independent of the consummation of the sale thereof pursuant to the definitive
stock sale agreement signed on August 11, 1995. As a result, the operations of
UGTIC have been classified as discontinued operations, and, accordingly, the
consolidated financial statements and the related notes of the Company
segregate continuing and discontinued operations. The sale was concluded on
February 29, 1996 at a sales price of approximately $5.1 million.
The definitive stock sale agreement provided for the sale of 100% of the
stock of UGTIC and contains a provision making the Company liable to UGTIC for
claims from defalcations and fraud losses incurred by UGTIC which are unknown
and occur prior to closing and are discovered within 24 months thereafter. The
Company is also liable, up to $4.2 million, for policy claims paid over a ten
year period after closing that exceed certain specified levels. The Company
recorded a loss from discontinued operations (net of income tax benefit) of
$3.5 million in 1995 and $1.1 million in 1996 in connection with the sale of
UGTIC.
Revenues for UGTIC for the years ended December 31, 1995 and 1994 were
$37.8 million and $45.5 million, respectively.
Foster Mortgage Corporation. On May 7, 1993, the Company decided to divest
its subsidiary Foster Mortgage Corporation ("FMC"). As of November 30, 1993,
the servicing rights owned by FMC, which constituted substantially all of its
assets, were sold. On December 21, 1993, the institutional lenders under FMC's
primary credit facility (the "FMC Institutional Lenders") filed a petition in
the U.S. bankruptcy court to cause the remaining affairs of FMC to be concluded
under the supervision of the bankruptcy court. The FMC Institutional Lenders
filed and the bankruptcy court approved a plan of liquidation for FMC providing
for the appointment of a trustee selected by the FMC Institutional Lenders. The
FMC Institutional Lenders allege that FMC has certain claims against the
Company, including a claim with respect to the Company's alleged failure to
remit all sums due FMC regarding federal income taxes under a tax agreement
among the Company and its subsidiaries, including FMC, estimated by the FMC
Institutional Lenders to range from $2.1 million to $29 million. FMC and the
Company executed, subject to the approval of the bankruptcy court, a settlement
agreement relating to payments between FMC and the Company in connection with
the federal income tax benefits resulting from FMC's losses and to certain
prior intercompany payments between FMC and the Company. The settlement
agreement included a release by FMC in favor of the Company of any and all
claims relating to federal income taxes. The FMC Institutional Lenders opposed
the proposed settlement agreement. At the conclusion of a hearing on the
46
<PAGE> 47
proposed settlement on August 18, 1994, the bankruptcy court approved the
portion of the settlement providing for a net payment by the Company of $1.65
million to FMC in satisfaction of the federal income tax benefits resulting
from FMC's losses and the release of any claims regarding federal income taxes.
The bankruptcy court declined to approve the other portion of the proposed
settlement relating to payments received by the Company from FMC within twelve
months of the bankruptcy filing. If the Company were required to refund such
payments, the Company has estimated the potential additional loss to be $1.9
million, net of tax benefits. The decision of the bankruptcy court on the
settlement was appealed by the FMC Institutional Lenders to the U.S. District
Court which affirmed the bankruptcy court's decision. The FMC Institutional
Lenders then appealed this decision to the U.S. Fifth Circuit Court of Appeals.
In a decision rendered on November 9, 1995, the U.S. Fifth Circuit Court of
Appeals reversed the district court, vacated the settlement between FMC and the
Company and remanded the matter back to the bankruptcy court for further
proceedings. The trustee under the plan of liquidation has filed an adversary
proceeding in the bankruptcy proceedings against the Company seeking avoidance
of alleged preferential payments totaling $3.72 million and has also instituted
a suit in federal court against the Company alleging claims under the tax
agreement estimated to range from $2 million to $29 million. On November 22,
1996, the district court referred the case to the bankruptcy court for
adjudication. The bankruptcy court has not yet scheduled the case for trial.
Management of the Company does not believe that any additional amounts are owed
by the Company to FMC or the trustee and is vigorously contesting the claims
which have been brought against it for such amounts by the trustee under the
plan of liquidation. The Company did not guarantee any debt of FMC.
12. CONTINGENCIES
As discussed in Note 11 above, the Company, in February, 1996, concluded
the sale of its investment in UGTIC. In connection therewith, the stock sale
agreement includes a provision making the Company liable to UGTIC for claims
from defalcations and fraud losses incurred by UGTIC which are unknown and
occur prior to closing and are discovered within 24 months thereafter. The
Company is also liable, up to $4.2 million, for policy claims paid over a ten
year period after closing that exceed certain specified levels.
As also discussed in Note 11 above, the U.S. Fifth Circuit Court of Appeals
reversed the lower court decision approving the settlement agreement between
FMC and the Company, vacated the settlement between FMC and the Company and
remanded the matter for further proceedings. The trustee under the plan of
liquidation has filed an adversary proceeding in the bankruptcy proceedings
against the Company seeking avoidance of alleged preferential payments totaling
$3.72 million and has also instituted a suit in federal court against the
Company alleging claims under the tax agreement estimated to range from $2
million to $29 million. Management of the Company does not believe that any
additional amounts are owed by the Company to FMC or the trustee and is
vigorously contesting the claims which have been brought against it for such
amounts by the trustee under the plan of liquidation. The Company did not
guarantee any debt of FMC.
As also discussed in Note 11 above, subsequent to the closing of the sale
of all of the outstanding capital stock of UCLIC, the Company received
notification from the purchaser alleging that it is entitled to a $2.2 million
reduction in the sales price. The Company denies that the purchaser is
entitled to any reduction. In addition, at December 31, 1996, the Company had
not received payment of a $2.5 million intercompany receivable due from UCLIC
at the date of sale.
The Company is the subject of various litigation arising during the
ordinary course of business. While the outcome of such litigation cannot be
predicted with certainty, management does not expect the resolution of these
matters to have a material adverse effect on the financial condition or results
of operations of the Company.
47
<PAGE> 48
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
------------- ---------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1996
Total revenues . . . . . . . . . . . . . . . . . $ 73,290 $ 86,832 $ 98,824 $ 97,928
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . 26,892 33,056 37,997 35,912
Net income . . . . . . . . . . . . . . . . . . . 17,839 15,685 24,128 24,008
Per share data -- net income:
Primary:
Income from continuing operations . . . . . $ .54 $ .65 $ .75 $ .75
Income (loss) from discontinued
operations . . . . . . . . . . . . . . . . .02 (.16) - -
------------- ---------- ----------- -------------
Total . . . . . . . . . . . . . . . . . . $ .56 $ .49 $ .75 $ .75
============= ========== =========== =============
Fully Diluted:
Income from continuing operations . . . . . $ .53 $ .64 $ .74 $ .74
Income (loss) from discontinued
operations . . . . . . . . . . . . . . . . .02 (.16) - -
------------- ---------- ----------- -------------
Total . . . . . . . . . . . . . . . . . . $ .55 $ .48 $ .74 $ .74
============= ========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
------------- ---------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1995
Total revenues . . . . . . . . . . . . . . $ 53,600 $ 64,601 $ 71,274 $ 70,814
Income from continuing operations before
income taxes . . . . . . . . . . . . . . 16,380 25,814 31,399 29,072
Net income . . . . . . . . . . . . . . . . 12,696 16,426 21,248 19,098
Per share data -- net income:
Primary:
Income from continuing operations . . $ .37 $ .56 $ .62 $ .58
Income from discontinued operations . .08 .01 .05 .02
------------- ---------- ----------- -------------
Total . . . . . . . . . . . . . . . $ .45 $ .57 $ .67 $ .60
============= ========== =========== =============
Fully Diluted:
Income from continuing operations . . $ .37 $ .55 $ .60 $ .57
Income from discontinued operations . .08 .01 .05 .02
------------- ---------- ----------- -------------
Total . . . . . . . . . . . . . . . $ .45 $ .56 $ .65 $ .59
============= ========== =========== =============
</TABLE>
48
<PAGE> 49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
49
<PAGE> 50
PART III
The information called for by Part III (items 10, 11, 12 and 13)
has been omitted since the Company will file with the Commission a definitive
proxy statement pursuant to Regulation 14A or a definitive information
statement pursuant to Regulation 14C, which involves the election of directors,
within 120 days after the close of the year.
50
<PAGE> 51
UNITED COMPANIES FINANCIAL CORPORATION
AND SUBSIDIARIES
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements
Included in Part II of this report:
<TABLE>
<S> <C> <C>
Independent Auditors' Report . . . . . . . . . . . Page 28
December 31, 1996 and 1995
Consolidated Balance Sheets . . . . . . . . . . . Page 29
For the three years ended December 31, 1996
Consolidated Statements of Income . . . . . . . . Page 30
Consolidated Statements of Cash Flows . . . . . . Page 31
Consolidated Statements of Stockholders' Equity . Page 32
Notes to Consolidated Financial Statements . . . . Pages 33-48
</TABLE>
Financial Statement Schedules
Included in Part IV of this report:
Individual financial statements of the registrant have been omitted
because consolidated financial statements of the registrant and its
subsidiaries required by Item 8 have been included in Part II of this report
and, as of December 31, 1996, the registrant was primarily an operating company
and all subsidiaries are wholly owned.
No financial statement schedules have been presented because they
are not applicable or are not required or the information required to be set
forth therein is included in the consolidated financial statements or notes
thereto.
Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
<S> <C> <C>
2(1) -- Amended and Restated Stock Purchase Agreement dated as of
July 24, 1996 by and between the Company and Pacific
Life and Accident Insurance Company
3.1(2) -- Restatement of Articles of Incorporation
3.2(3) -- By-Laws, as amended
4.1(4) -- Senior Indenture
4.2(4) -- Subordinated Indenture
4.3(4) -- First Supplemental Indenture with respect to 9.35% Senior
Notes due November 1, 1999
4.4(4) -- Form of certificate for shares of Preferred Redeemable
Increased Dividend Equity Securities 6 3/4% PRIDES(SM),
Convertible Preferred Stock, par value $2.00 per share
4.5(5) -- Second Supplemental Indenture for 7% Senior Notes due
July 15, 1998
4.6(6) -- Series A Junior Participating Preferred Stock Purchase
Rights
4.7(18) -- Third Supplemental Indenture for 7.7% Senior Notes due
January 15, 2004
10.1(19) -- Employee Stock Ownership Plan and Trust
10.2(7) -- Management Incentive Plan, as amended
10.3(19) -- Employees' Savings Plan
</TABLE>
51
<PAGE> 52
<TABLE>
<S> <C> <C>
10.4(16) -- 1989 Stock Incentive Plan
10.5(16) -- 1989 Non-Employee Director Stock Option Plan
10.6(12) -- 1992 Form 11-K, Employees' Savings Plan and Trust
10.7(8) -- Stock Purchase Warrant dated as of July 1, 1993
10.8(13) -- 1993 Form 11-K, Employees' Savings Plan and Trust
10.9(17) -- 1993 Stock Incentive Plan
10.10(17) -- 1993 Non-Employee Director Stock Option Plan
10.11(14) -- 1994 Form 11-K, Employees' Savings Plan and Trust
10.12(9) -- 1995 Form 11-K, Employee Savings Plan
10.13(3) -- Indemnification agreements
10.14(10) -- Change of Control Agreement
10.15(10) -- Supplemental Retirement Agreement
10.16(10) -- Split Dollar Agreement
10.17(15) -- 1996 Form 11-K, Employee Savings Plan
11.1(19) -- Statement regarding computation of per share earnings
21.1(19) -- List of Subsidiaries of the Company
23.1(19) -- Consent of Deloitte & Touche LLP
27(19) -- Financial Data Schedule
- ----------
</TABLE>
(1) Incorporated herein by reference to the designated Exhibit on the
Company's Current Report on Form 8-K filed on August 8, 1996.
(2) Incorporated herein by reference to the designated Exhibit of the
Company's Current Report on Form 8-K dated November 27, 1996.
(3) Incorporated herein by reference to the designated Exhibit of the
Company's Quarterly Report on Form 10-Q dated March 31, 1995.
(4) Incorporated by reference to the designated Exhibits of the
Company's Current Report on Form 8-K filed on June 16, 1995.
(5) Incorporated herein by reference to the designated Exhibit to the
Company's Current Report on Form 8-K filed July 26, 1995.
(6) Incorporated by reference to the designated Exhibit of the
Company's Form 8-A dated August 5, 1994.
(7) Incorporated by reference from the designated Exhibit of the
Company's Registration Statement on Form S-8 (SEC File No.
33-63069).
(8) Incorporated herein by reference to the designated Exhibit of the
Company's Registration Statement on Form S-3 (SEC File No.
33-52739).
(9) Incorporated herein by reference to the Form 11-K filed June 28,
1996.
(10) Incorporated herein by reference to the designated Exhibit on the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 filed March 19, 1996.
(11) Incorporated by reference to the designated Exhibits of the
Company's Current Report on Form 8-K filed December 19, 1996.
(12) Incorporated by reference to the Company's Annual Report on Form
10-K, as amended, filed on April 30, 1993.
(13) Incorporated by reference to the Company's Annual Report on Form
10-K, as amended, filed on June 29, 1994.
(14) Incorporated by reference to the Form 11-K filed July 13, 1995.
(15) To be filed on Form 11-K within 180 days after plan's fiscal year.
(16) Incorporated herein by reference to the designated Exhibit of the
Company's Registration Statement on Form S-8 (SEC File No.
33-29994).
(17) Incorporated herein by reference to the designated Exhibit of the
Company's Registration Statement on Form S-8 (SEC File No.
33-54955).
(18) Incorporated herein by reference to the designated Exhibit of the
Company's Current Report on Form 8-K dated December 5, 1996.
52
<PAGE> 53
(19) Filed herewith:
Exhibit 10.1
Exhibit 10.3
Exhibit 11.1
Exhibit 21.1
Exhibit 23.1
Exhibit 27
REPORTS ON FORM 8-K
a. On November 27, 1996, the Company filed a Current Report on
Form 8-K and included therein, under Item 7, Exhibit 3.1
Restatement of the Articles of Incorporation of United
Companies Financial Corporation.
b. On December 2, 1996, the Company filed a Current Report on
Form 8-K to announce that it had terminated negotiations for
the proposed acquisition of Empire Funding.
c. On December 5, 1996, the Company filed a Current Report on
Form 8-K and included therein, under Item 7, the following
exhibits:
1.3 -- Terms Agreement dated December 12, 1996 for
7.70% Senior Notes due January 15, 2004.
4.13 -- Third Supplemental Indenture dated as of
December 17, 1996 for 7.70% Senior Notes
due January 15, 2004.
4.14 -- 7.70% Senior Note due January 14, 2004.
53
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 24, 1997
UNITED COMPANIES FINANCIAL CORPORATION
By: /s/ SHERRY E. ANDERSON
-------------------------------------------
Sherry E. Anderson
Senior Vice President and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 24, 1997.
<TABLE>
<S> <C>
/s/ J. TERRELL BROWN Chairman of the Board,
- ------------------------------------- Chief Executive Officer
J. Terrell Brown (Principal Executive Officer)
/s/ JOHN D. DIENES President, Chief Operating Officer
- ------------------------------------- and Director (Principal
John D. Dienes Operating Officer)
/s/ DALE E. REDMAN Executive Vice President, Chief
- ------------------------------------- Financial Officer, and Director
Dale E. Redman (Principal Financial Officer)
/s/ JESSE O. GRIFFIN Senior Vice President and
- ------------------------------------- Controller (Principal
Jesse O. Griffin Accounting Officer)
/s/ JAMES J. BAILEY, III Director
- -------------------------------------
James J. Bailey, III
</TABLE>
54
<PAGE> 55
SIGNATURES
<TABLE>
<S> <C>
/s/ ROBERT H. BARROW Director
- -------------------------------------------------
Robert H. Barrow
/s/ JOHN W. BARTON, SR. Director
- -------------------------------------------------
John W. Barton, Sr.
/s/ RICHARD A. CAMPBELL Director
- -------------------------------------------------
Richard A. Campbell
/s/ HARRIS J. CHUSTZ, JR. Director
- -------------------------------------------------
Harris J. Chustz, Jr.
/s/ ROY G. KADAIR, M.D. Director
- -------------------------------------------------
Roy G. Kadair, M.D.
/s/ O. MILES POLLARD, JR. Director
- -------------------------------------------------
O. Miles Pollard, Jr.
/s/ WILLIAM H. WRIGHT, JR. Director
- -------------------------------------------------
William H. Wright, Jr.
</TABLE>
55
<PAGE> 56
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
<S> <C> <C>
2(1) -- Amended and Restated Stock Purchase Agreement dated as of July 24, 1996 by
and between the Company and Pacific Life and Accident Insurance Company
3.1(2) -- Restatement of Articles of Incorporation
3.2(3) -- By-Laws, as amended
4.1(4) -- Senior Indenture
4.2(4) -- Subordinated Indenture
4.3(4) -- First Supplemental Indenture with respect to 9.35% Senior Notes due
November 1, 1999
4.4(4) -- Form of certificate for shares of Preferred Redeemable Increased
Dividend Equity Securities 6 3/4% PRIDES(SM), Convertible Preferred
Stock, par value $2.00 per share
4.5(5) -- Second Supplemental Indenture for 7% Senior Notes due July 15, 1998
4.6(6) -- Series A Junior Participating Preferred Stock Purchase Rights
4.7(18) -- Third Supplemental Indenture for 7.7% Senior Notes due January 15, 2004
10.1(19) -- Employee Stock Ownership Plan and Trust
10.2(7) -- Management Incentive Plan, as amended
10.3(19) -- Employees' Savings Plan
10.4(16) -- 1989 Stock Incentive Plan
10.5(16) -- 1989 Non-Employee Director Stock Option Plan
10.6(12) -- 1992 Form 11-K, Employees' Savings Plan and Trust
10.7(8) -- Stock Purchase Warrant dated as of July 1, 1993
10.8(13) -- 1993 Form 11-K, Employees' Savings Plan
10.9(17) -- 1993 Stock Incentive Plan
10.10(17) -- 1993 Non-Employee Director Stock Option Plan
10.11(14) -- 1994 Form 11-K, Employees' Savings Plan and Trust
10.12(9) -- 1995 Form 11-K, Employee Savings Plan
10.13(3) -- Indemnification agreements
10.14(10) -- Change of Control Agreement
10.15(10) -- Supplemental Retirement Agreement
10.16(10) -- Split Dollar Agreement
10.17(15) -- 1996 Form 11-K, Employee Savings Plan
11.1(19) -- Statement regarding computation of per share earnings
21.1(19) -- List of Subsidiaries of the Company
23.1(19) -- Consent of Deloitte & Touche LLP
27(19) -- Financial Data Schedule
- ----------
</TABLE>
(1) Incorporated herein by reference to the designated Exhibit on
the Company's Current Report on Form 8-K filed on August 8,
1996.
(2) Incorporated herein by reference to the designated Exhibit of
the Company's Current Report on Form 8-K dated November 27,
1996.
(3) Incorporated herein by reference to the designated Exhibit of
the Company's Quarterly Report on Form 10-Q dated March 31,
1995.
(4) Incorporated by reference to the designated Exhibits of the
Company's Current Report on Form 8-K filed on June 16, 1995.
(5) Incorporated herein by reference to the designated Exhibit to
the Company's Current Report on Form 8-K filed July 26, 1995.
(6) Incorporated by reference to the designated Exhibit of the
Company's Form 8-A dated August 5, 1994.
(7) Incorporated by reference from the designated Exhibit of the
Company's Registration Statement on Form S-8 (SEC File No.
33-63069).
(8) Incorporated herein by reference to the designated Exhibit of
the Company's Registration Statement
56
<PAGE> 57
on Form S-3 (SEC File No. 33-52739).
(9) Incorporated herein by reference to the Form 11-K filed June
28, 1996.
(10) Incorporated herein by reference to the designated Exhibit on
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 filed March 19, 1996.
(11) Incorporated by reference to the designated Exhibits of the
Company's Current Report on Form 8-K filed December 19, 1996.
(12) Incorporated by reference to the Company's Annual Report on
Form 10-K, as amended, filed on April 30, 1993.
(13) Incorporated by reference to the Company's Annual Report on
Form 10-K, as amended, filed on June 29, 1994.
(14) Incorporated by reference to the Form 11-K filed July 13,
1995.
(15) To be filed on Form 11-K within 180 days after plan's fiscal
year.
(16) Incorporated herein by reference to the designated Exhibit of
the Company's Registration Statement on Form S-8 (SEC File No.
33-29994).
(17) Incorporated herein by reference to the designated Exhibit of
the Company's Registration Statement on Form S-8 (SEC File No.
33-54955).
(18) Incorporated herein by reference to the designated Exhibit of
the Company's Current Report on Form 8-K dated December 5,
1996.
(19) Filed herewith:
Exhibit 10.1
Exhibit 10.3
Exhibit 11.1
Exhibit 21.1
Exhibit 23.1
Exhibit 27
57
<PAGE> 1
EXHIBIT 10.1
UNITED COMPANIES FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
ARTICLE I INTRODUCTION . . . . . . . . . . . . 1
ARTICLE II DEFINITIONS . . . . . . . . . . . . 3
ARTICLE III ELIGIBILITY AND PARTICIPANTS . . . . 33
ARTICLE IV CONTRIBUTIONS TO THE TRUST . . . . . 35
ARTICLE V ALLOCATION OF EMPLOYER
CONTRIBUTIONS . . . . . . . . . . . 38
ARTICLE VI INVESTMENT OF TRUST ASSETS:
ALLOCATIONS TO PARTICIPANT'S
ACCOUNT . . . . . . . . . . . . . . 40
ARTICLE VII DISTRIBUTION OF BENEFITS . . . . . . 43
ARTICLE VIII LIMITATIONS ON ALLOCATIONS . . . . . 56
ARTICLE IX PLAN ADMINISTRATOR . . . . . . . . . 60
ARTICLE X RESTRICTIONS ON DISPOSITION . . . . 65
ARTICLE XI NO REVERSION TO EMPLOYER . . . . . . 66
ARTICLE XII TRUSTEE POWERS, RIGHTS AND DUTIES . 67
ARTICLE XIII AMENDMENT, TERMINATION,
OR DISCONTINUANCE . . . . . . . . . 75
ARTICLE XIV CLAIMS FOR BENEFITS: DENIALS AND
APPEALS . . . . . . . . . . . . . . . 77
ARTICLE XV FUNDING . . . . . . . . . . . . . . . 78
ARTICLE XVI TOP-HEAVY PLAN LIMITS . . . . . . . . 79
ARTICLE XVII LOAN PROVISIONS . . . . . . . . . . . 80
ARTICLE XVIII RIGHTS AND OPTIONS ON DISTRIBUTED
SHARES OF COMPANY STOCK . . . . . . . 87
ARTICLE XIX VALUATION OF EMPLOYER SECURITIES:
TRANSACTIONS INVOLVING
EMPLOYER SECURITIES . . . . . . . . . 88
ARTICLE XX MISCELLANEOUS . . . . . . . . . . . . 91
</TABLE>
<PAGE> 3
UNITED COMPANIES FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BE IT KNOWN, that on the 1st day of September , 1994, and at the
places hereinafter written, and in the presence of the witnesses hereinafter
named and undersigned, personally came and appeared:
UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under
the laws of the State of Louisiana with its principal place of
business located at 4041 Essen Lane, Baton Rouge, LA 70809,
represented herein by Dale E. Redman , its Executive Vice
President, duly authorized to act by virtue of a corporate resolution
attached hereto and made a part hereof
(hereinafter referred to as "Company" or "Employer");
AND
HIBERNIA NATIONAL BANK, a national banking association organized under
the laws of the United States of America, with its principal place of
business in Baton Rouge, Louisiana, represented by its undersigned
Trust Officer, duly authorized to represent the Bank
(hereinafter referred to as "Trustee").
WITNESSETH:
WHEREAS, the Employer wishes to reward the performance of its
employees and to aid them in providing for themselves and their families; and
WHEREAS, the Plan herein has been formulated by the Board of Directors
of the Company and said Board has resolved that in its opinion the continuation
and restatement of the Plan and Trust is advisable; and
1
<PAGE> 4
WHEREAS, for the purpose of carrying out the Plan, the Board of
Directors has authorized its officers to enter into an agreement of Trust with
the above named Trustee(s);
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, it is mutually covenanted and agreed as follows:
ARTICLE I
INTRODUCTION
A Profit Sharing Plan was originally adopted by the Company,
effective January 1, 1960, as evidenced by an agreement entered into on
December 31, 1960. The Profit Sharing Plan, as evidenced by the aforementioned
trust agreement, including all amendments thereto, provided certain benefits,
including retirement, death, disability and termination benefits, to employees
who were eligible to participate thereunder, and such plan, as converted to a
stock bonus plan on September 1, 1975, as amended and restated July 11, 1984,
as amended and restated November 17, 1990, and as amended thereafter and as in
effect on this date is hereinafter referred to as "Superseded Plan."
Effective on the Effective Date of the amendment as herein defined,
the above described Superseded Plan has been amended and restated as set forth
in this agreement by and between United Companies Financial Corporation and
Hibernia National Bank as Trustee, entitled UNITED COMPANIES FINANCIAL
CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN (hereinafter referred to as the
"Plan" or "Trust or "Plan and Trust"). The Superseded Plan is specifically
designated as a leveraged employee stock ownership plan as that term is defined
in Code section 4975(e)(7). The restatement of the Superseded Plan as the Plan
and Trust is continuous and uninterrupted, and no gap either in time or effect
exists between them or shall ever be construed to exist between them.
The Plan is designed to invest primarily in Qualifying Employer
Securities. The purpose of the Plan, as revised and restated, is to enable
eligible Employees of the Employer to share in the profits of the Employer's
business, to assist and encourage Employees to maintain a regular savings
program, to provide an effective means for them to accumulate funds for their
own retirement, to afford greater inducement for them to remain in the service
of the Employer, and to enable them to share in the appreciation or
depreciation and in the distribution of Qualifying Employer Securities
accumulated in accordance with the Plan and Trust.
Each Employee's interest hereunder and all assets acquired under the
Plan as a result of Employer Contributions thereto and all income and other
additions thereto shall be administered,
2
<PAGE> 5
distributed, forfeited or otherwise governed by the provisions of this Plan.
The Plan and Trust is designed to provide a technique of corporate finance for
the Employer as well as intended to be for the exclusive benefit of
Participants in the Plan and their Beneficiaries. Accordingly, it may be used
to accomplish the following objectives:
(1) To meet general financing requirements of the
Employer, including capital growth and transfers in the ownership of Employer
Stock.
(2) To receive Loans (or other extensions of credit) to
finance the acquisition of Qualifying Employer Securities with such Loans (or
credit) secured by the Qualifying Employer Securities acquired with the
proceeds of the Loan, by the guarantee of the Employer or an owner or Affiliate
of the Employer, or by a commitment by the Employer to pay Employer
Contributions to the Trust in amounts sufficient to enable principal and
interest on such Loans to be paid.
All covered Employees will be treated alike under the Plan and Trust;
however, all benefits accrued to the benefit of Employees covered under the
Superseded Plan as of the Effective Date of this restatement and amendment have
been preserved for such Employees and such amounts will be credited to their
accounts under the Plan or made available to them as distributions from the
Plan as provided herein.
ARTICLE II
DEFINITIONS
In this Plan, unless the context clearly implies otherwise, the
singular includes the plural, and the masculine includes the feminine and the
following words and phrases shall have the meanings set forth in this Article:
2.01 "ACCRUED BENEFIT" means the balance of each Participant's
account. A Participant's right to his Accrued Benefit shall be nonforfeitable
upon his death, his attaining Normal Retirement Age, or in the event he suffers
a Disability.
2.02 "ADJUSTMENT FACTOR" shall mean the cost-of-living adjustment
factor prescribed by the Secretary of the Treasury under section 415(d) of the
Code for years beginning after December 31, 1987, as applied to such items and
in such manner as the Secretary shall provide.
2.03 "AFFECTED EMPLOYEE" shall mean an Employee who is affected by a
partial termination of the Plan. In the case of the partial termination
resulting from the disposition of Foster Mortgage Corporation and/or its assets
or business, the group of
3
<PAGE> 6
Affected Employee consists of those Employees who satisfy the following
conditions:
(a) The Employee has commenced participation in the Plan on or
before September 30, 1993;
(b) The Employee is employed by Foster Mortgage Corporation on
September 30, 1993 and does not at any time between September 30, 1993 and
December 31, 1993 (prior to actual distribution of his benefit) complete an
Hour of Service for the Company or for an Affiliated Employer other than Foster
Mortgage Corporation; and
(c) The Employee is in the Eligible Class of Employees at
September 30, 1993.
2.04 "AFFILIATED EMPLOYER" shall mean the Employer and any
corporation which is a member of a controlled group of corporations (as defined
in section 414(b) of the Code) which includes the Employer; any trade or
business (whether or not incorporated) which is under common control (as
defined in section 414(c) of the Code) with the Employer; any organization
(whether or not incorporated) which is a member of an Affiliated Service Group
which includes the Employer; and any other entity required to be aggregated
with the Employer pursuant to regulations under section 414(o) of the Code.
2.05 "AFFILIATED SERVICE GROUP" shall mean a group consisting of
corporations or other entities with employees, one or more of which is a
primary service organization and one or more of which is a service organization
providing services to the primary service organization(s). The terms "primary
service organization" and "service organization" shall be as defined in section
414(m) of the Code and the term "Affiliated Service Group" is intended to
include all entities which are members of a group having the relationship
described in section 414(m).
2.06 "AGE" of a person as determined with respect to any date shall
mean the age on his most recent Birthday.
2.07 "AGGREGATION GROUP" shall mean the group of qualified Plans
maintained by the Employer (including all commonly controlled employers and all
members of an Affiliated Service Group with the Employer) which are aggregated
with the Plan for purposes of determining whether the Plan (and all aggregated
plans) is a Top-Heavy Plan. The required Aggregation Group means all such
plans in which a Key Employee participates, and all other plans of the Employer
which enable any plan of the Employer in which a Key Employee participates to
meet the requirements of Code sections 401(a)(4) or 410. The permissive
Aggregation Group means the required Aggregation Group, plus any other plan or
plans of the Employer which, considered together as a group with
4
<PAGE> 7
the required Aggregation Group would continue to satisfy Code sections
401(a)(4) and 410. Plans of the Employer which are in the permissive
Aggregation Group shall be included if the Plan Administrator of the Plan or
Plans, if required to be aggregated, and the Plan Administrator of the plan or
plans, if any, not required to be aggregated but allowed to be aggregated
concur in writing to such aggregation on or before the last day of the first
Plan Year to which the Top-Heavy rules apply. If the Plans not required to be
aggregated would not be Top-Heavy, and if the group, including such plans,
would be Top-Heavy for a Plan Year, then such plans shall not be included in
the Aggregation Group for such Plan Year.
2.08 "ALLOCATION LIMITATION YEAR" or "LIMITATION YEAR" means the
calendar year, unless another twelve (12) consecutive month period is adopted
by the Company for all plans of the Employer and all affiliated Employers
pursuant to a written resolution of the Board.
2.09 "ANNIVERSARY DATE" means January 1, 1989 and each succeeding
anniversary thereof.
2.10 "ANNUAL ADDITION" shall mean the amount allocated to a
Participant's account during the Limitation Year that constitutes: (i)
Employer Contributions, (ii) Employee Contributions, (iii) Forfeitures, and
(iv) Amounts described in sections 415(l)(1) and 419A(d)(2) of the Code.
Amounts forfeited and reapplied to reduce Employer Contributions shall
also be included as Annual Additions. The Excess Amount applied under section
8.01(d) to reduce Employer Contributions will be considered an Annual Addition
for the Limitation Year of such reduction.
In the event that no more than one-third of Employer Contributions
which are deductible under Code section 404(a)(9) as repayments of principal or
interest on a Loan incurred for the purpose of acquiring Qualifying Employer
Securities are allocated to Participants who are Highly Compensated Employees,
Annual Additions shall not include
(a) Forfeitures of Employer Securities acquired with the
proceeds of such a Loan; and
(b) Employer Contributions which are deductible under
Code section 404(a)(9)(B) as Contributions used to pay the interest due on such
a Loan, and which are charged against the Participant's account.
Such exclusions shall apply to Forfeitures of Employer Securities
purchased with the proceeds of a Loan and payments of interest on such Loans
for all employee stock ownership plans of
5
<PAGE> 8
all employers which are aggregated for the purposes of determining the
limitations on Contributions and benefits for any Participant under Article
VIII and Code section 415.
2.11 "BENEFICIARY" shall mean the person or persons (including an
individual, testamentary or intervivos trust, estate, partnership, corporation,
or other person or combination thereof) entitled to receive his Accrued Benefit
at his death by executing the form prescribed by the Plan Administrator. If no
designation is made or if the designation made is invalid, then the Beneficiary
shall be deemed to be the Participant's spouse, if the spouse survives him; or
if none then his surviving children, if any, sharing equally; or if none, then
his surviving heirs at law, if any, sharing equally or if none, then his
estate; however, if a Court of competent jurisdiction directs the payment to
any other person, such as pursuant to a Qualified Domestic Relations Order,
then such person shall be deemed the Beneficiary hereunder. A designated or
deemed Beneficiary may waive his rights as a Beneficiary by written notice to
the Trustee prior to distribution, in which case the Beneficiary shall be
determined as if such person were not designated or deemed a Beneficiary.
2.12 "BOARD" means the board of directors of the Company.
2.13 "BREAK IN SERVICE" or "ONE YEAR BREAK IN SERVICE" means a twelve
(12) consecutive month period during which the Participant has not completed
500 Hours of Service, except that a Participant shall not incur a One-Year
Break in Service while on an authorized leave of absence. The twelve (12)
consecutive month period shall be the same as the period used to compute Years
of Service as defined in this Article II.
2.14 "CODE" means the Internal Revenue Code of 1986, as amended and
in effect at the time of execution of this Plan & Trust document.
2.15 "COMMON CONTROL" of a corporation, partnership or proprietorship
or other entity with the Employer shall mean that such corporation is in the
relationship to the Employer described in section 414(b) of the Code or that
such other entity is in the relationship to the Employer described in section
414(c) of the Code. For purposes of applying the limitations of Article VIII,
section 414(b) and section 414(c) of the Code shall be as modified by section
415(h) of the Code.
2.16 "COMMON-LAW EMPLOYEE" a person who is an employee of the
employer or who was an employee of a Former Employer which maintained a
retirement plan which is a predecessor Plan to this Plan, but who is not and
was not a Self- Employed Individual with respect to such Employer or Former
Employer.
6
<PAGE> 9
2.17 "COMPANY" means UNITED COMPANIES FINANCIAL CORPORATION.
2.18 "COMPANY STOCK" shall mean that class of common stock of the
Company which is publicly traded.
2.19 "COMPENSATION" for a Participant for a Plan Year means such a
Participant's Earned Income, wages, salaries, and fees for professional
services and other amounts received for personal services actually rendered in
the course of employment with the Employer maintaining the Plan (including, but
not limited to, commissions paid salesmen, Compensation for services on the
basis of a percentage of profits, commissions on insurance premiums, tips,
bonuses, fringe benefits, reimbursements, and expense allowances) specifically
including for purposes of Articles IV and V, but not for purposes of Articles
VIII and XVI, any amounts which would be includible in a Participant's income
but for the fact that he made an election under a flexible benefits program (as
described in Code Section 125) maintained by the Employer or Elective
Deferrals under the United Companies Financial Corporation Employees' Savings
Plan.
Compensation shall, however, exclude the following:
(a) Employer contributions to a plan of deferred
compensation to the extent such contributions are not included in gross income
of the Employee for the taxable year in which contributed, or on behalf of an
Employee to a simplified employee pension plan to the extent such contributions
are deductible under section 219(b)(7), and any distributions from a plan of
deferred compensation whether or not includible in the gross income of the
employee when distributed;
(b) Amounts realized from the exercise of a nonqualified
stock option, or when restricted stock (or property) held by an Employee
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture;
(c) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(d) Other amounts which receive special tax benefits, or
contributions made by an employer (whether or not under a salary reduction
agreement) towards the purchase of a 403(b) annuity contract (whether or not
the contributions are excludible from the gross income of the employee);
(e) Reimbursements of other expense allowances, fringe
benefits (cash or noncash), moving expenses, deferred compensation, and welfare
benefits; and
7
<PAGE> 10
(f) Any compensation earned while an Inactive Participant
(such as when the Employee is not a member of the Eligible Class of Employees),
except that a Participant who participates for less than the full Plan Year on
account of the age and service requirements shall include his compensation for
the entire Plan Year. For purposes of Articles VIII and XVI, Compensation
earned while an Inactive Participant shall be included.
For purposes of allocations under Article V of the Plan any Elective
Deferrals under a Code section 401(k) plan maintained by the Employer or salary
reduction amounts under a Code section 125 plan maintained by the Employer,
shall not reduce Compensation even though they may not be includible in the
income of the Employee, except that such Elective Deferrals and other salary
reductions shall be excluded from Compensation for purposes of determining the
limitation on Annual Additions in Article VIII and the percentage of
Compensation needed to meet the minimum Employer Contribution under Article XVI
for a Plan Year in which the Plan is a Top Heavy Plan.
For Plan Years beginning after December 31, 1988 and on or before
December 31, 1993, Compensation of any Employee shall be limited to $200,000,
as adjusted by the Adjustment Factor.
In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to the contrary, for plan years
beginning on or after January 1, 1994, the annual compensation of each employee
taken into account under the plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding
12 months, over which compensation is determined (determination period)
beginning in such calendar year. If a determination period consists of fewer
than 12 months, the OBRA '93 annual compensation limit will be multiplied by a
fraction, the numerator of which is the number of months in the determination
period, and the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference in
this plan to the limitation under section 401(a)(17) of the Code shall mean the
OBRA '93 annual compensation limit set forth in this provision.
If the compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the current plan
year, the compensation for that prior determination period is subject to the
OBRA '93 annual compensation limit in effect for that prior determination
period.
8
<PAGE> 11
For this purpose, for determination periods beginning before the first day of
the first plan year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
For purposes of applying the $200,000 limit or $150,000 limit (as
adjusted) on Compensation, all participants who are Family Members of a Highly
Compensated Employee who is a Five Percent Owner or who is one of the ten (10)
highest paid Employees participating in the Plan will be considered as being
one (1) Employee and the $200,000 limit or $150,000 limit (as adjusted) will be
allocated among such individuals by reducing the salary of any Family Member
who is limited by Code section 415 to the lowest amount which permits this
limit to be reached, thereafter by reducing the salary of the highest paid
Family Member(s) until the aggregate dollar limit is met or until the next
highest Family Member's compensation is reached in which case such next highest
Family Member's compensation shall also be reduced at the same rate. This
process shall be repeated until the $200,000 limit or $150,000 limit (as
adjusted by the Adjustment Factor) is reached. A Family Member for this
purpose shall include only the spouse of the Highly Compensated Employee and
any lineal descendants of the Highly Compensated Employee who have not attained
Age 19 before the last day of the Plan Year.
If a Plan determines Compensation on a period of time that contains
fewer than 12 calendar months, then the annual Compensation limit is applied by
taking an amount equal to the annual Compensation limit for the calendar year
in which the Compensation period begins, and multiplying such amount by the
fraction obtained by dividing the number of full calendar months in the period
by 12.
2.20 "CONTRIBUTION" means the amount of cash paid or securities
transferred by the Employer to the Trustee pursuant to Article IV for any Plan
Year. The Employer Contribution for a Plan Year shall mean the amount paid on
account of such Plan Year by the Employer pursuant to section 4.01 to the
Trustee during the period provided in Article IV for which Contributions may be
made for the Plan Year and designated by the Employer as made for such Plan
Year. Rollover Contributions shall be as defined in this Article II.
2.21 "DEFINED BENEFIT DOLLAR LIMITATION" shall mean the limitation
set forth in section 415(b)(1) of the Code, as adjusted by the Adjustment
Factor for the year in question.
2.22 "DEFINED BENEFIT PLAN FRACTION" of a Participant for any
Limitation Year shall mean a fraction, the numerator of which is the sum of the
Participant's Projected Annual Benefit under all defined benefit pension plans
maintained by the Employer and any Affiliated Employer as of the last day of
the Limitation Year
9
<PAGE> 12
associated with such Plan Year, and the denominator of which is the lesser of
(a) The product of 1.25 and the Defined Benefit Dollar
Limitation, as adjusted by the Adjustment Factor.
(b) The product of 1.4 and the amount which is the
Participant's highest average annual Compensation for three (3) consecutive
years.
2.23 "DEFINED CONTRIBUTION DOLLAR LIMITATION" shall mean $30,000 or,
if greater, one-fourth of the defined benefit dollar limitation set forth in
section 415(b)(1) of the Code as in effect for the Limitation Year.
2.24 "DEFINED CONTRIBUTION PLAN FRACTION" of a Participant for any
Limitation Year shall mean a fraction, the numerator of which is the sum of
Annual Additions to the Participant's account as of the close of the Plan Year
associated with such Limitation Year, and the denominator of which is the sum
of the lesser of the following amounts determined for such Plan Year and for
each prior Year of Service which the Participant completed with the Employer:
(a) The product of 1.25 and the Defined Contribution
Dollar Limitation, or
(b) The product of 1.4 and twenty-five (25%) percent of
the Participant's Compensation for the Limitation Year.
The Annual Additions for any Limitation Year beginning before January
1, 1987 shall not be recomputed to treat all Employee Contributions as Annual
Additions.
2.25 "DESIGNATED BENEFICIARY" shall mean the individual who is the
Designated Beneficiary specified on the Beneficiary Designation Form provided
by the Plan Administrator; if there is no Designated Beneficiary specified on
such form, then the surviving spouse, if any, shall be deemed to be the
Designated Beneficiary. If no Beneficiary is named and if there is no
surviving spouse, then the Participant's oldest child, if any, shall be deemed
to have been designated. If no individual but a Trust is the named Beneficiary
and if no Designated Beneficiary is specified, then the individual who is the
largest beneficiary (using equivalent present value at Internal Revenue Service
rates) of such Trust shall be considered the Designated Beneficiary; if several
individuals are equal, then the oldest. If more than one individual is named,
then the individual who is to receive the greatest amount (using equivalent
present value) shall be the Designated Beneficiary; if more than one individual
receives the largest amount, then the oldest shall be considered the Designated
Beneficiary. The Designated Beneficiary is the
10
<PAGE> 13
Beneficiary over whose life or life expectancy the payment of benefits may be
made under Article VII.
2.26 "DETERMINATION DATE" for a Plan Year means the date as of which
the Plan is determined to be a Top-Heavy Plan or not for such Plan Year. The
Determination Date is the last day of the Plan Year preceding the Plan Year for
which the determination is made, or, in the case of the first Plan Year of any
Plan, the last day of such Plan Year.
2.27 "DIRECT ROLLOVER" A Direct Rollover is a payment by the Plan to
the Eligible Retirement Plan specified by the Distributee.
2.28 "DISABILITY" shall mean the inability of the Participant by
reason of any medically determinable bodily injury or disease, to meet the
requirements of his position with his Employer and which, in the opinion of a
physician chosen by the Plan Administrator, will be permanent and continuous
during the remainder of the Participant's lifetime and which, in the opinion of
such physician, was not contracted, suffered or incurred while the Participant
was engaged in or did not result from his having engaged in a criminal
enterprise. A Participant or former Participant with such a permanent
Disability shall be considered "Disabled".
A Participant or former Participant shall not be considered to have
such a Disability (notwithstanding his satisfaction of the requirements of the
preceding paragraph) if in the reasonable opinion of the Plan Administrator,
the Disability is a result of:
(a) Injury or disease sustained by the Participant or
former Participant while willfully and illegally participating in fights,
riots, civil insurrections or while committing a felony;
(b) Injury or disease sustained by the Participant or
former Participant which was diagnosed or discovered subsequent to the date his
employment was terminated.
A Participant may not be considered Disabled for purposes of this Plan
until he has completed two (2) Years of Service with the Employer.
2.30 "DISTRIBUTEE" A Distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving spouse
and the Employee's or former Employee's spouse or former spouse who is the
Alternate Payee under a qualified domestic relations order, as defined in
section 414(p) of the Code, are Distributees with regard to the interest of the
spouse or former spouse.
11
<PAGE> 14
2.31 "DOMESTIC RELATIONS ORDER" means a judgment, decree or order
(including the approval of a property settlement agreement) that relates to the
provision of child support, alimony payments, or marital property rights to a
spouse, former spouse, child or other dependent of a Participant and is made a
pursuant to a state domestic relations law, including a community property law.
2.32 "EARLY RETIREMENT DATE" of a Participant shall mean the date on
which the sum of the Years of Service a Participant has completed with the
Employer and the Participant's Age equals 75.
2.33 "EARNED INCOME" of a Self-Employed Individual means the net
earnings from self-employment in the trade or business with respect to which
the Plan is established, for which personal services of the individual are a
material income-producing factor. Net earnings will be determined without
regard to items not included in gross income and the deductions allocable to
such items. Net earnings are reduced by contributions by the Employer to a
qualified plan to the extent deductible under section 404 of the Code.
2.34 "EFFECTIVE DATE" shall be January 1, 1960. The Effective Date
of this amendment and restatement shall be January 1, 1989, except as otherwise
provided herein.
2.35 "ELIGIBILITY COMPUTATION PERIOD" shall mean the 12-month period
beginning with the date on which the Employee completes an Hour of Service with
the Employer and the successive 12-month periods beginning with anniversaries
of such date.
2.36 "ELIGIBLE CLASS OF EMPLOYEES" shall mean the group of Employees
of the Employer which includes all Employees, except those Employees who are
members of a collective bargaining unit operating under a collective bargaining
agreement in which retirement benefits were the subject of good faith
negotiations, Employees who are nonresident alien individuals earning no
earned income from sources within the United States, Leased Employees, and
Employees of a non-adopting Affiliated Employer. No Owner-Employee or
Shareholder-Employee shall be in the Eligible Class of Employees in his
capacity as an Owner-Employee or Shareholder-Employee. The Eligible Class of
Employees shall, beginning October 1, 1993, not include any Employees of Foster
Mortgage Corporation with regard to Compensation earned from Foster Mortgage
Corporation.
An Employee of the former Foster Mortgage Corporation which has been
acquired by the Employer through an asset purchase at November 1, 1990 shall be
entitled to credit his service with the predecessor acquired corporation, but
shall not meet the eligibility requirements until up to and including the date
of acquisition, November 1, 1990. Accordingly, an Employee who is
12
<PAGE> 15
in this Eligible Class of Employees and who has met the service requirements
solely as a result of his service with Foster Mortgage Corporation shall be
entitled to participate on the Entry Date next following November 1, 1990,
which is January 1, 1991. Furthermore, such Employees of Foster Mortgage
Corporation shall cease to be members of this Eligible Class of Employees on
October 1, 1993, the date of transfer of Foster Mortgage Corporation.
2.37 "ELIGIBLE RETIREMENT PLAN" shall mean an Individual Retirement
Account described in section 408(a) of the Code, an individual retirement
annuity described in section 408(b) of the Code, an annuity plan described in
section 403(a) of the Code, or a qualified trust described in section 401(a) of
the Code, that accepts the Distributee's Eligible Rollover Distribution.
However, in the case of an Eligible Rollover Distribution to the surviving
spouse, an Eligible Retirement Plan is an Individual retirement Account or
Individual Retirement Annuity.
2.38 "ELIGIBLE ROLLOVER DISTRIBUTION" An Eligible Rollover
Distribution is any distribution of all or any portion of the balance to the
credit of the Distributee, except that an Eligible Rollover Distribution does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or
life expectancy of the Distributee or the joint lives (or joint life
expectancies) of the Distributee and the Distributee's Designated Beneficiary,
or for a specified period of ten years or more; any distribution to the extent
such distribution is required under section 401(a)(9) of the Code; and the
portion of any distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation with respect to
Employer Securities).
2.39 "EMPLOYEE" means any person who is employed by the Employer, as
the term Employee is defined in section 3121(d) of the Code and specifically
excluding a person operating as an independent contractor with respect to the
Employer. Employee shall include owner-employees and Self-Employed
Individuals, as well as Shareholders and Common Law Employees. Employee shall
include a Leased Employee.
A Leased Employee shall not be considered an Employee of the recipient
if:
(a) Such Employee is covered by a money purchase pension
plan providing:
(i) A nonintegrated Employer Contribution rate
of at least ten (10%) of Compensation, as defined in section 415(c)(3) of the
Code, but including amounts contributed pursuant to a salary reduction
agreement which are excludible from the
13
<PAGE> 16
Employee's gross income under section 125, section 402(a)(8), section 402(h) or
section 403(b) of the Code,
(ii) Immediate participation, and
(iii) Full and immediate vesting; and
(b) Leased Employees do not constitute more than 20% of
the recipient's nonhighly compensated workforce.
Notwithstanding any other provisions of this Plan, for purposes of
determining the number or identity of Highly Compensated Employees or for
purposes of the pension requirements of section 414(n)(3) of the Code, the
Employees of the Employer shall include Leased Employees, excluding those
Leased Employees described in the preceding paragraph.
2.40 "EMPLOYEE CONTRIBUTIONS" shall mean Contributions to the Plan
made by an Employee during the Plan Year. No such Contributions are permitted,
except for Rollover Contributions, subject to the limitations of Article XII
and those set by the Plan Administrator and Trustee. However, the Plan shall
not accept Rollover Contributions and direct asset transfers where such
Contributions are made other than in cash or are attributable to Deductible
Voluntary Employee Contributions, after-tax Employee Contributions, or amounts
accumulated on behalf of an Owner-Employee. No asset transfers shall be
accepted which would require the Plan & Trust to provide a Life Annuity or
Joint & Survivor Annuity or which would restrict payment to those circumstances
permitted for Elective Deferrals in Cash or Deferred arrangements or earnings
thereon.
2.41 "EMPLOYER" means the Company and any corporation or corporations
or other entities which have adopted this Plan and any other corporation or
entity that was, may be, or may become a parent, a subsidiary, an affiliate or
an associate of the Company; provided that the inclusion of a corporation or
other entity within, or the removal of a corporation or other entity within
from the meaning of the word "Employer" shall be effected only by action of its
Board of Directors (or other governing body) and the Board of Directors of the
Company. Employer shall also include any successor by merger or any business
organization that acquires the business of a sponsoring Employer and adopts the
Plan (with the concurrence of the Company). The business known as Foster
Mortgage Corporation shall be considered an Employer under this Plan for the
period from the acquisition of its assets by the Company, November 1, 1990, to
the date its employees ceased to participate in this Plan, October 1, 1993;
employees of the former Foster Mortgage Corporation shall be considered
employees of an Employer during the period set forth above, but shall be given
credit for service with Foster Mortgage Corporation prior to the acquisition
date for limited enumerated
14
<PAGE> 17
purposes under the Plan. Furthermore entities which are Affiliated Employers
with the Employer may adopt the Plan by resolution of Board of Directors of the
Company and by resolution of the governing body of each of the newly adopting
entities. For purposes of determining discrimination in vesting,
discrimination in eligibility, the limitations of Article VIII, the Present
Value of the Accrued Benefit, and the definitions of the terms Top-Heavy Plan,
Defined Benefit Plan Fraction, and Defined Contribution Plan Fraction, Employer
shall mean all entities adopting the Plan and all other entities which are
Affiliated Employers with an adopting Employer. By authorizing the adoption of
this Plan the governing body of any Employer other than the Company delegates
to the Company (and its Board, as appropriate) all of the functions which the
Company (or its board) may perform pursuant to this Plan.
2.42 "ENTRY DATE" means the Effective Date and the first day of each
Plan Year, January 1.
2.43 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended and in effect at the date of the execution of this document.
2.44 "EXCESS AMOUNT" means the excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Annual Addition, less
loading and other administrative charges allocable to such excess.
2.45 "FAMILY MEMBER" shall mean an individual described in section
414(q)(6) of the Code and Regs. section 1.414(q)-1T, Question and Answer 11 and
12. Specifically, an individual who is a Family Member for purposes of the
above provisions shall include, with respect to any Employee or former
Employee, such Employee's or former Employee's spouse and lineal ascendants or
descendants and the spouses of such lineal ascendants and descendants. In
determining whether an individual is a Family Member with respect to an
Employee or former Employee, legal adoptions shall be taken into account.
If an individual is a Family Member with respect to an Employee or
former Employee on any day during the Plan Year, such individual shall be
considered a Family Member for the entire Plan Year.
2.46 "FISCAL YEAR" means the Employer's taxable year for Federal
income tax purposes.
2.47 "FIVE PERCENT OWNER" of the Employer shall mean
(a) If the Employer is a corporation, any person who owns
(or is considered as owning within the meaning of section 318 of the Code) more
than five (5%) percent of the outstanding
15
<PAGE> 18
stock of the corporation or stock possessing more than five (5%)percent of the
total combined voting power of all stock of the corporation, or
(b) If the Employer is not a corporation, any person who
owns more than five (5%) percent of the capital or profits interest in the
Employer.
For purposes of this section, subparagraph (C) of section 318(a)(2) of
the Code shall be applied by substituting "5%" for "50%" therein, and the rules
of subsections (b), (c) and (m) of section 414 of the Code shall not apply for
purposes of determining ownership.
2.48 "FORFEITURE" shall mean that portion of a Participant's Accrued
Benefit which is not vested (i.e., not nonforfeitable) and which is forfeited
pursuant to the provisions of Article VII.
2.49 "HIGHLY COMPENSATED EMPLOYEE" shall mean an Employee who, during
the Plan Year or the preceding Plan Year
(a) Was at any time a Five Percent owner,
(b) Received Compensation from the Employer in excess of
$75,000,
(c) Received Compensation from the Employer in excess of
$50,000 and was in the Top-Paid group of Employees for such Plan Year, or
(d) Was at any time an officer of the Employer and
received Compensation from the Employer in an amount greater than 50% of the
Defined Benefit Dollar Limitation for such year.
Amounts in (b) and (c) shall be adjusted by the Adjustment Factor each
year. Highly Compensated Employee includes any Family Member of a Highly
Compensated Employee. Compensation from an Affiliated Employer shall be
included. An Employee shall not be included in (b), (c) or (d) above unless he
is a member of the group consisting of the 100 Employees paid the greatest
Compensation for the Plan Year.
For purposes of determining Highly Compensated Employees, the number
of officers is limited to fifty (50) (or, if less, the greater of three (3)
Employees or ten (10%) percent of Employees). And when no officer has
Compensation in excess of fifty (50%) percent of the section 415(b)(1)(A)
limit, the highest paid officer is treated as a Highly Compensated Employee.
Affiliated Employers aggregated under section 414(b),(c),(m), or (o) shall be
treated as the Employer.
16
<PAGE> 19
A highly compensated active Employee includes any Employee who
performs service for the Employer during the determination year and who, during
the look-back year:
(a) Received Compensation from the Employer in excess of
$75,000 (as adjusted pursuant to section 415(d) of the Code);
(b) Received Compensation from the Employer in excess of
$50,000 (as adjusted pursuant to section 415(d) of the Code) and was a member
of the Top-Paid Group for such year; or
(c) Was an officer of the Employer and received
Compensation during such year that is greater than fifty (50%) percent of the
dollar limitation in effect under section 415(b)(1)(A) of the Code.
The term Highly Compensated Employee also includes:
(a) Employees who are both described in the preceding
sentence if the term "determination year" is substituted for the term
"look-back year" and the Employee is one of the 100 Employees who received the
most Compensation from the Employer during the Determination Year; and
(b) Employees who are Five Percent Owners at any time
during the look-back year or Determination Year.
If no officer has satisfied the Compensation requirement of (iii)
above during either a Determination year or look-back year, the highest paid
officer for such year shall be treated as a Highly Compensated Employee.
For this purpose, the Determination Year shall be the Plan Year. The
look-back year shall be the twelve-month period immediately preceding the
Determination Year.
A highly compensated former Employee includes any Employee who
separated from service (or was deemed to have separated) prior to the
Determination Year, performs no service for the Employer during the
Determination Year, and was a highly compensated active Employee for either the
separation year or any Determination Year ending on or after the Employee's
55th birthday.
If an Employee is, during a Determination Year or look-back year, a
Family Member of either a Five Percent Owner who is an active or former
Employee or a Highly Compensated Employee who is one of the ten most Highly
Compensated Employees ranked on the basis of Compensation paid by the Employer
during such year, then the Family Member and the Five Percent Owner of top-ten
Highly Compensated Employee shall be aggregated. In such case, the Family
Member and Five Percent Owner or top-ten Highly
17
<PAGE> 20
Compensated Employee shall be treated as a single Employee receiving
Compensation and Plan Contributions or benefits equal to the sum of such
Compensation and Contributions or benefits of the Family Member and Five
Percent Owner or top- ten Highly Compensated Employee. For purposes of this
section, Family Member includes the spouse, lineal ascendants and descendants
of the Employee or former Employee and the spouse of such lineal ascendants and
descendants.
The determination of who is a Highly Compensated Employee, including
the determinations of the number and identity of Employees in the Top-Paid
Group, the top 100 Employees, the number of Employees treated as officers and
the Compensation that is considered, will be made in accordance with section
414(q) of the Code and the regulations thereunder.
2.50 "HOURS OF SERVICE" shall be determined on the basis of actual
hours for which an Employee is paid or entitled to payment. Such hours
include:
(a) Each hour for which an Employee is directly or
indirectly paid or entitled to payment by the Employer for the performance of
duties during the Allocation Limitation Year or other applicable computation
period, including hours actually worked on overtime;
(b) Each hour an Employee is not working due to a dispute
for which back pay has been either awarded or agreed to by the Employer,
irrespective of mitigation of damages, but no credit shall be given for the
same hours under two of the subsections (a) or (b) or (c) or (d) of this
section, and the limitations of subsection (c) shall apply if the back pay is
awarded for a period covered by subsection (c); and
(c) Each hour for which an Employee is paid, or entitled
to payment, by the Employer on account of a period of time during which no
duties are performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability) lay-off, jury duty, military duty or leave of absence, except that:
(i) No more than 501 Hours of Service are
required to be credited under this subsection (c) to an Employee 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);
(ii) Hours of Service are not required to be
credited for a payment which solely reimburses an Employee for medical or
medically related expenses incurred by the Employee.
18
<PAGE> 21
(iii) An hour for which an Employee is directly
or indirectly paid, or entitled to payment, on account of a period during which
no duties are performed is not required to be credited to the Employee if such
payment is made or due under a plan maintained solely for the purpose of
complying with applicable workmen's compensation, or unemployment compensation
or disability insurance laws; and
(iv) An Employee shall not be credited on
account of a period during which no duties are performed with a number of Hours
of Service which is greater than the number of Hours of Service regularly
scheduled for the performance of duties during such period.
For purposes of this subsection (c), a payment shall be deemed to be
made by or due from an Employer regardless of whether such payment is made by
or due from the Employer directly, or indirectly through, among others, a trust
fund, or insurer, to which the Employer 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.
(d) In the case of a Participant who is absent from work
for any period by reason of the pregnancy of the Participant, the birth of a
child of or the adoption of a child by the Participant, or for purposes of
caring for such a child for the period beginning immediately after such birth
or adoption, the following Hours of Service shall be credited solely for
purposes of determining whether a one (1) year Break in Service has occurred:
(i) Hours of Service which otherwise would
normally have been credited to such individual but for such absence; or
(ii) If the Hours cannot be determined under
(1), eight (8) Hours of Service shall be credited for each normal workday of
absence.
No more than five hundred one (501) Hours of Service may be credited
on account of such pregnancy or adoption. Such Hours of Service shall be
credited only in the Plan Year (for vesting purposes) or Eligibility
Computation Period (for participation purposes) in which the absence from work
begins, if the Participant would be prevented from incurring a one-year Break
in Service in such Plan Year (for vesting purposes) or Eligibility Computation
Period (for participation purposes) solely because the period of absence is
treated as Hours of Service as provided in this paragraph. Otherwise, such
Hours of Service shall be credited in the immediately following Plan Year (for
vesting
19
<PAGE> 22
purposes) or Eligibility Computation Period (for participation purposes). The
Plan Administrator may require, as a condition of the crediting of any such
service, that the Participant furnish the Plan Administrator with such timely
information as the Plan Administrator may reasonably require (in accordance
with Article IX) in order to ensure that such service should be credited.
(e) Hours of Service shall be credited to the computation
period in which the duties are performed. Hours of Service for the period of
time during which no duties are performed shall be credited in accordance with
section 2530.200b-2(b) and (c) of the Department of Labor regulations.
(f) Hours of Service worked as an employee for an
Affiliated Employer, whether or not such Affiliated Employer adopts this Plan,
shall be counted as Hours of Service for eligibility and vesting purposes under
this Plan, but only during the period of such Common Control or affiliated
service, unless provided otherwise in Articles III and VII. Credit shall not
be given by the Plan for Compensation earned during such period from any
nonparticipating employer for which such service is credited.
2.51 "INACTIVE PARTICIPANT" shall mean any Employee or former
Employee who has ceased to be eligible to receive an allocation of Employer
Contributions or forfeitures and on whose behalf an account is maintained under
the Plan. An Employee who has become a Participant and who ceases to be a
member of the Eligible Class of Employees shall be an Inactive Participant
during the period in which he is not a member of the Eligible Class of
Employees (or with respect to services performed as an Employee who is not a
member of the Eligible Class of Employees).
2.52 "KEY EMPLOYEE" for a Plan Year beginning in 1984 or later means
an Employee or former employee or Beneficiary of such Employee or former
Employee who, at any time during the Plan Year containing the Determination
Date for the Plan Year or any one of the four (4) preceding Plan Years, is or
was
(a) An officer of the Employer (but no more than 50
Employees, or if less, the greater of three Employees or ten (10%) percent of
the Employees) having an annual Compensation from the Employer for the
Limitation year associated with the Plan Year greater than fifty (50%) percent
of the Defined Benefit Dollar Limitation for any such Plan Year, or
(b) An owner (including one who is considered an owner
under Code section 318) of the Employer
(i) Who is one (1) of the ten (10) Employees
having an annual Compensation from the Employer for the Limitation Year
associated with the Plan Year greater than the Defined Contribution Dollar
Limitation for any such Plan Year and
20
<PAGE> 23
owning (or considered as owning with the meaning of Code section 318) the
largest interest in the Employer, or
(ii) Who is a Five (5%) Percent Owner of the
Employer, or
(iii) Who owns one (1%) percent or more of the
Employer and whose Compensation from the Employer exceeds $150,000.
For purposes of clause (i) of subsection (b) above, if two (2)
Employees have the same interest in the Employer, the Employee having greater
annual Compensation for the Plan Year from the Employer shall be treated as
having a larger interest, furthermore, an Employee must own (or be considered
to own under Code section 318) at least one-half percent of the Employer. For
purposes of determining ownership in the Employer under subsection (b) above,
the aggregation rules of subsections (b), (c) and (m) of Code section 414 shall
not apply.
Beneficiaries of an Employee acquire the character of the Employee who
performed service for the Employer. Also, inherited benefits will retain the
character of the benefits of the Employee who performed service for the
Employer.
2.53 "LEASED EMPLOYEE" shall mean a person who is not an employee of
an employer (the "recipient") and who provides services to the recipient under
the following conditions:
(a) Such services are provided pursuant to an agreement
between the recipient and any other person (otherwise referred to as a "leasing
organization"),
(b) Such person has performed such services for the
recipient (or for the recipient and related persons) on a substantially
full-time basis for a period of at least one (1) year (six (6) months in the
case of core health benefits), and
(c) Such services are of a type historically performed,
in the business field of the recipient, by employees. IRC section 414(n)(2).
A leased employee is treated as an employee of the recipient for
purposes of determining the recipient's compliance with employee benefit rules.
IRC section 414(n)(3).
Employers who are under common control or affiliated may be considered
a single "recipient."
A person who is reported as an "independent contractor" performing
services for the employer may be a leased employee, even if his independent
contractor status is accurate.
21
<PAGE> 24
Certain other persons who are "leased managers" or "leased owners" may
trigger other aggregation rules. Prop. Treas. Regs. section 1.414(o)-1(b),
(c). Certain inside corporate directors may be aggregated with respect to
their directors' fees. Prop. Treas. Regs. section 1.414(o)-1(g).
2.54 "LEAVE OF ABSENCE" shall mean a temporary period of absence from
the employ of the Employer which is applied for by the Participant and
authorized by the Employer. A Leave of Absence may not exceed one (1) year,
and such Leave may be granted for reasons of maternity, illness, injury,
reduction of work force, educational purposes, required military service during
which the Employee's reemployment rights are protected by law, and any other
reasonable purpose which the Employer determines under the limits of its Leave
policy. A Leave of Absence may be paid or unpaid.
2.55 "LIFE ANNUITY" means an annuity payable for a period of time
which is dependent or which may be dependent on the life of the Participant or
the joint lives of the Participant and his spouse.
2.56 "LOAN" means any loan to the Trustee made or guaranteed by a
disqualified person (within the meaning of section 4975(e)(2) of the Code),
including but not limited to, a direct loan of cash, a money-purchase
transaction, an assumption of an obligation of the Trustee, an unsecured
guarantee of the use of assets of a disqualified person (within the meaning of
section 4975(e)(2) of the Code) as collateral for a Loan.
2.57 "MAXIMUM ANNUAL ADDITION" with respect to any Participant for an
Allocation Limitation Year shall be the lesser of
(a) Defined Contribution Dollar Limitation, or
(b) 25% of the Participant's Compensation for the
Allocation Limitation Year;
but in no event later than last day of the Plan Year beginning on or before
July 12, 1989, the dollar limit of subsection (a) as adjusted may be increased
under the following conditions:
(c) The dollar amount shall not exceed the sum of (a)
above and the lesser of (a) above or the amount of Qualifying Employer
Securities contributed to the Plan, or purchased with cash contributed to the
Plan, for the Allocation Limitation Year; and
(d) No more than one-third of the Employer Contributions
for the Allocation Limitation Year may be allocated to Participants who are
Highly Compensated Employees.
22
<PAGE> 25
If the application of the increase in the dollar limit under (c) above
would result in an allocation in excess of that provided in (d) above, then
such dollar limit shall be reduced for all Participants (but not below the
dollar amount of (a) above) to the extent necessary to reach the limitation on
the allocation provided under (d) above, for the Allocation Limitation Year.
The Maximum Annual Addition may be further reduced in the manner set
forth in Article VIII in the event that the Employer or an Affiliated Employer
maintains or has maintained a defined benefit pension plan under which the
Participant has received or could receive a benefit.
2.58 "NAMED FIDUCIARY" means any person who exercises any
discretionary authority or discretionary control representing the management or
disposition of Plan assets, who renders any investment advice for a fee or
other compensation, or who exercises any discretionary authority or
responsibility for Plan Administration. The Trustee, Employer, Plan
Administrator, the Appeals Committee or Appeals Officer, if named by the Plan
Administrator, and any other party to this Plan and Trust which meets this
definition will be considered a Named Fiduciary.
2.59 "NET PROFITS" means taxable income for Federal income tax
purposes computed without deductions for contributions to any qualified
Employee profit sharing retirement plan. The Employer may estimate the amount
of Net Profits by any reasonable method consistently applied in accordance with
established accounting principles.
2.60 "NONALLOCATION PERIOD" means the period beginning on the date
of the sale of the qualified securities to the Plan which sale is subject to
the Code sections 1042 and 2057 and ending on the later of (i) the date which
is 10 years after the date of the sale, or (ii) the date of the plan allocation
attributable to the final payment of acquisition indebtedness incurred in
connection with such sale.
2.61 "NONHIGHLY COMPENSATED EMPLOYEE" shall mean an Employee of the
Employer who is neither a Highly Compensated Employee nor a member of the
family, as defined in section 414(q)(6)(B) of the Code of a Highly Compensated
Employee.
2.62 "NONKEY EMPLOYEE" shall mean an Employee (or Beneficiary of an
Employee) who is not a Key Employee and shall include an Employee (or
Beneficiary of an Employee) who was previously a Key Employee and who is no
longer a Key Employee (i.e., a former Key Employee).
2.63 "NORMAL RETIREMENT DATE" or "NORMAL RETIREMENT AGE" of a
Participant means that date when the Participant has
23
<PAGE> 26
attained Age 65. In no event may the Normal Retirement Age exceed any
mandatory retirement age enforced by the Employer.
2.64 "OWNER EMPLOYEE" means an Employee or former Employee who is or
was the sole proprietor, if any Employer or former Employer is or was a
sole-proprietorship, or a partner who owns or at one time owned more than 10%
of either the capital interest or the profits interest in a partnership if any
Employer or Former Employer is or was a partnership.
2.65 "PARTICIPANT" means an Employee in the Eligible Class of
Employees, as defined in this Article II, who shall satisfy the requirements
set forth in Article III, except that a Participant shall cease to participate
in the Plan if he terminates employment with the Employer (and with any
Affiliated Employer), and is paid or deemed to be paid his vested Accrued
Benefit.
2.66 "PARTICIPATION COMMENCEMENT DATE" shall mean the first day of
the first Plan Year in which the Participant commenced participation in the
Plan.
2.67 "PLAN" means the stock bonus plan and trust restated and
continued by this Act, which shall be known as the United Companies Financial
Corporation Employee Stock Ownership Plan and Trust (hereinafter sometimes
referred to as "Plan", "Trust", or "Plan and Trust").
2.68 "PLAN ADMINISTRATOR" means the Named Fiduciary, as such term is
defined above and in ERISA, who has the powers and duties as set forth in
Article IX. The Plan Administrator shall be appointed by the Employer by Board
resolution. In the event of the failure of such appointment, or if all such
appointees decline to accept the appointment, or in the event of resignation of
the Plan Administrator, the Company shall serve as Plan Administrator.
2.69 "PLAN YEAR" means the twelve (12) month accounting period of the
Plan and Trust, which shall end on December 31 of each year. The initial Plan
Year shall commence with the Effective Date of the Plan.
2.70 "POST-1986 EMPLOYER SECURITIES" shall mean Qualifying Employer
Securities acquired by the Plan and Trust after December 31, 1986.
For this purpose, the purchase is considered to take place after
December 31, 1986 if the sale is completed after December 31, 1986 and was not
made pursuant to a fixed and binding obligation to acquire stock entered into
prior to December 31, 1986 and allocable to a Plan Year ending on or before
December 31, 1986. An Employer Contribution of Qualifying Employer
24
<PAGE> 27
Securities shall be considered to give rise to Employer Securities acquired by
the Plan after December 31, 1986 if made after December 31, 1986, for a Plan
Year ending after such date.
The portion of a Participant's account balance attributable to
Employer Securities which were acquired by the Plan after December 31, 1986
shall be determined by separately accounting for such securities acquired under
the normal accounting rules of Article VI. If Qualifying Employer securities
are purchased after December 31, 1986 with assets of the Trust from the Other
Investments Accounts of Participants, then such Qualifying Employer Securities
shall be allocated to the Company Stock Accounts in the proportion of the Other
Investment Accounts of said Participants (except for Participants whose
accounts are segregated for whatever reason).
Forfeitures of Qualifying Employer Securities shall retain their
character as Post-1986 Employer Securities, or not, in the account of the
Participants to whom allocated even though the allocation of the forfeiture may
take place after December 31, 1986.
If shares of Qualifying Employer Securities are distributed from an
Employee's account, they shall be deemed to come from Post-1986 Employer
Securities and other Employer Securities in the ratio of such accounts.
2.71 "PRESENT VALUE OF THE ACCRUED BENEFIT" of an Employee or former
Employee or Beneficiary as of a Determination Date means, in the case of the
Plan and any other plan or plans which are members of the Aggregation Group
which are defined contribution plans, the account balance (or sum of the
account balances), other than amounts attributable to Deductible Voluntary
Employee Contributions and to Rollover Contributions made on or after December
31, 1983, and initiated by the Employee and made from a Plan not maintained by
the Employer, held in such plan for the benefit of the Employee, former
employee or Beneficiary on the Determination Date, plus any distributions made
from the plan or plans to such Employee, former employee or Beneficiary during
the Plan Year in which the Determination Date occurs or in the four (4)
preceding Plan Years, including any contributions allocated to the account or
accounts of the Employee, former employee or Beneficiary on or before the
Determination Date, but not including any distributions which were rolled over
or recontributed to another plan in the Aggregation Group. If one or more of
the plans which are in the Aggregation Group is a defined benefit pension plan,
the Present Value of the Accrued Benefit as of the Determination Date of an
Employee or former employee who is or was a participant in such plan or plans
means the present value of the Accrued Benefit of such Employee or former
Employee as of the most recent Valuation Date of such plan occurring within the
twelve (12) month period
25
<PAGE> 28
ending on the Determination Date, computed as if the Employee who had not
already terminated service had terminated employment with the Employer as of
the Valuation Date, plus the amount of any distributions made to such employee
or former employee during the five (5) year period ending on the Determination
Date (except that if a distribution is made to an Employee or former employee
after the Valuation Date but before the Determination Date, such distribution
shall not be counted to the extent that it is reflected in the Accrued Benefit
as of the Valuation Date). If the defined benefit pension plan is in its first
Plan Year, then the Plan Administrator of such plan shall elect, in writing,
with appropriate notice to the Plan Administrators of the other plan or plans
in the Aggregation Group, whether the Accrued Benefit shall be determined (a)
as if the individual had terminated service as of the Determination Date, or
(b) as if the individual terminated service as of the Valuation Date, but
taking into account the estimated Accrued Benefit as of the Determination Date.
The assumptions used in determining the Present Value of the Accrued
Benefit of any individual shall be the same mortality, interest and
cost-of-living assumptions used in determining actuarial equivalence under the
defined benefit pension plan, if any; however, the interest rate used may not
exceed the applicable rate as used by the Pension Benefit Guaranty Corporation.
In the event a Joint and Survivor Annuity is the normal form of benefit, the
actual Age of the spouse shall be used.
2.72 "PROJECTED ANNUAL BENEFIT" shall mean a Participant's annual
benefit (adjusted to the actuarial equivalent of a Straight Life Annuity if
expressed in a form other than a Straight Life or Qualified Joint and Survivor
Annuity) under any qualified defined benefit pension plan maintained by the
Employer or an Affiliated Employer, assuming that no Participant Contributions
or Rollover Contributions are taken into account in determining the benefit
that the Participant will continue employment until the later of his current
Age or his Normal retirement Age under such plan, and that the Participant's
Compensation for the Limitation Year and all other relevant factors used to
determine benefits under the Plan will remain constant for all future
Limitation Years.
2.73 "PUT OPTION" shall mean the grant by the Employer to a
distributee of Qualifying Employer Securities by the Plan & Trust of an option
to sell such Qualifying Employer Securities to the Employer at the fair market
value of such shares as of the most recent Valuation Date. A Put Option shall
further mean the grant of such an option by the Plan & Trust prior to the
exercise of such option given by the Employer. Any Put Option given under this
Plan shall satisfy the terms of Article XVII with respect to Put Options
whether or not the Plan engages in a Loan. The
26
<PAGE> 29
Employer may adopt a policy of giving a Put Option even if not required under
the terms of the Plan; such a policy may extend to giving an irrevocable Put
Option.
2.74 "QUALIFIED DOMESTIC RELATIONS ORDER" is a Domestic Relations
Order which creates or recognizes the existence of an alternate payee's right
to, or assigns to an alternate payee the right to, receive all or a portion of
the benefit payable to a Participant under the Plan; specifies the name and
last known address of the Participant and each alternate payee, the amount or
percentage of the Participant's benefits to be paid to any alternate payee, the
number of payments to which the order applies, and the Plan to which the order
relates; and does not alter the amount or form of Plan benefits. For this
purpose, a Domestic Relations Order alters the form of benefit if it requires
the Plan to provide any type or form of benefit or any option which is not
otherwise provided for in the Plan, requires the Plan to provide increased
benefits (i.e., benefits with a greater Actuarial Equivalent than would be
required to be provided to the Participant alone), or requires the payment of
benefits to a second alternate payee which are already required to be made to a
first alternate payee.
2.75 "QUALIFIED ELECTION PERIOD" shall mean the six (6) Plan Year
period beginning with the later of (i) the first Plan Year beginning after
December 31, 1986; or (ii) the Plan Year in which the Participant first becomes
a Qualified Participant. For purposes of the preceding sentence, an Employer
may elect to treat an individual first becoming a Qualified Participant in the
first Plan Year beginning in 1987 as having become a Participant in the first
Plan Year beginning in 1988. In accordance with I. R. Notice 88-56, the
initial Qualified Election Period may be extended to September 6, 1988.
2.76 "QUALIFIED PARTICIPANT" shall mean a Participant who has
attained Age 55 and who has completed at least ten (10) Years of Participation
in the Plan. Such a Participant shall be considered a Qualified Participant
during the Qualified Election Period. His status as a Qualified Participant
shall apply for the first Plan Year during which he completes the age and
participation requirements and for the next five (5) following Plan Years,
after which he shall cease to be a Qualified Participant; however, the first
Plan Year in which a Participant becomes a Qualified Participant shall not
commence earlier than the first Plan Year beginning after December 31, 1986.
2.77 "QUALIFYING EMPLOYER REAL PROPERTY" shall mean parcels of
immovable property which are leased to the Employer or an affiliate of the
Employer, dispersed geographically, and suitable for more than one use, and
which otherwise comply with the requirements of Title I of ERISA (other than
sections 406 and 407).
27
<PAGE> 30
2.78 "QUALIFYING EMPLOYER SECURITY" means
(a) With respect to shares acquired with the proceeds of
a Loan, common stock issued by the Employer having a combination of voting
power and dividend rights equal to or in excess of that class or classes of
common stock of the Employer having the greatest voting power and dividend
rights. Noncallable preferred stock shall be treated as a Qualifying Employer
Security if such stock is convertible at any time into common stock meeting the
definition of Qualifying Employer Security and if such conversion is at a price
which (as of the date of the acquisition by the Employee Stock Ownership Plan)
is reasonable;
(b) With respect to shares acquired by other means than a
Loan, any instrument issued by the Employer and meeting the requirements of
section 4975(e)(8) of the Code.
2.79 "REGISTRATION TYPE QUALIFYING EMPLOYER SECURITY" is a class of
securities which are Qualifying Employer Securities which securities are
required to be registered under section 12 of the Securities Exchange Act of
1934 or which would be required to be so registered if it did not qualify for
the exemption from registration provided in section 12(g)(2)(H) of said Act.
2.80 "REQUIRED BEGINNING DATE" with respect to a Participant or
former Participant means April 1 of the calendar year following the calendar
year in which the employee attains age 70 1/2.
For taxable years of the Employee beginning before December 31, 1988,
Required Beginning Date with respect to a Participant or former Participant who
is not a Five Percent Owner and has not been a Five Percent Owner during the
five (5)- Plan-Year period ending on the calendar year in which the Employee
attains Age 70 1/2, means April 1 of the calendar year following the later of:
(a) The calendar year in which the Employee attains Age
70 1/2, or
(b) The calendar year in which the Employee retires.
Notwithstanding the above, the Required Beginning Date of an employee
who makes the election provided under section 242(b) of the Tax Equity & Fiscal
Responsibility Act of 1982 ("TEFRA") to defer receipt of distribution shall be
the date of deferral pursuant to such election. If such election is revoked,
the Required Beginning Date shall be the last day of the year of the
revocation, and the amount of the minimum distribution for such year shall be
the sum of all amounts which would have been due for past and present years if
the election had not been made.
28
<PAGE> 31
2.81 "RIGHT OF FIRST REFUSAL" means a right given to the Plan and
Trust, thereafter to the Employer, by the distributee to purchase any shares of
Qualifying Employer Securities distributed by the Plan and Trust from the
distributee prior to any transfer of such shares to a third party. A Right of
First Refusal may be required only in the event that a Put Option is given.
The terms of the Right of First Refusal must satisfy the requirements of
Article XVII.
2.82 "ROLLOVER CONTRIBUTION" shall mean a contribution to the Plan by
a Participant or a direct transfer of assets from another Plan in which a
Participant formerly participated, which represents all or part of such
Participant's interest in a qualified retirement plan in which he previously
participated and which was paid out to him in a lump sum or as part of a lump
sum distribution, or directed by him as a Rollover Contribution to this Plan,
either directly or indirectly, as defined in sections 402(a)(5), 403(A)(4),
409(b)(3)(c) of the Code. A Participant may make a Rollover Contribution if so
provided in Article XII and if he meets any reasonable condition set forth for
making such contribution by the Plan Administrator. The Plan Administrator may
allow Rollover Contributions of all lump sum distributions except that the Plan
Administrator may allow a Rollover Contribution of other distributions without
allowing the rollover of funds attributable to Deductible Voluntary Employee
Contributions.
2.83 "SELF-EMPLOYED INDIVIDUAL" means an individual who had Earned
Income for a prior taxable year from the business with respect to which this
Plan or a predecessor plan is or was established; or who would have had Earned
Income but for the fact that the business had no net profits for the taxable
year.
2.84 "SHAREHOLDER EMPLOYEE" means an Employee or officer of an
Employer which is an electing small business corporation who owns more than
five (5%) percent of the outstanding stock of the Employer, as defined in
section 1379(d) of the Code.
2.85 "SUPER TOP-HEAVY PLAN" for any Plan Year beginning after
December 31, 1983 means a Plan in which any of the following conditions exists:
(a) If the Top-Heavy Ratio for this Plan exceeds ninety
(90%) percent and this Plan is not part of any required Aggregation Group or
permissive Aggregation Group of Plans.
(b) If this Plan is a part of a Required Aggregation
Group of plans but not part of a Permissive Aggregation Group and the Top-Heavy
Ratio for the Required Aggregation Group of plans exceeds ninety (90%) percent.
29
<PAGE> 32
(c) If this Plan is a part of a Required Aggregation
Group and part of a Permissive Aggregation Group of plans and the Top-Heavy
Ratio for the Permissive Aggregation Group exceeds ninety (90%) percent.
2.86 "TOP-HEAVY PLAN" for any Plan Year beginning after December 31,
1983, means a Plan in which any of the following conditions exists:
(a) If the Top-Heavy Ratio for this Plan exceeds sixty
(60%) percent and this Plan is not part of any required Aggregation Group or
permissive Aggregation Group of Plans.
(b) If this Plan is a part of a Required Aggregation
Group of plans but not part of a Permissive Aggregation Group and the Top-Heavy
Ratio for the Required Aggregation Group of plans exceeds sixty (60%) percent.
(c) If this Plan is a part of a Required Aggregation
Group and part of a Permissive Aggregation Group of plans and the Top-Heavy
Ratio for the Permissive Aggregation Group exceeds sixty (60%) percent.
2.87 "TOP-HEAVY RATIO" of a plan or group of plans for any Plan Year
means the ratio determined as follows:
(a) If the Employer or an Affiliated Employer maintains
one or more defined contribution plans (including any Simplified Employee
Pension Plan) and the Employer or an Affiliated Employer has never maintained
any defined benefit plan which has covered or could cover a Participant in this
Plan, the Top-Heavy Ratio is a fraction, the numerator of which is the sum of
the account balances of all key employees as of the determination date
(including any part of any account balance distributed in the five (5) year
period ending on the determination date), and the denominator of which is the
sum of all account balances (including any part of any account balance
distributed in the five year period ending on the determination date) of all
participants as of the determination date. Both the numerator and denominator
of the top-heavy ratio are adjusted to reflect any contribution which is due
but unpaid as of the determination date. Accrued Benefits and distributions in
any terminated plans formerly maintained by the Employer or an Affiliated
Employer shall be included in the computation.
(b) If the Employer or an Affiliated Employer maintains
one or more defined contribution plans (including any Simplified Employee
Pension Plan) and the Employer or an Affiliated Employer maintains or has
maintained one or more defined benefit plans which have covered or could cover
a Participant in this Plan, the Top-Heavy Ratio is a fraction, the numerator of
which is the sum of account balances under the
30
<PAGE> 33
defined contribution plans for all Key Employees and the Present Value of
Accrued Benefits under the defined benefit plans for all Key Employees, and the
denominator of which is the sum of the account balances under the defined
contribution plans for all Participants and the Present Value of the Accrued
Benefit under the defined benefit plans for all participants. Both the
numerator and denominator of the Top-Heavy Ratio are adjusted for any
distribution of an account balance or an accrued benefit made in the five year
period ending on the Determination Date and any contribution due but unpaid as
of the Determination Date. Accrued Benefits and distributions in any
terminated plans formerly maintained by the Employer or an Affiliated Employer
shall be included in the computation.
(c) For purposes of (a) and (b) above, the value of
account balances and the Present Value of the Accrued Benefit will be
determined as of the most recent Valuation Date that falls within or ends with
the twelve month period ending on the Determination Date. The account balances
and Accrued Benefits of a Participant who is not a Key Employee but who was a
Key Employee in a prior Plan Year will be disregarded. If any individual has
not performed any service for the Employer or an Affiliated Employer at anytime
during the five (5) year period ending on the Determination Date, any Accrued
benefit for such individual shall not be taken into account. The calculation
of the Top-heavy Ratio, and the extent to which distributions, rollover, and
transfers are taken into account will be made in accordance with section 416 of
the Code and the regulations thereunder. Deductible Voluntary Employee
Contributions will not be taken into account for purposes of computing the
Top-Heavy Ratio. 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.
2.88 "TOP-PAID GROUP" of Employees for any Plan Year shall mean those
Employees who are among the highest paid twenty (20%) percent of Employees when
ranked on the basis of compensation paid during such Plan Year. The following
Employees shall not be included in determining the Top-Paid Group:
(a) Employees who have not completed six (6) months of
service;
(b) Employees who normally work less than 17 1/2 hours
per week;
(c) Employees who normally work during not more than six
(6) months of any year;
(d) Employees who have not attained Age 21;
31
<PAGE> 34
(e) Except to the extent provided in regulations,
Employees who are included in a unit of Employees covered by an agreement which
the Secretary of Labor finds to be a collective bargaining agreement between
Employee representatives and the Employer; and
(f) Employees who are nonresident aliens and who receive
no Earned Income (within the meaning of section 911(d)(2)) from the Employer
which constitutes income from sources within the United States (within the
meaning of section 861(a)(3)).
2.89 "TOTAL DISTRIBUTION" shall mean a distribution to a Participant
or a Participant's beneficiary, within one taxable year of such recipient, of
the entire balance to the credit of the Participant.
2.90 "TRUST" for each participating Employer, means the Trust created
or continued by execution of this Plan and Trust document and the contribution
of funds thereto.
2.91 "TRUSTEE" means the person or persons or corporation having
trust powers named herein and any named successor trustee or trustees.
2.92 "VALUATION DATE" means the date on which the value of the assets
of the Trust is determined in accordance with the terms of Article VI. The
value of each account and subaccount which is maintained under this Plan and
Trust shall be determined on the Valuation Date. In each Plan Year the
Valuation Date shall be the last day of the Plan Year. In addition, the Plan
Administrator may designate from time to time, so long as the Trustee agrees,
that another date or dates shall be Valuation Dates with respect to a specific
Plan Year.
2.93 "YEAR OF PARTICIPATION" shall mean a Plan Year during which an
Employee met the eligibility requirements of the Plan with respect to Age and
service, was a member of the Eligible Class of Employees, and received an
allocation of Employer Contributions or Forfeitures or would have received an
allocation if there had been Employer Contributions or Forfeitures for the Plan
Year. No Participant shall be credited with Years of Participation prior to
the Effective Date of the Plan.
2.94 "YEAR OF SERVICE" means a twelve (12) consecutive month period
during which the Employee completes 1,000 Hours of Service.
(a) For purposes of eligibility, the twelve (12) month
period coincides with the Eligibility Computation Period.
32
<PAGE> 35
(b) For purposes of vesting, the twelve (12) month period
is the Plan Year.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.01 Any Employee who is a member of the Eligible class of Employees
shall be eligible to participate on the nearest Entry Date which shall occur
closest to or coinciding with the date on which the Employee satisfies the
following eligibility requirements:
(a) He shall have completed one (1) Year of Service with
the Employer and any Affiliated Employer; and
(b) He shall have attained twenty-one (21) years of Age.
An Employee of the former Foster Mortgage Corporation which has been
acquired by the Employer through an asset purchase at November 1, 1990 shall be
entitled to credit his service with the predecessor acquired corporation, but
shall not meet the eligibility requirements until the date of acquisition;
accordingly, an Employee who is in this Eligible Class of Employees and who has
met the service requirements solely as a result of his service with Foster
Mortgage Corporation shall be entitled to participate on the next following
Entry Date, which is January 1, 1991.
3.02 Completion of a Year of Service shall mean that the twelve (12)
consecutive month Eligibility Computation Period shall have expired, and the
Employee shall have completed the number of Hours of Service during such
Eligibility Computation Period required for a Year of Service.
3.03 All annual reports and other documents required to be filed by
the Company with the Secretary of the Treasury or Secretary of Labor shall be
open to inspection to all Plan Participants during the Company's regular
business hours. A summary of each annual report will be furnished to each
Participant when such report has become due and filed with the Internal Revenue
Service. A statement as to the balance standing in each Participant's account
and the Participant's vested percentage therein shall be furnished to such
Participant if so requested by the Participant in writing.
3.04 If an Employee who has become a Participant in the Plan
terminates employment with the Employer, he shall cease to be an active
Participant in the Plan as of the last day of the Plan Year in which he
terminates employment with the Employer. He shall no longer be entitled to
accrue benefits such as
33
<PAGE> 36
Employer Contributions or Forfeitures; however, until his vested account
balance is paid to him, his account balance shall continue to share in the
earnings and losses of the Trust, and he shall be entitled to exercise the
rights of a Participant hereunder as to elections, claims for benefits, receipt
of information and any other applicable rights.
3.05 If a Participant terminates employment after he has earned a
nonforfeitable right to a portion of his account balance derived from Employer
Contributions, he shall participate immediately upon returning to the employ of
the Employer (so long as he is a member of the Eligible Class of Employees).
If a Participant incurs five (5) consecutive One-Year Breaks in Service before
he has earned a nonforfeitable right to a portion of his account balance
derived from Employer Contributions, he shall participate immediately upon
returning to the employ of the Employer so long as he is a member of the
Eligible Class of Employees at that time, but only if the number of consecutive
One-Year Breaks in Service is less than the aggregate number of Years of
Service. In the case of an Employee who does not have any nonforfeitable right
to the account balance derived from Employer Contributions, Years of Service
before a period of consecutive One-Year Breaks in Service will not be taken
into account in computing eligibility service if the number of consecutive
One-Year Breaks in Service in such period equals or exceeds the greater of five
(5) or the aggregate number of Years of Service. Such an Employee must again
meet the eligibility requirements under section 3.01. Such aggregate number of
Years of Service will not include any Years of Service disregarded under the
preceding sentence by reason of prior Breaks in Service. An Employee who has
terminated employment prior to September 30, 1991 shall become an Inactive
Participant upon such termination of employment. An Employee who terminates
employment and who completes at least one (1) Hour of Service after September
30, 1991 shall become an Inactive Participant on the first day of the Plan Year
following such termination of employment. An Employee who has not terminated
employment shall become an Inactive Participant when he incurs such number of
consecutive One Year Breaks in Service which exceeds the greater of five (5) or
the number of Years of Service.
3.06 As provided above, Employees covered by an agreement which the
Secretary of Labor of the United States finds to be a collective bargaining
agreement between Employees' representatives and one or more Employers, are not
eligible to participate in the Plan if retirement benefits were the subject of
good faith bargaining between such Employees' representatives and the Employer
or Employers. In the event any Employees become ineligible to participate in
this Plan because they are no longer members of the Eligible Class of
Employees, such Employees shall cease to participate as of the date they cease
to be members of the Eligible Class of Employees. If an Employee who is
otherwise
34
<PAGE> 37
eligible but who has been ineligible because he is not a member of the Eligible
Class of Employees becomes a member of such Eligible Class of Employees, he
shall cease to be ineligible under this subsection, and he will automatically
become a Participant as of the date that he becomes a member of the Eligible
Class of Employees.
3.07 Notwithstanding any other provisions of the Plan, for purposes
of the pension requirements of section 414(n)(3) of the Code, the employees of
the Employer shall include Leased Employees as defined in Article II.
A Leased Employee within the meaning of section 414(n)(2) of the Code
shall become a Participant in, or accrue benefits under, the Plan based on
service as a Leased Employee only as provided in provisions of the Plan other
than this section.
Contributions and benefits provided to a Leased Employee by the
leasing organization which are attributable to services performed for the
recipient Employer shall be treated as provided by the recipient Employer.
This section shall be effective for services performed after December
31, 1986.
3.08 In the case of any Participant who has a one-year Break in
Service, years of eligibility service before such break will not be taken into
account until the Employee has completed a Year of Service after returning to
employment.
Such Year of Service will be measured by the twelve (12) consecutive
month period beginning on an Employee's reemployment commencement date and, if
necessary, subsequent twelve (12) consecutive month periods beginning on
anniversaries of the reemployment commencement date.
ARTICLE IV
CONTRIBUTIONS TO THE TRUST
4.01 The Employer shall contribute to the Trust such amounts of cash
or of Qualifying Employer Securities as shall be voted from time to time by the
Board of the Company; subject to the limitation that Annual Additions to a
Participant's account shall not exceed applicable limits under the Code and
Article VIII. Such limitation shall be accomplished by reducing Annual
Additions in the priority created by Article VIII, to the extent of any Excess
Amounts for any individual Participant to whom such limitations may apply.
Notwithstanding such limitation, Employer Contributions shall be paid in cash
in such amounts as needed to provide the Trust with funds sufficient to make
any principal and interest payments under a Loan incurred by the Trustee
pursuant
35
<PAGE> 38
to Article XVII to finance the acquisition of Qualifying Employer Securities,
except to the extent such principal and interest payments have been satisfied
by the Trustee from cash dividends paid to it with respect to Qualifying
Employer Securities.
The Employer Contribution may be made out of the Net Profits of the
Employer for its Fiscal Year, except that the Contribution may be made out of
the Net Profits of the Employer (reduced to the extent of prior contributions
to qualified plans) which have accumulated from prior years. Employer
Contributions need not be related to Net Profits, but may be determined by
reference to Net Profits. Regardless of current or accumulated Net Profits,
Employer Contributions shall be made in order to make principal and interest
payments on a Loan.
The amount of the contribution to be made for any Plan Year shall not
exceed fifteen (15%) percent of the total Compensation of Participants entitled
to receive an allocation of Employer Contributions and Forfeitures for the
Allocation Limitation Year associated with such Plan Year, except for carryover
amounts under section 4.05 and except for amounts used to pay principal and
interest payments on a Loan as provided in section 4.07. All Employer
Contributions shall be conditioned on their deductibility for the Plan Year for
which made, under section 404 of the Code.
Foster Mortgage Corporation or the Company on behalf of Foster
Mortgage Corporation, shall contribute for eligible Employees of Foster
Mortgage Corporation a percentage of compensation of such eligible Employees
earned during the period January 1, 1993 to September 30, 1993 and during which
they were eligible to participate in the plan. Such percentage shall be as
determined by the Board of Directors of Foster Mortgage Corporation, or of the
Company, if applicable.
4.02 While the contribution to be made by the Employer is not fixed
by any formula, it is intended that the Contribution for each Plan Year shall
be recurring and substantial. If the Trustee enters into a Loan, the Employer
shall adopt a policy whereby contributions shall be made in amounts necessary
to amortize the Loan over a reasonable period of time.
4.03 Employee Contributions to the Plan are not permitted, except for
Rollover Contributions (subject to the limitations of Article XII and the
discretion of the Plan Administrator and Trustee). An Employee is authorized
to make, with the approval of and subject to the discretion of both the Trustee
and the Plan Administrator, a Rollover Contribution to the Plan from a
qualified retirement plan in which he has participated. Any such rollover
shall be limited as provided in Article XII and shall not include funds
attributable to Deductible Voluntary Employee Contributions.
36
<PAGE> 39
4.04 The Employer Contribution for each Plan Year shall be paid to
the Trustee not later than the time prescribed by law for filing the Federal
corporate income tax return for the taxable year ending with or within such
Plan Year (including extensions thereof). At the time each Contribution is
made to the Trust, the Employer or Plan Administrator shall designate the Plan
Year for which such Contribution is made, either by amount or by formula.
Contributions shall not be made on behalf of a Participant who completes less
than 1,000 Hours of Service during the Plan Year. For a Participant who
terminates employment on or before September 30, 1991, Employer Contributions
shall not be made for a Plan Year on behalf of such Participant if the
Participant terminates employment before the last day of the Plan Year,
regardless of whether he completes 1,000 Hours of Service during the Plan Year.
For a Participant who completes at lest one (1) Hour of Service with the
Employer on or after September 30, 1991, Employer Contributions shall be made
for the Plan Year on behalf of such Participant, provided that he completes at
least 1,000 Hours of Service during the Plan Year.
4.05 If for any Allocation Limitation Year, the Employer shall
contribute to the Trust, or to any other qualified trust which it then
maintained, an amount less than the maximum which otherwise could have been
contributed as specified under the provisions of this Article IV, and Code
section 404(a)(2), the amount of such deficiency may be carried forward by the
Employer, who may determine to contribute additional amounts for any succeeding
Allocation Limitation Year(s), not in excess of such deficiency, without regard
to this Article IV, but not to exceed twenty-five (25%) percent of the total
Compensation otherwise paid (or accrued, if applicable) during such Allocation
Limitation Year associated with such Plan Year to all Participants. If an
Employer Contribution includes such carryover amounts, the Employer
Contribution shall nonetheless be subject to the limitations on Annual
Additions contained in Article VIII. Carryover amounts will not include any
excess attributable to Plan Years beginning after December 31, 1986; only
carryovers of amounts attributable to 1986 and earlier years may be carried
forward under this section and such amounts are considered to have been used
for Plan Years beginning after December 31, 1986 as if they had been used to
the maximum extent permitted in such Plan Year, in chronological order, in
order to determine the carryover which shall be available in future years.
4.06 Forfeitures under the Plan shall be allocated or used to reduce
Employer Contributions, as provided in Article VII. If Forfeitures are
allocated in addition to Employer Contributions, then such Contributions will
be adjusted in order to satisfy the limitations of Article VIII, before the
allocation of Forfeitures is affected. If Forfeitures are used to reduce
Employer Contributions, shares forfeited shall reduce Employer Contributions to
the extent of the fair market value of such
37
<PAGE> 40
shares at the date of Forfeiture, regardless of the date of the corresponding
reduction and regardless of the fact that such shares will continue to carry
the same basis in the hands of the Trust. It is intended by this provision
that Forfeitures shall equal reduced contributions under this section, thereby
causing Annual Additions to be unaffected by Forfeitures and by changes in the
value of the shares subsequent to the date of the Forfeiture.
4.07 Employer Contributions made to the Plan which are used by the
Plan to make principal payments on a Loan on or before the due date (with
extensions) for the employer's Federal income tax return for the taxable year
shall be treated as made for the Plan Year if so designated by the Employer.
Such Employer Contributions may not exceed twenty- five (25%) percent of the
eligible Compensation of Participants (other than Inactive Participants) for
the Plan Year. Notwithstanding the limitations of Article VIII, Forfeitures
attributable to Qualifying Employer Securities acquired with the proceeds of
the Loan shall not reduce the Employer Contribution hereunder.
In addition to the foregoing, Employer Contributions shall be made to
the extent of interest payments on the Loan, provided that the payments are
made by the Plan & Trust on the Loan by the due date (with extensions) for the
Employer's Federal income tax return for the taxable year associated with the
Plan Year and are designated as made for such Plan Year.
4.08 The decisions regarding the investment, reinvestment and
accounting of Employer Contributions and Forfeitures allocated to each
Participant's account shall be governed by the provisions of Articles VI and
XII.
ARTICLE V
ALLOCATION OF EMPLOYER CONTRIBUTIONS
5.01 As of each Valuation Date which is the last day of a Plan Year,
the account of each Participant (who has completed 1,000 Hours of Service
during the Plan Year and who has either (i) not terminated employment with the
Employer prior to the last day of the Plan Year or (ii) completed at least one
(1) Hour of Service with the Employer during 1991 if the termination was in
1991 after September 30, 1991), shall be credited with a portion of the
Employer Contribution and Forfeitures, if any, for the appropriate Plan Year,
allocated as set forth in section 5.02, below. For purposes of this
allocation, an Inactive Participant shall not be counted as a Participant.
For 1991, a Participant shall not be considered to have terminated
employment on or before September 30, 1991 if such Participant completed an
Hour of Service with the Employer after September 30, 1991; an Hour of Service
must be actually worked or
38
<PAGE> 41
directly paid for. An Employee whose pay is computed on a period of time, such
as severance pay of a certain period's pay, shall not be considered to have
completed an Hour of Service for any particular period unless the pay is
designated for such period. Thus, an Employee who terminates employment before
October 1, 1991 and does not perform any services after such date shall be
considered so terminated even though he may be paid severance pay equal to his
pay for a period of time which, if considered to extend from his termination
date, would have extended past September 30, 1991.
5.02 Each Participant who has completed 1,000 Hours of Service during
the Plan Year for which the Employer Contribution is made and who has either
(i) not terminated employment with the Employer or an Affiliated Employer prior
to the last day of the Plan Year, or (ii) terminated employment during 1991,
but not terminated employment with the Employer prior to October 1, 1991, shall
be credited with that portion of the Employer Contribution to the Plan and
Forfeitures, if any, equal to the percentage which such Participant's units for
such Plan Year bear to the units of all Participants in the Plan for the
Allocation Limitation Year ending with or within such Plan Year. Each
Participant is credited with one unit for each Year of Service (vesting) and
one unit for each $100 of compensation.
Employer Contributions which are used to pay a Loan shall be allocated
to Participants by prorating the released shares (nonmonetary units) in the
same manner as in the preceding paragraph. For this purpose, the number of
released shares for any Plan Year shall be as provided in section 17.03 and the
terms of the Loan; if the shares purchased with the proceeds of the Loan are
not pledged, then they shall be allocated as if pledged and released in
accordance with section 17.03.
For Plan Years ending before January 1, 1988, Employer Contributions
and Forfeitures were allocated to Participants who terminated employment with
the Employer before the last day of the Plan Year on account of death,
Disability and normal retirement.
5.03 The allocations provided herein are subject to and subordinate
to the limitations provided by Article VIII and the Code. If a Participant
would be allocated an Excess Amount (as defined in Article VIII) were it not
for the limitation of Article VIII, then the allocations to his account shall
be reduced as provided in Article VIII. In addition, if this Plan is a
Top-heavy Plan in any Plan Year, the allocations made under this Article shall
be superseded for such Plan Year to the extent necessary to satisfy the rules
regarding Top-heavy Plans set forth in Article XVI.
39
<PAGE> 42
ARTICLE VI
INVESTMENT OF TRUST ASSETS;
ALLOCATIONS TO PARTICIPANT'S ACCOUNTS
6.01 Trust Assets under the Plan will be invested primarily in
Qualifying Employer Securities. The Plan Administrator may direct the Trustee
to incur debt from time to time to finance the acquisition of Qualifying
Employer Securities by the Trust or otherwise. Employer Contributions (and
other Trust assets) may be used to acquire shares of Qualifying Employer
Securities from Company shareholders (including former Participants) or from
the Company.
Qualifying Employer Securities purchased with the proceeds of a Loan
shall be held in a Suspense Account pending release and reallocation to other
Accounts as the Loan is paid. Qualifying Employer Securities purchased with
amounts allocated to Participants' Other Investments Accounts shall upon
purchase be credited pro rata to the corresponding Participants.
6.02 Separate Company Stock Accounts and Other Investments Accounts
will be established to reflect Participants' interests under the Plan. If the
Trust has Qualifying Employer Securities which were acquired on or before
December 31, 1986 and also has Post-1986 Employer Securities, then a separate
subaccount of the Company Stock Account of each Participant shall be maintained
for such pre- and Post-1986 Employer Securities. Records shall be kept by the
Plan Administrator from which can be determined the portion of each Other
Investments Account which at any time is available to meet obligations under a
Loan and the portion which is not so available.
6.03 The Company Stock Account maintained for each Participant will
be credited with his allocable share of Qualifying Employer Securities
(including fractional shares) purchased with cash paid to the Trust, with
contributions in kind to the Trust, with Forfeitures of Qualifying Employer
Securities and with any stock dividends on Qualifying Employer Securities
allocated to his Company Stock Account. Stock dividends shall not be credited
to accounts for a Plan Year for Participants who have been paid or forfeited
their benefits during the Plan Year. Stock splits shall be credited to the
accounts of Participants whose stock has not been distributed to them as of the
record date but whose stock is distributed to them at a later date during the
Plan Year. Qualifying Employer Securities acquired by the Trust with the
proceeds of a Loan shall be allocated to the Company Stock Accounts of
Participants as the Qualifying Employer Securities are released from Suspense
Accounts as provided for in Article XVII.
6.04 The Other Investments Account maintained for each Participant
will be credited (or debited) with its share of the
40
<PAGE> 43
net income (or loss) of the Trust, other than that portion of the Trust which
is invested in Qualifying Employer Securities (any cash dividends on Qualifying
Employer Securities allocated to the Company Stock Account of the Participant
for whose benefit the stock is held), and with Employer Contributions in cash
and in other than Qualifying Employer Securities. Each will be debited for its
share of any cash payments for the acquisition of Qualifying Employer
Securities for the benefit of Company Stock Accounts or for any repayment of
principal and interest on any Loan or other debt chargeable to Participants'
Company Stock Accounts; provided that only the portion of each Other
Investments Account which is available to meet obligations under Loans shall be
used to pay principal or interest on a Loan.
6.05 Employer Contributions and Forfeitures will be allocated as of
the last day of each Plan Year among the accounts of Participants so entitled
in accordance with Article V and this Article VI.
6.06 The net income (or loss) of the Trust for each Plan Year (not
attributable to Qualifying Employer Securities) will be determined as of the
Valuation Date. Each Participant's share of the net income (or loss) will be
allocated to his Other Investments Accounts in the ratio which the balance of
each such Account on the preceding Valuation Date (reduced by amount of any
distribution from such Account and increased by Employer Contributions other
than in stock made after such date but accrued as of such date and made on
account of the year ending on such date) bears to the sum of such balances for
all Participants as of that date. The net income (or loss) of the Trust
includes the increase (or decrease) in the fair market value of Trust Assets
(other than Qualifying Employer Securities), interest income, dividends and
other income (or loss) attributable to Trust Assets (other than allocated
Company Stock) since the preceding Valuation Date. For purposes of computing
net income (or loss), interest paid on any Loan or other Debt shall be
disregarded.
6.07 The Plan Administrator shall adopt accounting procedures for the
purpose of making the allocations, valuations and adjustments to Participants'
Accounts provided for in this Article. Except as provided in Treasury
Regulation section 54.4975-11, Qualifying Employer Securities acquired by the
Plan shall be accounted for as provided in Treasury Regulation section
1.402(a)-1(b)(2)(ii). Allocations of Qualifying Employer Securities shall be
made separately for each class of stock, and the Plan Administrator shall
maintain adequate records of the cost basis of all shares of Qualifying
Employer Securities allocated to each Participant's Company Stock Accounts.
From time to time the Plan Administrator may modify the accounting procedures
for the purpose of achieving equitable and nondiscriminatory allocations among
the Accounts of Participants
41
<PAGE> 44
in accordance with the general concepts of the Plan and the provisions of this
section. Annual valuations of Trust Assets shall be made at fair market value,
as described in section 6.06 above.
6.08 If, by reason of the application of Break in Service rules, or
by any other rule such as that on partial plan termination, a portion of a
Participant's Accrued Benefit attributable to Employer Contributions is subject
to a different vesting percentage from another portion of such account balance,
then the Plan Administrator shall cause to be maintained a separate account or
subaccount for each such portion for each such Participant.
6.09 This paragraph shall apply only if the shares of Company Stock
cease to be publicly traded. If a sale of Qualifying Employer Securities is
made to the Plan for which nonrecognition of gain is elected under Code section
1042 and if the Plan Administrator is notified by the Employer, in a written
statement which conforms to the requirements of Code section 1042(b)(3), that
the Employer consents to the application of Code section 4978(a) and 4979A with
respect to such transaction and if the Plan Administrator consents to such
transaction and its accounting treatment hereunder, then no portion of the
assets of the Plan attributable to or allocable in lieu of Employer Securities
acquired by the Plan in a sale to which Code section 1042 applies may accrue
(or be allocated directly or indirectly) under any Plan of the Employer meeting
the requirements of Code section 401(a), to the following persons:
(a) During the Nonallocation Period, for the benefit of
the taxpayer who sold such Qualifying Employer Securities and elected
nonrecognition under Code section 1042;
(b) During the Nonallocation Period, for the benefit of
any member of the family of the taxpayer described in (a) above (within the
meaning of Code section 267(b)); or
(c) For the benefit of any other person who owns (after
application to Code section 318(a) without regard to paragraph (2)(B)(i)
thereof) more than twenty-five (25%) percent of (1) any class of outstanding
stock of the Corporation which issued such Employer securities or of any
corporation which is a member of the same controlled group of corporations (as
defined in Code section 409(l)(4)) as such corporation, or (2) the total value
of any class of outstanding stock of any such corporation.
The Plan Administrator shall not be permitted to consent to the above
sale and allocation in connection with this transaction if the Plan does not
own more than thirty (30%) percent of the total value of Qualifying Employer
Securities outstanding immediately after the sale or if the Other Investments
Accounts
42
<PAGE> 45
of the Participants to whom the special allocation is to be made do not have
sufficient assets for such purchase.
ARTICLE VII
DISTRIBUTION OF BENEFITS
7.01 Each Participant who shall retire at his Normal Retirement Date
shall be entitled to a Benefit equal to his Accrued Benefit as of the date of
his retirement. Upon the termination of a Participant's employment by reason
of his retirement, his Accrued Benefit on the date of such termination, shall
be distributed, or commence to be distributed, to the Participant as soon
thereafter as practicable as provided in this Article VII. Upon reaching
Normal Retirement Age while still employed by the Employer, a Participant shall
become fully vested in his Accrued Benefit.
A Participant who has reached his Early Retirement Date and who has
also attained Age 65 shall be allowed to elect, one time after attainment of
the above dates, to receive a distribution of all or part of his Accrued
Benefit in any form permitted under this Plan, notwithstanding his continued
employment with the Employer.
7.02 If a Participant, with the consent of the Employer, shall
continue in active employment with the Employer after his Normal Retirement
Date, he shall continue to participate as a Participant under this Trust
Agreement, and he may take late retirement. Upon such late retirement, a
Participant shall be entitled to his Accrued Benefit as of the actual
retirement date determined by reference to the most recent Valuation Date, plus
his share of any Employer Contributions made or to be made in the year in which
his late retirement occurred. His Accrued Benefit, plus his share of the
Employer Contribution set forth above, shall be distributed, or commence to be
distributed, to him as soon as practicable as provided in this Article VII. In
any event, payment shall be made or shall commence on or before the Required
Beginning Date.
7.03 If a Participant is determined by the Plan Administrator to be
eligible for Disability retirement, he shall be fully vested in, and shall be
entitled to, a benefit equal to his Accrued Benefit as of the date of his
actual retirement, plus his share of any Employer Contributions and Forfeitures
made or to be made in the years in which his retirement occurred. His Accrued
Benefit shall be distributed, or commence to be distributed, to him as soon as
practicable as provided in this Article VII, or may be held as part of the
assets of the Trust and continue to share in the gains and losses of the Trust
until the Participant reaches his Normal Retirement Age, the decision as to
such payout or such deferral to be made by the Participant.
43
<PAGE> 46
An Inactive Participant shall not be eligible for Disability retirement.
7.04 Upon the death of a Participant while still employed by the
Employer, his Accrued Benefit on the date of his death, plus his share of any
Employer Contributions and Forfeitures made or to be made in the years in which
his retirement occurred shall be distributed, or commence to be distributed,
following the date of death to the person provided in section 7.12. Upon the
death of a Participant, while still employed by the Employer, his Accrued
Benefit shall be fully vested.
If the Participant dies after distribution of his or her interest has
commenced, the remaining portion of such interest will continue to be
distributed at least as rapidly as under the method of distribution being used
prior to the Participant's death. If the Participant dies before distribution
of his or her interest commences, the Participant's entire interest will be
distributed no later than five (5) years after the Participant's death except
to the extent that an election is made to receive distributions in accordance
with (a) or (b) below:
(a) if any portion of the Participant's interest is payable to a
Designated Beneficiary, distributions may be made in substantially equal
installments over the life expectancy of the Designated Beneficiary commencing
no later than One (1) year after the Participant's death;
(b) if the Designated Beneficiary is the Participant's surviving
spouse, the date distributions are required to begin in accordance with (a)
above shall not be earlier than the date on which the Participant would have
attained Age 70 1/2; and, if the spouse dies before payments begin, subsequent
distributions shall be made as if the spouse had been the Participant.
For purposes of the above calculation, payments will be calculated by
use of the return multiples specified in section 1.72-9 of the Income Tax
Regulations. Life expectancy of a surviving spouse may be recalculated
annually; however, in the case of any other Designated Beneficiary, such life
expectancy will be calculated at the time payment first commences without
further recalculation.
For purposes of this section, any amount paid to a child of the
Participant will be treated as if it had been paid to the surviving spouse if
the amount becomes payable to the surviving spouse when the child reaches the
age of majority.
Notwithstanding the other requirements of this Article, distribution
on behalf of any Participant, including a Five Percent Owner, may be made in
accordance with all of the
44
<PAGE> 47
following requirements (regardless of when such distribution commences):
(a) The distribution by the trust is one which would not have
disqualified such trust under section 401(a)(9) of the Internal Revenue Code as
in effect prior to amendment by the Deficit Reduction Act of 1984.
(b) The distribution is in accordance with a method of distribution
designated by the Participant whose interest in the trust is being distributed
or, if the Participant is deceased, by a Beneficiary of such Participant.
(c) Such designation was in writing, was signed by the Participant or
the Beneficiary, and was made before January 1, 1984.
(d) The Participant had accrued a benefit under the Plan as of
December 31, 1983.
(e) The method of distribution designated by the Participant or the
Beneficiary specifies the time at which distribution will commence, the period
over which distributions will be made, and in the case of any distribution upon
the Participant's death, the Beneficiaries of the Participant listed in order
of priority. A distribution upon death will not be covered by this
transitional rule unless the information in the designation contains the
required information described above with respect to the distributions to be
made upon the death of the Participant. For any distribution which commences
before January 1, 1984, but continues after December 31, 1983, the Participant,
or the Beneficiary, to whom such distribution is being made, will be presumed
to have designated the method of distribution under which the distribution is
being made if the method of distribution was specified in writing and the
distribution satisfies the requirements in (a) and (e) above. If a designation
is revoked any subsequent distribution must satisfy the requirements of section
401(a)(9) as amended. Any changes in the designation will be considered to be
a revocation of the designation. However, the mere substitution or addition of
another Beneficiary (one not named in the designation) under the designation
will not be considered to be a revocation of the designation, so long as such
substitution or addition does not alter the period over which distributions are
to be made under the designation, directly or indirectly (for example, by
altering the relevant measuring life).
The surviving spouse who is entitled to receive such benefits, if any,
may direct the commencement of benefits within a reasonable time after the
death of the Participant, subject to the foregoing limitations.
45
<PAGE> 48
7.05 After the termination of employment of a Participant for any
reason other than death, Disability or retirement, his vested percentage in his
Accrued Benefit shall be distributed to him after his retirement at or after
Normal Retirement Age except to the extent of Post-1986 Employer Securities
which, at the election of the Participant must not be distributed later than at
the time(s) provided in sections 7.17 and 7.18. The distribution of the
Accrued Benefit of any Participant shall be made or shall commence on or before
the Required Beginning Date.
Except in the case of death, Disability or retirement while still
employed by the Employer, and in the case of Rollover Contribution, which cause
the Participant to be one hundred (100%) percent vested, and except as
otherwise provided in Article XVI in a Plan Year in which the Plan is a
Top-Heavy Plan, the Participant's vested interest in his Accrued Benefit
derived from Employer Contributions shall be determined in accordance with the
following vesting schedule:
<TABLE>
<CAPTION>
Years of Service Completed % Vested
-------------------------- --------
<S> <C>
0-4 0%
5 25%
6 30%
7 35%
8 40%
9 45%
10 50%
11 60%
12 70%
13 80%
14 90%
15 or more 100%
</TABLE>
The above schedule shall apply to all Participants who do not complete
an Hour of Service with the Employer or an Affiliated Employer on or after the
first day of the Plan Year beginning after December 31, 1988.
For Plan Years beginning after December 31, 1988, the following
vesting schedule shall apply:
<TABLE>
<CAPTION>
Years of Service Completed % Vested
-------------------------- --------
<S> <C>
Less than 5 0%
5 or more 100%.
</TABLE>
This vesting schedule shall apply only to a Participant who completes
at least one (1) Hour of Service during or after the Plan Year beginning after
December 31, 1988; otherwise, the vesting schedule in the preceding paragraph
shall apply.
46
<PAGE> 49
However, if such a Participant has completed three (3) Years of
Service or more as of December 31, 1989 and also completes at least one (1)
Hour of Service after December 31, 1988, then his vested interest shall be
determined under the following vesting schedule:
<TABLE>
<CAPTION>
Years of Service Completed % Vested
-------------------------- --------
<S> <C>
Less than 3 0%
3 20%
4 40%
5 or more 100%
</TABLE>
Years of Service by the Participant with the Employer referred to in
determining the Participant's place on the vesting schedule shall exclude
service excluded under the rule of parity in section 7.14.
Years of Service by the Participant referred to in determining the
Participant's place on the vesting schedule shall include:
(a) Service with the Employer before the Employer
established this Plan or a predecessor plan;
(b) Service with any entity or entities which were formerly
under Common Control with the Employer, but only during the period in which
they were under such Common Control; and
(c) Service for the following entities which have been
absorbed into the business of the Employer through merger, asset purchase or
otherwise: Foster Mortgage Company ("FMC"), during the period of ownership by
the Company and prior to the acquisition of the FMC by the Company, but not
after the disposition of FMC by the Company effective October 1, 1993;
(d) Years of Service with the Employer before the
Participant participated in the Plan, including Years of Service with the
Employer in non-covered employment, shall be included in Years of Service
unless such period of service would have been excluded for some other reason
stated herein.
7.06 If a Participant terminates service with the Employer for a
reason other than death, Disability or retirement, then the payment of such
Accrued Benefit shall commence as soon as practicable following the last day of
the Plan Year in which the Participant attains his Normal or Early Retirement
Date, except as provided in Sections 7.15 and 7.16 with respect to Post-1986
Employer Securities.
47
<PAGE> 50
If, notwithstanding the above, a Participant receives a distribution
which is less than the value of the Participant's Accrued Benefit derived from
Employer Contributions, and resumes employment covered under this Plan, the
Participant's account (including Forfeitures) will be restored to the amount on
the date of distribution (adjusted for earnings) if the Participant repays to
the Plan the full amount of the distribution on or before the date on which the
Participant incurs five (5) consecutive one-year Breaks in Service following
the date of distribution, or, if earlier, the date which is five (5) years from
the date of distribution. The restoration will be made from other Forfeitures,
and if such Forfeitures are insufficient, then from additional Employer
Contributions.
If distributions are not made or deemed made under this section,
section 7.15 or section 7.16, then the Forfeiture shall occur when the
Participant or former Participant incurs five (5) consecutive one-year Breaks
in Service following his termination of service.
7.07 An authorized Leave of Absence not in excess of one (1) year
shall not be construed as a termination of employment, provided that a
Participant on such Leave shall return to employment within the time
prescribed. If a Participant on an unpaid Leave of Absence does not so return,
he shall be deemed to have terminated his employment upon the effective date of
his Leave of Absence and the provisions of this Article VII shall be applied.
The account of a Participant who is on such Leave of Absence shall
share in the allocation of Contributions and Forfeitures as specified under the
provisions of Article V and Article VII for the Plan Year to the extent that
the Participant receives Compensation from the Employer in any Allocation
Limitation Year and actually completes 1,000 Hours of Service during the Plan
Year, and such account shall continue to share in allocation of Trust fund
income or loss under the provisions of Article VI.
7.08 As soon as practicable after the close of the Plan Year in which
the vested Accrued Benefit provided under this Article VII becomes payable,
such benefits (except for Post-1986 Employer Securities) shall (or shall
commence to) be distributed to a Participant, his spouse, his Beneficiary who
is entitled to receive benefits, his children, or his estate, as the case may
be, in such manner as the distributee(s) shall elect (by execution of a form
provided by the Plan Administrator), in accordance with one or more of the
following ways:
(a) In a lump sum payable in cash, in the shares of
United Companies Financial Corporation, or in a combination of cash and shares;
or
48
<PAGE> 51
(b) In substantially equal annual installments, over a
certain period of not more than fifteen (15) years, payable in cash, in the
shares of United Companies Financial Corporation, or in combination of cash and
shares which is determined prior to the commencement of benefit payments.
Any Participant with vested Accrued Benefit greater than $3,500 shall
be provided with a written notice of the material features of, and an
explanation of the relative value of, the optional form of benefit available
under the Plan. Such notice shall be provided at least 30 days prior and not
more than 90 days prior to the distribution of the benefit. The consent of the
Participant (and spouse, if applicable) to the immediate distribution of
benefits shall be made not earlier than 90 days and not later than 30 days
prior to the distribution of the benefit.
The distribution shall be made in whole shares of the stock of United
Companies Financial Corporation, or its successor; however, in the event that
the Trust does not have sufficient shares, then distribution may be made in the
form of cash. Notwithstanding this provision, the Participant may require that
his Accrued Benefit be distributed solely in the shares of United Companies
Financial Corporation, except when the ownership of such shares is restricted,
as provided below, and except that the Trustee may, for ease in administration
and accounting, distribute cash in lieu of any fractional shares. Otherwise,
the Plan Administrator shall determine whether distributions are made in cash,
in shares of United Companies Financial Corporation, or in a combination of
cash and shares, although the Participant shall have the right to elect payment
in any form which is available under the Plan. If the charter or bylaws of
United Companies Financial Corporation restrict ownership of substantially all
outstanding shares of Qualifying Employer Securities to Employees of United
Companies Financial Corporation or to a Trust under a Plan qualified under Code
section 401(a) and require any former Employee to resell any Qualifying
Employer Securities to United Companies Financial Corporation or to the Trust
upon termination of service with the Employer, and if Participants are given
the right to receive distributions in cash, then the Participant may not
require that his vested Accrued Benefit be distributed in Qualifying Employer
Securities. Such restriction shall apply by its terms to any common stock;
however, in order to be valid, such provision must apply to all of the shares
of stock issued by United Companies Financial Corporation.
The method of distribution shall not prevent the Trustee or the
Employer from giving any distributee a Put Option as to such distributed
shares, payable in a lump sum or in installments at a reasonable rate of
interest. Any policy of providing such Put Option shall not discriminate in
favor of Highly Compensated
49
<PAGE> 52
Employees or against Nonhighly Compensated Employees. Furthermore, the policy
of providing such Put Option may be discontinued, at the direction of the Plan
Administrator, if it shall become apparent that such Put Option is not required
(such as when publicly traded shares are readily tradeable on an established
securities market).
7.09 Any distribution made pursuant to this Article VII shall be
made, or shall commence, unless the Participant makes a revocable election not
to receive such benefits, in writing to the Plan Administrator, not later than
the sixtieth day after the close of the Plan Year in which the latest of the
following dates occurs:
(a) The date the Participant attains Age;
(b) The tenth anniversary of the Participant's
Participation Commencement Date; or
(c) The date the Participant terminated his service with
the Employer.
If a Participant elects to defer the receipt of any benefit pursuant
to this section, such election shall not have the effect of creating a death
benefit which is more than incidental. Such election is revocable. Payment
after death shall satisfy the requirements of section 7.04. In no event may
the date of the distribution or of the commencement of distributions be later
than the Required Beginning Date, unless the Participant or his Beneficiary has
elected on or before December 31, 1983, to receive benefits at a later date or
in a slower manner, in accordance with the terms of the Plan as of such date.
Except for payments pursuant to such election, any method of distribution which
would be payable over a period of years shall not be payable for any such
period longer than the joint and last survivor life expectancies of the
Participant and his Designated Beneficiary determined as of the date of the
election; however, such life expectancies may be readjusted once each Plan Year
(and the life expectancy of a Designated Beneficiary other than the
Participant's spouse may not be readjusted), but no more frequently than
annually.
7.10 Distributions from the Plan shall be made in accordance with the
requirements of Code section 401(a)(9), including the minimum distribution
incidental benefit requirements of Proposed IRS Regulations section 1.401(a)(9)
2, Code section 401(a)(9)(G), Proposed IRS Regulations sections 1.401(a)(9)-1,
(Q&As A-3 and F-4A), and 1.401(a)(9)-2. The following will also apply:
(a) If a Participant's entire Interest is distributed in
a form other than a single sum payment over a period in excess of the
Participant's life expectancy, the method of distribution
50
<PAGE> 53
must provide that at least fifty (50%) percent of the Participant's entire
interest will be paid within the life expectancy of the Participant.
(b) If a Participant's entire interest is distributed in
a form other than a single sum payment, the minimum amount distributed each
year must equal or exceed the quotient of (i) the Participant's remaining
entire interest, divided by (ii) the Participant's life expectancy or the joint
and last survivor life expectancy of the Participant and his or her
Beneficiary. Upon the Participant's or surviving spouse's request, the Plan
Administrator shall permit the life expectancy of the Participant or the
surviving spouse to be redetermined, but not more frequently than annually.
(c) If the Participant dies after benefit payments have
begun, the remaining entire interest of the Participant's Accounts must be
distributed at least as rapidly as under the distribution method that was in
effect prior to death.
(d) If distributions have not commenced before the
Participant's death, the Participant's entire interest must be distributed
within five (5) years of the date of death; provided, however, that a
distribution in the form of installments is not subject to this five (5) year
rule, but such installments must commence within one (1) year of the
Participant's death.
7.11 This paragraph 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 Article, 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.
7.12 As soon as possible after he becomes eligible to participate,
each Participant in the Plan shall receive from the Plan Administrator a
Beneficiary designation form. The form shall be in a format as directed by the
Plan Administrator in its discretion. If the Participant is married at the
time of his death, and if the payment of benefits has not already commenced,
then the surviving spouse must consent to the naming and payment of the
Beneficiary prior to the date of death. The spousal consent must designate a
specific beneficiary and a specific form of benefit which may not be changed
without the consent of the spouse. Any spousal consent shall be binding only
with respect to the spouse executing the consent. The form shall provide the
Participant with the opportunity to select the person or persons (including an
individual, trust, partnership, corporation or any combination of the
foregoing) to whom he wishes to have his Accrued Benefit paid in the event that
he dies before receiving
51
<PAGE> 54
the entire amount. The form may provide for contingent Beneficiaries, to
receive all or a portion of the Participant's Accrued Benefit in the event that
the primary Beneficiary or Beneficiaries die. The form shall be in a form
valid to pass the assets held for the benefit of the Participant under both
ERISA and Louisiana law, if possible.
To be valid, the form shall be executed by the Participant as
indicated thereon and filed with the Plan Administrator. If the Participant is
married at the time of his death, and if the payment of benefits has not
already commenced, then the surviving spouse must consent to the naming and
payment of the Beneficiary prior to the date of death. The spousal consent
must be in writing, must be witnessed by a representative of the Plan
Administrator or a Notary Public, and must acknowledge the effect of such
election as well as the specific beneficiary. The designation may be changed
at any time by the filing of a new form by the Participant, with the
appropriate spousal consent, if applicable, and the most recent designation
shall govern. Subject to the provisions of section 7.04, the Trustee shall be
obligated to distribute the deceased Participant's Accrued Benefit to the
person or persons designated on the Beneficiary designation form. But if no
proper designation is on file with the Plan Administrator or if the Beneficiary
or Beneficiaries named on the most recent designation form, both primary and
contingent, predeceased (or otherwise terminated existence prior to the death
of the Participant) the Participant, or if the Beneficiary designation is
rendered impossible by reason of applicable State law, then the Participant's
spouse shall be considered the designated Beneficiary. If the Participant is
not married or if the spouse is deceased or renounces, then the Participant's
children will be presumed as the Beneficiary or Beneficiaries as if so
designated by the Participant. If no children survive the Participant, then
the Participant's estate will be presumed as the Beneficiary or Beneficiaries
as if specifically designated by the Participant and will receive said benefits
with all rights of a named Beneficiary. The Plan Administrator, after
consultation with the Beneficiary or Beneficiaries, including a deemed
Beneficiary, shall direct the Trustee as to the form of payment.
7.13 The nonforfeitable interest of a Participant as determined under
this Article VII shall not be forfeited for any cause. The value of any
forfeitable Accrued Benefit of any Participant shall be forfeited as of the
last day of the Plan Year in which he incurs five (5) consecutive one-year
Breaks in Service, or on the last day of the Plan Year in which a cash-out as
described in section 7.06 occurs, if earlier. In the case of a "cash-out", the
Forfeiture will take place at the time of the cash out and restored upon later
buyback. The amount of the Forfeiture shall be computed as of the end of the
Plan Year in which said Forfeiture occurs and allocated in proportion to the
52
<PAGE> 55
Compensation of all Participants entitled to receive allocations for the next
succeeding Plan Year. Forfeitures shall be reallocated among all Participants
who are Employees of all Affiliated Employers sponsoring the Plan, and shall
not be limited to Employees of the Employer of the person whose account is
forfeited. The amount of any such Forfeiture shall be first deducted from the
terminated Participant's Other Investment Account. If such amount is not
sufficient to reduce the fair market value of his Accrued Benefit to the
percentage of his Accrued Benefit determined under section 7.05, the remainder
of the Forfeiture shall be deducted from his Company Stock Account, but shall
come from that portion of his Company Stock Account which does not consist of
securities purchased with the proceeds of a Loan. Subject to the proviso that
securities acquired with the proceeds of a Loan are forfeited last, if a
Participant's Company Stock Account includes more than one class of stock, the
Forfeiture will consist of the same proportion of each class of stock.
7.14 Years of Service with the Employer, which shall not be taken
into account in computing the nonforfeitable percentage under Article VII, as
provided in section 7.05, are as follows:
(a) In the case of a Participant who incurs a One-Year
Break in Service, the Years of Service before such break shall not be taken
into account until such Employee has completed a Year of Service after his
return;
(b) In the case of a Participant who has five (5)
consecutive One-Year Breaks in Service, Years of Service completed after such
five (5) year period shall not be taken into account for the purpose of
determining the nonforfeitable percentage of the Participant's Accrued Benefit
derived from Employer Contributions and which accrued before such break;
(c) In the case of a former Employee who did not have any
nonforfeitable right to any Accrued Benefit derived from Employer Contributions
at the time of his termination, the Years of Service with the Employer
completed by the former Participant before any One-Year Break in Service shall
not be taken into account if the number of consecutive One-Year Breaks in
Service equals or exceeds the greater of (i) five (5) Years; or (ii) the
aggregate number of years of Service completed prior to such break. If any
Years of Service are not required at one time to be taken into account by
reason of this subsection, then such Years of Service shall not be taken into
account with respect to this subsection in determining the number of Years of
Service after a subsequent Break in Service.
7.15 The Plan Administrator shall set the policy with respect to
withholding of Federal income taxes on the payment of benefits hereunder,
notice to Participants and Beneficiaries of
53
<PAGE> 56
their right to elect not to have withholding apply, and the manner and form of
exercising or revoking such election. The Plan Administrator shall be
responsible for providing appropriate forms for election purposes and shall
direct the Trustee as to the manner of withholding. The Trustee and the Plan
Administrator shall coordinate the provision of notice and election forms and
the payment of benefits.
Effective January 1, 1993, the Trustee shall withhold from Eligible
Rollover Distributions which are not directly transferred to an Eligible
Retirement Plan pursuant to section 7.11, twenty (20%) percent of the total
value of the Eligible Rollover Distribution. No withholding shall be required
from a distribution of Company Stock, nor shall withholding be required for a
cash distribution where the cash is in lieu of a partial share and does not
exceed $200 or for a cash distribution where the total value of the
distribution does not exceed a de minimis amount.
7.16 During the minority, interdiction, or limited interdiction of
any person entitled to receive benefits hereunder, the Plan Administrator may
direct the Trustee to make payments directly to such person, or to his spouse,
or to a relative or to any individual or institution having custody of such
person. Neither the Plan Administrator nor the Trustee shall be required to
see to the application of any payments so made, and the receipt of the payee
(including the endorsement of a check or checks) shall be conclusive as to all
interested parties. The Plan Administrator shall be entitled to rely on the
representations of the legal representative of such person as to the proper
means and manner of payment and as to the proper payee. The Plan Administrator
may require that any documentation of such status be provided as a condition of
payment.
7.17 Each Participant who is or becomes a Qualified Participant shall
be entitled to elect, beginning with the first Plan Year in which he is a
Qualified Participant, within ninety (90) days following the close of such Plan
Year, to have up to twenty-five (25%) percent of the sum of (a) his vested
Accrued Benefit attributable to Post-1986 Employer Securities, and (b)any prior
distributions of such Post-1986 Employer Securities, paid to him. The
Participant shall be entitled to elect during each of the next five (5)
following Plan Years of the Qualified Election Period to have up to such
twenty-five (25%) percent of the sum of (a) his Accrued Benefit attributable to
Post-1986 Employer Securities, and (b) any prior distributions of such
Post-1986 Employer Securities, at the time of such election, paid to him,
except that in the last Plan Year in which he is a Qualified Participant, the
election may be made with respect to fifty (50%) percent of his Accrued Benefit
attributable to Post-1986 Employer Securities. In computing the amount to be
distributed in the current year, the amount determined to be
54
<PAGE> 57
distributable under the formula above shall be reduced by prior distributions
of Post-1986 Employer Securities during the Qualified Election Period, if any.
Distribution shall be made within ninety (90) days after the close of the
Election Period. Distributions and elections which would be required under
these provisions prior to September 6, 1988 may be extended to such date, as
provided by I.R. Notice 88-56.
This section shall not apply if the Qualified Participant's Accrued
Benefit attributable to Employer Securities otherwise subject to this section
for the Plan Year does not exceed $500.
7.18 Notwithstanding the other provisions of this Article, if the
Participant elects, if applicable pursuant to sections 401(a)(11) and 417, with
the consent of his spouse, the distribution of the Participant's vested Accrued
Benefit attributable to Post-1986 Employer Securities shall be made, or shall
commence, not later than one (1) year after the close of the Plan Year:
(a) In which the Participant separates from service on
account of death, disability or attainment of Normal Retirement Age; or
(b) Which is the fifth Plan Year following the Plan Year
in which the Participant separates from service with the Employer, provided
that the Participant has not become reemployed by the Employer before the date
of distribution.
The period of distribution may not be greater that the lesser of
(i) Ten (10) years, or
(ii) The greater of five (5) years, or the number
of years which corresponds to the value of the Participant's vested Accrued
Benefit (determined as of the date of distribution, based on the most recent
valuation of the Qualifying Employer Securities), divided by $100,000, with a
full year to be credited for each fraction of $100,000.
For purposes of determining the Participant's vested Accrued Benefit,
the Accrued Benefit shall not include any Employer securities acquired with the
proceeds of a Loan until the close of the Plan Year in which the Loan is repaid
in full. The $100,000 and $500,000 figures above shall be adjusted by the
Adjustment Factor.
If a Participant separates from service for a reason other than those
described in paragraph (a) above, and is employed by the Employer as of the
last day of the Plan Year following the Plan Year of such separation from
service, distribution to the
55
<PAGE> 58
Participant, prior to any subsequent separation from service, shall be in
accordance with terms of the Plan other than this section. For purposes of
this section, Qualifying Employer Securities shall not include any Qualifying
Employer Securities acquired with the proceeds of a Loan described in section
404(a)(9) of the Code until the close of the Plan Year in which such Loan is
paid in full.
7.19 Notwithstanding any provisions to the contrary, the following
provisions are adopted to override existing plan language.
Plan provisions which restrict the availability of an alternate form
of benefit to a certain select group or classification of participants or
beneficiaries which favors the group of Highly Compensated Employees shall be
considered null and void, with the result that such alternate form of benefit
is now available to all participants. Plan provisions will be considered to
favor the group of Highly Compensated Employees if the group of employees to
whom the benefit is available does not satisfy either the seventy percent test
of section 410(b)(1)(A) or the nondiscriminatory classification test of section
410(b)(1)(A) of the Internal Revenue Code.
Provided however, any plan provision that mandates a single sum
distribution where the present value of a participant's nonforfeitable accrued
benefit is not more than $3,500 will not be considered to favor the group of
Highly Compensated Employees.
ARTICLE VIII
LIMITATIONS ON ALLOCATIONS
8.01 (a) If the Participant does not participate in, and has
never participated in another qualified plan maintained by the Employer or a
welfare benefit fund, as defined in section 419(e) of the Code maintained by
the Employer, or an individual medical account, as defined in section 415(l)(2)
of the Code, maintained by the Employer, which provides an Annual Addition as
defined in Article II, the amount of Annual Additions which may be credited to
the Participant's account for any Limitation Year will not exceed the lesser of
the Maximum Annual Addition or any other limitation contained in this Plan. If
the Employer Contribution that would otherwise be contributed or allocated to
the Participant's account would cause the Annual Additions for the Limitation
year to exceed the Maximum Annual Addition, the amount contributed or allocated
will be reduced so that the Annual Additions for the Limitation Year will equal
the Maximum Annual Addition.
(b) Prior to the determination of the Participant's
actual compensation for an Allocation Limitation Year, the
56
<PAGE> 59
Maximum Annual Addition may be determined on the basis of the Participant's
estimated Compensation for such Allocation Limitation Year. Such estimated
Compensation shall be determined on a reasonable basis and shall be uniformly
determined for all Participants similarly situated. Any Employer Contributions
(including allocation of Forfeitures) based on estimated Compensation shall be
reduced by any Excess Amounts carried over from prior years.
(c) As soon as is administratively feasible after the end
of the Allocation Limitation Year, the Maximum Annual Addition for such
Allocation Limitation Year shall be determined on the basis of the
Participant's actual Compensation for such Allocation Limitation Year.
(d) If, pursuant to section 8.01, subsection (c) there is
an Excess Amount with respect to a Participant for an Allocation Limitation
Year, such Excess Amount shall be disposed of as follows:
(i) First, any nondeductible voluntary
Participant Contributions, to the extent that the return would reduce the
Excess Amount, shall be returned to the Participant.
(ii) Excess Amounts will be substracted from the
participant's accounts in the order of the last allocation (the reverse of the
order of allocation, i.e., Employer Contributions used to pay Loans shall not
be reduced until other discretionary Employer Contributions are reduced first)
as if never allocated, and shall be reallocated to other Participants in the
current Limitation Year to the extent such allocations do not exceed the
Maximum Annual Addition. Any Excess Amounts that cannot be allocated will be
held in a suspense account. All amounts in the suspense account must be
allocated and reallocated to the Participant's accounts (subject to the
limitations of section 415) in succeeding Limitation Years before any Employer
Contribution or nondeductible Participant Contribution which would constitute
an Annual Addition may be made to the Plan.
(e) If a suspense account is in existence at any time
during the Limitation Year pursuant to this section, it will not participate in
the allocation of the Trust's investment gains and losses.
8.02 (a) If, in addition to this Plan, the Employer maintains
any other qualified defined contribution plan, the amount of Annual Additions
which may be allocated under this Plan on a Participant's behalf for an
Allocation Limitation Year, shall not exceed the lesser of:
57
<PAGE> 60
(i) The Maximum Annual Addition, reduced by the
sum of any Annual Additions allocated to the Participant's accounts for the
same Allocation Limitation Year under this Plan and such other defined
contribution plans; or
(ii) Any other limitation contained in this
Plan.
(b) Prior to the determination of the Participant's
actual Compensation for the Allocation Limitation Year, the amounts referred to
in (a)(i), above, may be determined on the basis of the participant's estimated
annual Compensation for such Allocation Limitation Year. Such estimated annual
Compensation shall be determined on a reasonable basis and shall be uniformly
determined for all Participants similarly situated. Any Employer Contribution
(including allocation of Forfeitures) based on estimated annual Compensation
shall be reduced by any Excess Amounts carried over from prior years.
(c) As soon as is administratively feasible after the end
of the Allocation Limitation Year, the amounts referred to in (a)(i) shall be
determined on the basis of the Participant's actual compensation for such
Allocation Limitation Year.
(d) If a Participant's Annual Additions under his Plan and all
such other plans result in an Excess Amount, such Excess Amount shall be deemed
to consist of the Amounts last allocated. In particular, if amounts are
allocated as of the same date, Elective Deferrals under the United Companies
Financial Corporation Employees' Savings Plan or any other cash or deferred
arrangement shall be allocated first; any required Employer Contributions and
Qualified Nondeductible Employee Contributions under the United Companies
Financial Corporation Employees' Savings Plan or any other cash or deferred
arrangement in order to satisfy nondiscrimination tests will be allocated
second; Matching Contributions under a Plan which permits such Contributions
shall be allocated third; discretionary Employer Contributions under the United
Companies Financial Corporation Employees' Savings Plan and Trust shall be
considered allocated fourth; Forfeitures of stock acquired with the proceeds of
an Employee Stock Ownership Plan Loan shall be allocated fifth and generally
not constitute Annual Additions; amounts allocated as a result of payment of an
Employee Stock Ownership Plan Loan under this Plan shall be allocated sixth;
and Employer Contributions allocated under a Plan which provides for
discretionary Employer Contributions, such as this Plan & Trust, shall be
considered to have been allocated last. Thus, Elective Deferrals and Matching
Contributions which are allocated prior to the last day of the Plan Year, such
as on quarterly allocation dates, will be allocated before any of the above
which are allocated on the last day of the Plan Year. Notwithstanding the
above, Annual Additions attributable to a welfare benefit fund, if any, will be
58
<PAGE> 61
deemed to have been allocated first, regardless of the actual allocation date.
Furthermore, notwithstanding the above, to the extent provided in the
United Companies Financial Corporation Employees' Savings Plan & Trust,
Elective Deferrals under said Employees' Savings Plan & Trust, may be returned
to Participants to the extent of Excess Amounts of such Participants still
present after the adjustments made under this ESOP have been made, with such
return of Elective Deferrals to take place prior to other adjustments in the
Employees' Savings Plan & Trust. This paragraph shall be effective January 1,
1994.
(e) If an Excess Amount was allocated to a Participant on
an allocation date of another plan, the Excess Amount attributed to this Plan
will be determined by applying the order in (d) above. To the extent that the
ordering as between this Plan and the other plan is not specified or is
determined to be the same, then the excess amount attributed to this Plan shall
be the product of,
(i) The total Excess Amount allocated as of
such date (including any amount which would have been allocated but for the
limitations of section 415 of the Code), times
59
<PAGE> 62
(ii) The ratio of (1) the amount allocated to the
Participant as of such date under this Plan, divided by (2) the total amount
allocated as of such date under all qualified defined contribution plans
(determined without regard to the limitations of section 415 of the Code).
(f) Any Excess Amounts attributed to this Plan shall be
disposed of as provided in section 8.01, subsection (d).
8.03 (a) If the employer maintains one or more defined
contribution plans and one or more defined benefit plans, the sum of the
Defined Contribution Plan Fraction and the Defined Benefit Plan Fraction,
cannot exceed 1.0 for any Limitation Year.
(b) For purposes of this section, employee contributions
to a qualified defined benefit plan are treated as a separate defined
contribution plan.
(c) For purposes of this section, all defined
contribution plans of an employer are to be treated as one defined contribution
plan and all defined benefit plans of an employer are to be treated as one
defined benefit plan, whether or not such plans have been terminated.
(d) If the sum of the Defined Contribution Plan Fraction
and Defined Benefit Plan Fraction exceeds 1.0; the annual addition to the
defined contribution plans for the limitation year will be reduced so that the
sum of the fractions will not exceed 1.0.
8.04 For purposes of this Article, the following terms shall be
defined as follows:
(a) Compensation shall be as defined in Article II,
except that all Compensation which is includible in income shall be included,
including Compensation from all Affiliated Employers, even during a period of
nonparticipation. Exclusions of fringe benefits from the definition in Article
II shall not be taken into account for purposes of this Article. Aggregation
of Family Members of Highly Compensated Employees shall not be taken into
account for purposes of this Article.
(b) Employer shall mean the Company and each Employer
which adopts this Plan and all Affiliated Employers, except that Common Control
shall be determined as modified by Code section 415(h), which Employers shall
be considered a single Employer for purposes of applying the limitations of
this Article.
(c) Limitation Year shall mean the Allocation Limitation
Year as defined in Article II.
60
<PAGE> 63
(d) Average Compensation shall mean the average
Compensation during a Participant's high 3 Years of Service, which period is
the 3 consecutive calendar years (or, the actual number of consecutive years of
employment for those Employees who are employed for less than 3 consecutive
years with the Employer) during which the Employee had the greatest aggregate
compensation from the Employer.
ARTICLE IX
PLAN ADMINISTRATOR
9.01 The Board of Directors of the Company shall appoint a Plan
Administrator. The Plan Administrator shall consist of not less than one (1)
nor more than nine (9) persons, corporations, or other legal entities. The
Plan Administrator shall serve at the pleasure of the Company and vacancies in
the position of Plan Administrator arising by reason of resignation, death,
removal, or otherwise, shall be filled by the Company. Any Plan Administrator
may resign of his own accord by delivering his written resignation to the
Company. If the Company does not designate a Plan Administrator, or if the
position of Plan Administrator is vacant for any reason, then the Company shall
serve as the Plan Administrator.
9.02 The Plan Administrator shall administer the Plan and is
authorized to make rules and regulations as it may deem necessary to carry out
the provisions of the Plan and to employ investment counsel, attorneys,
accountants, and such other persons as it shall deem necessary or desirable in
the administration of the Plan. The Plan Administrator shall determine any
question arising in the administration, interpretation, and application of the
Plan, which determination shall be binding and conclusive on all persons.
Employment and compensation shall be determined by the Plan Administrator from
the records of the Employer. The Plan Administrator shall exercise all voting
powers granted to the Trust through ownership of any shares of the Company.
All powers granted to the Plan Administrator shall be discharged in a
nondiscriminatory manner and for the exclusive benefit of Participants and
their beneficiaries or for defraying the reasonable costs of administration.
In addition, the Plan Administrator shall discharge its duties and power in
conformance with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims.
Except as provided for hereinafter, the Plan Administrator shall
direct the Trustee as to the exercise of all voting powers over any shares of
Qualifying Employer Securities. The Participant shall be entitled to direct
the Trustee as to the exercise of all voting powers over shares allocated to
his
61
<PAGE> 64
account that are Registration Type Qualifying Employer Securities. The
Participant shall be entitled to direct the Trustee as to the manner in which
the voting rights will be exercised over shares allocated to his account that
are not Registration Type Qualifying Employer Securities with respect to any
corporate matter which involves the voting of such shares allocated to the
Participant's account with respect to the approval or disapproval of any
corporate merger or consolidation, recapitalization, reclassification,
liquidation, dissolution, sale of substantially all assets of a trade or
business, or such similar transaction as may be prescribed in Treasury
regulations.
At the time proxy materials are forwarded to company shareholders for
each annual or special meeting of company shareholders, the Plan Administrator
will send to each Participant who has Qualifying Employer Securities then
allocated to his account(s) and who is entitled to vote such securities
pursuant to the terms herein set forth the proxy form on which may be set forth
the Participant's instructions as to the manner of voting the shares (including
fractional shares) of Qualifying Employer Securities. All shares of Qualifying
Employer Securities which have not been allocated to the Accounts of
Participants shall be voted by the Trustee at such meeting in the same
proportion in which allocated shares of Qualifying Employer Securities are
voted.
9.03 The Plan Administrator shall maintain accounts showing the
fiscal transactions of the Plan. The Plan Administrator shall prepare annually
a report showing in reasonable detail the assets and liabilities of the Plan
and giving a brief account of the operation of the Plan for the past year.
Such report shall be submitted to the Board of Directors of the Employer and
the Participants in the Plan and shall be filed in the office of the Plan
Administrator.
9.04 The Plan Administrator may appoint a Chairman and a Secretary
and such other officers as it shall deem advisable. The Plan Administrator
shall act by a majority of its members at the time in office and such action
may be taken either by a vote at a meeting or in writing without a meeting.
The Plan Administrator may by such majority action authorize any one or more of
its members to execute any document or documents on behalf of the Plan
Administrator.
9.05 Unless otherwise determined by the Employer, the Plan
Administrator shall serve without compensation for services rendered. Expenses
of the Plan Administrator related to Plan establishment, design and termination
shall be paid by the Employer. Other expenses shall be paid by the Employer or
by the Trust. Such expenses shall include any expenses incident to the
functioning of the Plan Administrator, including, but not limited to, salaries
of employees, fees of investment counsel, attorneys'
62
<PAGE> 65
fees, accounting charges, and other costs of administering the Plan.
9.06 The Employer shall indemnify and hold harmless each member of
the Plan Administrator from any and all claims, loss, damages, and expenses,
arising from any act or omission of such member, except when the same is
judicially determined to be due to violations of the Employee Retirement Income
Security Act of 1974. No Plan assets may be used for any such indemnification.
9.07 The Plan Administrator shall arrange for such bonding as may be
required by the Employee Retirement Income Security Act of 1974, but no bonding
in excess of the minimum amount required by law shall be considered as required
by the Plan.
9.08 The Plan Administrator may consent to exclude from the
allocation of Qualifying Employer Securities acquired by the Plan in a
transaction in which the selling taxpayer elected nonrecognition under Code
section 1042, the seller and such other persons stated in Article VI for the
Nonallocation Period. The Plan Administrator may require a demonstration that
the transaction is in fact eligible for such treatment as a condition of such
special allocation and shall have complete discretion as to whether to permit
such Qualifying Employer Securities to be so allocated.
The Plan Administrator shall not be permitted to consent to the above
allocation in connection with this transaction if the Plan does not own more
than thirty (30%) percent of the total value of Qualifying Employer Securities
outstanding immediately after the sale or if the Other Investments Accounts of
the Participants to whom the special allocation is to be made do not have
sufficient assets for such purchase. The determination of the Plan
Administrator to engage in such a purchase shall constitute the exercise of
fiduciary responsibility, and shall accordingly only be made when prudent and
in the best interests of Plan Participants and their Beneficiaries.
9.09 The Plan Administrator may, as a condition for the crediting of
the service of a Participant for periods of pregnancy, birth, adoption or child
care after birth or adoption in order to avoid a Break in Service, adopt a
policy of requiring such Participant to furnish certain information within a
reasonable time. Any such policy shall be communicated to Participants in a
manner (including in a summary plan description) reasonably designed to apprise
each Participant of such Policy. The Participant may be required to establish
that the absence from work is for pregnancy, birth of the Participant's child,
adoption of a child by the Participant, or the care of such newborn or adopted
child for a period immediately following such birth or adoption. The
Participant may also be required to establish the number of days for which
63
<PAGE> 66
there was such an absence. The Plan Administrator may require such information
as is reasonable to satisfy it as to the accuracy of the such claimed service.
9.10 The Plan Administrator shall establish reasonable procedures to
determine the qualified status of Domestic Relations Orders. The Plan
Administrator shall be responsible for the interpretation of any Domestic
Relations Order, but may request clarification from the Participant, the
alternate payee or payees, the Court rendering such Domestic Relations Order,
or any other affected persons.
In the case of any Domestic Relations Order received by a Plan, the
Plan Administrator shall promptly notify the Participant and any alternate
payee of the receipt of such order and the Plan's procedures for determining
the qualified status of the Domestic Relations Orders. As part of such
procedure, the Plan Administrator may request a legal opinion from the Plan's
legal counsel, after notification of the affected parties, of the provisions of
any such Domestic Relations Order, with the Participant and all alternate
payees to bear the expense of such opinion. The Plan Administrator may also
request a court of competent jurisdiction for a determination of the status of
a Domestic Relations Order.
During any period in which the issue of whether a Domestic Relations
Order is a Qualified Domestic Relations Order is being determined, the Plan
Administrator shall segregate in a separate account in the Plan or in an escrow
account the amounts which would have been payable to the alternate payee during
such period if the order had been determined to be a Qualified Domestic
Relations Order. Within a reasonable period after receipt of a Domestic
Relations Order, the Plan Administrator shall determine whether such order is a
Qualified Domestic Relations Order and notify the Participant and each
alternate payee of such determination. If within eighteen (18) months after
the date on which the first payment would be required to be made under the
Domestic Relations Order the Plan Administrator determines that the Domestic
Relations Order is a Qualified Domestic Relations Order, then payment shall be
made to the alternate payee of any amount held in the segregated account of
escrow account. If within eighteen (18) months after the date on which the
first payment would be required to be made under the Domestic Relations Order
either (a) it is determined that the Domestic Relations Order is not a
Qualified Domestic Relations Order, or (b) the issue of qualification cannot be
resolved, then the Plan Administrator shall cause to be paid the segregated
amounts (with interest, if applicable) to the person or persons who would have
been entitled to such payment in the absence of the Domestic Relations Order.
64
<PAGE> 67
9.11 In the event that a tender offer is made for some or all of the
shares of Company Stock, each Participant or Beneficiary shall have the right
to direct whether those shares allocated to his account, whether or not vested,
shall be tendered. This right shall be exercised in the manner set forth
herein. In the absence of a written directive from or election by a
Participant or Beneficiary to the Plan Administrator, after having been
notified, the Participant or Beneficiary shall be deemed to have chosen not to
tender his or her shares, and the Plan Administrator shall direct the Trustee
not to tender such shares. Because the choice is to be given to the
Participants, the Plan Administrator and the Trustee shall not have fiduciary
responsibility with respect to the decision to tender or not or whether to
tender all of such shares or only a portion thereof.
In order to facilitate the decision of Participants whether to tender
their shares in a tender offer (or how many shares to tender), the Plan
Administrator shall provide election forms for the Participants, whereby they
may elect to tender or not and whereby they may elect to tender all or a
portion of such shares. Such election may be made or changed at any time prior
to the day before the expiration date of the tender offer (with extensions);
any election or change in election must be received by the Plan Administrator,
or a designated representative of the Plan Administrator, on or before the day
preceding the expiration date of the tender offer (with extensions, if any).
The election shall be binding on the Plan Administrator and the Trustee. The
Plan Administrator shall make every effort to distribute the notice of the
tender, election forms and other communications related to the tender offer to
all Participants as soon as practicable following the announcement of the
tender offer, including mailing such notice and form to Participants and
posting such notice in places designed to be reviewed by Participants.
Shares which are not allocated to the account of any Participant shall
not be tendered and the proceeds used to repay an exempt loan unless the tender
offer may result in Employer Securities no longer being available and the price
fixed during the tender offer would produce a financial gain to the Plan
Participants as compared with the alternative of not tendering such stock. The
Plan Administrator shall make such determination. Subject to this limitation,
such shares shall be tendered or not as the majority of shares held by
Participants and directed by them is tendered or not.
ARTICLE X
RESTRICTIONS ON DISPOSITION
10.01 This Trust shall be a spendthrift trust as that term is defined
in the Louisiana Trust Code, and the assets herein
65
<PAGE> 68
shall be held subject to the maximum restraint on voluntary or involuntary
alienation by the Participants and their respective Beneficiaries permitted by
the provisions of the Louisiana Trust Code. These restrictions on disposition
shall apply to any person for whom an account is maintained hereunder,
including Inactive Participants.
10.02 The assets of the Trust shall not be subject to alienation,
assignment, Trustee process, garnishment, attachment, execution, or levy of any
kind, except as may be necessary to repay advances made by the Trustee for its
fee and expenses of the Trust, and no attempt to cause such assets to be so
subjected shall be recognized except to such extent as may be required by law.
If any Participant shall attempt to alienate or assign his interest provided in
the Trust, or if the right to any benefit payable with respect to a participant
is created, assigned or recognized in favor of another person, the Trustee
shall take such steps as it deems necessary to preserve such interest for the
benefit of the Participant or his Beneficiaries.
10.03 Notwithstanding the limitation on alienability contained
herein, the Trustee shall not be precluded from complying with a court order of
a court of competent jurisdiction, so long as such order is a Qualified
Domestic Relations Order.
ARTICLE XI
NO REVERSION TO EMPLOYER
11.01 At no time shall it be possible for the plan assets to be used
for, or diverted to, any purpose other than for the exclusive benefit of the
Participants and their Beneficiaries, except that Contributions made by the
Employer may be returned to the Employer if:
(a) The Contribution was conditioned on the initial
qualification of the Plan under the Internal Revenue Code, the Plan does not so
qualify and the contribution is returned within one year after the Plan is
found to not so qualify;
(b) The Contribution was made due to a mistake of fact;
and the Contribution is returned within one year of the mistaken payment of the
Contribution; or
(c) The Contribution was conditioned on its
deductibility, the deduction is disallowed, and the Contribution is returned
within one year of the disallowance of the deduction.
11.02 In the case of a Contribution made due to a mistake of fact,
the amount of the Contribution returned may not exceed the difference between
the amount actually contributed and the
66
<PAGE> 69
amount which would have been contributed had there been no mistake of fact and
may not include the earnings attributable to such Contribution. The amount of
the Contribution returned must be reduced by any losses attributable to the
Contribution, and no Participant may have his Employer Contribution Account
reduced by the return of the Contribution to less than such account would have
been had the returned Contribution never been made.
11.03 In the case of a Contribution conditioned on its deductibility,
the deduction for all or part of which is disallowed, the amount of the
Contribution returned may not exceed the difference between the amount actually
contributed and the amount which would have been contributed had there been no
error in determining the deduction and may not include the earnings
attributable to such Contribution. The amount of the Contribution returned
must be reduced by any losses attributable to the Contribution, and no
Participant may have his Employer Contribution Account reduced by the return of
the Contribution to less than such account would have been had the returned
Contribution never been made.
ARTICLE XII
TRUSTEE POWERS, RIGHTS AND DUTIES
12.01 Subject to the terms and provisions of the Plan, and the
directions and rules and regulations of the Plan Administrator issued pursuant
thereto, the Trustee shall have all of the powers that may be exercised by a
Trustee under Louisiana law, including, but not limited to, those powers that
Trustees are permitted to exercise under the provisions of the Louisiana Trust
Code, and such additional powers as may hereafter be permitted Trustees by
Louisiana law.
12.02 Pursuant to the direction of the Plan Administrator, the
Trustee shall invest any cash received for the account of any Participant or
credited to the account of any Participant to the extent practicable in
Qualifying Employer Securities, in accordance with Article VI. Investment
direction by the Plan Administrator shall be binding upon the Trustee and in
following the Plan Administrator's written direction, the Trustee shall assume
no liability or responsibility for such investments, so long as they are
consistent with the terms of the Plan and ERISA.
12.03 Subject to the foregoing limitations, the Trustee may invest in
bonds, notes, mortgages, commercial paper, preferred stocks, common stocks, or
other securities, rights, obligations of property, real or personal, including
shares and certificates of participation issued by investment companies or
investment trust whether or not such investments be authorized for Trust funds
and including stock, securities and Qualifying Employer Real Property of the
Employer and any Affiliated Employer; and
67
<PAGE> 70
except as provided for in Article IX may vote personally or by proxy any shares
of stock; and may lease, mortgage or pledge any of the property upon such terms
as it deems advisable; and may borrow money with or without mortgaging the
Trust assets; and may compromise or arbitrate any claim in favor of the Trust.
The Trustee may also purchase insurance for the benefit of the Trust
on the lives of shareholders of the Employer and on the lives of those
employees whose death could result in a reduction of the Employer's profits.
The Trustee may retain in cash a portion of the Trust fund either awaiting
investment or to meet contemplated payments under this Trust. Funds of the
Plan may be invested in deposit accounts or certificates of deposit bearing a
reasonable rate of interest in the Hibernia National Bank.
12.04 The Trustee is further authorized and empowered to sell,
assign, exchange, or transfer assets held from time to time and to purchase
other assets from the proceeds thereof, and to receive, hold, invest and
reinvest the income from the increment of the funds.
12.05 The Plan Administrator may direct the Trustee to obtain Loans.
Any such Loan will meet all requirements necessary to constitute an "exempt
loan" within the meaning of Treasury Regulation section 54.4975-7(b)(1)(iii)
and shall be used primarily for the benefit of the Participants and
Beneficiaries. The proceeds of any such Loan shall be used, within a
reasonable time after the Loan is obtained, only to purchase Qualifying
Employer Securities, repay the Loan, or repay any prior Loan. Any such Loan
shall further meet the requirements of Article XVII.
12.06 The Trustee shall have the right to borrow or raise money for
the purpose of the Trust in such amount and upon such terms and conditions as
the Trustee shall deem advisable; and, for any amount so borrowed, to issue his
promissory note as Trustee and to secure the repayment thereof by pledging all
or any part of the Trust fund; and no person lending money to the Trustee shall
be bound to verify the application of the money lent or to inquire into the
validity, expediency or propriety of any such borrowing. In the event,
however, that the Trustee desires to borrow money upon the security of a pledge
of insurance policies outstanding with respect to the lives of Participants
under the Plan, the power to borrow heretofore stated is subject to the
conditions that such borrowing shall be for the sole purpose of the payment of
premiums on such policies.
12.07 The Trustee may act with the same care as would a prudent man,
who was familiar with such matters, when acting in a like capacity in a similar
enterprise having similar purposes; and, unless it is "prudent" not to do so,
the Trustee must diversify the Plan's investments so as to minimize the risk of
68
<PAGE> 71
large losses, except with regard to the purchase of Qualifying Employer
Securities.
12.08 The Trustee may not:
(a) Deal with the assets of the Plan and Trust for his
own account;
(b) Act, in any capacity in any transaction involving the
Plan and Trust, on behalf of a party whose interests are adverse to the Plan
and Trust or its Participants;
(c) Receive any consideration from any party in
connection with any transaction involving fund assets; or
(d) Maintain indicia of ownership of any Plan and Trust
assets outside of the jurisdiction of the United States District Courts.
12.09 Except as hereinafter provided, the Trustee or other fiduciary
may not engage in a transaction which constitutes an acquisition, sale or lease
of property between the Trust and a "Party-in-Interest" except that the
acquisition, sale or lease of Qualifying Employer Securities between the Trust
and a Party-in-Interest shall be permitted, provided the transaction is carried
on in an arm's-length basis and for adequate consideration and no commission is
charged with respect thereto, and such transaction otherwise meets the
requirements of section 408(b) of ERISA and section 4975(d)(3) of the Code.
Except as hereinafter provided, the Trustee or other fiduciary may not
engage in any transaction which constitutes the direct or indirect lending of
money or extension of credit between the Trust and a party-in-interest except
that direct or indirect Loans for the acquisition of Qualifying Employer
Securities made by a party(s)-in- interest to the Trust shall be permitted if
the Loan is primarily for the benefit of Participants, if the Loan bears a
reasonable interest rate, and if, when collateral is given for such Loan, it
consists only of Qualifying Employer Securities.
Except as hereinafter provided, the Trustee or other fiduciary cannot
engage in any transaction which constitutes the direct or indirect:
(a) Furnishing of goods, services or facilities between
the Trust and a party-in-interest;
(b) Transfer to, or use by or for, the benefit of a
Party-in-interest of any of the Trust's assets; or
69
<PAGE> 72
(c) Acquisition by the Plan of any Employer security or
Employer real property which is not qualifying or which is in excess of that
permitted by the Employee Retirement Income Security Act of 1974, as amended.
12.10 Notwithstanding the above, the Trustee may engage in the
transactions otherwise prohibited hereunder in the following circumstances:
(a) An exemption from the Secretary of Labor under
section 408 of Title I of the Employee Retirement Income Security Act of 1974
("ERISA") has been received or may reasonably be expected to be received
because the terms of such transaction were of an arm's-length nature;
(b) The transaction is necessary in order to correct a
previous prohibited transaction or transactions, whether entered into before or
after the enactment of ERISA;
(c) The transaction is made pursuant to a directive or
suggested course of action of the U.S. Comptroller of the Currency, the Federal
Deposit Insurance Corporation, the Secretary of the Treasury, the Secretary of
Labor, or any other Federal or State regulatory agency;
(d) The transaction is entered into pursuant to advice or
recommendation or opinion of counsel that it may reasonably be undertaken in
order to effect a correction or satisfy a directive stated in (b) or (c) above,
or that the transaction is not a prohibited transaction as that term is defined
in ERISA; or
(e) The transaction is the subject of, or probably the
subject of, a class exemption issued by the Internal Revenue Service and/or
U.S. Department of labor.
If, notwithstanding the above, the Trustee engages in a prohibited
transaction, he shall immediately notify the Plan Administrator, and together
the Trustee and Plan Administrator shall notify the Participants, the U.S.
Department of Labor and the Internal Revenue Service of the transaction within
the period provided in ERISA for such notification, and shall take action to
correct the transaction, to obtain an exemption referred to above or to report
and pay taxes thereon.
12.11 If permitted by the Trustee and the Plan Administrator pursuant
to a policy of uniform applicability, individual insurance and annuity
contracts may be purchased for the Other Investment Accounts of Participants.
Insurance coverage is intended to be incidental to the purpose of this Plan.
Accordingly, if a portion of Employer Contributions is to be used to pay the
premiums of ordinary life insurance contracts
70
<PAGE> 73
on the life of an active Participant, and if such payments and contracts are
allocated to the account of the insured Participant, then the aggregate
premiums paid for such contracts for any Participant shall be less than 50% of
the aggregate Employer Contributions made on such Participant's behalf at any
particular time; for term type insurance contract, the aggregate premiums for
such contracts shall be less than 25% of the aggregate Employer Contributions
made on such Participant's behalf at any particular time. If whole life and
term insurance are acquired for the benefit of a Participant's account, the sum
of one-half of the aggregate premiums for whole life insurance and all of the
aggregate premiums for term insurance shall be less than twenty-five (25%)
percent of the aggregate Employer Contributions made on such Participant's
behalf as of any date. However, Employer Contributions held under the Plan on
behalf of the Participant for at least two (2) years shall be available for
payment of premiums in addition to the foregoing limits. Furthermore, the Plan
may purchase insurance contracts on the lives of Key Employees on whom the
value of Company Stock depends. Such contracts shall not be held in the
accounts of any Participants and shall not be subject to the foregoing limits.
12.12 The Trustee may accept, but is not required to accept, at the
direction of the Plan Administrator, a qualified Rollover Contribution or a
rollover amount from another qualified trust from an Employee as permitted
under the Code. The Trustee may require such documentation and written
representations as he feels necessary to ensure that such contribution is a
qualifying Rollover Contribution, rollover amount, or direct transfer. Such a
Contribution by an Employee shall be adjusted as hereinafter provided for
earnings and asset reevaluations, but shall not in any event enter into the
allocation of Forfeitures. Such a Contribution shall not be considered an
Annual Addition or Employer Contribution for purposes of determining the
maximum amount of Annual Additions which may be made on behalf of a Participant
or deductible Employer Contribution which may be made to the Plan. The Trustee
may accept funds transferred directly from another corporate employee
retirement plan upon the termination or merger of such plan into this Employee
Stock Ownership Plan or upon the merger of the corporate employer under such
other plan into the Company. If such funds include Employee Contributions,
then amounts attributable to Employee Contributions shall be separately
accounted for and shall not be used to purchase Qualifying Employer Securities.
Such funds will share in the earnings and losses of the fund. All Participants
in this Plan, including Participants in the merged Plan and in this Plan prior
to merger who are still participating at the time of the Forfeiture allocation,
shall share in the allocation of Forfeitures occurring in this Plan subsequent
to such merger.
12.13 The Trustee shall not be responsible in any way for the
collection of contributions provided for under the Trust.
71
<PAGE> 74
The Trustee shall accept and hold under the Trust such Contributions of money,
or other property approved by the Employer for acceptance by the Trustee, on
behalf of the Employer and Participants as it may receive from time to time
from the Employer. All such Contributions shall be accompanied by written
instructions from the Employer accounting for the manner in which they are to
be credited.
12.14 On a receipt of a written order from the Plan Administrator
certifying that a Participant's benefits are payable pursuant to the Trust, the
Trustee shall take such action as may be necessary to make distribution in such
form and at such time as the order for payment so directs. However, before
making any such distribution in the event of a Participant's death, the Trustee
shall be furnished with any and all certificates, tax waivers and other
documents which may be requested in its discretion.
12.15 The Trustee may retain or consult counsel, including an
investment adviser, which may be the counsel to the Employer, to the Trustee or
to the Plan Administrator, with respect to the meaning, or construction of
terms of the Trust or Plan, or with respect to its obligations or duties
thereunder, or with respect to any claim, action, proceeding or question of
law. The Trustee may engage agents to assist in its carrying out the
provisions of the Trust. The Trustee shall be fully protected in any action
taken or not taken by it in good faith pursuant to advice of counsel or agents,
and shall in no event be liable for the action or nonaction of such agents,
provided the Trustee shall have exercised due care in selection of such agents.
12.16 The Trustee shall not be responsible for the purpose or
propriety of any distribution made pursuant to directive of the Plan
Administrator or any action or nonaction taken pursuant to the written
instructions of the Plan Administrator, including investment directions, as
long as these instructions are made in accordance with the terms of this Plan
document and are not contrary to Title I of the Employee Retirement Income
Security Act of 1974.
12.17 Fees, taxes and expenses of the Trust shall be subject to the
provisions of this Article as follows:
(a) Fees -- The Trustee in consideration of its services
under the Trust shall receive such reasonable compensation as the Employer and
the Trustee mutually agree. If the Trustee is in the business of providing
trust services, then the Trustee's normal charges shall be considered
reasonable and the Employer shall be considered to have agreed thereto. The
Trustee may change such compensation at any time upon thirty (30) days' written
notice to the Employer, or may agree to waive fees. If a Trustee is an
individual Trustee who is also an Employee or
72
<PAGE> 75
officer of any Employer hereunder, such person shall not be entitled to such
fees and shall not be paid any fees hereunder. Reasonable fees and expenses
incurred by the Trustee in connection with the affairs of the Trust may be paid
by the Trust or by the Employer.
(b) Taxes -- Any income, gift, estate and inheritance
taxes and other taxes of any kind whatsoever, including transfer taxes incurred
in connection with the investment, reinvestment or distribution of the assets
of the Trust, that may be levied or assessed in respect to such assets or
interest of specific Participants, shall be charged to such accounts or
interests and if not so allocable they shall be charged proportionately to the
accounts or interest of all Participants, or to the Employer, as the
circumstances shall require.
(c) Expenses -- All other administrative expense incurred
by the Trustee in the performance of its duties, including fees for legal
services rendered to the Trustee, shall be paid from the assets of the Trust,
but in the discretion of the Employer such expenses may be paid by the Employer
after a statement of such expenses is rendered by the Trustee to the Employer.
Expenses of Plan establishment, design and termination must be paid by the
Employer.
(d) Collection -- All fees of the Trustee and taxes and
other administrative expenses charged to the Trust shall, at the Trustee's
option, be paid by the Employer to the Trustee with the amount of the first
contribution for each Trust Year which is to be credited to the Trust; if no
contribution is made thereto in that year, and if the assets of the trust are
insufficient to satisfy such charges, the Employer shall pay any deficit
therein to the Trustee.
(e) Bonding -- An individual Trustee need not furnish
security or bond, as otherwise required under Title 9, section 2171 of the
Louisiana Revised Statutes, except as may be required under ERISA or other
Federal law. The Employer shall bear the expense of any such bond required.
12.18 The Trustee may resign at any time upon thirty (30) days'
written notice to the Company, or if so requested in writing by the Company,
shall resign with thirty (30) days following receipt of such request. Upon
resignation by the Trustee, the Company shall appoint a Successor Trustee.
Upon receipt by the Trustee of written acceptance of such appointment of a
Successor Trustee, the Trustee shall convey, assign, and deliver to such
Successor Trustee the assets of the Trust, together with all records pertaining
thereto. The Trustee is authorized, however, to reserve such assets as it may
deem advisable for payment of all fees, compensation, costs and expenses, or
for payment of any other liabilities and constituting a charge on or against
the assets of the Trust or on or against the Trustee, with any balance
remaining after the
73
<PAGE> 76
payment of all such items to be paid over to the Successor Trustee. The
Successor Trustee shall have the right, title and interest in the assets paid
over to it, and all powers, rights and duties under the Trustee vested in the
Trustee shall vest in such Successor Trustee immediately upon its appointment
and acceptance, and thereupon all further duties and liabilities of the Trustee
who has been succeeded shall terminate, except for an accounting as may be
required.
12.19 If two or more persons are designated as Trustee, any one of
the said persons shall have the authority and power to act on behalf of all
Trustees with the approval of all Trustees, and to sign and execute any and all
such forms, instruments and documents as may be required in the capacity of
Trustee. When so signed or executed any such document shall be accepted by any
person as conclusive and binding upon all Trustees and upon this Trust, as to
any and all matters contained therein, and any person dealing with the said
Trustees or with this Trust shall be fully protected in acting in reliance on
the provisions of any such form, instrument or document signed by any one of
the said Trustees.
12.20 The Employer agrees to indemnify the Trust fund and the Trustee
against any liability imposed as a result of a claim asserted by any person or
persons under the laws of any state or the federal government where the Trustee
has acted under this Plan in good faith in reliance on a written direction of
the Plan Administrator or an instrument, certificate or paper it believed
genuine.
12.21 Notwithstanding any other provisions of the Plan, the Trustee
hereof may cause any part or all of the monies and assets of this Trust to be
commingled with monies and assets to be invested as a part of any collective
investment trust which then provides for the pooling of assets of plans
described in section 401(a) of the Code and exempt from tax under section
501(a) of the Code, provided that such collective investment trust is exempt
from tax under the Code or regulations or rulings issued by the Internal
Revenue Service and is then maintained by the Trustee. Monies and assets of
this trust invested in such a Trust shall be held and administered by the
Trustee strictly in accordance with the terms of or under the powers granted in
said declarations of trust as they may be amended from time to time, and the
document governing any such collective investment trust are hereby made a part
of the Plan. Without limiting the generality of the foregoing, the following
declarations of trust executed by the Trustee are hereby incorporated by
reference: any common trust fund or mutual fund maintained by Hibernia National
Bank or its affiliates.
74
<PAGE> 77
ARTICLE XIII
AMENDMENT, TERMINATION OR DISCONTINUANCE
13.01 While it is the intention of the Company that this Plan shall
be permanent, the Company reserves the right at any time to amend any of the
provisions of this Trust or to revoke it in its entirety. Any such revocation
or amendment to this Trust shall become effective immediately, upon receipt by
the Trustee of a written instrument or revocation or amendment signed on behalf
of the Employer by its duly authorized representative. Each Employer may
continue or withdraw from the Plan in the manner provided herein; otherwise,
the Company shall act on behalf of all Employers.
13.02 Notwithstanding the provisions of this Article XIII, or of any
other provisions of this Plan, any amendment may be made, retroactively if
necessary, which the Company deems necessary or appropriate to conform the Plan
to, or to satisfy the conditions of any law, government regulation or ruling,
and to permit the Plan to meet the requirements for qualification under section
401 of the Code, and to permit the Trust to meet the requirements for tax-
exempt status under section 501 of the Code. Any such amendment shall conform
with the provisions of Code section 401(b). No amendment shall reduce the
Accrued Benefit of any Participant.
13.03 No amendment to this Trust shall operate to deprive any
Participant of his vested interest in his distributive share. In the case of
any merger or consolidation with, or transfer of assets or liabilities to, any
other plan, each Participant in the Plan would (if the Plan is then terminated)
receive a benefit immediately after the merger, consolidation, or transfer
which is equal to or greater than the benefit he would have been entitled to
receive immediately before the merger, consolidation, or transfer (if the Plan
had then terminated).
13.04 Upon the termination or partial termination of this Trust or
upon the discontinuance of contributions by the Company and by each
participating Employer without formal termination of this Trust, the Trustee
shall revalue and redetermine the Accrued Benefit of each Participant who is
affected by said termination or partial termination. The entire Accrued
Benefit of each Participant (or each Affected Employee in the case of a partial
termination) shall be nonforfeitable. In the case of a complete termination,
the Accrued Benefit shall be paid and distributed to such Participant, or in
the case of his death before such distribution, to the Beneficiary or
Beneficiaries designated by such Participant. A Participant's right to his
Accrued Benefit is not conditioned upon a sufficiency of Plan assets in the
event of termination.
75
<PAGE> 78
13.05 Notwithstanding such termination of this Trust as herein
provided, the Trustee shall continue the Trust in force and effect for the sole
purpose of liquidating the distributive shares of the respective Participants.
13.06 Upon termination of the Plan or a complete discontinuance of
contributions under the Plan, any funds which remain unallocated under the
provisions of Article VIII shall be allocated to the Participants in proportion
to their compensation for the Plan Year in which the termination takes place,
except that the limitations of Article VIII shall apply with respect to each
Participant for such Plan Year. Any unallocated portion thus remaining shall
be allocated in proportion to compensation.
13.07 If an amendment is made to the Plan which either directly or
indirectly affects its vesting schedule, then for any Employee who is a
Participant in the Plan on the later of the date the Plan is amended or the
effective date of the amendment, his nonforfeitable percentage shall not be
reduced by reason of such amendment. Furthermore, if such Participant has
completed three (3) or more Years of Service with the Employer (as defined
either before or after the amendment), he shall be entitled to elect to have
his nonforfeitable interest determined without regard to the amendment,
provided that the opportunity for such election shall not be afforded to those
Participants whose nonforfeitable percentage under the Plan, as amended, at any
time cannot be less than the percentage determined without regard to such
amendment. The period of the election shall begin on the date that the
amendment is adopted and shall end on the latest of the following dates: (i)
60 days after the adoption date; (ii) 60 days after the effective date of the
amendment; or (iii) 60 days after the Participant is issued written notice of
the amendment. The Plan Administrator shall prescribe the form of such written
notice in the election by the Participant. The election, once made, shall be
irrevocable.
13.08 No amendment shall be made which reduces or restricts, directly
or indirectly, the accrued benefit of any Participant or which eliminates or
reduces early retirement benefit or optional form of benefit; however, this
plan as an Employee Stock Ownership Plan shall not be treated as failing to
meet this requirement merely because it modifies distribution options in a
nondiscriminatory manner.
Any plan provision which restricts or would deny a participant through
the withholding of consent or the exercise of discretion by some person or
persons other than the participant (and where relevant, other than the
participant's spouse) of an alternative form of benefit is hereby amended by
the deletion of the consent and/or discretion requirement.
76
<PAGE> 79
An alternate form of benefit, by definition, encompasses the different
forms of benefit payment available under the plan which provides that:
(a) Participant's benefits under the plan may be paid in
more than one form, or
(b) Payment of a particular form of benefit may commence
at sometime earlier or later than the normal date for the commencement of such
benefit.
Notwithstanding the above, the elimination of the distribution in the
event of financial hardship shall not be considered the elimination of a form
of benefit which shall be covered by this section. This paragraph and such
elimination of distribution shall be conditioned on the approval of the
Internal Revenue Service.
ARTICLE XIV
CLAIMS FOR BENEFITS: DENIALS AND APPEALS
14.01 A Participant or Beneficiary shall automatically be paid the
benefit due him under the provisions of Article VII. The Plan Administrator
shall have the full discretion and authority to interpret the Plan and to
determine, in accordance with its reasonable interpretation of the Plan
documents, the amount of any benefit due any Participant or Beneficiary and the
timing of the payment to any Participant or Beneficiary by the Plan. If,
however, a Participant or Beneficiary disagrees with the amount or time of
payment of a benefit paid or to be paid him or believes that he is due to be
paid a benefit which the Plan Administrator has indicated will not be paid to
him, then he shall make a claim for benefits in accordance with the terms of
this Article.
14.02 A Participant must make a claim in writing to the Plan
Administrator for any benefit pursuant to the provisions of this Article XIV
after such time as all Participants have been notified as to the identity of
such Plan Administrator. Otherwise, a benefit hereunder may be considered to
have been claimed if any employee has in writing informed any executive officer
of the employer that he is interested in knowing whether he is entitled to any
benefit under this Plan.
14.03 The Plan Administrator shall have full discretion and authority
to determine the merits of any claim for benefits, consistent with the Plan
Administrator's reasonable interpretation of the Plan documents. The Plan
Administrator shall, within ninety (90) days of receipt of such claim, if he
denies in whole or in part a claim for the benefit, write a letter to the
claimant setting forth the reasons for denial with
77
<PAGE> 80
reference to specific provisions of the Plan which are applicable and an
explanation of the necessary steps under this Article XIV, below.
14.04 Any claimant for a benefit (or, as applicable, his estate or
other representative or beneficiary) may, within sixty (60) days after receipt
of the letter referred to in section 14.03 appeal to an Appeals Committee (if
more than one person) or Appeals Officer from time to time appointed (if and
when required) by the employer as named fiduciary and request a review of the
denial of benefit with opportunity to submit his position in writing. The
Appeals Committee or Officer not later than sixty (60) days (or one hundred
(100) days, if a hearing is held) after the request for review referred to in
the foregoing provisions of this Article XIV is received, shall render a
written decision and mail same to claimant at the last address known to the
Employer specifying by reference to the Plan the reasons for denial of such
part or all of the claimed benefit as it or he denies upon review of the
appeal.
14.05 If a former Participant cannot be located by the Trustee and
the Plan Administrator, after diligent search and the lapse of at least two (2)
years, then the account of such former Participant shall be forfeited as of the
last day of the Plan Year of such lapse. However, if such former Participant
comes forward at a later date, benefits shall be restored to him.
ARTICLE XV
FUNDING
15.01 The Plan Administrator shall be responsible for the
establishment and implementation of a funding policy. Such policy shall take
into account the objectives of the Plan and the requirements of ERISA. The
Plan Administrator shall determine such a policy within six (6) months of the
establishment of the Plan, or the amendment of the Plan, as the case may be, if
such a policy has not previously been established. The Plan Administrator
shall review the Plan's short-run and long-run needs for liquidity or for
investment growth and shall direct the Trustee as to those investments which
best satisfy such needs.
15.02 The funding policy established by the Plan Administrator shall
be communicated to the Participants in a general manner. Changes in the
funding policy shall be communicated as soon as practicable after their
adoption by the Plan Administrator.
15.03 The funding policy shall be reviewed annually by the Plan
Administrator. Any changes in Plan objectives shall be considered. Any
changes in the composition of the Plan
78
<PAGE> 81
Participants shall be reviewed and appropriate corrections in funding policy
made.
15.04 Should the Trustee make a Loan, the Plan Administrator shall be
responsible for obtaining a commitment from the Employer to fund the principal
and interest requirements of the Loan through cash contribution to the Plan or
by taking other measures to ensure that the Loan will be repaid. The Plan
Administrator shall review the Plan's financial requirements with reference to
current and future commitments under the Loan.
ARTICLE XVI
TOP HEAVY PLAN LIMITS
16.01 In any Plan Year in which the Plan is a Top Heavy Plan, each
Participant who is not a Key Employee and who is employed on the last day of
the Plan Year, including a Participant who completes less than 1,000 Hours of
Service during the Plan Year, shall be allocated an amount of Employer
Contributions which is the higher of the following:
(a) The portion of Employer Contributions which he would
have been allocated under Article V had the Plan not been Top Heavy;
(b) The lesser of
(i) Three (3%) percent of his Compensation, and
(ii) The highest percentage of Compensation of a
participating Key Employee which is allocated to such Key Employee Participant.
This Plan and the United Companies Financial Corporation Employee
Savings Plan and Trust shall be considered together for purposes of the minimum
Employer Contribution requirement. If a Participant in the Savings Plan would
not receive the minimum Employer Contribution between this Plan and the Savings
Plan before the application of the Top Heavy rules, then an additional Employer
Contribution shall be made to the Savings Plan to ensure that he does receive
the minimum Employer Contribution. If a Participant in this Plan is not a
Participant in the Savings Plan, then the minimum Employer Contribution shall
be satisfied by this Plan.
Any amounts which a Key Employee elects to defer under a Code section
401(k) arrangement shall be treated as Employer Contributions for purposes of
paragraph (b)(ii) above. Elective deferrals and withholding contributions for
a Nonkey Employee
79
<PAGE> 82
under a Code section 401(k) arrangement shall not be treated as Employer
Contributions for purposes of satisfying the top-heavy minimum Employer
Contribution.
16.02 In any Plan Year in which the Plan is a Top-Heavy Plan, the
vested percentage of each Participant's Accrued Benefit attributable to
Employer Contributions shall be one hundred (100%) percent after three (3)
Years of Service with the Employer. If the Plan has been Top Heavy and is no
longer Top Heavy in a subsequent Plan Year, then the vested percentage of any
Participant shall be the greater of his vested percentage as determined under
section 7.06 or his vested percentage as determined under this section for the
most recent Plan Year in which the Plan was Top Heavy. The provisions of
section 13.07 shall apply to the vesting schedule in the event of a change in
the Plan's status from a Top-Heavy Plan to a Plan which is not a Top-Heavy
Plan; such status change shall be treated as if it were a plan amendment
affecting the vesting schedule for purposes of section 13.07.
16.03 For purposes of this Article, Compensation of a Participant for
a Plan Year shall mean Compensation as defined in Article II, except that
Compensation shall include all Compensation included in gross income for the
Plan Year, notwithstanding any exclusions listed therein; shall be determined
with respect to the entire Limitation Year associated with the Plan Year,
regardless of the Participant's nonparticipation during a portion of such Plan
Year; and shall further include Compensation from all Affiliated Employers.
16.04 In any Plan Year in which the Plan is a Top-Heavy Plan, the
figure "1.0" shall be substituted for "1.25" in subsection (a) of the second
paragraph of the sections in Article II defining Defined Benefit Plan Fraction
and Defined Contribution Plan Fraction.
16.05 For the purposes of this Article XVI, all plans in the
Aggregation Group shall be considered together in determining whether the Plan
is a Top-Heavy Plan and for purposes of satisfying the requirements of this
Article.
ARTICLE XVII
LOAN PROVISIONS
17.01 The Plan may enter into a Loan, including a Loan with the
Trustee or a Loan which is guaranteed by the Employer or a related person. If
the Plan Administrator directs the Trustee to enter into a Loan, any such Loan
shall be for the benefit of Participants and Beneficiaries, shall conform to
the terms of an arm's length transaction and provide for no more than a
reasonable rate of interest as determined under Treasury
80
<PAGE> 83
Regulation section 54.4975-7(b)(7), and must be without recourse against the
Plan. The number of years to maturity under the Loan must be definitely
ascertainable at all times. The only assets of the Plan that may be given as
collateral on a Loan are shares of Qualifying Employer Securities acquired with
the proceeds of the Loan and shares of Qualifying Employer Securities that were
used as collateral on a prior Loan repaid with the proceeds of the current
Loan. Such Qualifying Employer Securities so pledged shall be placed in a
Suspense Account. If Qualifying Employer Securities so acquired are not
pledged, they shall be placed in a Suspense Account for allocation purposes and
shall be released from the Suspense Account in the same manner as if they had
been pledged.
17.02 No person entitled to payment under a Loan shall have recourse
against Trust Assets other than such collateral, Employer Contributions (other
than contributions of Company Stock) that are available under the Plan to meet
obligations under the Loan and earnings attributable to such collateral and the
investment of such contributions. All Employer Contributions paid during the
Plan Year in which a Loan is made (whether before or after the date the
proceeds of the Loan are received), all Employer Contributions paid thereafter
until the Loan has been repaid in full, all earnings from investment of such
Employer Contributions which earnings have been allocated to Participants'
Other Investments Accounts, and dividends on Company Stock acquired with the
proceeds of the Loan shall be available to meet obligations under the Loan,
unless otherwise provided by the Company at the time any such Employer
Contribution is made. Two or more Loans may be considered together as one Loan
for purposes of meeting the requirements of this Section.
17.03 This provision shall apply to any Loan which provides for the
release of shares from the Suspense Account in proportion to principal
payments. The loan must provide for annual payments of principal and interest
at a cumulative rate that is not less rapid at any time than level annual
payments of such amounts for ten (10) years.
Interest included in any payment is disregarded only to the extent
that it would be determined to be interest under standard loan amortization
tables; the disregard of interest is not applicable from the time that, by
reason of a renewal, extension, or refinancing, the sum of the expired duration
of the exempt loan, the renewal period, the extension period, and the duration
of a new exempt loan exceeds ten years.
17.04 Any pledge of Qualifying Employer Securities must provide for
the release of shares so pledged upon the payment of any portion of the Loan.
For each Plan Year during the duration of the Loan, the pledge must equal the
number of encumbered securities held immediately before release for the current
Plan
81
<PAGE> 84
Year multiplied by a fraction. The numerator of the fraction is the amount of
principal paid for the year. The denominator of the fraction is the sum of the
numerator and the principal to be paid for all future years. If the Plan
Administrator so directs for any Loan entered into on or after January 1, 1990,
the numerator of the fraction shall be the sum of principal and interest paid
on such Loan for the year and the denominator shall be the sum of the numerator
and the principal and interest to be paid for such Loan for all future years.
If the shares held in the Suspense Account include more than one class of
Qualifying Employer Securities, the number of shares of each class to be
released for a Plan Year must be determined by applying the same fraction to
each class.
17.05 Payments of principal and interest on any such Loan during a
Plan Year shall be made by the Trustee (as directed by the Plan Administrator)
only from
(a) Employer Contributions to the Trust made to meet the
Plan's obligations under a Loan and from any earnings attributable to
Qualifying Employer Securities held as collateral for the Loan (both received
during or prior to the Plan Year), less such payment in prior years; and
(b) The proceeds of a subsequent Loan made to repay a
prior loan.
If and only if the Loan is in default, Qualifying Employer Securities
held as collateral for the Loan may be sold. In the case of a default, the
proceeds of the sale of any Qualifying Employer Securities held as collateral
for the Loan may be used to repay the Loan.
Except as provided in Section 9.11 in the case of a tender offer,
assets transferred in satisfaction of a Loan shall not exceed the amount of the
default. In the case of a Loan involving a disqualified person, any assets
transferred to satisfy the default may not exceed the value of the amount then
due under the Loan payment schedule.
Such contributions, earnings and proceeds must be accounted for
separately by the Plan until the Loan is repaid. Two or more loans may be
considered as one Loan for purposes of this section.
17.06 Qualifying Employer Securities released by reason of the
payment of principal or interest on a Loan from amounts allocated to
Participants' Other Investments Accounts shall immediately upon payment be
credited pro rata to the corresponding Participants' Company Stock Accounts.
If Qualifying Employer Securities are not pledged as security, they shall be
allocated as if pledged and released in accordance with section 17.03.
82
<PAGE> 85
17.07 The Employer shall contribute to the Trust sufficient amounts
to enable the Trust to pay principal and interest on any such Loans as they are
due; provided, however, that no such Contribution shall exceed the limitations
in Article VIII. In the event that such Contributions by reason of the
limitations in Article VIII are insufficient to enable the Trust to pay
principal and interest on such Loan as it is due, then upon the Trustee's
request the Employers shall make a Loan to the Trust, as described in Treasury
Regulation section 54.49757(b)(4)(iii), in sufficient amounts to meet all
requirements of an "exempt loan" within the meaning of Treasury Regulation
section 54.4975-7(b)(1)(iii). Qualifying Employer Securities released from the
pledge of the prior Loan shall be pledged as collateral to secure the new Loan.
Such Qualifying Employer Securities will be released from this new pledge and
allocated to the accounts of the Participants in accordance with applicable
provisions of the Plan.
If the Loan is in default, then any Qualifying Employer Securities
pledged as collateral may be sold in an amount necessary to provide the Trustee
with sufficient funds to meet the principal and interest payments due under the
Loan. Any such sale by the Plan shall meet the requirements of section 408(e)
of ERISA.
However, the Employer shall not, pursuant to the provisions of this
subsection, do, fail to do or cause to be done any act or thing which would
result in a disqualification of the Plan as an employee stock ownership plan
under the Code which would result in a prohibited transaction which is not
exempt under one of the various statutory or regulatory exceptions, to the
knowledge of the Employer.
17.08 Except as provided in sections 17.09 and 17.10 below, and
notwithstanding any amendment to or termination of the Plan which causes it to
cease to qualify as an employee stock ownership plan within the meaning of
section 4975(e)(7) of the Code, no shares of Qualifying Employer Securities
acquired with the proceeds of a Loan obtained by the trust to purchase Company
Stock may be subject to a put, call or other option, or buy-sell or similar
arrangement while such shares are held by and when distributed from the Plan.
The Plan and Trust may not be obligated to acquire Employer Securities
from a particular security holder at an indefinite time determined by the
happening of an event such as the death of the holder.
Any transactions involving Employer Securities shall be made in
accordance with Article XIX. The limitations of Article XVIII, if applicable,
shall be in addition to those of this section.
83
<PAGE> 86
17.09 Shares of Qualifying Employer Securities purchased with the
proceeds of a Loan and distributed by the Trustee may be subject to a Right of
First Refusal. Such a Right of First Refusal shall provide that prior to any
subsequent transfer, the shares must first be offered in writing to the Trust
and then, if refused by the Trust, to the Company at a price equal to the
greater of
(a) The then fair market value of such shares of
Qualifying Employer Securities as determined in good faith by the Plan
Administrator, in accordance with Treasury Regulation section 54.4975-11(d)(5)
from time to time, or
(b) The purchase price offered by a buyer, other than the
Company or Trustee, making a good faith (as determined by the Plan
Administrator) offer to purchase such shares of Qualifying Employer Securities.
The Trust or the Company, as the case may be, may accept the offer as
to part or all of the Qualifying Employer Securities at any time during a
period not exceeding fourteen (14) days after receipt of such offer by the
Trust, on terms and conditions no less favorable to the shareholder than those
offered by the independent third party buyer. Any installment purchase shall
be made pursuant to a note secured by the shares purchased and shall bear a
reasonable rate of interest as determined by the Administrator. If the offer
is not accepted by the Trust, the Company, or both, then the proposed transfer
may be completed within a reasonable period following the end of the fourteen
(14) day period, but only no less favorable to the Shareholder upon terms and
conditions of the third party buyer's prior offer. Shares of Qualifying
Employer Securities which are publicly traded within the meaning of Treasury
Regulation section 54.4975- 7(b)(1)(iv) at the time such rights may otherwise
be exercised shall not be subject to this Right of First Refusal.
Any transactions involving Employer Securities shall be made in
accordance with Article XIX. The limitations of Article XVIII, if applicable,
shall be in addition to those of this section.
17.10 The Plan and Trust may not be obligated to acquire Employer
Securities from a particular security holder at an indefinite time determined
by the happening of an event such as the death of the holder. Shares of
Qualifying Employer Securities acquired with the proceeds of a Loan by the
Trust shall be subject to a Put Option at the time of distribution, provided
that at such time the shares are not publicly traded within the meaning of
Treasury Regulation section 54.4975-7(b)(1)(iv) or are subject to a trading
restriction within the meaning of Treasury Regulation section 54.4975-7(b)(10).
84
<PAGE> 87
(a) The Put Option shall be exercisable by the
Participant or beneficiary, by the donees of either, of by the Trustee of a
qualified Plan or Trustee or Custodian of an Individual Retirement Account to
which such shares have been transferred in a Rollover transfer, or by a person
(including an estate or its distributee) to whom Qualifying Employer Securities
pass by reason of the Participant's or Beneficiary's death.
(b) The Put Option shall provide that for a period of at
least sixty (60) days after such shares are distributed the holder of the
option shall have the right to cause the Company, by notifying it in writing,
to purchase such shares at their fair market value, as determined by the Plan
Administrator, in accordance with Treasury Regulation section 54.4975-11(d)(5).
The period during which the Put Option is exercisable shall not include any
period during which the holder is unable to exercise such Put Option because
the Company is prohibited from honoring it by federal or state law.
(c) The Plan Administrator may direct the Trustee to
assume the rights and obligations of the Company at the time the Put Option is
exercisable, insofar as the repurchase of Qualifying Employer Securities is
concerned.
(d) If shares of Qualifying Employer Securities are
publicly traded without restriction on the date of distribution, but cease to
be publicly traded or become subject to a restriction (as described above)
within sixty (60) days after such date, the stock distributed shall be subject
to the Put Option described herein for the balance of the sixty (60) day
period. The Company shall give written notice to each shareholder within ten
(10) days of the date the Qualifying Employer Securities cease to be publicly
traded that the Qualifying Employer Securities is subject to the Put Option for
the remainder of the sixty (60) day period.
(e) The terms of payment for the purchase of such shares
of the Qualifying Employer Securities shall be as set forth in the Put Option
and may be either in a lump-sum or in installments, as determined by the Plan
Administrator. An installment payment in connection with such Put Option
shall:
(i) Be adequately secured, as determined by the
Plan Administrator;
(ii) Bear a reasonable rate of interest, as
determined by the Plan Administrator;
(iii) Require equal annual payment;
(iv) Have a payment period not longer than the
greater of:
85
<PAGE> 88
(a) Five (5) years from the date the Put
Option is exercised, or
(b) The earlier of (a) ten (10) years
from the date the Put Option is exercised, or (b) the date any Loan used by the
Plan to acquire Qualifying Employer Securities subject to the Put Option has
been entirely repaid;
(v) Require that any payments pursuant to the
installment obligations must begin to be made no later than thirty (30) days
after the date the Put Option is exercised; and
(vi) In all respects satisfy the requirements of
Treasury Regulation section 54.4975-7(b)(12)(iii).
(f) With respect to Post-1986 Employer Securities, the
Put Option shall provide for payments in a lump sum if the distribution of
shares is being received in installments.
(g) The Put Option provided for by this section 17.09
shall continue to apply to shares of Qualifying Employer Securities purchased
by the Trustee with the proceeds of a Loan as described herein notwithstanding
any amendment to or termination of this Plan which causes the Plan to cease to
be an employee stock ownership plan within the meaning of section 4975(e)(7) of
the Code.
(h) After the close of the employer's taxable year in
which lapse of a Participant's Put Option occurs, and following a determination
of the Fair Market Value of the Qualifying Employer Securities as of the
anniversary date, the Employer will notify the Participant (who did not
exercise the initial Put Option) of the new Fair Market Value of the Qualifying
Employer Securities. Each such Participant will then have an additional sixty
(60) days to require that the employer repurchase his stock. If the
Participant does not exercise this second put option, then the Qualifying
Employer Securities will no longer by subject to a Put Option.
The Put Option shall further meet the requirements of Article XVIII
with respect to Post-1986 Employer Securities.
17.11 The Plan Administrator shall direct the Trustee, in writing, to
apply dividends attributable to Employer Stock acquired with the proceeds of an
Exempt Loan (a) to repay such Loan, or (b) to the purchase of additional
Employer Stock. If dividends are used to repurchase additional Employer Stock,
then the Employer Stock acquired with such dividends shall be allocated to
Participant's accounts for whom the dividends are attributable.
86
<PAGE> 89
17.12 The protections and rights afforded Participants under this
Article shall be nonterminable. Upon the amendment or conversion of this Plan,
such provisions shall continue to apply so long as any Qualifying Employer
Securities remain in the Plan which were accumulated under the Employee Stock
Ownership Plan provisions of the Plan.
ARTICLE XVIII
RIGHTS AND OPTIONS ON DISTRIBUTED SHARES OF COMPANY STOCK
18.01 Shares of Qualifying Employer Securities distributed by the
Trustee shall be subject (if a Put Option is granted), in accordance with
Treasury Regulations section 54.4975-7(b)(9), to a Right of First Refusal in
favor of the Trust, the Company or both. The terms and conditions of any such
Right of First Refusal will be determined by the Plan Administrator.
18.02 A Participant (or Beneficiary) shall be granted, in accordance
with Treasury Regulations section 54.4975-7(b)(10) through (12) at the time
that shares of Qualifying Employer Securities are distributed to him, a Put
Option to sell the shares, or any part of them to the Company. The Trust may
not be required to give such a Put Option, but may assume the responsibility of
the Employer under a Put Option. The terms and conditions of any such Put
Option will be determined by the Plan Administrator. The Put Option shall be a
nonterminable right of the Participant, but it shall apply only if the
Qualifying Employer Securities are not readily tradeable on an established
securities market at the time of the distribution.
18.03 The provisions of sections 18.01 and 18.02 shall apply only to
Qualifying Employer Securities not purchased with the proceeds of a Loan.
Qualifying Employer Securities purchased with the proceeds of such a Loan are
subject to the provisions of Article XVII relating to the Put Option and Right
of First Refusal.
18.04 With respect to distributions of Employer Securities from the
Plan which are attributable to Post-1986 Employer Securities, if such Employer
Securities are not readily tradeable on an established securities market, the
Participant or Beneficiary receiving a Total Distribution shall be given a Put
Option by the Employer which provides for payments beginning not later than
thirty (30) days after the exercise of the Put Option and lasting for not
longer than five (5) years and which further provides for adequate security to
be given to the recipient and reasonable interest to be paid on the unpaid
balance.
With respect to distributions of Employer Securities from the Plan
which are attributable to Post-1986 Employer Securities, if such Employer
Securities are not readily tradeable on an
87
<PAGE> 90
established securities market, the Participant or Beneficiary receiving
installment distributions shall be given a Put Option by the Employer which
provides for payments to be made not later than thirty (30) days after each
such installment distribution.
The obligations under the Put Options to be given by the Employer
under this section may be assumed by the Plan & Trust, at the discretion of the
Plan Administrator. If such obligations under the Put Option are assumed by
the Plan & Trust, the Employer shall be relieved of its obligations under the
Put Option.
The restrictions on the Put Option contained in this section shall be
a further limitation on the requirements of Article XVII and shall apply to
Post-1986 Employer Securities.
ARTICLE XIX
VALUATION OF EMPLOYER SECURITIES
TRANSACTIONS INVOLVING EMPLOYER SECURITIES
19.01 If the securities of the Employer are not readily tradeable on
an established securities market as described in section 409(h)(1) of the Code,
so that a reasonable valuation may not be obtained from the marketplace, then
such Qualifying Employer Securities must be valued at least annually by an
independent appraiser who is not associated with the Employer, the Plan
Administrator, the Trustee, or any person related to any fiduciary under the
Plan. The independent appraiser may be associated with a person who is merely
a contract administrator with respect to the Plan, but who exercises no
discretionary authority and is not a Plan fiduciary.
The independent appraiser shall be qualified to perform such
appraisals and shall have engaged to perform appraisals of value of businesses
for a significant number of persons, so that the appraiser shall not be
dependent on the Employer or the Plan for a substantial proportion of such
appraisal work. The independent appraiser must satisfy the conditions imposed
under the regulations under Code section 170(a)(1) for independence of the
appraiser and the appraisal. The independent appraiser shall be engaged by and
answerable to the Plan and its fiduciaries; however, the fees of the
independent appraiser may be paid by the Employer.
19.02 If there is a public market for Qualifying Employer Securities
of the type held by the Plan, (but such market is such so that the securities
are not readily tradeable) then the Plan Administrator may use as the value of
the shares the price at which such shares traded in such market, provided that
such valuation is representative of the fair market value of such shares in the
opinion of the Plan Administrator.
88
<PAGE> 91
19.03 For purposes of determining the annual valuation of the Plan &
Trust and for reporting to Participants and regulatory authorities, the assets
of the Plan shall be valued at least annually on the Valuation Date or Dates of
the Plan. The fair market value of Qualifying Employer Securities shall be
determined on such a Valuation Date. The value of Employer Securities as of
the most recent Valuation Date shall apply for purposes of valuing
distributions and other transactions of the Plan & Trust, except:
(a) Transactions in which such valuation is clearly
inapplicable;
(b) Transactions for which a further valuation is
obtained or required to be obtained (such as transaction involving a
party-in-interest);
(c) In the event that the securities shall become
publicly held or that a market with recognizable valuations on a more frequent
basis develops for the securities; and
(d) In the event that circumstances relating to the
business of the Employer change in such a manner as to cause a reasonable man
to expect a change in value subsequent to the most recent valuation.
19.04 For purposes of determining the value of Qualifying Employer
Securities for purposes of a transaction involving a party-in-interest, the
fair market value of such securities as of the date of the transaction shall be
used. If there has been no substantial change in the business of the
corporation and if the transaction is to take place upon the receipt of a
valuation by an independent appraiser of the Qualifying Employer Securities as
of the most recent Valuation Date, then the value of such securities may be the
same as that obtained as the result of such most recent valuation, provided
that the independent appraiser certifies that such value has not changed and
the current value fair market value of the Qualifying Employer Securities is
the same as at the time of such prior valuation.
19.05 If the Employer Securities held by the Plan are not readily
tradeable on an established securities market, a Put Option shall be granted
by the Employer upon the distribution of Employer Securities to the
Participants, regardless of whether the Employer Securities were acquired with
the proceeds of the exempt Loan. At the time of the grant of a Put Option
hereunder, the value of Qualifying Employer Securities to which such Put Option
applies shall be determined as of the most recent Valuation Date (or at a more
recent value determined in accordance with this Article) at the time of the
grant of such Put Option, regardless of the period for which such Put Option is
given.
89
<PAGE> 92
19.06 The determination of fair market value of Qualifying Employer
Securities for all purposes under the Plan shall be made by the Plan
Administrator, who, in order to make such determination, shall retain, at the
expense of the Employer or of the Plan if used for Plan purposes, a qualified
appraiser who customarily makes such appraisals and who is independent of any
party to a transaction involving the Plan and Employer Securities. In making
the determination of fair market value, the independent appraiser shall
consider the following additional criteria:
(a) Any current and historical practices which have been
consistently and uniformly utilized to value Qualifying Employer Securities in
sales transactions between the Company and the stockholders or among and
between stockholders.
(b) Any agreements, restrictions or limitations with
respect to or imposed upon the sale or transfer of Qualifying Employer
Securities which establish or stipulate the price at which the Company or Trust
may or must purchase such stock under the provisions of the articles, by-laws
or written agreements, provided the same or similar restrictions are applicable
to substantially all of the outstanding Qualifying Employer Securities and are
uniformly and consistently complied with.
(c) The price or prices of the stocks of other similar
companies which are publicly traded in an established market where such company
or companies are comparable in size, growth, characteristics, product line,
market area, profit and financial condition.
(d) The capitalization of earnings method of valuation
applied to the earning power of the Company as related to the rates of return
available in the money market for alternative investments, with consideration
given to expected rates of growth and potential risk.
(e) Adjusted book value approach which takes into
consideration balance sheet items which require a substitution of appraised
values to make a determination of fair market value.
(f) Such other information concerning the Company and its
condition and prospects, financial and otherwise, generally used in the
determination of the fair market value of corporation stock of comparable
public or private companies engaged in the same or similar industries, by
independent investment analysts nationally recognized as having expertise in
rendering such evaluations.
(g) Such other evaluation techniques, such as use of
capitalization ratios, deemed appropriate by the Committee and
90
<PAGE> 93
executed by an independent appraiser having expertise in rendering such
evaluations.
19.07 All purchases of Qualifying Employer Securities shall be made
at a price, or prices, which, in the judgment of the Plan Administrator, do not
exceed the fair market value of such Qualifying Employer Securities.
19.08 In the event that the Trustee acquires shares of Qualifying
Employer Securities by purchase from a "disqualified person" as defined in Code
section 4975(e)(2), in exchange for cash or other assets of the Trust, the
terms of such purchase shall contain the provision that in the event that there
is a final determination by the Internal Revenue Service or court of competent
jurisdiction that the fair market value of such shares of Company Stock as of
the date of purchase was less than the purchase price paid by the Trustee, then
the seller shall pay or transfer, as the case may be, to the Trustee an amount
of cash, shares of Company Stock, or any combination thereof equal in value to
the difference between the purchase price and said fair market value for all
such shares. In the event that cash and/or shares of Company Stock are paid
and/or transferred to the Trustee under this provision, share of Company Stock
shall be valued at their fair market value as of the date of said purchase, and
interest at a reasonable rate from the date of purchase to the date of payment
shall be paid by the seller on the amount of cash paid.
19.09 The Plan Administrator may direct the Trustee to sell, resell
or otherwise dispose of Qualifying Employer Securities to any person, including
the Employer, provided that any such sales to any disqualified person,
including the Employer, will be made at not less than the fair market value and
no commission is charged. Any such sales shall be made in conformance with
section 408(e) of ERISA. All sales of company stock by the Trustee will be
charged pro rata to the Company Stock Accounts of the Participants.
19.10 In the event the Plan Administrator directs the Trustee to
dispose of any Qualifying Employer Securities held as Trust Assets under
circumstances which require registration and/or qualification of the securities
under applicable Federal or State securities laws, then the Employer, at its
own expense, will take or cause to be taken any and all such action as may be
necessary or appropriate to effect such registration and/or qualification.
ARTICLE XX
MISCELLANEOUS
20.01 If the Company and each other Employer shall at any time become
insolvent or in the event of a dissolution, merger,
91
<PAGE> 94
or consolidation without any provision being made for the continuance of this
Trust, the Trust hereby created shall terminate and the Trust shall be operated
by the person authorized to act for the Company. If it is determined to
terminate the Trust, the Trustee shall proceed in the manner herein provided in
the event of termination of the Trust.
20.02 This Agreement shall be binding upon the beneficiaries, heirs,
executors, administrators, distributees, and assigns of the Participants
hereunder and upon the successors and assigns of the Employer and of the
Trustee, under this Trust.
20.03 The Employer agrees to furnish the Trustee such information in
the Employer's possession as the Trustee shall require from time to time to
perform the duties under the Trust.
20.04 In the event of a dissolution, merger or consolidation of the
Employer, provisions may be made by the successor for the continuation of this
Trust, and said successor shall in such event be substituted in place of the
present Employer by an instrument authorizing such substitution executed by the
Employer and his successor, a copy of which shall be delivered to the Trustee.
20.05 The Trustee and the Employer may enter into an extra agreement
of Trust solely with regard to the provisions of Article XII for the purpose of
modifying the powers, duties, or administration of the Trustee or for
allocating specific duties among the Trustees (or other fiduciaries) or for
allocating specific duties to an investment adviser or an investment manager.
Any such agreement, shall be in writing executed with the same formality as the
Trust, and shall be deemed a part of the Trust as if the same were herein
incorporated. A copy of any such agreement shall be delivered to any insurer.
20.06 This Trust may be executed in any number of counterparts, each
of which shall be deemed to be an original, and the counterparts shall
constitute one and the same instrument, which shall be sufficiently evidenced
by any one thereof.
20.07 The adoption and maintenance of the Plan shall not be deemed to
constitute a contract between the Employer and Participant or to be a
consideration for an inducement or condition of the employment of any person.
Nothing herein contained shall be deemed to give to any employee the right to
be retained in the employ of the Employer or to interfere with the right of the
Employer to discharge or terminate the employment of any employee at any time,
nor shall it be deemed to give to the Employer the right to require an employee
to remain in its employ nor shall it interfere with the employee's right to
terminate his employment at any time.
92
<PAGE> 95
20.08 In any action or proceeding involving the Trust, or any
property constituting part or all thereof, or the administration thereof,
Employees or former Employees of the Company or an Affiliate or the
Beneficiaries or any other person having or claiming to have an interest in the
Trust Assets or under the Plan shall not be necessary parties nor entitled to
any notice of process.
20.09 Any final judgment which is not appealed or appealable that may
be entered in any legal action or proceeding shall be binding and conclusive on
the parties hereto, the Plan Administrator, and all persons having or claiming
to have an interest in the Trust Assets or under this Plan.
20.10 This agreement shall be construed and interpreted under the
laws of Louisiana to the extent not in conflict with applicable Federal laws.
The Trustee hereby accepts this amended and restated Plan and Trust.
IN WITNESS WHEREOF, the Employer has caused this agreement to be
signed by its duly authorized officer, and the Trustee has signed this
agreement indicating his acceptance of the Trust, in the presence of the
competent undersigned witnesses, on the date indicated above, at Baton Rouge,
Louisiana.
WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION,
EMPLOYER:
BY:
- --------------------------------- ---------------------------------
Authorized Officer
- ---------------------------------
HIBERNIA NATIONAL BANK, TRUSTEE:
BY:
- --------------------------------- ---------------------------------
Authorized Officer
- ---------------------------------
93
<PAGE> 96
ACKNOWLEDGMENT BY WITNESS
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BEFORE ME, the undersigned Notary Public, in and for the Parish and
State aforementioned, on this day personally appeared
___________________________, to me known to be the person described in the
foregoing ____________________________________________ as a witness thereto,
who, after being by me first duly sworn, did acknowledge and swear that she
executed the same as such witness; that said instrument was executed by the
parties thereto in the presence of affiant and of the other subscribing
witness, and by all of the parties thereto as their own free act and deed.
THUS DONE AND SIGNED on this _____ day of _____________, 1993, in the
presence of the undersigned competent witnesses, at Baton Rouge, Louisiana.
WITNESSES:
- --------------------------------- ---------------------------------
- ---------------------------------
---------------------------------
NOTARY PUBLIC
94
<PAGE> 97
ACKNOWLEDGMENT BY EMPLOYER
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BEFORE ME, the undersigned Notary Public, in and for the Parish and
State aforementioned, on this day personally appeared
_____________________________, known to me personally, who, being by me first
duly sworn, did say that he is the President of United Companies Financial
Corporation and that he executed the foregoing instrument on behalf of the
corporation as the act of such corporation (or entity) for the purposes and
considerations therein expressed and in the capacity therein stated.
THUS DONE AND SIGNED on this _____ day of _____________, 1994, in the
presence of the undersigned competent witnesses, at Baton Rouge, Louisiana.
WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION
EMPLOYER:
By:
- --------------------------------- ---------------------------------
Authorized Officer
- ---------------------------------
---------------------------------
NOTARY PUBLIC
95
<PAGE> 98
ACKNOWLEDGMENT BY BANK TRUSTEE
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BEFORE ME, the undersigned Notary Public, in and for the Parish and
State aforementioned, on this day personally appeared ______________________,
personally known to me who, after being by me first duly sworn, did say that he
is the trust officer of Hibernia National Bank whose name is subscribed to the
foregoing instrument and that he executed same as an act in his capacity as
officer of the Trustee for the purposes and considerations therein stated and
that he is authorized to act for the Bank in this capacity.
THUS DONE AND SIGNED on this _____ day of _____________, 1994, in the
presence of the undersigned competent witnesses, at Baton Rouge, Louisiana.
WITNESSES: HIBERNIA NATIONAL BANK TRUSTEE:
By:
- --------------------------------- ---------------------------------
Authorized Officer
- ---------------------------------
---------------------------------
NOTARY PUBLIC
96
<PAGE> 99
FIRST AMENDMENT TO THE 1994 RESTATEMENT
OF THE
UNITED COMPANIES FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
_________________________________________________________
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BE IT KNOWN, that on the _____ day of February, 1995, at the place
hereinafter written, in the presence of the witnesses hereinafter named and
undersigned, personally came and appeared:
UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under
the laws of the State of Louisiana, with its principal place of
business at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented
herein by Dale E. Redman, its authorized officer, duly authorized to
act by virtue of a corporate resolution attached hereto and made a
part hereof (hereinafter referred to as "Employer" or "Company")
AND
HIBERNIA NATIONAL BANK, a national banking association having an
office and place of business in Baton Rouge, Louisiana, represented by
its undersigned Trust Officer, duly authorized to represent the Bank
(hereinafter referred to as "Trustee").
WITNESSETH:
WHEREAS, the Employer did establish the United Companies Financial
Corporation Profit Sharing Plan and Trust on December 31, 1960, and amended,
restated and converted said Profit Sharing Plan and Trust to a stock bonus plan
with ESOP features to be known as the United Companies Financial Corporation
Employee Stock Ownership Plan and Trust ("Plan & Trust") on September 1, 1975,
which Plan & Trust was restated on July 11, 1984, and again restated the Plan
and Trust effective January 1, 1987, and most recently amended and restated
said Plan and Trust September 1, 1994, and wishes to further amend said Plan &
Trust; and
WHEREAS, the Employer now desires to amend the Plan to clarify that
the Trustee is a directed Trustee as to the acquisition or
<PAGE> 100
disposition of Qualifying Employer Securities and as to any Loan made pursuant
to Article XVII of the Plan (an "Exempt Loan"); and
WHEREAS, Hibernia National Bank is the Trustee of the Plan and Trust,
whose consent is necessary to effectuate any amendment to the Trust provisions
of the Plan and Trust by the Employer; and
WHEREAS, the Trustee does consent to the following amendments to the
Plan and Trust; and
NOW THEREFORE, the Employer does hereby amend the Plan and Trust, and
the Trustee concurs in and accepts such amendment, effective January 1, 1995,
except as otherwise provided herein, as follows:
Article XVII is hereby amended by adding Section 17.13 to read as
follows:
"7.13 (a) Purpose. The provisions of this section 17.13 are
intended to provide to the Trustee with direction as to the
acquisition or disposition of Qualifying Employer Securities hereunder
and as to the consummation of an Exempt Loan in connection therewith.
(b) Contributions. In no event shall the Trustee have
any responsibility or liability for the computation or collection of
any Contribution to be made by the Employer under the terms of the
Plan, including whether any Contribution is sufficient to pay any
principal or interest then due with respect to an outstanding Exempt
Loan. The Trustee shall apply any such contribution to the payment of
an Exempt Loan solely in accordance with the written instructions of
the Plan Administrator. To the extent the amount due under the terms
of any such loan exceeds the amount of any contribution, the Trustee
shall have no liability for any such short fall and shall act with
respect to any such short fall solely in accordance with the
instructions of the Plan Administrator.
(c) Exempt Loan. The Trustee shall enter into an Exempt
Loan and/or any extension of credit pursuant to an agreement providing
for an Exempt Loan or one or more Exempt Loans solely in accordance
with the written instructions of the Plan Administrator. The Plan
Administrator and/or the Employer shall possess the sole power and
authority to negotiate the terms and conditions of any such Loan, to
determine whether the provisions of any such Loan constitute an Exempt
Loan (within the meaning of the Plan and the provisions of the Code
and ERISA), and whether any such Loan (and its related
2
<PAGE> 101
acquisition of Qualifying Employer Securities) satisfies the fiduciary
obligations imposed under ERISA.
(d) Purchase of Securities. The Trustee shall purchase,
from time to time, Qualifying Employer Securities in accordance with
the instructions of the Plan Administrator on the open market or by
private purchase, including purchase from the Employer of authorized
and unissued shares and shares held as treasury stock. Purchases
shall be made at the purchase price(s) directed by the Plan
Administrator which shall constitute no more than adequate
consideration within the meaning of Code Section 4975. With respect
to the acquisition of Qualifying Employer Securities through private
purchase, the Employer shall pay the actual expenses of such
transaction; no form of commission shall be paid by the Trustee from
the Trust fund established hereunder.
The Trustee shall not be liable for the acquisition, retention
or disposition of Qualifying Employer Securities in accordance with
the instructions of the Plan Administrator. The Trustee shall have no
obligation to anticipate market conditions or otherwise time the
purchase or sale of shares of Qualifying Employer Securities.
(e) Default. If a default occurs with respect to an
Exempt Loan, the Trustee shall act or refrain from acting solely in
accordance with the instructions of the Plan Administrator; the
Trustee shall not sell or otherwise dispose of Qualifying Employer
Securities, except in accordance with such instructions.
(f) Instructions. All communications from the Employer
or the Plan Administrator shall be made, in writing, signed by an
officer of the Employer or an individual authorized to act on behalf
of the Plan Administrator. The Plan Administrator shall provide the
Trustee with the names and specimen signatures of all individuals
authorized to sign or act on behalf of the Plan Administrator and the
Employer. The Trustee shall be fully protected in relying on any such
communication, and the Trustee shall not be required to verify the
accuracy or validity of any such communication, unless it has
reasonable grounds to doubt the authenticity of any signature.
If the Employer or Plan Administrator communicates or
instructs the Trustee orally, such communication shall be confirmed,
in writing, as soon as practicable thereafter, and the Trustee shall
be fully protected in
3
<PAGE> 102
acting or failing to act in accordance with such oral communication.
Instructions hereunder may be given separately or as standing
instruction in the discretion of the Employer or the Plan
Administrator as the case may be.
(g) Indemnity. The Employer agrees to indemnify and hold
harmless the Trustee from any claim, liability, fee, expense or other
charge (including attorneys' fees) arising from or in connection with
the performance of its duties in accordance with the terms of the Plan
and this amendment, unless such claim, liability, fee, expense or
other charge results from a grossly negligent act or omission, an act
or omission performed in bad faith (including a fraudulent act) or an
act or omission taken in contravention of the terms of the Plan or the
directions of the Employer or the Administrator.
Indemnification under this subparagraph (g) shall be made only
from the assets of the Employer, and no person entitled to indemnity
hereunder shall receive payment, whether directly or indirectly, from
the Trust."
The amendments made hereunder are intended to clarify that the Trustee
is to be a directed trustee with respect to the matters described herein,
effective as of January 1, 1995. Furthermore, these amendments are intended to
be interpreted and construed in accordance with ERISA, the Code, and
regulations promulgated thereunder. Any provision of this Amendment shall be
separable from the remaining amendments and shall not cause them to be rendered
invalid, so that all the amendments will have as much force and effect as
allowed by law. In the case of any ambiguity, the language shall be
interpreted to effectuate the stated purposes of those amendments and in such a
way as to cause the Plan to continue to be a qualified plan under the statutes.
4
<PAGE> 103
IN WITNESS WHEREOF, the Employer has cause this Amendment to be signed
by its duly authorized officer, and the Trustee has accepted this amendment,
before the undersigned, competent witnesses, on the date indicated above, at
Baton Rouge, Louisiana.
WITNESSES: UNITED COMPANIES FINANCIAL
CORPORATION, as EMPLOYER
By:
- -------------------------------- --------------------------------
Dale E. Redman
Authorized Officer
- --------------------------------
WITNESSES: HIBERNIA NATIONAL BANK, as TRUSTEE
By:
- -------------------------------- --------------------------------
Authorized Officer
- --------------------------------
5
<PAGE> 104
ACKNOWLEDGMENT BY EMPLOYER
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BEFORE ME, the undersigned Notary Public, in and for the Parish and
State aforementioned, on this day personally appeared Dale E. Redman, known
to me personally, who, being by me first duly sworn, did say that he is the
Authorized Officer of United Companies Financial Corporation, a Louisiana
corporation, and that as such duly authorized officer of the Board of Directors
of said Corporation, he signed and executed the foregoing instrument on behalf
of the corporation and as the act of such corporation (or entity) for the
purposes and consideration therein expresses, and in the capacity therein
stated.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal and
the said appearer and the said witnesses have hereunto affixed their signatures
this the _______ day of February, 1995.
WITNESSES: UNITED COMPANIES FINANCIAL
CORPORATION, as EMPLOYER
By:
- -------------------------------- --------------------------------
Dale E. Redman
Authorized Officer
- --------------------------------
--------------------------------
NOTARY PUBLIC
6
<PAGE> 105
ACKNOWLEDGMENT BY BANK TRUSTEE
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BEFORE ME, the undersigned Notary Public, in and for the County/Parish
and State aforementioned, on this day personally appeared
__________________________________, known to me personally, who, after being by
me first duly sworn, did say that he is the trust officer of Hibernia National
Bank whose name is subscribed to the foregoing instrument and that he executed
same as an act in his capacity as officer of the Trustee for the purposes and
considerations therein stated.
THUS DONE AND SIGNED on this _____ day of February, 1995, and in the
presence of the undersigned competent witnesses, at Baton Rouge, Louisiana.
WITNESSES: HIBERNIA NATIONAL BANK, as TRUSTEE
By:
- -------------------------------- --------------------------------
Authorized Officer
- --------------------------------
--------------------------------
NOTARY PUBLIC
7
<PAGE> 106
SECOND AMENDMENT TO THE 1994 RESTATEMENT
OF THE
UNITED COMPANIES FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
_________________________________________________________
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BE IT KNOWN, that on the _____ day of ______________, 1995, at the
place hereinafter written, in the presence of the witnesses hereinafter named
and undersigned, personally came and appeared:
UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under
the laws of the State of Louisiana, with its principal place of
business at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented
herein by Dale E. Redman, its authorized officer, duly authorized to
act by virtue of a corporate resolution attached hereto and made a
part hereof (hereinafter referred to as "Employer" or "Company")
AND
HIBERNIA NATIONAL BANK, a national banking association having an
office and place of business in Baton Rouge, Louisiana, represented by
its undersigned Trust Officer, duly authorized to represent the Bank
(hereinafter referred to as "Trustee").
WITNESSETH:
WHEREAS, the Employer did establish the United Companies Financial
Corporation Profit Sharing Plan and Trust on December 31, 1960, and amended,
restated and converted said Profit Sharing Plan and Trust to a stock bonus plan
with ESOP features to be known as the United Companies Financial Corporation
Employee Stock Ownership Plan and Trust ("Plan & Trust") on September 1, 1975,
which Plan & Trust was restated on July 11, 1984, and again restated the Plan
and Trust effective January 1, 1987, and most recently amended and restated
said Plan and Trust September 1, 1994, and wishes to further amend said Plan &
Trust; and
WHEREAS, the Employer now desires to amend the Plan to provide for
clarification under Article VII of the Plan and Trust of
<PAGE> 107
procedures relating to a distribution of benefits to a Participant who has
terminated employment with the Employer; and
WHEREAS, Hibernia National Bank is the Trustee of the Plan and Trust,
whose consent is necessary to effectuate any amendment to the Trust provisions
of the Plan and Trust by the Employer; and
WHEREAS, the Trustee does consent to the following amendments to the
Plan and Trust; and
NOW THEREFORE, the Employer does hereby amend the Plan and Trust, and
the Trustee concurs in and accepts such amendment, effective January 1, 1995,
except as otherwise provided herein, as follows:
Article VII, section 7.01 is hereby amended by adding a paragraph at
the end of said section 7.01 to read as follows:
A Participant who has terminated employment with the Employer
shall be entitled to elect to receive a distribution of his Accrued
Benefit in any form permitted under the Plan, provided that he has
satisfied the following requirements as of the close of the Plan Year
preceding the date of distribution:
(a) he shall have completed at least ten (10
Years of Service with the Employer or with an Affiliated
Employer during the period of affiliation; and
(b) the sum of the number of years of his Age and
the number of his Years of Service is at least sixty (60).
The Plan Administrator shall require that such election be made on a
form designed to comply with the requirements for an election of
distributions under the Plan. A reasonable period of time after the
close of the Plan Year shall be allowed for accounting and allocation
for the Plan Year, crediting of dividends and earnings for the Plan
Year, and time for directing the transfer of stock certificates.
The amendments made hereunder are intended to qualify the Plan and
Trust for the period beginning January 1, 1995, except as otherwise provided
herein, as a qualified Employee Stock Ownership Plan under the Internal Revenue
Code and ERISA. Therefore, any
2
<PAGE> 108
provisions which cause the Plan not to be in compliance with either statute, or
with regulations promulgated thereunder, shall be separable from the remaining
amendments and shall not cause them to be rendered invalid, so that all the
amendments will have as much force and effect as allowed by law. In the case
of any ambiguity, the language shall be interpreted to effectuate the stated
purposes of those amendments and in such a wa as to cause the Plan to continue
to be a qualified plan under the statutes.
IN WITNESS WHEREOF, the Employer has cause this Amendment to be signed
by its duly authorized officer, and the Trustee has accepted this amendment,
before the undersigned, competent witnesses, on the date indicated above, at
Baton Rouge, Louisiana.
WITNESSES: UNITED COMPANIES FINANCIAL
CORPORATION, as EMPLOYER
By:
- -------------------------------- --------------------------------
Dale E. Redman
Authorized Officer
- --------------------------------
WITNESSES: HIBERNIA NATIONAL BANK, as TRUSTEE
By:
- -------------------------------- --------------------------------
Authorized Officer
- --------------------------------
3
<PAGE> 109
ACKNOWLEDGMENT BY EMPLOYER
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BEFORE ME, the undersigned Notary Public, in and for the Parish and
State aforementioned, on this day personally appeared Dale E. Redman, known
to me personally, who, being by me first duly sworn, did say that he is the
Authorized Officer of United Companies Financial Corporation, a Louisiana
corporation, and that as such duly authorized officer of the Board of Directors
of said Corporation, he signed and executed the foregoing instrument on behalf
of the corporation and as the act of such corporation (or entity) for the
purposes and consideration therein expresses, and in the capacity therein
stated.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal and
the said appearer and the said witnesses have hereunto affixed their signatures
this the _______ day of _______________, 1995.
WITNESSES: UNITED COMPANIES FINANCIAL
CORPORATION, as EMPLOYER
By:
- -------------------------------- --------------------------------
Dale E. Redman
Authorized Officer
- --------------------------------
--------------------------------
NOTARY PUBLIC
4
<PAGE> 110
ACKNOWLEDGMENT BY BANK TRUSTEE
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BEFORE ME, the undersigned Notary Public, in and for the County/Parish
and State aforementioned, on this day personally appeared
__________________________________, known to me personally, who, after being by
me first duly sworn, did say that he is the trust officer of Hibernia National
Bank whose name is subscribed to the foregoing instrument and that he executed
same as an act in his capacity as officer of the Trustee for the purposes and
considerations therein stated.
THUS DONE AND SIGNED on this ______ day of _____________, 1995, and in
the presence of the undersigned competent witnesses, at Baton Rouge, Louisiana.
WITNESSES: HIBERNIA NATIONAL BANK, as TRUSTEE
By:
- -------------------------------- --------------------------------
Authorized Officer
- --------------------------------
--------------------------------
NOTARY PUBLIC
5
<PAGE> 111
THIRD AMENDMENT TO THE 1994 RESTATEMENT
OF THE
UNITED COMPANIES FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
_________________________________________________________
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BE IT KNOWN, that on the _____ day of ______________, 1995, at the
place hereinafter written, in the presence of the witnesses hereinafter named
and undersigned, personally came and appeared:
UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under
the laws of the State of Louisiana, with its principal place of
business at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented
herein by Dale E. Redman, its authorized officer, duly authorized to
act by virtue of a corporate resolution attached hereto and made a
part hereof (hereinafter referred to as "Employer" or "Company")
AND
HIBERNIA NATIONAL BANK, a national banking association having an
office and place of business in Baton Rouge, Louisiana, represented by
its undersigned Trust Officer, duly authorized to represent the Bank
(hereinafter referred to as "Trustee").
WITNESSETH:
WHEREAS, the Employer did establish the United Companies Financial
Corporation Profit Sharing Plan and Trust on December 31, 1960, and amended,
restated and converted said Profit Sharing Plan and Trust to a stock bonus plan
with ESOP features to be known as the United Companies Financial Corporation
Employee Stock Ownership Plan and Trust ("Plan & Trust") on September 1, 1975,
which Plan & Trust was restated on July 11, 1984, and again restated the Plan
and Trust effective January 1, 1987, and most recently amended and restated
said Plan and Trust September 1, 1994, and wishes to further amend said Plan &
Trust; and
<PAGE> 112
WHEREAS, the Employer now desires to amend the Plan to provide for
clarification under Article VIII of the Plan and Trust of procedures relating
to a distribution of benefits to a Participant who has terminated employment
with the Employer; and
WHEREAS, Hibernia National Bank is the Trustee of the Plan and Trust,
whose consent is necessary to effectuate any amendment to the Trust provisions
of the Plan and Trust by the Employer; and
WHEREAS, the Trustee does consent to the following amendments to the
Plan and Trust; and
NOW THEREFORE, the Employer does hereby amend the Plan and Trust, and
the Trustee concurs in and accepts such amendment, effective January 1, 1994,
except as otherwise provided herein, as follows:
Article V is hereby amended by substituting the attached pages 38 and
39 for pages 38 and 39 of the Plan to clarify the provisions of Sections 5.01
and 5.02 thereof.
Article VIII is hereby amended by substituting the attached pages 57,
58, and 59 for pages 57 through 59, inclusive, of the Plan to clarify the
provisions of Sections 8.01 and 8.02 thereof.
The amendments made hereunder are intended to qualify the Plan and
Trust for the period beginning January 1, 1994, except as otherwise provided
herein, as a qualified Employee Stock Ownership Plan under the Internal Revenue
Code and ERISA. Therefore, any provisions which cause the Plan not to be in
compliance with either statute, or with regulations promulgated thereunder,
shall be separable from the remaining amendments and shall not cause them to be
rendered invalid, so that all the amendments will have as much force and effect
as allowed by law. In the case of any ambiguity, the language shall be
interpreted to effectuate the stated purposes of those amendments and in such a
way as to cause the Plan to continue to be a qualified plan under the statutes.
2
<PAGE> 113
IN WITNESS WHEREOF, the Employer has cause this Amendment to be signed
by its duly authorized officer, and the Trustee has accepted this amendment,
before the undersigned, competent witnesses, on the date indicated above, at
Baton Rouge, Louisiana.
WITNESSES: UNITED COMPANIES FINANCIAL
CORPORATION, as EMPLOYER
By:
- -------------------------------- --------------------------------
Dale E. Redman
Authorized Officer
- --------------------------------
WITNESSES: HIBERNIA NATIONAL BANK, as TRUSTEE
By:
- -------------------------------- --------------------------------
Authorized Officer
- --------------------------------
3
<PAGE> 114
ACKNOWLEDGMENT BY EMPLOYER
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BEFORE ME, the undersigned Notary Public, in and for the Parish and
State aforementioned, on this day personally appeared Dale E. Redman, known
to me personally, who, being by me first duly sworn, did say that he is the
Authorized Officer of United Companies Financial Corporation, a Louisiana
corporation, and that as such duly authorized officer of the Board of Directors
of said Corporation, he signed and executed the foregoing instrument on behalf
of the corporation and as the act of such corporation (or entity) for the
purposes and consideration therein expresses, and in the capacity therein
stated.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal and
the said appearer and the said witnesses have hereunto affixed their signatures
this the _______ day of _______________, 1995.
WITNESSES: UNITED COMPANIES FINANCIAL
CORPORATION, as EMPLOYER
By:
- -------------------------------- --------------------------------
Dale E. Redman
Authorized Officer
- --------------------------------
--------------------------------
NOTARY PUBLIC
4
<PAGE> 115
ACKNOWLEDGMENT BY BANK TRUSTEE
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BEFORE ME, the undersigned Notary Public, in and for the County/Parish
and State aforementioned, on this day personally appeared
__________________________________, known to me personally, who, after being by
me first duly sworn, did say that he is the trust officer of Hibernia National
Bank whose name is subscribed to the foregoing instrument and that he executed
same as an act in his capacity as officer of the Trustee for the purposes and
considerations therein stated.
THUS DONE AND SIGNED on this ______ day of _____________, 1995, and in
the presence of the undersigned competent witnesses, at Baton Rouge, Louisiana.
WITNESSES: HIBERNIA NATIONAL BANK, as TRUSTEE
By:
- -------------------------------- --------------------------------
Authorized Officer
- --------------------------------
--------------------------------
NOTARY PUBLIC
5
<PAGE> 116
REVISED FIFTH AMENDMENT TO THE 1994 RESTATEMENT
OF THE
UNITED COMPANIES FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
_________________________________________________________
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BE IT KNOWN, that on the dates and at the places hereinafter written,
in the presence of the undersigned witnesses, personally came and appeared:
UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under
the laws of the State of Louisiana, with its principal place of
business at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented
herein by Dale E. Redman, its authorized officer, duly authorized to
act by virtue of a corporate resolution attached hereto and made a
part hereof (hereinafter referred to as "Employer" or "Company")
AND
HIBERNIA NATIONAL BANK, a national banking association having an
office and place of business in Baton Rouge, Louisiana, represented by
its undersigned Trust Officer, duly authorized to represent the Bank
(hereinafter referred to as "Resigning Trustee")
AND
U. S. TRUST COMPANY OF CALIFORNIA, N.A., a national banking
association having an office and place of business 555 South Flower
Street, Suite 2700, Los Angeles, California 90007-2429, herein
represented by its undersigned Trust Officer, duly authorized to
represent the Bank (hereinafter referred to as "Trustee" or "Successor
Trustee")
W I T N E S S E T H:
WHEREAS, the Employer did establish the United Companies Financial
Corporation Profit Sharing Plan and Trust on December 31, 1960, and amended,
restated and converted said Profit Sharing Plan and Trust to a stock bonus plan
with ESOP features to be known as the United Companies Financial Corporation
Employee Stock Ownership Plan and Trust ("Plan & Trust") on September 1, 1975,
which Plan & Trust was restated on July 11, 1984, and most recently restated
<PAGE> 117
September 1, 1994, amended February 6, 1995, March 6, 1995 and August 4, 1995,
and wishes to further amend said Plan & Trust; and
WHEREAS, the Employer now desires to amend the Plan to designate the
Successor Trustee of the Plan as set forth below; and
WHEREAS, the Resigning Trustee hereby resigns and the Successor
Trustee agrees to serve as the Trustee of the Plan; and
WHEREAS, the Successor Trustee is domiciled in the State of
California, the Employer desires to amend the Plan and Trust to reflect that
the Trust is governed by the laws of the State of California; and
WHEREAS, pursuant to the terms of the Plan and Trust, it is necessary
for the Trustee of the Plan and Trust to give consent to effectuate any
amendment to the Trust provisions of the Plan and Trust by the Employer; and
WHEREAS, the Trustee does consent to the following amendments to the
Plan and Trust; and
NOW THEREFORE, the Fifth Amendment is hereby revised and corrected to
read as set forth herein, the Successor Trustee shall be designated as the
Trustee of the Plan and Trust, effective September 1, 1995; the Resigning
Trustee is hereby removed and/or agrees to resign; the Resigning Trustee is
directed to transfer the assets of the Trust to the Successor Trustee as soon
as practicable after the effective date hereof; and the following additional
amendments are made to the Plan and Trust. The Fourth Amendment to the Plan
and Trust does not exist.
FURTHER, the Employer does hereby amend the Plan and Trust, and the
Trustee concurs in and accepts such amendment, effective September 1, 1995,
except as otherwise provided herein, as follows:
Article X is hereby amended by deleting the word "Louisiana" in every
place it appears in section 10.01 and substituting the word "California"
therefor.
Article XII is hereby amended by deleting the word "Louisiana" in
every place it appears in section 12.01 and substituting the word "California"
therefor.
Article XII is further amended by adding the following language at the
end of section 12.03 thereof:
2
<PAGE> 118
Funds of the Plan may be invested in deposit accounts,
certificates of deposit or similar accounts with U.S. Trust Fiduciary
Service, Ltd., 1300 Eye Street, NW, Suite 1080 E, Washington, D.C.
20005, or its affiliates.
Article XII is hereby further amended, effective on the date of
execution, by adding the following language at the end of section 12.19
thereof:
"During the period of transfer of assets from the Resigning
Trustee to the Successor Trustee, both Resigning Trustee and Successor
Trustee shall have responsibility for the assets held by each,
respectively; however, after the effective date only the Successor
Trustee shall have authority and power to make investments."
Article XII is hereby further amended by adding the following language
at the end of section 12.21 thereof:
"Investment may be made in collective investment funds,
maintained by U.S. Trust Company of California, N.A., or its
affiliates, the terms of which are incorporated herein by reference,
or in mutual funds managed by U.S. Trust Company of California, N.A.,
or its affiliates."
Article XX is hereby amended by deleting the word "Louisiana" in
section 20.10 and substituting the word "California" therefor.
The amendments made hereunder are intended to qualify the Plan
and Trust for the period beginning September 1, 1995, except as otherwise
provided herein, as a qualified Employee Stock Ownership Plan under the
Internal Revenue Code and ERISA. Therefore, any provisions which cause the
Plan not to be in compliance with either statute, or with regulations
promulgated thereunder, shall be separable from the remaining amendments and
shall not cause them to be rendered invalid, so that all the amendments will
have as much force and effect as allowed by law.
3
<PAGE> 119
In the case of any ambiguity, the language shall be interpreted to effectuate
the stated purposes of those amendments and in such a way as to cause the Plan
to continue to be a qualified plan under the statutes.
IN WITNESS WHEREOF, the Employer has cause this Amendment to be signed
by its duly authorized officer, the Resigning Trustee has evidenced its
resignation through its duly authorized Trust Officer, and the Trustee has
accepted its designation as Successor Trustee and has further accepted this
amendment, before the undersigned, competent witnesses, on the date indicated
above.
WITNESSES: UNITED COMPANIES FINANCIAL
CORPORATION, as EMPLOYER
By:
- -------------------------------- --------------------------------
Authorized Officer
- -------------------------------- At Baton Rouge, Louisiana, this
_____ day of _____________, 1995.
WITNESSES: HIBERNIA NATIONAL BANK,
as RESIGNING TRUSTEE
By:
- -------------------------------- --------------------------------
Authorized Officer
- -------------------------------- At Baton Rouge, Louisiana, this
_____ day of _____________, 1995.
WITNESSES: U.S. TRUST COMPANY OF CALIFORNIA,
N.A., as TRUSTEE
By:
- -------------------------------- --------------------------------
Authorized Officer
- -------------------------------- At Los Angeles, California, this
_____ day of _____________, 1995.
4
<PAGE> 120
ACKNOWLEDGMENT BY EMPLOYER
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BEFORE ME, the undersigned Notary Public, in and for the Parish and
State aforementioned, on this day personally appeared Dale E. Redman, known
to me personally, who, being by me first duly sworn, did say that he is the
Authorized Officer of United Companies Financial Corporation, a Louisiana
corporation, and that as such duly authorized officer of the Board of Directors
of said Corporation, he signed and executed the foregoing instrument on behalf
of the corporation and as the act of such corporation (or entity) for the
purposes and consideration therein expresses, and in the capacity therein
stated.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal and
the said appearer and the said witnesses have hereunto affixed their signatures
this the _______ day of _______________, 1995.
WITNESSES: UNITED COMPANIES FINANCIAL
CORPORATION, as EMPLOYER
By:
- -------------------------------- --------------------------------
Dale E. Redman
Authorized Officer
- --------------------------------
--------------------------------
NOTARY PUBLIC
5
<PAGE> 121
ACKNOWLEDGMENT BY RESIGNING TRUSTEE
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BEFORE ME, the undersigned Notary Public, in and for the County/Parish
and State aforementioned, on this day personally appeared
__________________________________, known to me personally, who, after being by
me first duly sworn, did say that he is the trust officer of Hibernia National
Bank whose name is subscribed to the foregoing instrument and that he executed
same as an act in his capacity as officer of the Resigning Trustee for the
purposes and considerations therein stated.
THUS DONE AND SIGNED on this ______ day of _____________, 1995, and in
the presence of the undersigned competent witnesses, at Baton Rouge, Louisiana.
WITNESSES: HIBERNIA NATIONAL BANK,
as RESIGNING TRUSTEE
By:
- -------------------------------- --------------------------------
Authorized Officer
- --------------------------------
--------------------------------
NOTARY PUBLIC
<PAGE> 122
ACKNOWLEDGMENT BY SUCCESSOR TRUSTEE
STATE OF CALIFORNIA
COUNTY/PARISH OF __________________
BEFORE ME, the undersigned Notary Public, in and for the County and
State aforementioned, on this day personally appeared
______________________________________, known to me personally, who, after
being by me first duly sworn, did say that he is the trust officer of U.S.
TRUST COMPANY OF CALIFORNIA, N.A., whose name is subscribed to the foregoing
instrument and that he executed same as an act in his capacity as officer for
the purposes and considerations therein stated.
THUS DONE AND SIGNED on this _____ day of _____________, 1995 in the
presence of the undersigned competent witnesses, at Los Angeles, California.
WITNESSES: U.S. TRUST COMPANY OF CALIFORNIA,
N.A., AS SUCCESSOR TRUSTEE
BY:
- -------------------------------- --------------------------------
Authorized Officer
--------------------------------
NOTARY PUBLIC
My Commission Expires: _______________
<PAGE> 1
EXHIBIT 10.3
UNITED COMPANIES FINANCIAL
CORPORATION
EMPLOYEES' SAVINGS PLAN
Defined Contribution Plan 7.6
Restated January 1, 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
INTRODUCTION
ARTICLE I FORMAT AND DEFINITIONS
Section 1.01 -----Format
Section 1.02 -----Definitions
ARTICLE II PARTICIPATION
Section 2.01 -----Active Participant
Section 2.02 -----Inactive Participant
Section 2.03 -----Cessation of Participation
Section 2.04 -----Adopting Employers-Single Plan
ARTICLE III CONTRIBUTIONS
Section 3.01 -----Employer Contributions
Section 3.01A -----Rollover Contributions
Section 3.02 -----Forfeitures
Section 3.03 -----Allocation
Section 3.04 -----Contribution Limitation
Section 3.05 -----Excess Amounts
ARTICLE IV INVESTMENT OF CONTRIBUTIONS
Section 4.01 -----Investment of Contributions
Section 4.02 -----Company Stock
Section 4.03 -----Transactions Involving Employer Securities
ARTICLE V BENEFITS
Section 5.01 -----Retirement Benefits
Section 5.02 -----Death Benefits
Section 5.03 -----Vested Benefits
Section 5.04 -----When Benefits Start
Section 5.05 -----Loans to Participants
ARTICLE VI DISTRIBUTION OF BENEFITS
Section 6.01 -----Automatic Forms of Distribution
Section 6.02 -----Optional Forms of Distribution and Distribution Requirements
Section 6.03 -----Election Procedures
Section 6.04 -----Notice Requirements
</TABLE>
TABLE OF CONTENTS 2
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VII TERMINATION OF PLAN
ARTICLE VIII ADMINISTRATION OF PLAN
Section 8.01 -----Administration
Section 8.02 -----Records
Section 8.03 -----Information Available
Section 8.04 -----Claim and Appeal Procedures
Section 8.05 -----Unclaimed Vested Account Procedure
Section 8.06 -----Delegation of Authority
ARTICLE IX GENERAL PROVISIONS
Section 9.01 -----Amendments
Section 9.02 -----Direct Rollovers
Section 9.03 -----Mergers and Direct Transfers
Section 9.04 -----Provisions Relating to the Insurer and Other Parties
Section 9.05 -----Employment Status
Section 9.06 -----Rights to Plan Assets
Section 9.07 -----Beneficiary
Section 9.08 -----Nonalienation of Benefits
Section 9.09 -----Construction
Section 9.10 -----Legal Actions
Section 9.11 -----Small Amounts
Section 9.12 -----Word Usage
Section 9.13 -----Transfers Between Plans
ARTICLE X TOP-HEAVY PLAN REQUIREMENTS
Section 10.01 -----Application
Section 10.02 -----Definitions
Section 10.03 -----Modification of Vesting Requirements
Section 10.04 -----Modification of Contributions
Section 10.05 -----Modification of Contribution Limitation
PLAN EXECUTION
</TABLE>
TABLE OF CONTENTS 3
<PAGE> 4
INTRODUCTION
The Primary Employer previously established a savings plan on July 1,
1987.
The Primary Employer is of the opinion that the plan should be changed.
It believes that the best means to accomplish these changes is to completely
restate the plan's terms, provisions and conditions. The restatement,
effective January 1, 1994, is set forth in this document and is substituted in
lieu of the prior document.
The restated plan continues to be for the exclusive benefit of employees
of the Employer. All persons covered under the plan on December 31, 1993,
shall continue to be covered under the restated plan with no loss of benefits.
It is intended that the plan, as restated, shall qualify as a profit
sharing plan under the Internal Revenue Code of 1986, including any later
amendments to the Code.
INTRODUCTION 4
<PAGE> 5
ARTICLE I
FORMAT AND DEFINITIONS
SECTION 1.01--FORMAT.
Words and phrases defined in the DEFINITIONS SECTION of Article I shall
have that defined meaning when used in this Plan, unless the context clearly
indicates otherwise.
These words and phrases have an initial capital letter to aid in
identifying them as defined terms.
SECTION 1.02--DEFINITIONS.
ACCOUNT means, for a Participant, his share of the Investment Fund.
Separate accounting records are kept for those parts of his Account that
result from:
(a) Elective Deferral Contributions
(b) Matching Contributions
(c) Other Employer Contributions
If the Employer elects to include any of these Contributions in
computing the percentages in the EXCESS AMOUNTS SECTION of
Article III, a separate accounting record shall be kept for any
part of his Account resulting from such Employer Contributions.
(d) Rollover Contributions
A Participant's Account shall be reduced by any distribution of
his Vested Account and by any Forfeitures. A Participant's
Account will participate in the earnings credited, expenses
charged and any appreciation or depreciation of the Investment
Fund. His Account is subject to any minimum guarantees
applicable under the Group Contract or other investment
arrangement.
ACTIVE PARTICIPANT means an Eligible Employee who is actively
participating in the Plan according to the provisions in the ACTIVE
PARTICIPANT SECTION of Article II.
ADOPTING EMPLOYER means an employer controlled by or affiliated with the
Employer and listed in the ADOPTING EMPLOYERS - SINGLE PLAN SECTION of
Article II.
AFFILIATED SERVICE GROUP means any group of corporations, partnerships
or other organizations of which the Employer is a part and which is
affiliated within the meaning of Code Section 414(m) and regulations
thereunder. Such a group includes at least two organizations one of
which is either a service organization (that is, an organization the
principal business of which is performing services), or an organization
the principal business of which is performing management functions on a
regular and continuing basis. Such service is of a type historically
performed by employees. In the case of a management organization, the
Affiliated Service Group shall include organizations related, within the
ARTICLE I 5
<PAGE> 6
meaning of Code Section 144(a)(3), to either the management organization
or the organization for which it performs management functions. The
term Controlled Group, as it is used in this Plan, shall include the
term Affiliated Service Group.
ANNUITY STARTING DATE means, for a Participant, the first day of the
first period for which an amount is paid as an annuity or any other
form.
BENEFICIARY means the person or persons named by a Participant to
receive any benefits under this Plan upon the Participant's death. See
the BENEFICIARY SECTION of Article IX.
CLAIMANT means any person who has made a claim for benefits under this
Plan. See the CLAIM AND APPEAL PROCEDURES SECTION of Article VIII.
CODE means the Internal Revenue Code of 1986, as amended.
COMPANY STOCK means the single class of common stock of the Employer
which is publicly traded.
COMPENSATION means, except as modified in this definition, the total
earnings paid or made available to an Employee by the Employer during
any specified period.
"Earnings" in this definition means all wages, salaries, fees for
professional services and other amounts received (whether or not paid in
cash) for personal services actually rendered in the course of
employment with the Employer maintaining the plan, but only to the
extent includable in gross income. Earnings include, but are not
limited to, commissions paid salesmen, compensation for services on the
basis of a percentage of profits, commissions on insurance premiums,
tips, bonuses, fringe benefits and reimbursements or other expense
allowances under a nonaccountable plan (as described in section
1.62-2(c) of the regulations). Earnings do not include:
(a) Contributions made by the Employer to a plan of deferred
compensation to the extent contributions are not included in the
gross income of the Employee for the taxable year in which
contributed, or on behalf of the Employee to a simplified
employee pension plan to the extent such contributions are
deductible by the Employee, and any distributions from a plan of
deferred compensation whether or not includable in the gross
income of the Employee when distributed.
(b) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by an
Employee becomes freely transferable or is no longer subject to a
substantial risk of forfeiture.
(c) Amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option.
(d) Other amounts which receive special tax benefits, or
contributions made by the Employer (whether or not under a salary
reduction agreement) towards the purchase of an annuity contract
described in Code Section 403(b) (whether or not the
contributions are actually excludable from the gross income of
the Employee).
Compensation shall exclude reimbursements or other expense allowances,
fringe benefits (cash or noncash), moving expenses, deferred
compensation and welfare benefits.
Compensation shall also include elective contributions. Elective
contributions are amounts excludable from the Employee's gross income
under Code Sections 125, 402(e)(3), 402(h) or 403(b), and contributed by
the Employer, at the Employee's election, to a Code Section 401(k)
arrangement, a simplified employee
ARTICLE I 6
<PAGE> 7
pension, cafeteria plan or tax-sheltered annuity. Elective
contributions also include Compensation deferred under a Code Section
457 plan maintained by the Employer and Employee contributions "picked
up" by a governmental entity and, pursuant to Code Section 414(h)(2),
treated as Employer contributions.
For purposes of the EXCESS AMOUNTS SECTION of Article III, the Employer
may elect to use an alternative nondiscriminatory definition of
Compensation in accordance with the regulations under Code Section
414(s).
For Plan Years beginning after December 31, 1988, and before January 1,
1994, the annual Compensation of each Participant taken into account for
determining all benefits provided under the Plan for any year shall not
exceed $200,000. For Plan Years beginning on or after January 1, 1994,
the annual Compensation of each Participant taken into account for
determining all benefits provided under the Plan for any year shall not
exceed $150,000.
The $200,000 limit shall be adjusted by the Secretary at the same time
and in the same manner as under Code Section 415(d). The $150,000 limit
shall be adjusted by the Commissioner for increases in the cost of
living in accordance with Code Section 401(a)(17)(B). The cost of
living adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over which pay is determined (determination
period) beginning in such calendar year. If a determination period
consists of fewer than 12 months, the annual compensation limit will be
multiplied by a fraction, the numerator of which is the number of months
in the determination period, and the denominator of which is 12.
For purposes of determining the Compensation of a Participant for the
annual compensation limit, all Participants who are Family Members of a
Highly Compensated Employee who is a five percent owner or who is one of
the ten (10) highest paid Participants will be considered as being
one(1) Employee and the annual compensation limit will be allocated
among such individuals by reducing the salary of any Family Member who
is limited by Code Section 415 to the lowest amount which permits this
limit to be reached, thereafter by reducing the salary of the highest
paid Family Member(s) until the aggregate dollar limit is met or until
the next highest Family Member's Compensation is reached in which case
such next highest Family Member's Compensation shall be reduced at the
same rate. This process shall be repeated until the annual limit is
reached. A Family Member, for purposes of this Section, shall include
only the spouse of a Highly Compensated Employee and any lineal
descendants of the Highly Compensated Employee who have not attained age
19 before the last day of the Plan Year.
If Compensation for any prior determination period is taken into account
in determining a Participant's benefits accruing in the current Plan
Year, the Compensation for that prior determination period is subject to
the annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning before
the first day of the first Plan Years beginning on or after January 1,
1989, which are used to determine benefits in Plan Year beginning after
December 31, 1988 and before January 1, 1994, the annual compensation
limit is $200,000. For this purpose, for determination periods
beginning before the first day of the first Plan Year beginning on or
after January 1, 1994, which are used to determine benefits in Plan
Years beginning on or after January 1, 1994, the annual compensation
limit is $150,000.
COMPENSATION YEAR means each one-year period ending on the last day of
the Plan Year, including corresponding periods before July 1, 1987.
CONTINGENT ANNUITANT means an individual named by the Participant to
receive a lifetime benefit after the Participant's death in accordance
with a survivorship life annuity.
CONTRIBUTIONS means
ARTICLE I 7
<PAGE> 8
Elective Deferral Contributions
Matching Contributions
Qualified Nonelective Contributions
Discretionary Contributions
Rollover Contributions
as set out in Article III, unless the context clearly indicates
otherwise.
CONTROLLED GROUP means any group of corporations, trades or businesses
of which the Employer is a part that are under common control. A
Controlled Group includes any group of corporations, trades or
businesses, whether or not incorporated, which is either a
parent-subsidiary group, a brother-sister group, or a combined group
within the meaning of Code Section 414(b), Code Section 414(c) and
regulations thereunder and, for purposes of determining contribution
limitations under the CONTRIBUTION LIMITATION SECTION of Article III, as
modified by Code Section 415(h) and, for the purpose of identifying
Leased Employees, as modified by Code Section 144(a)(3). The term
Controlled Group, as it is used in this Plan, shall include the term
Affiliated Service Group and any other employer required to be
aggregated with the Employer under Code Section 414(o) and the
regulations thereunder.
DIRECT ROLLOVER means a payment by the Plan to the Eligible Retirement
Plan specified by the Distributee.
DISCRETIONARY CONTRIBUTIONS means discretionary contributions made by
the Employer to fund this Plan. See the EMPLOYER CONTRIBUTIONS SECTION
of Article III.
DISTRIBUTEE means 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.
ELECTIVE DEFERRAL CONTRIBUTIONS means Contributions made by the Employer
to fund this Plan in accordance with a qualified cash or deferred
arrangement as described in Code Section 401(k). See the EMPLOYER
CONTRIBUTIONS SECTION of Article III.
ELIGIBILITY BREAK IN SERVICE means an Eligibility Computation Period in
which an Employee is credited with 500 or fewer Hours-of-Service. An
Employee incurs an Eligibility Break in Service on the last day of an
Eligibility Computation Period in which he has an Eligibility Break in
Service.
ELIGIBILITY COMPUTATION PERIOD means a 12-consecutive month period. The
first Eligibility Computation Period begins on an Employee's Employment
Commencement Date. Later Eligibility Computation Periods shall be
12-consecutive month periods ending on the last day of each Plan Year
that begins after his Employment Commencement Date.
To determine an Eligibility Computation Period after an Eligibility
Break in Service, the Plan shall use the 12-consecutive month period
beginning on an Employee's Reemployment Commencement Date as if his
Reemployment Commencement Date were his Employment Commencement Date.
ELIGIBILITY SERVICE means one year of service for each Eligibility
Computation Period that has ended and in which an Employee is credited
with at least 1,000 Hours-of-Service.
However, Eligibility Service is modified as follows:
ARTICLE I 8
<PAGE> 9
Predecessor Employer service included:
An Employee's service with a Predecessor Employer shall be
included as service with the Employer. This service includes
service performed while a proprietor or partner.
Period of Military Duty included:
A Period of Military Duty shall be included as service with the
Employer to the extent it has not already been credited. For
purposes of crediting Hours-of-Service during the Period of
Military Duty, an Hour-of-Service shall be credited (without
regard to the 501 Hour-of-Service limitation) for each hour an
Employee would normally have been scheduled to work for the
Employer during such period.
Controlled Group service included:
An Employee's service with a member firm of a Controlled Group
while both that firm and the Employer were members of the
Controlled Group shall be included as service with the Employer.
ELIGIBLE EMPLOYEE means any Employee of the Employer who meets the
following requirements. He is not employed as a leased Employee; he is
not a non-resident alien deriving no income from the Employer from
sources within the United States; he is not an owner-employee or a
share-holder employee of the Employer or of an Adopting Employer; and,
his employment classification with the Employer is the following:
Nonbargaining class (not represented for collective bargaining
purposes by a bargaining unit which has bargained in good faith
with the Employer on the subject of retirement benefits).
An otherwise Eligible Employee must be an Employee of the Primary
Employer or an Adopting Employer to be eligible under this Plan.
ELIGIBLE RETIREMENT PLAN means 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.
ELIGIBLE ROLLOVER DISTRIBUTION means 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:
(a) 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.
(b) Any distribution to the extent such distribution is required
under Code Section 401(a)(9).
ARTICLE I 9
<PAGE> 10
(c) 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).
EMPLOYEE means an individual who is employed by the Employer or any
other employer required to be aggregated with the Employer under Code
Sections 414(b), (c), (m) or (o). A Controlled Group member is required
to be aggregated with the Employer.
EMPLOYER means the Primary Employer. This will also include any
successor corporation or firm of the Employer which shall, by written
agreement, assume the obligations of this Plan or any predecessor
corporation or firm of the Employer (absorbed by the Employer, or of
which the Employer was once a part) which became a predecessor because of
a change of name, merger, purchase of stock or purchase of assets and
which maintained this Plan.
EMPLOYER CONTRIBUTIONS means
Elective Deferral Contributions
Matching Contributions
Qualified Nonelective Contributions
Discretionary Contributions
as set out in Article III, unless the context clearly indicates
otherwise.
EMPLOYMENT COMMENCEMENT DATE means the date an Employee first performs
an Hour-of-Service.
ENTRY DATE means the date an Employee first enters the Plan as an Active
Participant. See the ACTIVE PARTICIPANT SECTION of Article II.
FAIR MARKET VALUE means the valuation of Company Stock for purposes of
transactions with the Plan, as that valuation is determined under the
adequate consideration rules of proposed labor regulations Section
2510.3- 18(b).
FAMILY MEMBER means an individual described in Code Section
414(q)(6)(B).
FISCAL YEAR means the Primary Employer's taxable year. The last day of
the Fiscal Year is December 31.
FORFEITURE means the part, if any, of a Participant's Account that is
forfeited. See the FORFEITURES SECTION of Article III.
FORFEITURE DATE means, as to a Participant, the date the Participant
incurs five consecutive Vesting Breaks in Service. A Participant incurs
a Vesting Break in Service on the last day of the period used to
determine the Vesting Break in Service.
This is the date on which the Participant's Nonvested Account will be
forfeited unless an earlier forfeiture occurs as provided in the
FORFEITURES SECTION of Article III.
ARTICLE I 10
<PAGE> 11
GROUP CONTRACT means the group annuity contract or contracts into which
the Primary Employer enters with the Insurer for the investment of
Contributions and the payment of benefits under this Plan. The term
Group Contract as it is used in this Plan is deemed to include the
plural unless the context clearly indicates otherwise.
HIGHLY COMPENSATED EMPLOYEE means a highly compensated active Employee
or a highly compensated former Employee.
A highly compensated active Employee means any Employee who performs
service for the Employer during the determination year and who, during
the look-back year:
(a) received compensation from the Employer in excess of $75,000 (as
adjusted pursuant to Code Section 415(d));
(b) received compensation from the Employer in excess of $50,000 (as
adjusted pursuant to Code Section 415(d)) and was a member of the
top-paid group for such year; or
(c) was an officer of the Employer and received compensation during
such year that is greater than 50 percent of the dollar
limitation in effect under Code Section 415(b)(1)(A).
The term Highly Compensated Employee also means:
(d) Employees who are both described in the preceding sentence if the
term "determination year" is substituted for the term "look-back
year" and the Employee is one of the 100 Employees who received
the most compensation from the Employer during the determination
year; and
(e) Employees who are 5 percent owners at any time during the
look-back year or determination year.
If no officer has satisfied the compensation requirement of (c) above
during either a determination year or look-back year, the highest paid
officer for such year shall be treated as a Highly Compensated Employee.
For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the twelve-month period immediately preceding
the determination year.
A highly compensated former Employee means any Employee who separated
from service (or was deemed to have separated) prior to the
determination year, performs no service for the Employer during the
determination year, and was a highly compensated active Employee for
either the separation year or any determination year ending on or after
the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a
family member of either a 5 percent owner who is an active or former
Employee or a Highly Compensated Employee who is one of the 10 most
highly compensated Employees ranked on the basis of compensation paid by
the Employer during such year, then the family member and the 5 percent
owner or top-ten highly compensated Employee shall be aggregated. In
such case, the family member and 5 percent owner or top-ten highly
compensated Employee shall be treated as a single Employee receiving
compensation and Plan contributions or benefits equal to the sum of such
compensation and contributions or benefits of the family member and 5
percent
ARTICLE I 11
<PAGE> 12
owner or top-ten highly compensated Employee. For purposes of this
definition, family member includes the spouse, lineal ascendants and
descendants of the Employee or former Employee and the spouses of such
lineal ascendants and descendants.
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid
group, the top 100 Employees, the number of Employees treated as
officers and the compensation that is considered, will be made in
accordance with Code Section 414(q) and the regulations thereunder.
HOUR-OF-SERVICE means the following:
(a) Each hour for which an Employee is paid, or entitled to payment,
for performing duties for the Employer during the applicable
computation period.
(b) Each hour for which an Employee is paid, or entitled to payment,
by the Employer because of a period of time in 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. Notwithstanding the preceding
provisions of this subparagraph (b), no credit will be given to
the Employee
(1) for more than 501 Hours-of-Service under this subparagraph
(b) because of any single continuous period in which the
Employee performs no duties (whether or not such period
occurs in a single computation period); or
(2) for an Hour-of-Service for which the Employee is directly
or indirectly paid, or entitled to payment, because of a
period in which no duties are performed if such payment is
made or due under a plan maintained solely for the purpose
of complying with applicable worker's or workmen's
compensation, or unemployment compensation or disability
insurance laws; or
(3) for an Hour-of-Service for a payment which solely
reimburses the Employee for medical or medically related
expenses incurred by him.
For purposes of this subparagraph (b), a payment shall be deemed
to be made by, or due from the Employer, regardless of whether
such payment is made by, or due from the Employer, directly or
indirectly through, among others, a trust fund or insurer, to
which the Employer 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 Employer. The
same Hours-of-Service shall not be credited both under
subparagraph (a) or subparagraph (b) above (as the case may be)
and under this subparagraph (c). Crediting of Hours-of-Service
for back pay awarded or agreed to with respect to periods
described in subparagraph (b) above will be subject to the
limitations set forth in that subparagraph.
The crediting of Hours-of-Service above shall be applied under the rules
of paragraphs (b) and (c) of the Department of Labor Regulation
2530.200b-2 (including any interpretations or opinions implementing said
ARTICLE I 12
<PAGE> 13
rules); which rules, by this reference, are specifically incorporated in
full within this Plan. The reference to paragraph (b) applies to the
special rule for determining hours of service for reasons other than the
performance of duties such as payments calculated (or not calculated) on
the basis of units of time and the rule against double credit. The
reference to paragraph (c) applies to the crediting of hours of service
to computation periods.
Hours-of-Service shall be credited for employment with any other
employer required to be aggregated with the Employer under Code Sections
414(b), (c), (m) or (o) and the regulations thereunder for purposes of
eligibility and vesting. Hours-of-Service shall also be credited for
any individual who is considered an employee for purposes of this Plan
pursuant to Code Section 414(n) or Code Section 414(o) and the
regulations thereunder.
Solely for purposes of determining whether a one-year break in service
has occurred for eligibility or vesting purposes, during a Parental
Absence an Employee shall be credited with the Hours-of-Service which
otherwise would normally have been credited to the Employee but for such
absence, or in any case in which such hours cannot be determined, eight
Hours-of-Service per day of such absence. The Hours-of-Service credited
under this paragraph shall be credited in the computation period in
which the absence begins if the crediting is necessary to prevent a
break in service in that period; or in all other cases, in the following
computation period.
INACTIVE PARTICIPANT means a former Active Participant who has an
Account. See the INACTIVE PARTICIPANT SECTION of Article II.
INSURER means Principal Mutual Life Insurance Company and any other
insurance company or companies named by the Trustee or Primary Employer.
INVESTMENT FUND means the total assets held for the purpose of providing
benefits for Participants. These funds result from Contributions made
under the Plan.
INVESTMENT MANAGER means any fiduciary (other than a trustee or Named
Fiduciary)
(a) who has the power to manage, acquire, or dispose of any assets of
the Plan; and
(b) who (1) is registered as an investment adviser under the
Investment Advisers Act of 1940, or (2) is a bank, as defined in
the Investment Advisers Act of 1940, or (3) is an insurance
company qualified to perform services described in subparagraph
(a) above under the laws of more than one state; and
(c) who has acknowledged in writing being a fiduciary with respect to
the Plan.
LATE RETIREMENT DATE means the first day of any month which is after a
Participant's Normal Retirement Date and on which retirement benefits
begin. If a Participant continues to work for the Employer after his
Normal Retirement Date, his Late Retirement Date shall be the earliest
first day of the month on or after he ceases to be an Employee. An
earlier or a later Retirement Date may apply if the Participant so
elects. An earlier Retirement Date may apply if the Participant is age
70 1/2. See the WHEN BENEFITS START SECTION of Article V.
ARTICLE I 13
<PAGE> 14
LOAN ADMINISTRATOR means the person or positions authorized to
administer the Participant loan program.
The Loan Administrator is the head of the Human Resources Department.
MATCHING CONTRIBUTIONS means matching contributions made by the Employer
to fund this Plan. See the EMPLOYER CONTRIBUTIONS SECTION of Article
III.
NAMED FIDUCIARY means the person or persons who have authority to
control and manage the operation and administration of the Plan.
The Named Fiduciary is the Employer.
NONHIGHLY COMPENSATED EMPLOYEE means an Employee of the Employer who is
neither a Highly Compensated Employee nor a Family Member.
NONVESTED ACCOUNT means the part, if any, of a Participant's Account
that is in excess of his Vested Account.
NORMAL FORM means a single life annuity with installment refund.
NORMAL RETIREMENT AGE means the age at which the Participant's normal
retirement benefit becomes nonforfeitable. A Participant's Normal
Retirement Age is 65.
NORMAL RETIREMENT DATE means the date the Participant reaches his Normal
Retirement Age. Unless otherwise provided in this Plan, a Participant's
retirement benefits shall begin on a Participant's Normal Retirement
Date if he has ceased to be an Employee on such date and has a Vested
Account. Even if the Participant is an Employee on his Normal
Retirement Date, he may choose to have his retirement benefit begin on
such date. See the WHEN BENEFITS START SECTION of Article V.
PARENTAL ABSENCE means an Employee's absence from work which begins on
or after the first Yearly Date after December 31, 1984,
(a) by reason of pregnancy of the Employee,
(b) by reason of birth of a child of the Employee,
(c) by reason of the placement of a child with the Employee in
connection with adoption of such child by such Employee, or
(d) for purposes of caring for such child for a period beginning
immediately following such birth or placement.
PARTICIPANT means either an Active Participant or an Inactive
Participant.
PERIOD OF MILITARY DUTY means, for an Employee
ARTICLE I 14
<PAGE> 15
(a) who served as a member of the armed forces of the United States,
and
(b) who was reemployed by the Employer at a time when the Employee
had a right to reemployment in accordance with seniority rights
as protected under Section 2021 through 2026 of Title 38 of the
U. S. Code,
the period of time from the date the Employee was first absent from
active work for the Employer because of such military duty to the date
the Employee was reemployed.
PLAN means the savings plan of the Employer set forth in this document,
including any later amendments to it.
PLAN ADMINISTRATOR means the person or persons who administer the Plan.
The Plan Administrator is the Employer.
PLAN YEAR means a period beginning on a Yearly Date and ending on the
day before the next Yearly Date.
PREDECESSOR EMPLOYER means a firm absorbed by the Employer by change of
name, merger, acquisition or a change of corporate status, or a firm of
which the Employer was once a part.
PRIMARY EMPLOYER means United Companies Financial Corporation.
QUALIFIED JOINT AND SURVIVOR FORM means, for a Participant who has a
spouse, an immediate survivorship life annuity with installment refund,
where the survivorship percentage is 50% and the Contingent Annuitant is
the Participant's spouse. A former spouse will be treated as the spouse
to the extent provided under a qualified domestic relations order as
described in Code Section 414(p). If a Participant does not have a
spouse, the Qualified Joint and Survivor Form means the Normal Form.
The amount of benefit payable under the Qualified Joint and Survivor
Form shall be the amount of benefit which may be provided by the
Participant's Vested Account.
QUALIFIED NONELECTIVE CONTRIBUTIONS means contributions (other than
Employer Contributions made to the Plan on behalf of a Participant on
account of Elective Deferral Contributions or on account of
contributions made by the Participant) made by the Employer to fund this
Plan which an Employee may not elect to have paid to him in cash instead
of being contributed to the Plan and which are subject to the
distribution and nonforfeitability requirements under Code Section
401(k). See the EMPLOYER CONTRIBUTIONS SECTION of Article III.
QUALIFIED PRERETIREMENT SURVIVOR ANNUITY means a single life annuity
with installment refund payable to the surviving spouse of a Participant
who dies before his Annuity Starting Date. A former spouse will be
treated as the surviving spouse to the extent provided under a qualified
domestic relations order as described in Code Section 414(p).
QUALIFYING EMPLOYER SECURITY means any instrument issued by the Employer
and meeting the requirements of Section 4975(e)(8) of the Code.
ARTICLE I 15
<PAGE> 16
QUARTERLY DATE means each Yearly Date and the third, sixth and ninth
Monthly Date after each Yearly Date which is within the same Plan Year.
REEMPLOYMENT COMMENCEMENT DATE means the date an Employee first performs
an Hour-of-Service following an Eligibility Break in Service.
REENTRY DATE means the date a former Active Participant reenters the
Plan. See the ACTIVE PARTICIPANT SECTION of Article II.
REGISTRATION TYPE QUALIFYING EMPLOYER SECURITY is a class of securities
which is required to be registered under Section 12 of the Securities
Exchange Act of 1934 or which would be required to be so registered if
it did not qualify for the exemption from registration provided in
Section 12(g)(2)(H) of said Act.
RETIREMENT DATE means the date a retirement benefit will begin and is a
Participant's Normal or Late Retirement Date, as the case may be.
ROLLOVER CONTRIBUTIONS means the Rollover Contributions which are made
by or for a Participant according to the provisions of the ROLLOVER
CONTRIBUTIONS SECTION of Article III.
TEFRA means the Tax Equity and Fiscal Responsibility Act of 1982.
TEFRA COMPLIANCE DATE means the date a plan is to comply with the
provisions of TEFRA. The TEFRA Compliance Date as used in this Plan is,
(a) for purposes of contribution limitations, Code Section 415,
(1) if the plan was in effect on July 1, 1982, the first day
of the first limitation year which begins after December
31, 1982, or
(2) if the plan was not in effect on July 1, 1982, the first
day of the first limitation year which ends after July 1,
1982.
(b) for all other purposes, the first Yearly Date after December 31,
1983.
TOTALLY AND PERMANENTLY DISABLED means that a Participant who has
completed at least two years of Vesting Service is disabled, as a result
of sickness or injury, to the extent that he is prevented from engaging
in any substantial gainful activity, and is eligible for and receives a
disability benefit under Title II of the Federal Social Security Act.
TRUST means an agreement of trust between the Primary Employer and
Trustee established for the purpose of holding and distributing the
Trust Fund under the provisions of the Plan. The Trust may provide for
the investment of all or any portion of the Trust Fund in the Group
Contract.
TRUST FUND means the total funds held under the Trust for the purpose of
providing benefits for Participants. These funds result from
Contributions made under the Plan which are forwarded to the Trustee to
be deposited in the Trust Fund.
ARTICLE I 16
<PAGE> 17
TRUSTEE means the trustee or trustees under the Trust. The term Trustee
as it is used in this Plan is deemed to include the plural unless the
context clearly indicates otherwise.
VALUATION DATE means for purposes of Section 9.14--Transactions
Involving Employer Securities, the date on which the value of the assets
of the Trust is determined. The value of each Account which is
maintained under this Plan shall be determined on the Valuation Date.
In each Plan Year the Valuation Date shall be the last day of each
calendar quarter. In addition, the Plan Administrator may designate
from time to time, so long as the Trustee agrees, that another date or
dates shall be Valuation Dates with respect to a specific Plan Year.
VESTED ACCOUNT means the vested part of a Participant's Account. The
Participant's Vested Account is equal to that part of his Account which
results from Contributions which were 100% vested when made before his
Vesting Percentage is 100% and is equal to his Account when his Vesting
Percentage is 100%.
The Participant's Vested Account is nonforfeitable.
VESTING BREAK IN SERVICE means a Vesting Computation Period in which an
Employee is credited with 500 or fewer Hours-of-Service. An Employee
incurs a Vesting Break in Service on the last day of a Vesting
Computation Period in which he has a Vesting Break in Service.
VESTING COMPUTATION PERIOD means a 12-consecutive month period ending on
the last day of each Plan Year, including corresponding 12-consecutive
month periods before July 1, 1987.
VESTING PERCENTAGE means the percentage used to determine the
nonforfeitable portion of a Participant's Account attributable to
Employer Contributions which were not 100% vested when made.
A Participant's Vesting Percentage is shown in the following schedule
opposite the number of whole years of his Vesting Service.
<TABLE>
<CAPTION>
VESTING SERVICE VESTING
(whole years) PERCENTAGE
<S> <C>
Less than 5 0
5 or more 100
</TABLE>
However, the Vesting Percentage for a Participant who is an Employee on
or after the earliest of (i) the date he reaches his Normal Retirement
Age, (ii) the date of his death, or (iii) the date he becomes Totally
and Permanently Disabled, shall be 100% on such date.
If the schedule used to determine a Participant's Vesting Percentage is
changed, the new schedule shall not apply to a Participant unless he is
credited with an Hour-of-Service on or after the date of the change and
the Participant's nonforfeitable percentage on the day before the date
of the change is not reduced under this Plan. The amendment provisions
of the AMENDMENT SECTION of Article IX regarding changes in the
computation of the Vesting Percentage shall apply.
VESTING SERVICE means one year of service for each Vesting Computation
Period in which an Employee is credited with at least 1,000
Hours-of-Service.
ARTICLE I 17
<PAGE> 18
However, Vesting Service is modified as follows:
Rule of parity service excluded:
An Employee's Vesting Service, accumulated before a Vesting Break in
Service, shall be excluded if
(a) his Vesting Percentage is zero, and
(b) his latest period of consecutive Vesting Breaks in Service
equals or exceeds the greater of (i) five years, or (ii)
his prior Vesting Service (disregarding any Vesting
Service that was excluded because of a previous period of
Vesting Breaks in Service).
Predecessor Employer service included:
An Employee's service with a Predecessor Employer shall be
included as service with the Employer. This service includes
service performed while a proprietor or partner.
Period of Military Duty included:
A Period of Military Duty shall be included as service with the
Employer to the extent it has not already been credited. For
purposes of crediting Hours-of-Service during the Period of
Military Duty, an Hour-of-Service shall be credited (without
regard to the 501 Hour-of-Service limitation) for each hour an
Employee would normally have been scheduled to work for the
Employer during such period.
Controlled Group service included:
An Employee's service with a member firm of a Controlled Group
while both that firm and the Employer were members of the
Controlled Group shall be included as service with the Employer.
YEARLY DATE means July 1, 1987, and each following January 1.
YEARS OF SERVICE means an Employee's Vesting Service disregarding any
modifications which exclude service.
ARTICLE I 18
<PAGE> 19
ARTICLE II
PARTICIPATION
SECTION 2.01--ACTIVE PARTICIPANT.
(a) An Employee shall first become an Active Participant (begin
active participation in the Plan) on the earliest Quarterly Date
on or after January 1, 1994, on which he is an Eligible Employee
and has met both of the eligibility requirements set forth below.
This date is his Entry Date.
(1) He has completed one year of Eligibility Service before
his Entry Date.
(2) He is age 21 or older.
Each Employee who was an Active Participant under the Plan on
December 31, 1993, shall continue to be an Active Participant if
he is still an Eligible Employee on January 1, 1994, and his
Entry Date shall not change.
If a person has been an Eligible Employee who has met all the
eligibility requirements above, but is not an Eligible Employee
on the date which would have been his Entry Date, he shall become
an Active Participant on the date he again becomes an Eligible
Employee. This date is his Entry Date.
(b) An Inactive Participant shall again become an Active Participant
(resume active participation in the Plan) on the date he again
performs an Hour-of-Service as an Eligible Employee. This date
is his Reentry Date.
Upon again becoming an Active Participant, he shall cease to be
an Inactive Participant.
(c) A former Participant shall again become an Active Participant
(resume active participation in the Plan) on the date he again
performs an Hour-of-Service as an Eligible Employee. This date
is his Reentry Date.
There shall be no duplication of benefits for a Participant under this
Plan because of more than one period as an Active Participant.
SECTION 2.02--INACTIVE PARTICIPANT.
An Active Participant shall become an Inactive Participant (stop
accruing benefits under the Plan) on the earlier of the following:
(a) The date on which he ceases to be an Eligible Employee (on his
Retirement Date if the date he ceases to be an Eligible Employee
occurs within one month of his Retirement Date).
(b) The effective date of complete termination of the Plan.
ARTICLE II 19
<PAGE> 20
An Employee or former Employee who was an Inactive Participant under the
Plan on December 31, 1993, shall continue to be an Inactive Participant on
January 1, 1994. Eligibility for any benefits payable to him or on his behalf
and the amount of the benefits shall be determined according to the provisions
of the prior document, unless otherwise stated in this document.
SECTION 2.03--CESSATION OF PARTICIPATION.
A Participant shall cease to be a Participant on the date he is no
longer an Eligible Employee and his Account is zero.
SECTION 2.04--ADOPTING EMPLOYERS - SINGLE PLAN.
Each of the employers controlled by or affiliated with the Employer and
listed below is an Adopting Employer. Each Adopting Employer listed below
participates with the Employer in this Plan. An Adopting Employer's agreement
to participate in this Plan shall be in writing.
If the Adopting Employer did not maintain its plan before its date of
adoption specified below, its date of adoption shall be the Entry Date for any
of its employees who have met the requirements in the ACTIVE PARTICIPANT
SECTION of Article II as of that date. Service with and earnings from an
Adopting Employer shall be included as service with and earnings from the
Employer. Transfer of employment, without interruption, between an Adopting
Employer and another Adopting Employer or the Employer shall not be considered
an interruption of service.
Contributions made by an Adopting Employer shall be treated as
Contributions made by the Employer. Forfeitures arising from those
Contributions shall be used for the benefit of all Participants.
An employer shall not be an Adopting Employer if it ceases to be
controlled by or affiliated with the Employer. Such an employer may continue a
retirement plan for its employees in the form of a separate document. This
Plan shall be amended to delete a former Adopting Employer from the list below.
If an employer ceases to be an Adopting Employer and does not continue a
retirement plan for the benefit of its employees, partial termination may
result and the provisions of Article VII apply.
ADOPTING EMPLOYERS
<TABLE>
<CAPTION>
NAME FISCAL YEAR END DATE OF ADOPTION
<S> <C> <C>
United Companies Life Insurance Company December 31 January 1, 1994
United Companies Variable Services, Inc. December 31 February 23, 1995
United Companies Lending Corporation December 31 January 1, 1994
Unicor Mortgage, Inc. December 31 January 1, 1994
Ginger Mae, Inc. December 31 January 1, 1994
Pelican Mortgage Company, Inc. December 31 January 1, 1994
Southern Mortgage Acquisition, Inc. December 31 January 1, 1994
Adobe, Inc. December 31 January 1, 1994
United Companies Management Company, Inc. December 31 January 1, 1994
UCFC Acceptance Corporation December 31 January 1, 1994
United Companies Mortgage of Tennessee, Inc. December 31 January 1, 1994
United Companies Realty & Development, Inc. December 31 January 1, 1994
</TABLE>
ARTICLE II 20
<PAGE> 21
<TABLE>
<CAPTION>
NAME FISCAL YEAR END DATE OF ADOPTION
<S> <C> <C>
United Communications Corporation of
Louisiana, Inc. December 31 January 1, 1994
United General Title Insurance Company, Inc. December 31 January 1, 1994
United Plan Insurance Agency, Inc. December 31 January 1, 1994
United Companies Credit Life Insurance
of Nevada Incorporated December 31 March 14, 1995
United Companies Lending Group, Inc. December 31 January 17, 1995
United Companies Funding, Inc. December 31 June 19, 1995
United Companies Second Mortgage
Corporation of Minnesota December 31 May 23, 1995
</TABLE>
ARTICLE II 21
<PAGE> 22
ARTICLE III
CONTRIBUTIONS
SECTION 3.01--EMPLOYER CONTRIBUTIONS.
Employer Contributions for Plan Years which end on or after January 1,
1994, will be determined as follows. Such Contributions shall be made from
current or accumulated net income, earnings or profits of the Employer.
Notwithstanding the foregoing, the Plan shall continue to be designed to
qualify as a profit sharing plan for purposes of Code Sections 401(a), 402,
412, and 417. Such Contributions will be equal to the Employer Contributions
as described below:
(a) The amount of each Elective Deferral Contribution for a
Participant shall be equal to any percentage (not less than 1%
nor more than 15%) of his Compensation for the pay period as
elected in his elective deferral agreement. An Employee who is
eligible to participate in the Plan may file an elective deferral
agreement with the Employer. The elective deferral agreement to
start Elective Deferral Contributions may be effective on a
Participant's Entry Date (Reentry Date, if applicable) or any
following Quarterly Date. The Participant shall make any change
or terminate the elective deferral agreement by filing a new
elective deferral agreement. A Participant's elective deferral
agreement making a change may be effective on any date an
elective deferral agreement to start Elective Deferral
Contributions could be effective. A Participant's elective
deferral agreement to stop Elective Deferral Contributions may be
effective on any date. The elective deferral agreement must be
in writing and effective before the beginning of the pay period
in which Elective Deferral Contributions are to start, change or
stop.
Elective Deferral Contributions are fully (100%) vested and
nonforfeitable.
(b) The amount of each Matching Contribution for a Participant shall
be equal to a percentage (up to 100%) as determined by the
Employer, of the Elective Deferral Contributions made for him for
the pay period, disregarding any Elective Deferral Contributions
in excess of 5% of his Compensation for the pay period.
Matching Contributions are subject to the Vesting Percentage.
Matching Contributions will be invested in Company Stock and the
Contribution may be made in Qualifying Employer Securities.
(c) The amount of each Qualified Nonelective Contribution shall be
determined by the Employer. A Qualified Nonelective Contribution
shall be made for a Participant only if he is a Nonhighly
Compensated Employee.
Qualified Nonelective Contributions are fully (100%) vested and
nonforfeitable.
(d) The amount of each Discretionary Contribution shall be determined
by the Employer. In addition, the Employer may contribute to the
Trustee such amounts of cash or of Qualifying Employer Securities
as shall be voted from time to time by the Board of Directors.
Discretionary Contributions are subject to the Vesting
Percentage.
ARTICLE III 22
<PAGE> 23
No Participant shall be permitted to have Elective Deferral
Contributions, as defined in the EXCESS AMOUNTS SECTION of Article III, made
under this Plan, or any other qualified plan maintained by the Employer, 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.
The Employer shall pay to the Insurer its Contributions used to
determine the Actual Deferral Percentage, as defined in the EXCESS AMOUNTS
SECTION of Article III, to the Plan for each Plan Year not later than the end
of the twelve-month period immediately following the Plan Year for which they
are deemed to be paid. Any such Contributions accumulated through payroll
deductions shall be paid within 90 days of the date withheld or the date it is
first reasonably practical for the Employer to do so, if earlier.
A portion of the Plan assets resulting from Employer Contributions (but
not more than the original amount of those Contributions) may be returned if
the Employer Contributions are made because of a mistake of fact or are more
than the amount deductible under Code Section 404 (excluding any amount which
is not deductible because the Plan is disqualified). The amount involved must
be returned to the Employer within one year after the date the Employer
Contributions are made by mistake of fact or the date the deduction is
disallowed, whichever applies. Except as provided under this paragraph and
Article VII, the assets of the Plan shall never be used for the benefit of the
Employer and are held for the exclusive purpose of providing benefits to
Participants and their Beneficiaries and for defraying reasonable expenses of
administering the Plan.
SECTION 3.01B--ROLLOVER CONTRIBUTIONS.
A Rollover Contribution may be made by or for an Eligible Employee if
the following conditions are met:
(a) The Contribution is a rollover contribution which the Code
permits to be transferred to a plan that meets the requirements
of Code Section 401(a).
(b) If the Contribution is made by the Eligible Employee, it is made
within sixty days after he receives the distribution.
(c) The Eligible Employee furnishes evidence satisfactory to the Plan
Administrator that the proposed transfer is in fact a rollover
contribution that meets conditions (a) and (b) above.
The Rollover Contribution may be made by the Eligible Employee or the
Eligible Employee may direct the trustee or named fiduciary of another plan to
transfer the funds which would otherwise be a Rollover Contribution directly to
this Plan. Such transferred funds shall be called a Rollover Contribution.
The Contribution shall be made according to procedures set up by the Plan
Administrator.
If the Eligible Employee is not an Active Participant at the time the
Rollover Contribution is made, he shall be deemed to be a Participant only for
the purposes of investment and distribution of the Rollover Contribution. He
shall not share in the allocation of Employer Contributions until the time he
meets all the requirements to become an Active Participant.
Rollover Contributions made by or for an Eligible Employee shall be
credited to his Account. The part of the Participant's Account resulting from
Rollover Contributions is fully (100%) vested and nonforfeitable at all times.
A separate accounting record shall be maintained for that part of his Rollover
Contribution which consists
ARTICLE III 23
<PAGE> 24
of voluntary contributions that were deducted from the Participant's gross
income for Federal income tax purposes.
SECTION 3.02--FORFEITURES.
The Nonvested Account of a Participant shall be forfeited as of the
earlier of the following: the date of the Participant's death, if prior to
such date he had ceased to be an Employee; or his Forfeiture Date. All or a
part of a Participant's Nonvested Account will be forfeited if, after he ceases
to be an Employee, he receives a distribution of his entire Vested Account or a
distribution of his Vested Account derived from Employer Contributions which
were not 100% vested when made according to the provisions of the VESTED
BENEFITS SECTION of Article V or the SMALL AMOUNTS SECTION of Article IX. If a
Participant's Vested Account is zero on the date he ceases to be an Employee,
he shall be deemed to have received a distribution of his entire Vested Account
on such date. The forfeiture will occur as of the date he receives the
distribution or on the date such provision became effective, if later. If he
receives a distribution of his entire Vested Account, his entire Nonvested
Account will be forfeited. If he receives a distribution of his Vested Account
from Employer Contributions which were not 100% vested when made, but less than
his entire Vested Account, the amount to be forfeited will be determined by
multiplying his Nonvested Account by a fraction. The numerator of the fraction
is the amount of the distribution derived from Employer Contributions which
were not 100% vested when made and the denominator of the fraction is his
entire Vested Account derived from such Employer Contributions on the date of
distribution.
A Forfeiture shall also occur as described in the EXCESS AMOUNTS SECTION
of Article III.
Forfeitures may first be applied to pay expenses under the Plan which
would otherwise be paid by the Employer.
Forfeitures not used to pay expenses shall be applied to reduce the
earliest Employer Contributions made after the Forfeitures are determined.
Forfeitures shall be determined at least once during each taxable year of the
Employer. Upon their application, such Forfeitures shall be deemed to be
Employer Contributions.
Forfeitures of Matching Contributions which relate to excess amounts
shall be applied as provided in the EXCESS AMOUNTS SECTION of Article III.
If a Participant again becomes an Eligible Employee after receiving a
distribution which caused his Nonvested Account to be forfeited, he shall have
the right to repay to the Plan the entire amount of the distribution he
received (excluding any amount of such distribution resulting from
Contributions which were 100% vested when made). The repayment must be made
before the earlier of the date five years after the date he again becomes an
Eligible Employee or the end of the first period of five consecutive Vesting
Breaks in Service which begin after the date of the distribution.
If the Participant makes the repayment provided above, the Plan
Administrator shall restore to his Account an amount equal to his Nonvested
Account which was forfeited on the date of distribution, unadjusted for any
investment gains or losses. If the amount of the repayment is zero dollars
because the Participant was deemed to have received a distribution because his
Vested Account was zero or the plan did not have repayment provisions in effect
on the date the distribution was made and he again performs an Hour-of-Service
as an Eligible Employee within the repayment period, the Plan Administrator
shall restore the Participant's Account as if he had made a required repayment
on the date he performed such Hour-of-Service. Restoration of the
Participant's Account shall include restoration of all Code Section 411(d)(6)
protected benefits with respect to that restored
ARTICLE III 24
<PAGE> 25
Account, according to applicable Treasury regulations. Provided, however, the
Plan Administrator shall not restore the Nonvested Account if a Forfeiture Date
has occurred after the date of the distribution and on or before the date of
repayment and that Forfeiture Date would result in a complete forfeiture of the
amount the Plan Administrator would otherwise restore.
The Plan Administrator shall restore the Participant's Account by the
close of the Plan Year following the Plan Year in which repayment is made.
Permissible sources for restoration are Forfeitures or Employer Contributions.
The Employer shall contribute, without regard to any requirement or condition
of the EMPLOYER CONTRIBUTIONS SECTION of Article III, such additional amount
needed to make the required restoration. The repaid and restored amounts are
not included in the Participant's Annual Addition, as defined in the
CONTRIBUTION LIMITATION SECTION of Article III.
SECTION 3.03--ALLOCATION.
The following Contributions for the Plan Year shall be allocated among
all eligible persons:
Qualified Nonelective Contributions
Discretionary Contributions
The eligible persons are all Participants and former Participants who were
Active Participants at any time in the Plan Year. The amount allocated to such
a person shall be determined below and under Article X.
The following Contributions for each Plan Year shall be allocated to
each Participant for whom such Contributions were made under the EMPLOYER
CONTRIBUTIONS SECTION of Article III:
Elective Deferral Contributions
Matching Contributions
These Contributions shall be allocated when made and credited to the
Participant's Account.
Discretionary Contributions are allocated as of the last day of each
Plan Year. The amount allocated to each eligible person for the Plan Year
shall be equal to the Discretionary Contributions for the Plan Year, multiplied
by the ratio of (a) his Annual Compensation as of the last day of the Plan Year
to (b) the total of such compensation for all eligible persons. This amount is
credited to his Account.
SECTION 3.04--CONTRIBUTION LIMITATION.
(a) For the purpose of determining the contribution limitation set
forth in this section, the following terms are defined:
Aggregate Annual Addition means, for a Participant with respect
to any Limitation Year, the sum of his Annual Additions under all
defined contribution plans of the Employer, as defined in this
section, for such Limitation Year. The nondeductible participant
contributions which the Participant makes to a defined benefit
plan shall be treated as Annual Additions to a defined
contribution plan. The Contributions the Employer, as defined in
this section, made for the Participant for a Plan Year beginning
on or after March 31, 1984, to an individual medical benefit
account, as defined in Code Section 415(l)(2), under a pension or
annuity plan of the Employer, as defined in this section, shall
be treated as Annual Additions to a defined contribution plan.
Also, amounts derived from
ARTICLE III 25
<PAGE> 26
contributions paid or accrued after December 31, 1985, in Fiscal
Years ending after such date, which are attributable to
post-retirement medical benefits allocated to the separate
account of a key employee, as defined in Code Section 419A(d)(3),
under a welfare benefit fund, as defined in Code Section 419(e),
maintained by the Employer, as defined in this section, are
treated as Annual Additions to a defined contribution plan. The
25% of Compensation limit under Maximum Permissible Amount does
not apply to Annual Additions resulting from contributions made
to an individual medical account, as defined in Code Section
415(l)(2), or to Annual Additions resulting from contributions
for medical benefits, within the meaning of Code Section 419A,
after separation from service.
Annual Addition means the amount added to a Participant's account
for any Limitation Year which may not exceed the Maximum
Permissible Amount. The Annual Addition under any plan for a
Participant with respect to any Limitation Year, shall be equal
to the sum of (1) and (2) below:
(1) Employer contributions and forfeitures credited to his
account for the Limitation Year.
(2) Participant contributions made by him for the Limitation
Year.
Before the first Limitation Year beginning after December 31,
1986, the amount under (2) above is the lesser of (i) 1/2 of his
nondeductible participant contributions made for the Limitation
Year, or (ii) the amount, if any, of his nondeductible
participant contributions made for the Limitation Year which is
in excess of six percent of his Compensation, as defined in this
section, for such Limitation Year.
Compensation means all wages, salaries, fees for professional
services and other amounts received (whether or not paid in cash)
for personal services actually rendered in the course of
employment with the Employer, as defined in this section, who is
maintaining the plan, but only to the extent includable in gross
income. Compensation includes, but is not limited to,
commissions paid salesmen, compensation for services on the basis
of a percentage of profits, commissions on insurance premiums,
tips, bonuses, fringe benefits and reimbursements or other
expense allowances under a nonaccountable plan (as described in
section 1.62-2(c) of the regulations). Compensation does not
include:
(1) Contributions made by the Employer, as defined in this
section, to a plan of deferred compensation to the extent
contributions are not included in the gross income of the
Employee for the taxable year in which contributed, or on
behalf of the Employee to a simplified employee pension
plan to the extent such contributions are deductible by
the Employee, and any distributions from a plan of
deferred compensation whether or not includable in the
gross income of the Employee when distributed.
(2) Amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held
by an Employee becomes freely transferable or is no longer
subject to a substantial risk of forfeiture.
(3) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option.
ARTICLE III 26
<PAGE> 27
(4) Other amounts which receive special tax benefits, or
contributions made by the Employer, as defined in this
section, (whether or not under a salary reduction
agreement) towards the purchase of an annuity contract
described in Code Section 403(b) (whether or not the
contributions are actually excludable from the gross
income of the Employee).
For any self-employed individual Compensation will mean earned
income.
For purposes of applying the limitations of this section,
Compensation for a Limitation Year is the Compensation actually
paid or made available during such Limitation Year.
Defined Benefit Plan Fraction means, with respect to a Limitation
Year for a Participant who is or has been a participant in a
defined benefit plan ever maintained by the Employer, as defined
in this section, the quotient, expressed as a decimal, of
(1) the Participant's Projected Annual Benefit under all such
plans as of the close of such Limitation Year, divided by
(2) on and after the TEFRA Compliance Date, the lesser of (i)
or (ii) below:
(i) 1.25 multiplied by the maximum dollar limitation
which applies to defined benefit plans determined
for the Limitation Year under Code Sections 415(b)
or (d) or
(ii) 1.4 multiplied by the Participant's highest average
compensation as defined in the defined benefit
plan(s),
including any adjustments under Code Section 415(b).
Before the TEFRA Compliance Date, this denominator is the
Participant's Projected Annual Benefit as of the close of
the Limitation Year if the plan(s) provided the maximum
benefit allowable.
The Defined Benefit Plan Fraction shall be modified as follows:
If the Participant was a participant as of the first day of the
first Limitation Year beginning after December 31, 1986, in one
or more defined benefit plans maintained by the Employer, as
defined in this section, which were in existence on May 6, 1986,
the denominator of this fraction will not be less than 125
percent of the sum of the annual benefits under such plans which
the Participant had accrued as of the close of the last
Limitation Year beginning before January 1, 1987, disregarding
any changes in the terms and conditions of the plan after May 5,
1986. The preceding sentence applies only if the defined benefit
plans individually and in the aggregate satisfied the
requirements of Code Section 415 for all Limitation Years
beginning before January 1, 1987.
Defined Contribution Plan Fraction means, for a Participant with
respect to a Limitation Year, the quotient, expressed as a
decimal, of
(1) the Participant's Aggregate Annual Additions for such
Limitation Year and all prior Limitation Years, under all
defined contribution plans (including the Aggregate Annual
Additions
ARTICLE III 27
<PAGE> 28
attributable to nondeductible accounts under defined
benefit plans and attributable to all welfare benefit
funds, as defined in Code Section 419(e) and attributable
to individual medical accounts, as defined in Code Section
415(l)(2)) ever maintained by the Employer, as defined in
this section, divided by
(2) on and after the TEFRA Compliance Date, the sum of the
amount determined for the Limitation Year under (i) or
(ii) below, whichever is less, and the amounts determined
in the same manner for all prior Limitation Years during
which he has been an Employee or an employee of a
predecessor employer:
(i) 1.25 multiplied by the maximum permissible dollar
amount for each such Limitation Year, or
(ii) 1.4 multiplied by the maximum permissible
percentage of the Participant's Compensation, as
defined in this section, for each such Limitation
Year.
Before the TEFRA Compliance Date, this denominator is the
sum of the maximum allowable amount of Annual Addition to
his account(s) under all the plan(s) of the Employer, as
defined in this section, for each such Limitation Year.
The Defined Contribution Plan Fraction shall be modified as
follows:
If the Participant was a participant as of the first day of the
first Limitation Year beginning after December 31, 1986, in one
or more defined contribution plans maintained by the Employer, as
defined in this section, which were in existence on May 6, 1986,
the numerator of this fraction shall be adjusted if the sum of
the Defined Contribution Plan Fraction and Defined Benefit Plan
Fraction would otherwise exceed 1.0 under the terms of this Plan.
Under the adjustment, the dollar amount determined below shall be
permanently subtracted from the numerator of this fraction. The
dollar amount is equal to the excess of the sum of the two
fractions, before adjustment, over 1.0 multiplied by the
denominator of his Defined Contribution Plan Fraction. The
adjustment is calculated using his Defined Contribution Plan
Fraction and Defined Benefit Plan Fraction as they would be
computed as of the end of the last Limitation Year beginning
before January 1, 1987, and disregarding any changes in the terms
and conditions of the plan made after May 5, 1986, but using the
Code Section 415 limitations applicable to the first Limitation
Year beginning on or after January 1, 1987.
The Annual Addition for any Limitation Year beginning before
January 1, 1987, shall not be recomputed to treat all employee
contributions as Annual Additions.
For a plan that was in existence on July 1, 1982, for purposes of
determining the Defined Contribution Plan Fraction for any
Limitation Year ending after December 31, 1982, the Plan
Administrator may elect, in accordance with the provisions of
Code Section 415, that the denominator for each Participant for
all Limitation Years ending before January 1, 1983, will be equal
to
(1) the Defined Contribution Plan Fraction denominator which
would apply for the last Limitation Year ending in 1982 if
an election under this paragraph were not made, multiplied
by.
ARTICLE III 28
<PAGE> 29
(2) a fraction, equal to (i) over (ii) below:
(i) the lesser of (A) $51,875, or (B) 1.4, multiplied
by 25% of the Participant's Compensation, as
defined in this section, for the Limitation Year
ending in 1981;
(ii) the lesser of (A) $41,500, or (B) 25% of the
Participant's Compensation, as defined in this
section, for the Limitation Year ending in 1981.
The election described above is applicable only if the plan
administrators under all defined contribution plans of the
Employer, as defined in this section, also elect to use the
modified fraction.
Employer means any employer that adopts this Plan and all
Controlled Group members and any other entity required to be
aggregated with the employer pursuant to regulations under Code
Section 414(o).
Limitation Year means the 12-consecutive month period within
which it is determined whether or not the limitations of Code
Section 415 are exceeded. Limitation Year means each
12-consecutive month period ending on the last day of each Plan
Year, including corresponding 12-consecutive month periods before
July 1, 1987. If the Limitation Year is other than the calendar
year, execution of this Plan (or any amendment to this Plan
changing the Limitation Year) constitutes the Employer's adoption
of a written resolution electing the Limitation Year. If the
Limitation Year is changed, the new Limitation Year shall begin
within the current Limitation Year, creating a short Limitation
Year.
Maximum Permissible Amount means, for a Participant with respect
to any Limitation Year, the lesser of (1) or (2) below:
(1) The greater of $30,000 or one-fourth of the maximum dollar
limitation which applies to defined benefit plans set
forth in Code Section 415(b)(1) as in effect for the
Limitation Year. (Before the TEFRA Compliance Date,
$25,000 multiplied by the cost of living adjustment factor
permitted by Federal regulations.)
(2) 25% of his Compensation, as defined in this section, for
such Limitation Year.
The compensation limitation referred to in (2) shall not apply to
any contribution for medical benefits (within the meaning of Code
Section 401(h) or Code Section 419A(f)(2)) which is otherwise
treated as an annual addition under Code Section 415(l)(1) or
Code Section 419A(d)(2).
If there is a short Limitation Year because of a change in
Limitation Year, the Maximum Permissible Amount will not exceed
the maximum dollar limitation which would otherwise apply
multiplied by the following fraction:
Number of months in the short Limitation Year
12
Projected Annual Benefit means a Participant's expected annual
benefit under all defined benefit plan(s) ever maintained by the
Employer, as defined in this section. The Projected Annual
Benefit shall be determined assuming that the Participant will
continue employment until the later of current
ARTICLE III 29
<PAGE> 30
age or normal retirement age under such plan(s), and that the
Participant's compensation for the current Limitation Year and
all other relevant factors used to determine benefits under such
plan(s) will remain constant for all future Limitation Years.
Such expected annual benefit shall be adjusted to the actuarial
equivalent of a straight life annuity if expressed in a form
other than a straight life or qualified joint and survivor
annuity.
(b) The Annual Addition under this Plan for a Participant during a
Limitation Year shall not be more than the Maximum Permissible
Amount.
(c) Contributions which would otherwise be credited to the
Participant's Account shall be limited or reallocated to the
extent necessary to meet the restrictions of subparagraph (b)
above for any Limitation Year in the following order.
Discretionary Contributions shall be reallocated in the same
manner as described in the ALLOCATION SECTION of Article III to
the remaining Participants to whom the limitations do not apply
for the Limitation Year. The Discretionary Contributions shall
be limited if there are no such remaining Participants.
Qualified Nonelective Contributions shall be limited. Elective
Deferral Contributions shall be limited. Elective Deferral
Contributions that are not the basis for Matching Contributions
shall be limited. Matching Contributions shall be limited to the
extent necessary to limit the Participant's Annual Addition under
this Plan to his maximum amount. If Matching Contributions are
limited because of this limit, Elective Deferral Contributions
that are the basis for Matching Contributions shall be reduced in
proportion.
If a Participant's Annual Additions under this Plan and all such
other plans result in an Excess Annual Amount, such Excess Annual
Amount shall be deemed to consist of the amounts last allocated.
In particular, if amounts are allocated as of the same date,
Elective Deferrals shall be allocated first; any required
Employer Contributions under this Plan or any other cash or
deferred arrangement in order to satisfy nondiscrimination tests
will be allocated second; amounts allocated as a result of
payment of an Employee Stock Ownership Plan Loan under the United
Companies Financial Corporation Employee Stock Ownership Plan
shall be allocated third; Matching Contributions under this Plan
shall be allocated fourth; Discretionary Contributions under this
Plan shall be considered allocated fifth; and discretionary
Employer Contributions allocated under the United Companies
Financial Corporation Employee Stock Ownership Plan for purposes
other than ESOP loan repayment, shall be considered to have been
allocated last. Thus, Elective Deferrals and Matching
Contributions which are allocated prior to the last day of the
Plan Year, such as on quarterly allocation dates, will be
allocated before any of the above which are allocated on the last
day of the Plan Year. Notwithstanding the above, Annual
Additions attributable to a welfare benefit fund, if any, will be
deemed to have been allocated first, regardless of the actual
allocation date.
(d) A Participant's Aggregate Annual Addition for a Limitation Year
shall not exceed the Maximum Permissible Amount.
If, for the Limitation Year, the Participant has an Annual
Addition under more than one defined contribution plan or a
welfare benefit fund, as defined in Code Section 419(e), or an
individual medical account, as defined in Code Section 415(l)(2),
maintained by the Employer, as defined in this section, and such
plans and welfare benefit funds and individual medical accounts
do not otherwise limit the Aggregate Annual Addition to the
Maximum Permissible Amount, any reduction necessary shall be made
first to the profit sharing plans, then to all other such plans
and welfare benefit funds and individual medical accounts and, if
necessary, by reducing first those that were
ARTICLE III 30
<PAGE> 31
most recently allocated. Welfare benefit funds and individual
medical accounts shall be deemed to be allocated first. However,
elective deferral contributions shall be the last contributions
reduced before the welfare benefit fund or individual medical
account is reduced.
If some of the Employer's defined contribution plans were not in
existence on July 1, 1982, and some were in existence on that
date, the Maximum Permissible Amount which is based on a dollar
amount may differ for a Limitation Year. The Aggregate Annual
Addition for the Limitation Year in which the dollar limit
differs shall not exceed the lesser of (1) 25% of Compensation as
defined in this section, (2) $45,475, or (3) the greater of
$30,000 or the sum of the Annual Additions for such Limitation
Year under all the plan(s) to which the $45,475 amount applies.
(e) If a Participant is or has been a participant in both defined
benefit and defined contribution plans (including a welfare
benefit fund or individual medical account) ever maintained by
the Employer, as defined in this section, the sum of the Defined
Benefit Plan Fraction and the Defined Contribution Plan Fraction
for any Limitation Year shall not exceed 1.0 (1.4 before the
TEFRA Compliance Date).
After all other limitations set out in the plans and funds have
been applied, the following limitations shall apply so that the
sum of the Participant's Defined Benefit Plan Fraction and
Defined Contribution Plan Fraction shall not exceed 1.0 (1.4
before the TEFRA Compliance Date). The Projected Annual Benefit
shall be limited first. If the Participant's annual benefit(s)
equal his Projected Annual Benefit, as limited, then Annual
Additions to the defined contribution plan(s) shall be limited to
the extent needed to reduce the sum to 1.0 (1.4). First, the
voluntary contributions the Participant may make for the
Limitation Year shall be limited. Next, in the case of a profit
sharing plan, any forfeitures allocated to the Participant shall
be reallocated to remaining participants to the extent necessary
to reduce the decimal to 1.0 (1.4). Last, to the extent
necessary, employer contributions for the Limitation Year shall
be reallocated or limited, and any required and optional employee
contributions to which such employer contributions were geared
shall be reduced in proportion.
If, for the Limitation Year, the Participant has an Annual
Addition under more than one defined contribution plan or welfare
benefit fund or individual medical account maintained by the
Employer, as defined in this section, any reduction above shall
be made first to the profit sharing plans, then to all other such
plans and welfare benefit plans and individual medical accounts
and, if necessary, by reducing first those that were most
recently allocated. However, elective deferral contributions
shall be the last contributions reduced before the welfare
benefit fund or individual medical account is reduced. The
annual addition to the welfare benefit fund and individual
medical account shall be limited last.
SECTION 3.05--EXCESS AMOUNTS.
(a) For the purposes of this section, the following terms are
defined:
Actual Deferral Percentage means the ratio (expressed as a
percentage) of Elective Deferral Contributions under this Plan on
behalf of the Eligible Participant for the Plan Year to the
Eligible Participant's Compensation for the Plan Year. In
modification of the foregoing, Compensation shall be limited to
the Compensation received while an Active Participant. The
Elective Deferral Contributions used to determine the Actual
Deferral Percentage shall include Excess Elective
ARTICLE III 31
<PAGE> 32
Deferrals (other than Excess Elective Deferrals of Nonhighly
Compensated Employees that arise solely from Elective Deferral
Contributions made under this Plan or any other plans of the
Employer or a Controlled Group member), but shall exclude
Elective Deferral Contributions that are used in computing the
Contribution Percentage (provided the Average Actual Deferral
Percentage test is satisfied both with and without exclusion of
these Elective Deferral Contributions). Under such rules as the
Secretary of the Treasury shall prescribe, the Employer may elect
to include Qualified Nonelective Contributions and Qualified
Matching Contributions under this Plan in computing the Actual
Deferral Percentage. For an Eligible Participant for whom such
Contributions on his behalf for the Plan Year are zero, the
percentage is zero.
Aggregate Limit means the greater of (1) or (2) below:
(1) The sum of
(i) 125 percent of the greater of the Average Actual
Deferral Percentage of the Nonhighly Compensated
Employees for the Plan Year or the Average
Contribution Percentage of Nonhighly Compensated
Employees under the Plan subject to Code Section
401(m) for the Plan Year beginning with or within
the Plan Year of the cash or deferred arrangement
and.
(ii) the lesser of 200% or two plus the lesser of such
Average Actual Deferral Percentage or Average
Contribution Percentage.
(2) The sum of
(i) 125 percent of the lesser of the Average Actual
Deferral Percentage of the Nonhighly Compensated
Employees for the Plan Year or the Average
Contribution Percentage of Nonhighly Compensated
Employees under the Plan subject to Code Section
401(m) for the Plan Year beginning with or within
the Plan Year of the cash or deferred arrangement
and
(ii) the lesser of 200% or two plus the greater of such
Average Actual Deferral Percentage or Average
Contribution Percentage.
Average Actual Deferral Percentage means the average (expressed
as a percentage) of the Actual Deferral Percentages of the
Eligible Participants in a group.
Average Contribution Percentage means the average (expressed as a
percentage) of the Contribution Percentages of the Eligible
Participants in a group.
Contribution Percentage means the ratio (expressed as a
percentage) of the Eligible Participant's Contribution Percentage
Amounts to the Eligible Participant's Compensation for the Plan
Year. In modification of the foregoing, Compensation shall be
limited to the Compensation received while an Active Participant.
For an Eligible Participant for whom such Contribution Percentage
Amounts for the Plan Year are zero, the percentage is zero.
ARTICLE III 32
<PAGE> 33
Contribution Percentage Amounts means the sum of the Participant
Contributions and Matching Contributions (that are not Qualified
Matching Contributions) under this Plan on behalf of the Eligible
Participant for the Plan Year. Such Contribution Percentage
Amounts shall not include Matching Contributions that are
forfeited either to correct Excess Aggregate Contributions or
because the Contributions to which they relate are Excess
Elective Deferrals, Excess Contributions or Excess Aggregate
Contributions. Under such rules as the Secretary of the Treasury
shall prescribe, the Employer may elect to include Qualified
Nonelective Contributions and Qualified Matching Contributions
under this Plan which were not used in computing the Actual
Deferral Percentage in computing the Contribution Percentage.
The Employer may also elect to use Elective Deferral
Contributions in computing the Contribution Percentage so long as
the Average Actual Deferral Percentage test is met before the
Elective Deferral Contributions are used in the Average
Contribution Percentage test and continues to be met following
the exclusion of those Elective Deferral Contributions that are
used to meet the Average Contribution Percentage test.
Elective Deferral Contributions means employer contributions made
on behalf of a participant pursuant to an election to defer under
any qualified cash or deferred arrangement as described in Code
Section 401(k), any simplified employee pension cash or deferred
arrangement as described in Code Section 402(h)(1)(B), any
eligible deferred compensation plan under Code Section 457, any
plan as described under Code Section 501(c)(18), and any employer
contributions made on behalf of a participant for the purchase of
an annuity contract under Code Section 403(b) pursuant to a
salary reduction agreement. Elective Deferral Contributions
shall not include any deferrals properly distributed as excess
Annual Additions.
Eligible Participant means, for purposes of determining the
Actual Deferral Percentage, any Employee who is otherwise
authorized under the terms of the Plan to have Elective Deferral
Contributions made on his behalf for the Plan Year. Eligible
Participant means, for purposes of determining the Average
Contribution Percentage, any Employee who is otherwise authorized
under the terms of the Plan to have Participant Contributions or
Matching Contributions made on his behalf for the Plan Year.
Excess Aggregate Contributions means, with respect to any Plan
Year, the excess of:
(1) The aggregate Contributions taken into account in
computing the numerator of the Contribution Percentage
actually made on behalf of Highly Compensated Employees
for such Plan Year, over
(2) The maximum amount of such Contributions permitted by the
Average Contribution Percentage 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).
Such determination shall be made after first determining Excess
Elective Deferrals and then determining Excess Contributions.
Excess Contributions means, with respect to any Plan Year, the
excess of:
ARTICLE III 33
<PAGE> 34
(1) The aggregate amount of Contributions actually taken into
account in computing the Actual Deferral Percentage of
Highly Compensated Employees for such Plan Year, over
(2) The maximum amount of such Contributions permitted by the
Actual Deferral Percentage test (determined by reducing
Contributions made on behalf of Highly Compensated
Employees in order of the Actual Deferral Percentages,
beginning with the highest of such percentages).
A Participant's Excess Contributions for a Plan Year will be
reduced by the amount of Excess Elective Deferrals, if any,
previously distributed to the Participant for the taxable year
ending in that Plan Year.
Excess Elective Deferrals means those Elective Deferral
Contributions that are includible in a Participant's gross income
under Code Section 402(g) to the extent such Participant's
Elective Deferral Contributions for a taxable year exceed the
dollar limitation under such Code section. Excess Elective
Deferrals shall be treated as Annual Additions, as defined in the
CONTRIBUTION LIMITATION SECTION of Article III, under the Plan,
unless such amounts are distributed no later than the first April
15 following the close of the Participant's taxable year.
Participant Contributions means contributions made to any plan by
or on behalf of a participant that are included in the
participant's gross income in the year in which made and that are
maintained under a separate account to which earnings and losses
are allocated.
Matching Contributions means employer contributions made to this
or any other defined contribution plan, or to a contract
described in Code Section 403(b), on behalf of a participant on
account of a Participant Contribution made by such participant,
or on account of a participant's Elective Deferral Contributions,
under a plan maintained by the employer.
Qualified Matching Contributions means Matching Contributions
which are subject to the distribution and nonforfeitability
requirements under Code Section 401(k) when made.
Qualified Nonelective Contributions means any employer
contributions (other than Matching Contributions) which an
employee may not elect to have paid to him in cash instead of
being contributed to the plan and which are subject to the
distribution and nonforfeitability requirements under Code
Section 401(k).
(b) A Participant may assign to this Plan any Excess Elective
Deferrals made during a taxable year by notifying the Plan
Administrator in writing on or before the first following March 1
of the amount of the Excess Elective Deferrals to be assigned to
the Plan. A Participant is deemed to notify the Plan
Administrator of any Excess Elective Deferrals that arise by
taking into account only those Elective Deferral Contributions
made to this Plan and any other plans of the Employer or a
Controlled Group member and reducing such Excess Elective
Deferrals by the amount of Excess Contributions, if any,
previously distributed for the Plan Year beginning in that
taxable year. The Participant's claim for Excess Elective
Deferrals shall be accompanied by the Participant's written
statement that if such amounts are not distributed, such Excess
Elective Deferrals, when added to amounts deferred under other
plans or arrangements described in Code Sections 401(k), 408(k)
or 403(b), will exceed the limit imposed on the Participant by
Code Section 402(g) for the year in
ARTICLE III 34
<PAGE> 35
which the deferral occurred. The Excess Elective Deferrals
assigned to this Plan can not exceed the Elective Deferral
Contributions allocated under this Plan for such taxable year.
Notwithstanding any other provisions of the Plan, Elective
Deferral Contributions in an amount equal to the Excess Elective
Deferrals assigned to this Plan, plus any income and minus any
loss allocable thereto, shall be distributed no later than April
15 to any Participant to whose Account Excess Elective Deferrals
were assigned for the preceding year and who claims Excess
Elective Deferrals for such taxable year.
The income or loss allocable to such Excess Elective Deferrals
shall be equal to the income or loss allocable to the
Participant's Elective Deferral Contributions for the taxable
year in which the excess occurred multiplied by a fraction. The
numerator of the fraction is the Excess Elective Deferrals. The
denominator of the fraction is the closing balance without regard
to any income or loss occurring during such taxable year (as of
the end of such taxable year) of the Participant's Account
resulting from Elective Deferral Contributions.
Any Matching Contributions which were based on the Elective
Deferral Contributions which are distributed as Excess Elective
Deferrals, plus any income and minus any loss allocable thereto,
shall be forfeited, if forfeitable. These Forfeitures shall be
used to offset the earliest Employer Contribution due after the
Forfeiture arises.
(c) As of the end of each Plan Year after Excess Elective Deferrals
have been determined, one of the following tests must be met:
(1) The Average Actual Deferral Percentage for Eligible
Participants who are Highly Compensated Employees for the
Plan Year is not more than the Average Actual Deferral
Percentage for Eligible Participants who are Nonhighly
Compensated Employees for the Plan Year multiplied by
1.25.
(2) The Average Actual Deferral Percentage for Eligible
Participants who are Highly Compensated Employees for the
Plan Year is not more than the Average Actual Deferral
Percentage for Eligible Participants who are Nonhighly
Compensated Employees for the Plan Year multiplied by 2
and the difference between the Average Actual Deferral
Percentages is not more than 2.
The Actual Deferral Percentage for any Eligible Participant who
is a Highly Compensated Employee for the Plan Year and who is
eligible to have Elective Deferral Contributions (and Qualified
Nonelective Contributions or Qualified Matching Contributions, or
both, if used in computing the Actual Deferral Percentage)
allocated to his account under two or more plans or arrangements
described in Code Section 401(k) that are maintained by the
Employer or a Controlled Group member shall be determined as if
all such Elective Deferral Contributions (and, if applicable,
such Qualified Nonelective Contributions or Qualified Matching
Contributions, or both) were made under a single arrangement. If
a Highly Compensated Employee participates in two 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. Notwithstanding
the foregoing, certain plans shall be treated as separate if
mandatorily disaggregated under the regulations under Code
Section 401(k).
ARTICLE III 35
<PAGE> 36
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
Actual Deferral Percentage of employees 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.
For purposes of determining the Actual Deferral Percentage of an
Eligible Participant who is a five-percent owner or one of the
ten most highly-paid Highly Compensated Employees, the Elective
Deferral Contributions (and Qualified Nonelective Contributions
or Qualified Matching Contributions, or both, if used in
computing the Actual Deferral Percentage) and Compensation of
such Eligible Participant include the Elective Deferral
Contributions (and, if applicable, Qualified Nonelective
Contributions or Qualified Matching Contributions, or both) and
Compensation for the Plan Year of Family Members. Family
Members, with respect to such Highly Compensated Employees, shall
be disregarded as separate employees in determining the Actual
Deferral Percentage both for Participants who are Nonhighly
Compensated Employees and for Participants who are Highly
Compensated Employees.
For purposes of determining the Actual Deferral Percentage,
Elective Deferral Contributions, Qualified Nonelective
Contributions and Qualified Matching Contributions must be made
before the last day of the 12-month period immediately following
the Plan Year to which contributions relate.
The Employer shall maintain records sufficient to demonstrate
satisfaction of the Average Actual Deferral Percentage test and
the amount of Qualified Nonelective Contributions or Qualified
Matching Contributions, or both, used in such test.
The determination and treatment of the Contributions used in
computing the Actual Deferral Percentage shall satisfy such other
requirements as may be prescribed by the Secretary of the
Treasury.
If the Plan Administrator should determine during the Plan Year
that neither of the above tests is being met, the Plan
Administrator may adjust the amount of future Elective Deferral
Contributions of the Highly Compensated Employees.
Notwithstanding any other provisions 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 Participants to whose Accounts such Excess
Contributions 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 ten (10) percent excise tax will be imposed on the employer
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 of
Participants who are subject to the family member aggregation
rules shall be allocated among the Family Members in proportion
to the Elective Deferral Contributions (and amounts treated as
Elective Deferral Contributions) of each Family Member that is
combined to determine the combined Actual Deferral Percentage.
ARTICLE III 36
<PAGE> 37
Excess Contributions shall be treated as Annual Additions, as
defined in the CONTRIBUTION LIMITATION SECTION of Article III,
under the Plan.
The Excess Contributions shall be adjusted for income or loss.
The income or loss allocable to such Excess Contributions shall
be equal to the income or loss allocable to the Participant's
Elective Deferral Contributions (and, if applicable, Qualified
Nonelective Contributions or Qualified Matching Contributions, or
both) for the Plan Year in which the excess occurred multiplied
by a fraction. The numerator of the fraction is the Excess
Contributions. The denominator of the fraction is the closing
balance without regard to any income or loss occurring during
such Plan Year (as of the end of such Plan Year) of the
Participant's Account resulting from Elective Deferral
Contributions (and Qualified Nonelective Contributions or
Qualified Matching Contributions, or both, if used in computing
the Actual Deferral Percentage).
Excess Contributions shall be distributed from the Participant's
Account resulting from Elective Deferral Contributions. If such
Excess Contributions exceed the balance in the Participant's
Account resulting from Elective Deferral Contributions, the
balance shall be distributed from the Participant's Account
resulting from Qualified Matching Contributions (if applicable)
and Qualified Nonelective Contributions, respectively.
Any Matching Contributions which were based on the Elective
Deferral Contributions which are distributed as Excess
Contributions, plus any income and minus any loss allocable
thereto, shall be forfeited, if forfeitable. These Forfeitures
shall be used to offset the earliest Employer Contribution due
after the Forfeiture arises.
(d) As of the end of each Plan Year, one of the following tests must
be met:
(1) The Average Contribution Percentage for Eligible
Participants who are Highly Compensated Employees for the
Plan Year is not more than the Average Contribution
Percentage for Eligible Participants who are Nonhighly
Compensated Employees for the Plan Year multiplied by
1.25.
(2) The Average Contribution Percentage for Eligible
Participants who are Highly Compensated Employees for the
Plan Year is not more than the Average Contribution
Percentage for Eligible Participants who are Nonhighly
Compensated Employees for the Plan Year multiplied by 2
and the difference between the Average Contribution
Percentages is not more than 2.
If one or more Highly Compensated Employees participate in both a
cash or deferred arrangement and a plan subject to the Average
Contribution Percentage test maintained by the Employer or a
Controlled Group member and the sum of the Average Actual
Deferral Percentage and Average Contribution Percentage of those
Highly Compensated Employees subject to either or both tests
exceeds the Aggregate Limit, then the Contribution Percentage of
those Highly Compensated Employees who also participate in a cash
or deferred arrangement will be reduced (beginning with such
Highly Compensated Employees whose Contribution Percentage is the
highest) so that the limit is not exceeded. The amount by which
each Highly Compensated Employee's Contribution Percentage is
reduced shall be treated as an Excess Aggregate Contribution.
The Average Actual Deferral Percentage and
ARTICLE III 37
<PAGE> 38
Average Contribution Percentage of the Highly Compensated
Employees are determined after any corrections required to meet
the Average Actual Deferral Percentage and Average Contribution
Percentage tests. Multiple use does not occur if both the
Average Actual Deferral Percentage and Average Contribution
Percentage of the Highly Compensated Employees does not exceed
1.25 multiplied by the Average Actual Deferral Percentage and
Average Contribution Percentage of the Nonhighly Compensated
Employees.
The Contribution Percentage for any Eligible Participant who is a
Highly Compensated Employee for the Plan Year and who is eligible
to have Contribution Percentage Amounts allocated to his account
under two or more plans described in Code Section 401(a) or
arrangements described in Code Section 401(k) that are maintained
by the Employer or a Controlled Group member shall be determined
as if the total of such Contribution Percentage Amounts was made
under each plan. If a Highly Compensated Employee participates
in two 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. Notwithstanding the foregoing, certain plans shall
be treated as separate if mandatorily disaggregated under the
regulations under Code Section 401(m).
In the event that this Plan satisfies the requirements of Code
Sections 401(m), 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 Code sections only if aggregated with this Plan,
then this section shall be applied by determining the
Contribution Percentages of Eligible Participants as if all such
plans were a single plan. Plans may be aggregated in order to
satisfy Code Section 401(m) only if they have the same Plan Year.
For purposes of determining the Contribution Percentage of an
Eligible Participant who is a five-percent owner or one of the
ten most highly-paid Highly Compensated Employees, the
Contribution Percentage Amounts and Compensation of such
Participant shall include Contribution Percentage Amounts and
Compensation for the Plan Year of Family Members. Family
Members, with respect to Highly Compensated Employees, shall be
disregarded as separate employees in determining the Contribution
Percentage both for employees who are Nonhighly Compensated
Employees and for employees who are Highly Compensated Employees.
For purposes of determining the Contribution Percentage,
Participant Contributions are considered to have been made in the
Plan Year in which contributed to the Plan. Matching
Contributions and Qualified Nonelective 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.
The Employer shall maintain records sufficient to demonstrate
satisfaction of the Average Contribution Percentage test and the
amount of Qualified Nonelective Contributions or Qualified
Matching Contributions, or both, used in such test.
The determination and treatment of the Contribution Percentage of
any Participant shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
Notwithstanding any other provisions of this Plan, Excess
Aggregate Contributions, plus any income and minus any loss
allocable thereto, shall be forfeited, if not vested, or
distributed, if vested, no later than the last day of each Plan
Year to Participants to whose Accounts such Excess Aggregate
Contributions were allocated for the preceding Plan Year. Excess
Aggregate Contributions of
ARTICLE III 38
<PAGE> 39
Participants who are subject to the family member aggregation
rules shall be allocated among the Family Members in proportion
to the Employee and Matching Contributions (or amounts treated as
Matching Contributions) of each Family Member that is combined to
determine the combined Contribution Percentage. 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 ten (10) percent excise tax will be imposed on the
employer maintaining the plan with respect to those amounts.
Excess Aggregate Contributions shall be treated as Annual
Additions, as defined in the CONTRIBUTION LIMITATION SECTION of
Article III, under the Plan.
The Excess Aggregate Contributions shall be adjusted for income
or loss. The income or loss allocable to such Excess Aggregate
Contributions shall be equal to the income or loss allocable to
the Participant's Contribution Percentage Amounts for the Plan
Year in which the excess occurred multiplied by a fraction. The
numerator of the fraction is the Excess Aggregate Contributions.
The denominator of the fraction is the closing balance without
regard to any income or loss occurring during such Plan Year (as
of the end of such Plan Year) of the Participant's Account
resulting from Contribution Percentage Amounts.
Excess Aggregate Contributions shall be distributed from the
Participant's Account resulting from Participant Contributions
that are not required as a condition of employment or
participation or for obtaining additional benefits from Employer
Contributions. If such Excess Aggregate Contributions exceed the
balance in the Participant's Account resulting from such
Participant Contributions, the balance shall be forfeited, if not
vested, or distributed, if vested, on a pro-rata basis from the
Participant's Account resulting from Contribution Percentage
Amounts. These Forfeitures shall be used to offset the earliest
Employer Contribution due after the Forfeiture arises.
ARTICLE III 39
<PAGE> 40
ARTICLE IV
INVESTMENT OF CONTRIBUTIONS
SECTION 4.01--INVESTMENT OF CONTRIBUTIONS.
All Contributions are forwarded by the Employer to the Insurer to be
deposited under the Group Contract or forwarded to the Trustee to be deposited
in the Trust Fund.
Investment of Contributions is governed by the provisions of the Trust,
the Group Contract and any other funding arrangement in which the Trust Fund is
or may be invested. To the extent permitted by the Trust, Group Contract or
other funding arrangement and subject to the limitations of Section 4.02 of
this Article, the parties named below shall direct the Contributions to any of
the accounts available under the Trust or Group Contract and may request the
transfer of assets resulting from those Contributions between such accounts. A
Participant may not direct the Trustee to invest the Participant's Account in
collectibles. Collectibles means any work of art, rug or antique, metal or
gem, stamp or coin, alcoholic beverage or other tangible personal property
specified by the Secretary of Treasury. To the extent that a Participant does
not direct the investment of his Account, such Account shall be invested
ratably in the accounts available under the Trust or Group Contract in the same
manner as the undirected Accounts of all other Participants. The Vested
Accounts of all Inactive Participants may be segregated and invested separately
from the Accounts of all other Participants.
The Trust Fund shall be valued at current fair market value as of the
last day of the last calendar month ending in the Plan Year and, at the
discretion of the Trustee, may be valued more frequently. The valuation shall
take into consideration investment earnings credited, expenses charged,
payments made and changes in the value of the assets held in the Trust Fund.
The Account of a Participant shall be credited with its share of the gains and
losses of the Trust Fund. That part of a Participant's Account invested in a
funding arrangement which establishes an account or accounts for such
Participant thereunder shall be credited with the gain or loss from such
account or accounts. That part of a Participant's Account which is invested in
other funding arrangements shall be credited with a proportionate share of the
gain or loss of such investments. The share shall be determined by multiplying
the gain or loss of the investment by the ratio of the part of the
Participant's Account invested in such funding arrangement to the total of the
Trust Fund invested in such funding arrangement.
At least annually, the Named Fiduciary shall review all pertinent
Employee information and Plan data in order to establish the funding policy of
the Plan and to determine appropriate methods of carrying out the Plan's
objectives. The Named Fiduciary shall inform the Trustee and any Investment
Manager of the Plan's short-term and long-term financial needs so the
investment policy can be coordinated with the Plan's financial requirements.
(a) Employer Contributions other than Elective Deferral
Contributions: The Participant shall direct the investment of
such Employer Contributions and transfer of assets resulting from
those Contributions.
(b) Elective Deferral Contributions: The Participant shall direct
the investment of Elective Deferral Contributions and transfer of
assets resulting from those Contributions.
ARTICLE IV 40
<PAGE> 41
(c) Rollover Contributions: The Participant shall direct the
investment of Rollover Contributions and transfer of assets
resulting from those Contributions.
Investment direction may be made in 5% increments, and investment
direction may be changed once during a calendar quarter.
However, the Named Fiduciary may delegate to the Investment Manager
investment discretion for Contributions and Plan assets which are not subject
to Participant direction.
SECTION 4.02--COMPANY STOCK ACCOUNT.
A Company Stock Account will be established for each Participant to hold
the Matching Contributions made for him, any Elective Deferral Contributions
directed to Company Stock, and any Discretionary Contributions made in
Qualifying Employer Securities.
Notwithstanding any other provision of this Plan, the Trustee may not
acquire or hold any Employer security which is not a "qualifying employer
security" (within the meaning of section 407(d)(5) of ERISA) provided, however,
that the Investment Fund may not acquire any Employer security if immediately
after such acquisition, the Fair Market Value of Employer securities held by
the Investment Fund exceeds 50% of the fund.
If Qualifying Employer Securities are purchased for, or contributed to a
Participant's Account, the Participant's Account will be credited with the
number of shares purchased or contributed. Dividends paid will also be
credited to the Participant's Account. The value of the shares held will be
the price at which the shares were last traded on a registered stock exchange
preceding the close of business on the valuation date.
No change in the investment directed by the executive officers and
directors of the Employer who are Participants in the Plan to or from Company
Stock shall be effective unless such change is made during the "window period"
specified herein. The window period shall be the period which commences three
(3) business days after the public release of quarterly financial data by the
Employer and which lasts through the twelfth business day following such
release. This limitation shall not apply to a change in investment incidental
to distribution at termination of employment or other distributable event.
This limitation shall not apply to a decision upon initial eligibility to make
Elective Deferrals and to direct their investment in Company Stock.
Except as provided for hereinafter, the Plan Administrator shall direct
the Trustee as to the exercise of all voting powers over any shares of
Qualifying Employer Securities. Each Participant shall be entitled to direct
the Trustee as to the exercise of all voting powers over shares allocated to
his Account that are Registration Type Qualifying Employer Securities. The
Participant shall be entitled to direct the Trustee as to the manner in which
the voting rights will be exercised over shares allocated to his Account that
are not Registration Type Qualifying Employer Securities with respect to any
corporate manner which involves the voting of such shares allocated to the
Participant's Account with respect to the approval or disapproval of any
corporate merger or consolidation, recapitalization, reclassification,
liquidation, dissolution, sale of substantially all assets of a trade or
business, or such similar transaction as may be prescribed in Treasury
Regulations.
In the event that a tender offer is made for some or all of the shares
of the Employer, each Participant shall have the right to direct whether those
shares allocated to his Account, whether or not vested, shall be tendered.
This right shall be exercised in the manner set forth herein. In the absence
of a written directive from or election by a Participant to the Plan
Administrator, the Plan Administrator shall direct the Trustee not to tender
such
ARTICLE IV 41
<PAGE> 42
shares. Because the choice is to be given to the Participants, the Plan
Administrator and the Trustee shall not have fiduciary responsibility with
respect to the decision to tender or not or whether to tender all of such
shares or only a portion thereof.
In order to facilitate the decision of Participants whether to tender
their shares in a tender offer (or how many shares to tender), the Plan
Administrator shall provide election forms for the Participants, whereby they
may elect to tender or not and whereby they may elect to tender all or a
portion of such shares. Unless otherwise limited by Federal securities law,
such election may be made or changed at any time prior to the day before the
expiration date of the tender offer (with extensions); any election or change
in election must be received by the Plan Administrator, or a designated
representative of the Plan Administrator, on or before the day preceding the
expiration date of the tender offer (with extensions, if any). The Plan
Administrator may develop procedures to facilitate Participants' choices, such
as the use of facsimile transmissions for Employees located in areas physically
remote from the Plan Administrator. The election shall be binding on the Plan
Administrator and the Trustee. The Plan Administrator shall make every effort
to distribute the notice of the tender, election forms and other communications
related to the tender offer to all Participants as soon as practicable
following the announcement of the tender offer, including mailing such notice
and form to Participants and posting such notice in places designed to be
reviewed by Participants.
As to shares which are not allocated to the Account of any Participant,
all such shares (in the aggregate) shall be tendered or not as the majority of
the shares held by Participants and directed by Participants are tendered or
not. The Plan Administrator shall direct the Trustee to tender all such
unallocated shares or not, in accordance with the elections of the Participants
having an allocation of a majority of the shares under the Plan.
SECTION 4.03--TRANSACTIONS INVOLVING EMPLOYER SECURITIES.
Participants in the Plan shall be entitled to invest up to 100% of
Employer Contributions in Qualifying Employer Securities.
Once investment in Qualifying Employer Securities is made available to
Eligible Employees, then it shall continue to be available unless the Plan and
Trust is amended to disallow such available investment.
Participants shall be entitled to elect to have their Elective Deferral
Contributions and other portions of their Accounts invested in Qualifying
Employer Securities. In the absence of such election, such Eligible Employees
shall be deemed to have elected to have their Accounts invested wholly in the
Investment Funds. Once an election is made, it shall be considered to continue
until a new election is made. An Eligible Employee may elect to have any
portion of his Elective Deferral Contributions which corresponds to an integral
percentage of his Compensation to be invested in Qualifying Employer
Securities. If an Eligible Employee elects to have his Elective Deferral
Contributions withheld in Qualifying Employer Securities, then the Matching
Contribution associated with such Elective Deferral Contributions will be
invested in Qualifying Employer Securities.
If the securities of the Employer are not publicly traded and if no
market or an extremely thin market exists for the Qualifying Employer
Securities, so that a reasonable valuation may not be obtained from the
marketplace, then such Qualifying Employer Securities must be valued at least
annually by an independent appraiser who is not associated with the Employer,
the Plan Administrator, the Trustee, or any person related to any fiduciary
under the Plan. The independent appraiser may be associated with a person who
is merely a contract administrator with respect to the Plan, but who exercises
no discretionary authority and is not a Plan fiduciary.
ARTICLE IV 42
<PAGE> 43
If there is a public market for Qualifying Employer Securities of the
type held by the Plan, then the Plan Administrator may use as the value of the
shares the price at which such shares traded in such market, or an average of
the bid and asked prices for such shares in such market, provided that such
value is representative of the fair market value of such shares in the opinion
of the Plan Administrator. If the Qualifying Employer Securities do not trade
on the annual valuation date or if the market is very thin on such date, then
the Plan Administrator may use the average of trade prices for a period of time
ending on such date, provided that such value is representative of the Fair
Market Value of such shares in the opinion of the Plan Administrator.
For purposes of determining the annual valuation of the Plan and for
reporting to Participants and regulatory authorities, the assets of the Plan
shall be valued at least annually on the Valuation Date which corresponds to
the last day of the Plan Year. The Fair Market Value of Qualifying Employer
Securities shall be determined on such a Valuation Date. The average of the
bid and asked prices of Qualifying Employer Securities as of the date of the
transaction shall apply for purposes of valuing distributions and other
transactions of the Plan to the extent such value is representative of the Fair
Market Value of such shares in the opinion of the Plan Administrator.
All purchases of Qualifying Employer Securities shall be made at a
price, or prices, which, in the judgment of the Plan Administrator, do not
exceed the fair market value of such Qualifying Employer Securities.
In the event that the Trustee acquires shares of Qualifying Employer
Securities by purchase from a "disqualified person" as defined in Code Section
4975(e)(2), in exchange for cash or other assets of the Trust, the terms of
such purchase shall contain the provision that in the event that there is a
final determination by the Internal Revenue Service or court of competent
jurisdiction that the Fair Market Value of such shares of Company Stock as of
the date of purchase was less than the purchase price paid by the Trustee, then
the seller shall pay or transfer, as the case may be, to the Trustee an amount
of cash, shares of Company Stock, or any combination thereof equal in value to
the difference between the purchase price and said Fair Market Value for all
such shares. In the event that cash and/or shares of Company Stock are paid
and/or transferred to the Trustee under this provision, shares of Company Stock
shall be valued at their Fair Market Value as of the date of said purchase, and
interest at a reasonable rate from the date of purchase to the date of payment
shall be paid by the seller on the amount of cash paid.
The Plan Administrator may direct the Trustee to sell, resell or
otherwise dispose of Qualifying Employer Securities to any person, including
the Employer, provided that any such sales to any disqualified person,
including the Employer, will be made at not less than the Fair Market Value and
no commission is charged. Any such sale shall be made in conformance with
Section 408(e) of ERISA.
In the event the Plan Administrator directs the Trustee to dispose of
any Qualifying Employer Securities held as Trust Assets under circumstances
which require registration and/or qualification of the securities under
applicable Federal or state securities laws, then the Employer, at its own
expense, will take or cause to be taken any and all such action as may be
necessary or appropriate to effect such registration and/or qualification.
In the event that a formal tender offer (under the securities laws) is
made for some or all of the shares of Company Stock, each Participant shall
have the right to direct whether those shares allocated to his Account, whether
or not vested, shall be tendered. If the opportunity to tender such shares
does not correspond to the time for directing investment under the Plan, then
an extra opportunity shall be provided to Participants to make an investment
direction decision which does correspond to the period for responding to the
tender offer. That is, notwithstanding any direction made or to be made for
the calendar quarter, the Participant direction of
ARTICLE IV 43
<PAGE> 44
investment in response to a tender offer shall be permitted as an additional
opportunity to direct investment, the exercise of which will not adversely
affect the Participant's ability to make other investment direction in
accordance with this section.
The right to respond to a tender offer shall be exercised in the manner
set forth herein. The Plan Administrator shall establish the terms and
conditions of the response to the tender offer. In the absence of a written
directive from or election by a Participant to the Plan Administrator, after
having been notified, the Participant shall be deemed to have chosen not to
tender his or her shares (that being the most recent investment decision made
for directed account shares), and the Plan Administrator shall direct the
Trustee not to tender such shares. Because the choice is to be given to the
Participants, the Plan Administrator and the Trustee shall not have fiduciary
responsibility with respect to the decision to tender or not or whether to
tender all of such shares or only a portion thereof.
In order to facilitate the decision of Participants whether to tender
their shares in a tender offer (or how many shares to tender), the Plan
Administrator shall provide election forms for the Participants, whereby they
may elect to tender or not and whereby they may elect to tender all or a
portion of such shares. Such election may be made or changed at any time prior
to the day before the expiration date of the tender offer (with extensions);
any election or change in election must be received by the Plan Administrator,
or a designated representative of the Plan Administrator, on or before the day
preceding the expiration date of the tender offer (with extensions, if any).
The election shall be binding on the Plan Administrator and the Trustee. The
Plan Administrator shall make every effort to distribute the notice of the
tender, election forms and other communications related to the tender offer to
all Participants as soon as practicable following the announcement of the
tender offer, including mailing such notice and form to Participants and
posting such notice in places designed to be reviewed by Participants.
Shares allocated to the portion of a Participant's Account resulting
from Matching Contributions shall also be subject to Participant direction in
the case of a tender offer. In the absence of direction, the Plan
Administrator shall have discretion to direct the tender if, in its opinion,
the tender offer may result in Employer Securities no longer being available
and the price fixed during the tender offer would produce a financial gain to
the Plan Participants as compared with the financial gain to the Plan
Participants as compared with the alternative of not tendering such stock.
ARTICLE IV 44
<PAGE> 45
ARTICLE V
BENEFITS
SECTION 5.01--RETIREMENT BENEFITS.
On a Participant's Retirement Date, his Vested Account shall be
distributed to him according to the distribution of benefits provisions of
Article VI and the provisions of the SMALL AMOUNTS SECTION of Article IX.
SECTION 5.02--DEATH BENEFITS.
If a Participant dies before his Annuity Starting Date, his Vested
Account shall be distributed according to the distribution of benefits
provisions of Article VI and the provisions of the SMALL AMOUNTS SECTION of
Article IX.
SECTION 5.03--VESTED BENEFITS.
A Participant may receive a distribution of his Vested Account at any
time after he ceases to be an Employee, provided he has not again become an
Employee. If such amount is not payable under the provisions of the SMALL
AMOUNTS SECTION of Article IX, it will be distributed only if the Participant
so elects. The Participant's election shall be subject to the requirements in
the ELECTION PROCEDURES SECTION of Article VI for a qualified election of a
retirement benefit.
If a Participant does not receive an earlier distribution according to
the provisions of this section or the SMALL AMOUNTS SECTION of Article IX, upon
his Retirement Date or death, his Vested Account shall be applied according to
the provisions of the RETIREMENT BENEFITS SECTION or the DEATH BENEFITS SECTION
of Article V.
The Nonvested Account of a Participant who has ceased to be an Employee
shall remain a part of his Account until it becomes a Forfeiture; provided,
however, if the Participant again becomes an Employee so that his Vesting
Percentage can increase, the Nonvested Account may become a part of his Vested
Account.
SECTION 5.04--WHEN BENEFITS START.
Benefits under the Plan begin when a Participant retires, dies or ceases
to be an Employee, whichever applies, as provided in the preceding sections of
this article. Benefits which begin before Normal Retirement Date for a
Participant who became Totally and Permanently Disabled when he was an Employee
shall be deemed to begin because he is Totally and Permanently Disabled. The
start of benefits is subject to the qualified election procedures of Article
VI.
Unless otherwise elected, benefits shall begin before the sixtieth day
following the close of the Plan Year in which the latest date below occurs:
(a) The date the Participant attains age 65 (Normal Retirement Age,
if earlier).
ARTICLE V 45
<PAGE> 46
(b) The tenth anniversary of the Participant's Entry Date.
(c) The date the Participant ceases to be an Employee.
Notwithstanding the foregoing, the failure of a Participant and spouse
to consent to a distribution while a benefit is immediately distributable,
within the meaning of the ELECTION PROCEDURES SECTION of Article VI, shall be
deemed to be an election to defer commencement of payment of any benefit
sufficient to satisfy this section.
The Participant may elect to have his benefits begin after the latest
date for beginning benefits described above, subject to the provisions of this
section. The Participant shall make the election in writing and deliver the
signed statement of election to the Plan Administrator before Normal Retirement
Date or the date he ceases to be an Employee, if later. The election must
describe the form of distribution and the date the benefits will begin. The
Participant shall not elect a date for beginning benefits or a form of
distribution that would result in a benefit payable when he dies which would be
more than incidental within the meaning of governmental regulations.
Benefits shall begin by the Participant's Required Beginning Date, as
defined in the OPTIONAL FORMS OF DISTRIBUTION AND DISTRIBUTION REQUIREMENTS
SECTION of Article VI.
Contributions which are used to compute the Actual Deferral Percentage,
as defined in the EXCESS AMOUNTS SECTION of Article III, may be distributed
upon disposition by the Employer of substantially all of the assets (within the
meaning of Code Section 409(d)(2)) used by the Employer in a trade or business
or disposition by the Employer of the Employer's interest in a subsidiary
(within the meaning of Code Section 409(d)(3)) if the transferee corporation is
not a Controlled Group member, the Employee continues employment with the
transferee corporation and the transferor corporation continues to maintain the
Plan. Such distributions made after March 31, 1988, must be made in a single
sum.
SECTION 5.05--LOANS TO PARTICIPANTS.
Loans shall be made available to all Participants on a reasonably
equivalent basis. For purposes of this section, Participant means any
Participant or Beneficiary who is a party-in-interest, within the meaning of
Section 3(14) of the Employee Retirement Income Security Act of 1974 (ERISA).
Loans shall not be made to highly compensated employees, as defined in Code
Section 414(q), in an amount greater than the amount made available to other
Participants.
No loans will be made to any shareholder-employee or owner-employee.
For purposes of this requirement, a shareholder-employee means an employee or
officer of an electing small business (Subchapter S) corporation who owns (or
is considered as owning within the meaning of Code Section 318(a)(1)), on any
day during the taxable year of such corporation, more than 5% of the
outstanding stock of the corporation.
A loan to a Participant shall be a Participant-directed investment of
his Account. No Account other than the borrowing Participant's Account shall
share in the interest paid on the loan or bear any expense or loss incurred
because of the loan.
The number of outstanding loans shall be limited to one. No more than
one loan will be approved for any Participant in any 12-month period. The
minimum amount of any loan shall be $1,000.
ARTICLE V 46
<PAGE> 47
Loans must be adequately secured and bear a reasonable rate of interest.
The amount of the loan shall not exceed the maximum amount that may be
treated as a loan under Code Section 72(p) (rather than a distribution) to the
Participant and shall be equal to the lesser of (a) or (b) below:
(a) $50,000 reduced by the highest outstanding loan balance of loans
during the one-year period ending on the day before the new loan
is made.
(b) The greater of (1) or (2), reduced by (3) below:
(1) One-half of the Participant's Vested Account.
(2) $10,000.
(3) Any outstanding loan balance on the date the new loan is
made.
For purposes of this maximum, a Participant's Vested Account does not include
any accumulated deductible employee contributions, as defined in Code Section
72(o)(5)(B). Loans made to a Participant from all qualified employer plans, as
defined in Code Section 72(p)(4), of the Employer and any Controlled Group
member, shall be treated as one loan.
The foregoing notwithstanding, the amount of such loan shall not exceed
50% of the amount of the Participant's Vested Account. No collateral other
than a portion of the Participant's Vested Account (as limited above) shall be
accepted. The Loan Administrator shall determine if the collateral is adequate
for the amount of the loan requested.
A Participant must obtain the consent of the Participant's spouse, if
any, to the use of the Vested Account as security for the loan. Spousal
consent shall be obtained no earlier than the beginning of the 90-day period
that ends on the date on which the loan to be so secured is made. The consent
must be in writing, must acknowledge the effect of the loan, and must be
witnessed by a plan representative or a notary public. Such consent shall
thereafter be binding with respect to the consenting spouse or any subsequent
spouse with respect to that loan. A new consent shall be required if the
Vested Account is used for collateral upon renegotiation, extension, renewal,
or other revision of the loan.
If a valid spousal consent has been obtained in accordance with the
above, then, notwithstanding any other provision of this Plan, the portion of
the Participant's Vested Account used as a security interest held by the Plan
by reason of a loan outstanding to the Participant shall be taken into account
for purposes of determining the amount of the Vested Account payable at the
time of death or distribution, but only if the reduction is used as repayment
of the loan. If less than 100% of the Participant's Vested Account (determined
without regard to the preceding sentence) is payable to the surviving spouse,
then the Vested Account shall be adjusted by first reducing the Vested Account
by the amount of the security used as repayment of the loan, and then
determining the benefit payable to the surviving spouse.
Each loan shall bear a reasonable fixed rate of interest to be
determined by the Loan Administrator. In determining the interest rate, the
Loan Administrator shall take into consideration fixed interest rates currently
being charged by commercial lenders for loans of comparable risk on similar
terms and for similar durations, so that the interest will provide for a return
commensurate with rates currently charged by commercial lenders for
ARTICLE V 47
<PAGE> 48
loans made under similar circumstances. The Loan Administrator shall not
discriminate among Participants in the matter of interest rates; but loans
granted at different times may bear different interest rates in accordance with
the current appropriate standards.
The loan shall by its terms require that repayment (principal and
interest) be amortized in level payments, not less frequently than quarterly,
over a period not extending beyond five years from the date of the loan. The
period of repayment for any loan shall be arrived at by mutual agreement
between the Loan Administrator and the Participant.
The Participant shall make a written application for a loan from the
Plan on forms provided by the Loan Administrator. The application must specify
the amount and duration requested. No loan will be approved unless the
Participant is creditworthy. The Participant must grant authority to the Loan
Administrator to investigate the Participant's creditworthiness so that the
loan application may be properly considered.
Information contained in the application for the loan concerning the
income, liabilities, and assets of the Participant will be evaluated to
determine whether there is a reasonable expectation that the Participant will
be able to satisfy payments on the loan as due. Additionally, the Loan
Administrator will pursue any appropriate further investigations concerning the
creditworthiness and/or credit history of the Participant to determine whether
a loan should be approved.
Each loan shall be fully documented in the form of a promissory note
signed by the Participant for the face amount of the loan, together with
interest determined as specified above.
There will be an assignment of collateral to the Plan executed at the
time the loan is made.
In those cases where repayment through payroll deduction by the Employer
is available, installments are so payable, and a payroll deduction agreement
will be executed by the Participant at the time of making the loan.
Where payroll deduction is not available, payments are to be timely
made.
Any payment that is not by payroll deduction shall be made payable to
the Employer or Trustee, as specified in the promissory note, and delivered to
the Loan Administrator, including prepayments, service fees and penalties, if
any, and other amounts due under the note.
The promissory note may provide for reasonable late payment penalties
and/or service fees. Any penalties or service fees shall be applied to all
Participants in a nondiscriminatory manner. If the promissory note so
provides, such amounts may be assessed and collected from the Account of the
Participant as part of the loan balance.
Each loan may be paid prior to maturity, in part or in full, without
penalty or service fee, except as may be set out in the promissory note.
If any amount remains unpaid for more than 31 days after due, a default
is deemed to occur.
Upon default, the Plan has the right to pursue any remedy available by
law to satisfy the amount due, along with accrued interest, including the right
to enforce its claim against the security pledged and execute upon the
collateral as allowed by law.
ARTICLE V 48
<PAGE> 49
If any payment of principal or interest or any other amount due under
the promissory note, or any portion thereof, is not made for a period of 90
days after due, the entire principal balance whether or not otherwise then due,
shall become immediately due and payable without demand or notice, and subject
to collection or satisfaction by any lawful means, including specifically but
not limited to the right to enforce the claim against the security pledged and
to execute upon the collateral as allowed by law.
In the event of default, foreclosure on the note and attachment of
security or use of amounts pledged to satisfy the amount then due, will not
occur until a distributable event occurs in accordance with the Plan, and will
not occur to an extent greater than the amount then available upon any
distributable event which has occurred under the Plan.
All reasonable costs and expenses, including but not limited to
attorney's fees, incurred by the Plan in connection with any default or in any
proceeding to enforce any provision of a promissory note or instrument by which
a promissory note for a Participant loan is secured, shall be assessed and
collected from the Account of the Participant as part of the loan balance.
If payroll deduction is being utilized, in the event that a
Participant's available payroll deduction amounts in any given month are
insufficient to satisfy the total amount due, there will be an increase in the
amount taken subsequently, sufficient to make up the amount that is then due.
If the subsequent deduction is also insufficient to satisfy the amount due
within 31 days, a default is deemed to occur as above. If any amount remains
past due more than 90 days, the entire principal amount, whether or not
otherwise then due, along with interest then accrued and any other amount then
due under the promissory note, shall become due and payable, as above.
If the Participant ceases to be a party-in-interest, within the meaning
of Section 3(14) of ERISA, the balance of the outstanding loan becomes due and
payable, and the Participant's Vested Account will be used as available for
distribution(s) to pay the outstanding loan. The Participant's Vested Account
will not be used to pay any amount due under the outstanding loan before the
date which is 31 days after the date he ceased to be a party-in-interest, and
the Participant may elect to repay the outstanding loan with interest on the
day of repayment. If no distributable event has occurred under the Plan at the
time that the Participant's Vested Account would otherwise be used under this
provision to pay any amount due under the outstanding loan, this will not occur
until the time, or in excess of the extent to which, a distributable event
occurs under the Plan
ARTICLE V 49
<PAGE> 50
ARTICLE VI
DISTRIBUTION OF BENEFITS
SECTION 6.01--AUTOMATIC FORMS OF DISTRIBUTION.
Unless a qualified election of an optional form of benefit has been made
within the election period (see the ELECTION PROCEDURES SECTION of Article VI),
the automatic form of benefit payable to or on behalf of a Participant is
determined as follows:
(a) The automatic form of retirement benefit for a Participant who
does not die before his Annuity Starting Date shall be the
Qualified Joint and Survivor Form.
(b) The automatic form of death benefit for a Participant who dies
before his Annuity Starting Date shall be:
(1) A Qualified Preretirement Survivor Annuity for a
Participant who has a spouse on the date of his death.
The spouse may elect to start receiving the death benefit
on any first day of the month on or after the Participant
dies and before the date the Participant would have been
age 70 1/2. If the spouse dies before benefits start, the
Participant's Vested Account, determined as of the date of
the spouse's death, shall be paid to the spouse's
Beneficiary.
(2) A single-sum payment to the Participant's Beneficiary for
a Participant who does not have a spouse who is entitled
to a Qualified Preretirement Survivor Annuity.
Before a death benefit will be paid on account of the death of a
Participant who does not have a spouse who is entitled to a
Qualified Preretirement Survivor Annuity, it must be established
to the satisfaction of a plan representative that the Participant
does not have such a spouse.
SECTION 6.02--OPTIONAL FORMS OF DISTRIBUTION AND DISTRIBUTION REQUIREMENTS.
(a) For purposes of this section, the following terms are defined:
Applicable Life Expectancy means Life Expectancy (or Joint and
Last Survivor Expectancy) calculated using the attained age of
the Participant (or Designated Beneficiary) as of the
Participant's (or Designated Beneficiary's) birthday in the
applicable calendar year reduced by one for each calendar year
which has elapsed since the date Life Expectancy was first
calculated. If Life Expectancy is being recalculated, the
Applicable Life Expectancy shall be the Life Expectancy so
recalculated. The applicable calendar year shall be the first
Distribution Calendar Year, and if Life Expectancy is being
recalculated such succeeding calendar year.
Designated Beneficiary means the individual who is designated as
the beneficiary under the Plan in accordance with Code Section
401(a)(9) and the regulations thereunder.
ARTICLE VI 50
<PAGE> 51
Distribution Calendar Year means a calendar year for which a
minimum distribution is required. For distributions beginning
before the Participant's death, the first Distribution Calendar
Year is the calendar year immediately preceding the calendar year
which contains the Participant's Required Beginning Date. For
distributions beginning after the Participant's death, the first
Distribution Calendar Year is the calendar year in which
distributions are required to begin pursuant to (e) below.
Joint and Last Survivor Expectancy means joint and last survivor
expectancy computed by use of the expected return multiples in
Table VI of section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Participant (or spouse, in the
case of distributions described in (e)(2)(ii) below) by the time
distributions are required to begin, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to
the Participant (or spouse) and shall apply to all subsequent
years. The life expectancy of a nonspouse Beneficiary may not be
recalculated.
Life Expectancy means life expectancy computed by use of the
expected return multiples in Table V of section 1.72-9 of the
Income Tax Regulations.
Unless otherwise elected by the Participant (or spouse, in the
case of distributions described in (e)(2)(ii) below) by the time
distributions are required to begin, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to
the Participant (or spouse) and shall apply to all subsequent
years. The life expectancy of a nonspouse Beneficiary may not be
recalculated.
Participant's Benefit means
(1) The Account balance as of the last valuation date in the
calendar year immediately preceding the Distribution
Calendar Year (valuation calendar year) increased by the
amount of any contributions or forfeitures allocated to
the Account balance as of the dates in the valuation
calendar year after the valuation date and decreased by
distributions made in the valuation calendar year after
the valuation date.
(2) For purposes of (1) above, if any portion of the minimum
distribution for the first Distribution Calendar Year is
made in the second Distribution Calendar Year on or before
the Required Beginning Date, the amount of the minimum
distribution made in the second Distribution Calendar Year
shall be treated as if it had been made in the immediately
preceding Distribution Calendar Year.
Required Beginning Date means, for a Participant, the first day
of April of the calendar year following the calendar year in
which the Participant attains age 70 1/2, unless otherwise
provided in (1), (2) or (3) below:
(1) The Required Beginning Date for a Participant who attains
age 70 1/2 before January 1, 1988, and who is not a
5-percent owner is the first day of April of the calendar
year following the calendar year in which the later of
retirement or attainment of age 70 1/2 occurs.
ARTICLE VI 51
<PAGE> 52
(2) The Required Beginning Date for a Participant who attains
age 70 1/2 before January 1, 1988, and who is a 5-percent
owner is the first day of April of the calendar year
following the later of
(i) the calendar year in which the Participant attains
age 70 1/2, or
(ii) the earlier of the calendar year with or within
which ends the Plan Year in which the Participant
becomes a 5-percent owner, or the calendar year in
which the Participant retires.
(3) The Required Beginning Date of a Participant who is not a
5-percent owner and who attains age 70 1/2 during 1988 and
who has not retired as of January 1, 1989, is April 1,
1990.
A Participant is treated as a 5-percent owner for purposes of
this section if such Participant is a 5-percent owner as defined
in Code Section 416(i) (determined in accordance with Code
Section 416 but without regard to whether the Plan is top-heavy)
at any time during the Plan Year ending with or within the
calendar year in which such owner attains age 66 1/2 or any
subsequent Plan Year.
Once distributions have begun to a 5-percent owner under this
section, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent year.
(b) The optional forms of retirement benefit shall be the following:
a straight life annuity; single life annuities with certain
periods of five, ten or fifteen years; a single life annuity with
installment refund; survivorship life annuities with installment
refund and survivorship percentages of 50, 66 2/3 or 100; fixed
period annuities for any period of whole months which is not less
than 60 and does not exceed the Life Expectancy of the
Participant and the named Beneficiary as provided in (d) below
where the Life Expectancy is not recalculated; and a series of
installments chosen by the Participant with a minimum payment
each year beginning with the year the Participant turns age 70
1/2. The payment for the first year in which a minimum payment
is required will be made by April 1 of the following calendar
year. The payment for the second year and each successive year
will be made by December 31 of that year. The minimum payment
will be based on a period equal to the Joint and Last Survivor
Expectancy of the Participant and the Participant's spouse, if
any, as provided in (d) below where the Joint and Last Survivor
Expectancy is recalculated. The balance of the Participant's
Vested Account, if any, will be payable on the Participant's
death to his Beneficiary in a single sum. The Participant may
also elect to receive his Vested Account in a single-sum payment;
or, in the form of Qualifying Employer Securities to the extent
that his Vested Account was held in Qualifying Employer
Securities; or, in any combination thereof. Fractional shares
shall be paid in cash, valued as of the most recent Valuation
Date; the distribution shall include any dividends (cash or
stock) on such whole shares or any additional shares received as
a result of a stock split or any other adjustment to such whole
shares since the Valuation Date preceding the date of
distribution.
Election of an optional form is subject to the qualified election
provisions of Article VI.
ARTICLE VI 52
<PAGE> 53
Any annuity contract distributed shall be nontransferable. The
terms of any annuity contract purchased and distributed by the
Plan to a Participant or spouse shall comply with the
requirements of this Plan.
(c) The optional forms of death benefit are a single-sum payment and
any annuity that is an optional form of retirement benefit.
However, a series of installments shall not be available if the
Beneficiary is not the spouse of the deceased Participant.
(d) Subject to the AUTOMATIC FORMS OF DISTRIBUTION SECTION of Article
VI, joint and survivor annuity requirements, the requirements of
this section shall apply to any distribution of a Participant's
interest and will take precedence over any inconsistent
provisions of this Plan. Unless otherwise specified, the
provisions of this section apply to calendar years beginning
after December 31, 1984.
All distributions required under this section shall be determined
and made in accordance with the proposed regulations under Code
Section 401(a)(9), including the minimum distribution incidental
benefit requirement of section 1.401(a)(9)-2 of the proposed
regulations.
The entire interest of a Participant must be distributed or begin
to be distributed no later than the Participant's Required
Beginning Date.
As of the first Distribution Calendar Year, distributions, if not
made in a single sum, may only be made over one of the following
periods (or combination thereof):
(1) the life of the Participant,
(2) the life of the Participant and a Designated Beneficiary,
(3) a period certain not extending beyond the Life Expectancy
of the Participant, or
(4) a period certain not extending beyond the Joint and Last
Survivor Expectancy of the Participant and a Designated
Beneficiary.
If the Participant's interest is to be distributed in other than
a single sum, the following minimum distribution rules shall
apply on or after the Required Beginning Date:
(5) Individual account:
(i) If a Participant's Benefit is to be distributed
over
(a) a period not extending beyond the Life
Expectancy of the Participant or the Joint
Life and Last Survivor Expectancy of the
Participant and the Participant's Designated
Beneficiary or
(b) a period not extending beyond the Life
Expectancy of the Designated Beneficiary,
ARTICLE VI 53
<PAGE> 54
the amount required to be distributed for
each calendar year beginning with the
distributions for the first Distribution
Calendar Year, must be at least equal to the
quotient obtained by dividing the
Participant's Benefit by the Applicable Life
Expectancy.
(ii) For calendar years beginning before January 1,
1989, if the Participant's spouse is not the
Designated Beneficiary, the method of distribution
selected must assure that at least 50% of the
present value of the amount available for
distribution is paid within the Life Expectancy of
the Participant.
(iii) For calendar years beginning after December 31,
1988, the amount to be distributed each year,
beginning with distributions for the first
Distribution Calendar Year shall not be less than
the quotient obtained by dividing the Participant's
Benefit by the lesser of
(a) the Applicable Life Expectancy or
(b) if the Participant's spouse is not the
Designated Beneficiary, the applicable
divisor determined from the table set forth
in Q&A-4 of section 1.401(a)(9)-2 of the
proposed regulations.
Distributions after the death of the Participant
shall be distributed using the Applicable Life
Expectancy in (5)(i) above as the relevant divisor
without regard to Proposed Regulations section
1.401(a)(9)-2.
(iv) The minimum distribution required for the
Participant's first Distribution Calendar Year must
be made on or before the Participant's Required
Beginning Date. The minimum distribution for the
Distribution Calendar Year for other calendar
years, including the minimum distribution for the
Distribution Calendar Year in which the
Participant's Required Beginning Date occurs, must
be made on or before December 31 of that
Distribution Calendar Year.
(6) Other forms:
(i) If the Participant's Benefit is distributed in the
form of an annuity purchased from an insurance
company, distributions thereunder shall be made in
accordance with the requirements of Code Section
401(a)(9) and the proposed regulations thereunder.
(e) Death distribution provisions:
(1) Distribution beginning before death. If the Participant
dies after distribution of his interest has begun, the
remaining portion of such interest will continue to be
distributed at least as rapidly as under the method of
distribution being used prior to the Participant's death.
(2) Distribution beginning after death. If the Participant
dies before distribution of his interest begins,
distribution of the Participant's entire interest shall be
completed by December 31
ARTICLE VI 54
<PAGE> 55
of the calendar year containing the fifth anniversary of
the Participant's death except to the extent that an
election is made to receive distributions in accordance
with (i) or (ii) below:
(i) if any portion of the Participant's interest is
payable to a Designated Beneficiary, distributions
may be made over the life or over a period certain
not greater than the Life Expectancy of the
Designated Beneficiary commencing on or before
December 31 of the calendar year immediately
following the calendar year in which the
Participant died;
(ii) if the Designated Beneficiary is the Participant's
surviving spouse, the date distributions are
required to begin in accordance with (i) above
shall not be earlier than the later of
(a) December 31 of the calendar year immediately
following the calendar year in which the
Participant died and
(b) December 31 of the calendar year in which
the Participant would have attained age 70
1/2.
If the Participant has not made an election pursuant to
this (e)(2) by the time of his death, the Participant's
Designated Beneficiary must elect the method of
distribution no later than the earlier of
(iii) December 31 of the calendar year in which
distributions would be required to begin under this
subparagraph, or
(iv) December 31 of the calendar year which contains the
fifth anniversary of the date of death of the
Participant.
If the Participant has no Designated Beneficiary, or if
the Designated Beneficiary does not elect a method of
distribution, distribution of the Participant's entire
interest must be completed by December 31 of the calendar
year containing the fifth anniversary of the Participant's
death.
(3) For purposes of (e)(2) above, if the surviving spouse dies
after the Participant, but before payments to such spouse
begin, the provisions of (e)(2) above, with the exception
of (e)(2)(ii) therein, shall be applied as if the
surviving spouse were the Participant.
(4) For purposes of this (e), any amount paid to a child of
the Participant will be treated as if it had been paid to
the surviving spouse if the amount becomes payable to the
surviving spouse when the child reaches the age of
majority.
(5) For purposes of this (e), distribution of a Participant's
interest is considered to begin on the Participant's
Required Beginning Date (or if (e)(3) above is applicable,
the date distribution is required to begin to the
surviving spouse pursuant to (e)(2) above). If
distribution in the form of an annuity irrevocably
commences to the Participant before the
ARTICLE VI 55
<PAGE> 56
Required Beginning Date, the date distribution is
considered to begin is the date distribution actually
commences.
SECTION 6.03--ELECTION PROCEDURES.
The Participant, Beneficiary, or spouse shall make any election under
this section in writing. The Plan Administrator may require such individual to
complete and sign any necessary documents as to the provisions to be made. Any
election permitted under (a) and (b) below shall be subject to the qualified
election provisions of (c) below.
(a) Retirement Benefits. A Participant may elect his Beneficiary or
Contingent Annuitant and may elect to have retirement benefits
distributed under any of the optional forms of retirement benefit
described in the OPTIONAL FORMS OF DISTRIBUTION AND DISTRIBUTION
REQUIREMENTS SECTION of Article VI.
(b) Death Benefits. A Participant may elect his Beneficiary and may
elect to have death benefits distributed under any of the
optional forms of death benefit described in the OPTIONAL FORMS
OF DISTRIBUTION AND DISTRIBUTION REQUIREMENTS SECTION of Article
VI.
If the Participant has not elected an optional form of
distribution for the death benefit payable to his Beneficiary,
the Beneficiary may, for his own benefit, elect the form of
distribution, in like manner as a Participant.
The Participant may waive the Qualified Preretirement Survivor
Annuity by naming someone other than his spouse as Beneficiary.
In lieu of the Qualified Preretirement Survivor Annuity described
in the AUTOMATIC FORMS OF DISTRIBUTION SECTION of Article VI, the
spouse may, for his own benefit, waive the Qualified
Preretirement Survivor Annuity by electing to have the benefit
distributed under any of the optional forms of death benefit
described in the OPTIONAL FORMS OF DISTRIBUTION AND DISTRIBUTION
REQUIREMENTS SECTION of Article VI.
(c) Qualified Election. The Participant, Beneficiary or spouse may
make an election at any time during the election period. The
Participant, Beneficiary, or spouse may revoke the election made
(or make a new election) at any time and any number of times
during the election period. An election is effective only if it
meets the consent requirements below.
The election period as to retirement benefits is the 90-day
period ending on the Annuity Starting Date. An election to waive
the Qualified Joint and Survivor Form may not be made before the
date he is provided with the notice of the ability to waive the
Qualified Joint and Survivor Form. If the Participant elects the
series of installments, he may elect on any later date to have
the balance of his Vested Account paid under any of the optional
forms of retirement benefit available under the Plan. His
election period for this election is the 90-day period ending on
the Annuity Starting Date for the optional form of retirement
benefit elected.
A Participant may make an election as to death benefits at any
time before he dies. The spouse's election period begins on the
date the Participant dies and ends on the date benefits
ARTICLE VI 56
<PAGE> 57
begin. The Beneficiary's election period begins on the date the
Participant dies and ends on the date benefits begin. An
election to waive the Qualified Preretirement Survivor Annuity
may not be made by the Participant before the date he is provided
with the notice of the ability to waive the Qualified
Preretirement Survivor Annuity. A Participant's election to
waive the Qualified Preretirement Survivor Annuity which is made
before the first day of the Plan Year in which he reaches age 35
shall become invalid on such date. An election made by a
Participant after he ceases to be an Employee will not become
invalid on the first day of the Plan Year in which he reaches age
35 with respect to death benefits from that part of his Account
resulting from Contributions made before he ceased to be an
Employee.
If the Participant's Vested Account has at any time exceeded
$3,500, any benefit which is (1) immediately distributable or (2)
payable in a form other than a Qualified Joint and Survivor Form
or a Qualified Preretirement Survivor Annuity requires the
consent of the Participant and the Participant's spouse (or where
either the Participant or the spouse has died, the survivor).
The consent of the Participant or spouse to a benefit which is
immediately distributable must not be made before the date the
Participant or spouse is provided with the notice of the ability
to defer the distribution. Such consent shall be made in
writing. The consent shall not be made more than 90 days before
the Annuity Starting Date. Spousal consent is not required for a
benefit which is immediately distributable in a Qualified Joint
and Survivor Form. Furthermore, if spousal consent is not
required because the Participant is electing an optional form of
retirement benefit that is not a life annuity pursuant to (d)
below, only the Participant need consent to the distribution of a
benefit payable in a form that is not a life annuity and which is
immediately distributable. Neither the consent of the
Participant nor the Participant's spouse shall be required to the
extent that a distribution is required to satisfy Code Section
401(a)(9) or Code Section 415. In addition, upon termination of
this Plan if the Plan does not offer an annuity option (purchased
from a commercial provider), the Participant's Account balance
may, without the Participant's consent, be distributed to the
Participant or transferred to another defined contribution plan
(other than an employee stock ownership plan as defined in Code
Section 4975(e)(7)) within the same Controlled Group. A benefit
is immediately distributable if any part of the benefit could be
distributed to the Participant (or surviving spouse) before the
Participant attains (or would have attained if not deceased) the
older of Normal Retirement Age or age 62. If the Qualified Joint
and Survivor Form is waived, the spouse has the right to limit
consent only to a specific Beneficiary or a specific form of
benefit. The spouse can relinquish one or both such rights.
Such consent shall be made in writing. The consent shall not be
made more than 90 days before the Annuity Starting Date. If the
Qualified Preretirement Survivor Annuity is waived, the spouse
has the right to limit consent only to a specific Beneficiary.
Such consent shall be in writing. The spouse's consent shall be
witnessed by a plan representative or notary public. The
spouse's consent must acknowledge the effect of the election,
including that the spouse had the right to limit consent only to
a specific Beneficiary or a specific form of benefit, if
applicable, and that the relinquishment of one or both such
rights was voluntary. Unless the consent of the spouse expressly
permits designations by the Participant without a requirement of
further consent by the spouse, the spouse's consent must be
limited to the form of benefit, if applicable, and the
Beneficiary (including any Contingent Annuitant), class of
Beneficiaries, or contingent Beneficiary named in the election.
Spousal consent is not required, however, if the Participant
establishes to the satisfaction of the plan representative that
the consent of the spouse cannot be obtained because there is no
spouse or the spouse cannot be located. A spouse's consent under
this paragraph shall not be valid with respect to any other
spouse. A
ARTICLE VI 57
<PAGE> 58
Participant may revoke a prior election without the consent of
the spouse. Any new election will require a new spousal consent,
unless the consent of the spouse expressly permits such election
by the Participant without further consent by the spouse. A
spouse's consent may be revoked at any time within the
Participant's election period.
(d) Special Rule for Profit Sharing Plan. As provided in the
preceding provisions of the Plan, if a Participant has a spouse
on the date of his death, the Participant's Vested Account shall
be paid to such spouse. However, if there is no such spouse or
if the surviving spouse has already consented in a manner
conforming to the qualified election requirements in (c) above,
the Vested Account shall be payable to the Participant's
Beneficiary in the event of the Participant's death.
The Participant may waive the spousal death benefit described
above at any time provided that no such waiver shall be effective
unless it satisfies the conditions of (c) above (other than the
notification requirement referred to therein) that would apply to
the Participant's waiver of the Qualified Preretirement Survivor
Annuity.
Because this is a profit sharing plan which pays death benefits
as described above, this subsection (d) applies if the following
condition is met: with respect to the Participant, this Plan is
not a direct or indirect transferee after December 31, 1984, of a
defined benefit plan, money purchase plan (including a target
plan), stock bonus plan or profit sharing plan which is subject
to the survivor annuity requirements of Code Section 401(a)(11)
and Code Section 417. If the above condition is met, spousal
consent is not required for electing a benefit payable in a form
that is not a life annuity. If the above condition is not met,
the consent requirements of this article shall be operative.
SECTION 6.04--NOTICE REQUIREMENTS.
(a) Optional forms of retirement benefit. The Plan Administrator
shall furnish to the Participant and the Participant's spouse a
written explanation of the optional forms of retirement benefit
in the OPTIONAL FORMS OF DISTRIBUTION AND DISTRIBUTION
REQUIREMENTS SECTION of Article VI, including the material
features and relative values of these options, in a manner that
would satisfy the notice requirements of Code Section 417(a)(3)
and the right of the Participant and the Participant's spouse to
defer distribution until the benefit is no longer immediately
distributable. The Plan Administrator shall furnish the written
explanation by a method reasonably calculated to reach the
attention of the Participant and the Participant's spouse no less
than 30 days and no more than 90 days before the Annuity Starting
Date.
(b) Qualified Joint and Survivor Form. The Plan Administrator shall
furnish to the Participant a written explanation of the
following: the terms and conditions of the Qualified Joint and
Survivor Form; the Participant's right to make, and the effect
of, an election to waive the Qualified Joint and Survivor Form;
the rights of the Participant's spouse; and the right to revoke
an election and the effect of such a revocation. The Plan
Administrator shall furnish the written explanation by a method
reasonably calculated to reach the attention of the Participant
no less than 30 days and no more than 90 days before the Annuity
Starting Date.
ARTICLE VI 58
<PAGE> 59
After the written explanation is given, a Participant or spouse
may make written request for additional information. The written
explanation must be personally delivered or mailed (first class
mail, postage prepaid) to the Participant or spouse within 30
days from the date of the written request. The Plan
Administrator does not need to comply with more than one such
request by a Participant or spouse.
The Plan Administrator's explanation shall be written in
nontechnical language and will explain the terms and conditions
of the Qualified Joint and Survivor Form and the financial effect
upon the Participant's benefit (in terms of dollars per benefit
payment) of electing not to have benefits distributed in
accordance with the Qualified Joint and Survivor Form.
(c) Qualified Preretirement Survivor Annuity. As required by the
Code and Federal regulation, the Plan Administrator shall furnish
to the Participant a written explanation of the following: the
terms and conditions of the Qualified Preretirement Survivor
Annuity; the Participant's right to make, and the effect of, an
election to waive the Qualified Preretirement Survivor Annuity;
the rights of the Participant's spouse; and the right to revoke
an election and the effect of such a revocation. The Plan
Administrator shall furnish the written explanation by a method
reasonably calculated to reach the attention of the Participant
within the applicable period. The applicable period for a
Participant is whichever of the following periods ends last:
(1) the period beginning one year before the date the
individual becomes a Participant and ending one year after
such date; or
(2) the period beginning one year before the date the
Participant's spouse is first entitled to a Qualified
Preretirement Survivor Annuity and ending one year after
such date.
If such notice is given before the period beginning with the
first day of the Plan Year in which the Participant attains age
32 and ending with the close of the Plan Year preceding the Plan
Year in which the Participant attains age 35, an additional
notice shall be given within such period. If a Participant
ceases to be an Employee before attaining age 35, an additional
notice shall be given within the period beginning one year before
the date he ceases to be an Employee and ending one year after
such date.
After the written explanation is given, a Participant or spouse
may make written request for additional information. The written
explanation must be personally delivered or mailed (first class
mail, postage prepaid) to the Participant or spouse within 30
days from the date of the written request. The Plan
Administrator does not need to comply with more than one such
request by a Participant or spouse.
The Plan Administrator's explanation shall be written in
nontechnical language and will explain the terms and conditions
of the Qualified Preretirement Survivor Annuity and the financial
effect upon the spouse's benefit (in terms of dollars per benefit
payment) of electing not to have benefits distributed in
accordance with the Qualified Preretirement Survivor Annuity.
ARTICLE VI 59
<PAGE> 60
ARTICLE VII
TERMINATION OF PLAN
The Employer expects to continue the Plan indefinitely but reserves the
right to terminate the Plan in whole or in part at any time upon giving written
notice to all parties concerned. Complete discontinuance of Contributions
under the Plan constitutes complete termination of Plan.
The Account of each Participant shall be fully (100%) vested and
nonforfeitable as of the effective date of complete termination of Plan. The
Account of each Participant who is included in the group of Participants deemed
to be affected by the partial termination of the Plan shall be fully (100%)
vested and nonforfeitable as of the effective date of the partial Plan
termination. The Participant's Account shall continue to participate in the
earnings credited, expenses charged and any appreciation or depreciation of the
Investment Fund until the Vested Account is distributed. A distribution under
this article will be a retirement benefit and shall be distributed to the
Participant according to the provisions of Article VI.
A Participant's Account which does not result from Contributions which
are used to compute the Actual Deferral Percentage, as defined in the EXCESS
AMOUNTS SECTION of Article III, may be distributed to the Participant after the
effective date of the complete or partial Plan termination. A Participant's
Account resulting from Contributions which are used to compute such percentage
may be distributed upon termination of the Plan without the establishment or
maintenance of another defined contribution plan, other than an employee stock
ownership plan (as defined in Code Section 4975(e) or Code Section 409) or a
simplified employee pension plan (as defined in Code Section 408(k)). Such a
distribution made after March 31, 1988, must be in a single sum.
Upon complete termination of Plan, no more Employees shall become
Participants and no more Contributions shall be made.
The assets of this Plan shall not be paid to the Employer at any time,
except that, after the satisfaction of all liabilities under the Plan, any
assets remaining may be paid to the Employer. The payment may not be made if
it would contravene any provision of law.
ARTICLE VII 60
<PAGE> 61
ARTICLE VIII
ADMINISTRATION OF PLAN
SECTION 8.01--ADMINISTRATION.
Subject to the provisions of this article, the Plan Administrator has
complete control of the administration of the Plan. The Plan Administrator has
all the powers necessary for it to properly carry out its administrative
duties. Not in limitation, but in amplification of the foregoing, the Plan
Administrator has the power to construe the Plan, including ambiguous
provisions, and to determine all questions that may arise under the Plan,
including all questions relating to the eligibility of Employees to participate
in the Plan and the amount of benefit to which any Participant, Beneficiary,
spouse or Contingent Annuitant may become entitled. The Plan Administrator's
decisions upon all matters within the scope of its authority shall be final.
Unless otherwise set out in the Plan or Group Contract, the Plan
Administrator may delegate recordkeeping and other duties which are necessary
for the administration of the Plan to any person or firm which agrees to accept
such duties. The Plan Administrator shall be entitled to rely upon all tables,
valuations, certificates and reports furnished by the consultant or actuary
appointed by the Plan Administrator and upon all opinions given by any counsel
selected or approved by the Plan Administrator.
The Plan Administrator shall receive all claims for benefits by
Participants, former Participants, Beneficiaries, spouses, and Contingent
Annuitants. The Plan Administrator shall determine all facts necessary to
establish the right of any Claimant to benefits and the amount of those
benefits under the provisions of the Plan. The Plan Administrator may
establish rules and procedures to be followed by Claimants in filing claims for
benefits, in furnishing and verifying proofs necessary to determine age, and in
any other matters required to administer the Plan.
It is the intention that all reasonable expenses that can be paid from
the Trust Fund be paid by the Trustee.
SECTION 8.02--RECORDS.
All acts and determinations of the Plan Administrator shall be duly
recorded. All these records, together with other documents necessary for the
administration of the Plan, shall be preserved in the Plan Administrator's
custody.
Writing (handwriting, typing, printing), photostating, photographing,
microfilming, magnetic impulse, mechanical or electrical recording or other
forms of data compilation shall be acceptable means of keeping records.
SECTION 8.03--INFORMATION AVAILABLE.
Any Participant in the Plan or any Beneficiary may examine copies of the
Plan description, latest annual report, any bargaining agreement, this Plan,
the Group Contract or any other instrument under which the Plan was established
or is operated. The Plan Administrator shall maintain all of the items listed
in this
ARTICLE VIII 61
<PAGE> 62
section in its office, or in such other place or places as it may designate in
order to comply with governmental regulations. These items may be examined
during reasonable business hours. Upon the written request of a Participant or
Beneficiary receiving benefits under the Plan, the Plan Administrator will
furnish him with a copy of any of these items. The Plan Administrator may make
a reasonable charge to the requesting person for the copy.
SECTION 8.04--CLAIM AND APPEAL PROCEDURES.
A Claimant must submit any required forms and pertinent information when
making a claim for benefits under the Plan.
If a claim for benefits under the Plan is denied, the Plan Administrator
shall provide adequate written notice to the Claimant whose claim for benefits
under the Plan has been denied. The notice must be furnished within 90 days of
the date that the claim is received by the Plan Administrator. The Claimant
shall be notified in writing within this initial 90-day period if special
circumstances require an extension of time needed to process the claim and the
date by which the Plan Administrator's decision is expected to be rendered.
The written notice shall be furnished no later than 180 days after the date the
claim was received by the Plan Administrator.
The Plan Administrator's notice to the Claimant shall specify the reason
for the denial; specify references to pertinent Plan provisions on which denial
is based; describe any additional material and information needed for the
Claimant to perfect his claim for benefits; explain why the material and
information is needed; inform the Claimant that any appeal he wishes to make
must be in writing to the Plan Administrator within 60 days after receipt of
the Plan Administrator's notice of denial of benefits and that failure to make
the written appeal within such 60-day period shall render the Plan
Administrator's determination of such denial final, binding and conclusive.
If the Claimant appeals to the Plan Administrator, the Claimant, or his
authorized representative, may submit in writing whatever issues and comments
the Claimant, or his representative, feels are pertinent. The Claimant, or his
authorized representative may review pertinent Plan documents. The Plan
Administrator shall reexamine all facts related to the appeal and make a final
determination as to whether the denial of benefits is justified under the
circumstances. The Plan Administrator shall advise the Claimant of its
decision within 60 days of his written request for review, unless special
circumstances (such as a hearing) would make rendering a decision within the
60-day limit unfeasible. The Claimant must be notified within the 60-day limit
if an extension is necessary. The Plan Administrator shall render a decision
on a claim for benefits no later than 120 days after the request for review is
received.
SECTION 8.05--UNCLAIMED VESTED ACCOUNT PROCEDURE.
At the time the Participant's Vested Account is distributable to the
Participant, spouse or Beneficiary without his consent according to the
provisions of Article VI or Article IX, the Plan Administrator, by certified or
registered mail addressed to his last known address and in accordance with the
notice requirements of Article VI, will notify him of his entitlement to a
benefit. If the Participant, spouse or Beneficiary fails to claim the Vested
Account or make his whereabouts known in writing within six months from the
date of mailing the notice, the Plan Administrator may treat such unclaimed
Vested Account as a forfeiture and apply it according to the forfeiture
provisions of Article III. If Article III contains no forfeiture provisions,
such amount will be applied to reduce the earliest Employer Contributions due
after the forfeiture arises.
ARTICLE VIII 62
<PAGE> 63
If a Participant's Vested Account is forfeited according to the
provisions of the above paragraph and the Participant, his spouse or his
Beneficiary at any time make a claim for benefits, the forfeited Vested Account
shall be reinstated, unadjusted for any gains or losses occurring after the
date it was forfeited. The reinstated Vested Account shall then be distributed
to the Participant, spouse or Beneficiary according to the preceding provisions
of the Plan.
SECTION 8.06--DELEGATION OF AUTHORITY.
All or any part of the administrative duties and responsibilities under
this article may be delegated by the Plan Administrator to a retirement
committee. The duties and responsibilities of the retirement committee shall
be set out in a separate written agreement.
the Plan Administrator may establish a subcommittee to facilitate the
processing of administrative functions and to relieve the Plan Administrator
from the burden of day-to-day maintenance and administrative duties required by
the Plan. Such subcommittee's responsibilities will include the following:
(a) making recommendations to the Plan Administrator relative to Plan
amendments;
(b) reporting to the Plan Administrator relative to Plan investment
performance and activity;
(c) approving and processing enrollment requests;
(d) approving and processing distributions requests;
(e) approving and processing all government required forms, to
include the annual reporting Form 5500; and
(f) providing disclosure and other information to Participants.
ARTICLE VIII 63
<PAGE> 64
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01--AMENDMENTS.
The Employer may amend this Plan at any time, including any remedial
retroactive changes (within the specified period of time as may be determined
by Internal Revenue Service regulations) to comply with the requirements of any
law or regulation issued by any governmental agency to which the Employer is
subject. An amendment may not diminish or adversely affect any accrued
interest or benefit of Participants or their Beneficiaries or eliminate an
optional form of distribution with respect to benefits attributable to service
before the amendment nor allow reversion or diversion of Plan assets to the
Employer at any time, except as may be necessary to comply with the
requirements of any law or regulation issued by any governmental agency to
which the Employer is subject. No amendment to this Plan shall be effective to
the extent that it has the effect of decreasing a Participant's accrued
benefit. However, a Participant's Account may be reduced to the extent
permitted under Code Section 412(c)(8). For purposes of this paragraph, a Plan
amendment which has the effect of decreasing a Participant's Account or
eliminating an optional form of benefit, with respect to benefits attributable
to service before the amendment shall be treated as reducing an accrued
benefit. Furthermore, if the vesting schedule of the Plan is amended, in the
case of an Employee who is a Participant as of the later of the date such
amendment is adopted or the date it becomes effective, the nonforfeitable
percentage (determined as of such date) of such Employee's employer-derived
accrued benefit will not be less than his percentage computed under the Plan
without regard to such amendment.
An amendment shall not decrease a Participant's vested interest in the
Plan. If an amendment to the Plan, or a deemed amendment in the case of a
change in top-heavy status of the Plan as provided in the MODIFICATION OF
VESTING REQUIREMENTS SECTION of Article X, changes the computation of the
percentage used to determine that portion of a Participant's Account
attributable to Employer Contributions which is nonforfeitable (whether
directly or indirectly), each Participant or former Participant
(a) who has completed at least three Years of Service on the date the
election period described below ends (five Years of Service if
the Participant does not have at least one Hour-of-Service in a
Plan Year beginning after December 31, 1988) and
(b) whose nonforfeitable percentage will be determined on any date
after the date of the change
may elect, during the election period, to have the nonforfeitable percentage of
his Account that results from Employer Contributions determined without regard
to the amendment. This election may not be revoked. An election does not need
to be provided for any Participant or former Participant whose nonforfeitable
percentage, determined according to the Plan provisions as changed, cannot at
any time be less than the percentage determined without regard to such change.
The election period shall begin no later than the date the Plan amendment is
adopted, or deemed adopted in the case of a change in the top-heavy status of
the Plan, and end no earlier than the sixtieth day after the latest of the date
the amendment is adopted (deemed adopted) or becomes effective, or the date the
Participant is issued written notice of the amendment (deemed amendment) by the
Employer or the Plan Administrator.
ARTICLE IX 64
<PAGE> 65
SECTION 9.02--DIRECT ROLLOVERS.
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.
SECTION 9.03--MERGERS AND DIRECT TRANSFERS.
The Plan may not be merged or consolidated with, nor have its assets or
liabilities transferred to, any other retirement plan, unless each Participant
in the plan would (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 Participant would have been entitled to receive immediately
before the merger, consolidation or transfer (if this Plan had then
terminated). The Employer may enter into merger agreements or direct transfer
of assets agreements with the employers under other retirement plans which are
qualifiable under Code Section 401(a), including an elective transfer, and may
accept the direct transfer of plan assets, or may transfer plan assets, as a
party to any such agreement. The Employer shall not consent to, or be a party
to a merger, consolidation or transfer of assets with a defined benefit plan if
such action would result in a defined benefit feature being maintained under
this Plan.
The Plan may accept a direct transfer of plan assets on behalf of an
Eligible Employee. If the Eligible Employee is not an Active Participant when
the transfer is made, the Eligible Employee shall be deemed to be an Active
Participant only for the purpose of investment and distribution of the
transferred assets. Employer Contributions shall not be made for or allocated
to the Eligible Employee, until the time he meets all of the requirements to
become an Active Participant.
The Plan shall hold, administer and distribute the transferred assets as
a part of the Plan. The Plan shall maintain a separate account for the benefit
of the Employee on whose behalf the Plan accepted the transfer in order to
reflect the value of the transferred assets. Unless a transfer of assets to
the Plan is an elective transfer, the Plan shall apply the optional forms of
benefit protections described in the AMENDMENTS SECTION of Article IX to all
transferred assets. A transfer is elective if: (1) the transfer is voluntary,
under a fully informed election by the Participant; (2) the Participant has an
alternative that retains his Code Section 411(d)(6) protected benefits
(including an option to leave his benefit in the transferor plan, if that plan
is not terminating); (3) if the transferor plan is subject to Code Sections
401(a)(11) and 417, the transfer satisfies the applicable spousal consent
requirements of the Code; (4) the notice requirements under Code Section 417,
requiring a written explanation with respect to an election not to receive
benefits in the form of a qualified joint and survivor annuity, are met with
respect to the Participant and spousal transfer election; (5) the Participant
has a right to immediate distribution from the transferor plan under provisions
in the plan not inconsistent with Code Section 401(a); (6) the transferred
benefit is equal to the Participant's entire nonforfeitable accrued benefit
under the transferor plan, calculated to be at least the greater of the single
sum distribution provided by the transferor plan (if any) or the present value
of the Participant's accrued benefit under the transferor plan payable at the
plan's normal retirement age and calculated using an interest rate subject to
the restrictions of Code Section 417(e) and subject to the overall limitations
of Code Section 415; (7) the Participant has a 100% nonforfeitable interest in
the transferred benefit; and (8) the transfer otherwise satisfies applicable
Treasury regulations.
ARTICLE IX 65
<PAGE> 66
SECTION 9.04--PROVISIONS RELATING TO THE INSURER AND OTHER PARTIES.
The obligations of an Insurer shall be governed solely by the provisions
of the Group Contract. The Insurer shall not be required to perform any act
not provided in or contrary to the provisions of the Group Contract. See the
CONSTRUCTION SECTION of this article.
Any issuer or distributor of investment contracts or securities is
governed solely by the terms of its policies, written investment contract,
prospectuses, security instruments, and any other written agreements entered
into with the Trustee.
Such Insurer, issuer or distributor is not a party to the Plan, nor
bound in any way by the Plan provisions. Such parties shall not be required to
look to the terms of this Plan, nor to determine whether the Employer, the Plan
Administrator, the Trustee, or the Named Fiduciary have the authority to act in
any particular manner or to make any contract or agreement.
Until notice of any amendment or termination of this Plan or a change in
Trustee has been received by the Insurer at its home office or an issuer or
distributor at their principal address, they are and shall be fully protected
in assuming that the Plan has not been amended or terminated and in dealing
with any party acting as Trustee according to the latest information which they
have received at their home office or principal address.
SECTION 9.05--EMPLOYMENT STATUS.
Nothing contained in this Plan gives an Employee the right to be
retained in the Employer's employ or to interfere with the Employer's right to
discharge any Employee.
SECTION 9.06--RIGHTS TO PLAN ASSETS.
No Employee shall have any right to or interest in any assets of the
Plan upon termination of his employment or otherwise except as specifically
provided under this Plan, and then only to the extent of the benefits payable
to such Employee in accordance with Plan provisions.
Any final payment or distribution to a Participant or his legal
representative or to any Beneficiaries, spouse or Contingent Annuitant of such
Participant under the Plan provisions shall be in full satisfaction of all
claims against the Plan, the Named Fiduciary, the Plan Administrator, the
Trustee, the Insurer, and the Employer arising under or by virtue of the Plan.
SECTION 9.07--BENEFICIARY.
Each Participant may name a Beneficiary to receive any death benefit
(other than any income payable to a Contingent Annuitant) that may arise out of
his participation in the Plan. The Participant may change his Beneficiary from
time to time. Unless a qualified election has been made, for purposes of
distributing any death benefits before Retirement Date, the Beneficiary of a
Participant who has a spouse who is entitled to a Qualified Preretirement
Survivor Annuity shall be the Participant's spouse. The Participant's
Beneficiary designation and any change of Beneficiary shall be subject to the
provisions of the ELECTION PROCEDURES
ARTICLE IX 66
<PAGE> 67
SECTION of Article VI. It is the responsibility of the Participant to give
written notice to the Insurer of the name of the Beneficiary on a form
furnished for that purpose.
With the Employer's consent, the Plan Administrator may maintain records
of Beneficiary designations for Participants before their Retirement Dates. In
that event, the written designations made by Participants shall be filed with
the Plan Administrator. If a Participant dies before his Retirement Date, the
Plan Administrator shall certify to the Insurer the Beneficiary designation on
its records for the Participant.
If the Participant is not married at the date of death, and if no valid
Beneficiary has been designated, then the Participant's children, if any, shall
be deemed equal Beneficiaries under the Plan. If the Participant has no
children who survive him, then the Participant's heirs at law shall be deemed
Beneficiaries under the Plan.
SECTION 9.08--NONALIENATION OF BENEFITS.
Benefits payable under the Plan are not subject to the claims of any
creditor of any Participant, Beneficiary, spouse or Contingent Annuitant. A
Participant, Beneficiary, spouse or Contingent Annuitant does not have any
rights to alienate, anticipate, commute, pledge, encumber or assign any of such
benefits, except in the case of a loan as provided in the LOANS TO PARTICIPANTS
SECTION of Article V. The preceding sentences shall also apply to the
creation, assignment, or recognition of a right to any benefit payable with
respect to a Participant according to a domestic relations order, unless such
order is determined by the Plan Administrator to be a qualified domestic
relations order, as defined in Code Section 414(p), or any domestic relations
order entered before January 1, 1985.
SECTION 9.09--CONSTRUCTION.
The validity of the Plan or any of its provisions is determined under
and construed according to Federal law and, to the extent permissible,
according to the laws of the state in which the Employer has its principal
office. In case any provision of this Plan is held illegal or invalid for any
reason, such determination shall not affect the remaining provisions of this
Plan, and the Plan shall be construed and enforced as if the illegal or invalid
provision had never been included.
In the event of any conflict between the provisions of the Plan and the
terms of any contract or policy issued hereunder, the provisions of the Plan
control the operation and administration of the Plan.
SECTION 9.10--LEGAL ACTIONS.
The Plan, the Plan Administrator, the Trustee and the Named Fiduciary
are the necessary parties to any action or proceeding involving the assets held
with respect to the Plan or administration of the Plan or Trust. No person
employed by the Employer, no Participant, former Participant or their
Beneficiaries or any other person having or claiming to have an interest in the
Plan is entitled to any notice of process. A final judgment entered in any
such action or proceeding shall be binding and conclusive on all persons having
or claiming to have an interest in the Plan.
SECTION 9.11--SMALL AMOUNTS.
ARTICLE IX 67
<PAGE> 68
If the Vested Account of a Participant has never exceeded $3,500, the
entire Vested Account shall be payable in a single sum as of the earliest of
his Retirement Date, the date he dies, or the date he ceases to be an Employee
for any other reason. This is a small amounts payment. If a small amount is
payable as of the date the Participant dies, the small amounts payment shall be
made to the Participant's Beneficiary (spouse if the death benefit is payable
to the spouse). If a small amount is payable while the Participant is living,
the small amounts payment shall be made to the Participant. The small amounts
payment is in full settlement of all benefits otherwise payable. The service
credited to a Participant who is reemployed by the Employer is not diminished
as a result of receiving a small amounts payment.
No other small amounts payments shall be made.
SECTION 9.12--WORD USAGE.
The masculine gender, where used in this Plan, shall include the
feminine gender and the singular words as used in this Plan may include the
plural, unless the context indicates otherwise.
SECTION 9.13--TRANSFERS BETWEEN PLANS.
If an Employee previously participated in another plan of the Employer
which credited service under the elapsed time method for any purpose which
under this Plan is determined using the hours method, then the Employee's
service shall be equal to the sum of (a), (b) and (c) below:
(a) The number of whole years of service credited to him under the
other plan as of the date he became an Eligible Employee under
this Plan.
(b) One year or a part of a year of service for the applicable
service period in which he became an Eligible Employee if he is
credited with the required number of Hours-of-Service. If the
Employer does not have sufficient records to determine the
Employee's actual Hours-of-Service in that part of the service
period before the date he became an Eligible Employee, the
Hours-of-Service shall be determined using an equivalency. For
any month in which he would be required to be credited with one
Hour-of-Service, the Employee shall be deemed for purposes of
this section to be credited with 190 Hours-of-Service.
(c) The Employee's service determined under this Plan using the hours
method after the end of the applicable service period in which he
became an Eligible Employee.
If an Employee previously participated in another plan of the Employer
which credited service under the hours method for any purpose which under this
Plan is determined using the elapsed time method, then the Employee's service
shall be equal to the sum of (d), (e) and (f) below:
(d) The number of whole years of service credited to him under the
other plan as of the beginning of the applicable service period
under that plan in which he became an Eligible Employee under
this Plan.
(e) The greater of (1) the service that would be credited to him for
that entire service period using the elapsed time method or (2)
the service credited to him under the other plan as of the date
he became an Eligible Employee under this Plan.
ARTICLE IX 68
<PAGE> 69
(f) The Employee's service determined under this Plan using the
elapsed time method after the end of the applicable service
period under the other plan in which he became an Eligible
Employee.
Any modification of service contained in this Plan shall be applicable
to the service determined pursuant to this section.
If the Employee previously participated in the plan of a Controlled
Group member which credited service under a different method than is used in
this Plan, for purposes of determining eligibility and vesting the provisions
above shall apply as though the plan of the Controlled Group member were a plan
of the Employer.
ARTICLE IX 69
<PAGE> 70
ARTICLE X
TOP-HEAVY PLAN REQUIREMENTS
SECTION 10.01--APPLICATION.
The provisions of this article shall supersede all other provisions in
the Plan to the contrary.
For the purpose of applying the Top-heavy Plan requirements of this
article, all members of the Controlled Group shall be treated as one Employer.
The term Employer as used in this article shall be deemed to include all
members of the Controlled Group unless the term as used clearly indicates only
the Employer is meant.
The accrued benefit or account of a participant which results from
deductible voluntary contributions shall not be included for any purpose under
this article.
The minimum vesting and contribution provisions of the MODIFICATION OF
VESTING REQUIREMENTS and MODIFICATION OF CONTRIBUTIONS SECTIONS of Article X
shall not apply to any Employee who is included in a group of Employees covered
by a collective bargaining agreement which the Secretary of Labor finds to be a
collective bargaining agreement between employee representatives and one or
more employers, including the Employer, if there is evidence that retirement
benefits were the subject of good faith bargaining between such
representatives. For this purpose, the term "employee representatives" does
not include any organization more than half of whose members are employees who
are owners, officers, or executives.
SECTION 10.02--DEFINITIONS.
The following terms are defined for purposes of this article.
Aggregation Group means
(a) each of the Employer's retirement plans in which a Key Employee
is a participant during the Year containing the Determination
Date or one of the four preceding Years,
(b) each of the Employer's other retirement plans which allows the
plan(s) described in (a) above to meet the nondiscrimination
requirement of Code Section 401(a)(4) or the minimum coverage
requirement of Code Section 410, and
(c) any of the Employer's other retirement plans not included in (a)
or (b) above which the Employer desires to include as part of the
Aggregation Group. Such a retirement plan shall be included only
if the Aggregation Group would continue to satisfy the
requirements of Code Section 401(a)(4) and Code Section 410.
The plans in (a) and (b) above constitute the "required" Aggregation
Group. The plans in (a), (b) and (c) above constitute the "permissive"
Aggregation Group.
ARTICLE X 70
<PAGE> 71
Compensation means, as to an Employee for any period, compensation as
defined in the CONTRIBUTION LIMITATION SECTION of Article III. For
purposes of determining who is a Key Employee, Compensation shall
include, in addition to compensation as defined in the CONTRIBUTION
LIMITATION SECTION of Article III, elective contributions. Elective
contributions are amounts excludable from the Employee's gross income
under Code Sections 125, 402(e)(3), 402(h) or 403(b), and contributed by
the Employer, at the Employee's election, to a Code Section 401(k)
arrangement, a simplified employee pension, cafeteria plan or
tax-sheltered annuity.
For purposes of Compensation as defined in this section, Compensation
shall be limited to the maximum dollar amount, as adjusted, in the same
manner and in the same time as the Compensation defined in the
DEFINITIONS SECTION of Article I.
Determination Date means as to this Plan for any Year, the last day of
the preceding Year. However, if there is no preceding Year, the
Determination Date is the last day of such Year.
Key Employee means any Employee or former Employee (including
Beneficiaries of deceased Employees) who at any time during the
determination period was
(a) one of the Employer's officers (subject to the maximum below)
whose Compensation (as defined in this section) for the Year
exceeds 50 percent of the dollar limitation under Code Section
415(b)(1)(A),
(b) one of the ten Employees who owns (or is considered to own, under
Code Section 318) more than a half percent ownership interest and
one of the largest interests in the Employer during any Year of
the determination period if such person's Compensation (as
defined in this section) for the Year exceeds the dollar
limitation under Code Section 415(c)(1)(A),
(c) a five-percent owner of the Employer, or
(d) a one-percent owner of the Employer whose Compensation (as
defined in this section) for the Year is more than $150,000.
Each member of the Controlled Group shall be treated as a separate
employer for purposes of determining ownership in the Employer.
The determination period is the Year containing the Determination Date
and the four preceding Years. If the Employer has fewer than 30
Employees, no more than three Employees shall be treated as Key
Employees because they are officers. If the Employer has between 30 and
500 Employees, no more than ten percent of the Employer's Employees (if
not an integer, increased to the next integer) shall be treated as Key
Employees because they are officers. In no event will more than 50
Employees be treated as Key Employees because they are officers if the
Employer has 500 or more Employees. The number of Employees for any
Plan Year is the greatest number of Employees during the determination
period. Officers who are employees described in Code Section 414(q)(8)
shall be excluded. If the Employer has more than the maximum number of
officers to be treated as Key Employees, the officers shall be ranked by
amount of annual Compensation (as defined in this section), and those
with the greater amount of annual Compensation during the determination
period shall be treated as Key Employees. To determine the ten
Employees owning the largest interests in the Employer, if more than one
Employee has the same ownership interest, the Employee(s) having the
greater annual
ARTICLE X 71
<PAGE> 72
Compensation shall be treated as owning the larger interest(s). The
determination of who is a Key Employee shall be made according to Code
Section 416(i)(1) and the regulations thereunder.
Non-key Employee means a person who is a non-key employee within the
meaning of Code Section 416 and regulations thereunder.
Present Value means the present value of a participant's accrued benefit
under a defined benefit plan as of his normal retirement age (attained
age if later) or, if the plan provides non-proportional subsidies, the
age at which the benefit is most valuable. The accrued benefit of any
Employee (other than a Key Employee) shall be determined under the
method which is used for accrual purposes for all plans of the Employer
or if there is no one method which is used for accrual purposes for all
plans of the Employer, as if such benefit accrued not more rapidly than
the slowest accrual rate permitted under Code Section 411(b)(1)(C). For
purposes of establishing Present Value, any benefit shall be discounted
only for 7.5% interest and mortality according to the 1971 Group Annuity
Table (Male) without the 7% margin but with projection by Scale E from
1971 to the later of (a) 1974, or (b) the year determined by adding the
age to 1920, and wherein for females the male age six years younger is
used. If the Present Value of accrued benefits is determined for a
participant under more than one defined benefit plan included in the
Aggregation Group, all such plans shall use the same actuarial
assumptions to determine the Present Value.
Top-heavy Plan means a plan which is a top-heavy plan for any plan year
beginning after December 31, 1983. This Plan shall be a Top-heavy Plan
if
(a) the Top-heavy Ratio for this Plan alone exceeds 60 percent and
this Plan is not part of any required Aggregation Group or
permissive Aggregation Group.
(b) this Plan is a part of a required Aggregation Group, but not part
of a permissive Aggregation Group, and the Top-heavy Ratio for
the required Aggregation Group exceeds 60 percent.
(c) this Plan is a part of a required Aggregation Group and part of a
permissive Aggregation Group and the Top-heavy Ratio for the
permissive Aggregation Group exceeds 60 percent.
Top-heavy Ratio means the ratio calculated below for this Plan or for
the Aggregation Group.
(a) If the Employer maintains one or more defined contribution plans
(including any simplified employee pension plan) and the Employer
has not maintained any defined benefit plan which during the
five-year period ending on the determination date has or has had
accrued benefits, the Top-heavy Ratio for this Plan alone or for
the required or permissive Aggregation Group 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 and
the denominator of which is the sum of all account balances of
all employees as of the determination date. Both the numerator
and denominator of the Top-heavy Ratio are adjusted for any
distribution of an account balance (including those made from
terminated plan(s) of the Employer which would have been part of
the required Aggregation Group had such plan(s) not been
terminated) made in the five-year period ending on the
determination date. 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.
ARTICLE X 72
<PAGE> 73
(b) If the Employer maintains one or more defined contribution plans
(including any simplified employee pension plan) and the Employer
maintains or has maintained one or more defined benefit plans
which during the five-year period ending on the determination
date has or has had accrued benefits, the Top-heavy Ratio for any
required or permissive Aggregation Group as appropriate is a
fraction, the numerator of which is the sum of the account
balances under the defined contribution plan(s) of all Key
Employees and the Present Value of accrued benefits under the
defined benefit plan(s) for all Key Employees, and the
denominator of which is the sum of the account balances under the
defined contribution plan(s) for all employees and the Present
Value of accrued benefits under the defined benefit plans for all
employees. Both the numerator and denominator of the Top-heavy
Ratio are adjusted for any distribution of an account balance or
an accrued benefit (including those made from terminated plan(s)
of the Employer which would have been part of the required
Aggregation Group had such plan(s) not been terminated) made in
the five-year period ending on the determination date.
(c) For purposes of (a) and (b) 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 an employee who is not a
Key Employee but who was a Key Employee in a prior year will be
disregarded. The calculation of the Top-heavy Ratio and the
extent to which distributions, rollovers and transfers during the
five-year period ending on the determination date are to be taken
into account, shall be determined according to the provisions of
Code Section 416 and regulations thereunder. The account
balances and accrued benefits of an individual who has performed
no service for the Employer during the five-year period ending on
the determination date shall be excluded from the Top-heavy Ratio
until the time the individual again performs service for the
Employer. Deductible employee contributions will not be taken
into account for purposes of computing the Top-heavy Ratio. 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.
Account, as used in this definition, means the value of an employee's
account under one of the Employer's retirement plans on the latest
valuation date. In the case of a money purchase plan or target benefit
plan, such value shall be adjusted to include any contributions made for
or by the employee after the valuation date and on or before such
determination date or due to be made as of such determination date but
not yet forwarded to the insurer or trustee. In the case of a profit
sharing plan, such value shall be adjusted to include any contributions
made for or by the employee after the valuation date and on or before
such determination date. During the first Year of any profit sharing
plan such adjustment in value shall include contributions made after
such determination date that are allocated as of a date in such Year.
The nondeductible employee contributions which an employee makes under a
defined benefit plan of the Employer shall be treated as if they were
contributions under a separate defined contribution plan.
Valuation Date means, as to this Plan, the last day of the last calendar
month ending in a Year.
Year means the Plan Year unless another year is specified by the
Employer in a separate written resolution in accordance with regulations
issued by the Secretary of the Treasury or his delegate.
ARTICLE X 73
<PAGE> 74
SECTION 10.03--MODIFICATION OF VESTING REQUIREMENTS.
If a Participant's Vesting Percentage determined under Article I is not
at least as great as his Vesting Percentage would be if it were determined
under a schedule permitted in Code Section 416, the following shall apply.
During any Year in which the Plan is a Top-heavy Plan, the Participant's
Vesting Percentage shall be the greater of the Vesting Percentage determined
under Article I or the schedule below.
<TABLE>
<CAPTION>
VESTING SERVICE NONFORFEITABLE
(whole years) PERCENTAGE.
<S> <C>
Less than 3 0
3 or more 100
</TABLE>
The schedule above shall not apply to Participants who are not credited
with an Hour-of-Service after the Plan first becomes a Top-heavy Plan. The
Vesting Percentage determined above applies to all of the Participant's Account
resulting from Employer Contributions, including Contributions the Employer
makes before the TEFRA Compliance Date or when the Plan is not a Top-heavy
Plan.
If, in a later Year, this Plan is not a Top-heavy Plan, a Participant's
Vesting Percentage shall be determined under Article I. A Participant's
Vesting Percentage determined under either Article I or the schedule above
shall never be reduced and the election procedures of the AMENDMENTS SECTION of
Article IX shall apply when changing to or from the schedule as though the
automatic change were the result of an amendment.
The part of the Participant's Vested Account resulting from the minimum
contributions required pursuant to the MODIFICATION OF CONTRIBUTIONS SECTION of
Article X shall not be forfeited because of a period of reemployment after
benefit payments have begun.
SECTION 10.04--MODIFICATION OF CONTRIBUTIONS.
During any Year in which this Plan is a Top-heavy Plan, the Employer
shall make a minimum contribution or allocation on the last day of the Year for
each person who is a Non-key Employee on that day and who either was or could
have been an Active Participant during the Year. A Non-key Employee is not
required to have a minimum number of hours-of-service or minimum amount of
Compensation, or to have had any Elective Deferral Contributions made for him
in order to be entitled to this minimum. The minimum contribution or
allocation for such person shall be equal to the lesser of (a) or (b) below:
(a) Three percent of such person's Compensation (as defined in this
article).
(b) The "highest percentage" of Compensation (as defined in this
article) for such Year at which the Employer's contributions are
made for or allocated to any Key Employee. The highest
percentage shall be determined by dividing the Employer
Contributions made for or allocated to each Key Employee during
such Year by the amount of his Compensation (as defined in this
article), which is not more than the maximum set out above, and
selecting the greatest quotient (expressed as a percentage). To
determine the highest percentage, all of the Employer's defined
contribution plans within the Aggregation Group shall be treated
as one plan. The provisions of this paragraph shall not apply if
this Plan and a defined benefit plan of the Employer are required
ARTICLE X 74
<PAGE> 75
to be included in the Aggregation Group and this Plan enables the
defined benefit plan to meet the requirements of Code Section
401(a)(4) or Code Section 410.
Any required Contribution shall be satisfied first by any
Employer Contribution and Forfeiture in the United Companies
Financial Corporation Employee Stock Ownership Plan.
If the Employer's contributions and allocations otherwise required under
the defined contribution plan(s) are at least equal to the minimum above, no
additional contribution or reallocation shall be required. If the Employer's
contributions and allocations are less than the minimum above and Employer
Contributions under this Plan are allocated to Participants, any Employer
Contributions (other than those which are allocated on the basis of the amount
made for such person) shall be reallocated to provide the minimum. The
remaining Contributions shall be allocated as provided in the preceding
articles of this Plan taking into account any amount which was reallocated to
provide the minimum. If the Employer's total contributions and allocations are
less than the minimum above after any reallocation provided above, the Employer
shall contribute the difference for the Year.
The minimum contribution or allocation applies to all of the Employer's
defined contribution plans in the aggregate which are Top-heavy Plans. If an
additional contribution or allocation is required to meet the minimum above, it
shall be provided in this Plan.
A minimum allocation under a profit sharing plan shall be made without
regard to whether or not the Employer has profits.
If a person who is otherwise entitled to a minimum contribution or
allocation above is also covered under a defined benefit plan of the Employer's
which is a Top-heavy Plan during that same Year, the minimum benefits for him
shall not be duplicated. The defined benefit plan shall provide an annual
benefit for him on, or adjusted to, a straight life basis of the lesser of (c)
two percent of his average pay multiplied by his years of service or (d) twenty
percent of his average pay. Average pay and years of service shall have the
meaning set forth in such defined benefit plan for this purpose.
For purposes of this section, any employer contribution made according
to a salary reduction or similar arrangement shall not apply before the first
Yearly Date in 1985. On and after the first Yearly Date in 1989, any such
employer contributions and employer contributions which are matching
contributions, as defined in Code Section 401(m), shall not apply in
determining if the minimum contribution requirement has been met, but shall
apply in determining the minimum contribution required. Forfeitures credited
to a Participant's Account are treated as employer contributions.
The requirements of this section shall be met without regard to
contributions under Chapter 2 of the Code (relating to tax on self-employment),
Chapter 21 of the Code (relating to Federal Insurance Contributions Act), Title
II of the Social Security Act or any other Federal or state law.
ARTICLE X 75
<PAGE> 76
SECTION 10.05--MODIFICATION OF CONTRIBUTION LIMITATION.
If the provisions of subsection (e) of the CONTRIBUTION LIMITATION
SECTION of Article III are applicable for any Limitation Year during which this
Plan is a Top-heavy Plan, the benefit limitations shall be modified. The
definitions of Defined Benefit Plan Fraction and Defined Contribution Plan
Fraction in the CONTRIBUTION LIMITATION SECTION of Article III shall be
modified by substituting "1.0" in lieu of "1.25." The optional denominator for
determining the Defined Contribution Plan Fraction shall be modified by
substituting "$41,500" in lieu of "$51,875." In addition, an adjustment shall
be made to the numerator of the Defined Contribution Plan Fraction. The
adjustment is a reduction of that numerator similar to the modification of the
Defined Contribution Plan Fraction described in the CONTRIBUTION LIMITATION
SECTION of Article III, and shall be made with respect to the last Plan Year
beginning before January 1, 1984.
The modifications in the paragraph above shall not apply with respect to
a Participant so long as employer contributions, forfeitures or nondeductible
employee contributions are not credited to his account under this or any of the
Employer's other defined contribution plans and benefits do not accrue for such
Participant under the Employer's defined benefit plan(s), until the sum of his
Defined Contribution and Defined Benefit Plan Fractions is less than 1.0.
ARTICLE X 76
<PAGE> 77
By executing this Plan, the Primary Employer acknowledges having
counseled to the extent necessary with selected legal and tax advisors
regarding the Plan's legal and tax implications.
Executed this __________ day of_______________________________________,
19______.
UNITED COMPANIES FINANCIAL CORPORATION
By:
------------------------------------
------------------------------------
Title
PLAN EXECUTION 77
<PAGE> 78
FOURTH AMENDMENT TO THE 1994 RESTATEMENT OF THE
UNITED COMPANIES FINANCIAL CORPORATION
EMPLOYEES' SAVINGS PLAN
___________________________________
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BE IT KNOWN, that on the 30th day of December, 1996, at the place
hereinafter written, in the presence of the witnesses hereinafter named and
undersigned, personally came and appeared:
UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under
the laws of the State of Louisiana, with its principal place of business
at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented herein by
Dale E. Redman, its authorized officer, duly authorized to act by virtue
of a corporate resolution attached hereto and made a part hereof
(hereinafter referred to as "Employer" or "Company")
W I T N E S S E T H:
WHEREAS, the Employer did establish the United Companies Financial
Corporation Employees' Savings,Plan and Trust ("Plan & Trust" or "Employees'
Savings Plan and Trust") on November 13, 1987, effective July 1, 1987;
amended and restated effective January 1, 1989; amended and restated in
separate Plan document and Trust document, effective January 1, 1994, and
wishes to further amend said Plan; and
WHEREAS, the Employer desires to amend the Plan effective September 1,
1996, in order to permit the Trustee to acquire Employer Securities for the
benefit of the Investment Fund, if the Fair Market Value does not exceed 100%
of the Investment Fund, subsequent to such acquisition;
NOW THEREFORE, the Employer does hereby amend the Plan, effective
September 1, 1996, except as otherwise provided herein, as follows:
Article IV of the Plan is hereby amended, effective September 1, 1996,
by substituting the following paragraph in lieu of the second paragraph of
Section 4.02 thereof:
Notwithstanding any other provision of this Plan, the Trustee may
not acquire or hold any Employer Security which is not a "qualifying
employer security" (within the meaning of section 407(d)(5) of ERISA)
provided, however, that the Investment Fund may not acquire any Employer
Security if immediately after such acquisition, the Fair Market Value of
Employer Securities held by the Investment Fund exceeds 100% of the
Fund.
The amendments made hereunder are intended to qualify the Plan for the
period beginning September 1, 1996, except as otherwise provided herein, as a
qualified Profit Sharing Plan and Trust under the Internal Revenue Code and
ERISA. Therefore, any provisions which cause the Plan not-to be in compliance
with either statute, or with regulations promulgated thereunder, shall be
separable from the remaining amendments and shall not cause them to be rendered
invalid, so that all the amendments will have as much force and effect as
allowed
<PAGE> 79
by law. In the case of any ambiguity, the language shall be interpreted to
effectuate the stated purposes of those amendments and in such a way as to
cause the Plan to continue to be a qualified plan under the statutes.
IN WITNESS WHEREOF, the Employer has caused this Amendment to be signed
by its duly authorized officer, before the undersigned competent witnesses on
the date indicated above, at Baton Rouge, Louisiana
WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION,
EMPLOYER:
By:
- ------------------------------------ ------------------------------------
Authorized Officer
- ------------------------------------
<PAGE> 80
THIRD AMENDMENT TO THE 1994 RESTATEMENT OF THE
UNITED COMPANIES FINANCIAL CORPORATION
EMPLOYEES' SAVINGS PLAN
___________________________________
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BE IT KNOWN, that on the 3Oth day of December, 1996, at the place
hereinafter written, in the presence of the witnesses hereinafter named and
undersigned, personally came and appeared:
UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under
the laws of the State of Louisiana, with its principal place of business
at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented herein by
Dale E. Redman, its authorized officer, duly authorized to act by virtue
of a corporate resolution attached hereto and made a part hereof
(hereinafter referred to as "Employer" or "Company")
W I T N E S S E T H:
WHEREAS, the Employer did establish the United Companies Financial
Corporation Employees' Savings Plan and Trust ("Plan & Trust" or "Employees'
Savings Plan and Trust") on November 13, 1987, effective July 1, 1987; amended
and restated effective January 1, 1989; amended and restated in separate Plan
document and Trust document, effective January 1, 1994, and wishes to further
amend said Plan; and
WHEREAS, the Employer desires to amend the Plan effective September 1,
1996, in order to permit Participants to elect to make Elective Deferrals up to
the highest percentage limit for the entire Plan Year during which they are
eligible; and
WHEREAS, the Employer desires to restrict Insiders with respect to
investment in Employer Securities;
NOW THEREFORE, the Employer does hereby amend the Plan, effective
September 1, 1996, except as otherwise provided herein, as follows:
Article II of the Plan is hereby amended, effective November 1, 1996, by
adding the following definition at the end thereof:
"INSIDER" shall mean an individual who is a Participant in the
Plan and who is either President, Chief Executive Officer, Executive
Vice President or Controller of United Companies Financial Corporation.
Such status as an Insider shall be determined by the position of the
individual as of the date of any transaction referred to herein.
Status as an Insider or not under this definition shall not be
determinative for any other purpose besides the Internal Revenue Code
and the Employee Retirement Income Security Act of 1974, as amended.
Status as an Insider under this definition shall not be determinative
for purposes of securities laws.
Article III of the Plan is hereby amended by substituting the following
for the first sentence of subsection (a) of section 3.01 thereof:
<PAGE> 81
(a) The amount of each Elective Deferral Contribution for
a Participant shall be equal to that percentage of his
Compensation which he has elected in his elective deferral
agreement. The percentage of Compensation chosen as an
Elective Deferral may not exceed ten (10%) percent of the
total Compensation for the Plan Year; however, the
Participant may elect a percentage of each payment which
is greater than ten (10%) percent in order to make up for
a lesser election during an earlier election period in the
Plan Year. A one-time election may be made on the
Effective Date of this Amendment.
Article IV of the Plan is hereby amended, effective November 1, 1996, by
adding the following language at the end of section 4.03 thereof:
Effective November 1, 1996, the following limitations shall apply
to Insiders who are Participants in the Plan. An Insider may not elect
a change of investment of his or her Elective Deferral Account under the
following circumstances: (a) if the Participant has made an election to
invest all or a portion of his Elective Deferral Account in Employer
Securities, including a quarterly election of salary reduction amounts,
within the preceding six (6) months, then he or she may not elect to
sell or transfer any such Employer Securities from his Elective Deferral
Account; (b) if the Participant has made an election to sell or transfer
all or any portion of the Employer Securities held in his Elective
Deferral Account within the preceding six (6) months, then the
Participant may not elect to have any portion of his or her Elective
Deferral Account invested in Employer Securities, including a quarterly
election of salary reduction amounts. A distribution from the Plan to a
Participant shall not be considered a sale or transfer or investment for
the foregoing purposes unless the Plan causes a sale, transfer or new
investment prior to the physical distribution to the Participant. An
election by the Participant to change the amount of his Elective
Deferral shall not be considered an election to sell, transfer or invest
Employer Securities so long as any prior investment election continues
to apply to the changed amount. An election to make a Participant loan,
which choice required the sale or transfer of Employer Securities from
the Participant's account, shall be considered an election to sell or
transfer Employer Securities for purposes of the foregoing.
The amendments made hereunder are intended to qualify the Plan for the
period beginning September 1, 1996, except as otherwise provided herein, as a
qualified Profit Sharing Plan and Trust under the Internal Revenue Code and
ERISA. Therefore, any provisions which cause the Plan not to be in compliance
with either statute, or with regulations promulgated thereunder, shall be
separable from the remaining amendments and shall not cause them to be rendered
invalid, so that all the amendments will have as much force and effect as
allowed by law. In the case of any ambiguity, the language shall be
interpreted to effectuate the stated purposes of those amendments and in such a
way as to cause the Plan to continue to be a qualified plan under the statutes.
<PAGE> 82
IN WITNESS WHEREOF, the Employer has caused this Amendment to be
signed by its duly authorized officer, before the undersigned competent
witnesses on the date indicated above, at Baton Rouge, Louisiana.
WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION,
EMPLOYER:
By:
- ------------------------------------ ------------------------------------
Authorized Officer
- ------------------------------------
<PAGE> 83
SECOND AMENDMENT TO THE 1994 RESTATEMENT OF THE
UNITED COMPANIES FINANCIAL CORPORATION
EMPLOYEES' SAVINGS PLAN
_________________________________
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BE IT KNOWN, that on the 24th day of July, 1996, at the place
hereinafter written, in the presence of the witnesses hereinafter named and
undersigned, personally came and appeared:
UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under
the laws of the State of Louisiana, with its principal place of business
at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented herein by
J. Terrell Brown, its authorized officer, duly authorized to act by
virtue of a corporate resolution attached hereto and made a part hereof
(hereinafter referred to as "Employer" or "Company")
and
UNITED COMPANIES LIFE INSURANCE COMPANY, a corporation organized under
the laws of the State of Louisiana, with its principal place of business
at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented herein
by J. Terrell Brown, its authorized officer, duly authorized to act by
virtue of a corporate resolution attached hereto and made a part
hereof (hereinafter referred to as "Resigning Employer")
W I T N E S S E T H:
WHEREAS, the Employer did establish the United Companies Financial
Corporation Employees' Savings Plan and Trust ("Plan & Trust" or Employees'
Savings Plan and Trust") on November 13, 1987, effective July 1, 1987; amended
and restated effective January 1, 1989; amended and restated in separate Plan
document and Trust document December 30, 1994, and wishes to further amend said
Plan and
WHEREAS, the Resigning Employer is being sold by the Company and will no
longer be a member of a controlled group of corporations with the Company;
and
WHEREAS, the Company and the Resigning Employer want to cease the
Resigning Employer's maintenance of the Plan and to specify the terms and
conditions under which the Resigning Employer ceases to maintain the Plan;
NOW THEREFORE, the Company does hereby amend the Plan, effective on the
date of sale of the Resigning Employer, except as otherwise provided herein,
the Resigning Employer hereby ceases to maintain the Plan and the Plan is
amended to specify the allocation to Employees of the Resigning Employer, as
follows:
Article II is hereby amended by deleting UNITED COMPANIES LIFE INSURANCE
COMPANY from the list of adopting employers in the fifth paragraph of Section
2.04 thereof, at the bottom of page 21, with such deletion to be effective on
the date of sale of the Resigning Employer for all purposes except the limited
<PAGE> 84
purpose of the deferral and transmittal of Elective Deferrals of employees
through the last day of the pay period in which the sale occurs.
Article III is hereby amended by adding the following at the end of
subsection (a) of Section 3.01 thereof:
Participating Employees of UNITED COMPANIES LIFE INSURANCE COMPANY shall
be permitted to continue in effect their Elective Deferrals to the Plan
for the period from the date of sale to the end of the pay period in
which the sale falls; provided, however, that such Participants shall
have the opportunity to redirect their Elective Deferrals and have them
included in compensation for such period by notifying the Plan
Administrator prior to the date of the contribution to the Plan. Such
Elective Deferrals will be made for such period unless the Participant
affirmatively elects not to have such deferrals, notwithstanding that no
Matching Contributions will be made which are attributable thereto.
Article III is further amended by adding the following at the end of the
Subsection (b) of Section 3.01 thereof:
No Matching Contributions shall be made based on the compensation of
participants who are employees of UNITED COMPANIES LIFE INSURANCE
COMPANY, for the period from the date of sale of UNITED COMPANIES LIFE
INSURANCE COMPANY to the last day of the pay period in which the sale
occurs, notwithstanding that Elective Deferrals may be accepted by the
Plan from such Participants for such period.
The amendments made hereunder are intended to qualify the Plan as of the
date of sale of the Resigning Employer as a qualified Profit Sharing Plan and
Trust under the Internal Revenue Code and ERISA. Therefore, any provisions
which cause the Plan not to be in compliance with either statute or with
regulations promulgated thereunder, shall be separable from the remaining
amendments and shall not cause them to be rendered invalid, so that all the
amendments will have as much force and effect as allowed by law. In the case of
any ambiguity, the language shall be interpreted to effectuate the stated
purposes of those amendments and in such a way as to cause the Plan to continue
to be a qualified plan under the statutes.
<PAGE> 85
IN WITNESS WHEREOF, the Employer has caused this Amendment to be signed
by its duly authorized officer, before the undersigned competent witnesses on
the date indicated above, at Baton Rouge, Louisiana.
WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION,
EMPLOYER:
By:
- ------------------------------------ ------------------------------------
- ------------------------------------
UNITED COMPANIES LIFE INSURANCE
CORPORATION, RESIGNING EMPLOYER
By:
- ------------------------------------ ------------------------------------
Authorized Officer
- ------------------------------------
<PAGE> 86
FIRST AMENDMENT TO THE 1994 RESTATEMENT OF THE
UNITED COMPANIES FINANCIAL CORPORATION
EMPLOYEES' SAVINGS PLAN
________________________________
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
BE IT KNOWN, that on the ______ day of ______________, 1995, at the
place hereinafter written, in the presence of the witnesses hereinafter named
and undersigned, personally came and appeared:
UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under
the laws of the State of Louisiana, with its principal place of business
at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented herein by
________________________, its authorized officer, duly authorized to act
by virtue of a corporate resolution attached hereto and made a part
hereof (hereinafter referred to as "Employer" or "Company")
W I T N E S S E T H:
WHEREAS, the Employer did establish the United Companies Financial
Corporation Employees' Savings Plan and Trust ("Plan & Trust" or "Employees'
Savings Plan and Trust") on November 13, 1987, effective July 1, 1987; amended
and restated effective January 1, 1989; amended and restated in separate Plan
document and Trust document, and wishes to further amend said Plan; and
WHEREAS, the Employer desires to amend the Plan to limit deferrals of
Participants to ten (10%) percent of total Compensation; and
WHEREAS, the Employer desires to clarify the means by which the IRC
Section 415 limits are met and to coordinate the provisions of the ESOP and the
Savings Plan;
NOW THEREFORE, the Employer does hereby amend the Plan, effective
January 1, 1994, except as otherwise provided herein, as follows:
Article III of the Plan is hereby amended, effective on the date of
execution, by substituting "10%" for "15%" in the first sentence of subsection
(a) of section 3.01 thereof.
<PAGE> 87
Article III of the Plan is hereby further amended by substituting for
the second paragraph of subsection (c) of section 3.04 thereof the following:
"If a Participant's Annual Additions under this Plan and all such other
plans result in an Excess Annual Amount, such Excess Annual Amount shall be
deemed to consist of the amounts last allocated. In particular, if amounts are
allocated as of the same date, Elective Deferrals shall be allocated first; any
required Employer Contributions under this Plan or any other cash or deferred
arrangement in order to satisfy nondiscrimination tests will be allocated
second; Marching Contributions under this Plan shall be allocated third;
Discretionary Contributions under this Plan shall be considered allocated
fourth; amounts allocated as a result of payment of an Employee Stock Ownership
Plan Loan under the United Companies Financial Corporation Employee Stock
Ownership Plan shall be allocated fifth; and discretionary Employer
Contributions allocated under the United Companies Financial Corporation
Employee Stock Ownership Plan for purposes other than ESOP loan repayment,
shall be considered to have been allocated last. Thus, Elective Deferrals and
Matching Contributions which are allocated prior to the last day of the Plan
Year, such as on quarterly allocation dates, will be allocated before any of
the above which are allocated ont he last day of the Plan Year.
Notwithstanding the above, Annual Additions attributable to a welfare benefit
fund, if any, will be deemed to have been allocated first, regardless of the
actual allocation date."
The amendments made hereunder are intended to qualify the Plan for the
period beginning January 1, 1994, except as otherwise provided herein, as a
qualified Profit Sharing Plan and Trust under the Internal Revenue Code and
ERISA. Therefore, any provisions which cause the Plan not to be in compliance
with either statute, or with regulations promulgated thereunder, shall be
separable from the remaining amendments and shall not cause them to be rendered
invalid, so that all the amendments will have as much force and effect as
allowed by law. In the case of any ambiguity, the language shall be
interpreted to effectuate the stated purposes of those amendments and in such a
way as to cause the Plan to continue to be a qualified plan under the statutes.
<PAGE> 88
IN WITNESS WHEREOF, the Employer has caused this Amendment to be signed
by its duly authorized officer, before the undersigned competent witnesses on
the date indicated above, at Baton Rouge, Louisiana.
WITNESSES: UNITED COMPANIES FINANCIAL
CORPORATION, EMPLOYER:
By:
- ------------------------------------ ------------------------------------
Authorized Officer
<PAGE> 1
EXHIBIT 11.1
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
---------- ---------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Primary Earnings Per Share
Income available to common shareholders:
Income from continuing operations . . . . . . . . . . . . . . . $ 86,192 $ 64,925 $ 48,696
Less: Income (loss) from discontinued operations . . . . . . . . (4,532) 4,543 838
---------- ---------- -------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,660 $ 69,468 $ 49,534
========== ========== =============
Weighted average number of common and common equivalent
shares:
Average common shares outstanding . . . . . . . . . . . . . . . 27,929 27,854 27,298
Add: Dilutive effect of stock options after
application of treasury stock method . . . . . . . . . 835 895 1,192
Dilutive effect of preferred stock after
application of "if converted" method . . . . . . . . . . . 3,230 1,752 --
---------- ---------- -------------
31,994 30,501 28,490
========== ========== =============
Earnings (loss) per share:
Income from continuing operations . . . . . . . . . . . . . . . $ 2.69 $ 2.13 $ 1.71
Income (loss) from discontinued operations . . . . . . . . . . . (.14) .15 .03
---------- ---------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.55 $ 2.28 $ 1.74
========== ========== =============
Fully Diluted Earnings Per Share
Income available to common shareholders:
Income from continuing operations . . . . . . . . . . . . . . . $ 86,192 $ 64,925 $ 48,696
Less: Income (loss) from discontinued operations . . . . . . . . (4,532) 4,543 838
---------- ---------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,660 $ 69,468 $ 49,534
========== ========== =============
Weighted average number of common and all dilutive
contingent shares:
Average common shares outstanding . . . . . . . . . . . . . . . 27,929 27,854 27,298
Add: Dilutive effect of stock options after
application of treasury stock method . . . . . . . . . 838 928 1,192
Dilutive effect of preferred stock after
application of "if converted" method . . . . . . . . . . . 3,910 2,121 --
---------- ---------- -------------
32,677 30,903 28,490
========== ========== =============
Earnings (loss) per share:
Income from continuing operations . . . . . . . . . . . . . . . $ 2.64 $ 2.10 $ 1.71
Income (loss) from discontinued operations . . . . . . . . . . . (.14) .15 .03
---------- ---------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.50 $ 2.25 $ 1.74
========== ========== =============
</TABLE>
<PAGE> 1
EXHIBIT 21.1
UNITED COMPANIES FINANCIAL CORPORATION
LIST OF SUBSIDIARIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION
- ---- -------------
<S> <C>
United Companies Lending Group, Inc. . . . . . . . . . . . . . Louisiana
United Companies Lending Corporation(R)(1) . . . . . . . . . . Louisiana
Pelican Mortgage Company, Inc.(2) . . . . . . . . . . . . . . . Delaware
Adobe, Inc.(3) . . . . . . . . . . . . . . . . . . . . . . . . Nevada
UCFC Acceptance Corporation(2) . . . . . . . . . . . . . . . . Louisiana
United Companies Mortgage of Tennessee, Inc.(2) . . . . . . . . Tennessee
UNICOR MORTGAGE(R), Inc. (1) . . . . . . . . . . . . . . . . . Louisiana
GINGER MAE(R), Inc.(1) . . . . . . . . . . . . . . . . . . . . Louisiana
Southern Mortgage Acquisition, Inc (.1) . . . . . . . . . . . . Louisiana
United Communications Corporation of Louisiana, Inc . . . . . . Louisiana
United Companies Management Company, Inc . . . . . . . . . . . Louisiana
United Companies Realty and Development Company, Inc . . . . . Louisiana
United Plan Insurance Agency, Inc . . . . . . . . . . . . . . . Louisiana
United Companies Funding, Inc. . . . . . . . . . . . . . . . Louisiana
United Credit Card, Inc . . . . . . . . . . . . . . . . . . . . Louisiana
UCFC Funding Corporation(5) . . . . . . . . . . . . . . . . . . Louisiana
Gopher Funding, Inc.(5) . . . . . . . . . . . . . . . . . . . . Nevada
Adobe Financial, Inc. I(4) . . . . . . . . . . . . . . . . . . Nevada
</TABLE>
__________
(1) Wholly owned by United Companies Lending Group
(2) Wholly owned by United Companies Lending Corporation(R)
(3) Wholly owned by Pelican Mortgage Company, Inc.
(4) Wholly owned by Adobe, Inc.
(5) Wholly owned by United Companies Funding, Inc.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our opinion dated
February 28, 1997 appearing in this Annual Report on Form 10-K of United
Companies Financial Corporation for the year ended December 31, 1996 in the
following: Registration Statement No. 33-15326 on Form S-8 pertaining to the
United Companies Financial Corporation 1986 Employee Incentive Stock Option
Plan, Registration Statement No. 33-17366 on Form S-8 pertaining to the United
Companies Financial Corporation Employees' Savings Plan and Trust, Registration
Statement No. 33-29994 on Form S-8 pertaining to the 1989 Stock Incentive Plan
and the 1989 Non-Employee Director Stock Option Plan, Registration Statement
No. 33-54955 on Form S-8 pertaining to the 1993 Stock Incentive Plan and the
1993 Non-Employee Director Stock Option Plan, Registration Statement No.
33-68626 on Form S-3 pertaining to the registration of 1,951,204 shares of
United Companies Financial Corporation Common Stock, Registration Statement No.
33-60367 on Form S-3 pertaining to the registration of $200 million of United
Companies Financial Corporation Debt Securities and Preferred Stock, and
Registration Statement No. 33-52739 on Form S-3 pertaining to the registration
of 200,000 shares of United Companies Financial Corporation Common Stock and
Registration Statement No. 33-63069 on Form S-8 pertaining to the United
Companies Financial Corporation Management Incentive Plan.
DELOITTE & TOUCHE LLP
Baton Rouge, Louisiana
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 14,064
<SECURITIES> 34,928
<RECEIVABLES> 122,891
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 57,153
<DEPRECIATION> (10,830)
<TOTAL-ASSETS> 1,002,516
<CURRENT-LIABILITIES> 0
<BONDS> 425,671
0
3,910
<COMMON> 59,255
<OTHER-SE> 357,112
<TOTAL-LIABILITY-AND-EQUITY> 1,002,516
<SALES> 0
<TOTAL-REVENUES> 356,874
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 170,342
<LOSS-PROVISION> 14,049
<INTEREST-EXPENSE> 38,626
<INCOME-PRETAX> 133,857
<INCOME-TAX> 47,665
<INCOME-CONTINUING> 86,192
<DISCONTINUED> (4,532)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81,660
<EPS-PRIMARY> 2.55
<EPS-DILUTED> 2.50
</TABLE>
