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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ---------- TO ----------
COMMISSION FILE NO. 2-82551
HORRIGAN AMERICAN, INC.
INCORPORATED IN THE STATE OF PENNSYLVANIA
I.R.S. EMPLOYER IDENTIFICATION NUMBER: 23-2224614
ADDRESS OF PRINCIPAL EXECUTIVE OFFICE:
6 COMMERCE DRIVE
SHILLINGTON, PENNSYLVANIA 19607-9704
REGISTRANT'S TELEPHONE NUMBER IS: (610) 775-5199
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT: NONE
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 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
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. /X/
The number of shares outstanding of each of the registrant's class of
common stock, as of February 28, 1994: 3,111,766 shares of Common Stock at $1
par value.
The aggregate market value of the voting stock held by non-affiliates as
of February 28, 1994 was $9,753,171.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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<PAGE>
HORRIGAN AMERICAN, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 1993
INDEX
PAGE
---
PART I
Item 1. Business................................................... 1
Item 2. Properties................................................. 6
Item 3. Legal Proceedings.......................................... 7
Item 4. Submission of Matters to a Vote of Security Holders........ 7
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matter..................................... 9
Item 6. Selected Financial Data.................................... 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 9
Item 8. Financial Statements and Supplementary Data................ 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 49
PART III
Item 10. Directors and Executive Officers of the Registrant......... 50
Item 11. Executive Compensation..................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................. 54
Item 13. Certain Relationships and Related Transactions............. 56
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K............................................ 57
1
<PAGE>
ITEM 1. BUSINESS
GENERAL NATURE OF BUSINESS
The Company's business is principally divided into three segments:
commercial leasing and financing, investments in commercial real property
leasing and rental projects, and furniture and equipment sales.
The Company's assets primarily consist of: receivables from commercial
borrowers; direct finance leases with commercial lessees; and interests in
partnerships which own commercial real estate and rent it to others, generally
under operating leases.
As of December 31, 1993, approximately 79% of such assets were receivables
which arose from commercial leasing and financing, and 21% was real property
owned by the Company and leased or rented to others under operating leases.
COMMERCIAL LEASING AND COMMERCIAL FINANCING
The Company conducts its commercial leasing and commercial lending
operations, on a national basis, primarily from its corporate headquarters
located in Reading, Pennsylvania. Additionally, the Company maintains offices
in Crestview Hills, Kentucky (a suburb of Cincinnati, Ohio), and Deerfield,
Illinois (a suburb of Chicago). Marketing personnel are also located in
Pittsburgh, Pennsylvania; San Diego and Los Angeles, California; and Portland,
Oregon.
The Company conducts its leasing and lending activities in several ways. A
portion of its business is generated with customized sales aid leasing
programs for vendors of equipment. Direct customer solicitation programs
(telemarketing, mail solicitations, and direct customer visits and referrals)
focusing primarily on present and former lessees and commercial borrowers also
generate business for the Company. Also, three affinity marketing divisions
generate volume for the Company -- American Legal Funding which offers funding
programs specifically designed for the legal profession; the Information
Systems Funding Group which offers leasing and lending services for the use or
ownership of mid-size computers and computer software to businesses; and
American Reli Financial which provides leasing and lending services to general
equipment rental centers. Additionally, the Company through its General
Services Division provides equipment leases and asset-based loans to a broader
range of customers not serviced by the three affinity marketing divisions.
Sales aid leasing programs are programs wherein the Company provides full
pay out or finance instruments (usually on a nonrecourse basis to the product
seller) to assist sellers of commercial equipment in merchandising their
products. The Company approves all contracts prior to authorizing purchase of
the equipment under the sales aid leasing programs. No one program commitment
is expected to exceed 15% of the Company's annual commercial leasing/lending
volume.
As of December 31, 1993, the Company held $99,000 in repossessed equipment
and equipment returned to it at the conclusion of the lease terms (classified
as other assets on the consolidated financial statements). Repossessed and
returned equipment is initially recorded at no more than 70% of estimated fair
value and is periodically written down until resold. (See "Furniture and
Equipment Sales".)
Acquisitions
On June 1, 1993, the Company purchased all of the capital stock of Canyon
Capital, Inc. ("Canyon"), whose principal business consisted of financing and
leasing equipment. (See Note R to the consolidated financial statements.) The
Company does not intend to operate the acquired business under the trade name
Canyon and intends to liquidate the portfolio of leases and loans while
soliciting certain lessees for additional new business.
On January 31, 1992, the Company purchased substantially all the assets of
Reli Financial Corp. ("Reli"), whose principal business consists of providing
financing to the equipment rental
1
<PAGE>
industry. The Company continues to operate this acquired business (as well as
the existing rental and financing business) under the trade name "American
Reli Financial". Reli's pre-acquisition policies, procedures and systems have
been evaluated, and integrated with the Company's management practices. Direct
solicitation remains the focus activity of this division, and has increased
the Company's market penetration through expanded direct marketing efforts and
trade show participation.
Direct Finance Leasing
Finance leases, often referred to as full pay out or capital leases, are
non-cancellable contracts, generally for a longer term than operating leases,
under which the original equipment cost to the Company is generally less than
the stream of periodic payments to be received from the lessee during the
initial lease term.
The Company's direct finance leases are those which meet one or more of
the following four criteria: (a) the lease transfers ownership of the property
to the lessee by the end of the lease term; (b) the lease gives the lessee an
option to purchase the property at a price that is sufficiently lower than the
expected fair value of the property at the time the option becomes exercisable
such that its exercise appears, at the inception of the lease, to be
reasonably assured; (c) the lease term is equal to 75% or more of the
estimated economic life of the property; or (d) the present value of the
minimum lease payments at the beginning of the lease term equals or exceeds
90% of the fair value of the property.
In the case of its direct finance leases, the Company retains title to the
asset, yet the lessee generally bears the contractual risk of loss and the
duty to maintain and insure the asset. The Company's principal exposure on a
direct finance lease is the lessee's ability to make payments (i.e., the
credit risk); therefore, only after the Company is satisfied of the lessee's
credit worthiness and of its ability to make future lease payments, and upon
receipt of an executed lease, does the Company issue a purchase order to a
manufacturer or vendor for the equipment. Generally, the lessee pays the
Company, over the non-cancellable term of the lease, an amount equal to the
purchase price of the leased equipment, less its estimated unguaranteed
residual value, if any, at the end of the lease term, plus a gross profit. The
lessee generally has the option at the conclusion of the term of the lease to
either (1) renew the lease; (2) purchase the equipment at its then market
value or for a predetermined amount; or (3) return the equipment to the
Company. The Company records a direct finance lease on its books as a
receivable. The terms of direct finance leases vary in length with the size of
the lease and the estimated useful life of the leased property and generally
range from 12 to 60 months. The median original term of the Company's direct
finance leases is approximately 33 months.
Direct finance leases are originated through dealer sales organizations,
or directly with the lessee. Approximately 35 marketing representatives and
support staff present the Company's leasing programs to dealer/vendors
(thereby providing their customers the alternative of lease financing when
acquiring various types of equipment), and/or engage in direct solicitation
programs focusing on present and former lessees and also potential new
lessees, generally through telemarketing and direct mail solicitation. Because
the Company generally purchases equipment from dealers on a nonrecourse basis,
the leasing transaction provides a sale for the dealer/vendor of the product.
Frequently, former or existing lessees request to lease additional equipment
from the Company. Upon re-examination and approval of the credit risk
(including the lessee's credit, capacity to pay, and nature of the leased
property) the Company makes a decision to purchase equipment for lease to the
direct lessee.
As of year-end 1993, the Company owned and serviced 6,390 direct finance
lease contracts. No individual lessee had direct finance leases accounting for
more than 2.3% of the total finance lease contracts outstanding as of December
31, 1993. (See note C to the consolidated financial statements for
concentration of credit risk related to finance receivables.) Direct finance
lease
2
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contracts (direct finance leasing receivables plus residual valuation less
unearned income) totalled $92,532,000 as of December 31, 1993.
Commercial Financing
The Company engages in commercial financing transactions with various
commercial customers. Commercial loans are generally secured by inventory,
receivables, equipment, or real estate. Installment loan agreements under
which a seller of commercial equipment enters into an installment sale of
equipment to a buyer are discounted by and assigned to the Company. Criteria
to qualify for commercial loans include credit worthiness, ability to make
future payments, and the quality of collateral used to secure the loans. As of
December 31, 1993, the Company had 2,102 commercial loans totalling
$35,050,000.
As of December 31, 1993, the Company held $732,000 in real estate from
foreclosures on two commercial loans. The real estate is recorded at estimated
fair value (net of disposal costs) and is included in other assets on the
consolidated financial statements.
REAL ESTATE
The Company, through American Real Estate Investment and Development Co.,
a wholly-owned subsidiary, is in the business of making and managing
investments in commercial real property for itself and on behalf of third
party investors. This activity principally involves the formation and
management of investment partnerships, asset management, and related advisory
and funding activities. The Company's portfolio was acquired through sale/
leaseback transactions, where existing buildings are purchased and leased back
to the seller; build-to-suit projects, where buildings are constructed for
lease to a specific tenant; or through the acquisition of specific properties
from third parties. In some instances, properties are acquired in joint
venture with other investors or management companies. Presently the Company
subcontracts all day-to-day asset management responsibilities to third parties
with whom the Company works closely.
The emphasis the Company places on the activities of buying, managing and/
or selling properties tends to vary from time to time in concert with the
markets and the Company's objectives. Since 1991, the Company has primarily
focused on managing and refinancing its properties. Purchases of real estate
assets are likely to be considered in 1994 as certain market conditions have
improved since the Company ceased acquisition activity at the end of 1991. The
Company also is considering the sale of certain individual assets and groups
of assets, as it does from time to time. It is likely that certain property
sales will be consumated in 1994 based on present marketing activity.
The forty-one properties owned and managed as of December 31, 1993 are
classified as follows: eighteen are office buildings, twelve are industrial
buildings, three are limited service hotels, five are various retail centers,
and three are various other commercial properties. Ten of the properties are
multi-tenant, excluding the hotels. In these projects, assistance in leasing
and other onsite management activities is provided either by co-managing
partners local to the project or through third party management companies (or
both). The Company is general partner in Hampton Inn hotels in Flint,
Michigan, Reading, Pennsylvania, and Allentown, Pennsylvania, and provides
hotel management services through American Hotel Management, Inc., a
subsidiary of the Company.
The Company has in a select few instances made operating loans to
individuals or corporate entities in connection with its real estate
investment activities. These loans are included in the "Commercial Financing"
section.
Write-down
The Company's commercial real estate continues to be affected by the
general decline in real estate industry values and poor liquidity. Certain
conditions improved in 1993, somewhat mitigating these value declines.
3
<PAGE>
Generally accepted accounting principles which govern the Company's
reporting of its carrying value of assets do not permit the Company to
increase the reported book value (original cost less accumulated depreciation)
of properties which increase in fair value. However, properties that are
believed to have experienced material decreases below book value, of a
permanent nature, must be written down by the Company in the current reporting
period at the time of such determination. As of June 30, 1992, eleven
properties were believed to have had an estimated current fair value
materially below book value. The Company, in order to reflect this value
degradation, incurred a charge to earnings, net of deferred taxes and net of
losses allocable to minority interests, of $2,773,000 and reduced its share of
reported book value in real estate assets by $4,302,000, to $33,836,000. As of
December 31, 1993, the Company incurred an additional charge to earnings, net
of deferred taxes, of $322,000, and reduced its share of reported book value
in real estate assets by $488,000 to $31,419,000.
Management used the best information reasonably available to develop its
estimates of market value and in the case of any substantial devaluations, the
Company has secured appraisals performed by third party appraisers as a basis
for establishing current value. The third party appraisals substantially
corroborated management's estimates of value. Future changes to these
estimates may be necessary if conditions differ substantially from the
assumptions used in developing these valuations.
Investment in Real Estate Partnerships
The following table is a summary of the Company's total investment in and
operating results from consolidated and unconsolidated real estate
partnerships based on the Company's specific ownership percentages. (See
"Write-down.")
<TABLE>
<CAPTION>
(IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------------------
INCOME
BEFORE TAXES NONCASH EXPENSES INCLUDED GAIN ON
YEAR INVESTMENT IN REAL FROM REAL ESTATE IN INCOME SALE OF
ENDED ESTATE PARTNERSHIPS PARTNERSHIPS BEFORE TAXES PARTNERSHIP
12/31 CONSOLIDATED INVESTEE CONSOLIDATED INVESTEE TOTAL WRITE-DOWN DEPRECIATION INTERESTS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 $9,441 $(8) $ 380 $ (39) $ 341 $ 488 $1,146 $ --
4,302
1992 4,684 66 (3,209) (229) (3,438) 1,216 1
1991 7,496 978 111 (96) 15 -- 1,081 547
1990 6,941 468 86 (199) (113) -- 908 --
1989 2,315 774 (216) (131) (347) -- 755 301
</TABLE>
Investment in real estate partnerships increased in 1993 primarily due to
the conversion of debt owed by the partnerships to the Company into capital,
capital contributions by the Company as part of the restructuring of one
partnership, and the purchase of limited partnership interests previously held
by third parties.
Investment in real estate partnerships decreased substantially in 1992 due
to the write-down of property values (see "Write-down,"). Excluding the write-
down, investment levels in 1992 increased $578,000 from 1991. Substantially
all of the increase resulted from the purchase of limited partnership
interests in investee partnerships previously held by third parties.
Continuing the trend begun in 1991, the Company refrained from the making
of investments in property acquisitions. From 1989 through 1990, investment in
real estate partnerships expanded due to property acquisitions. The Company
has not sold a material amount of properties since its inception. It is likely
in the near future that property sales will represent a more significant part
of the Company's real estate business.
Income before taxes from real estate partnerships is the aggregate of the
Company's proportionate share of such income from all partnerships in which
the Company has ownership interests.
4
<PAGE>
This income measure includes both income or loss from operations (i.e., rental
income less operating expenses, interest charges, and depreciation), and
income or loss from the sale of properties owned by the partnerships. Income
before taxes in 1993 and 1992 was negatively impacted by the write-downs
described above. Excluding the write-down in 1993, income before taxes was
$829,000. Excluding the write-down of $4,302,000 (including an adjustment for
$198,000 of losses attributable to minority interests), income before taxes
from real estate partnerships in 1992 was $666,000, an improvement from 1991.
While a continuation of the positive trend since 1989, the improvement in 1993
and 1992 was substantially attributable to lower interest costs rather than an
improvement in the operation of the Company's real estate. In general, this
profitability from operations is expected to be negatively affected in future
periods as leases expire and reset to prices reflecting the lower rents
prevailing in many of the markets in which the Company owns real estate.
Vacancy can also impact this income measure, although the Company did not
experience significant fluctuations in income due to vacancy in 1993.
As is indicated in the above table, in 1993 and 1992 the Company generated
only a nominal gain on sale of partnership interests as no meaningful sales
activity was conducted. This inactivity was due primarily to poor market
conditions resulting from general investor uncertainty over values and
concerns over real estate's relative illiquidity. The Company's activities in
earlier years had consisted of sales involving one to three partnerships. The
Company considers sales based on (i) the Company's need for additional
liquidity (ii) the extent to which the Company has access to the market for
limited partnership capital, and (iii) the attractiveness of the Company's
partnership interests as a vehicle for resale to limited partner investors.
The extent of gain on sale of partnership interests is dependent on a
number of factors: the selling price (which is dependent on the yields
necessary to attract investors as compared with the yields generated by the
partnership), selling costs, and the book value of the interests being sold,
against which gain is measured. The book value of a given interest is
dependent in part on depreciation charges previously taken, which in turn is a
function of the length of time the interest has been held prior to sale, and
other factors. Because of the interaction of these various factors, the
Company's gain on sale of partnership interests has not shown any consistent
pattern over the last five years. Because of current economic conditions, the
Company does not expect to recognize significant gains from the sale of
partnership interests in the near term.
Real Estate Financing and Contingencies
The Company has commercial loans outstanding to, and has guaranteed
portions of the debt of, nine unconsolidated real estate partnerships (See
notes E and O to the consolidated financial statements): The Company's
ownership interest in these partnerships range from 10% to 58.2% in 1993 and
1992. As of December 31, 1993 and 1992, commercial loans outstanding to these
partnerships totalled $2,412,000 and $1,408,000, respectively, and the
guaranteed portions of the debt of these partnerships were $2,400,000 and
$2,675,000, respectively.
FURNITURE AND EQUIPMENT SALES
The Company, through The Business Outlet, Inc., a wholly-owned subsidiary
located in a 36,000 square foot showroom/warehouse in West Reading,
Pennsylvania, is in the business of selling new, remanufactured and used
office furniture and equipment to the retail and wholesale market place from
the West Reading location and through several company sales representatives
located throughout central and southeastern Pennsylvania. Also, The Business
Outlet, Inc. services the computers, fax machines and copier equipment which
it sells.
The Company expects to expand this segment of its business by (i) becoming
a franchised distributor for certain lines of new office furniture; (ii)
expanding the sale of used, remanufactured and reconditioned case goods (file
cabinets, desks, shelves, etc.), seating, computer furniture, system furniture
(cubicles and panels) and new and reconditioned computers, fax machines and
copiers; and (iii) possibly opening additional showroom/warehouse locations de
novo or by acquisition.
5
<PAGE>
The Company generated gross revenues from the furniture and equipment
sales segment of its business of $1,858,000 in 1993, $1,130,000 in 1992,
$281,000 in 1991, $317,000 in 1990 and $184,000 in 1989.
Additionally, The Business Outlet, Inc. continues to provide asset related
services to the commercial leasing and commercial financing segments of the
Company, including: purchase options and personal property tax collections,
equipment appraisals, repossession services, and sales of off-lease and
repossessed equipment. (See "Business -- Commercial Leasing and Commercial
Financing".)
COMPETITION
The Company's business is highly competitive. A great number of financial
institutions and others are engaged in the same lines of business as the
Company, ranging from small enterprises to national corporations, many of
which are substantially larger and have access to greater resources than the
Company. The Company's competitors include foreign and domestic commercial and
savings banks; investment banks; national and regional leasing companies;
manufacturer-related, vendor-affiliated and bank-related leasing companies;
diversified financial service companies, insurance companies, other credit
grantors, other real estate investment companies and other sellers of new,
used and remanufactured office furniture and equipment.
Based upon information published in the American Banker, the Company
ranked as the 62nd largest among all finance companies in the United States as
of December 31, 1992, as measured by size of capital funds, which consist of
capital, surplus, retained earnings and non-current subordinated debt. Finance
companies in the American Banker survey include consumer and commercial
finance and equipment leasing companies, but exclude banks and thrifts.
Among various types of commercial lenders and lessors, competition relates
to such matters as the size and length of contracts, the interest or rental
rate and other types of finance and service charges, and the nature of the
asset residual risk which the lender or lessor is willing to assume.
In addition, equipment leasing companies and commercial finance companies
compete with other leasing companies and commercial finance companies on the
basis of name recognition, reputation for satisfactory customer service, and
retention of customers through acquisition of repeat business.
EMPLOYEES
As of December 31, 1993, the Company had 92 full-time and 6 part-time
employees. The Company encourages its employees to participate in college and
other professionally-sponsored programs to further their knowledge and
professional expertise. Effective January 1, 1994, the Company has a 401(k)
plan covering substantially all employees who qualify as to age and length of
service. This plan will continue with a profit sharing component. Previously,
the Company had two defined contribution profit sharing plans. The Company
provides health, life, and disability insurance protection; educational
assistance; supplemental health care expense reimbursement; and other standard
employee benefits during, but not after, employment with the Company.
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
See note M to the consolidated financial statements for information
relating to the Company's total revenues, operating profit, and identifiable
assets by industry segments.
ITEM 2. PROPERTIES
PROPERTY
The Company owns (through a consolidated real estate partnership) the
Horrigan American, Inc. headquarters building in Flying Hills, Reading,
Pennsylvania, which also houses the AEL
6
<PAGE>
Leasing Co., Inc. corporate staff and most of the commercial leasing and
lending staff of this subsidiary, and other tenants. This office space is
suitable and adequate for the Company's office staff and supporting computer
operations, which principally utilize telephone, fax, and computer equipment.
The Company also owns (through two consolidated real estate partnerships) the
building in which The Business Outlet, Inc. showroom/warehouse in West
Reading, Pennsylvania is located and the building in which The Business
Outlet, Inc. leases warehouse space in Fleetwood, Pennsylvania. The Company
has space available in these facilities, which should adequately cover its
growth requirements.
The Company leases its commercial leasing/lending offices in Deerfield,
Illinois (a suburb of Chicago), and Crestview Hills, Kentucky (a suburb of
Cincinnati, Ohio). The American Real Estate Investment and Development Co.
corporate staff is also located in the Deerfield, Illinois office. Rental
expense for the year 1993 for the Company's leased offices was $77,000. These
leases expire at various times through March, 1996. (See note N to the
consolidated financial statements.) The Company believes that alternative
office space is available in all areas.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
The Company is party (plaintiff or defendant) to certain legal actions.
While any litigation has an element of uncertainty, management, after
reviewing these actions with legal counsel, is of the opinion that the
liability, if any, resulting from these actions will not have a material
effect on the financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
There is no trading market for the registrant's common stock of the
Registrant. See Item 13, "Certain Relationships and Related Transactions" for
agreements restricting the right of individual parties to dispose of their
stock in the Company.
At February 28, 1994, there were 60 holders of common stock of the
Registrant.
Common stock dividends were paid in January and July of 1993 and 1992. In
1993, total dividends paid were $459,805 on 3,300,298 shares outstanding in
January and 3,273,180 shares outstanding in July. In 1992, total dividends
paid were $265,034 on 3,323,055 shares outstanding in January and 3,305,047
shares outstanding in July. (See Item 8, "Consolidated Statements of Changes
in Stockholders" Equity.'')
See Item 8, Note J to the consolidated financial statements for covenants
which restrict payment of dividends.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
SELECTED FINANCIAL DATA
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1993 1992 1991 1990 1989
--- --- --- --- ---
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Total revenues................................... $ 25,657 $ 23,096 $ 29,335 $ 29,684 $ 29,842
Earnings (loss) from continuing operations
note 3).......................................... $ 3,047 $ (413) $ 1,382 $ 1,218 $ 2,602
Total assets..................................... $164,953 $153,263 $158,787 $173,529 $181,139
Long-term debt................................... $113,315 $112,465 $116,445 $121,479 $123,123
Per common share (note 1)
Earnings (loss) from continuing operations..... $ .92 $ (.13) $ .41 $ .36 $ .78
Cash dividends declared........................ $ .14 $ .08 $ .086 $ .166 $ .128
Weighted average shares outstanding (note 1)..... 3,278,159 3,310,584 3,328,109 3,361,468 3,367,106
Ratio of earnings to fixed charges (note 2)...... 1.54 -- 1.17 1.14 1.31
</TABLE>
See accompanying notes to selected financial data.
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO SELECTED FINANCIAL DATA
1. Per Share Amounts Earnings from continuing operations per common share
were computed using weighted average shares and dilutive stock options
outstanding during each year after giving retroactive effect to the four-
for-three stock split in 1989 and after deducting preferred dividend
requirements from net earnings, and the purchase of treasury stock in 1993,
1992, 1991 and 1990. Earnings per common share assuming full dilution were
not reported because dilution arising from the stock options is less than
three percent.
2. Ratio of Earnings to Fixed Charges The ratio of earnings to fixed charges
has been computed by dividing earnings and fixed charges by the fixed
charges. Earnings for this purpose includes earnings from continuing
operations plus income taxes less equity in undistributed earnings of
unconsolidated affiliates. Fixed charges are considered to consist of
interest expense attributable to continuing operations and the portion of
rentals deemed representative of the interest factor. The ratio of earnings
to fixed charges is not expected to change by more than 10% as a
8
<PAGE>
result of this offering. The Company guaranteed $2,400,000 of debt of
unconsolidated real estate partnerships as of December 31, 1993. The amount
of fixed charges associated with this guaranteed debt was $223,000 for
1993. The computation of the ratio of earnings to fixed charges does not
include the fixed charges associated with the guaranteed debt because the
Company has not been required to honor the guarantees nor is it probable
that the Company will be required to honor the guarantees. In 1992,
earnings from continuing operations were inadequate to cover fixed charges
by $269,000. However, the ratio of earnings to fixed charges is not
intended to disclose cash flow from operations. In addition to the normal
noncash expenses, such as depreciation and provision for possible lease and
loan losses, the provision for write-down of real estate negatively affects
the ratio for 1992. The ratio of earnings to fixed charges would be 1.35 if
the provision for write-down of real estate were excluded.
3. Earnings (Loss) from Continuing Operations In 1993, the net earnings
included an after-tax charge of $322,000 which resulted from the write-down
of the Company's real estate assets
by $488,000. Excluding the after-tax effect of this write-down, the
Company's results of operations in 1993 were $3,369,000. In 1992, the net
loss included an after-tax charge of $2,773,000 which resulted from the
write-down of the Company's real estate assets by $4,302,000. Excluding the
after-tax effect of this write-down, the Company's results of operations in
1992 were $2,360,000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EARNINGS (LOSS)
The Company generated net earnings of $3,047,000 for 1993 compared to net
a loss of $413,000 in 1992 and net earnings of $1,382,000 for 1991.
As a result of an overall revaluation of its real estate portfolio, the
Company reduced the book value of its real estate assets by $4,302,000 as of
June 30, 1992, and incurred a related after-tax, non-cash charge to earnings
of $2,773,000. As of December 31, 1993, the Company reduced the book value of
its real estate assets by an additional $488,000, and incurred a related
after-tax, non-cash charge to earnings of $322,000. (See "Business -- Real
Estate -- Writedown".) Excluding the after-tax effect of these write-downs,
the Company's results of operations in 1993 were $3,369,000, a 42.8% increase
from adjusted earnings of $2,360,000 in 1992, and the Company's results of
operations in 1992 represented a 70.8% increase from net earnings of
$1,382,000 for 1991.
TOTAL FINANCE REVENUE
Commercial leasing and financing revenue was $17,401,000 in 1993,
$18,869,000 in 1992, and $20,785,000 in 1991.
The decrease in commercial leasing and financing revenue in each of the
past two years is attributable primarily to lower effective yields on the
lease and loan portfolio. Lower yields result from both relatively lower
interest rates which tend to depress the Company's lease and loan rates, and
to the mix of the Company's newly acquired leases and loans, which has moved
to higher transaction sizes where credit quality and rate sensitivity are
believed to be higher.
The Company's sales efforts have resulted in an increase in total volume
of new leases and loans in 1993 compared to 1992. This increase in outstanding
finance receivables will increase the average outstanding balance of finance
receivables and will begin to offset the effect of lower yields. Net direct
finance lease receivables and commercial finance receivables totalled
$122,144,000 as of December 31, 1993 compared to $107,985,000 as of December
31, 1992.
9
<PAGE>
While such revenue levels have been lower than preferred by the Company,
other factors have favorably impacted the Company, including reductions in
interest expense, certain operating expenses, and credit losses.
FINANCE REVENUE MARGIN
Finance revenue margin represents the difference between total finance
revenues and the amount the Company pays as interest on short-term borrowings
and long-term debt allocated to finance receivables. The Company's finance
revenue margin was $10,890,000 for 1993, $10,425,000 for 1992 and $10,869,000
for 1991.
The Company's finance revenue margin increased $465,000, or 4.5%, in 1993
from 1992. This increase in finance revenue margin was the result of a faster
decrease (22.9%) in interest expense than the 7.8% decrease in total finance
revenues. The average interest rate at which the Company prices its products
decreased 111 basis points to 14.43% in 1993 from 15.54% in 1992. The average
interest rate on the Company's borrowings decreased 149 basis points to 6.84%
in 1993 from 8.33% in 1992.
The Company's finance revenue margin decreased $444,000, or 4.1%, in 1992
from 1991, primarily due to a decline in finance receivables. This decrease in
finance revenue margin, however, was less than the 9.2% decrease in total
finance revenues, because of a 14.8% decrease in interest expense. The average
interest rate at which the Company priced its products decreased 161 basis
points to 15.54% in 1992 from 17.15% in 1991. The average interest rate on the
Company's borrowings decreased 138 basis points to 8.33% in 1992 from 9.71% in
1991.
The 1993 increase in finance revenue margin was due to the purchase of two
portfolios of finance receivables, during 1993, at a higher interest rate
spread. The Company continues to market higher average balance commercial
leasing and financing contracts, with lower yields to achieve improved asset
quality and economies of operations. As a consequence, the Company expects a
future decrease of its finance revenue margin. The Company's Asset and
Liability Committee reviews this risk regularly and manages the matching of
debt with these finance receivables.
PROVISION FOR POSSIBLE LEASE AND LOAN LOSSES
The provision for possible lease and loan losses decreased $617,000
(28.2%) to $1,573,000 in 1993 and decreased $2,390,000 (52.2%) to $2,190,000
in 1992. The following table details the components of the provision for
possible lease and loan losses as of and for the years ended December 31,
1993, 1992 and 1991.
<TABLE>
<CAPTION>
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------
PROVISION ALLOWANCE
FOR POSSIBLE FOR GROSS ALLOWANCE
LEASE AND NET LOSS EXPERIENCE POSSIBLE INVESTMENT AS A % OF
YEAR LOAN ---------------------------------------- ACQUIRED LEASE AND LOAN IN GROSS
ENDED LOSSES CHARGE-OFFS RECOVERIES NET LOSSES ALLOWANCE LOSSES RECEIVABLES RECEIVABLES
- ------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL LEASING AND FINANCING
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 $1,573 (2,736) 1,136 (1,600) 852(A) $5,438 $144,313 3.77%
1992 $2,190 (3,205) 1,178 (2,027) 240(A) $4,613 $127,880 3.61%
1991 $4,580 (5,033) 1,095 (3,938) 225(A) $4,210 $131,267 3.21%
<FN>
(A) The balance of the allowance for possible lease and loan losses increased
as a result of the acquisition of portfolios of finance receivables.
</TABLE>
10
<PAGE>
The Company maintains an allowance for possible lease and loan losses
based on a periodic evaluation of the finance receivable portfolio. Management
considers current economic conditions, diversification of the loan portfolio,
historical loss experience, results of loan reviews, borrower's financial and
managerial strengths, the adequacy of underlying collateral and other relevant
factors in its evaluation. While management uses the best available
information to make such evaluations, future adjustments to the allowance may
be necessary if conditions differ substantially from the assumptions used in
making the evaluation. This allowance reflects an amount that in management's
opinion is adequate to absorb known and inherent losses in the portfolio.
Receivables which are determined to be uncollectible are charged off against
the allowance for possible lease and loan losses, and recoveries on accounts
previously charged off are credited to it.
As of December 31, 1993, the Company allocated $290,000 of the allowance
for possible lease and loan losses in anticipation of future losses on certain
individually significant accounts. This allocated allowance decreased
$125,000 in 1993 over 1992. As of December 31, 1992, the Company allocated
$415,000 of the allowance for possible lease and loan losses in anticipation
of future losses on certain individually significant accounts. This allocated
allowance increased $83,000 in 1992 over 1991.
The Company's net charge-offs of commercial leasing and financing
receivables decreased by $427,000, or 21.1%, in 1993 over 1992. The Company's
net charge-offs of commercial leasing and financing receivables increased by
$1,911,000 or 48.5%, in 1992 over 1991. The decrease in net losses was the
result of improved underwriting standards, improved adjusting procedures,
aggressive use of legal remedies, strong remarketing efforts, and a somewhat
healthier economy.
The Company continues to improve its asset quality and control the
delinquency of receivables. The Company's tighter credit standards and more
focused efforts within several market niches, has enhanced asset quality. In
certain situations, larger down payments, additional security deposits, and/or
shorter terms are now required. An asset review committee monitors the quality
of the Company's assets. The Company's improved collection and adjusting
procedures have resulted in effective control of delinquent receivables.
Management believes the allowance for possible lease and loan losses is
adequate to cover estimated future credit losses.
NET OPERATING LEASE REVENUES
Net operating lease revenues represent rents on real estate and equipment
operating leases offset by related interest and depreciation expenses. Net
operating lease revenues increased $61,000 or 3.1% in 1993 over 1992, although
total operating lease revenues decreased $254,000 or 4.3% to $5,681,000. The
decrease in total operating lease revenues is due primarily to decreases in
lease revenue resulting from the sale of two properties in 1993 and the write-
off of uncollectible rents, offset by rents received on certain properties
which were on a non-accrual basis in 1992, and the collection of lease
arrearages on three properties. Interest expense attributable to net operating
lease revenues decreased $289,000 due to lower interest rates on a portion of
the outstanding mortgage debt and less mortgage debt outstanding during the
period. Depreciation expense attributable to net operating leases decreased
$26,000, primarily the result of the lower basis for certain real estate
properties due to the write-down to fair value during 1992, and the sale of
two properties, offset by an increase in depreciation due to equipment
operating leases generated in 1993.
Net operating lease revenues increased $666,000 or 51.6% in 1992 over
1991. Total operating lease revenues increased $596,000 or 11.2% to
$5,935,000. The increase in total operating lease revenues is due primarily to
revenue earned during 1992 on a real estate property acquired in May, 1991,
collection of lease arrearages from tenants in three properties, and rental
income from two partnerships, previously accounted for on the equity method,
now included in the consolidated financial statements due to the Company's
acquisition of a controlling interest in these partnerships. Interest expense
attributable to net operating lease revenues decreased $157,000 in 1992
11
<PAGE>
over 1991 due to lower interest rates on a portion of the outstanding debt in
1992. Depreciation expense attributable to net operating leases increased
$87,000.
The Company's principal objective with its real estate business for the
foreseeable future is to (1) manage its properties aggressively, (2) maintain
the integrity of the assets through appropriate capital expenditures, (3)
accelerate paydown of the debt associated with those properties as available
cash flow permits, (4) continue to refinance mortgage debt at more attractive
rates, and (5) hold the assets until commercial real estate market conditions
improve at which time(s) the Company may consider selling individual
properties or groups of properties. Additionally, the Company may consider
purchasing real estate assets in 1994 since certain market conditions have
improved.
The Company's aggregate investment in real estate is not expected to
significantly appreciate in value over the next several years. In addition,
net operating lease revenues from some existing investments may decline in the
short to intermediate term, as rents under many existing leases are expected
to remain flat or decrease as leases expire over the next several years. While
this will tend to depress the Company's profitability in its real estate
operations for a period of time, it is expected that the Company's real estate
investments (after third party mortgage debt service obligations and overhead
expenses) will continue to provide positive cash flow to the Company.
The commercial real estate business is subject to several risks which
management reviews on a regular basis. These risks are identified below with
the status of each as of December 31, 1993:
1. Credit risks.
There are various levels of credit risks inherent in the Company's
lease receivables. A total of $21,200 of rents were thirty or more days
past due of which $12,300 represents amounts due from one tenant.
2. General market conditions nationally or within specific geographic
areas.
The Company is maintaining an ownership interest, ranging from 10% to
100%, in 41 real estate properties with an original cost of $63,801,000
in the following states, with the percentage of concentration indicated
in parenthesis: Pennsylvania (30%), Florida (27%), New Jersey (14%),
Ohio (10%) and other (19%).
3. Greater difficulty in releasing or selling special purpose buildings.
The Company's special purpose buildings include three day-care
facilities and one nursing home. None are presently for sale and all
are fully occupied. The Company also owns and manages three limited-
service hotels.
4. Vacancies.
Presently there are partial vacancies in seven real estate projects
which may require additional cash from the Company until the properties
are substantially leased. Management is actively pursuing new tenants
for these properties.
5. Property repairs and improvements.
Preservation of the quality and value of commercial real estate
properties requires that repairs and improvements occur regularly. In a
majority of the Company's properties, the obligation to incur such
expenditures has been passed to the tenants. Provided the tenants have
the financial resources to comply, the Company is able to avoid or
defer this responsibility. In other cases, the responsibility is
retained by the Company, and repairs and improvements are funded out of
current operating lease cash flows or through cash reserves; and if
necessary through increased investments or additional borrowings. It is
estimated that, not including potential ADA requirements as discussed
below, up to approximately $672,000 of improvements may be made within
the next twelve months.
The timing and amount of repairs or improvements is determined by the
operating history and present level of operating lease revenue levels
of the property, by the Company's plans
12
<PAGE>
for a property (such as a sale, lease, or renovation), and in some
cases by regulatory directives. In 1992, the Americans with
Disabilities Act ("ADA") was passed, requiring the improvement of many
properties under certain conditions in order to accommodate the needs
of the physically disabled. In certain of the Company's properties,
meeting ADA requirements will necessitate improvements at various
times. The Company has not finalized its review but estimates that the
cost of improvements will not be material relative to the cost of the
property.
6. Inability to obtain the extension or replacement of existing mortgage
loans as they mature.
The extensions or replacement of existing mortgage loans as they come
due continue to involve a higher degree of risk in the current and
reasonably foreseeable environment than was previously the case. Such
loans, when available, are frequently at lower loan amounts. In 1994,
approximately $855,000 of third party mortgage debt will come due and
will require negotiation or replacement financing. It is expected that
a substantial portion of this debt will be renegotiated for extended
terms with existing lenders. To the extent any such debt is not
extended in maturity, the Company expects to seek funding from other
lenders or provide funding internally, if necessary.
7. Valuation of real estate properties.
A decline in the market value of the Company's investment in real
estate can provide risk to the Company in several ways. To the extent
the declines indicate a reduction in the rentals expected on a
property, the Company will experience a decline in operating lease
revenues. Also, lower values can reduce the amount of available loan
borrowings or equity capital available from third parties to the
Company to fund its continued ownership of the properties, and can
reduce eventual sale proceeds if properties are sold and values have
not recovered.
In general, conditions affecting the value of individual properties can
change from period to period. Conditions include an extremely wide
variety of factors outside the control of the Company. In the case of
many of the Company's real estate operating leases, a change in
conditions can also include the early termination of a favorable lease
caused by a tenant's financial difficulties or the modification of such
a lease arising out of the negotiation of a new lease with a tenant.
The Company is presently in negotiations involving several of its
properties, any of which may result in lower operating lease revenues
in future periods.
As of December 31, 1993, three properties were believed to have an
estimated current fair value materially below book value. Accordingly,
these properties were written down as of the date of the determination.
OTHER OPERATING REVENUES
Other operating revenues increased $4,283,000 to $2,575,000 in 1993 from a
loss of $1,708,000 in 1992. The loss in 1992 resulted from the write-down of
the Company's real estate portfolio by $4,302,000 in June 1992. A $488,000
provision for write-down of real estate was recorded in 1993 (see "Business --
Real Estate -- Write-down"). Customer service fees decreased $260,000
primarily due to a reduction in insurance premiums earned as a result of the
discontinuance of the lease insurance program in mid-1992 and fewer late
charges earned. Management income decreased $88,000 primarily due to
nonrecurring fees earned in 1992 from the negotiation of the sale of certain
equipment. Furniture and equipment sales increased $296,000 due to the entry
into the modular furniture business and the achievement of good volume. The
Company's share of losses in unconsolidated real estate partnerships decreased
$190,000. Gain on sale of debt and equity securities increased $405,000. Other
income decreased $74,000.
Other operating revenues decreased $4,919,000, in 1992 from 1991.
$4,302,000 of the decrease is attributable to the provision for write-down of
real estate (see "Business -- Real Estate -- Write-down"). Customer service
fees decreased $179,000 due to fewer leases and loans in 1992, and
13
<PAGE>
management and broker income decreased $12,000. Furniture and equipment sales
increased $291,000 due to the expansion of the service department and improved
volume of computer sales. The Company's share of losses in unconsolidated real
estate partnerships increased $133,000. Other income decreased $588,000 in
1992 from 1991. Other income in 1992 includes gains of $149,000 from the sale
of a building and $69,000 from the disposition of property under a capitalized
lease. Other income in 1991 included gains totalling $547,000 recognized on
the sale of interests held in three real estate partnerships, and a $44,000
gain from the sale of a building.
OPERATING EXPENSES
Operating expenses decreased $152,000 (1.7%) to $8,831,000 in 1993.
Salaries, related taxes, and employee benefits decreased $80,000 (1.7%) due to
a reduction in number of employees, offset by an increase in incentive
compensation. Depreciation and amortization decreased $36,000 (6.0%) primarily
due to a reduction in lease insurance expense due to the discontinuance of
this program in July 1992, offset by the write-off of deferred costs
associated with a mortgage which was subsequently refinanced. All remaining
expenses decreased $36,000 (1.0%) due to an across the board reduction in
expenses offset by fees paid to third party management companies to assist in
managing the day-to-day operations of most of the real estate properties owned
by the Company (this increase, however, is offset by a reduction in salary
expense for the Company's real estate investment subsidiary) and consultant
expenses incurred due to the acquisition of the capital stock of Canyon
Capital, Inc. in June 1993 (see "Business -- Commercial Leasing and Commercial
Financing -- Acquisitions"). Although the Company contained operating expenses
based on the above analysis, further expense reductions are necessary due to
an anticipated decrease in finance revenue margin.
Operating expenses increased $533,000 (6.3%) to $8,983,000 in 1992.
Salaries, related taxes, and employee benefits increased $160,000 (3.6%) due
to the removal of a salary freeze, an increase in incentive compensation, and
termination pay for several employees. Depreciation and amortization decreased
$165,000 (21.7%) due to fewer asset acquisitions. All remaining expenses
increased $538,000 (16.8%) due primarily to an increase in real estate
expenses incurred by two real estate partnerships previously accounted for on
the equity method, now included in the consolidated financial statements due
to the Company's acquisition of a controlling interest in these partnerships.
PROVISION FOR INCOME TAXES
Income taxes for 1993 were $1,900,000; for 1992 were $144,000 (including
$241,000 of state income taxes for the Company's profitable subsidiaries); and
for 1991 were $888,000. The effective income tax rates for 1993, 1992 and 1991
were 37.4%, 28.8% and 38.0%, respectively (see note L to the consolidated
financial statements). The effective tax rate is higher than the statutory
federal income tax rate due principally to the provision for state income
taxes, net of federal tax benefit.
Income taxes for 1993 increased $1,756,000 due to higher pre-tax income.
Income taxes for 1992 decreased $744,000 due to a pre-tax loss, principally
the result of the net provision for real estate write-down which provided a
$1,310,000 income tax benefit.
Effective January 1, 1993, the Company adopted SFAS No. 109. The
cumulative effect of this change in the method of accounting for income taxes
is $0 to the 1993 consolidated statement of operations (see note A to the
consolidated financial statements).
NET INVESTMENT IN FINANCE RECEIVABLES AND PROPERTY UNDER OPERATING LEASES
Net direct finance lease receivables and commercial finance receivables
totaled $122,144,000 as of December 31, 1993 compared to $107,985,000 as of
December 31, 1992, a net increase of $14,159,000 for the year. Property under
operating leases, net of accumulated depreciation, decreased $3,108,000,
resulting from normal depreciation, the sale of two properties, and the write-
down of certain real estate properties (see "Business -- Real Estate -- Write-
down".)
14
<PAGE>
The increase in finance receivables was in accordance with the Company's
growth plans. The Company's sales efforts have generated a larger volume of
new leases and loans in 1993 due to increased penetration into focus markets,
while maintaining the Company's policy of tight credit standards. In addition,
the Company obtained the lease and loan portfolio of Canyon as part of the
purchase of that company on June 1 (see "Business -- Commercial Leasing and
Commercial Financing -- Acquisitions"), and the Company purchased a lease and
loan portfolio for $3,914,000 in cash on September 30. Future originations
will be dependent to a large extent upon economic conditions and the Company's
ability to sell services in a competitive market environment. The Company
continues to look for opportunities to acquire portfolios of leases and loans
which will compliment the Company's existing finance receivables.
The change in property under operating leases is in accordance with
management strategy. Due principally to the reduced availability of mortgage
debt financing and the illiquidity in most commercial real estate markets
(including those in which the Company owns properties), the Company, at the
present time, is primarily holding its assets for investment purposes, except
in limited circumstances, since the Company ceased acquiring properties in
1991. Purchases of real estate assets may be considered in 1994 since certain
market conditions have improved. Sales are considered at various times
depending on such factors as pricing, capital needs, and tenant interests.
LIQUIDITY
Liquidity represents the Company's ability to meet ongoing financial
obligations. The Company's ongoing liquidity is dependent upon continued
profitability and collection of its receivables and rentals, the ability to
sell equipment or collect purchase option payments at the conclusion of
maturing equipment leases, the sale of Subordinated Investment Certificates,
the ability to secure new senior debt (loans from banks and other financial
institutions), the ability to secure real estate mortgage financing, to sell
real estate, and to sell equity interests in real estate partnerships, and
other financing, and the ability to expand furniture and equipment sales
activities.
Net cash provided by continuing operating activities was $7,175,000 for
1993, $7,411,000 for 1992 and $7,044,000 for 1991.
The Company's direct finance lease receivables and equipment operating
leases are funded primarily with unsecured senior debt. The Company generally
attempts to match new leases with borrowings of like maturity and amount in
which the interest rate is fixed at the time of the borrowing. Additionally,
the Company borrows term debt with varying maturities and short-term floating
interest rate debt, and uses Subordinated Investment Certificate debt. The
Company's commercial finance receivables are similarly match funded by various
forms of unsecured senior debt and Subordinated Investment Certificate debt.
The Company has unused lines of credit totalling $51,871,000 as of December
31, 1993. (See "Capital Resources").
The Company's investment in real estate (property under operating leases)
is leveraged substantially with borrowings by the Company. Much of the debt is
comprised of mortgage loans securing individual properties. Of the mortgage
debt, a substantial amount is nonrecourse to the Company, with the balance
being recourse through guarantees by Horrigan American, Inc. or its real
estate subsidiary. Of the investment in real estate not funded with mortgage
debt, a substantial amount is funded indirectly by the Company with
Subordinated Investment Certificate debt.
In the opinion of management, the Company's liquidity position is
sufficient under present circumstances.
CAPITAL RESOURCES
Future growth of the Company will depend in significant measure on its
ability to obtain additional lines of credit and other financing, the
continued sale of Subordinated Investment
15
<PAGE>
Certificates, the sale of equity interests in real estate partnerships and
continued profitability. As of December 31, 1993, the Company had the
following debt structure:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
DEBT OUTSTANDING AND
AVAILABILITY/LINES OF CREDIT
---------------------------------------------------
TOTAL IN
AVAILABILITY USE UNUSED
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Borrowings:
Investment Certificate.............................................. $ -- $ 2,805 $ --
Fixed Rate.......................................................... 23,503 13,500 10,003
Floating Rate....................................................... 5,000 -- 5,000
------------ ------------ ----------
Sub-Total....................................................... 28,503 16,305 15,003
------------ ------------ ----------
Long-Term Debt:
Recourse
Investment Certificate.............................................. -- 25,964 --
Junior Subordinated Debt............................................ -- 103 --
Unsecured Funding Program........................................... 87,193 50,325 36,868
Fixed Rate.......................................................... 12,997 12,997 --
Term Loan........................................................... -- 411 --
Real Estate Mortgages............................................... -- 5,080 --
Nonrecourse
Real Estate Mortgages............................................... -- 18,358 --
Floating Rate....................................................... -- 77 --
------------ ------------ ----------
Sub-Total....................................................... 100,190 113,315 36,868
------------ ------------ ----------
TOTAL DEBT............................................................ $ 129,620
============
TOTAL AVAILABILITY.................................................... $ 128,693 $ 51,871
============ ==========
</TABLE>
Total stockholders' equity increased by $2,647,000 from December 31, 1992
to December 31, 1993 due to the net earnings of $3,047,000 for 1993 and the
net unrealized holding gains for available-for-sale securities ($1,374,000),
offset by the payment of dividends ($475,000) and the purchase of treasury
stock ($1,373,000).
Refer to Notes H and I to the consolidated financial statements for
disclosure of the outstanding short-term and long-term debt, including lines
of credit information. In the opinion of management, the Company's capital
resources are sufficient under present circumstances to satisfy its capital
requirements based upon present asset growth projections, current leverage,
continued profitability and historic ability to secure new sources of
borrowings.
INFLATION
The Company's financial statements, and the related financial data
presented herein have been prepared in accordance with generally accepted
accounting principles, which generally require the measurement of financial
position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The primary impact of inflation on the operation of the Company is
reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on the Company's performance than the effects of general levels of inflation.
INTEREST RATES
Interest rates do not necessarily move in the same direction or in the
same magnitude as the price of goods and services. Management believes that
continuation of its efforts to manage the
16
<PAGE>
rates, liquidity and interest sensitivity of the Company's assets and
liabilities is necessary to generate an acceptable return on assets and return
on equity.
Interest rate sensitivity management seeks to avoid fluctuating net
interest margins and to enhance consistent growth of net interest margins
through periods of changing interest rates.
Interest rate risks arise when interest-earning assets mature or when
their rates of interest change in time frames that are different from those of
interest-bearing liabilities. The matching of assets and liabilities may be
analyzed by examining the extent to which they are "interest rate sensitive"
and by monitoring an institution's interest rate sensitivity "gap." An asset
or liability is said to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of interest-
earning assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within that same
time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. During a
period of rising interest rates, a negative gap would tend to adversely affect
net interest income while a positive gap would tend to result in an increase
in net interest income. During a period of falling interest rates, a negative
gap would tend to result in an increase in net interest income while a
positive gap would tend to adversely affect net interest income.
The rate of growth in interest free sources of funds (e.g., stockholders'
equity) will influence the level of interest sensitive funding sources. In
addition, the absolute level of interest rates will affect the volume of
earning assets and funding sources. As a result of these limitations, the
interest sensitivity gap is only one factor to be considered in estimating the
net finance revenue margin. The Company monitors and adjusts the gap position,
taking into consideration current interest rate projections, and maintaining
flexibility if rates move contrary to expectations.
As of December 31, 1993, the Company had a three-month negative cumulative
gap of 3.7%, a six-month negative cumulative gap of 3.8% and a twelve-month
negative cumulative gap of 2.4% on total earning assets of $146,464,000. The
cumulative gaps for years two through ten ranged from 18.5% positive to 3.1%
positive. These percentages are reflective of scheduled principal payments
only and have not been adjusted for anticipated early pay-offs. The relatively
short duration of many of the Company's earning assets indicates that the
interest rate sensitivity gap will probably remain within its present, rather
narrow, margin under current market interest rate conditions. Management
believes the Company's cumulative gap ranges are satisfactory for achieving
acceptable net interest margins.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS
Prepared for filing as Item 8 of Annual Report (Form 10K) to the
Securities and Exchange Commission for the Year Ended December 31, 1993.
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
HORRIGAN AMERICAN, INC.
We have audited the accompanying consolidated balance sheets of Horrigan
American, Inc. and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1993. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Horrigan
American, Inc. and subsidiaries as of December 31, 1993 and 1992 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Note A to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, and Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities, in 1993.
KPMG PEAT MARWICK
February 2, 1994
Philadelphia, Pennsylvania
18
<PAGE>
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1992
------------ ------------
(In thousands)
--------------
<S> <C> <C>
Cash..................................................................................... $ 2,160 $ 2,202
Investments in debt and equity securities................................................ 2,697 719
Net investment in finance receivables....................................................
122,144 107,985
Equity investments in real estate partnerships........................................... (8) 66
Property under operating leases, net.....................................................
31,631 34,739
Property and equipment, net.............................................................. 2,301 2,122
Other assets............................................................................. 4,028 5,430
------------ ------------
$ 164,953 $ 153,263
============ ============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Short-term borrowings.................................................................... $ 16,305 $ 9,894
Accounts payable and accrued expenses.................................................... 4,244 2,989
Customer deposits........................................................................ 2,188 1,038
Long-term debt:
Recourse............................................................................... 94,880 93,098
Nonrecourse............................................................................ 18,435 19,367
------------ ------------
Total Liabilities.................................................................. 136,052 126,386
------------ ------------
Minority interest........................................................................ 244 867
------------ ------------
Stockholders' equity:
Preferred stock, $100 par value: 8% noncumulative, nonvoting: autho-
rized 20,000 shares; issued and outstanding 1,952 shares............................. 195 195
Common stock, $1 par value: authorized 10,000,000 shares; issued
3,111,766 shares in 1993 and 3,597,666 shares in 1992; outstanding 3,111,766 shares
in 1993 and 3,300,298 shares in 1992................................................. 3,112 3,598
Capital in excess of par value......................................................... -- 1,215
Net unrealized holding gains for available-for-sale securities......................... 1,374 --
Retained earnings...................................................................... 23,976 22,639
Less treasury stock, at cost; 0 shares in 1993 and 297,368 shares
in 1992.............................................................................. -- (1,637)
------------ ------------
Total Stockholders' Equity......................................................... 28,657 26,010
------------ ------------
$ 164,953 $ 153,263
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
19
<PAGE>
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands, except per share amounts) 1993 1992 1991
- -------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Finance revenues:
Commercial leasing and financing revenue.................................... $ 17,401 $ 18,869 $ 20,785
Interest expense............................................................ 6,511 8,444 9,916
---------- ---------- ----------
Finance revenue margin.................................................. 10,890 10,425 10,869
Provision for possible lease and loan losses................................ 1,573 2,190 4,580
---------- ---------- ----------
Finance revenues after provision for possible lease
and loan losses....................................................... 9,317 8,235 6,289
---------- ---------- ----------
Operating lease revenues:
Rents on real estate operating leases....................................... 5,556 5,850 5,281
Rents on equipment operating leases......................................... 125 85 58
---------- ---------- ----------
Total operating lease revenues.......................................... 5,681 5,935 5,339
Interest expense............................................................ 2,517 2,806 2,963
Depreciation................................................................ 1,147 1,173 1,086
---------- ---------- ----------
Net operating lease revenues............................................ 2,017 1,956 1,290
---------- ---------- ----------
Other operating revenues (losses):
Customer service fees....................................................... 1,218 1,478 1,657
Management and broker income................................................ 223 311 323
Furniture and equipment sales, net of cost of goods sold.................... 694 345 4
Equity loss in real estate partnerships.....................................
(39) (229) (96)
Provision for write-down of real estate..................................... (488) (4,302) --
Gain on sale of debt and equity securities.................................. 411 6 2
Other income................................................................ 556 683 1,321
---------- ---------- ----------
Total other operating revenues (losses)................................. 2,575 (1,708) 3,211
---------- ---------- ----------
Operating expenses:
Salaries and employee benefits.............................................. 4,566 4,646 4,486
Depreciation and amortization............................................... 560 596 761
Other taxes................................................................. 633 738 521
Credit and collection....................................................... 324 328 449
Other expenses.............................................................. 2,748 2,675 2,233
---------- ---------- ----------
Total operating expenses................................................ 8,831 8,983 8,450
---------- ---------- ----------
Earnings (loss) before income taxes and minority interest..................... 5,078 (500) 2,340
Income tax provision........................................................ 1,900 144 888
---------- ---------- ----------
Earnings (loss) before minority interest...................................... 3,178 (644) 1,452
Minority interest (income)/loss............................................. (131) 231 (70)
---------- ---------- ----------
Net earnings (loss)........................................................... $ 3,047 $ (413) $ 1,382
========== ========== ==========
Net earnings (loss) per common share.......................................... $ 0.92 $ (0.13) $ 0.41
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED NET UNREALIZED
CAPITAL LOSS ON HOLDING GAINS
IN EXCESS MARKETABLE FOR AVAILABLE-
PREFERRED COMMON OF PAR EQUITY FOR-SALE RETAINED TREASURY
(In thousands) STOCK STOCK VALUE SECURITIES SECURITIES EARNINGS STOCK
- ---------- ----------- ---------- ---------- ---------------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1991............. $195 $3,568 $1,080 $(166) $ -- $22,253 $(1,173)
Net earnings............... -- -- -- -- -- 1,382 --
Cash dividends declared
($.086 per common share). -- -- -- -- -- (286) --
($8.00 per preferred
share)................. -- -- -- -- -- (16) --
Purchase of treasury
stock at cost --
29,498 shares............ -- -- -- -- -- -- (195)
Issuance of 12,465 shares
in connection with
incentive stock options.. -- 13 54 -- -- -- --
Issuance of 327 shares..... -- -- 2 -- -- -- --
Change in carrying
value.................... -- -- -- 166 -- -- --
------ -------- -------- ------- -------- --------- ---------
Balance as of
December 31, 1991........... 195 3,581 1,136 -- -- 23,333 (1,368)
Net loss................... -- -- -- -- -- (413) --
Cash dividends declared
($.080 per common
share)................. -- -- -- -- -- (265) --
($8.00 per preferred
share)................. -- -- -- -- -- (16) --
Purchase of treasury
stock at cost --
39,278 shares............ -- -- -- -- -- -- (269)
Issuance of 16,045 shares
in connection with
incentive stock options.. -- 16 76 -- -- -- --
Issuance of 476 shares..... -- 1 3 -- -- -- --
------ -------- -------- ------- -------- --------- ---------
Balance as of
December 31, 1992........... 195 3,598 1,215 -- -- 22,639 (1,637)
NET EARNINGS............... -- -- -- -- -- 3,047 --
CASH DIVIDENDS
DECLARED
($.14 PER COMMON
SHARE)................. -- -- -- -- -- (459) --
($8.00 PER PREFERRED
SHARE)................. -- -- -- -- -- (16) --
PURCHASE OF TREASURY
STOCK AT COST --
200,566 SHARES........... -- -- -- -- -- -- (1,373)
ISSUANCE OF 11,300 SHARES
IN CONNECTION WITH
INCENTIVE STOCK OPTIONS.. -- 11 58 -- -- -- --
ISSUANCE OF 734 SHARES..... -- 1 4 -- -- -- --
RETIREMENT OF TREASURY
STOCK -- 497,934 SHARES.. -- (498) (1,277) -- -- (1,235) 3,010
CHANGE IN CARRYING VALUE,
NET OF TAX............... -- -- -- -- 1,374 -- --
------ -------- -------- ------- -------- --------- ---------
BALANCE AS OF
DECEMBER 31, 1993........... $195 $3,112 $ -- $ -- $1,374 $23,976 $ --
====== ======== ======== ======= ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands) 1993 1992 1991
- --------- ---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Finance revenues received................................................. $ 15,498 $ 16,790 $ 17,988
Rentals and other cash received........................................... 9,534 9,115 8,455
Lease purchase options received........................................... 2,695 3,306 3,483
Dividends received........................................................ 26 36 43
Interest paid............................................................. (9,069) (11,395) (12,898)
Cash paid to suppliers and employees...................................... (9,027) (8,770) (8,686)
Income taxes paid......................................................... (2,482) (1,671) (1,341)
---------- ---------- ----------
Net cash provided by operating activities (note P)...................... 7,175 7,411 7,044
---------- ---------- ----------
Cash flows from investing activities:
Originations and purchases of finance receivables......................... (74,552) (57,064) (65,172)
Principal collections of finance receivables..............................
75,629 74,769 76,386
Acquisition of assets of Reli Financial Corp.............................. -- (21,404) --
Acquisition of capital stock of Canyon Capital, Inc.
(net of cash received) (note R).........................................
(4,138) -- --
Acquisition of debt and equity securities................................. (166) (106) (267)
Proceeds from sale of debt and equity securities.......................... 673 211 1,925
Acquisition of property under operating leases............................ (328) (369) (440)
Proceeds from sale of property under operating leases..................... 1,476 540 242
Acquisition of property and equipment..................................... (182) (282) (174)
Proceeds from sale of property and equipment.............................. 5 1 11
Acquisition of equity, partnership and long-term
investments.................................................................
(164) (491) (798)
Proceeds from sale of equity, partnership and long-term
investments.............................................................
152 127 710
Insurance premium paid increasing cash value.............................. (30) (64) (12)
---------- ---------- ----------
Net cash provided by (used by) investing activities..................... (1,625) (4,132) 12,411
---------- ---------- ----------
Cash flows from financing activities:
Issuance of common stock.................................................. 74 96 69
Minority capital received................................................. -- 37 42
Dividends paid and partnership distributions.............................. (629) (522) (373)
Acquisition of treasury stock............................................. (1,373) (269) (195)
Short-term debt borrowings................................................ 87,250 59,640 130,905
Short-term debt repayment................................................. (84,986) (59,890) (141,705)
Long-term debt borrowings................................................. 54,236 51,581 50,953
Long-term debt repayment.................................................. (59,663) (58,041) (60,678)
Certificate borrowings.................................................... 6,307 9,000 7,801
Certificate repayment..................................................... (6,566) (6,364) (4,092)
Net change in customer deposits........................................... (242) (342) (305)
---------- ---------- ----------
Net cash used by financing activities................................... (5,592) (5,074) (17,578)
---------- ---------- ----------
Net increase (decrease) in cash............................................. (42) (1,795) 1,877
Cash at beginning of year................................................. 2,202 3,997 2,120
---------- ---------- ----------
Cash at end of year....................................................... $ 2,160 $ 2,202 $ 3,997
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the
preparation of the accompanying consolidated financial statements follows.
Principles of Consolidation
The consolidated financial statements include the accounts of Horrigan
American, Inc., eight wholly-owned subsidiaries (American Equipment Leasing
Co., Inc., AEL Leasing Co., Inc., American Commercial Credit Corp., AEL
Holdings, Inc., Horrigan American Securities, Inc., American Real Estate
Investment and Development Co., American Hotel Management, Inc. and The
Business Outlet, Inc.), and thirty real estate partnership investments,
wherein the Company is maintaining a controlling interest, ranging from 10% to
100% (the Company).
All significant intercompany balances and transactions have been
eliminated in consolidation.
Investments in ten real estate partnerships, wherein the Company is not
maintaining a controlling interest, are stated at cost plus equity in
undistributed net earnings since dates of acquisition.
Minority interest, as reported in the consolidated balance sheets,
includes the income or loss for the minority investors of real estate
partnerships. This minority interest balance fluctuates due to current year
income or loss, contributions to, and distributions from, the partnerships;
changes in ownership percentages; or the addition or deletion of partnerships
from the group of consolidated partnerships.
Investments in Debt and Equity Securities
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115). This statement requires
investments in equity securities with a readily determinable fair value and
investments in all debt securities to be classified at the date of acquisition
in one of three categories. The three categories are (1) held to maturity --
carried at amortized cost; (2) available for sale -- carried at fair value
(with unrealized gains and losses flowing through a separate component of
stockholders' equity); and (3) trading account -- carried at fair value (with
unrealized gains and losses flowing through the income statement).
Effective December 31, 1993, the Company adopted SFAS No. 115. The fair
value of securities is based on quoted market prices. The cumulative effect of
this change in the method of accounting for the Company's investments in
securities is $1,374,000 and has been included as a separate component of
stockholders' equity as of December 31, 1993. Prior to 1993, the Company
carried all debt securities at amortized cost (because it had the intent and
ability to hold such securities until maturity) and all equity securities at
the lower of aggregate cost or market.
Net Investment in Finance Receivables
Net investment in finance receivables consists of commercial leasing and
financing receivables, and lease residual value receivables. Receivables are
stated at gross balances net of unearned income and net of the allowance for
possible lease and loan losses.
Real Estate Investment Activity
Included in Equity Investments in Real Estate Partnerships and Property
Under Operating Leases are various investments in commercial real estate. This
activity principally involves the formation and management of investment
partnerships, property management, and related advisory and funding
activities. The forty-one properties owned and managed as of December 31, 1993
are classified as follows: eighteen are office buildings, twelve are
industrial buildings, three are limited service hotels, five are various
retail centers and three are various other commercial
23
<PAGE>
NOTE A -- SUMMARY OF ACCOUNTING POLICIES -- CONTINUED
properties. Ten of the properties are multi-tenant, excluding the hotels.
Significant geographic concentrations (based on property cost) within the
portfolio are: Pennsylvania (30%), Florida (27%), New Jersey (14%) and Ohio
(10%).
Real estate properties are recorded at the lower of cost or net realizable
value. Properties that are believed to have experienced material decreases in
net realizable value below book value, of a permanent nature, are written down
in the current reporting period at the time of such determination. In making
such determinations, consideration is given to such factors as cash flows,
reserves, vacancy factors, capitalization rates and growth rates.
On a periodic basis, or upon the occurrence of a triggering event (e.g.,
default of a major tenant), management performs an internal valuation on such
properties. These valuations reflect current expectations relating to cash
flows, reserves, vacancy factors, capitalization rates and growth rates. If
such valuation results in the devaluation of a property, which management
believes is other than temporary, that valuation is recognized as a charge to
earnings in the current period.
Revenue Recognition
The accounting for nonrefundable fees and costs associated with
originating or acquiring loans and initial direct costs of leases is presented
in accordance with Statement of Financial Accounting Standards No. 91.
Income on direct finance leases included in the minimum lease payments is
deferred and earned on the interest method to reflect a constant periodic rate
of return on the net investment in the lease. Residual values of leased
equipment represent the estimated fair value of the equipment at the
conclusion of the lease. Residual values for direct finance leases are earned
on the interest method over the life of the related leases.
Income on commercial finance receivables is earned on the interest method
to reflect a constant periodic rate of return.
The accrual of income on finance receivables is discontinued once a
finance receivable becomes one day past due. Also, when in management's
judgment it is determined that a reasonable doubt exists as to the
collectibility of additional income, future payments are applied to the
principal balance only, and the finance receivable is classified as non-
performing.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" (SFAS No. 114). This statement requires that certain
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate. SFAS No. 114 becomes
effective for the Company in 1995, although earlier adoption is permitted.
Management is currently analyzing the impact of SFAS No. 114 and does not
expect this statement to have a material effect on the Company's consolidated
financial position or results of operations.
Rentals from equipment operating leases are recognized as income when due.
Depreciation is provided on the double declining-balance method over the
useful life of the equipment as follows: transportation and machinery
equipment -- five years; office, data processing and other equipment -- four
to five years.
Rentals from real estate operating leases are recognized as income when
due. Depreciation is provided on the straight-line method over the useful life
of the property: nineteen to thirty-one and one-half years.
Allowance for Possible Lease and Loan Losses
The allowance for possible lease and loan losses is based on a periodic
evaluation of the finance receivable portfolio and reflects an amount that in
management's opinion is adequate to absorb known and inherent losses in the
portfolio.
24
<PAGE>
NOTE A -- SUMMARY OF ACCOUNTING POLICIES -- CONTINUED
Management considers a variety of factors when evaluating the allowance
recognizing that an inherent risk of loss always exists in the lending
process. Consideration is given to the impact of current economic conditions,
diversification of the loan portfolio, historical loss experience, results of
loan reviews, borrower's financial and managerial strengths, the adequacy of
underlying collateral and other relevant factors. While management uses the
best available information to make such evaluations, future adjustments to the
allowance may be necessary if conditions differ substantially from the
assumptions used in making the evaluation. The provision for possible lease
and loan losses is charged to operating expense. Lease and loan losses are
charged directly against the allowance and recoveries on previously charged-
off leases and loans are added to the allowance.
Interest Rate Swaps
Interest rate swaps are entered into as hedges against fluctuations in the
interest rates of specifically identified liabilities. There is no effect on
the total liabilities of the Company, however, net amounts receivable or
payable under agreements designated as hedges are recorded as adjustments to
the interest expense related to the hedged liability.
Property and Equipment
Depreciation on fixed assets (not including property leased to others) is
provided primarily by the straight-line method over the estimated useful lives
of the respective asset classes as follows: building and improvements -- five
to forty years; office and data processing equipment -- two to eight years.
Income Taxes
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109) requires a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and liability
method of accounting for income taxes. Under the asset and liability method of
SFAS No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
SFAS No. 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
Effective January 1, 1993, the Company adopted SFAS No. 109. The
cumulative effect of this change in the method of accounting for income taxes
is $0 to the 1993 consolidated statement of operations.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1992 and prior years, deferred income taxes are recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year of
the calculation. Under the deferred method, deferred taxes are not adjusted
for subsequent changes in tax rates.
Retirement and Postemployment Benefits
Effective January 1, 1994, the Company has a 401(k) plan covering
substantially all employees who qualify as to age and length of service. This
plan will continue with a profit sharing component. During 1993, 1992 and
1991, the Company had two defined contribution profit sharing plans. The
contribution percentage is determined each year by the Board of Directors of
each subsidiary of the Company. Profit sharing expense, aggregating $315,000,
$295,000 and $290,000 in 1993, 1992 and 1991, respectively, was reported as
salaries and employee benefits. The Company currently has no postretirement
benefits as contemplated under Statement of Financial Accounting Standards No.
106, nor postemployment benefits as contemplated under Statement of Financial
Accounting Standards No. 112.
25
<PAGE>
NOTE A -- SUMMARY OF ACCOUNTING POLICIES -- CONTINUED
Earnings Per Common Share
Earnings per common share are computed using weighted average shares and
dilutive stock options outstanding during each year after deducting preferred
dividend requirements from net income. Earnings per common share assuming full
dilution are not reported because dilution arising from the stock options is
less than three percent.
Reclassifications
Prior period amounts have been reclassified when necessary to conform to
the current year's presentation.
NOTE B -- INVESTMENTS IN DEBT AND EQUITY SECURITIES
The following is a summary of information as of and for the years ended
December 31:
<TABLE>
<CAPTION>
GROSS GROSS
AGGREGATE UNREALIZED UNREALIZED GROSS GROSS
AGGREGATE FAIR HOLDING HOLDING REALIZED REALIZED
(In thousands) COST VALUE GAINS LOSSES PROCEEDS GAINS LOSSES
------------------ ------------ ------------ ------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE EQUITY SECURITIES:
1993.............. $615 $2,697 $2,082 $ -- $ 629 $413 $ 1
EQUITY SECURITIES:
1992.............. $666 $1,991 $1,325 $ -- $ 66 $ 9 $ 3
1991.............. $620 $1,015 $ 395 $ -- $ 848 $ 33 $31
DEBT SECURITIES:
$ $
1993.............. -- -- $ -- $-- $ 44 $ -- $ 1
1992.............. $ 53 $ 48 $ -- $ 5 $ 145 $ -- $ --
1991.............. $198 $164 $ -- $34 $1,078 $11 $11
</TABLE>
NOTE C -- NET INVESTMENT IN FINANCE RECEIVABLES
Net investment in finance receivables and maximum terms remaining as of
December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
MAXIMUM
TERMS-MONTHS
----------------
(In thousands) 1993 1992 1993 1992
---------- ------------ ------------ ----- -----
<S> <C> <C> <C> <C>
Commercial financing receivables........................... $ 35,050 $ 32,948 63 67
Direct finance leasing receivables......................... 104,320 89,213 58 61
------------ ------------
Total receivables........................................ 139,370 122,161
Residual valuation......................................... 4,943 5,719 58 61
Unearned income............................................ (16,731) (15,282)
Allowance for possible lease and loan losses............... (5,438) (4,613)
------------ ------------
Total net investment..................................... $ 122,144 $107,985
============ ============
</TABLE>
26
<PAGE>
NOTE C -- NET INVESTMENT IN FINANCE RECEIVABLES -- CONTINUED
Installments due on total receivables for each of the five years
subsequent to December 31, 1993 are as follows: 1994, $65,665,000; 1995,
$40,410,000; 1996, $20,133,000 1997, $7,802,000; 1998, $2,669,000; and
thereafter, $2,691,000.
Included within the finance receivables are non-performing leases and
loans on which the Company is applying payments to principal only. Such
receivables approximated $101,000 and $700,000 as of December 31, 1993 and
1992, respectively. If these receivables had been current in accordance with
their original terms, finance revenue in 1993, 1992 and 1991 would have
increased $39,000, $100,000 and $63,000, respectively.
The Company's credit risk of finance receivables arises in the normal
course of business, principally from commercial businesses, throughout the
United States with some geographic concentration (based on equipment cost) in
California (18%), Pennsylvania (9%), Texas (7%), New York (6%) and Ohio (6%).
There is also some leased asset equipment concentration in computers and
computer software (31%), construction (24%) and party rental equipment (10%).
The Company has identified the following significant concentrations by
industry type (including the total net investment) of credit risk as of
December 31, 1993: Equipment Rental ($41,778,000), Attorneys ($16,936,000) and
Printing Services ($8,447,000). The Company retains title to the equipment
asset in the case of its direct finance leasing receivables, while the lessee
bears the contractual risk of loss and the duty to maintain and insure the
asset. The commercial financing receivables are generally secured by
inventory, receivables, real estate or equipment.
NOTE D -- ALLOWANCE FOR POSSIBLE LEASE AND LOAN LOSSES
The following is a summary of the Company's allowance for possible lease
and loan losses as of and for the years ended December 31:
<TABLE>
<CAPTION>
BALANCE AT CHARGE-OFFS, BALANCE AT
BEGINNING NET OF ACQUIRED END
(In thousands) OF YEAR PROVISION RECOVERIES ALLOWANCE OF YEAR
---------- ------------ ----------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
1993.............................. $4,613 1,573 (1,600) 852(A) $5,438
1992.............................. $4,210 2,190 (2,027) 240(A) $4,613
1991.............................. $3,343 4,580 (3,938) 225(A) $4,210
<FN>
(A) The balance of the allowance for possible lease and loan losses
increased as a result of the acquisition of portfolios of finance
receivables.
</TABLE>
NOTE E -- EQUITY INVESTMENTS IN REAL ESTATE PARTNERSHIPS
Investments in ten unconsolidated real estate partnerships consist of
total ownership interests ranging from 10% to 58.2%.
Summary combined financial information for the investee partnerships as of
and for the years ended December 31, 1993 and 1992 follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
---------- ---------- ----------
<S> <C> <C>
Land, building and improvements, net............................................. $ 13,648 $ 16,007
Other assets..................................................................... 1,111 1,197
Long-term debt............................................................... (14,318) (15,460)
Other liabilities............................................................ (205) (192)
---------- ----------
Net assets....................................................................... $ 236 $ 1,552
========== ==========
Revenue:
Rents on real estate operating leases........................................ $ 1,175 $ 1,202
Hotel revenue & other........................................................ 5,273 4,655
---------- ----------
Total revenue.............................................................. 6,448 5,857
========== ==========
Net income (loss)................................................................ $ 349 $ (105)
========== ==========
</TABLE>
27
<PAGE>
NOTE E -- EQUITY INVESTMENTS IN REAL ESTATE PARTNERSHIPS -- CONTINUED
The unamortized portion of the excess of cost over the Company's share of
net assets of investee partnerships was $56,000 and $43,000 as of December 31,
1993 and 1992, respectively.
The Company provides management services to the investee partnerships
under terms of an agreement. The revenue for these services, aggregating
$230,000, $223,000 and $246,000 in 1993, 1992 and 1991, respectively, was
reported as management income.
The Company has commercial loans outstanding to investee partnerships of
$2,412,000 and $1,408,000 as of December 31, 1993 and 1992, respectively. The
Company has also guaranteed the debt (refer to note O) of certain
unconsolidated real estate partnerships.
The Company has sold certain partnership interests. Total gain on sale of
the partnership interests, aggregating $0, $1,000 and $547,000 in 1993, 1992
and 1991, respectively, was reported as other income.
NOTE F -- PROPERTY UNDER OPERATING LEASES
The following is a schedule of the Company's investment in property under
operating leases as of December 31, 1993 and 1992:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
---------- ---------- ----------
<S> <C> <C>
Real Estate Cost:
Land......................................................................... $ 7,002 $ 7,327
Building and improvements.................................................... 29,782 31,897
---------- ----------
Total.................................................................... 36,784 39,224
Accumulated depreciation..................................................... (5,365) (4,537)
---------- ----------
Real estate, net......................................................... 31,419 34,687
---------- ----------
Equipment Cost:
Transportation and office equipment.......................................... 335 95
Accumulated depreciation..................................................... (123) (43)
---------- ----------
Equipment, net........................................................... 212 52
---------- ----------
Property under operating leases.................................................. $ 31,631 $ 34,739
========== ==========
</TABLE>
Depreciation for each of the three years ended December 31 follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
---------- ---------- ---------- ----------
<S> <C> <C> <C>
Depreciation Expense:
Real estate.................................................. $ 1,053 $ 1,144 $ 1,075
Equipment.................................................... 94 29 11
---------- ---------- ----------
Total.................................................... $ 1,147 $ 1,173 $ 1,086
========== ========== ==========
</TABLE>
The estimated minimum future rental revenues on operating leases for each
of the five years subsequent to December 31, 1993 are as follows: 1994,
$4,689,000; 1995, $4,051,000; 1996, $3,507,000; 1997, $3,046,000; 1998,
$2,943,000; and thereafter, $21,504,000.
28
<PAGE>
NOTE G -- PROPERTY AND EQUIPMENT
Property and equipment utilized by the Company is summarized by major
classifications as follows as of December 31:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
---------- --------- ---------
<S> <C> <C>
Buildings (owned by consolidated real estate partnerships).......................... $2,189 $1,821
Office and data processing equipment................................................ 2,216 2,085
--------- ---------
4,405 3,906
Accumulated depreciation............................................................ (2,276) (1,929)
--------- ---------
2,129 1,977
Land (owned by consolidated real estate partnerships)............................... 172 145
--------- ---------
$2,301 $2,122
========= =========
</TABLE>
Land and building value is based on the percentage of space occupied by
the Company. For the years ended December 31, 1993, 1992 and 1991,
depreciation of $308,000, $294,000 and $328,000, respectively, was provided
on the Company's property and equipment.
NOTE H -- SHORT-TERM BORROWINGS
Short-term borrowings represent: (1) Amounts payable to banks, including
unsecured demand notes with fixed interest rates and unsecured floating or
fixed interest rate lines of credit of $28,503,000 as of December 31, 1993.
The Company has the option to make $7,003,000 in long-term, fixed rate loans
at negotiated rates which would reduce the available short-term lines of
credit when elected. Short-term lines of credit in use as of December 31, 1993
are $13,500,000. (2) Amounts payable upon demand to holders of floating
interest rate subordinated investment certificates.
The following is a summary of information pertaining to such borrowings as
of and for the years ended December 31:
<TABLE>
<CAPTION>
WEIGHTED MAXIMUM AVERAGE WEIGHTED
AVERAGE AMOUNT AMOUNT AVERAGE
CATEGORY BALANCE INTEREST OUTSTANDING OUTSTANDING INTEREST
OF AT END OF RATE AT DURING DURING RATE DURING
(In thousands) BORROWINGS YEAR END OF YEAR THE YEAR THE YEAR THE YEAR
---------- ------------- ---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1993.................. (1) BANKS $13,500 4.41% $13,500 $ 8,807 4.44%
1993.................. (2) OTHER $ 2,805 4.00% $ 4,286 $ 3,810 4.39%
-----------------------------------------------------------------------------------------------------------------------
1992 (A).............. (1) Banks $ 6,250 4.61% $ 8,000 $ 5,389 5.28%
1992 (A).............. (2) Other $ 3,644 5.00% $ 4,592 $ 3,803 5.37%
-----------------------------------------------------------------------------------------------------------------------
1991 (A).............. (1) Banks $ 6,500 6.39% $14,500 $ 9,667 7.35%
1991 (A).............. (2) Other $ 3,019 6.30% $ 3,071 $ 2,048 6.81%
<FN>
(A) Average amount outstanding during the year is computed by dividing
the total monthly outstanding principal balances by 12.
Weighted average interest rate during the year is computed by
dividing the actual short-term interest expense by the average
short-term borrowings outstanding.
</TABLE>
29
<PAGE>
NOTE I -- LONG-TERM DEBT
Long-term debt as of December 31, 1993 and 1992 consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
---------- ------------ ------------
<S> <C> <C>
Senior debt:
Unsecured notes payable to banks and other financial
institutions, with interest rates from 3.9% to 12.0%, due
through July, 1997...................................................... $ 63,733 $ 62,210
Nonrecourse debt:
Nonrecourse notes payable to banks, with interest rates
from 5.87% to 11.06%, due at various dates through
December, 2004. The notes are collateralized by real estate
property................................................................ 18,358 19,367
Nonrecourse note payable to bank with interest at prime
plus 3%, due February, 1996............................................. 77 --
Other long-term debt:
Secured notes payable to banks, with interest rates from
5.99% to 10.5%, due at various dates through May, 2008.
The notes are collateralized by real estate property.................... 5,080 5,401
Subordinated investment certificate debt:
Certificates subordinated in right of payment to indebted
ness of the Company (including indebtedness of any sub
sidiary guaranteed by the Company) for money borrowed
from banks or other financial institutions. The fixed rate
certificates have various rates from 5.1% to 10.5% and ma
ture at various dates to 2001........................................... 25,964 25,384
Junior subordinated debenture debt:
A 9% debenture due in 2002 subordinated in right of pay
ment to indebtedness of the Company (including indebted
ness of any subsidiary guaranteed by the Company) for
money borrowed from banks, other financial institutions
and subordinated investment certificate holders......................... 103 103
------------ ------------
Total long-term debt.............................................. $ 113,315 $ 112,465
============ ============
</TABLE>
The Company has $100,190,000 in unsecured lines of credit with banks. The
total lines in use as of December 31, 1993 are $63,322,000.
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1993 are as follows: 1994, $52,538,000; 1995,
$26,185,000; 1996, $11,611,000; 1997, $4,772,000; 1998, $4,008,000; and
thereafter, $14,201,000.
30
<PAGE>
NOTE J -- CERTAIN COVENANTS
The terms of the subordinated investment certificate offerings, certain
unsecured loan agreements and a bank letter of credit provide for various
restrictive covenants. The most significant of these provide that: (1)
American Equipment Leasing Co., Inc. and it's subsidiaries, AEL Leasing Co.,
Inc. and American Commercial Credit Corp., on a consolidated basis, shall
maintain (a) a minimum cash flow ratio of receipts to disbursements, as
specifically defined, of 1 to 1 (b) a ratio of debt to tangible net worth not
in excess of 7 to 1 and (c) a minimum tangible net worth of $21,000,000. (2)
AEL Leasing Co., Inc. and American Commercial Credit Corp., on a separate
Company basis, shall maintain a ratio of debt to tangible net worth not in
excess of 7 to 1.
The Company is in compliance with the above covenants as of December 31,
1993.
NOTE K -- STOCKHOLDERS' EQUITY
The 8% noncumulative and nonvoting preferred stock has no earnings
participation rights and, in case of involuntary liquidation, there is no
preference to preferred stockholders other than the stated value of the stock.
The preferred stock dividend was paid each quarter during 1993.
The common stock of the Company is covered by an agreement restricting its
sale, redemption or transfer.
During 1993, the Company retired all treasury stock then held by the
Company.
The Company terminated on November 30, 1992 a non-qualified stock option
plan for certain key employees. The options are exercisable at a price of 100%
of the fair market value of the stock on the date that the option is granted.
Options granted under the plan are exercisable at any time and expire five
years from the date of issuance. An analysis of the activity in this plan for
the last three years follows:
<TABLE>
<CAPTION>
OPTION PRICE
NUMBER OF COMMON SHARES PER SHARE FOR
1993 1992 1991 CURRENT YEAR
---------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Options outstanding, January 1.................. 102,620 141,500 112,930 --
Options granted................................. -- -- 35,870 --
Options exercised............................... (11,300) (16,045) (1,600) $6.17
Options forfeited............................... (16,350) (22,835) (5,700) $6.17 TO $7.79
---------- ---------- ----------
Options outstanding, December 31................ 74,970 102,620 141,500
========== ========== ==========
</TABLE>
Under this stock option plan, the option price for the grant made in 1991
was $6.43 per share.
The total options outstanding, by each year's option price, as of December
31, 1993 are: 21,000 at $7.41, 23,900 at $7.79 and 30,070 at $6.43.
NOTE L -- INCOME TAXES
The total provision for income taxes consists of:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
---------- ---------- ---------- ---------
<S> <C> <C> <C>
Deferred income tax (benefit)
Federal.......................................................... $ (18) $ (979) $ (226)
State............................................................ 124 (157) (223)
---------- ---------- ---------
Total deferred............................................. 106 (1,136) (449)
---------- ---------- ---------
Current income tax
Federal.......................................................... 1,596 882 955
State............................................................ 198 398 382
---------- ---------- ---------
Total current.............................................. 1,794 1,280 1,337
---------- ---------- ---------
Total provision............................................ $ 1,900 $ 144 $ 888
========== ========== =========
</TABLE>
31
<PAGE>
NOTE L -- INCOME TAXES -- CONTINUED
The sources of deferred income taxes (benefits) and the tax effect of each
are as follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
---------- ---------- ---------- ---------
<S> <C> <C> <C>
Direct finance lease revenue and expenses.......................... $ 141 $ (743) $ (972)
Alternative minimum tax credit..................................... -- 1,083 724
Partnership revenue and expenses including write-
down of real estate.............................................. (216) (1,310) --
State tax provision (less than) in excess of state taxes
currently payable................................................ 124 (157) (223)
Other.............................................................. 57 (9) 22
---------- ---------- ---------
Total deferred............................................. $ 106 $ (1,136) $ (449)
========== ========== =========
</TABLE>
The following is a reconciliation between the statutory federal income tax
rate and the effective income tax rate on the total provision for income
taxes:
<TABLE>
<CAPTION>
1993 1992 1991
--- ------- ------
<S> <C> <C> <C>
Statutory federal income tax rate applied to earnings
(loss) before income taxes and minority interest................. 34.0% (34.0%) 34.0%
Investment tax credit basis adjustment............................. -- -- 0.3
Limited taxability of dividend income.............................. (0.1) (1.7) (0.4)
State taxes, net of federal tax benefit............................ 4.2 31.8 4.5
Tax-exempt interest income......................................... -- (1.2) (0.7)
Minority interest of partnership investments....................... (0.7) 31.6 (0.1)
Other, net......................................................... -- 2.3 0.4
------- ------- ------
Effective rate............................................. 37.4% 28.8% 38.0%
======= ======= ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1993, in accordance with SFAS No. 109, are presented below:
<TABLE>
<CAPTION>
(In thousands) 1993
---------- --------
<S> <C>
Deferred tax assets:
Allowance for possible lease and loan losses...................... $ 840
Partnership revenue and expenses including write-
down of real estate............................................. 1,674
Other............................................................. 167
--------
Total gross deferred tax assets............................... 2,681
--------
Deferred tax liabilities:
Direct finance lease revenue and expenses......................... (1,229)
Net unrealized holding gains for available-for-sale
securities...................................................... (708)
Other............................................................. (71)
--------
Total gross deferred tax liabilities.......................... (2,008)
--------
Deferred income taxes, net.................................... $ 673
========
</TABLE>
In order to fully realize the gross deferred tax asset, the Company will
need to generate future taxable income of approximately $7,900,000. Based upon
the Company's current and historical tax history and the anticipated level of
future taxable income, management of the Company believes the existing
deductible temporary differences will, more likely than not, reverse in future
periods in which the Company generates net taxable income. There can be no
assurance, however, that the Company will generate any earnings or any
specific level of continuing earnings.
32
<PAGE>
NOTE L -- INCOME TAXES -- CONTINUED
For income tax reporting purposes: The Company has no credit carryover to
offset regular tax liability during 1993.
For financial reporting purposes: (1) The Company records a provision for
income taxes on the minority interest share of loss absorbed by the Company
from any partnership investment. (2) The Company has no credit carryover to
offset regular tax liability during 1993. (3) The Company records a deferred
tax liability on the net unrealized holding gains for available-for-sale
securities in accordance with SFAS No. 115.
NOTE M -- BUSINESS SEGMENTS
The Company operates principally in three business segments, reports a
fourth segment pertaining to general corporate and other, and discloses any
significant transaction which is not specifically related to the normal
operations of a segment:
COMMERCIAL LEASING AND FINANCING -- leasing of various types of equipment
under direct finance and operating leases, lease financing programs, and
direct cash loans to commercial businesses.
REAL ESTATE -- leasing of real estate property under operating leases, and
investments in real estate. Three limited service hotel operations provide
operating earnings on three equity investments. Real estate management,
development and advisory services; and hotel management services are included.
FURNITURE AND EQUIPMENT SALES -- selling various types of office furniture
and equipment, and servicing equipment sold.
GENERAL CORPORATE AND OTHER -- includes investment activities other than
real estate; and consolidating elimination entries which are not material.
UNALLOCATED GENERAL CORPORATE EXPENSE -- consists of interest expense
allocated to the investments in marketable securities and long-term
investments.
Revenues by segment are comprised of revenues from unaffiliated customers;
intersegment revenues are not significant.
Operating profit is total revenue less directly incurred costs and
expenses, and allocated corporate operating costs and expenses.
Identifiable assets by industry are those assets of the Company that are
used exclusively in or are reasonably allocated to operations in each
industry. Assets employed by the segment "general corporate and other" are
principally cash, investments exclusive of the real estate industry segment,
and property and equipment.
The following segment information is reconciled to the related
consolidated financial statements' amounts.
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
---------- ------------ ------------ ------------
<S> <C> <C> <C>
Revenues by business segment:
Commercial leasing and financing................................. $ 19,529 $ 20,862 $ 23,066
Real estate...................................................... 4,973 1,822 6,037
Furniture and equipment sales.................................... 694 345 4
General corporate and other...................................... 461 67 228
------------ ------------ ------------
Total...................................................... $ 25,657 $ 23,096 $ 29,335
============ ============ ============
</TABLE>
33
<PAGE>
NOTE M -- BUSINESS SEGMENTS -- CONTINUED
<TABLE>
<CAPTION>
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Operating earnings (loss) by business segment:
Commercial leasing and financing................................. $ 5,220 $ 4,230 $ 2,662
Real estate...................................................... (713) (4,744) (307)
Furniture and equipment sales.................................... 175 31 (17)
General corporate and other...................................... 440 52 139
------------ ------------ ------------
Total...................................................... 5,122 (431) 2,477
Unallocated general corporate expense............................ (44) (69) (137)
------------ ------------ ------------
Earnings (loss) before income taxes and minority
interest....................................................... $ 5,078 $ (500) $ 2,340
============ ============ ============
Identifiable assets by segment:
Commercial leasing and financing................................. $ 126,294 $ 111,578 $ 114,446
Real estate...................................................... 35,486 37,559 40,191
Furniture and equipment sales.................................... 681 777 239
General corporate and other...................................... 2,492 3,349 3,911
------------ ------------ ------------
Total...................................................... $ 164,953 $ 153,263 $ 158,787
============ ============ ============
Capital expenditures:
Commercial leasing and financing:
Direct finance leases...................................... $ 24,383 $ 28,300 $ 20,599
Operating leases........................................... 328 75 22
Other...................................................... 163 211 149
Real estate:
Operating leases........................................... -- 294 418
Other...................................................... -- 2 11
Furniture and equipment sales.................................... 19 81 14
General corporate and other...................................... -- -- --
------------ ------------ ------------
Total...................................................... $ 24,893 $ 28,963 $ 21,213
============ ============ ============
Depreciation and amortization:
Commercial leasing and financing:
Direct finance leases...................................... $ -- $ -- $ --
Operating leases........................................... 94 29 11
Other...................................................... 304 413 606
Real estate:
Operating leases........................................... 1,053 1,144 1,075
Other...................................................... 223 150 139
Furniture and equipment sales.................................... 33 33 15
General corporate and other...................................... -- -- 1
------------ ------------ ------------
Total...................................................... $ 1,707 $ 1,769 $ 1,847
============ ============ ============
</TABLE>
NOTE N -- LEASES
Rental expense included in operating expenses for each of the years in the
three-year period ended December 31, 1993 was $77,000, $64,000 and $10,000,
respectively. The Company also incurred rent expense on an operating lease
with an investee partnership. The rent expense, aggregated $53,000 in 1991,
and was reported as operating expense.
As of December 31, 1993, the Company is committed to minimum rentals
under various operating leases totaling $115,000. The minimum annual rentals
for each of the five years subsequent to December 31, 1993 are as follows:
1994, $70,000; 1995, $38,000; 1996, $6,000; 1997, $1,000; and 1998, $0.
34
<PAGE>
NOTE O -- COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding commitments and
contingent liabilities on which management does not anticipate any material
losses. Such commitments and contingent liabilities expose the company to
various degrees and types of risks, including credit risk, interest rate risk,
and liquidity risk.
A summary of significant commitments and contingent liabilities as of
December 31 follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
---------- ---------- ----------
<S> <C> <C>
Unused lines of credit............................................................ $38,183 $17,774
Commitments to fund leases and loans.............................................. $ 924 $ 1,314
Financial guarantees for unconsolidated real estate partnerships.................. $ 2,400 $ 2,675
</TABLE>
Unused lines of credit represent conditional offers by the Company to lend
additional funds to qualified customers. Commitments to fund leases and loans
represent finance agreements secured by the Company wherein the equipment
collateral has not yet been delivered. Financial guarantees are conditional
commitments issued by the Company guaranteeing performance by an
unconsolidated real estate partnership to a third party.
Interest rate swap transactions are not reflected in the above table. The
notional principal amounts of outstanding contracts were $2,000,000 and
$3,000,000 as of December 31, 1993 and 1992. The weighted average maturity of
these swap agreements was 2.2 and 0.7 years as of December 31, 1993 and 1992.
The Company is exposed to loss should one of the counterparties to these
agreements default when the variable rate exceeds the weighted average fixed
rate. The weighted average rate paid by the Company was 4.25% and the weighted
average rate received by the Company was 3.44% as of December 31, 1993.
The Company's Employee Stock Option Plan (ESOP) terminated in 1993 and
paid off the outstanding ESOP debt which was guaranteed by the Company.
As of December 31, 1993, the Company was party (plaintiff or defendant) to
certain legal actions. While any litigation has an element of uncertainty,
management, after reviewing these actions with legal counsel, is of the
opinion that the liability, if any, resulting from these actions will not have
a material effect on the financial condition or results of operations of the
Company.
In connection with a state sales tax audit and the treatment of
abandonment leases, the Company was assessed in 1992 an additional sales tax
of $34,800 (net of income tax) and penalties and interest of $284,400 (net of
income tax). During 1992, the Company paid and expensed $27,700 (net of income
tax). During 1993, the Company expensed the balance due of $14,400 (net of
income tax) after the penalties were waived and 94% of the interest reversed.
35
<PAGE>
NOTE P -- CASH FLOW INFORMATION
The following is the reconciliation of net earnings (loss) to net cash
provided by operating activities for the years ended December 31:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
---------- ---------- ---------- ----------
<S> <C> <C> <C>
Net earnings (loss)...................................................... $ 3,047 $ (413) $ 1,382
Noncash expenses, revenues, losses and gains included in
net earnings (loss):
Depreciation and amortization.......................................... 1,707 1,769 1,847
Excess of income taxes paid over provision for income
taxes................................................................ (582) (1,527) (453)
Net change in prepaid expenses and payables............................ 437 351 (934)
Decrease (increase) in income receivable............................... 136 (7) 571
Lease purchase options: cash received in excess of earned.............. 1,682 2,126 1,739
Decrease in interest payable........................................... (41) (145) (18)
Gain on sale of debt and equity securities, finance and
operating leases, property and equipment, and
investments.......................................................... (1,479) (1,283) (1,904)
Provision for possible lease and loan losses........................... 1,573 2,190 4,580
Equity loss in real estate partnerships and associated
companies............................................................ 76 279 164
Provision for write-down of real estate................................ 488 4,302 --
Minority interest income (loss)........................................ 131 (231) 70
---------- ---------- ----------
Net cash provided by operating activities................................ $ 7,175 $ 7,411 $ 7,044
========== ========== ==========
</TABLE>
The following is a schedule of noncash investing and financing activities
for the years ended December 31:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
---------- ---------- ---------- ----------
<S> <C> <C> <C>
Acquisition of Canyon Capital, Inc.:
Net investment in finance receivables................................. $12,186 $ -- $ --
Other assets.......................................................... $ 87 $ -- $ --
Short-term debt assumed............................................... $ (4,985) $ -- $ --
Long-term debt assumed................................................ $ (5,656) $ -- $ --
Security deposits..................................................... $ (1,392) $ -- $ --
Other liabilities..................................................... $ (240) $ -- $ --
Change in carrying value of available-for-sale securities:
Investments in debt and equity securities............................. $ 2,082 $ -- $ --
Deferred tax liabilities.............................................. $ (708) $ -- $ --
Net unrealized holding gains for available-for-sale
securities.......................................................... $ (1,374) $ -- $ --
Real estate partnerships, previously accounted for on the
equity method, now included in the consolidated finan-
cial statements:
Operating lease assets and other assets acquired...................... $ -- $ 1,927 $ --
Long-term debt and other liabilities assumed.......................... $ -- $ (1,683) $ --
Partnership capital................................................... $ -- $ (244) $ --
Investment interest in real estate partnership received
from minority interest in payment of commercial finance
receivable............................................................ $ 397 $ 100 $ --
Land received in foreclosure of commercial finance
receivable............................................................ $ -- $ 627 $ --
New real estate partnerships:
Operating lease assets acquired....................................... $ -- $ -- $ 3,166
Long-term debt assumed................................................ $ -- $ -- $ (2,900)
Partnership capital contribution of property.......................... $ -- $ -- $ (266)
Operating lease asset reclassification:
Net investment in finance receivables................................. $ -- $ -- $ 248
Property under operating leases....................................... $ -- $ -- $ (248)
</TABLE>
36
<PAGE>
NOTE Q -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments" (SFAS No. 107), which requires the estimation of fair values of
financial instruments, as defined in SFAS No. 107.
Limitations
Estimates of fair value are made at a specific point in time, based upon,
where available, relevant market prices and information about the financial
instrument. Such estimates do not include any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular financial instrument. For a substantial portion of the Company's
financial instruments, no quoted market exists. Therefore, estimates of fair
value are necessarily based on a number of significant assumptions (many of
which involve events outside the control of management). Such assumptions
include assessments of current economic conditions, perceived risks associated
with these financial instruments and their counterparties, future expected
loss experience and other factors. Given the uncertainties surrounding these
assumptions, the reported fair values represent estimates only and, therefore,
cannot be compared to the historical accounting model. Use of different
assumptions or methodologies are likely to result in significantly different
fair value estimates.
The estimated fair values presented neither include nor give effect to the
values associated with the Company's existing customer relationships,
property, equipment, goodwill or certain tax implications related to the
realization of unrealized gains or losses.
The following methods and assumptions were used by the Company to estimate
the fair value as of December 31, 1993 of each class of financial instrument
(refer to note B for the fair value of investments in debt and equity
securities).
Net Investment in Finance Receivables
The fair value of net investment in finance receivables with variable
rates and no significant change in credit risk approximates the carrying
amount. The fair value of fixed-rate finance receivables is estimated by
discounting future cash flows using current rates at which similar leases and
loans would be made to borrowers with similar credit ratings and for similar
remaining maturities. Included in direct finance leasing receivables is the
fair value of lessee purchase options which approximates the net residual
valuation carrying amount.
Short-term Borrowings
The fair value of short-term borrowings (refer to note H) is the amount
payable.
Customer deposits
Customer deposits are interest bearing and non-interest bearing deposits
received on finance lease receivables and real estate operating leases. The
carrying amount of these deposits approximates fair value.
Long-term debt
The fair value of the Company's fixed rate long-term debt is estimated
using discounted cash flow analyses based on the estimated current rates
offered by banks to the Company for debt of similar remaining maturities, or
current rates offered by the Company for subordinated investment certificate
debt with similar remaining maturities. The fair value of floating rate long-
term debt approximates the carrying amount.
Unused lines of credit
Proceeds from both short-term and long-term lines of credit are issued at
current market rates at the time of each borrowing. The fair value of such
unused lines is considered nominal.
Commitments
Unused lines of credit and commitments to fund leases and loans: the
Company does not charge a fee to extend lines of credit and commitments to
fund leases and loans to customers. Extension of credit is conditional upon
Company approval (of the amount, rate, and maturity) at
37
<PAGE>
NOTE Q -- FAIR VALUES OF FINANCIAL INSTRUMENTS -- CONTINUED
the time of request. The fair value of unused lines of credit and commitments
to fund leases and loans is considered nominal.
Financial guarantees for unconsolidated real estate partnerships: the
Company receives nominal fees for two agreements, and the estimated cost to
terminate such guarantees is considered nominal.
Interest rate swap agreements: the fair value of interest rate swaps is
based on the cost to terminate the agreement. The costs were obtained from the
counterparties.
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31 were as follows:
<TABLE>
<CAPTION>
1993 1992
---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VAUE
------------ ------------ ------------ ------------
(In thousands)
----------
<S> <C> <C> <C> <C>
Net investment in finance receivables
Commercial financing receivables................. $ 35,050 $ 34,952 $ 32,948 $ 32,054
Direct finance leasing receivables............... 92,532 91,856 79,650 79,385
Allowance for possible lease and loan
losses......................................... (5,438) -- (4,613) --
------------ ------------ ------------ ------------
Total net investment........................... $ 122,144 $ 126,808 $ 107,985 $ 111,439
------------ ------------ ------------ ------------
Short-term borrowings.............................. $ 16,305 $ 16,305 $ 9,894 $ 9,894
------------ ------------ ------------ ------------
Customer deposits.................................. $ 2,188 $ 2,188 $ 1,038 $ 1,038
------------ ------------ ------------ ------------
Long-term debt
Senior debt...................................... $ 63,733 $ 63,876 $ 62,210 $ 62,626
Nonrecourse and other debt....................... 23,515 24,205 24,768 25,138
Subordinated debt................................ 26,067 27,191 25,487 26,356
------------ ------------ ------------ ------------
Total long-term debt........................... $ 113,315 $ 115,272 $ 112,465 $ 114,120
------------ ------------ ------------ ------------
Off-balance sheet financial instruments
Cost to terminate interest rate swaps............ $ 1 $ 4 $ 19 $ 56
------------ ------------ ------------ ------------
</TABLE>
NOTE R -- ACQUISITION
On June 1, 1993, the Company purchased all of the capital stock of Canyon
Capital, Inc. ("Canyon") whose principal business consisted of financing and
leasing equipment, for $4,270,000 in cash. Until the purchase, Canyon was a
wholly-owned subsidiary of KOA Holdings, Inc. The purchase price was based
principally on the book value of the common stock multiplied by a factor of
126.8%. The acquisition has been accounted for as a purchase and, accordingly,
the results of operations of Canyon have been included in the Company's
consolidated financial statements since the acquisition date.
The following unaudited pro forma financial information for the years
ended December 31, 1993 and 1992 presents the combined results of operations
of the Company and Canyon as if the acquisition had occurred as of the
beginning of 1992, after giving effect to certain adjustments. The pro forma
financial information does not necessarily reflect the results of operations
that would have occurred had the Company and Canyon constituted a single
entity during such periods.
<TABLE>
<CAPTION>
1993 1992
--------------- ---------------
<S> <C> <C>
Commercial leasing and financing revenue $18,878,000 $23,511,000
Net earnings $ 3,018,000 $ 373,000
Earnings per share $ 0.92 $ 0.11
</TABLE>
38
<PAGE>
In conjunction with the Company's acquisition of Canyon, Canyon recorded
a total net loss of $139,000 for the five months ended May 31, 1993
(consisting of non-recurring after-tax charges of $269,000 and normal
after-tax operating earnings of $130,000). The non-recurring after-tax
charges were primarily due to additional charge-offs ($1,383,000) taken
by Canyon and a replenishing of the allowance for possible lease and
loan losses ($498,000) prior to the acquisition date. These additional
adjustments were the result of applying the Company's more restrictive
charge-off and reserving policies to Canyon's delinquent lease and loan
accounts.
39
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
CANYON CAPITAL, INC.:
We have audited the accompanying balance sheets of Canyon Capital, Inc. as
of December 31, 1992 and 1991, and the related statements of earnings,
stockholders' equity, and cash flows for each of the years in the two year
period ended December 31, 1992. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Canyon Capital, Inc. as of
December 31, 1992 and 1991, and the results of its operations and its cash
flows for each of the years in the two year period ended December 31, 1992, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK
Orange County, California
February 9, 1993
40
<PAGE>
CANYON CAPITAL, INC.
BALANCE SHEETS
DECEMBER 31, 1992 AND 1991
<TABLE>
<CAPTION>
Assets 1992 1991
----- ---- ----
<S> <C> <C>
Cash $ 91,776 75,008
Investment in leases (notes 2, 3 and 5):
Gross lease receivables 24,488,598 27,925,322
Estimated residual values 752,204 958,471
Deferred lease origination costs, net 731,683 853,221
Equipment held for lease 690,398 896,679
---------------- ----------------
26,662,883 30,633,693
Less:
Security deposits (1,636,306) (1,552,357)
Unearned income (6,623,228) (7,984,825)
Allowance for possible credit losses (1,501,192) (1,380,166)
---------------- ----------------
Net investment in leases 16,902,157 19,716,345
---------------- ----------------
Other receivables 119,344 154,945
Furniture and equipment, net (note 4) 20,766 28,450
Other assets 40,796 45,774
---------------- ----------------
$17,174,839 20,020,522
================ ================
Liabilities and Stockholders' Equity
------------------------
Equipment obligations (note 5) $ 8,473,414 12,671,455
Accounts payable and accrued expenses 190,615 259,098
Notes payable to Parent Company (note 3) 4,300,000 3,300,000
Income taxes payable (note 7) 38,942 2,279
Deferred income taxes (note 7) 972,000 965,000
---------------- ----------------
Total liabilities 13,974,971 17,197,832
---------------- ----------------
Stockholder's equity:
Common stock, $1 par value; 100,000 shares
authorized; 10,000 shares issued
and outstanding 10,000 10,000
Additional paid-in capital 320,600 320,600
Retained earnings 2,869,268 2,492,090
---------------- ----------------
Total stockholder's equity 3,199,868 2,822,690
Commitments (note 8) -- --
$17,174,839 20,020,522
================ ================
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
CANYON CAPITAL, INC.
STATEMENT OF EARNINGS
YEARS ENDED DECEMBER 31, 1992 AND 1991
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Revenues:
Lease income (note 6) $4,513,257 4,789,714
Interest income 10,975 14,649
Late charges 108,542 94,215
-------------- --------------
4,632,774 4,898,578
-------------- --------------
Cost and expenses:
Interest 1,430,008 1,984,360
Provision for possible credit losses 1,178,411 964,085
Selling, general and administrative 787,738 726,168
Amortization of deferred lease origination costs 508,439 485,039
-------------- --------------
3,904,596 4,159,652
-------------- --------------
Earnings before income tax expense 728,178 738,926
Income tax expense (note 7) 351,000 351,000
-------------- --------------
Net earnings $ 377,178 387,926
============== ==============
</TABLE>
See accompanying notes to financial statements.
42
<PAGE>
CANYON CAPITAL, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1992 AND 1991
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK
------------------------- PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ---------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1990 10,000 $10,000 320,600 2,104,164 2,434,764
Net earnings -- -- -- 387,926 387,926
---------- ---------- ------------ ------------ ---------------
Balance at December 31, 1991 10,000 10,000 320,600 2,492,090 2,822,690
Net earnings -- -- -- 377,178 377,178
---------- ---------- ------------ ------------ ---------------
Balance at December 31, 1992 10,000 $10,000 320,600 2,869,268 3,199,868
========== ========== ============ ============ ===============
</TABLE>
See accompanying notes to financial statements.
43
<PAGE>
CANYON CAPITAL, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1992 AND 1991
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Operating activities:
Net earnings $ 377,178 387,926
Adjustments to reconcile net earnings to cash
provided by operating activities:
Provision for possible credit losses 1,178,411 964,085
Deferred income tax provision (benefit) 7,000 (20,000)
Amortization of deferred lease origination costs 508,439 485,039
Depreciation and other amortization 20,491 26,738
Decrease (increase) in other receivables 35,601 (20,785)
Increase in other assets (3,713) (41,619)
Decrease in accounts payable and accrued expenses (68,483) (44,931)
Increase (decrease) in income taxes payable 36,663 (190,270)
--------------- ---------------
Net cash provided by operating activities 2,091,587 1,546,183
--------------- ---------------
Investing activities:
Principal collections on leases 8,249,529 7,997,015
Additions to net investment in leases (7,122,191) (8,542,797)
Additions to furniture and equipment (4,116) (1,033)
--------------- ---------------
Net cash provided by (used for) investing activities 1,123,222 (546,815)
--------------- ---------------
Financing activities:
Proceeds from issuance of equipment obligations 3,489,505 5,847,071
Repayments of equipment obligations (7,687,546) (9,161,335)
Proceeds from notes payable to Parent Company 1,000,000 2,300,000
--------------- ---------------
Net cash used by financing activities (3,198,041) (1,014,264)
--------------- ---------------
Net increase (decrease) in cash 16,768 (14,896)
Cash at beginning of year 75,008 89,904
--------------- ---------------
Cash at end of year $ 91,776 75,008
=============== ===============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $1,424,888 1,973,855
=============== ===============
Income taxes $ 307,337 561,270
=============== ===============
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
CANYON CAPITAL, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
Canyon Capital, Inc. (the "Company") is a wholly-owned subsidiary of KOA
Holdings Inc. (the "Parent Company") and is in the business of providing
equipment financing to small businesses under direct financing leases. A
portion of the Company's business (approximately 10% in 1992 and 8% in 1991)
is leasing printing equipment to franchisees of Sir Speedy, Inc., also a
wholly-owned subsidiary of the Parent Company.
Investment in Leases
In accounting for direct financing leases, no income is recorded
initially. The finance charges are deferred and subsequently amortized to
income over the respective lease terms to produce a level rate of return on
the unrecovered investments.
Residual values are unguaranteed and represent amounts estimated to be
recoverable on disposition of the equipment at the end of the lease terms. The
Company periodically reviews the residual value estimates to ascertain if any
impairment to the carrying value has occurred. Writedowns to the carrying
values are recorded when identified. Gains are recorded only when realized.
Terms of leases vary from two to five years; the majority are written for five
years.
Deferred Lease Origination Fees and Costs
All fees and direct costs associated with the origination of leases are
deferred and amortized to operations over the respective lease terms using the
interest method. The amortization of fees is recorded as an adjustment to
yield while the amortization of direct costs is recorded as an operating
expense.
Allowance for Possible Credit Losses
The provision for possible credit losses is charged to operating expense
based on management's evaluation of the lease portfolio, including residual
values. It is management's policy to maintain the allowance for possible
credit losses at an adequate level to absorb losses that may occur in the
lease portfolio.
Equipment Held for Lease
Equipment held for lease consists of new and used equipment and is carried
at the lower of cost or market on a specific identification basis.
Furniture and Equipment
Furniture and equipment are stated at cost less accumulated depreciation,
which is charged to expense on a straight-line basis over the estimated useful
lives of the related assets, principally five years.
Income Taxes
The Company files a consolidated Federal tax return with the Parent
Company. Tax expense is determined on a separate return basis.
Deferred income taxes are provided for temporary differences arising from
the classification of leases as operating leases for tax purposes and capital
leases for financial reporting purposes in accordance with the provisions of
Statement of Financial Accounting Standards No. 96, "Accounting for Income
Taxes" ("FASB 96"). The Financial Accounting Standards Board has issued
Statement 109, "Accounting for Income Taxes" ("FASB 109") which will supersede
FASB 96. FASB 109 must be adopted in the first quarter of fiscal 1993 and may
be adopted either prospectively or retroactively. The Company believes that
the implementation of FASB 109 will not have a material impact on its
financial statements.
45
<PAGE>
(2) INVESTMENT IN LEASES
The gross maturities of lease receivables at December 31, 1992 are as
follows:
Year Ended
December 31,
------------------
1993 $ 9,851,280
1994 7,420,065
1995 4,386,768
1996 1,927,787
1997 902,698
---------------
$24,488,598
---------------
---------------
Lease receivables totaling $14,506,096 and the underlying leased equipment
are pledged under equipment obligations (Note 5)
The credit risk associated with the Company's lease receivables arises in
the normal course of business throughout the United States, with some
geographic concentration. Geographic concentrations (based on gross lease
receivables) exist in California (68%) and Arizona (6%). The Company has
identified the following significant concentration by industry type (based on
gross lease receivables) of 23% for the printing industry.
(3) TRANSACTIONS WITH PARENT COMPANY AND AFFILIATES
The notes payable to Parent Company totaling $4,300,000 and $3,300,000 at
December 31, 1992 and 1991, respectively, are subordinated to the Company's
equipment obligations. Interest is payable monthly at the prime lending rate
plus 1% and totaled $254,186 in 1992 and $104,142 in 1991. The prime lending
rate as of December 31, 1992 was 6%.
The Company purchases equipment from Sir Speedy, Inc. for lease to Sir
Speedy franchised printing centers; such purchases totaled approximately
$225,000 in 1992 and $350,000 in 1991. Included in gross lease receivables at
December 31, 1992 were three leases to affiliates totaling approximately
$17,000.
(4) FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost less accumulated depreciation
as follows:
1992 1991
-------- -------
Furniture and equipment $110,959 106,843
Accumulated depreciation (90,193) (78,393)
-------- -------
$ 20,766 28,450
-------- -------
-------- -------
(5) EQUIPMENT OBLIGATIONS
Equipment obligations consist of debt incurred in acquiring equipment for
lease and are secured by the related lease receivables and underlying
equipment. Interest rates on these obligations range from 7.5% to 11.25%.
Interest expense averaged 10.6% in 1992 and 11.9% in 1991. Maturities of
equipment obligations as of December 31, 1992 are as follows:
Year Ended
December 31,
------------------
1993 $3,543,212
1994 2,448,991
1995 1,532,768
1996 724,670
1997 223,773
--------------
$8,473,414
--------------
--------------
46
<PAGE>
(6) LEASE INCOME
Lease income is summarized as follows:
<TABLE>
<CAPTION>
1992 1991
-------------- ------------
<C> <S> <C>
Deferred lease income recognized using the
interest method $4,274,807 4,578,232
Gain on residual values 238,450 208,782
Other -- 2,700
-------------- ------------
$4,513,257 4,789,714
============== ============
</TABLE>
(7) INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
Federal State Total
------------ --------- ----------
<S> <C> <C> <C> <C>
1992:
Current $264,000 80,000 344,000
Deferred 6,000 1,000 7,000
------------ --------- ----------
$270,000 81,000 351,000
============ ========= ==========
1991:
Current $296,000 75,000 371,000
Deferred (18,000) (2,000) (20,000)
------------ --------- ----------
$278,000 73,000 351,000
============ ========= ==========
</TABLE>
Actual income tax expense differs from the amount computed by applying the
statutory Federal income tax rate of 34% to earnings before income tax expense
as follows:
<TABLE>
<CAPTION>
1992 1991
---------------------- --------------------
Amount % Amount %
------------ ------ ---------- ------
<S> <C> <C> <C> <C>
Tax at statutory rate $248,000 34.0 251,000 34.0
State income taxes, net of Federal
income tax benefit 53,000 7.3 48,000 6.5
Other 50,000 6.9 52,000 7.0
------------ ------ ---------- ------
$351,000 48.2 351,000 47.5
============ ====== ========== ======
</TABLE>
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant portions of
the $972,000 deferred tax liability at December 31, 1992 relate to differences
arising from the classification of leases as operating leases for tax purposes
and capital leases for financial reporting purposes.
(8) COMMITMENTS
The Company has a two-year operating lease commitment for rental of its
office space requiring rental payments totaling $42,000 per year in 1993 and
1994.
Rental expense totaled $44,148 and $37,423 in 1992 and 1991, respectively.
47
<PAGE>
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED STATEMENT OF OPERATIONS
The attached pro forma financial information gives effect to the
acquisition of Canyon Capital, Inc. ("Canyon") by the Company. The pro forma
consolidated condensed statements of operations for the year ended December
31, 1992 reflects the operations of the combined entities as though the
acquisition has been made at the beginning of 1992. It should be read in
conjunction with the historical consolidated financial statements and notes
thereto of the Company and Canyon as of and for the year ended December 31,
1992.
The pro forma financial information does not purport to be indicative of
the actual results of operations that would have occurred if the acquisition
had been consummated on the date indicated or that may be obtained in the
future. Adjustments in anticipation of cost savings through consolidation of
the Company and Canyon are not included.
The pro forma adjustments reflected in the pro forma statements of
operations include adjustments to amortize the discount on the acquired net
investment in finance receivables; to record the interest incurred on funds
borrowed to fund the purchase and to refinance all outstanding debt of Canyon,
and to remove Canyon's historical interest expenses; and to apply the
Company's estimated incremental income tax rate. The pro forma statement of
operations does not reflect a five-year covenant not to compete entered into
as part of the acquisition, or the amortization thereof, because the amount is
contingent upon future recoveries of previously charged off accounts. The
amount, if any, will be amortized, beginning in the period in which the amount
is determined, using the straight line method over the remainder of the five
year term.
48
<PAGE>
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1992
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HORRIGAN CANYON PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------- -------------- ------------
<S> <C> <C> <C> <C>
Finance Revenues:
Commercial leasing and financing
revenues................................................
$18,869 4,524 118 (a) 23,511
Interest expense.......................................... 8,444 1,430 (541)(b) 9,333
------ ------- ------ -----
Finance revenue margin................................ 10,425 3,094 659 14,178
Provision for possible lease and loan losses.............. 2,190 1,179 0 3,369
------ ------- ------ -----
Finance revenues after provision for possible lease
and loan losses.....................................
8,235 1,915 659 10,809
------ ------- ------ -----
Net operating lease revenues................................ 1,956 0 0 1,956
Total other operating revenues.............................. (1,708) 109 0 (1,599)
Operating expenses:
Salaries and employees benefits........................... (4,646) (588) 0 (3,234)
Other expenses............................................ (4,337) (708) 0 (5,045)
------ ------- ------ -----
Earnings (loss) before income taxes and minority interest...
(500) 728 659 887
Provision for income taxes................................ 144 351 250 (c) 745
------ ------- ------ -----
Earnings (loss) before minority interest....................
(644) 377 409 142
Minority interest loss.................................... 231 0 0 231
------ ------- ------ -----
Net earnings (loss)......................................... (413) 377 409 373
====== ======= ====== =====
Net earnings (loss) per common share........................ 0.13 0.11
====== =====
Weighted number of shares outstanding....................... 3,310,584 3,310,584
============ ============
<FN>
- ---------
(a) The finance receivables acquired were valued at their estimated fair
values as of May 31, 1993. The resulting discount is being amortized into
finance revenue over the remaining life of the portfolio to produce a
constant yield to maturity.
(b) The debt to fund the purchase of the capital stock of Canyon and to pay-
off all of the outstanding debt as of June 1, 1993 has been borrowed under
existing Company credit lines at a blended rate of 5.07%. Canyon's
historical interest expense has been removed and replaced with estimated
interest expense under the new funding terms using average balances
outstanding for the period.
(c) The pro forma adjustment to the provision for income taxes is calculated
using an estimated incremental income tax rate of 38%.
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
49
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
The names and positions of the executive officers and directors of
Horrigan American, Inc. (including certain executive officers of certain of
its subsidiaries) are shown below. Also shown is the year in which each was
first elected as an officer or director of Horrigan American, Inc. (or of its
predecessor, Horrigan Companies, Inc.) or of the relevant subsidiary.
All of the officers except Richard W. Horrigan devote substantially all of
their time to the activities of the Company.
<TABLE>
<CAPTION>
YEAR OF
NAME BIRTH POSITION
- ---- -------- ---------------------------------------------------------
<S> <C> <C>
John F. Horrigan, Jr............................ 1928 Chairman of the Board of Directors and Assistant
Secretary (1952)
Richard W. Horrigan*............................ 1928 Vice Chairman of the Board of Directors and Treasurer
(1952)
Arthur A. Haberberger........................... 1937 President, Chief Executive Officer, Assistant Secretary
and Director (1963)
W. Michael Horrigan............................. 1947 Senior Vice President, Assistant Secretary and Director
(1976)
Sidney D. Kline, Jr............................. 1932 Director (1979)
John A. Mullineaux, Jr.*........................ 1950 Director (1983)
Elizabeth Horrigan Rathz*....................... 1959 Director (1987)
Althea L. A. Skeels*............................ 1951 Director (1990)
Richard W. Horrigan, Jr.*....................... 1957 Director (1992)
Joanne Haberberger.............................. 1944 Senior Vice President, Chief Human Resources Officer and
Secretary (1981)
John F. Horrigan, III........................... 1960 Vice President, Funds Management (1993)
Robert Ordway................................... 1945 Senior Vice President and Chief Financial Officer (1978)
Vincent A. Faino................................ 1952 Senior Vice President of AEL Leasing Co., Inc. (1991)
Mark E. Guida................................... 1958 President of The Business Outlet, Inc. (1992)
<FN>
- ---------
* Audit Committee member
</TABLE>
Each director serves until the next annual meeting of shareholders and
until his successor is duly elected and qualified. All officers are elected to
annual terms and serve at the pleasure of the Board of Directors.
JOHN F. HORRIGAN, JR., is Chairman of the Board of Directors and Assistant
Secretary of the Company, and a director and an executive officer of each of
its operating subsidiaries. He has been employed by the Company since 1953.
Mr. Horrigan is a member of the Banking-Securities
Liaison and Governmental Affairs Committees of the Pennsylvania Financial
Services Association, Harrisburg, Pennsylvania.
RICHARD W. HORRIGAN is Vice Chairman of the Board of Directors and
Treasurer of the Company and of its leasing and commercial financing
subsidiaries. Mr. Horrigan is associated with the Company part time; his
principal occupation is President of Dick Horrigan Volkswagen, Inc. and
50
<PAGE>
President of Dick Horrigan, Inc., both of Reading, Pennsylvania. Mr. Horrigan
is a member of the Berks County Regional Advisory Committee of Meridian
Bancorp, Inc., Reading, Pennsylvania; and Past Chairman of the Board and
member of the Executive Committee of the American Imported Automobile Dealers
Association, Washington, D.C.
ARTHUR A. HABERBERGER is President, Chief Executive Officer, Assistant
Secretary, and a director of the Company and of its leasing and commercial
financing subsidiaries; and a director and an executive officer of each of its
other operating subsidiaries. He has been employed by the Company since 1963.
Mr. Haberberger is a member of the Industry Future Council of the Equipment
Leasing Association of America, Arlington, Virginia. Mr. Haberberger is also a
director of Sovereign Bancorp, Inc. (and a director of its subsidiary,
Sovereign Bank, F.S.B.), Wyomissing, Pennsylvania.
W. MICHAEL HORRIGAN is Senior Vice President, Assistant Secretary, and a
director of the Company, and a director and Executive Vice President of its
leasing and commercial financing subsidiaries and a director of its furniture
and equipment sales subsidiary. He has been employed by the Company since
1971.
SIDNEY D. KLINE, JR., is a director of the Company and of its leasing and
commercial financing subsidiaries. He is a principal in the law firm of
Stevens & Lee, Reading, Pennsylvania. Mr. Kline is also a director of Meridian
Bancorp, Inc., and two of its subsidiaries (Meridian Bank and Meridian Asset
Management, Inc.), The Bachman Company, and Reading Eagle Company.
JOHN A. MULLINEAUX, JR., is a director of the Company and of its leasing
and commercial financing subsidiaries. Since February 1993, Mr. Mullineaux has
been President of Fenner Manheim, Manheim, Pennsylvania, a division of Fenner,
Inc. From September 1990 until February 1993, he was Vice President and
General Manager of Fenner Manheim, and from October 1984 until September 1990,
he was Vice President, Finance, of Fenner Manheim. He is also a director of
Fenner, Inc. Mr. Mullineaux is a certified public accountant.
ELIZABETH HORRIGAN RATHZ is a director of the Company and of its leasing
and commercial financing subsidiaries. Ms. Rathz has been employed as an
investment banking consultant with CoreStates Financial Corp., Philadelphia,
Pennsylvania, since 1993. From 1986 to 1993, she was employed with CoreStates
in the Investment Banking Division, where she held the position of Assistant
Vice President from 1987 to 1988 and Vice President from 1988 to 1993.
ALTHEA L. A. SKEELS is a director of the Company and of its leasing and
commercial financing subsidiaries. Since March 1990, she has been Executive
Vice President of Rittenhouse Financial Services, Inc., a registered
investment advisory firm headquartered in Radnor, Pennsylvania. From 1975 to
March 1990, Ms. Skeels was employed by Deloitte & Touche and its predecessor
firm, Touche Ross & Co., and was a partner in the firm since 1987. Ms. Skeels
is a certified public accountant.
RICHARD W. HORRIGAN, JR., is a director of the Company and of its leasing
and commercial financing subsidiaries. Since 1989, he has been Vice President
of Customer Service and Finance with Wilkerson Corporation in Englewood,
Colorado. From 1986 to 1989, Mr. Horrigan was employed with Whirlpool
Kitchens, Denver, Colorado, serving last as Vice President of Finance. He
currently serves as a director of the Continuing Professional Education Board
for the Colorado Society of Certified Public Accountants, and as a director
and treasurer of the Financial Executive Institute, Rocky Mountain Chapter.
Mr. Horrigan is a certified public accountant.
51
<PAGE>
JOANNE HABERBERGER is Senior Vice President, Chief Human Resources
Officer, and Secretary of the Company, Vice President and Secretary of its
leasing and commercial financing subsidiaries, and Secretary of its furniture
and equipment sales subsidiary. She has been employed by the Company since
1980. Ms. Haberberger is also a director of Inroads, a non-profit employee
assistance program, and of the Reading Area Trainers Organization Chapter of
the American Society for Training and Development.
JOHN F. HORRIGAN, III, is Vice President, Funds Management, of the Company
and of its leasing and commercial financing subsidiaries. He is also President
of the Company's real estate investment and development subsidiary, and
President of the Company's securities subsidiary. He has been employed by the
Company since 1987. From 1985 to 1987, he was employed with the law firm of
Schiff, Hardin, and Waite, Chicago, Illinois, as an associate. He is a member
of the Illinois Bar Association.
ROBERT ORDWAY is Senior Vice President and Chief Financial Officer of the
Company and of its leasing and commercial financing subsidiaries, and a
director and officer of its investment subsidiary. He has been employed by the
Company since 1977. Mr. Ordway is a certified public accountant.
VINCENT A. FAINO is Senior Vice President of the Company's leasing and
commercial financing subsidiaries, and President of the leasing subsidiary's
legal market division. He has been employed by the Company since 1982. Mr.
Faino is a member of the Equipment Leasing Association Lease Management
Institute.
MARK E. GUIDA is President, Chief Operating Officer, Treasurer, Assistant
Secretary, and a director of the Company's furniture and equipment sales
subsidiary. He has been employed by the Company since 1978. Mr. Guida is a
member of the Berks County Chamber of Commerce Small Business Committee,
Venture Capital Committee, and International Business Committee.
John F. Horrigan, Jr., Richard W. Horrigan and W. Michael Horrigan are
brothers. Elizabeth Horrigan Rathz and John F. Horrigan, III, are children of
John F. Horrigan, Jr., and Richard W. Horrigan, Jr. is the son of Richard W.
Horrigan. Mr. and Mrs. Haberberger are spouses.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash compensation from the Company and
its subsidiaries of the following executive officers of the Company.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
LONG-TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------
STOCK
NAME AND SALARY BONUS OPTIONS (NOTE A)
PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John F. Horrigan, Jr. 1993 $119,100 $53,506 -- $21,843
Chief Executive Officer 1992 $112,503 $49,906 -- $ 9,259
1991 $111,504 $19,366 5,135 $ 9,018
- ------------------------------------------------------------------------------------------------------------------------------
Arthur A. Haberberger 1993 $110,077 $66,120 -- $23,972
Chief Operating Officer 1992 $103,962 $47,189 -- $ 9,461
1991 $102,000 $19,267 5,135 $ 9,474
- ------------------------------------------------------------------------------------------------------------------------------
W. Michael Horrigan 1993 $ 86,321 $22,462 -- $14,275
Senior Vice President 1992 $ 84,500 $23,123 -- $ 5,548
1991 $ 89,872 $ 8,847 2,800 $ 5,919
- ------------------------------------------------------------------------------------------------------------------------------
Vincent A. Faino 1993 $105,810 $ 2,465 -- $11,232
Senior Vice President 1992 $101,583 $12,308 -- $11,339
1991 $ 81,881 $ 135 2,800 $ 8,314
- ------------------------------------------------------------------------------------------------------------------------------
John F. Horrigan, III 1993 $ 85,000 $17,990 -- $11,024
Vice President 1992 $ 70,000 $19,515 -- $ 8,319
1991 $ 66,000 $ 7,018 2,800 $ 7,453
- ------------------------------------------------------------------------------
<FN>
NOTE A: All other compensation for the year ended December 31, 1993 includes
the following: for J. F. Horrigan, Jr. -- split dollar insurance ($1,392),
group life insurance over $50,000 ($1,197), profit sharing plan contribution
($14,254) and director fees ($5,000); for A. A. Haberberger -- deferred
compensation plan ($3,260), group life insurance over $50,000 ($900), profit
sharing contribution ($14,812) and director fees ($5,000); for W. M. Horrigan
- -- group life insurance over $50,000 ($145), profit sharing contribution
($9,130) and director fees ($5,000); for V. A. Faino -- group life insurance
over $50,000 ($10) and profit sharing and ESOP plan contribution ($11,222);
and for J. F. Horrigan, III -- group life insurance over $50,000 ($5) and
profit sharing and ESOP plan contribution ($11,019).
</TABLE>
52
<PAGE>
The Company is party to employment agreements with each of the named
officers. Under these agreements the Company is to pay for 1994 a minimum of
$120,000 to John F. Horrigan, Jr., $125,000 to Mr. Haberberger, $87,200 to W.
Michael Horrigan, $100,000 to Mr. Faino and $86,800 to John F. Horrigan, III.
The agreements provide these officers with such benefits as life and health
insurance, seniority bonuses, salary continuation to dependents in the event
of death, and participation in the Company's 401(k) Plan. They also provide
for the Company to pay an officer who is discharged without cause up to one
year's compensation based on his pre-termination salary and incentive bonuses.
At present, such payments would amount to approximately $169,726 to John F.
Horrigan, Jr., $166,676 to Mr. Haberberger and $104,943 to W. Michael
Horrigan.
Each director receives a fee of $1,000 for each meeting attended.
Successive meetings of directors of the Company and its subsidiaries held on
the same day are treated as a single meeting for this purpose. Each member of
the Audit Committee receives $150 for each meeting attended. Directors receive
in addition an annual retainer of $1,500 for service on all Boards of
Directors of which they are members.
STOCK OPTIONS
The following table sets forth certain information regarding options
exercised during 1993 by the named executive officers of the Company and the
unexercised options for these individuals as of December 31, 1993.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1993 AND DECEMBER 31, 1993 OPTION VALUE
- ------------------------------------------------------------------------------
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY
ACQUIRED VALUE 12/31/93 OPTIONS AT
ON EXERCISE REALIZED (NOTE A) 12/31/93
NAME (#) ($) (#) ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John F. Horrigan, Jr........................... -- -- 10,035 $2,413
Arthur A. Haberberger.......................... 2,000 $1,454 10,035 $2,413
W. Michael Horrigan............................ -- -- 6,600 $1,316
Vincent A. Faino............................... 1,200 $ 872 5,700 $1,316
John F. Horrigan, III.......................... -- -- 6,600 $1,316
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
NOTE A: All options are exercisable as of December 31, 1993.
</TABLE>
LONG-TERM INCENTIVE PLANS
The following table sets forth certain information regarding the number of
units awarded to each of the named executive officers of the Company in 1993
under the Company's Phantom Stock Plan.
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLANS -- AWARDS IN 1993
- ------------------------------------------------------------------------------
NUMBER OF PERFORMANCE OR PERIOD UNTIL
SHARES, UNITS MATURATION OR PAYOUT
NAME OR OTHER RIGHTS (SEE BELOW)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
John F. Horrigan, Jr.......................................... 10,000 Retirement
Arthur A. Haberberger......................................... 10,000 Retirement
W. Michael Horrigan........................................... 5,000 Retirement
Vincent A. Faino.............................................. 5,000 Retirement
John F. Horrigan, III......................................... 5,000 Retirement
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE>
The Phantom Stock Plan authorizes awards in the form of "phantom stock
units," each of which entitles the recipient to a future payment based on a
hypothetical investment in a share of Common Stock. The Plan is administered
by an administrative committee consisting of three directors of the Company,
none of whom is eligible to participate in the Plan. Participation in the Plan
is restricted to key officers of the Company and its principal subsidiaries,
as determined by the administrative committee.
A phantom stock unit does not represent or entitle the recipient to any
equity securities of the Company, but instead involves the creation of an
unfunded account for the recipient, the value of which is measured by
reference to the value of the Company's common stock. Units vest in stages
between the fifth and tenth anniversaries of an officer's becoming a
participant in the Plan. Vesting is accelerated upon the participant's normal
retirement, death or disability. All units are forfeited (even if previously
vested) if a participant resigns or is dismissed for cause. The value of a
participant's account is determined at the time of his or her retirement,
death or disability, or at the time the participant is discharged by the
Company without cause, to be equal to (1) the excess of the per-share fair
market value of the Company's common stock at that time over the per-share
fair market value at the respective dates of awards of units, times the number
of units credited to the account at the time of determination, plus (2) the
per-share amount by which common stock dividends paid in any year after an
award of units exceeds 20% of the consolidated net earnings per share of the
Company for the immediately preceding fiscal year, times the number of units
credited to the account at the relevant dividend payment dates.
Payment at the value of a participant's account is made beginning at the
time of the participant's normal retirement, death or disability, or at the
time a participant who is discharged without cause with vested units in his or
her account reaches age 62. The Company may elect to pay the account value in
a lump sum or in installments (with interest) over ten years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors has no compensation committee or other
committee performing similar functions. In their capacities as directors, John
F. Horrigan, Jr., Richard W. Horrigan, Arthur A. Haberberger and W. Michael
Horrigan participated in deliberations of the Company's Board of Directors
concerning executive officer compensation in 1993.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains the indicated information as of February 15,
1994, concerning the ownership of the Company's common stock (the only class
of voting securities), by the Company's directors and executive officers and
by all persons who to the Company's knowledge own
54
beneficially more than 5% of the Company's common stock. Except as otherwise
indicated, such ownership consists of sole voting and investment power. Some
or all of these persons may be deemed to be "parents" of the Company.
<TABLE>
<CAPTION>
NUMBER OF RIGHTS TO PERCENT
SHARES OWNED ACQUIRE OF CLASS
------------------- ---------- ---------
<S> <C> <C> <C>
John F. Horrigan, Jr................................................ 313,917(1) 10,035 10.4
6 Commerce Drive
Shillington, PA
Richard W. Horrigan................................................. 286,608(2) -- 9.2
3817 Reiff Place
Reiffton, PA
W. Michael Horrigan................................................. 224,004 6,600 7.4
6 Commerce Drive
Shillington, PA
54
<PAGE>
<CAPTION>
NUMBER OF RIGHTS TO PERCENT
SHARES OWNED ACQUIRE OF CLASS
------------------- ---------- ---------
<S> <C> <C> <C>
Arthur A. Haberberger............................................... 317,872(3) 10,035 10.5
6 Commerce Drive
Shillington, PA
Sidney D. Kline, Jr................................................. 6,168 -- 0.2
21 Merrymount Road
Wyomissing, PA
John A. Mullineaux, Jr.............................................. 7,855 -- 0.2
141 West Sunhill Road
Manheim, PA
Elizabeth Horrigan Rathz............................................ 132,681(4) -- 4.3
2611 Fountain Hill Drive
Wexford, PA
Richard W. Horrigan, Jr............................................. 62,064(5) -- 2.0
9729 E. Ida Circle
Greenwood Village, CO
Althea L. A. Skeels................................................. 1,537 -- 0.05
Two Radnor Corporate Center
100 Matson Ford Road
Radnor, PA
John F. Horrigan, III............................................... 325,484(6)(7) 6,600 10.6
6 Commerce Drive
Shillington, PA
Mary Jo Dever....................................................... 314,144(7)(8) -- 10.1
12 High Street
Mt. Penn, Reading, PA
All directors and executive officers (14 persons)................... 1,698,263 58,370 55.4
<FN>
- ---------
(1) Includes 1,760 shares owned jointly by Mr. J. F. Horrigan, Jr., and his
wife.
(2) Includes 1,800 shares owned jointly by Mr. R. W. Horrigan and his wife.
(3) Includes 40,490 shares held by Mr. Haberberger as trustee under trusts
established by Mr. W. Michael Horrigan for his children and not reflected
opposite Mr. Horrigan's name in the table.
(4) Includes 16,150 shares held by Ms. Rathz and her husband as custodians for
their children.
(5) Includes 1,075 shares held by Mr. Richard W. Horrigan, Jr. and his wife as
custodians for their child.
(6) Includes 25,953 shares held by Mr. John F. Horrigan, III and his wife as
custodians for their children.
(7) Includes 200,000 shares held by the Horrigan Family Trust (established by
J. F. Horrigan, Jr.), of which Mr. John F. Horrigan, III and Ms. Mary Jo
Dever are co-trustees.
(8) Includes 19,653 shares held by Ms. Dever and her husband as custodians for
their child.
</TABLE>
All of the Company's outstanding preferred stock (1,952 shares) is owned
by the estate of John F. Horrigan, Sr., of which Messrs. J. F. Horrigan, Jr.
and R. W. Horrigan are co-executors.
55
<PAGE>
Solely for the purpose of presenting information on the cover of this
report concerning the market value of voting stock held by non-affiliates, the
Company has excluded shares owned or controlled by its directors or executive
officers.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and all the individual common stockholders are parties to an
agreement restricting the right of the individual stockholders to dispose of
their stock in the Company and (with certain exceptions for transfers to
family members and to other stockholders) giving the Company or the other
individual parties to the agreement, in the event of a voluntary sale by one
of the individuals, the right but not the obligation to purchase the shares of
common stock offered for sale by the individual. The agreement currently
provides that the purchase price in such event will be determined consistently
with the method employed by the outside appraiser to determine the value per
share under the Company's Employee Stock Ownership Plan (the "ESOP"). Because
the ESOP was terminated in 1993, the Company intends to implement an
alternative method of valuing the stock for purposes of the stockholders'
agreement; in the interim, the Company will continue to use the value
determined by an outside appraisal as of November, 1993, in connection with
the termination of the ESOP. In the event the Company and the other individual
stockholders decline to purchase all the common stock, the other individual
common stockholders retain the right to purchase the common stock at a price
offered by the third party.
The Company is party to an agreement with Mr. Arthur A. Haberberger under
which the Company is obligated upon Mr. Haberberger's death, at the option of
his estate, to purchase any or all shares of the Company owned by Mr.
Haberberger at his death. The purchase price will be determined consistently
with the method used under the stockholders' agreement described in the
preceding paragraph. For purposes of funding its obligation under this
agreement the Company maintains insurance in the amount of $3,000,000 on Mr.
Haberberger's life. If the insurance proceeds are insufficient, the balance of
the purchase price is payable, with interest, over a period of not more than
ten years. If Mr. Haberberger's estate elects to require the Company to
purchase no shares, or shares with a purchase price of less than $3,000,000,
then his children and a trust established by him can require the Company to
purchase shares held by them, so long as the total purchase price for their
shares and any shares purchased from Mr. Haberberger's estate does not exceed
$3,000,000.
The Company is party to agreements with John F. Horrigan, Jr., Richard W.
Horrigan and
W. Michael Horrigan under which the Company is obligated upon death, at the
option of the decedant's estate, to purchase up to a specific amount of shares
of the Company then owned by the decedant. The purchase price will be
determined consistently with the method used under the stockholders' agreement
described above. The maximum number of shares to be purchased is that number
of shares for which the aggregate purchase price does not exceed the proceeds
received by the Company from life insurance policies maintained by the Company
in the amounts of $750,000 on Mr. J. F. Horrigan, Jr.; $500,000 on Mr. R. W.
Horrigan, and $1,000,000 on Mr. W. M. Horrigan.
J. F. Horrigan, Jr. and ten investment partnerships consisting of various
combinations of J. F. Horrigan, Jr., A. A. Haberberger, Elizabeth Horrigan
Rathz, Sidney D. Kline, Jr., John A. Mullineaux, Jr., and various members of
their families have invested as limited partners in eleven real estate
partnerships sponsored by American Real Estate Investment and Development Co.
("American Real Estate"), a wholly-owned subsidiary of the Company (see
"Business -- Real Estate"). American Real Estate is a general partner in each
of the real estate partnerships and is also a limited partner in four of them.
The Company is a general partner (in addition to American Real Estate) in one
of the partnerships. Unaffiliated persons are limited partners in nine of the
real estate partnerships. In each case, the investment partnership acquired
its interest in the real estate partnership on terms not more favorable than
those offered to American Real Estate and the Company and to unaffiliated
persons. The Company leases its Corporate Office (which also contains various
leasing departments) from one of the real estate partnerships for an annual
rental of $343,000. The Company has loaned $1,753,000 to five of the real
estate partnerships and has guaranteed $1,651,000 of indebtedness of two of
the real estate partnerships. Mr. and Mrs.
Haberberger are limited partners in a partnership to which the Company has
finance receivables of $175,000 outstanding as of December 31, 1993.
Stevens & Lee, of which Sidney D. Kline, Jr. is a principal, has from time
to time performed legal services for the Company and may perform services for
the Company in 1994.
56
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed (or incorporated by reference, as
indicated) as part of this report:
1. Financial statements: Horrigan American, Inc. and subsidiaries:
-- consolidated balance sheets as of December 31, 1993 and 1992;
-- consolidated statements of earnings for the years ended December 31,
1993, 1992 and 1991;
-- consolidated statements of changes in stockholders' equity for the
years ended December 31, 1993, 1992, and 1991;
-- consolidated statements of cash flows for the years ended December 31,
1993, 1992 and 1991;
-- notes to consolidated financial statements.
2. Financial statement schedules: None.
3. Exhibits. The following exhibits are filed herewith or incorporated by
reference, as indicated. Exhibits 10.1 through 10.8, 10.13, 10.14 and 10.16
are compensatory contracts, plans or arrangements in which certain members of
registrant's management participate.
Certain exhibits are incorporated by reference to registrant's
registration statement on Form S-2, No. 33-59620, filed March 16, 1993 (the
"1993 Registration Statement"); to registrant's current report on form 8-K,
filed June 16, 1993 (the "1993 8-K"); to registrant's annual report on Form
10-K for the year ended December 31, 1992 (the "1992 10-K); to registrant's
registration statement on Form S-2, No. 33-46346, filed March 12, 1992 (the
"1992 Registration Statement"); to registrant's current report on Form 8-K,
filed February 18, 1992 (the "1992 8-K"); to registrant's annual report on
Form 10-K for the year ended December 31, 1991 (the "1991 10-K"); to
registrant's registration statement on Form S-2, No. 33-39469, filed March 15,
1991 (the "1991 Registration Statement"); to registrant's annual report on
Form 10-K for the year ended December 31, 1990 (the "1990
10-K"); to registrant's registration statement on Form S-2, No. 33-33771,
filed March 7, 1990 (the "1990 Registration Statement"), to registrant's
annual report on Form 10-K for the year ended December 31, 1989 (the "1989 10-
K"); to registrant's registration statement on Form S-2, No. 33-28009, filed
April 7, 1989 (the "1989 Registration Statement"); to registrant's
registration statement on Form S-2, No. 33-20953, filed March 30, 1988 (the
"1988 Registration Statement"); to registrant's Annual Report on Form 10-K for
the year ended December 31, 1987 (the "1987 Form 10-K"); to registrant's
registration statement on Form S-2, No. 33-12869, filed March 24, 1987 (the
"1987 Registration Statement"); to registrant's registration statement on Form
S-2, No. 33-4051, filed March 17, 1986 (the "1986 Registration Statement"); to
registrant's Annual Report on Form 10-K for the year ended December 31, 1985
(the "1985 Form 10-K"); to registrant's registration statement on Form S-1,
No. 2-96525, filed March 19, 1985 (the "1985 Registration Statement"); to
registrant's Registration Statement on Form S-1, No. 2-90161, filed March 26,
1984 (the "1984 Registration Statement"); to registrant's registration
statement on Form S-1, No. 2-82551, filed March 21, 1983 (the "1983
Registration Statement") or Amendment No. 1 thereto, filed April 28, 1983 (the
"1983 Amendment"); to Amendment No. 1 to the registration statement on Form S-
1, No. 2-76479, of registrant's predecessor, Horrigan Companies, Inc. ("HCI"),
filed April 14, 1982 (the "1982 Amendment"); to Amendment No. 1, filed April
24, 1981, to HCI's registration statement on Form S-1, No. 2-71420, (the "1981
Amendment"); or to Amendment No. 1 to HCI's registration statement on Form S-
1, No. 2-58452, filed July 1, 1977 (the "1977 Amendment").
57
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT INCORPORATION BY REFERENCE
NO. DESCRIPTION (IF APPLICABLE)
- --------- --------------------------------------------------- ---------------------------------------------------
<S> <C> <C>
2.1 Asset Purchase Agreement dated January 31, 1992, Exhibit 1 to the 1992 8-K is incorporated by
among Reli Financial Corp., American Commercial reference
Credit Corp., and AEL Leasing Co., Inc. (Schedules,
described in the agreement, are omitted but will be
furnished supplementally to the Commission upon
request.)
2.2 Non-Competition Agreement dated January 31, 1992, Exhibit 2 to the 1992 8-K is incorporated by
among General Electric Capital Corporation, reference
LeaseAmerica Corporation, Reli Financial Corp., AEL
Leasing Co., Inc., and American Commercial Credit
Corp.
2.3 Agreement for Purchase and Sale of Stock dated June Exhibit 1 to the 1993 8-K is incorporated by
1, 1993, between KOA Holdings, Inc. and American reference
Commercial Credit Corp. (Schedules and exhibits,
described in the agreement, are omitted but will be
furnished supplementally to the Commission upon
request.)
2.4 Non-Competition Agreement dated June 1, 1993, Exhibit 2 to the 1993 8-K is incorporated by
between KOA Holdings, Inc. and American Commercial reference
Credit Corp.
2.5 Consulting Agreement dated June 1, 1993, between Exhibit 3 to the 1993 8-K is incorporated by
American Commercial Credit Corp. and Thomas reference
O'Connor
3.1 Registrant's articles of incorporation Exhibit 3.1 to the 1989 10-K is incorporated by
reference
3.2 Amendments to articles of incorporation Exhibit 3.1 to the 1990 10-K is incorporated by
reference
3.3 Registrant's by-laws Exhibit 3.2 to the 1989 10-K is incorporated by
reference
3.4 Amendment to by-laws Exhibit 3.3 to the 1991 10-K is incorporated by
reference
4.1 Indenture dated as of July 21, 1977 Exhibit 4(c) to the 1977 Amendment is incorporated
by reference
4.2 First Supplemental Indenture Exhibit 4(a)(2) to the 1981 Amendment is
incorporated by reference
4.3 Second Supplemental Indenture Exhibit 4(a)(3) to the 1982 Amendment is
incorporated by reference
4.4 Third Supplemental Indenture Exhibit 4.4 to the 1983 Registration Statement is
incorporated by reference
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT INCORPORATION BY REFERENCE
NO. DESCRIPTION (IF APPLICABLE)
- --------- --------------------------------------------------- ---------------------------------------------------
<S> <C> <C>
4.5 Fourth Supplemental Indenture Exhibit 4.5.1 to the 1983 Amendment is incorporated
by reference
4.6 Fifth Supplemental Indenture Exhibit 4.7 to the 1984 Registration Statement is
incorporated by reference
4.7 Sixth Supplemental Indenture Exhibit 4.8 to the 1985 Registration Statement is
incorporated by reference
4.8 Seventh Supplemental Indenture Exhibit 4.11 to the 1986 Registration Statement is
incorporated by reference
4.9 Eighth Supplemental Indenture Exhibit 4.11 to the 1987 Registration Statement is
incorporated by reference
4.10 Ninth Supplemental Indenture Exhibit 4.12 to the 1988 Registration Statement is
incorporated by reference
4.11 Tenth Supplemental Indenture Exhibit 4.13 to the 1989 Registration Statement is
incorporated by reference
4.12 Eleventh Supplemental Indenture Exhibit 4.12 to the 1990 Registration Statement is
incorporated by reference
4.13 Twelfth Supplemental Indenture Exhibit 4.13 to the 1991 Registration Statement is
incorporated by reference
4.14 Thirteenth Supplemental Indenture Exhibit 4.14 to the 1991 10-K is incorporated by
reference
4.15 Fourteenth Supplemental Indenture Exhibit 4.15 to the 1992 Registration Statement is
incorporated by reference
4.15a Fifteenth Supplemental Indenture Exhibit 4.16 to the 1993 Registration Statement is
incorporated by reference
UNSECURED FUNDING PROGRAM*
4.16 Schedule identifying lenders and certain terms
4.16a Example of loan and suretyship agreements with
various lenders.
EMPLOYMENT AGREEMENTS:
10.1 J. F. Horrigan, Jr.
10.2 A. A. Haberberger
10.3 W. M. Horrigan
10.4 V. A. Faino
10.5 J. F. Horrigan, III
SPLIT-DOLLAR INSURANCE
10.6 J. F. Horrigan, Jr., 11/27/85 Exhibits 10.8 and 10.9 to the 1985 10-K are
10.7 R. W. Horrigan, 11/27/85 incorporated by reference
10.8 Amended and Restated Shareholders Agreement dated Exhibit 10.21 to the 1985 10-K is incorporated by
as of April 16, 1985 reference
</TABLE>
59
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT INCORPORATION BY REFERENCE
NO. DESCRIPTION (IF APPLICABLE)
- --------- --------------------------------------------------- ---------------------------------------------------
<S> <C> <C>
REDEMPTION AGREEMENTS
10.9 J. F. Horrigan, Jr. Exhibits 10.8 through 10.10 to the 1993
10.10 A. A. Haberberger 10-K are incorporated by reference.
10.11 W. M. Horrigan
10.12 Horrigan American, Inc.
401(k) Retirement Plan
10.13 1987 Stock Option Plan Exhibit 10.20 to the 1987 10-K is incorporated by
reference
10.14 Stockholders Agreement for Outside Directors dated Exhibit 10.25 to the 1985 10-K is incorporated by
March 25, 1985 reference
10.15 Phantom Stock Plan
11 Statement of calculation of earnings per share
12 Statement of calculation of ratios of earnings to
fixed charges
22 Subsidiaries of the Registrant
27 Financial Data Schedule
<FN>
- ---------
* Other instruments defining the rights of holders of long-term debt of registrant and its subsidiaries are not filed,
pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K. Registrant agrees to furnish a copy of any such
instrument to the Commission upon request.
</TABLE>
(b) No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
60
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
HORRIGAN AMERICAN, INC.
DATED: March 18, 1994
/s/ JOHN F. HORRIGAN, JR.
By:
-----------------------------------
JOHN F. HORRIGAN, JR.
CHAIRMAN
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
------- --- ---
/s/ JOHN F. HORRIGAN, JR. Chairman of the Board of March 18, 1994
- ----------------------------- Directors
JOHN F. HORRIGAN, JR.
/s/ RICHARD W. HORRIGAN Vice Chairman of the Board of March 18, 1994
- ----------------------------- Directors
RICHARD W. HORRIGAN
/s/ ARTHUR A. HABERBERGER President (principal executive March 18, 1994
- ----------------------------- officer) and Director
ARTHUR A. HABERBERGER
/s/ W. MICHAEL HORRIGAN Director March 18, 1994
- -----------------------------
W. MICHAEL HORRIGAN
/s/ ELIZABETH HORRIGAN RATHZ Director March 18, 1994
- -----------------------------
ELIZABETH HORRIGAN RATHZ
/s/ ROBERT ORDWAY Senior Vice President March 18, 1994
- ----------------------------- (principal and financial
ROBERT ORDWAY and accounting officer)
61
<PAGE>
EXHIBIT 4.16
AEL LEASING CO., INC.
AMERICAN COMMERCIAL CREDIT CORP.
UNSECURED FUNDING PROGRAM
JANUARY 31, 1994
<TABLE>
<CAPTION>
CREDIT
BANK FACILITY RENEWAL DATE INTEREST RATE
---- ---------------- --------- --------
<S> <C> <C> <C>
Bank of Pennsylvania............................ $ 9,500,000 June 30, 1994 Note #2
Citizens Bank................................... 5,000,000 June 30, 1994 Note #5
Continental Bank (Phila.)....................... 5,000,000 June 30, 1994 Note #3
CoreStates, Hamilton Bank....................... 5,000,000 June 30, 1994 Note #2
First National Bank of Maryland................. 9,000,000 June 30, 1994 Note #2
Meridian Bank................................... 20,000,000 June 30, 1994 Note #1
National City Bank, Kentucky.................... 9,500,000 June 30, 1994 Note #2
Nations Bank.................................... 10,500,000 June 30, 1994 Note #2
PNC Bank........................................ 13,000,000 June 30, 1994 Note #4
----------------
Total....................................... $86,500,000
<FN>
- ---------
Note #1 U.S. Treasury Notes (24 to 36 Months) plus 200 basis points with a
ceiling interest rate of prime plus 3/4% and a floor interest rate of
prime minus 3/4%.
Note #2 Negotiated interest rate at time of takedown.
Note #3 Negotiated interest rate at time of takedown with a cap of base rate
plus 50 basis points.
Note #4 Negotiated interest rate at time of takedown with a cap of base rate
plus 75 basis points.
Note #5 190 basis points over treasuries of like maturities.
</TABLE>
1
<PAGE>
EXHIBIT 4.16A
UNSECURED FUNDING PROGRAM
LOAN AGREEMENT
AMONG
AEL LEASING CO., INC.
AND
AMERICAN COMMERCIAL CREDIT CORP.
AND
MARYLAND NATIONAL BANK
DATED: JUNE 28, 1993
1
<PAGE>
LOAN AGREEMENT AMONG AEL LEASING CO., INC.
AND
AMERICAN COMMERCIAL CREDIT CORP.
AND
MARYLAND NATIONAL BANK
TABLE OF CONTENTS
PAGE
BACKGROUND............................................................... 1
ARTICLE 1 DEFINITIONS.................................................
-- 1
1.1 General Provisions.......................................... 1
1.2 Defined Terms............................................... 2
ARTICLE 2 CREDIT FACILITY AND FACILITY PROCEDURES.....................
-- 7
2.1 Prior Agreements/Prior Notes................................ 7
2.2 Term........................................................ 7
2.3 Credit Facility............................................. 7
2.4 Determination of Available Borrowing Base................... 7
2.5 Nature of Draw.............................................. 8
2.6 Initial Draw................................................ 8
2.7 Empirical Study............................................. 8
2.8 Amount/Timing of Draw....................................... 8
2.9 Accessing the Credit Facility............................... 8
2.10 Transfer of Funds........................................... 9
2.11 Conditions to Draw.......................................... 9
2.12 Note Validity............................................... 9
2.13 Rate of Interest............................................ 9
2.14 Computation of Interest..................................... 10
2.15 Place of Payment............................................ 10
2.16 Prepayment.................................................. 10
2.17 Proportionate Prepayment.................................... 10
2.18 Use of Proceeds............................................. 10
2.19 Additional Documentation.................................... 10
ARTICLE 3 --REPRESENTATIONS AND WARRANTIES.............................. 11
3.1 Organization................................................ 11
3.2 Corporate Power............................................. 11
3.3 Authority................................................... 11
3.4 Consent..................................................... 12
3.5 Proceedings................................................. 12
3.6 Financial Statements........................................ 12
3.7 Judgments................................................... 12
3.8 Contracts................................................... 12
3.9 Equipment................................................... 12
3.10 Environmental Matters....................................... 12
3.11 ERISA....................................................... 12
3.12 Group Health Plan........................................... 12
3.13 Investment Company Act...................................... 12
3.14 Burdensome Documents........................................ 12
3.15 Taxes....................................................... 13
3.16 Laws........................................................ 13
3.17 Regulation U................................................ 13
3.18 No Event of Default......................................... 13
i
<PAGE>
PAGE
ARTICLE 4 --FINANCIAL STATEMENTS........................................ 13
4.1 Books of Account............................................ 13
4.2 Quarterly Financial Statements.............................. 13
4.3 Annual Financial Statements................................. 13
4.4 Other Information........................................... 14
4.5 Compliance Certificate...................................... 14
ARTICLE 5 --AFFIRMATIVE COVENANTS....................................... 14
5.1 Corporate Existence......................................... 14
5.2 Subsidiary.................................................. 14
5.3 Trade Names................................................. 14
5.4 Insurance................................................... 14
5.5 Indebtedness................................................ 14
5.6 Taxes and Claims............................................ 14
5.7 Increased Cost.............................................. 14
5.8 Event of Default............................................ 15
5.9 Examination................................................. 15
5.10 Minimum Tangible Net Worth.................................. 15
5.11 Debt/Tangible Net Worth Ratio............................... 15
5.12 Cash Flow Ratio............................................. 15
5.13 Compliance with Laws........................................ 15
ARTICLE 6 --NEGATIVE COVENANTS.......................................... 15
6.1 Subordinated Intercompany Debt.............................. 16
6.2 Limitation on Senior Debt/Subordinated Intercompany Debt.... 16
6.3 Limitation on Draw.......................................... 16
6.4 Liens....................................................... 16
6.6 Transfer of Assets.......................................... 16
6.7 Loans/Investments/Guaranties................................ 16
6.8 Related Persons............................................. 16
6.9 Prohibited Uses............................................. 16
ARTICLE 7 --EVENTS OF DEFAULT AND REMEDIES.............................. 17
7.1 Events of Default........................................... 17
7.2 Remedies.................................................... 18
7.3 Remedies Cumulative......................................... 18
7.4 Waiver of Default........................................... 18
ARTICLE 8 --MISCELLANEOUS PROVISIONS.................................... 18
8.1 Notice...................................................... 18
8.2 Accounting Principles....................................... 19
8.3 Waiver of Jury Trial........................................ 19
8.4 Gender/Number............................................... 19
8.5 Construction................................................ 19
8.6 Additional Documents/Assurances............................. 19
8.7 Benefit..................................................... 19
8.8 Assignment.................................................. 20
8.9 Severability................................................ 20
8.10 Integration................................................. 20
8.11 Captions.................................................... 20
8.12 Counterparts................................................ 20
8.13 Jurisdiction................................................ 20
8.14 Law......................................................... 20
ii
<PAGE>
LIST OF EXHIBITS
Exhibit "A" -- Note
Exhibit "B" -- Percentages Applicable to Initial Draws
Exhibit "C" -- Modification Notice
Exhibit "D" -- Loan Certificate
Exhibit "E" -- Borrowing Base Certificate
Exhibit "F" -- Suretyship
Exhibit "G" -- Compliance Certificate
iii
<PAGE>
UNSECURED FUNDING PROGRAM LOAN AGREEMENT
This Unsecured Funding Program Loan Agreement is made as of this 28th day
of June, 1993, by and among AEL LEASING CO., INC., a corporation organized and
existing under the laws of the Commonwealth of Pennsylvania and having its
principal offices at Flying Hills Corporate Center, Horrigan American
Building, Flying Hills, Pennsylvania,
A N D
AMERICAN COMMERCIAL CREDIT CORP., a corporation organized and existing under
the laws of the Commonwealth of Pennsylvania and having its principal offices
at Flying Hills Corporate Center, Horrigan American Building, Flying Hills,
Pennsylvania,
A N D
MARYLAND NATIONAL BANK, a national banking association having its principal
offices at P.O. Box 987, Baltimore, MD, 21202.
BACKGROUND
Each of the Companies is engaged in various business activities, including
the offering of various financial services. From time to time in the course of
its business activities, each of the Companies acquires and makes Contracts.
Each of the Companies presently maintains a separate Unsecured Funding
Program pursuant to which from time to time it makes periodic borrowings,
primarily in order to finance or refinance, directly or indirectly, the
acquisition and making of Contracts.
Each Participant Lender has agreed to modify the Unsecured Funding Program
to permit, inter alia, a single Credit Facility which may be accessed by each
of the Companies.
In order to re-document the Unsecured Funding Program, each Participant
Lender, including the Lender, has been requested to enter into documentation
substantially similar to this Agreement and the documents referred to herein,
and each Participant Lender, including the Lender, has agreed thereto.
NOW, THEREFORE, INTENDING TO BE LEGALLY BOUND HEREBY, each of the
Companies and the Lender hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 General Provisions. Unless the context clearly requires otherwise:
(a) Words and phrases used in this Agreement or in any of the
documents referred to herein which are not specifically defined in this
Agreement or in any of the documents referred to herein but which are
defined in the Uniform Commercial Code shall have the meanings assigned to
them in the Uniform Commercial Code.
(b) All accounting terms used in this Agreement or in the documents
referred to herein which are not specifically defined in this Agreement or
in any of the documents referred to herein shall have the meanings
assigned to them in accordance with generally accepted accounting
principles and practices.
(c) The word "including" shall be a word of enlargement rather than a
word of limitation and shall be deemed to mean "including but not limited
to" rather than "including only".
1
<PAGE>
1.2 Defined Terms. Unless the context clearly requires otherwise, the
following words and phrases whenever used in the singular or the plural form
and capitalized shall have the following meanings for the purposes of this
Agreement and all documents referred to herein:
(a) "ACCC" shall mean American Commercial Credit Corp., a corporation
organized and existing under the laws of the Commonwealth of Pennsylvania.
(b) "AEL" shall mean AEL Leasing Co., Inc., a corporation organized
and existing under the laws of the Commonwealth of Pennsylvania.
(c) "AELH" shall mean AEL Holdings, Inc., a corporation organized and
existing under the laws of the State of Delaware.
(d) "Agreement" shall mean this Agreement and all amendments or
modifications hereto.
(e) "Available Borrowing Base" with respect to each Company shall mean
the dollar amount realized by subtracting the aggregate amount of
outstanding Senior Debt of such Company and outstanding Subordinated
Intercompany Debt of such Company from the amount of the Gross Borrowing
Base of such Company.
(f) "Bankruptcy Code" shall mean the federal Bankruptcy Code, as
amended and supplemented from time to time.
(g) "Borrowing Base Certificate" shall mean the document referred to
in Section 2.9(d) of this Agreement.
(h) "Cash Flow Ratio" shall mean the ratio of Ratio Cash Receipts to
Ratio Cash Disbursements for any fiscal period.
(i) "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended and supplemented from time to time.
(j) "Company" shall mean, as applicable, either AEL or ACCC in its
capacity as borrower under the Credit Facility.
(k) "Companies" shall mean, collectively, AEL and ACCC.
(l) "Compliance Certificate" shall mean the document referred to in
Section 4.5 of this Agreement.
(m) "Contract" shall mean any conditional sales contract, installment
sales contract, commercial loan agreement, security agreement, lease,
mortgage, other title retention instrument, promissory note or other
evidence of indebtedness, whether secured or unsecured, arising out of:
(i) the making of any commercial loan by either of the Companies
or any of their respective Subsidiaries to any Person other than to
any Related Person,
(ii) the acquisition, by purchase, merger or otherwise, by either
of the Companies or any of their respective Subsidiaries of the
lender's rights with respect to any commercial loan to any Person
other than to any Related Person,
(iii) the sale or lease by either of the Companies or any of their
respective Subsidiaries of any Equipment or other personal property to
any Person other than to any Related Person, or
(iv) the acquisition, by purchase, merger or otherwise, by either
of the Companies or any of their respective Subsidiaries of the
seller's or lessor's rights with respect to the sale or lease of any
Equipment to any Person other than to any Related Person.
2
<PAGE>
(n) "Controlling Interest" shall mean, if applicable to a corporation,
the right under ordinary circumstances to elect a majority of the members
of the board of directors of such corporation, and if a partnership,
general or limited, the ownership of fifty percent (50%) or more of the
general partnership interests of such partnership.
(o) "Credit Facility" shall mean the credit facility herein
established by the Lender for the benefit of AEL and ACCC.
(p) "Draw" shall mean the periodic borrowing by either Company of
funds from the Lender by means of the making by the Lender to such Company
of one (1) or more simultaneous Loans.
(q) "Empirical Study" shall mean a retrospective analysis of the
acquisition pattern by either of the Companies of Contracts over the prior
six (6) month period and a prospective analysis of the anticipated
acquisition pattern by such Company of Contracts.
(r) "Equipment" shall mean all equipment and other personal property,
including software and all other general intangibles, which either of the
Companies leases or sells to any Person pursuant to any Contract.
(s) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended and supplemented from time to time.
(t) "Event of Default" shall mean any of the events specified in
Section 7.1 of this Agreement provided that any requirement set forth in
this Agreement or the documentation referred to herein for notice, lapse
of time or both or any other condition has been satisfied.
(u) "Existing Indebtedness" shall mean any indebtedness of either of
the Companies to the Lender which is outstanding as of the date of this
Agreement and which arises under any Prior Agreement and is evidenced by
any Prior Note.
(v) "First Renewal Date" shall mean June 30, 1994.
(w) "Gross Borrowing Base" with respect to each Company shall mean the
dollar amount realized by multiplying the Net Qualifying Assets of such
Company by a factor of 0.9.
(x) "Gross Qualifying Assets" with respect to each Company shall mean
the aggregate dollar value of all Contracts which are not contractually
delinquent for a period of more than ninety (90) days and which constitute
valid and legally enforceable obligations of the parties thereto.
(y) "HAI" shall mean Horrigan American, Inc., a corporation organized
and existing under the laws of the Commonwealth of Pennsylvania.
(z) "Initial Term" shall mean the period of time beginning as of the
date of this Agreement and continuing until the First Renewal Date.
(aa) "Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended and supplemented from time to time.
(ab) "Investment Company Act" shall mean the Investment Company Act of
1940, as amended and supplemented from time to time.
(ac) "Lender" shall mean Maryland National Bank, a national banking
association.
(ad) "Loan" shall mean a borrowing by either Company from the Lender
pursuant to the Credit Facility which, together with other such borrowings
made on such date, shall constitute a Draw by such Company on the Credit
Facility.
(ae) "Loan Certificate" shall mean the document referred to in Section
2.9(a) of this Agreement.
3
<PAGE>
(af) "Loan Term" shall mean the period of time during which any Loan
is to be repaid by the Company to the Lender in accordance with the
provisions of the Note evidencing the same.
(ag) "Modification Notice" shall mean the notice referred to in
Section 2.7(b) of this Agreement.
(ah) "Net Qualifying Assets" with respect to each Company shall mean
the dollar amount realized by subtracting from Gross Qualifying Assets of
such Company:
(i) appropriate deferred income,
(ii) accounts payable to suppliers and
(iii) Security Deposits.
(ai) "Note" shall mean the promissory note referred to in Section 2.5
of this Agreement.
(aj) "Officer" shall mean the Chairman of the Board of Directors, the
Chief Executive Officer, the Chief Operating Officer, the Chief Financial
Officer, the Vice President of Funds Management of either Company or such
other executive employee of such Company whom such Company shall designate
by resolution of the Board of Directors of such Company, certified as to
authenticity by the Secretary or Assistant Secretary thereof, or by a
consent in writing signed by all of the members of the Board of Directors
of such Company, a copy of which has been delivered to the Lender.
(ak) "Participant Lender" shall mean any bank, financial institution,
insurance company, corporation or other entity which is participating or
shall hereafter become a participant in the Unsecured Funding Program.
(al) "Permitted Lien" shall mean any:
(i) lien for taxes, assessments or other governmental charges, or
lien imposed in connection with workers" compensation, unemployment
insurance and other forms of governmental insurance or benefits, or
lien imposed to secure performance of statutory obligations or duties:
(A) which is inchoate or relates to any obligation which is
not yet due and payable, or
(B) the validity of which, or the validity of the obligation
to which such lien relates, is being contested in good faith by
appropriate proceedings;
(ii) lien of attachment or judgment respecting any claim, the
validity of which, or the validity of the obligation to which such
lien relates, is being contested in good faith by appropriate
proceedings or the liability for which is fully covered by insurance,
subject to deductibles reasonably acceptable to the Lender and with
respect to which the insurer has not issued a written reservation of
its rights or disclaimed its liabilities in writing;
(iii) mechanic's, materialman's, warehouseman's or any other
similar lien arising in the ordinary course of business of either
Company which either:
(A) is inchoate or relates to an obligation which is not yet
due and payable, or
(B) is being contested in good faith by appropriate
proceedings;
(iv) lien on any assets hereafter acquired which are existing at
the time of such acquisition or created following any such acquisition
solely to secure or provide for the payment of the purchase price or
any part thereof or lien to secure indebtedness incurred to fund or
refund any lien within the scope of this clause (iv); and
(v) lien existing on the date either Company or their respective
Subsidiaries acquires any Person, or any interest in such Person,
which has as its principal activity any business
4
<PAGE>
activity in which the Surety, either Company or any of their
respective Subsidiaries was engaged as of the date of such
acquisition.
(am) "Person" shall mean any individual, corporation, partnership,
association, trust or other entity or organization, including but not
limited to a governmental or political subdivision or agency or
instrumentality thereof.
(an) "Plan" shall mean any employee benefit plan subject to the
provisions of Title IV of ERISA which is maintained in whole or in part
for employees of the Company.
(ao) o"Prior Agreement" shall mean any unsecured Funding Program
Agreement heretofore executed by either of the Companies and the Lender
establishing or continuing an Unsecured Funding Program for the benefit of
such Company, and all amendments and modifications thereto.
(ap) "Prior Note" shall mean any promissory note heretofore issued by
either of the Companies pursuant to any Prior Agreement.
(aq) "Public Offering" shall mean the offering of any class of equity
securities of the Surety or of either of the Companies pursuant to a
registration statement under the Securities Act.
(ar) "Ratio Cash Disbursements" for any fiscal period shall mean the
sum of the following items, all as determined in accordance with generally
accepted accounting principles as applied to the Surety's financial
statements and as set forth in the Surety's Consolidated Balance Sheet and
the Surety's Consolidated Statement of Cash Flows.
(i) principal repayments of long-term Senior Debt;
(ii) dividends paid;
(iii) cost of acquired treasury stock;
(iv) acquisition of investments;
(v) acquisition of property and equipment (i.e. fixed assets);
(vi) thirty-three and one-third percent (331/3%) of the fiscal
period ending net Subordinated Debt outstanding; and
(vii) thirty-three and one-third percent (331/3%) of the fiscal
period ending short-term Senior Debt borrowings.
At its election, the Surety may exclude from (i) above any prepayments of
principal which are not required to be made pursuant to the terms of the
instruments and other documents governing such Senior Debt or any repayments
which are concurrently refinanced in the ordinary course of business by a
substantially equal amount of new Senior Debt.
(as) "Ratio Cash Receipts" for any fiscal period shall mean the sum of
the following items, all as determined in accordance with generally
accepted accounting principles as applied to the Surety's financial
statements and as set forth in the Surety's Consolidated Statement of Cash
Flows:
(i) net cash provided by operating activities;
(ii) principal collections of finance receivables;
(iii) proceeds from issuance of capital stock;
(iv) proceeds from sale of investments;
(v) proceeds from sale of property and equipment (i.e. fixed
assets);
(vi) proceeds from sale of finance receivables; and
5
<PAGE>
(vii) proceeds from sale of Equipment applicable to operating
leases.
(at) "Related Person" shall mean HAI, the Surety, either Company, any
Subsidiary or any other Person in which HAI, the Surety, either Company or
any Subsidiary has a Controlling Interest.
(au) "Renewal Term" shall mean the period of time beginning as of the
First Renewal Date or any subsequent Renewal Date, as applicable, and
continuing for one (1) year therefrom.
(av) "Reportable Event" shall mean a Reportable Event as defined in
Section 4043(b) of ERISA, 29 U.S.C. Section 1343.
(aw) "Securities Act" shall mean the Securities Act of 1933, as
amended and supplemented from time to time.
(ax) "Security Deposits" with respect to each Company shall mean all
monies paid to such Company or any of its Subsidiaries in order to secure
any obligation under any Contract.
(ay) "Senior Debt" of each Company shall mean the sum total of all
amounts owing with respect to funds borrowed by the Company or any of its
Subsidiaries from banks, financial institutions, insurance companies,
corporations and other entities other than Related Persons.
(az) "Subordinated Intercompany Debt" of each Company shall mean the
sum total of all amounts owing with respect to funds borrowed by the
Company or any of its Subsidiaries from HAI, the Surety, the other Company
or any Subsidiary of either the Surety or the other Company, the repayment
of which by its terms is subordinated to the repayment of Senior Debt of
such Company.
(ba) "Subsidiary" shall mean any corporation in which HAI, the Surety,
either Company or any subsidiary of any of the foregoing, as applicable,
directly or indirectly, owns or hereafter acquires a sufficient amount of
capital stock having general voting power so as to permit HAI, the Surety,
either Company or any subsidiary of any of the foregoing, as applicable,
under ordinary circumstances to elect a majority of the members of the
board of directors of such corporation.
(bb) "Suppliers" shall mean any manufacturer, vendor or dealer of
Equipment which either Company or any of their respective Subsidiaries
sells or leases to any Person.
(bc) "Surety" shall mean American Equipment Leasing Co., Inc., a
corporation organized and existing under the laws of the Commonwealth of
Pennsylvania and having its registered office at Flying Hills Corporate
Center, Flying Hills, Reading, Pennsylvania, 19607.
(bd) "Suretyship" shall mean the document referred to in Section
2.19(a) of this Agreement, and all amendments and modifications thereto.
(be) "Tangible Net Worth" of a Company shall mean the aggregate amount
of equity of the stockholders of the Company as determined in accordance
with generally accepted accounting principles, less the aggregate amount
of intangible assets of the Company, which shall include goodwill,
organization costs, franchises and trademarks.
(bf) "Term" shall mean the period of time beginning as of the date of
this Agreement and continuing so long as the Credit Facility established
pursuant to this Agreement is available for the purposes of making Draws
by the Companies.
(bg) "Uniform Commercial Code" shall mean the Pennsylvania Uniform
Commercial Code, as amended and supplemented from time to time.
(bh) "Unsecured Funding Program" shall mean the program of unsecured
credit facilities acquired by the Companies from various banks, financial
institutions, insurance companies, corporations or other entities, the
proceeds of which are to be used primarily to finance or refinance,
directly or indirectly, the acquisition or making of Contracts and which
programs
6
<PAGE>
shall be evidenced by documentation substantially similar to this
Agreement, the Suretyship and other documentation referred to herein.
ARTICLE 2
CREDIT FACILITY AND FACILITY PROCEDURES
2.1 Prior Agreements/Prior Notes. This Agreement replaces and supersedes
each of the Prior Agreements which are hereby terminated. Notwithstanding the
termination of each of the Prior Agreements, all Prior Notes issued pursuant
thereto shall remain in full force and effect and shall be deemed to have been
issued pursuant to this Agreement and all Existing Indebtedness shall be paid
by the Company designated as obligor in such Prior Note pursuant to the terms
thereof.
2.2 Term. The Initial Term of this Agreement shall be for the period of
time beginning as of the date of this Agreement and terminating on the First
Renewal Date. Following the Initial Term, this Agreement shall be
automatically renewed for successive Renewal Terms of one (1) year each, each
such Renewal Term to begin as of the First Renewal Date or any subsequent
Renewal Date, as applicable, unless the Companies shall notify the Lender or
the Lender shall notify the Companies of the intention not to renew this
Agreement, such notice to be given at least ten (10) days prior to the end of
the Initial Term or any Renewal Term, as applicable, and to provide therein
that this Agreement shall not be renewed but shall terminate at the end of the
Initial Term or Renewal Term, as applicable. Except as otherwise provided in
this Agreement, including to the extent that either of the Companies shall
exercise the prepayment rights set forth herein, in the event that either of
the Companies or the Lender elects not to renew this Agreement at the end of
either the Initial Term or any Renewal Term, each Loan made by the Lender
prior to the termination of the Initial Term or any Renewal Term, as
applicable, shall be repaid by the Company named as obligor designated in such
Note in accordance with the provisions thereof.
2.3 Credit Facility.
(a) The Lender hereby establishes the Credit Facility which may be
accessed by both AEL and ACCC for the Term of this Agreement, the
aggregate outstanding principal balance of which, together with the
aggregate outstanding principal balance owing on all Existing Indebtedness
by AEL or ACCC, shall not at any one time exceed Ten Million Five Hundred
Thousand Dollars ($10,500,000.00).
(b) During the Term hereof, AEL and ACCC shall each have the right to
make Draws upon the Credit Facility in accordance with the provisions of
this Agreement.
(c) In the event that the making by AEL or ACCC of a Draw in the
amount set forth in Section 2.8 of this Agreement would result in the
aggregate outstanding principal balance owing by AEL and ACCC on the
Credit Facility, including the aggregate outstanding principal balance
owing by AEL and ACCC on account of their respective Existing
Indebtedness, being in excess of the amount set forth in Section 2.3(a)
hereof, then the applicable Draw shall be reduced to such amount as is
necessary in order that such aggregate outstanding principal balance owing
by AEL and ACCC to the Lender under the Credit Facility shall not exceed
the amount set forth in Subsection (a) hereof.
2.4 Determination of Available Borrowing Base. On a monthly basis
throughout the Term of this Agreement, each of the Companies shall determine
its Available Borrowing Base in accordance with the following formula:
Gross Qualifying Assets....................................
Less:
Appropriate Deferred Income........................
Accounts Payable to Suppliers......................
Security Deposits..................................
Net Qualifying Assets......................................
Time of factor of Gross Borrowing Base................. .9
Less:
Outstanding Senior Debt............................
Outstanding Subordinated Intercompany Debt.........
Available Borrowing Base...........................
7
<PAGE>
2.5 Nature of Draw. Except as otherwise modified in accordance with the
provisions of this Agreement, each Draw by each Company on the Credit Facility
shall be comprised of several separate Loans not to exceed four (4) in number
as determined by the applicable Company, which Loans shall have Loan Terms of
not fewer than eighteen (18) months nor more than fifty-four (54) months. Each
such Draw shall be evidenced by a Note setting forth the provisions of such
borrowing, including the principal amount of such Draw, the fixed rate of
interest applicable thereto, and the method of repayment. Each Note shall be
in substantially the form of Exhibit "A", a copy of which is attached hereto
and incorporated herein by reference thereto, and shall provide that the
principal amount of the Note together with interest thereon at the rate set
forth therein shall be paid by AEL or ACCC, as applicable, in monthly payments
of principal and interest as set forth therein.
2.6 Initial Draw. Presently and until modified in accordance with this
Agreement, each Draw by each Company on the Credit Facility shall consist of
three (3) Loans. The original amount of each of the three (3) Loans comprising
each such Draw for each Company shall consist of the percentages set forth on
Exhibit "B" which is attached hereto and incorporated herein by reference.
2.7 Empirical Study. From time to time during the Term of this Agreement,
each of the Companies shall conduct Empirical Studies and shall have the right
to modify the number of Loans comprising future Draws on the Credit Facility,
the Loan Terms of such Loans and the proportions which the original principal
amounts of such Loans bear to the total amount of the applicable Draw to which
the same pertain, provided, however:
(a) That neither of the Companies shall make such modification more
often than two (2) times in any calendar year.
(b) That such modification shall not become effective until the
applicable Company shall have sent a Modification Notice to the Lender
setting forth the nature of such modification, which Modification Notice
shall be in substantially the form of Exhibit "C", a copy of which is
attached hereto and incorporated herein by reference thereto.
(c) That no Loan Term shall have a duration of fewer than eighteen
(18) months or more than fifty-four (54) months.
(d) That in no event shall the number of Loans comprising any Draw
exceed four (4).
2.8 Amount/Timing of Draw.
(a) Subject to the provisions of Section 2.3, AEL and ACCC may each
make one (1) Draw on the Credit Facility in each three (3) month period of
the Term hereof, which Draw shall be in an amount not to exceed Seven
Hundred Fifty Thousand Dollars ($750,000.00), unless AEL or ACCC, as
applicable, and the Lender shall otherwise agree, in which event the Draw
shall be in the amount agreed.
(b) Each of the Companies may make additional Draws on the Credit
Facility with the consent of the Lender.
2.9 Accessing the Credit Facility. With respect to each Draw made on the
Credit Facility, the applicable Company shall deliver to the Lender:
(a) Its Loan Certificate executed by an Officer of the Company, which
Loan Certificate shall be in substantially the form of Exhibit "D", a copy
of which is attached hereto and incorporated herein by reference thereto,
and which Loan Certificate shall set forth, inter alia, the principal
amount of the Draw and the respective original principal amounts of the
Loans comprising the Draw.
(b) An original Note pertaining to the Draw, which shall be executed
by an Officer of the Company and the principal amount of which shall be
equal to the principal amount of the Draw.
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(c) An amortization schedule setting forth the amortization of the
Note evidencing the respective Loans to which the applicable Draw
pertains.
(d) A Borrowing Base Certificate setting forth the applicable
Available Borrowing Base for the month to which the applicable Draw
pertains and the approximate aggregate Draw of the Company for the said
month from all Participant Lenders, which Borrowing Base Certificate shall
be in substantially the form of Exhibit "E", a copy of which is attached
hereto and incorporated herein by reference thereto.
2.10 Transfer of Funds. Upon receipt by the Lender of the documents
pertaining to any Draw referred to in this Agreement, the Lender shall, no
later than the close of the second banking day following its receipt of the
said documents:
(a) Determine whether the said documents are appropriately executed
and otherwise in conformity with the provisions of this Agreement.
(b) In the event that the said documents or any of them are not
appropriately executed or not otherwise in conformity with the provisions
of this Agreement, notify an Officer of the applicable Company by
telephone of such determination and immediately return all of the said
documents to such Company by regular mail.
(c) In the event that the said documents or any of them are
appropriately executed and otherwise in conformity with the provisions of
this Agreement, and the conditions set forth in Section 2.11 hereof have
been fulfilled, wire transfer funds equal to the total amount of the Draw
in conformity with the instructions contained in the Loan Certificate.
2.11 Conditions to Draw. The obligation of the Lender to make Loans on
account of each Draw is subject to fulfillment of the following conditions:
(a) That the Lender shall have received the Note, Loan Certificate,
amortization schedule and Borrowing Base Certificate required by Section
2.9 of this Agreement.
(b) That the Draw shall not contravene any provision of applicable law
or the articles of incorporation or by-laws of the Company making the Draw
or of any agreement binding upon the said Company.
(c) That the representations of the applicable Company which are
contained in Article 3 of this Agreement shall be true in all material
respects on and as of the date of such Draw as though made on and as of
such date.
(d) That, immediately prior to and immediately after the making of the
Loans pursuant to the Draw, no Event of Default shall have occurred and be
continuing.
(e) That the making of a Draw will not result in a breach or default
of any other agreement or instrument to which the applicable Company is a
party or by which it is bound.
Each Draw shall be deemed to be a representation by the Company making the
Draw as of the date of such Draw as to the facts specified in Subsections (a)
through and including (e) hereof.
2.12 Note Validity. Notwithstanding anything to the contrary, in no event
shall the Company making a Draw on the Credit Facility have any obligation on
account of any Note included in such Draw unless the Lender shall have
advanced funds in the amount of such Note as required by Section 2.10 of this
Agreement.
2.13 Rate of Interest. All Loans made by the Lender to either of the
Companies pursuant to any applicable Draw on the Credit Facility shall be
subject to an annual interest rate agreed to by the Lender and the applicable
Company at the time the Loan is made as evidenced by the documents referred to
in this Article. The applicable rate of interest shall remain fixed for the
period of such Loan.
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2.14 Computation of Interest. Interest on the principal balance of each
Loan shall be computed for the actual period of time such principal balance is
outstanding using a year of three hundred sixty/three hundred sixty (360/360)
days. For purposes of computing the date on which interest shall begin to
accrue on any Loan made by the Lender pursuant to any Draw on the Credit
Facility, each such Loan shall be deemed to have been made on the date upon
which the Lender wire transfers the funds pertaining to such Loan to the
account of the applicable Company in accordance with the provisions of Section
2.10 of this Agreement.
2.15 Place of Payment. All payments to be made pursuant to this Agreement
or on account of any Note issued pursuant hereto, including any Prior Note,
shall be made to the Lender at the address set forth for the Lender in Section
8.1 of this Agreement or at such other address as the Lender shall hereafter
specify by notice to the Company.
2.16 Prepayment. Each of the Companies shall have the right to prepay all
or any portion of its indebtedness under the Unsecured Funding Program,
including Existing Indebtedness, without premium or penalty therefor:
(a) In the event that prepayment shall be made in accordance with the
provisions of Section 7.1 of this Agreement; or
(b) In the event that any payment shall be made as a result of the
exercise by the Lender of any of its rights under Section 7.2 of this
Agreement.
In all other events, each of the Companies shall have the right to prepay all
or any portion of its indebtedness under its Unsecured Funding Program only if
such prepayment is accompanied by payment of a prepayment penalty in an amount
equal to two percent (2%) of such prepayment.
2.17 Proportionate Prepayment. In the event of any prepayment by either
of the Companies under this Agreement other than by reason of exercise by
either of the Companies of its rights under Section 2.16 hereof, the Company
making such prepayment shall do so proportionately to each Participant Lender
based upon the then outstanding principal balances owing to each Participant
Lender under the Credit Facility. Each such prepayment shall be applied by
each Participant Lender to the oldest outstanding Loans which such Participant
Lender holds.
2.18 Use of Proceeds. The proceeds of all Loans shall be used for the
business purposes of the Company which shall have borrowed such monies, or for
the business purposes of any of its Subsidiaries or for any other purposes
permitted by this Agreement, and the Company shall have the right to transfer
all or any portion of such proceeds to its Subsidiaries on any basis which it
deems appropriate.
2.19 Additional Documentation. Concurrently with the execution of this
Agreement, the Companies shall deliver to the Lender the following documents:
(a) The Suretyship duly executed by the Surety, which Suretyship shall
be in substantially the form as Exhibit "F" which is attached hereto and
incorporated herein by reference thereto.
(b) The opinion, subject to certain limitations and conditions therein
contained, of Kozloff, Diener, Payne & Fegley, a professional corporation,
counsel to each of the Companies, addressed to the Lender with respect to
the representations set forth in Sections 3.1(a) and (b), 3.2, 3.3 and 3.4
hereof and to the effect that:
(i) This Agreement has been duly authorized, executed and
delivered by each of the Companies and constitutes the legal, valid
and binding obligation of each of the Companies enforceable in
accordance with its provisions.
(ii) The suretyship has been duly authorized, executed and
delivered by the Surety and constitutes the legal, valid and binding
obligation of the Surety enforceable in accordance with its
provisions.
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(c) A copy of the resolution of the Board of Directors of the Company,
certified as to authenticity by the Secretary or Assistant Secretary
thereof, or a copy of a consent in writing signed by all of the members of
the Board of Directors of the Company, authorizing the execution, delivery
and performance of this Agreement and the Notes to be issued pursuant
thereto.
(d) A copy of the resolution of the Board of Directors of the Surety,
certified as to authenticity by the Secretary or Assistant Secretary
thereof, or a copy of a consent in writing duly signed by all of the
members of the Board of Directors of the Surety, authorizing the
execution, delivery and performance of the Suretyship.
(e) A certificate of the Secretary or Assistant Secretary of the
Company as to the incumbency and signature of the Officers of the Company
signing this Agreement and any documentation referred to herein, including
but not limited to the Notes.
(f) The certificate of the Secretary or Assistant Secretary of the
Surety as to the incumbency and signature of the Officers of the Surety
signing the Suretyship.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Each of the Companies represents and warrants to the Lender that as of the
date of this Agreement the following representations are true and correct, and
shall be true and correct as of the date of each Draw:
3.1 Organization. The Companies and each of their respective
Subsidiaries:
(a) Are corporations duly incorporated, validly existing and in good
standing under the laws of their respective states of incorporation.
(b) Have the corporate power and authority to own their respective
assets and to carry on their respective businesses as now conducted.
(c) Are duly qualified to do business in every jurisdiction where the
nature of their respective assets owned or their operations conducted make
such qualification necessary except where the failure to so qualify would
not have a material adverse effect upon their financial condition.
3.2 Corporate Power. Each of the Companies has the corporate power to
execute, deliver and perform this Agreement, to borrow monies pursuant hereto
and to execute and deliver Notes in accordance herewith.
3.3 Authority. The execution, delivery and performance of this Agreement
by each of the Companies, the borrowing of monies hereunder, and the execution
and delivery of Notes pursuant hereto have been duly authorized by all
requisite corporate action on the part of each Company and shall not:
(a) To the knowledge of either Company contravene any provision of law
or any order of any court or other agency of government.
(b) Contravene the articles of incorporation or by-laws of either
Company or any agreement, indenture or instrument binding upon either
Company.
(c) Be in conflict with, result in the breach of or constitute, with
due notice, lapse of time, or both, a default under any agreement,
indenture or instrument binding upon either Company.
(d) Result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the assets of either
Company.
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3.4 Consent. To the knowledge of each Company, no action or consent of,
or registration or filing with, any governmental instrumentality or other
agency is required under existing law in connection with the execution,
delivery and performance by each of the Companies of this Agreement, the
borrowing of monies hereunder or the execution and delivery of Notes pursuant
hereto.
3.5 Proceedings. To the knowledge of each Company, there are no actions,
suits or proceedings at law or in equity or by or before any governmental
instrumentality or other agency now pending or threatened against or affecting
either of the Companies or any of its assets which, if adversely determined,
would, individually or in the aggregate, have a material adverse effect upon
the financial condition of either Company.
3.6 Financial Statements. Each Company has heretofore furnished its
Balance Sheet and Statement of Operations on the Consolidating Schedules of
the Horrigan American, Inc. and Subsidiaries Consolidated Financial Statements
as of December 31, 1992, and the related statement of income and retained
earnings and changes in financial position for the fiscal year then ended.
Such statements are correct and complete and fairly present the financial
position of the Company as of the date thereof and the results of the
Company's operations for the period then ended; such statements were prepared
in accordance with generally accepted accounting principles and practices
consistently applied; and from December 31, 1992, to the date of this
Agreement there has not been any material adverse change in the financial
condition of either Company.
3.7 Judgments. To the knowledge of each Company, there are no judgments
or other judicial or administrative orders outstanding against either Company
nor, to the Company's knowledge, any action, suit or proceeding at law or in
equity or by or before any governmental or administrative instrumentality or
agency now pending or threatened which, if adversely determined, might
reasonably be expected to adversely and materially impair the right of either
Company to carry on its business as it is now conducted or materially and
adversely affect the financial condition of either Company.
3.8 Contracts. Subject to the rights of the other parties to
suchContracts, each Company owns its Contracts free and clear of any and all
liens except Permitted Liens.
3.9 Equipment. Subject to the rights of the other parties to
suchContracts, each Company owns its Equipment free and clear of any and all
liens except permitted Liens.
3.10 Environmental Matters. Neither of the Companies has received any
citation or complaint relating to its making, storing, handling, generating or
transporting of any hazardous substances.
3.11 ERISA. Each of the Companies is in compliance in all material
respects with the applicable provisions of ERISA and all regulations
thereunder and no Reportable Event has occurred with respect to any Plan
maintained in whole or in part for employees of either Company.
3.12 Group Health Plan. Each of the Companies provides COBRA continuation
coverage under group health plans for separating employees in accordance with
the provisions of Section 4980B(f) of the Internal Revenue Code and is in
compliance with the provisions of Section 1862(b)(1) of the Social Security
Act.
3.13 Investment Company Act. Neither of the Companies is an "investment
company" as that term is defined in, and is not otherwise subject to
regulation under, the Investment Company Act.
3.14 Burdensome Documents. Neither of the Companies is a party to, or
bound by, any agreement, indenture, instrument, judgment, decree or order of
any court or other governmental body which, if performed or observed by such
Company, would have a material and adverse effect on the business or financial
condition of such Company or the ability of such Company to perform its
obligations under this Agreement.
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3.15 Taxes. Except to the extent to which either of the Companies has
contested the same by appropriate proceedings, or where the failure to file or
pay shall not have a material, adverse effect on the business or financial
condition of either of the Companies:
(a) Each Company has filed all federal and state tax returns which it
was required to file, and has paid or made adequate provision for the
payment of all taxes which have become due pursuant to said returns.
(b) To the best of each Company's knowledge, there are no claims
pending or threatened against either Company for past federal or state
taxes, except those, if any, as to which proper reserves are reflected in
the financial statements of the Company.
3.16 Laws.
(a) To the knowledge of each Company, and except as otherwise provided
in Section 3.15 as pertains to the filing of tax returns and the payment
of taxes, each Company is in compliance with all laws applicable to such
Company.
(b) Except as otherwise disclosed to the Lender in writing, neither
Company has received any notice, not heretofore complied with, from any
federal, state or local governmental authority or commission to the effect
that it is not in compliance with any law applicable to the Company.
3.17 Regulation U. Neither of the Companies is engaged principally in,
nor is one of its important activities, the business of extending credit for
the purpose of purchasing or carrying any margin stock within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System of the
United States.
3.18 No Event of Default. No Event of Default has occurred and is
continuing.
ARTICLE 4
FINANCIAL STATEMENTS
Each of the Companies covenants that, from the date of this Agreement
until the termination of the Credit Facility and payment in full of the
principal and interest on all Notes and Prior Notes, unless the Lender shall
otherwise consent in writing:
4.1 Books of Account. Each of the Companies shall maintain proper books
of account in accordance with generally accepted accounting principles and
practices consistently applied.
4.2 Quarterly Financial Statements. As soon as available, but in any
event within sixty (60) days after the end of each of the first three (3)
fiscal quarterly periods, each of the Companies shall deliver to the Lender a
consolidated and consolidating balance sheet of the Surety and its
Subsidiaries, including each of the Companies, as of the last day of each such
quarter, a consolidated and consolidating statement of operations and a
consolidated statement of cash flows for such fiscal quarter, each prepared in
accordance with generally accepted accounting principles consistently applied,
in reasonable detail, and certified by an Officer of each Company as fairly
presenting the financial position and the results of operations of the Surety
and its Subsidiaries as of its date and for such quarter and as having been
prepared in accordance with generally accepted accounting principles
consistently applied (subject to year-end audit adjustments).
4.3 Annual Financial Statements. Annually, as soon as available, but in
any event within one hundred twenty (120) days after the last day of its
fiscal year, each of the Companies shall deliver to the Lender a consolidated
and consolidating balance sheet of the Surety and its Subsidiaries, including
each of the Companies, as of such last day of the fiscal year, a consolidated
and consolidating statement of operations, consolidated retained earnings, and
a consolidated statement of cash flows for such fiscal year, each prepared in
accordance with generally accepted accounting principles consistently applied,
in reasonable detail, and certified without qualification by a recognized firm
of independent certified public accountants reasonably acceptable to the
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Lender as fairly presenting the financial position and the results of
operations of the Surety and its Subsidiaries, including each of the
Companies, as of and for the year ending on its date and as having been
prepared in accordance with generally accepted accounting principles
consistently applied.
4.4 Other Information. Promptly after a written request therefor, each of
the Companies shall provide to the Lender such other financial data and
information evidencing compliance with the requirements of this Agreement, the
Notes and the Suretyship as the Lender may reasonably request from time to
time.
4.5 Compliance Certificate. Concurrently with the delivery of the
financial statements referred to in Sections 4.2 and 4.3 of this Agreement,
each of the Companies shall deliver to the Lender a Compliance Certificate, in
substantially the form of Exhibit "G" which is attached hereto and
incorporated herein by reference, such Compliance Certificate to be executed
by an Officer of each of the Companies and of the Surety.
ARTICLE 5
AFFIRMATIVE COVENANTS
Each of the Companies covenants that, from the date of this Agreement
until the termination of the Credit Facility and payment in full of all
amounts owing under all Notes and Prior Notes, unless the Lender shall
otherwise consent in writing:
5.1 Corporate Existence. Each of the Companies shall, and shall cause
each of its Subsidiaries to, do or cause to be done all things necessary to
preserve and keep in full force and effect their respective corporate
existences and comply with all laws applicable thereto except where the
failure to do so shall not have a material adverse effect upon the financial
condition of such Company.
5.2 Subsidiary. In the event that either of the Companies shall acquire
or create any Subsidiary subsequent to the date of this Agreement, such
Company shall notify the Lender thereof, which notice shall set forth the
corporate name of such Subsidiary and the registered address thereof.
5.3 Trade Names. Each of the Companies shall maintain, preserve and
protect all franchises and trade names, or the failure to do so shall not have
a material adverse effect upon the financial condition of such Company.
5.4 Insurance. Each Company shall keep its assets, other than personal
property subject to Contracts, insured against fire with extended coverage,
and liability, dishonesty, disappearance and destruction coverage to the
extent that such insurance is usually carried by companies of a similar size
engaged in similar activities as such Company.
5.5 Indebtedness. Except to the extent to which such Company shallcontest
the same in good faith, each of the Companies shall pay all of its
indebtedness and obligations promptly and in accordance with normal terms.
5.6 Taxes and Claims. Except to the extent to which such Company contests
the same by appropriate proceedings, or where the failure to file or pay shall
not have a material, adverse effect on the business or financial condition of
such Company, each of the Companies shall pay and discharge, or shall cause to
be paid and discharged, all taxes and other governmental charges and
assessments imposed upon it or upon its income or upon its assets, before the
same shall become in default, as well as all lawful claims for labor,
materials, supplies or otherwise which, if unpaid, might become a lien or
charge upon such assets or any part thereof.
5.7 Increased Cost. In the event that any future law shall:
(a) change the basis of taxation of any amounts payable to the Lender
under this Agreement or the Notes issued by either of the Companies (other
than taxes imposed on the
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overall net income of the Lender) by the United States or the jurisdiction
in which the Lender has its principal offices; or
(b) impose or modify any reserve, Federal Deposit Insurance
Corporation premium or assessment, special deposit, minimum capital,
capital ratio or similar requirements relating to any extensions of credit
or other assets of, or any deposits with or liabilities of, the Lender;
and the result of any such event referred to in Subsection (a) or (b) above
shall be to increase the Lender's costs of making or maintaining any Loan, or
to reduce any amount receivable by the Lender from such Company in respect of
any Loan, then, upon demand made by the Lender as promptly as practicable
after it obtains knowledge that such aforesaid costs exist but in no event
later than ninety (90) days after obtaining such knowledge, such Company shall
pay to the Lender additional fees in an amount which shall be sufficient to
compensate the Lender for such costs. In the event that the Lender shall make
any demand for additional fees as hereinabove set forth, the Company upon
which demand shall have been made shall be entitled to receive from the Lender
documentation reasonably substantiating the occurrence of any event referred
to in Subsection (a) or (b) above and a determination of how the increased
costs to the Lender and the amount of additional fees to the Companies have
been determined.
5.8 Event of Default. In the event that any Officer of either of the
Companies knows of any Event of Default which shall have occurred or knows of
any occurrence of any event which, upon notice or lapse of time or both, would
constitute an Event of Default, such Company shall promptly furnish to the
Lender a statement as to such occurrence specifying the nature and extent
thereof and the action, if any, which is proposed to be taken with respect
thereto.
5.9 Examination. Each of the Companies shall permit the representatives
of the Lender to visit the Company to examine and make extracts from the books
of account of the Company and its Subsidiaries and to discuss the affairs,
finances and accounts of the Company and its Subsidiaries with, and to be
advised as to the same by its and their Officers at all such reasonable times
and intervals as the Lender shall desire; provided, however, that the Lender
shall at all times preserve the confidentiality of all information and
documents which it obtains or which come into its possession pertaining to
each of the Companies, shall use such information and documents only with
respect to its management of the lending relationship with the Companies and
shall not share, disclose, divulge or otherwise publish or make known such
information or documents to any other Person nor use such information or
documents to compete in any manner with either of the Companies.
5.10 Minimum Tangible Net Worth. The Surety and the Companies shall
maintain on a consolidated basis a minimum Tangible Net Worth of Twenty-One
Million Dollars ($21,000,000.00).
5.11 Debt/Tangible Net Worth Ratio. The total debt of each Company to the
Tangible Net Worth of such Company shall not exceed a ratio of seven to one
(7.0 to 1.0).
5.12 Cash Flow Ratio. The Surety and its Subsidiaries, including the
Companies, on a consolidated basis, shall maintain a Cash Flow Ratio of at
least one to one (1.0 to 1.0) as measured for the immediately preceding four
(4) fiscal quarters.
5.13 Compliance with Laws. Each of the Companies shall comply with all
laws, rules, regulations and decrees to which such Company is subject and a
violation of which would have a material, adverse effect on the financial
condition of such Company.
ARTICLE 6
NEGATIVE COVENANTS
Each of the Companies covenants that, from the date of this Agreement
until termination of the Credit Facility and payment in full of all amounts
owing under all Notes and Prior Notes, unless the Lender shall otherwise
consent in writing:
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6.1 Subordinated Intercompany Debt. Neither Company, nor any of its
Subsidiaries, shall at any time borrow any funds from HAI, the Surety, the
other Company or any Subsidiary of either the Surety or the other Company
which shall not constitute Subordinated Intercompany Debt.
6.2 Limitation on Senior Debt/Subordinated Intercompany Debt. Neither
Company shall at any time permit the sum of its Senior Debt and its
Subordinated Intercompany Debt to exceed its Gross Borrowing Base.
6.3 Limitation on Draw. Neither Company shall at any time permit its
aggregate monthly Draw against all Participant Lenders to exceed its Available
Borrowing Base.
6.4 Liens. Neither Company shall, nor shall it permit any Subsidiary to,
create, incur, assume or suffer to exist any lien upon any of the Contracts or
Equipment now owned or hereafter acquired by the Company or by any of its
Subsidiaries, other than Permitted Liens.
6.5 Merger. Neither Company shall enter into any merger or consolidation
with any Person; provided, however, that if no Event of Default shall have
occurred and be continuing, either may merge or consolidate with the Surety,
or any Subsidiary of either of the Companies or the Surety.
6.6 Transfer of Assets. Neither of the Companies shall sell, lease or
otherwise transfer or dispose of all of its assets nor shall such Company
sell, lease or otherwise transfer or dispose of any substantial part of its
assets except in the usual and ordinary course of its business; as used in
this Subsection, the words "substantial part of its assets" shall mean at
least twenty-five percent (25%) of the assets of the Company computed on the
basis of the applicable book value thereof.
6.7 Loans/Investments/Guaranties. On or after the date hereof, neither
Company shall make, nor permit any Subsidiary to make, any loans to or
investments in any other Person or to guarantee the obligation of or otherwise
become liable for the indebtedness of any other Person except:
(a) either Company or any Subsidiary of either Company may:
(i) make Contracts in the ordinary course of business;
(ii) make loans to or investments in, or guarantee the obligation
of the Surety, the other Company or any Subsidiary of the Surety or
either of the Companies which has as its principal activity the
acquisition or purchase of Contracts;
(iii) make loans to or investments in, or guarantee the obligation
of any other Person acquired by the Surety or any of its Subsidiaries
which has as its principal activity the acquisition or purchase of
Contracts;
(iv) make investments in interest bearing obligations of, or
obligations guaranteed by, the United States of America;
(b) AELH shall be permitted to make loans to AEL and shall be
permitted to make investments in marketable securities, which investments
in the aggregate at any one time do not exceed five percent (5%) of the
consolidated assets of the Surety and its Subsidiaries.
6.8 Related Persons. Except as set forth in Section 6.6 hereof, on or
after the date hereof, neither Company shall:
(a) make any loan to, investment in or any Contract with any Related
Person;
(b) guarantee, become a surety for or otherwise become liable for the
indebtedness of any Related Person.
6.9 Prohibited Uses. Neither Company shall use the proceeds of any Draw
nor any part thereof:
(a) Directly or indirectly to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any
margin stock or to refund indebtedness originally incurred for such
purpose.
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(b) For any purpose that violates or is inconsistent with the
provisions of Regulations T, U or X of the Board of Governors of the
Federal Reserve System.
ARTICLE 7
EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default by each of the Companies under this Agreement:
(a) Failure by either of the Companies to pay to the Lender any amount
due pursuant to this Agreement or any Note issued pursuant hereto or any
Prior Note and the continuance of such failure for a period of ten (10)
days after receipt by the Company of notice from the Lender pertaining
thereto.
(b) The creation by either of the Companies of any lien upon any of
the Contracts except Permitted Liens.
(c) The incorrectness in any material and adverse respect of any
representation by either of the Companies contained in Article 3 of this
Agreement or any certificate issued pursuant to this Agreement other than
with respect to the creation by either of the Companies of any security
interest, lien or encumbrance upon any of the Contracts, as of the date
when such representation shall have been deemed to have been made pursuant
to the provisions of this Agreement, and the failure by the applicable
Company to cure such incorrectness within fifteen (15) days of receipt by
the Company of notice from the Lender pertaining thereto.
(d) Failure by either of the Companies to maintain and observe the
covenants contained in Subsections 5.10, 5.11, 5.12, 6.2 or 6.3 of this
Agreement or the failure by the Surety to maintain and observe the
covenants contained in Subsections 5.9, 5.10 or 5.11 of the Suretyship and
the failure by the applicable Company or Surety to appropriately cure the
same or cause the same to be cured by prepaying such of its indebtedness
under the Unsecured Funding Program or taking such other steps or causing
such steps to be taken as are necessary to effect such cure, such
prepayment or other steps to be completed within fifteen (15) days of
receipt of knowledge by the applicable Company of such failure to maintain
and observe the said covenants or receipt by the applicable Company of
notice from the Lender pertaining thereto, whichever shall first occur.
(e) Failure by either of the Companies to perform or observe any of
the provisions contained in this Agreement other than those referred to in
Subsections (a) through and including (d) of this Section which the
Company is required to perform or observe, and the continuance of such
failure for a period of thirty (30) days following receipt by the Company
of notice with respect thereto from the Lender.
(f) Other than as a result of any Public Offering:
(i) HAI ceases to be the owner of more than fifty percent (50%) of
the issued and outstanding capital stock of the Surety; or
(ii) the Surety ceases to be the owner of more than fifty percent
(50%) of the then issued and outstanding capital stock of either of
the Companies.
(g) Filing by either of the Companies of a voluntary petition in
bankruptcy or a voluntary petition or application seeking reorganization,
arrangement or readjustment of its debts or for any other relief under the
Bankruptcy Code, or under any other insolvency act or law, state or
federal, now or hereafter existing, or any formal written consent to,
approval of, or acquiescence in any such petition or proceeding by the
applicable Company; the application by the applicable Company for the
appointment of, or the appointment by consent of the applicable Company,
or acquiescence by the applicable Company in the appointment of, a
receiver or
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trustee for the applicable Company or for all or any substantial part of
its assets; or the making by the applicable Company of an assignment for
the benefit of its creditors.
(h) The filing of an involuntary petition against the applicable
Company in bankruptcy or seeking reorganization, arrangement or
readjustment of its debts or for any other relief under the Bankruptcy
Code or under any other insolvency act or law, state or federal, now or
hereafter existing; or the involuntary appointment of a receiver or
trustee for the applicable Company or for all or any substantial part of
its assets; and the continuance of any such event set forth above in this
Subsection undismissed, unbounded, undischarged or otherwise uncontested
for a period of thirty (30) days following receipt by the Company of
notice with respect thereto.
(i) Any breach, violation or default by either of the Companies under
any agreement, contract, note or document to which it is a party
pertaining to monies borrowed by it and the failure of the applicable
Company to cure the same within any applicable grace period which results
in the acceleration of such indebtedness in an amount in excess of an
amount equal to one percent (1%) of the value of the consolidated assets
of the applicable Company and its Subsidiaries.
(j) Any Default under the Suretyship.
(k) The revocation or attempted revocation by the Surety of any of its
obligations to the Lender under the Suretyship.
7.2 Remedies. If an Event of Default shall have occurred and be
continuing, the Lender shall have the right to exercise any one or more of the
following remedies against each of the Companies:
(a) To be immediately relieved of any obligation to make any further
Loans to either of the Companies pursuant to the Credit Facility.
(b) To declare any and all existing Loans to be immediately due and
payable.
(c) To exercise such other rights and remedies as are by law, equity
or statute permitted.
Notwithstanding anything to the contrary contained in this Agreement, should
an Event of Default referred to in Sections 7.1(g) or (h) occur, the remedies
of the Lender set forth in Subsections (a) and (b) of this Section shall be
deemed to have been exercised by the Lender concurrently with the occurrence
of such Event of Default and without further action on behalf of the Lender.
7.3 Remedies Cumulative. All rights and remedies of the Lender hereunder
or by law, equity or statute permitted are cumulative and may, to the extent
permitted by applicable law, be exercised concurrently or separately. The
exercIse of any one right or remedy shall not be deemed to be an exclusive
election of such right or remedy.
7.4 Waiver of Default. The Lender may, at any time and from time to time,
execute and deliver to the Companies or either of them a written instrument
waiving, on such terms and conditions as the Lender may specify in such
written instrument, any of the requirements of this Agreement or any Event of
Default and its consequences, provided that any such waiver shall be for such
period of time and subject to such conditions as shall be specified in any
such instrument. No such waiver shall extend to any subsequent or other Event
of Default, or impair any right consequent thereto and shall be effective only
in the specific instance and for the specific purpose for which given.
ARTICLE 8
MISCELLANEOUS PROVISIONS
8.1 Notice. Except as set forth in Section 2.10(b) of this Agreement, all
notices relating hereto shall be in writing. All notices referred to in
Section 7.1 of this Agreement shall be delivered
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in person, shall be mailed by certified mail, postage prepaid, or shall be
sent by nationally recognized overnight courier to an Officer of the Company.
All other notices, except the notice referred to in Section 2.10(b) hereof,
shall be delivered in person to the party to which such notice is being given
or shall be mailed to such party by regular mail or certified mail, postage
prepaid in each case, or shall be sent by nationally recognized overnight
courier, to such party. The applicable addresses for all notices shall be:
To AEL:
AEL Leasing Co., Inc.
Flying Hills Corporate Center
P.O. Box 13428
Reading, PA 19612
Attention: Chief Funding Officer
To ACCC:
American Commercial Credit Corp.
Flying Hills Corporate Center
P.O. Box 13428
Reading, PA 19612
Attention: Chief Funding Officer
To the Lender:
Maryland National Bank
P.O. Box 987, MS 021604
Baltimore, MD 21202
Attention: Laura L. Gamble, Vice President
unless the same shall be changed by like notice by any party to the others.
Each of the Companies shall deliver all of the documentation referred to in
Section 2.10 of this Agreement to the Lender at its address set forth above.
8.2 Accounting Principles. Except as otherwise provided, all computations
which are to be made under this Agreement shall be in accordance with
generally accepted accounting principles and practices.
8.3 Waiver of Jury Trial. EACH OF THE COMPANIES WAIVES TRIAL BY JURY IN
ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH OR ARISING OUT
OF THIS AGREEMENT AND THE NOTES OR THE VALIDITY, INTERPRETATION AND
ENFORCEMENT HEREOF OR THEREOF.
8.4 Gender/Number. When the sense so requires, words which are used in
this Agreement or the documentation referred to herein shall be deemed to be
applicable to all genders and when used in the singular number shall be held
to include the plural and vice versa.
8.5 Construction. This Agreement and the documents referred to herein are
entered into subsequent to negotiations among the parties and shall not be
strictly construed against the preparing party.
8.6 Additional Documents/Assurances. At any time, and from time to time,
upon request by any of the parties hereto, the other parties hereto shall
execute, deliver and acknowledge or cause to be executed, delivered and
acknowledged such further documents and shall do such other acts and things as
the requesting party may reasonably require in order to fully effect the
purposes and intent of this Agreement.
8.7 Benefit. This Agreement and the documents referred to herein shall be
binding upon and inure to the benefit of each of the Companies and the Lender
and their respective successors and, to the extent herein permitted, assigns,
but no successor of either of the Companies may borrow hereunder without the
Lender's prior written consent.
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8.8 Assignment. Neither of the Companies nor the Lender shall have the
right to assign or delegate this Agreement or the documents referred to herein
or any rights or duties hereunder or thereunder without the prior written
consent of the other, which consent shall not be unreasonably withheld;
provided, however, that the Lender, if a bank, may assign or participate all
or any part of its interest herein to any other bank which is a subsidiary of
any entity of which the Lender is also a subsidiary without the prior written
consent of the applicable Company, provided, however, that notwithstanding
such assignment or participation, in no event shall the applicable Company be
required to issue more than one (1) repayment check per month on account of
all Notes issued pursuant to this Agreement.
8.9 Severability. If any provision of this Agreement or any documents
referred to herein, or the application thereof to any party or circumstance,
be held invalid or unenforceable, the remainder of this Agreement and the
documentation referred to herein, and the application of such provision to
other parties or circumstances, shall not be affected thereby and to this end,
the provisions of this Agreement and the documentation referred to herein are
declared severable.
8.10 Integration. This Agreement and the documents referred to herein
contain the entire understanding among the Companies and the Lender with
respect to the subject matter hereof and such understanding shall not be
amended, modified or terminated except in writing and duly executed on behalf
of the Company and the Lender.
8.11 Captions. The captions of each of the Sections of this Agreement do
not constitute a part of this Agreement but are for informational purposes
only.
8.12 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute but one and the same instrument.
8.13 Jurisdiction. Each Company irrevocably submits to the jurisdiction
of any state or federal court sitting in the State of Maryland over any
proceeding arising out of this Agreement and irrevocably waives, to the
fullest extent permitted by law, any objection that it may ever have to the
laying of jurisdiction or venue in any such proceeding in any such court and
any claim that any such proceeding brought in any such court has been brought
in an inconvenient forum.
8.14 Law. This Agreement and the documentation referred to herein shall
be governed by and construed in accordance with the laws of the Commonwealth
of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
AEL LEASING CO., INC.
By: ______________________________________
Attest: ______________________________________
AMERICAN COMMERCIAL CREDIT CORP.
By: ______________________________________
Attest: ______________________________________
MARYLAND NATIONAL BANK
By: ______________________________________
Attest: ______________________________________
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EXHIBIT A
NOTE
$ --------- Dated:
(hereinafter referred to as "Company"), a corporation
organized and existing under the laws of the Commonwealth of Pennsylvania and
having a registered office at Flying Hills Corporate Center No. 6, Reading,
Pennsylvania, hereby promises to pay to the order of Maryland National Bank
(hereinafter referred to as "Lender") at the offices of the Lender at P.O. Box
987, MS 021604, Baltimore, MD, 21202, the principal sum of and 00/
100 Dollars ($ ) together with interest thereon at the rate of
percent ( %) per annum, such interest to remain fixed for the term three
hundred sixty/three hundred sixty (360/360) days.
The Company shall repay the principal amount of this Note together with
interest thereon at the annual rate set forth above until paid in full as
follows:
a. On 199 , the sum of
and /100 dollars ($ );
b. Beginning on , 199 , and continuing on the same date of
each of the next fifteen (15) months thereafter, the sum of
and /100 dollars ($ );
c. On , 199 , the sum of
and /100 dollars ($ );
d. Beginning on , 199 , and continuing on the same date of
each of the next ten (10) months thereafter, the sum of
and /100 dollars ($ );
e. On , 199 , the sum of
and /100 dollars ($ );
f. Beginning on , 199 , and continuing on the same date of
each of the next ten (10) months thereafter, the sum of
and /100 dollars ($ );
g. On , 199 , the sum of
and /100 dollars ($ ).
Each of such installments shall be applied first to the payment of accrued
and unpaid interest and then to the payment of principal. Any payment received
on a day other than its due date will be applied as aforesaid on the date
received and the final payment will be recalculated and adjusted to reflect
the actual interest accrued on the outstanding principal hereof. All payments
shall be in lawful money of the United States of America.
This Note is given by the Company to the Lender to evidence a Loan to be
made by the Lender to the Company pursuant to the provisions of a certain Loan
Agreement dated June 28, 1993, among the Company, and the
Lender.
The Maker has certain rights of prepayment of the principal of this Note,
which prepayment rights are more fully set forth in the Loan Agreement.
An Event of Default by the Company under the Loan Agreement shall be an
event of default under this Note and the holder hereof shall be entitled to
all of the rights and remedies set forth in the Loan Agreement.
Presentment for payment, protest or notice of dishonor are hereby waived
by the Company.
IN WITNESS WHEREOF, the Company has caused this Note to be executed on the
day and year first above written.
By:---------------------------------------
Title:---------------------------------------
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EXHIBIT B
AEL LEASING CO., INC.
18 Months - 20%
30 Months - 65%
42 Months - 15%
54 Months - -0-
Ave. Maturity 29.4 Months
AMERICAN COMMERCIAL CREDIT CORP.
18 Months - 30%
30 Months - 52%
42 Months - 18%
54 Months - -0-
Ave. Maturity 28.6 Months
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EXHIBIT C
MODIFICATION NOTICE
Dear Ms. Gamble:
Pursuant to the provisions of the Loan Agreement among AEL Leasing Co.,
Inc. and American Commercial Credit Corp. and Maryland National Bank
("Lender") dated June 28, 1993, you are hereby given notice that the nature of
the Draw by each of the Companies on the Credit Facility supplied by the
Lender is hereby modified and shall be as follows:
AS TO AEL LEASING CO., INC.
1. Each Draw shall be comprised of three (3) Loans.
2. The principal amount of each such Loan comprising the applicable Draw
shall constitute the following proportion of the total amount of the
Draw:
a. Loan having a Loan Term of eighteen (18) months -- ( %) percent
of the total amount of the Draw.
b. Loan having a Loan Term of thirty (30) months -- ( %) percent of
the total amount of the Draw.
c. Loan having a Loan Term of forty-two (42) months -- ( %) percent
of the total amount of the Draw.
Until otherwise modified in accordance with the provisions of the Loan
Agreement, all Draws made by AEL Leasing Co., Inc. on or after the date hereof
shall be as set forth herein.
AS TO AMERICAN COMMERCIAL CREDIT CORP.
1. Each Draw shall be comprised of three (3) Loans.
2. The principal amount of each such Loan comprising the applicable Draw
shall constitute the following proportion of the total amount of the
Draw:
a. Loan having a Loan Term of eighteen (18) months -- ( %) percent
of the total amount of the Draw.
b. Loan having a Loan Term of thirty (30) months -- ( %) percent of
the total amount of the Draw.
c. Loan having a Loan Term of forty-two (42) months -- ( %) percent
of the total amount of the Draw.
Until otherwise modified in accordance with the provisions of the Loan
Agreement, all Draws made by American Commercial Credit Corp. on or after the
date hereof shall be as set forth herein.
Very truly yours,
AEL LEASING CO., INC.
By: ______________________________________
Title: ______________________________________
AMERICAN COMMERCIAL CREDIT CORP.
By: ______________________________________
Title: ______________________________________
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EXHIBIT D
LOAN CERTIFICATE
Date
Dear Ms. Gamble:
Pursuant to a Loan Agreement among AEL Leasing Co., Inc. and American
Commercial Credit Corp. and Maryland National Bank dated June 28, 1993,
is hereby submitting this Certificate to you and making a
Draw against its Credit Facility, the Draw to be composed of three (3) loans
having original principal amounts and loan terms as follows:
Draw in the amount of dollars ($ ).
Loan Original Principal Loan Term
Amount
1 $ 18 Months
2 $ 30 Months
3 $ 42 Months
The original Note evidencing such loans is enclosed herewith. Please wire
transfer the total amount of the Draw to the Company's account at Meridian
Bank having offices at Philadelphia, Pennsylvania. The applicable deposit
account number is Horrigan American, Inc. Concentration Account, number 0905-
6602 to the attention of Barbara H. Pattison, Vice President.
Very truly yours,
(INSERT COMPANY NAME)
By:---------------------------------------
Title:---------------------------------------
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EXHIBIT E
BORROWING BASE CERTIFICATE
Date
Attention: Ms. Laura L. Gamble, Vice President
Dear Ms. Gamble:
Pursuant to a Loan Agreement between AEL Leasing Co., Inc. and American
Commercial Credit Corp. and Maryland National Bank dated June 28, 1993, we are
hereby advising you that the Available Borrowing Base for the month of
for the
("Company") is and 00/100 dollars ($ ) and the
aggregate Draw of the Company for the said month from all Participant Lenders
will be approximately and 00/100 dollars ($ ).
The Available Borrowing Base as of , for the month of
takedown, has been computed as follows:
Gross Qualifying Assets xxxxxx
Less: xxxxxx
Appropriate Deferred Income xxxx
Accounts Payable to Suppliers xxxx
Security Deposits xxxxxx
-------
Net Qualifying Assets xxxxxx
Times a factor of .9
Gross Borrowing Base xxxxxx
Less:
Outstanding Senior Debt xxxxxx
Outstanding Subordinated Intercompany Debt xxxxxx
-------
Available Borrowing Base xxxxxx
Very truly yours,
(INSERT COMPANY NAME)
By:---------------------------------------
Title:---------------------------------------
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EXHIBIT F
SURETYSHIP
BETWEEN
AMERICAN EQUIPMENT LEASING CO., INC.
AND
MARYLAND NATIONAL BANK
DATED: JUNE 28, 1993
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EXHIBIT F
SURETYSHIP
BETWEEN
AMERICAN EQUIPMENT LEASING CO., INC.
AND
MARYLAND NATIONAL BANK
TABLE OF CONTENTS
PAGE
BACKGROUND............................................................... 1
ARTICLE 1 DEFINITIONS.................................................... 1
1.1 General Provisions............................................. 1
1.2 Defined Terms.................................................. 2
ARTICLE 2 ASSURANCE AND GUARANTY......................................... 5
2.1 Prior Suretyship............................................... 5
2.2 Assurance...................................................... 5
2.3 Liability...................................................... 5
2.4 Waiver......................................................... 5
2.5 Consent........................................................ 5
2.6 Waiver of Claim; Survival...................................... 6
2.7 Reinstatement.................................................. 6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES................................. 6
3.1 Organization................................................... 6
3.2 Corporate Power................................................ 6
3.3 Authority...................................................... 6
3.4 Consent........................................................ 7
3.5 Proceedings.................................................... 7
3.6 Judgments...................................................... 7
3.7 Investment Company Act......................................... 7
3.8 Burdensome Documents........................................... 7
3.9 Taxes.......................................................... 7
3.10 Laws........................................................... 7
3.11 Regulation U................................................... 7
3.12 No Default..................................................... 7
ARTICLE 4 FINANCIAL STATEMENTS........................................... 7
4.1 Books of Account............................................... 8
4.2 Quarterly Financial Statements................................. 8
4.3 Annual Financial Statements.................................... 8
4.4 Other Information.............................................. 8
4.5 Compliance Certificate......................................... 8
ARTICLE 5 AFFIRMATIVE COVENANTS.......................................... 8
5.1 Corporate Existence............................................ 8
5.2 Subsidiary..................................................... 8
5.3 Trade Names.................................................... 8
5.4 Insurance...................................................... 9
5.5 Indebtedness................................................... 9
5.6 Taxes and Claims............................................... 9
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PAGE
5.7 Default........................................................ 9
5.8 Examination.................................................... 9
5.9 Minimum Tangible Net Worth..................................... 9
5.10 Debt/Tangible Net Worth Ratio.................................. 9
5.11 Cash Flow Ratio................................................ 9
5.12 Compliance with Laws........................................... 9
ARTICLE 6 NEGATIVE COVENANTS............................................. 9
6.1 Subordinated Intercompany Debt................................. 10
6.2 Merger......................................................... 10
6.3 Transfer of Assets............................................. 10
6.4 Loans/Investments/Guaranties................................... 10
6.5 Related Persons................................................ 10
ARTICLE 7 DEFAULT AND REMEDIES........................................... 10
7.1 Default........................................................ 10
7.2 Remedies....................................................... 11
7.3 Remedies Cumulative............................................ 12
7.4 Waiver of Default.............................................. 12
ARTICLE 8 MISCELLANEOUS PROVISIONS....................................... 12
8.1 Place of Payment............................................... 12
8.2 Notice......................................................... 12
8.3 Accounting Principles.......................................... 12
8.4 Waiver of Jury Trial........................................... 12
8.5 Gender/Number.................................................. 12
8.6 Construction................................................... 13
8.7 Additional Documents/Assurances................................ 13
8.8 Benefit........................................................ 13
8.9 Assignment..................................................... 13
8.10 Severability................................................... 13
8.11 Integration.................................................... 13
8.12 Captions....................................................... 13
8.13 Counterparts................................................... 13
8.14 Jurisdiction................................................... 13
8.15 Law............................................................ 13
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EXHIBIT F
SURETYSHIP
This Suretyship is made as of this 28th day of June, 1993, by and between
AMERICAN EQUIPMENT LEASING CO., INC., a corporation organized and existing
under the laws of the Commonwealth of Pennsylvania having its principal
offices at Flying Hills Corporate Center, Flying Hills, Reading, Pennsylvania,
19607
AND
MARYLAND NATIONAL BANK, a national banking association having its principal
offices at P.O. Box 987, Baltimore, MD, 21202.
BACKGROUND
The Surety is the sole shareholder of the capital stock of each of the
Companies. The Companies are engaged in various business activities, including
the offering of various financial services. From time to time in the course of
its business activities, each of the Companies acquires and makes Contracts.
Each of the Companies presently maintains a separate Unsecured Funding Program
pursuant to which from time to time each of the Companies makes periodic
borrowings, primarily in order to finance or refinance, directly or
indirectly, the acquisition and making of Contracts.
Each Participant Lender has agreed to modify the Unsecured Funding Program
to permit, inter alia, a single Credit Facility which may be accessed by each
of the Companies.
In order to re-document the Unsecured Funding Program of each of the
Companies, each Participant Lender, including the Lender, has been requested
to enter into documentation substantially similar to the Agreement and the
documentation referred to therein, and each Participant Lender, including the
Lender, has agreed thereto.
Concurrently herewith, each of the Companies and the Lender have entered
into and executed the Agreement. One of the conditions of the Agreement is
that the Surety execute and deliver this Suretyship to the Lender.
NOW, THEREFORE, INTENDING TO BE LEGALLY BOUND HEREBY, the Surety and the
Lender agree as follows:
ARTICLE 1
DEFINITIONS
1.1 General Provisions. Unless the context clearly requires otherwise:
(a) Words and phrases used in this Suretyship or in any of the
documents referred to herein which are not specifically defined in this
Suretyship or in any of the documents referred to herein but which are
defined in the Uniform Commercial Code shall have the meanings assigned to
them in the Uniform Commercial Code.
(b) All accounting terms used in this Suretyship or in the documents
referred to herein which are not specifically defined in this Suretyship
or in any of the documents referred to herein shall have the meanings
assigned to them in accordance with generally accepted accounting
principles and practices.
(c) The word "including" shall be a word of enlargement rather than a
word of limitation and shall be deemed to mean "including but not limited
to" rather than "including only".
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1.2 Defined Terms. Unless the context clearly requires otherwise, the
following words and phrases whenever used in the singular or the plural form
and capitalized shall have the following meanings for the purposes of this
Suretyship and all documents referred to herein:
(a) "ACCC" shall mean American Commercial Credit Corp., a corporation
organized and existing under the laws of the Commonwealth of Pennsylvania.
(b) "AEL" shall mean AEL Leasing Co., Inc., a corporation organized
and existing under the laws of the Commonwealth of Pennsylvania.
(c) "Agreement" shall mean the Agreement dated this date among AEL,
ACCC and the Lender, and all amendments and modifications thereto.
(d) "Bankruptcy Code" shall mean the federal Bankruptcy Code, as
amended and supplemented from time to time.
(e) "Cash Flow Ratio" shall mean the ratio of Ratio Cash Receipts to
Ratio Cash Disbursements for any fiscal period
(f) "Company" shall mean, as applicable, either AEL or ACCC in its
capacity as borrower under the Credit Facility.
(g) "Companies" shall mean, collectively, AEL and ACCC.
(h) "Compliance Certificate" shall mean the document referred to in
section 4.5 of this Suretyship.
(i) "Contract" shall mean any conditional sales contract, installment
sales contract, commercial loan agreement, security agreement, lease,
mortgage, other title retention instrument, promissory note or other
evidence of indebtedness, whether secured or unsecured, arising
out of:
(i) the making of any commercial loan by either of the Companies
or any of their respective Subsidiaries to any Person other than to
any Related Person,
(ii) the acquisition, by purchase, merger or otherwise, by either
of the Companies or any of their respective subsidiaries of the
lender's rights with respect to any commercial loan to any Person
other than to any Related Person,
(iii) the sale or lease by either of the Companies or any of their
respective subsidiaries of any Equipment or other personal property to
any Person other than to any Related Person, or
(iv) the acquisition, by purchase, merger or otherwise, by either
of the Companies or any of their respective subsidiaries of the
seller's or lessor's rights with respect to the sale or lease of any
Equipment to any Person other than to any Related Person.
(j) "Controlling Interest" shall mean, if applicable to a corporation,
the right under ordinary circumstances to elect a majority of the members
of the board of directors of such corporation, and if a partnership,
general or limited, the ownership of fifty percent (50%) or more of the
general partnership interests of such partnership.
(k) "Credit Facility" shall mean the credit facility herein
established by the Lender for the benefit of AEL and ACCC.
(l) "Default" shall mean any of the events specified in section 7.1 of
this Suretyship, provided that any requirement set forth in this
Suretyship or the documentation referred to herein for notice, lapse of
time or both, or any other condition has been satisfied.
(m) "Draw" shall mean the periodic borrowing by either of the
Companies of funds from the Lender by means of the making by the Lender to
such Company of one (l) or more simultaneous Loans.
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(n) "Equipment" shall mean all equipment and other personal property,
including software and all other general intangibles, which either of the
Companies leases or sells to any Person pursuant to any Contract.
(o) "Event of Default" shall mean any event specified in Section 7.1
of the Agreement provided that any requirement set forth in the Agreement
or the documentation referred to therein for notice, lapse of time or
both, or any other condition, has been satisfied.
(p) "HAI" shall mean Horrigan American, Inc., a corporation organized
and existing under the laws of the Commonwealth of Pennsylvania.
(q) "Indebtedness" shall mean all indebtedness of each of the
Companies to the Lender which is outstanding pursuant to the Credit
Facility and which is evidenced by any Note or any Prior Note.
(r) "Investment Company Act" shall mean the Investment Company Act of
1940, as amended and supplemented from time to time.
(s) "Lender" shall mean Maryland National Bank, a national banking
association.
(t) "Loan" shall mean a borrowing by either Company from the Lender
pursuant to the Credit Facility which, together with other such borrowings
made on such date, shall constitute a Draw by such Company on the Credit
Facility.
(u) "Note" shall mean the promissory note referred to in Section 2.5
of the Agreement.
(v) "Officer" shall mean the Chairman of the Board of Directors, the
Chief Executive Officer, the Chief Operating Officer, the Chief Financial
Officer, the Vice President of Funds Management or such other executive
employee of the Surety whom the Surety shall designate by resolution of
the Board of Directors of the Surety, certified as to authenticity by the
Secretary or Assistant Secretary thereof, or by a consent in writing
signed by all of the members of the Board of Directors of the Surety, a
copy of which has been delivered to the Lender.
(w) "Participant Lender" shall mean any bank, financial institution,
insurance company, corporation or other entity which is participating or
shall hereafter become a participant in the Unsecured Funding Program.
(x) "Person" shall mean any individual, corporation, partnership,
association, trust or other entity or organization, including but not
limited to a governmental or political subdivision or agency or
instrumentality thereof.
(y) "Prior Agreement" shall mean any Unsecured Funding Program
Agreement heretofore executed by either of the Companies and the Lender
establishing or continuing an Unsecured Funding Program for the benefit of
such Company, and all amendments and modifications thereto.
(z) "Prior Note" shall mean any promissory note heretofore issued by
either of the Companies pursuant to any Prior Agreement.
(aa) "Prior Suretyship" shall mean the Suretyship between HAI and the
Lender, and all amendments and modifications thereto.
(ab) "Public Offering" shall mean the offering of any class of equity
securities of the Surety or of either of the Companies pursuant to a
registration statement under the Securities Act.
(ac) "Ratio Cash Disbursements" for any fiscal period shall mean the
sum of the following items, all as determined in accordance with generally
accepted accounting principles as applied to the Surety's financial
statements and as set forth in the Surety's Consolidated Balance Sheet and
the Surety's Consolidated Statement of Cash Flows:
(i) principal repayments of long-term Senior Debt;
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<PAGE>
(ii) dividends paid;
(iii) cost of acquired treasury stock;
(iv) acquisition of investments;
(v) acquisition of property and equipment (i.e. fixed assets);
(vi) thirty-three and one-third percent (331/3%) of the fiscal
period ending net subordinated Intercompany Debt outstanding; and
(vii) thirty-three and one-third percent (331/3%) of the fiscal
period ending short-term Senior Debt borrowings.
"At its election, the Surety may exclude from (i) above any prepayments of
principal which are not required to be made pursuant to the terms of the
instruments and other documents governing such Senior Debt or any
repayments which are concurrently refinanced in the ordinary course of
business by a substantially equal amount of new Senior Debt.
(ad) "Ratio Cash Receipts" for any fiscal period shall mean the sum of
the following items, all as determined in accordance with generally
accepted accounting principles as applied to the Surety's financial
statements and as set forth in the Surety's Consolidated Statement of Cash
Flows:
(i) net cash provided by operating activities;
(ii) principal collections of finance receivables;
(iii) proceeds from issuance of capital stock; (iv) proceeds
from sale of investments;
(v) proceeds from sale of property and equipment (i.e. fixed
assets);
(vi) proceeds from sale of finance receivables; and
(vii) proceeds from sale of Equipment applicable to operating
leases.
(ae) "Related Person" shall mean HAI, the Surety, either Company, any
Subsidiary or any other Person in which HAI, the Surety, either Company or
any Subsidiary has a Controlling Interest.
(af) "Securities Act" shall mean the Securities Act of 1933, as
amended and supplemented from time to time.
(ag) "Senior Debt" of the Surety shall mean the sum total of all
amounts owing with respect to funds borrowed by the Surety or any of its
Subsidiaries from banks, financial institutions, insurance companies,
corporations and other entities other than Related Persons.
(ah) "Subordinated Intercompany Debt" of the Surety shall mean the sum
total of all amounts owing with respect to funds borrowed by the Surety or
any of its Subsidiaries from HAI, either of the Companies or any
Subsidiary of either the Surety or either of the Companies, the repayment
of which by its terms is subordinated to the repayment of Senior Debt of
the Surety.
(ai) "Subsidiary" shall mean any corporation in which HAI, the Surety,
either Company or any subsidiary of any of the foregoing, as applicable,
directly or indirectly, owns or hereafter acquires a sufficient amount of
capital stock having general voting power so as to permit HAI, the Surety,
either Company or any subsidiary of any of the foregoing, as applicable,
under ordinary circumstances to elect a majority of the members of the
board of directors of such corporation.
(aj) "Surety" shall mean American Equipment Leasing Co., Inc., a
corporation organized and existing under the laws of the Commonwealth of
Pennsylvania and having its registered office at Flying Hills Corporate
Center, Flying Hills, Reading, Pennsylvania, 19607.
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(ak) "Suretyship" shall mean this Suretyship, and all amendments and
modifications hereto.
(al) "Tangible Net Worth" of the Surety shall mean the aggregate
amount of equity of the stockholders of the Surety as determined in
accordance with generally accepted accounting principles, less the
aggregate amount of intangible assets of the Surety, which shall include
goodwill, organization costs, franchises and trademarks.
(am) "Uniform Commercial Code" shall mean the Pennsylvania Uniform
Commercial Code, as amended and supplemented from time to time.
(an) "Unsecured Funding Program" shall mean the program of unsecured
credit facilities acquired by the Companies from various banks, financial
institutions, insurance companies, corporations or other entities, the
proceeds of which are to be used primarily to finance or refinance,
directly or indirectly, the acquisition or making of Contracts and which
programs shall be evidenced by documentation substantially similar to the
Agreement, this Suretyship and other documentation referred to herein.
ARTICLE 2
ASSURANCE AND GUARANTY
2.1 Prior Suretyship. This Suretyship replaces and supersedes the Prior
Suretyship which is hereby terminated.
2.2 Assurance. The Surety hereby irrevocably assures and guarantees to
the Lender the payment of the Indebtedness in accordance with the provisions
of this Suretyship. This Suretyship is a continuing one and is irrevocable.
This Suretyship is a guarantee of payment and not of collection.
2.3 Liability. The amount of the Surety's liability hereunder is
unlimited. The Lender may apply any payment received from the Surety on
account of this Suretyship to the Indebtedness in such order as the Lender may
elect, without regard to the date upon which such Indebtedness was incurred.
The obligations of the Surety under this Suretyship shall not be subject to
any counterclaim, set-off, reduction or defense based on any claim that the
surety may have against either Company or any other creditor of either
Company, and shall not be conditioned or contingent upon the pursuit or
enforcement by the Lender of any remedy it may have against either Company
under the Agreement, any Note or Prior Note, or otherwise. Any modification,
limitation or discharge of the Indebtedness or any other obligations of either
company to the Lender arising out of any bankruptcy or insolvency proceeding
involving either Company shall not modify, limit, reduce, discharge or
otherwise affect the liability of the Surety hereunder, and this Suretyship
shall remain in full force and effect.
2.4 Waiver. The Surety waives the following notices to it with respect to
this Suretyship and its liability hereunder:
(a) Of the acceptance hereof and reliance hereon.
(b) Of the present existence or future incurring of Indebtedness.
(c) Of the amount, terms and conditions of such Indebtedness.
(d) Of any Event of Default by either of the Companies under the
Agreement.
2.5 Consent. The Surety consents to the form of the Agreement and any
documentation referred to therein and to the modification of the form of the
Agreement and any of the documentation referred to therein, provided such
modification is agreed upon in writing by the Companies and the Lender. In
addition, the Surety consents to any arrangement, renewal, extension,
postponement, compromise, waiver or release with respect to the Indebtedness,
and this Suretyship shall
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not be released by any such arrangement, renewal, extension, postponement,
waiver or release with respect to the Indebtedness.
2.6 Waiver of Claim; Survival. As a material inducement to the Lender to
enter into the Agreement and this Suretyship, the Surety irrevocably waives
and relinquishes any claim (as defined in 11 U.S.C. Section 101) it may now or
hereafter have against either Company (including any right of subrogation,
indemnification or reimbursement) on account of or arising out of any payment
or transfer made by the Surety, or any payment or transfer which the Surety is
obligated to make, to the Lender under this Suretyship or under any other
agreement with a creditor of either Company. The Surety's obligations under
this Suretyship shall survive the payment in full of all indebtedness until
such payment has become final and is no longer subject to being set aside or
recovered in any legal proceeding.
2.7 Reinstatement. If any payment applied by Lender to any Indebtedness
is thereafter set aside, recovered, rescinded or required to be returned for
any reason (including bankruptcy, insolvency or reorganization of either
Company), the Indebtedness to which such payment was applied shall, for the
purposes of this Suretyship, be deemed to have continued in existence
notwithstanding such application, and this Suretyship shall be enforceable as
to such of the Indebtedness as fully as if such application had never been
made.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
The Surety represents and warrants to the Lender that as of the date of
this Suretyship, the following representations are true and correct and shall
be true and correct as of the date of each Draw:
3.1 Organization. The Surety and each of the Companies:
(a) Are corporations duly incorporated, validly existing and in good
standing under the laws of their respective states of incorporation.
(b) Have the corporate power and authority to own their respective
assets and to carry on their respective businesses as now conducted.
(c) Are duly qualified to do business in every jurisdiction where the
nature of their respective assets owned or their operations conducted make
such qualification necessary except where the failure to so qualify would
not have a material adverse effect upon their financial condition.
3.2 Corporate Power. The Surety has the corporate power to execute,
deliver and perform this Suretyship.
3.3 Authority. The execution, delivery and performance of thisSuretyship
by the Surety has been duly authorized by all requisite corporate action on
the part of the Surety and shall not:
(a) To the knowledge of the Surety contravene any provision of law or
any order of any court or other agency of government.
(b) Contravene the articles of incorporation or by-laws of the Surety
or any agreement, indenture or instrument binding upon the Surety.
(c) Be in conflict with, result in the breach of or constitute, with
due notice, lapse of time, or both, a default under any agreement,
indenture or instrument binding upon the Surety.
(d) Result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the assets of the Surety.
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3.4 Consent. To the knowledge of the Surety, no action or consent of, or
registration or filing with, any governmental instrumentality or other agency
is required under existing law in connection with the execution, delivery and
performance by the Surety of this Suretyship.
3.5 Proceedings. To the knowledge of the Surety, there are no actions,
suits or proceedings at law or in equity or by or before any governmental
agency or other instrumentality now pending or threatened against or affecting
the Surety or any of its assets which, if adversely determined, would
individually or in the aggregate have a material adverse effect upon the
financial condition of the Surety.
3.6 Judgments. To the knowledge of the Surety, there are no judgments or
other judicial or administrative orders outstanding against the Surety nor, to
the Surety's knowledge, any action, suit or proceeding at law or in equity or
by or before any governmental agency or instrumentality now pending or
threatened which, if adversely determined, might reasonably be expected to
adversely and materially impair the right of the Surety to carry on its
business as it is now conducted or materially and adversely affect the
financial condition of the Surety.
3.7 Investment Company Act. The Surety is not an "investment company" as
that term is defined in, and is not otherwise subject to regulation under, the
Investment company Act.
3.8 Burdensome Documents. The Surety is not a party to, nor bound by, any
agreement, indenture, instrument, judgment, decree or order of any court or
other governmental body which, if performed or observed by the Surety, would
have a material and adverse effect on the business or financial condition of
the Surety or the ability of the Surety to perform its obligations under this
Suretyship.
3.9 Taxes. Except to the extent to which the Surety has contested the
same by appropriate proceedings, or where the failure to file or pay shall not
have a material, adverse effect on the business or financial condition of the
Surety:
(a) The Surety has filed all federal and state tax returns which it
was required to file, and has paid or made adequate provision for the
payment of all taxes which have become due pursuant to said returns.
(b) To the best of the Surety's knowledge, there are no claims pending
or threatened against the Surety for past federal or state taxes, except
those, if any, as to which proper reserves are reflected in the financial
statements of the Surety.
3.10 Laws.
(a) To the knowledge of the Surety, and except as otherwise provided
in Section 3.9 as pertains to the filing of tax returns and the payment of
taxes, the Surety is in compliance with all laws applicable to the Surety.
(b) Except as otherwise disclosed to the Lender in writing, the Surety
has not received any notice, not heretofore complied with, from any
federal, state or local governmental instrumentality or agency to the
effect that it is not in compliance with any law applicable to the Surety.
3.11 Regulation U. The Surety is not engaged principally in, nor is one
of its important activities, the business of extending credit for the purpose
of purchasing or carrying any margin stock within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System of the United States.
3.12 No Default. No Default has occurred and is continuing.
ARTICLE 4
FINANCIAL STATEMENTS
The Surety covenants that, from the date of this Suretyship until the
termination of the Credit Facility and payment in full of the principal and
interest on all Notes and Prior Notes, unless the Lender shall otherwise
consent in writing:
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4.1 Books of Account. The Surety shall maintain proper books of account
in accordance with generally accepted accounting principles and practices
consistently applied.
4.2 Quarterly Financial Statements. As soon as available, but in any
event within sixty (60) days after the end of each of the first three (3)
fiscal quarterly periods, the Surety shall deliver to the Lender a
consolidated and consolidating balance sheet of the Surety and its
Subsidiaries, including each of the Companies, as of the last day of each such
quarter, a consolidated and consolidating statement of operations and a
consolidated statement of cash flows for such fiscal quarter, each prepared in
accordance with generally accepted accounting principles consistently applied,
in reasonable detail, and certified by an Officer of the Surety as fairly
presenting the financial position and the results of operations of the Surety
and its Subsidiaries as of its date and for such quarter and as having been
prepared in accordance with generally accepted accounting principles
consistently applied (subject to year-end audit adjustments).
4.3 Annual Financial Statements. Annually, as soon as available, but in
any event within one hundred twenty (120) days after the last day of its
fiscal year, the Surety shall deliver to the Lender a consolidated and
consolidating balance sheet of the Surety and its Subsidiaries, including each
of the Companies, as of such last day of the fiscal year, a consolidated and
consolidating statement of operations, consolidated retained earnings, and a
consolidated statement of cash flows for such fiscal year, each prepared in
accordance with generally accepted accounting principles consistently applied,
in reasonable detail, and certified without qualification by a recognized firm
of independent certified public accountants reasonably acceptable to the
Lender as fairly representing the financial position and the results of
operations of the Surety and its Subsidiaries, as of and for the year ending
on its date and as having been prepared in accordance with generally accepted
accounting principles consistently applied.
4.4 Other Information. Promptly after a written request therefor from
time to time, the Surety shall provide to the Lender such other financial data
and information evidencing compliance with the requirements of this Suretyship
as the Lender may reasonably request.
4.5 Compliance Certificate. Concurrently with the delivery of the
financial statements referred to in Sections 4.2 and 4.3 of this Suretyship,
the Surety shall deliver to the Lender a Compliance Certificate, in
substantially the form of Exhibit "G" of the Agreement which is attached
thereto and incorporated therein by reference, such Compliance Certificate to
be executed by an Officer of each of the Companies and of the Surety.
ARTICLE 5
AFFIRMATIVE COVENANTS
The Surety covenants that, from the date of this Suretyship until the
termination of the Credit Facility and payment in full of all amounts owing
under all Notes and Prior Notes, unless the Lender shall otherwise consent in
writing:
5.1 Corporate Existence. The Surety shall, and shall cause each of the
Companies to, do or cause to be done all things necessary to preserve and keep
in full force and effect their respective corporate existences and comply with
all laws applicable thereto except where the failure to do so shall not have a
material adverse effect upon the financial condition of the Surety.
5.2 Subsidiary. In the event that the Surety shall acquire or create any
Subsidiary subsequent to the date of this Suretyship, the Surety shall notify
the Lender thereof, which notice shall set forth the corporate name of such
Subsidiary and the registered address thereof.
5.3 Trade Names. The Surety shall maintain, preserve and protect all
franchises and trade names except where the failure to do so shall not have a
material adverse effect upon the financial condition of the Surety.
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5.4 Insurance. The Surety shall keep its assets insured against fire with
extended coverage, and liability, dishonesty, disappearance and destruction
coverage to the extent that such insurance is usually carried by companies of
a similar size engaged in similar activities as the Surety.
5.5 Indebtedness. Except to the extent to which the Surety shall contest
the same in good faith, the Surety shall pay all of its debts and obligations
promptly and in accordance with normal terms.
5.6 Taxes and Claims. Except to the extent to which the Surety contests
the same by appropriate proceedings, or where the failure to file or pay shall
not have a material, adverse effect on the financial condition of the Surety,
the Surety shall pay and discharge, or shall cause to be paid and discharged,
all taxes and other governmental charges and assessments imposed upon it or
upon its income or assets, before the same shall come in default, as well as
lawful claims for labor, materials, supplies or otherwise which, if unpaid,
might become a lien or charge upon such assets or any part thereof.
5.7 Default. In the event that any Officer of the Surety knows of any
Default which shall have occurred or knows of any occurrence of any event
which, upon notice or lapse of time or both, would constitute a Default, the
Surety shall promptly furnish to the Lender a statement as to such occurrence
specifying the nature and extent thereof and the action, if any, which is
proposed to be taken with respect thereto.
5.8 Examination. The Surety shall permit the representatives of the
Lender to visit the Surety to examine and make extracts from the books of
account of the Surety and its Subsidiaries and to discuss the affairs,
finances and accounts of the Surety and its Subsidiaries with, and to be
advised as to the same by, its and their Officers at all such reasonable times
and intervals as the Lender shall desire; provided, however, that the Lender
shall at all times preserve the confidentiality of all information and
documents which it obtains or which come into its possession pertaining to the
Surety and its Subsidiaries, shall use such information and documents only
with respect to its management of the lending relationship with the Companies
and shall not share, disclose, divulge or otherwise publish or make known such
information or documents to any other Person nor use such information or
documents to compete in any manner with the Surety or either of the Companies.
5.9 Minimum Tangible Net Worth. The Surety and the Companies shall
maintain on a consolidated basis a minimum Tangible Net Worth of Twenty-One
Million Dollars ($21,000,000.00).
5.10 Debt/Tangible Net Worth Ratio. The consolidated total debt of the
Surety and the Companies to the Tangible Net Worth of the Surety and the
Companies shall not exceed a ratio of seven to one (7.0 to 1.0).
5.11 Cash Flow Ratio. The Surety and its Subsidiaries, including the
Companies, on a consolidated basis, shall maintain a Cash Flow Ratio of at
least one to one (1.0 to 1.0) as measured for the immediately preceding four
(4) fiscal quarters.
5.12 Compliance with Laws. The Surety shall comply with all laws, rules,
regulations and decrees to which the Surety is subject and a violation of
which would have a material, adverse effect on the financial condition of the
Surety.
ARTICLE 6
NEGATIVE COVENANTS
The Surety covenants that, from the date of this Suretyship until the
termination of the Credit Facility and payment in full of all amounts owing
under all Notes and Prior Notes, unless the Lender shall otherwise consent in
writing:
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6.1 Subordinated Intercompany Debt. Neither the Surety, nor any of its
Subsidiaries, shall at any time borrow any funds from HAI, either of the
Companies or any Subsidiary of either the Surety or either of the Companies
which shall not constitute Subordinated Intercompany Debt.
6.2 Merger. The Surety shall not enter into any merger or consolidation
with any Person; provided, however, that if no Default shall have occurred and
be continuing, the Surety may merge or consolidate with either Company or any
Subsidiary of either Company or the Surety.
6.3 Transfer of Assets. The Surety shall not sell, lease or otherwise
transfer or dispose of all of its assets nor shall the Surety sell, lease or
otherwise transfer or dispose of any substantial part of its assets except in
the usual and ordinary course of its business; as used in this Subsection, the
words "substantial part of its assets" shall mean at least twenty-five percent
(25%) of the assets of the Surety computed on the basis of the applicable book
value thereof.
6.4 Loans/Investments/Guaranties. On or after the date hereof, the Surety
shall not make, nor permit any Subsidiary to make, any loans to or investments
in any other Person or to guarantee the obligation of or otherwise become
liable for the indebtedness of any other Person except:
(a) either the Surety or any Subsidiary of the Surety may:
(i) make Contracts in the ordinary course of business;
(ii) make loans to or investments in, or guarantee the obligation
of, either of the Companies or any Subsidiary of the Surety or either
of the Companies which has as its principal activity the acquisition
or purchase of Contracts;
(iii) make loans to or investments in, or guarantee the obligation
of, any other Person acquired by the Surety or any of its Subsidiaries
which has as its principal activity the acquisition or purchase of
Contracts;
(iv) make investments in interest bearing obligations of, or
obligations guaranteed by, the United States of America;
(b) AELH shall be permitted to make loans to AEL and shall be
permitted to make investments in marketable securities, which investments
in the aggregate at any one (1) time do not exceed five percent (5%) of
the consolidated assets of the Surety and its Subsidiaries.
6.5 Related Persons. Except as set forth in Section 6.6 hereof, on or
after the date hereof, the Surety shall not:
(a) make any loan to, investment in or any Contract with any Related
Person;
(b) guarantee, become a surety for or otherwise become liable for the
indebtedness of any Related Person.
ARTICLE 7
DEFAULT AND REMEDIES
7.1 Default. The occurrence of any of the following shall constitute a
Default by the Surety under this Suretyship:
(a) Failure by the Surety to pay to the Lender any amount due pursuant
to this Suretyship, and the continuance of such failure for a period of
ten (10) days after receipt by the Surety of notice from the Lender
pertaining thereto.
(b) The incorrectness in any material and adverse respect of any
representation by the Surety, and the failure by the Surety to cure such
incorrectness within fifteen (15) days of receipt by the Surety of notice
from the Lender pertaining thereto.
(c) The failure by either of the Companies to maintain and observe the
covenants contained in Subsections 5.10, 5.11, 5.12, 6.2 or 6.3 of the
Agreement or the failure by the Surety
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to maintain and observe the covenants contained in Subsections 5.9, 5.10
or 5.11 of this Suretyship and the failure by either of the Companies or
the Surety, as applicable, to appropriately cure the same or cause the
same to be cured by prepaying such of its indebtedness under the Unsecured
Funding Program or taking such other steps or causing such steps to be
taken as are necessary to effect such cure, such prepayment or other steps
to be completed within fifteen (15) days of receipt of knowledge by either
of the Companies or the Surety, as applicable, of such failure to maintain
and observe the said covenants, or receipt by either of the Companies or
the Surety, as applicable, of such failure to maintain and observe the
said covenants, or receipt by either of the Companies or Surety, as
applicable, of notice from the Lender pertaining thereto, whichever shall
first occur.
(d) Failure by the Surety to observe or perform any of the provisions
contained in this Suretyship other than those referred to in Subsections
(a) through and including (c) of this Section which the Surety is required
to observe or perform, and the continuance of such failure for a period of
thirty (30) days following receipt by the Surety of notice with respect
thereto from the Lender.
(e) Filing by the Surety of a voluntary petition in bankruptcy or a
voluntary petition or application seeking reorganization, arrangement or
readjustment of its debts or for any other relief under the Bankruptcy
Code, or under any other insolvency act or law, state or federal, now or
hereafter existing, or any formal written consent to, approval of, or
acquiescence in any such petition or proceeding by the Surety; the
application by the Surety for the appointment of, or the appointment by
consent of the Surety of, or acquiescence by the Surety in the appointment
of, a receiver or trustee for the Surety or for all or any substantial
part of its assets; the making by the Surety of an assignment for the
benefit of its creditors.
(f) Other than as a result of any Public Offering:
(i) HAI ceases to be the owner of more than fifty percent (50%) of
the issued and outstanding capital stock of the Surety; or
(ii) the Surety ceases to be the owner of more than fifty percent
(50%) of the then issued and outstanding capital stock of either of
the Companies.
(g) The filing of an involuntary petition against the Surety in
bankruptcy or seeking reorganization, arrangement or readjustment of its
debts or for any other relief under the Bankruptcy Code or under any other
insolvency act or law, state or federal, now or hereafter existing; or the
involuntary appointment of a receiver or trustee for the Surety or for all
or any substantial part of its assets; and the continuance of any such
event set forth above in this Subsection undismissed, unbonded,
undischarged or otherwise uncontested for a period of thirty (30) days
following receipt by the Surety of notice with respect thereto.
(h) Any breach, violation or default by the Surety under any
agreement, note or other instrument to which it is a party pertaining to
monies borrowed by it and the failure of the Surety to cure the same
within any applicable grace period which results in the acceleration of
such indebtedness in an amount in excess of an amount equal to one percent
(1%) of the value of the consolidated assets of the Surety and its
Subsidiaries.
(i) Any Event of Default under the Agreement.
(j) The revocation or attempted revocation by the Surety of any of its
obligations to the Lender under this Suretyship.
7.2 Remedies. If a Default shall have occurred and be continuing, the
Lender shall have the right to exercise any one or more of the following
remedies against the Surety:
(a) To declare any and all existing Loans to be immediately due and
payable.
(b) To exercise such other rights and remedies as are by law, in
equity or by statute permitted.
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Notwithstanding anything to the contrary contained in this Suretyship, should
a Default referred to in Section 7.1(e) or 7.1(g) occur, the remedy of the
Lender set forth in Subsection (a) hereof shall be deemed to have been
exercised by the Lender concurrently with the occurrence of such Default and
without further action on behalf of the Lender.
7.3 Remedies Cumulative. All rights and remedies of the Lender hereunder
or by law, equity or statute permitted are cumulative and may, to the extent
permitted by applicable law, be exercised concurrently or separately. The
exercise of any one right or remedy shall not be deemed to be an exclusive
election of such right or remedy.
7.4 Waiver of Default. The Lender may, at any time and from time to time,
execute and deliver to the Surety a written instrument waiving, on such terms
and conditions as the Lender may specify in such written instrument, any of
the requirements of this Suretyship or any Default and its consequences,
provided that any such waiver shall be for such period of time and subject to
such conditions as shall be specified in any such instrument. No such waiver
shall extend to any subsequent or other Default, or impair any right
consequent thereto and shall be effective only in the specific instance and
for the specific purpose for which given.
ARTICLE 8
MISCELLANEOUS PROVISIONS
8.1 Place of Payment. All payments to be made by the Surety pursuant to
this Suretyship shall be made to the Lender at the address set forth in
Section 8.2 hereof or at such other address as the Lender shall hereafter
specify by notice to the Surety.
8.2 Notice. All notices referred to in this Suretyship shall be in
writing and delivered in person, shall be mailed by certified mail, postage
prepaid, or shall be sent by nationally recognized overnight courier to such
party. The applicable addresses for all notices shall be:
To Surety:
American Equipment Leasing Co., Inc.
Flying Hills Corporate Center
P.O. Box 13428
Reading, PA 19612-3428
Attn: Chief Funding Officer
To Lender:
Maryland National Bank
P.O. Box 987, MS 021604
Baltimore, MD 21202
Attention: Laura L. Gamble, Vice President
unless the same shall be changed by like notice by any party to the other.
8.3 Accounting Principles. Except as otherwise provided, all computations
which are to be made under this Suretyship shall be in accordance with
generally accepted accounting principles and practices.
8.4 Waiver of Jury Trial. THE SURETY WAIVES TRIAL BY JURY IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH OR ARISING OUT OF
THIS SURETYSHIP OR THE VALIDITY, INTERPRETATION AND ENFORCEMENT HEREOF OR
THEREOF.
8.5 Gender/Number. When the sense so requires, words which are used in
this Suretyship or the documentation referred to herein shall be deemed to be
applicable to all genders and when used in the singular number shall be held
to include the plural and vice versa.
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8.6 Construction. This Suretyship and the documents referred to herein
are entered into subsequent to negotiations among the parties and shall not be
strictly construed against the preparing party.
8.7 Additional Documents/Assurances. At any time, and from time to time,
upon request by any of the parties hereto, the other parties hereto shall
execute, deliver and acknowledge, or cause to be executed, delivered and
acknowledged, such further documents and shall do such other acts and things
as the requesting party may reasonably require in order to fully effect the
purposes and intent of this Suretyship.
8.8 Benefit. This Suretyship and the documents referred to herein shall
be binding upon and inure to the benefit of the Surety and the Lender and
their respective successors and, to the extent permitted herein, assigns.
8.9 Assignment. Neither the Surety nor the Lender shall have the right to
assign or delegate this Suretyship or the documents referred to herein or any
rights or duties hereunder or thereunder without the prior written consent of
the other, which consent shall not be unreasonably withheld; provided,
however, that the Lender, if a bank, may assign or participate all or any part
of its interest herein to any other bank which is a subsidiary of any entity
of which the Lender is also a subsidiary without the prior written consent of
the Surety.
8.10 Severability. If any provision of this Suretyship or any document
referred to herein, or the application thereof to any party or circumstance,
be held invalid or unenforceable, the remainder of this Suretyship and the
documents referred to herein, and the application of such provision to other
parties or circumstances, shall not be affected thereby and to this end, the
provisions of this Agreement and the documentation referred to herein are
declared severable.
8.11 Integration. This Suretyship and the documents referred to herein
contain the entire understanding between the Surety and the Lender with
respect to the subject matter hereof and such understanding shall not be
amended, modified or terminated except in writing and duly executed on behalf
of the Surety and the Lender.
8.12 Captions. The captions of each of the Sections of this Suretyship do
not constitute a part of this Suretyship but are for informational purposes
only.
8.13 Counterparts. This Suretyship may be executed in two (2) or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute but one and the same instrument.
8.14 Jurisdiction. The Surety irrevocably submits to the jurisdiction of
any state or federal court sitting in the State of Maryland over any
proceeding arising out of this Suretyship and irrevocably waives, to the
fullest extent permitted by law, any objection that it may ever have to the
laying of jurisdiction or venue in any such proceeding in any such court and
any claim that any such proceeding brought in any such court has been brought
in an inconvenient forum.
8.15 Law. This Suretyship and the documentation referred to herein shall
be governed by and construed in accordance with the laws of the Commonwealth
of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed this Suretyship as of
the day and year first above written.
AMERICAN EQUIPMENT LEASING CO., INC.
By:---------------------------------------
Attest:---------------------------------------
MARYLAND NATIONAL BANK
By:---------------------------------------
Attest:---------------------------------------
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EXHIBIT G
COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he is of
American Equipment Leasing Co., Inc. (Surety), AEL Leasing Co., Inc. (AEL),
and American Commercial Credit Corp. (ACCC) (AEL and ACCC being hereinafter
individually referred to as "Company" and collectively referred to as
"Companies"), and, as such, is authorized to execute this Compliance
Certificate on behalf of each Company, pursuant to Loan Agreements among AEL,
ACCC and each of the Participant Lenders. Each capitalized term used herein
which is defined in the applicable Loan Agreement ("Loan Agreement") or the
applicable Suretyship ("Suretyship") shall have the meaning set forth in the
Loan Agreement or Suretyship, as applicable. The undersigned hereby certifies,
to the best of his knowledge and belief, based upon a review made under his
supervision, that:
I. Each Company has performed and observed all of its obligations under the
Loan Agreement, the Notes or any of the other loan documents applicable to the
Company. No Event of Default under the Loan Agreement or Default under the
Suretyship has occurred.
II. Set forth below are the calculations necessary to demonstrate each
Company's compliance with the financial covenants contained in the Loan
Agreement, in each case as of the date of the balance sheet furnished
contemporaneously with this Certificate (the "Balance Sheet Date"):
AMERICAN EQUIPMENT LEASING CO., INC.:
(A) Cash Flow Ratio.
See Section 5.11 of the Suretyship.
(B) Ratio of Total Consolidated Debt to Consolidated Tangible Net Worth.
See Section 5.10 of the Suretyship.
(C) Minimum Consolidated Tangible Net Worth.
See Section 5.9 of the Suretyship.
AEL LEASING CO., INC.:
(D) Ratio of Total Debt to Tangible Net Worth.
See Section 5.11 of the Loan Agreement.
AMERICAN COMMERCIAL CREDIT CORP.:
(E) Ratio of Total Debt to Tangible Net Worth.
See Section 5.11 of the Loan Agreement.
The undersigned has issued this Certificate to the Lender under the Loan
Agreements, knowing that the Lender will rely upon the accuracy of the
statements made herein.
IN WITNESS WHEREOF, the undersigned has signed and sealed this Certificate
this day of , 199 .
AMERICAN EQUIPMENT LEASING CO., INC.
AEL LEASING CO., INC.
AMERICAN COMMERCIAL CREDIT CORP.
By: ---------------------------------------
Title: ---------------------------------------
1
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this first (1st) day of January 1994, by and between
Horrigan American, Inc. (hereinafter called "Company") and Arthur A.
Haberberger (hereinafter called "Officer").
Background
The Company is presently engaged primarily in the business of diversified
financial services. The Officer is presently serving as President and Chief
Executive Officer of the Company.
During the course of his employment by the Company, the Officer has acquired
valuable experience, knowledge, expertise, and management skills. It is the
desire of both the Company and the Officer that the employment relationship
existing between them continue to the mutual benefit of each.
W I T N E S S E T H :
1. Employment and Duties. The Company hereby employs the Officer to perform
such duties as may be determined and assigned to him by his immediate
supervisor.
2. Performance. The Officer agrees to devote all of his working time and
best efforts to the performance of his duties as President and Chief
Executive Officer and to the performance of other such duties as are
assigned to him from time to time by his immediate supervisor.
3. Term. Except in the case of earlier termination, as hereinafter
specifically provided, the term of this Agreement shall be from January 1,
1994, through December 31, 1994; provided, however, that this Agreement
shall be extended by one calendar day for each expired calendar day after
January 1, 1994, until December 31, 1994, with the alternate termination
of this Agreement not later than December 31, 1995. Notwithstanding the
foregoing extension of the Agreement, the Company and the Officer may
mutually agree to renegotiate this Agreement or enter into a new Agreement
after December 31, 1994.
4. Compensation. Compensation, wherever used in this Agreement, shall mean
all base compensation and all earned incentive compensation.
(a) For all the services to be rendered by the Officer in any capacity
hereunder, including services as an officer, member of any committee,
or any other duties assigned to him by his immediate supervisor, the
Company agrees to pay the Officer a base salary of $125,000 per
annum, payable in equal semi-monthly installments on the fifteenth
(15th) and last day of each month. The Company, at its option, may
increase the Officer's compensation at any time at its convenience.
(b) The Company further agrees to pay the Officer incentive compensation
according to the following program:
HAI Super Hurdle Plan
HAI Hurdle Plan
AEL/ACC/AELH Hurdle Plan
ARE, AEL Funding, and HAI Investment Hurdle Plan
Phantom Stock Plan
5. Life Insurance. The Officer agrees that the Company, at its discretion,
may apply for and procure in its own name and for its own benefit, life
insurance in any amount or amounts considered advisable and that the
Officer shall have no right, title, or interest therein; and, further, he
agrees to submit to any reasonable medical or other examination and to
execute and deliver any application or other instrument, in writing,
necessary to effectuate such insurance.
6. Business Expenses. Consistent with established Company policy, the
Company will compensate the Officer for his eligible business expenses to
include: travel, meals, and miscellaneous expenses incurred locally; and
travel, meals, lodging, and miscellaneous expenses incurred while the
Officer is away on business. Such reimbursement shall be made by the
Company upon submission of a signed statement by the Officer itemizing
such expenses.
7. Termination.
(a) Voluntary Company Termination: The Company may terminate this
Agreement at any time upon two (2) months' notice to the Officer; and
the Company shall be obligated to pay the Officer two (2) months'
compensation plus one (1) month's compensation pro-rated for each two
(2) years of continuous service as an Officer (vice president or
above) of the Company or any affiliated sister company, up to a
maximum of ten (10) additional months' compensation. A month's
compensation shall be determined as the greater of:
(1) The combined total of one-sixth (1/6) of the base compensation
which was paid to the Officer during the prior six (6) month
period and one-twelfth (1/12) of any incentive compensation
which was paid to the Officer during the prior twelve (12) month
period or
(2) The combined total of one-sixth (1/6) of the base compensation
which was paid to the Officer during the prior six-month period
and a pro rata share, based upon the number of full weeks
worked, of any incentive compensation due and owing for the year
in which the Officer is terminated.
If the Officer is separated by the Company in accordance with
Paragraph 7(a), it is expressly understood that it is not a
termination of employment as defined in 7(c) herein.
(b) Voluntary Officer Termination: The Officer may terminate this
Agreement at any time upon two (2) months' notice to the Company, and
the Company shall be obligated to pay to the Officer two (2) months'
compensation. A month's compensation shall be determined as defined
in 7(a).
(c) Involuntary Company Termination: The Company may also terminate this
Agreement on one (1) day's notice, if the termination is for any of
the following employment-related causes, and, in that event, the
Company shall not be obligated to pay the Officer any further
compensation:
(c-1) Willful failure or refusal of the Officer to adequately
perform the duties and obligations of his employment, if
such willful failure or refusal is determined upon review
by an arbitration committee of three (3) Officers appointed
by the Chief Human Resources Officer.
(c-2) Any breach by the Officer of the provisions of this
Agreement, if such breach is determined upon review by an
arbitration committee of three (3) Officers appointed by
the Chief Human Resources Officer.
(c-3) Conviction of the Officer for any felony or other criminal
offense involving dishonesty or moral turpitude which is
related to his employment with the Company or to his duties
as an Officer;
(c-4) Other just cause, if such just cause is determined upon
review by an arbitration committee of three (3) Officers
appointed by the Chief Human Resources Officer.
8. Death.
(a) In the event of the Officer's death during the term of this
Agreement, it shall terminate immediately. Unless the Officer has
left a different designation on file with the Company, the Officer's
surviving spouse or, if there is no surviving spouse, the minor
children (to include all children who are full-time students
regardless of age) or, if there are no surviving children, the
Officer's estate shall be entitled to receive six (6) months'
compensation due the Officer. A month's compensation shall be
determined as defined in paragraph 7(a). This compensation shall be
paid in equal monthly installments, commencing the first of the month
following the Officer's death, and shall be paid proportionately over
a period of eighteen (18) months.
(b) In addition, should the Officer at any time die while a party to this
Agreement, the Company shall pay within three (3) months after the
date of the Officer's death, a death benefit of Five Thousand Dollars
($5,000.00) to the Officer's surviving spouse or, if there is no
surviving spouse, to the surviving children in equal shares or, if
there are no surviving children, to the Officer's estate, unless the
Officer has left a different designation on file with the Company.
9. Disability. If, during the term of this Agreement, the Officer should
fail to perform his duties hereunder on account of illness or other
incapacity, and such illness or incapacity shall continue for a period of
six (6) months, the Company shall have the right to terminate this
Agreement. In that event, the Company shall be obligated to pay the
Officer his compensation up to the date of termination. Such compensation
may be reduced by the amount of any proceeds received by the Officer from
any Company-funded program such as disability insurance, Worker's
Compensation, or Social Security, during the six (6) month period.
10. Discontinuance of Business. If, during the term of this Agreement, the
Company should involuntarily discontinue or interrupt the operation of its
business for a period of one (1) month, this Agreement shall automatically
terminate without further liability on the part of either the parties
hereto.
11. Restrictions.
(a) The Officer acknowledges that:
(a-1) During the course of his employment with the Company and
during the term of this Agreement, the Officer has and
shall continue to have access to learn, be provided with,
prepare, or create Confidential Information, all of which
is of substantial value to the Company's business and the
disclosure of which would be harmful to the Company.
(a-2) In the event, either during the term of this Agreement or
any time thereafter, the Officer should disclose to any
other person or entity any such Confidential Information,
use for the Officer's own benefit or for the benefit of any
other person or entity any such Confidential Information,
or make copies or notes of any such Confidential
Information except as may be required in the normal course
of the Officer's duties, such conduct would be inconsistent
with and a breach of the confidence and trust inherent in
the Officer's position with the Company, unless such
information has already become common knowledge, or unless
the Officer is compelled to disclose such information by
governmental process.
(b) During the term of this Agreement, the Officer agrees to devote all
of his working time and best efforts to further the interests of the
Company, and he shall not directly or indirectly, alone or as a
partner, officer, director, or stockholder of any other institution,
be engaged in any other commercial activity whatsoever, or continue
or assume any other corporate affiliations without the consent of the
Board of Directors of the Company.
EXCEPTION: It shall not be deemed a violation of this Agreement for
the Officer to engage in independent consulting activities including
Corporate Directorships for third party companies and individuals,
and to retain the compensation therefore for his individual use,
providing such consultation does not involve services and advice
given to any firm or company on the activities and business of this
Company or any of its subsidiaries or affiliates, and further
provided such consultation is not with a customer or competitor of
the Company without the prior written approval of the Board of
Directors of Company. It is further understood that such consulting
shall be on personal time.
(c) The Officer acknowledges:
(c-1) The Company's products and services are highly specialized
items.
(c-2) The Company has a proprietary interest in the identity of
its customers and customer lists.
(c-3) During the term of this Agreement, the Officer will have
access to and become familiar with various trade secrets
and highly confidential information of the Company,
including but not necessarily limited to, documents and
information regarding the Company's services, systems,
lease and financing programs, re-marketing programs, sales,
pricing, costs, specialized requirements of customers,
prospective applicants for employment, current employees,
information recorded on present or past credit
applications, current or past financing vehicles or
products by and between the Company and the banking
community or related community, internal managerial
accounting systems, and information systems. The Officer
acknowledges that such confidential information and trade
secrets are owned and shall continue to be owned solely by
the Company.
(d) The Officer covenants to the Company that for a period of one (1)
year following the date of Termination of Employment, as defined in
Paragraph 7 of this Agreement, he shall not, either directly or
indirectly, or through any person or other entity, or by any other
means:
(d-1) Use confidential information or trade secrets for any
purpose whatsoever or divulge such information to any
person other than the Company or persons to whom the
Company has given consent, unless such information has
already become common knowledge, or unless the Officer is
compelled to disclose such information by governmental
process.
(d-2) Directly or indirectly solicit or sell any of the Company's
products or services to any person, company, firm, or
corporation who is or was a customer of the Company
(customer is defined as dealer, manufacturer, vendor,
borrower, lessee, or any other person or entity who deals
with the Company in its normal course of business) at the
time of termination of the Officer's employment. The
Officer agrees not to solicit such customers on behalf of
himself or any other person, company, firm, or corporation.
(e) In the event that a court of competent jurisdiction determines that
the provisions of paragraph 11(c) and 11(d), or any part thereof, are
invalid or unenforceable by reason of overly broad territorial or
excessive time restrictions or otherwise, then the parties to the
Agreement request such court to modify such restrictions or paragraph
to the extent necessary in order that the same shall be valid and
enforceable and to enforce the same to that extent.
(f) Upon his separation of employment for any reason, the Officer shall
immediately deliver to the Company all documentation and other
property which belongs to the Company which pertains to the business
or financial affairs of the Company.
(g) The parties to this Agreement acknowledge that any breach, violation,
or default by the Officer of the provisions contained in paragraphs
11(d) and 11(f) of this Agreement would result in irreparable harm
and damage to the Company, which harm and damage would be extremely
difficult to quantify and, accordingly, the Officer consents to the
jurisdiction of a court of equity and (1) the entry of an injunction,
temporary or permanent, enjoining the Officer from competing with the
Company in violation of the provisions of paragraph 11(d) hereof, and
(2) the entry by said court of an order requiring the Officer to
deliver to the Company documentation or other property which belongs
to the Company as required in paragraph 11(f).
12. Benefits. The Company agrees to provide the Officer during the term of
this Agreement such additional benefits, commonly known as "employee
benefits," which are generally extended by the Company to its Officers.
Notwithstanding the foregoing and provided the Officer remains employed by
the Company, all employee benefits received by the Officer at the time of
the effective date of this Agreement shall be maintained throughout the
term of this Agreement, unless expressly prohibited by law or unless any
or all such employee benefits are discontinued, decreased, or in any way
modified by the Company for all Officers, for all persons serving in a
capacity similar to that of the Officer, or for all employees of the
Company. Employee benefits include, but are not limited to, holidays,
vacations, health insurance, life/accidental death insurance, long-term
disability insurance, short-term disability benefits, expense supplement
plan, educational assistance program, employee assistance program, health
maintenance organization, sick leave, Christmas cash bonus, and service
recognition awards. Any intended modification of employee benefits as
defined herein will be in writing.
13. Stock Options. If this Agreement is terminated for any reason, the
Company will extend to the Officer a period of sixty (60) calendar days,
during which the Officer shall have the right to exercise any stock
options, in whole or in part, as may have been granted under the Horrigan
American, Inc., Stock Option Agreements.
14. Effect of Waiver. The waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
15. Arbitration. Any controversy arising from or related to this Agreement
shall be determined by arbitration in the City of Reading in accordance
with the rules of the American Arbitration Association, and judgment upon
any such determination or award may be entered in any court having
jurisdiction.
16. Notice. Any and all notices referred to herein shall be sufficient if
furnished in writing and sent by registered mail to the representative
parties at the address subscribed below following their signatures to this
Agreement.
17. Assignment. The rights and benefits of the Company under this Agreement
shall be transferable, and all covenants and agreements hereunder shall
inure to the benefits of and be enforceable by or against its successors
and assigns.
____________________________ _________________________
Horrigan American, Inc. Officer
Flying Hills Corporate Center
Reading, Pennsylvania 19607
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this first (1st) day of January 1994, by and between
Horrigan American, Inc. (hereinafter called "Company") and J. F. Horrigan, Jr.
(hereinafter called "Officer").
Background
The Company is presently engaged primarily in the business of diversified
financial services. The Officer is presently serving as Chairman of the Board.
During the course of his employment by the Company, the Officer has acquired
valuable experience, knowledge, expertise, and management skills. It is the
desire of both the Company and the Officer that the employment relationship
existing between them continue to the mutual benefit of each.
W I T N E S S E T H :
1. Employment and Duties. The Company hereby employs the Officer to perform
such duties as may be determined and assigned to him by his immediate
supervisor.
2. Performance. The Officer agrees to devote all of his working time and
best efforts to the performance of his duties as Chairman of the Board and
to the performance of other such duties as are assigned to him from time
to time by his immediate supervisor.
3. Term. Except in the case of earlier termination, as hereinafter
specifically provided, the term of this Agreement shall be from January 1,
1994, through December 31, 1994; provided, however, that this Agreement
shall be extended by one calendar day for each expired calendar day after
January 1, 1994, until December 31, 1994, with the alternate termination
of this Agreement not later than December 31, 1995. Notwithstanding the
foregoing extension of the Agreement, the Company and the Officer may
mutually agree to renegotiate this Agreement or enter into a new Agreement
after December 31, 1994.
4. Compensation. Compensation, wherever used in this Agreement, shall mean
all base compensation and all earned incentive compensation.
(a) For all the services to be rendered by the Officer in any capacity
hereunder, including services as an officer, member of any committee,
or any other duties assigned to him by his immediate supervisor, the
Company agrees to pay the Officer a base salary of $120,000 per
annum, payable in equal semi-monthly installments on the fifteenth
(15th) and last day of each month. The Company, at its option, may
increase the Officer's compensation at any time at its convenience.
(b) The Company further agrees to pay the Officer incentive compensation
according to the following program:
HAI Super Hurdle Plan
HAI Hurdle Plan
AEL/ACC/AELH Hurdle Plan
ARE, AEL Funding, and HAI Investment Hurdle Plan
Phantom Stock Plan
5. Life Insurance. The Officer agrees that the Company, at its discretion,
may apply for and procure in its own name and for its own benefit, life
insurance in any amount or amounts considered advisable and that the
Officer shall have no right, title, or interest therein; and, further, he
agrees to submit to any reasonable medical or other examination and to
execute and deliver any application or other instrument, in writing,
necessary to effectuate such insurance.
6. Business Expenses. Consistent with established Company policy, the
Company will compensate the Officer for his eligible business expenses to
include: travel, meals, and miscellaneous expenses incurred locally; and
travel, meals, lodging, and miscellaneous expenses incurred while the
Officer is away on business. Such reimbursement shall be made by the
Company upon submission of a signed statement by the Officer itemizing
such expenses.
7. Termination.
(a) Voluntary Company Termination: The Company may terminate this
Agreement at any time upon two (2) months' notice to the Officer; and
the Company shall be obligated to pay the Officer two (2) months'
compensation plus one (1) month's compensation pro-rated for each two
(2) years of continuous service as an Officer (vice president or
above) of the Company or any affiliated sister company, up to a
maximum of ten (10) additional months' compensation. A month's
compensation shall be determined as the greater of:
(1) The combined total of one-sixth (1/6) of the base compensation
which was paid to the Officer during the prior six (6) month
period and one-twelfth (1/12) of any incentive compensation
which was paid to the Officer during the prior twelve (12) month
period or
(2) The combined of one-sixth (1/6) of the base compensation which
was paid to the Officer during the prior six-month period and a
pro rata share, based upon the number of full weeks worked, of
any incentive compensation due and owing for the year in which
the Officer is terminated. If the Officer is separated by the
Company in accordance with Paragraph 7(a), it is expressly
understood that it is not a termination of employment as defined
in 7(c) herein.
(b) Voluntary Officer Termination: The Officer may terminate this
Agreement at any time upon two (2) months' notice to the Company, and
the Company shall be obligated to pay to the Officer two (2) months'
compensation. A month's compensation shall be determined as defined
in 7(a).
(c) Involuntary Company Termination: The Company may also terminate this
Agreement on one (1) day's notice, if the termination is for any of
the following employment-related causes, and, in that event, the
Company shall not be obligated to pay the Officer any further
compensation:
(c-1) Willful failure or refusal of the Officer to adequately
perform the duties and obligations of his employment, if
such willful failure or refusal is determined upon review
by an arbitration committee of three (3) Officers appointed
by the Chief Human Resources Officer.
(c-2) Any breach by the Officer of the provisions of this
Agreement, if such breach is determined upon review by an
arbitration committee of three (3) Officers appointed by
the Chief Human Resources Officer.
(c-3) Conviction of the Officer for any felony or other criminal
offense involving dishonesty or moral turpitude which is
related to his employment with the Company or to his duties
as an Officer;
(c-4) Other just cause, if such just cause is determined upon
review by an arbitration committee of three (3) Officers
appointed by the Chief Human Resources Officer.
8. Death.
(a) In the event of the Officer's death during the term of this
Agreement, it shall terminate immediately. Unless the Officer has
left a different designation on file with the Company, the Officer's
surviving spouse or, if there is no surviving spouse, the minor
children (to include all children who are full-time students
regardless of age) or, if there are no surviving children, the
Officer's estate shall be entitled to receive six (6) months'
compensation due the Officer. A month's compensation shall be
determined as defined in paragraph 7(a). This compensation shall be
paid in equal monthly installments, commencing the first of the month
following the Officer's death, and shall be paid proportionately over
a period of eighteen (18) months.
(b) In addition, should the Officer at any time die while a party to this
Agreement, the Company shall pay within three (3) months after the
date of the Officer's death, a death benefit of Five Thousand Dollars
($5,000.00) to the Officer's surviving spouse or, if there is no
surviving spouse, to the surviving children in equal shares or, if
there are no surviving children, to the Officer's estate, unless the
Officer has left a different designation on file with the Company.
9. Disability. If, during the term of this Agreement, the Officer should
fail to perform his duties hereunder on account of illness or other
incapacity, and such illness or incapacity shall continue for a period of
six (6) months, the Company shall have the right to terminate this
Agreement. In that event, the Company shall be obligated to pay the
Officer his compensation up to the date of termination. Such compensation
may be reduced by the amount of any proceeds received by the Officer from
any Company-funded program such as disability insurance, Worker's
Compensation, or Social Security, during the six (6) month period.
10. Discontinuance of Business. If, during the term of this Agreement, the
Company should involuntarily discontinue or interrupt the operation of its
business for a period of one (1) month, this Agreement shall automatically
terminate without further liability on the part of either the parties
hereto.
11. Restrictions.
(a) The Officer acknowledges that:
(a-1) During the course of his employment with the Company and
during the term of this Agreement, the Officer has and
shall continue to have access to learn, be provided with,
prepare, or create Confidential Information, all of which
is of substantial value to the Company's business and the
disclosure of which would be harmful to the Company.
(a-2) In the event, either during the term of this Agreement or
any time thereafter, the Officer should disclose to any
other person or entity any such Confidential Information,
use for the Officer's own benefit or for the benefit of any
other person or entity any such Confidential Information,
or make copies or notes of any such Confidential
Information except as may be required in the normal course
of the Officer's duties, such conduct would be inconsistent
with and a breach of the confidence and trust inherent in
the Officer's position with the Company, unless such
information has already become common knowledge, or unless
the Officer is compelled to disclose such information by
governmental process.
(b) During the term of this Agreement, the Officer agrees to devote all
of his working time and best efforts to further the interests of the
Company, and he shall not directly or indirectly, alone or as a
partner, officer, director, or stockholder of any other institution,
be engaged in any other commercial activity whatsoever, or continue
or assume any other corporate affiliations without the consent of the
Board of Directors of the Company.
EXCEPTION: It shall not be deemed a violation of this Agreement for
the Officer to engage in independent consulting activities including
Corporate Directorships for third party companies and individuals,
and to retain the compensation therefore for his individual use,
providing such consultation does not involve services and advice
given to any firm or company on the activities and business of this
Company or any of its subsidiaries or affiliates, and further
provided such consultation is not with a customer or competitor of
the Company without the prior written approval of the Board of
Directors of Company. It is further understood that such consulting
shall be on personal time.
(c) The Officer acknowledges:
(c-1) The Company's products and services are highly specialized
items.
(c-2) The Company has a proprietary interest in the identity of
its customers and customer lists.
(c-3) During the term of this Agreement, the Officer will have
access to and become familiar with various trade secrets
and highly confidential information of the Company,
including but not necessarily limited to, documents and
information regarding the Company's services, systems,
lease and financing programs, re-marketing programs, sales,
pricing, costs, specialized requirements of customers,
prospective applicants for employment, current employees,
information recorded on present or past credit
applications, current or past financing vehicles or
products by and between the Company and the banking
community or related community, internal managerial
accounting systems, and information systems. The Officer
acknowledges that such confidential information and trade
secrets are owned and shall continue to be owned solely by
the Company.
(d) The Officer covenants to the Company that for a period of one (1)
year following the date of Termination of Employment, as defined in
Paragraph 7 of this Agreement, he shall not, either directly or
indirectly, or through any person or other entity, or by any other
means:
(d-1) Use confidential information or trade secrets for any
purpose whatsoever or divulge such information to any
person other than the Company or persons to whom the
Company has given consent, unless such information has
already become common knowledge, or unless the Officer is
compelled to disclose such information by governmental
process.
(d-2) Directly or indirectly solicit or sell any of the Company's
products or services to any person, company, firm, or
corporation who is or was a customer of the Company
(customer is defined as dealer, manufacturer, vendor,
borrower, lessee, or any other person or entity who deals
with the Company in its normal course of business) at the
time of termination of the Officer's employment. The
Officer agrees not to solicit such customers on behalf of
himself or any other person, company, firm, or corporation.
(e) In the event that a court of competent jurisdiction determines that
the provisions of paragraph 11(c) and 11(d), or any part thereof, are
invalid or unenforceable by reason of overly broad territorial or
excessive time restrictions or otherwise, then the parties to the
Agreement request such court to modify such restrictions or paragraph
to the extent necessary in order that the same shall be valid and
enforceable and to enforce the same to that extent.
(f) Upon his separation of employment for any reason, the Officer shall
immediately deliver to the Company all documentation and other
property which belongs to the Company which pertains to the business
or financial affairs of the Company.
(g) The parties to this Agreement acknowledge that any breach, violation,
or default by the Officer of the provisions contained in paragraphs
11(d) and 11(f) of this Agreement would result in irreparable harm
and damage to the Company, which harm and damage would be extremely
difficult to quantify and, accordingly, the Officer consents to the
jurisdiction of a court of equity and (1) the entry of an injunction,
temporary or permanent, enjoining the Officer from competing with the
Company in violation of the provisions of paragraph 11(d) hereof, and
(2) the entry by said court of an order requiring the Officer to
deliver to the Company documentation or other property which belongs
to the Company as required in paragraph 11(f).
12. Benefits. The Company agrees to provide the Officer during the term of
this Agreement such additional benefits, commonly known as "employee
benefits," which are generally extended by the Company to its Officers.
Notwithstanding the foregoing and provided the Officer remains employed by
the Company, all employee benefits received by the Officer at the time of
the effective date of this Agreement shall be maintained throughout the
term of this Agreement, unless expressly prohibited by law or unless any
or all such employee benefits are discontinued, decreased, or in any way
modified by the Company for all Officers, for all persons serving in a
capacity similar to that of the Officer, or for all employees of the
Company. Employee benefits include, but are not limited to, holidays,
vacations, health insurance, life/accidental death insurance, long-term
disability insurance, short-term disability benefits, expense supplement
plan, educational assistance program, employee assistance program, health
maintenance organization, sick leave, Christmas cash bonus, and service
recognition awards. Any intended modification of employee benefits as
defined herein will be in writing.
13. Stock Options. If this Agreement is terminated for any reason, the
Company will extend to the Officer a period of sixty (60) calendar days,
during which the Officer shall have the right to exercise any stock
options, in whole or in part, as may have been granted under the Horrigan
American, Inc., Stock Option Agreements.
14. Effect of Waiver. The waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
15. Arbitration. Any controversy arising from or related to this Agreement
shall be determined by arbitration in the City of Reading in accordance
with the rules of the American Arbitration Association, and judgment upon
any such determination or award may be entered in any court having
jurisdiction.
16. Notice. Any and all notices referred to herein shall be sufficient if
furnished in writing and sent by registered mail to the representative
parties at the address subscribed below following their signatures to this
Agreement.
17. Assignment. The rights and benefits of the Company under this Agreement
shall be transferable, and all covenants and agreements hereunder shall
inure to the benefits of and be enforceable by or against its successors
and assigns.
_______________________________ _______________________________
Horrigan American, Inc. Officer
Flying Hills Corporate Center
Reading, Pennsylvania 19607
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this first (1st) day of January 1994, by and between
American Real Estate Investment and Development Co. (hereinafter called
"Company") and John F. Horrigan, III (hereinafter called "Officer").
Background
The Company is presently engaged primarily in the business of commercial real
estate investment and development. The Officer is presently serving as
President and Chief Operating Officer of the Company.
During the course of his employment by the Company, the Officer has acquired
valuable experience, knowledge, expertise, and management skills. It is the
desire of both the Company and the Officer that the employment relationship
existing between them continue to the mutual benefit of each.
W I T N E S S E T H :
1. Employment and Duties. The Company hereby employs the Officer to perform
such duties as may be determined and assigned to him by his immediate
supervisor.
2. Performance. The Officer agrees to devote all of his working time and
best efforts to the performance of his duties as President and Chief
Operating Officer and to the performance of other such duties as are
assigned to him from time to time by his immediate supervisor.
3. Term. Except in the case of earlier termination, as hereinafter
specifically provided, the term of this Agreement shall be from January 1,
1994, through December 31, 1994; provided, however, that this Agreement
shall be extended by one calendar day for each expired calendar day after
January 1, 1994, until December 31, 1994, with the alternate termination
of this Agreement not later than December 31, 1995. Notwithstanding the
foregoing extension of the Agreement, the Company and the Officer may
mutually agree to renegotiate this Agreement or enter into a new Agreement
after December 31, 1994.
4. Compensation. Compensation, wherever used in this Agreement, shall mean
all base compensation and all earned incentive compensation.
(a) For all the services to be rendered by the Officer in any capacity
hereunder, including services as an officer, member of any committee,
or any other duties assigned to him by his immediate supervisor, the
Company agrees to pay the Officer a base salary of $86,800 per annum,
payable in equal semi-monthly installments on the fifteenth (15th)
and last day of each month. The Company, at its option, may increase
the Officer's compensation at any time at its convenience.
(b) The Company further agrees to pay the Officer incentive compensation
according to the following program:
HAI Super Hurdle Plan
HAI Hurdle Plan
AEL/ACC/AELH Hurdle Plan
ARE, AEL Funding, and HAI Investment Hurdle Plan
Phantom Stock Plan
5. Life Insurance. The Officer agrees that the Company, at its discretion,
may apply for and procure in its own name and for its own benefit, life
insurance in any amount or amounts considered advisable and that the
Officer shall have no right, title, or interest therein; and, further, he
agrees to submit to any reasonable medical or other examination and to
execute and deliver any application or other instrument, in writing,
necessary to effectuate such insurance.
6. Business Expenses. Consistent with established Company policy, the
Company will compensate the Officer for his eligible business expenses to
include: travel, meals, and miscellaneous expenses incurred locally; and
travel, meals, lodging, and miscellaneous expenses incurred while the
Officer is away on business. Such reimbursement shall be made by the
Company upon submission of a signed statement by the Officer itemizing
such expenses.
7. Termination.
(a) Voluntary Company Termination: The Company may terminate this
Agreement at any time upon two (2) months' notice to the Officer; and
the Company shall be obligated to pay the Officer two (2) months'
compensation plus one (1) month's compensation pro-rated for each two
(2) years of continuous service as an Officer (vice president or
above) of the Company, up to a maximum of ten (10) additional months'
compensation. A month's compensation shall be determined as the
greater of:
(1) The combined total of one-sixth (1/6) of the base compensation
which was paid to the Officer during the prior six (6) month
period and one-twelfth (1/12) of any incentive compensation
which was paid to the Officer during the prior twelve (12) month
period or:
(2) The combined total of one-sixth (1/6) of the base compensation
which was paid to the Officer during the prior six-month period
and a pro rata share, based upon the number of full weeks
worked, of any incentive compensation due and owing for the year
in which the Officer is terminated.
If the Officer is separated by the Company in accordance with
Paragraph 7(a), it is expressly understood that it is not a
termination of employment as defined in 7(c) herein.
(b) Voluntary Officer Termination: The Officer may terminate this
Agreement at any time upon two (2) months' notice to the Company, and
the Company shall be obligated to pay to the Officer two (2) months'
compensation. A month's compensation shall be determined as defined
in 7(a).
(c) Involuntary Company Termination: The Company may also terminate this
Agreement on one (1) day's notice, if the termination is for any of
the following employment-related causes, and, in that event, the
Company shall not be obligated to pay the Officer any further
compensation:
(c-1) Willful failure or refusal of the Officer to adequately
perform the duties and obligations of his employment, if
such willful failure or refusal is determined upon review
by an arbitration committee of three (3) Officers appointed
by the Chief Human Resources Officer.
(c-2) Any breach by the Officer of the provisions of this
Agreement, if such breach is determined upon review by an
arbitration committee of three (3) Officers appointed by
the Chief Human Resources Officer.
(c-3) Conviction of the Officer for any felony or other criminal
offense involving dishonesty or moral turpitude which is
related to his employment with the Company or to his duties
as an Officer;
(c-4) Other just cause, if such just cause is determined upon
review by an arbitration committee of three (3) Officers
appointed by the Chief Human Resources Officer.
8. Death.
(a) In the event of the Officer's death during the term of this
Agreement, it shall terminate immediately. Unless the Officer has
left a different designation on file with the Company, the Officer's
surviving spouse or, if there is no surviving spouse, the minor
children (to include all children who are full-time students
regardless of age) or, if there are no surviving children, the
Officer's estate shall be entitled to receive six (6) months'
compensation due the Officer. A month's compensation shall be
determined as defined in paragraph 7(a). This compensation shall be
paid in equal monthly installments, commencing the first of the month
following the Officer's death, and shall be paid proportionately over
a period of eighteen (18) months.
(b) In addition, should the Officer at any time die while a party to this
Agreement, the Company shall pay within three (3) months after the
date of the Officer's death, a death benefit of Five Thousand Dollars
($5,000.00) to the Officer's surviving spouse or, if there is no
surviving spouse, to the surviving children in equal shares or, if
there are no surviving children, to the Officer's estate, unless the
Officer has left a different designation on file with the Company.
9. Disability. If, during the term of this Agreement, the Officer should
fail to perform his duties hereunder on account of illness or other
incapacity, and such illness or incapacity shall continue for a period of
six (6) months, the Company shall have the right to terminate this
Agreement. In that event, the Company shall be obligated to pay the
Officer his compensation up to the date of termination. Such compensation
may be reduced by the amount of any proceeds received by the Officer from
any Company-funded program such as disability insurance, Worker's
Compensation, or Social Security, during the six (6) month period.
10. Discontinuance of Business. If, during the term of this Agreement, the
Company should involuntarily discontinue or interrupt the operation of its
business for a period of one (1) month, this Agreement shall automatically
terminate without further liability on the part of either the parties
hereto.
11. Restrictions.
(a) The Officer acknowledges that:
(a-1) During the course of his employment with the Company and
during the term of this Agreement, the Officer has and
shall continue to have access to learn, be provided with,
prepare, or create Confidential Information, all of which
is of substantial value to the Company's business and the
disclosure of which would be harmful to the Company.
(a-2) In the event, either during the term of this Agreement or
any time thereafter, the Officer should disclose to any
other person or entity any such Confidential Information,
use for the Officer's own benefit or for the benefit of any
other person or entity any such Confidential Information,
or make copies or notes of any such Confidential
Information except as may be required in the normal course
of the Officer's duties, such conduct would be inconsistent
with and a breach of the confidence and trust inherent in
the Officer's position with the Company, unless such
information has already become common knowledge, or unless
the Officer is compelled to disclose such information by
governmental process.
(b) During the term of this Agreement, the Officer agrees to devote all
of his working time and best efforts to further the interests of the
Company, and he shall not directly or indirectly, alone or as a
partner, officer, director, or stockholder of any other institution,
be engaged in any other commercial activity whatsoever, or continue
or assume any other corporate affiliations without the consent of the
Board of Directors of the Company.
EXCEPTION: It shall not be deemed a violation of this Agreement for
the Officer to engage in independent consulting activities including
Corporate Directorships for third party companies and individuals,
and to retain the compensation therefore for his individual use,
providing such consultation does not involve services and advice
given to any firm or company on the activities and business of this
Company or any of its subsidiaries or affiliates, and further
provided such consultation is not with a customer or competitor of
the Company without the prior written approval of the Board of
Directors of Company. It is further understood that such consulting
shall be on personal time.
(c) The Officer acknowledges:
(c-1) The Company's products and services are highly specialized
items.
(c-2) The Company has a proprietary interest in the identity of
its customers and customer lists.
(c-3) During the term of this Agreement, the Officer will have
access to and become familiar with various trade secrets
and highly confidential information of the Company,
including but not necessarily limited to, documents and
information regarding the Company's services, systems,
lease and financing programs, re-marketing programs, sales,
pricing, costs, specialized requirements of customers,
prospective applicants for employment, current employees,
information recorded on present or past credit
applications, current or past financing vehicles or
products by and between the Company and the banking
community or related community, internal managerial
accounting systems, and information systems. The Officer
acknowledges that such confidential information and trade
secrets are owned and shall continue to be owned solely by
the Company.
(d) The Officer covenants to the Company that for a period of one (1)
year following the date of Termination of Employment, as defined in
Paragraph 7 of this Agreement, he shall not, either directly or
indirectly, or through any person or other entity, or by any other
means:
(d-1) Use confidential information or trade secrets for any
purpose whatsoever or divulge such information to any
person other than the Company or persons to whom the
Company has given consent, unless such information has
already become common knowledge, or unless the Officer is
compelled to disclose such information by governmental
process.
(d-2) Directly or indirectly solicit or sell any of the Company's
products or services to any person, company, firm, or
corporation who is or was a customer of the Company
(customer is defined as dealer, manufacturer, vendor,
borrower, lessee, or any other person or entity who deals
with the Company in its normal course of business) at the
time of termination of the Officer's employment. The
Officer agrees not to solicit such customers on behalf of
himself or any other person, company, firm, or corporation.
(e) In the event that a court of competent jurisdiction determines that
the provisions of paragraph 11(c) and 11(d), or any part thereof, are
invalid or unenforceable by reason of overly broad territorial or
excessive time restrictions or otherwise, then the parties to the
Agreement request such court to modify such restrictions or paragraph
to the extent necessary in order that the same shall be valid and
enforceable and to enforce the same to that extent.
(f) Upon his separation of employment for any reason, the Officer shall
immediately deliver to the Company all documentation and other
property which belongs to the Company which pertains to the business
or financial affairs of the Company.
(g) The parties to this Agreement acknowledge that any breach, violation,
or default by the Officer of the provisions contained in paragraphs
11(d) and 11(f) of this Agreement would result in irreparable harm
and damage to the Company, which harm and damage would be extremely
difficult to quantify and, accordingly, the Officer consents to the
jurisdiction of a court of equity and (1) the entry of an injunction,
temporary or permanent, enjoining the Officer from competing with the
Company in violation of the provisions of paragraph 11(d) hereof, and
(2) the entry by said court of an order requiring the Officer to
deliver to the Company documentation or other property which belongs
to the Company as required in paragraph 11(f).
12. Benefits. The Company agrees to provide the Officer during the term of
this Agreement such additional benefits, commonly known as "employee
benefits," which are generally extended by the Company to its Officers.
Notwithstanding the foregoing and provided the Officer remains employed by
the Company, all employee benefits received by the Officer at the time of
the effective date of this Agreement shall be maintained throughout the
term of this Agreement, unless expressly prohibited by law or unless any
or all such employee benefits are discontinued, decreased, or in any way
modified by the Company for all Officers, for all persons serving in a
capacity similar to that of the Officer, or for all employees of the
Company. Employee benefits include, but are not limited to, holidays,
vacations, health insurance, life/accidental death insurance, long-term
disability insurance, short-term disability benefits, expense supplement
plan, educational assistance program, employee assistance program, health
maintenance organization, sick leave, Christmas cash bonus, and service
recognition awards. Any intended modification of employee benefits as
defined herein will be in writing.
13. Stock Options. If this Agreement is terminated for any reason, the
Company will extend to the Officer a period of sixty (60) calendar days,
during which the Officer shall have the right to exercise any stock
options, in whole or in part, as may have been granted under the Horrigan
American, Inc., Stock Option Agreements.
14. Effect of Waiver. The waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
15. Arbitration. Any controversy arising from or related to this Agreement
shall be determined by arbitration in the City of Reading in accordance
with the rules of the American Arbitration Association, and judgment upon
any such determination or award may be entered in any court having
jurisdiction.
16. Notice. Any and all notices referred to herein shall be sufficient if
furnished in writing and sent by registered mail to the representative
parties at the address subscribed below following their signatures to this
Agreement.
17. Assignment. The rights and benefits of the Company under this Agreement
shall be transferable, and all covenants and agreements hereunder shall
inure to the benefits of and be enforceable by or against its successors
and assigns.
_______________________________ ______________________________
American Real Estate Investment Officer
and Development Co.
c/o Horrigan American, Inc.
Flying Hills Corporate Center
Reading, Pennsylvania 19607
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this first (1st) day of January 1994 by and between AEL
Leasing Co., Inc., and American Commercial Credit Corp. (hereinafter called
"Company") and Vincent A. Faino (hereinafter called "Officer").
Background
The Company is presently engaged primarily in the business of equipment leasing
and commercial lending. The Officer is presently serving as President,
American Legal Funding, and Senior Vice President, American Reli Financial, of
the Company.
During the course of his employment by the Company, the Officer has acquired
valuable experience, knowledge, expertise, and management skills. It is the
desire of both the Company and the Officer that the employment relationship
existing between them continue to the mutual benefit of each.
W I T N E S S E T H :
1. Employment and Duties. The Company hereby employs the Officer to perform
such duties as may be determined and assigned to him by his immediate
supervisor.
2. Performance. The Officer agrees to devote all of his working time and
best efforts to the performance of his duties as President, American Legal
Funding, and Senior Vice President, American Reli Financial, and to the
performance of other such duties as are assigned to him from time to time
by his immediate supervisor.
3. Term. Except in the case of earlier termination, as hereinafter
specifically provided, the term of this Agreement shall be from January 1,
1994, through December 31, 1994; provided, however, that this Agreement
shall be extended by one calendar day for each expired calendar day after
January 1, 1994, until December 31, 1994, with the alternate termination
of this Agreement not later than December 31, 1995. Notwithstanding the
foregoing extension of the Agreement, the Company and the Officer may
mutually agree to renegotiate this Agreement or enter into a new Agreement
after December 31, 1994.
4. Compensation. Compensation, wherever used in this Agreement, shall mean
all base compensation and all earned incentive compensation.
(a) For all the services to be rendered by the Officer in any capacity
hereunder, including services as an officer, member of any committee,
or any other duties assigned to him by his immediate supervisor, the
Company agrees to pay the Officer a base salary of $72,000 per annum,
payable in equal semi-monthly installments on the fifteenth (15th)
and last day of each month. The Company, at its option, may increase
the Officer's compensation at any time at its convenience.
(b) The Company further agrees to pay the Officer incentive compensation
according to the following program:
(b-1) HAI Super Hurdle
(b-1) Phantom Stock Plan
(b-3) Originations
.00043 of Monthly Accounts Payable up to $62,136,000
.00050 of Monthly Accounts Payable over $62,136,000
Payment will be made monthly in conjunction with the pay period
following the final determination of accounts payable for the
month.
(b-3) Profit
.005 of Monthly Profit After Tax and GAAP Adjustments up to
$2,800,000
.006 of Monthly Profit After Tax and GAAP Adjustments over
$2,800,000
Payment will be made monthly in conjunction with the pay period
following the final determination of profit after tax and GAAP
adjustments for the month.
(b-4) Portfolios
$3,000 for each $5,000,000 of cash advances generated by the
Officer
(c) It is understood that the minimum combined base and incentive
compensation, exclusive of the HAI Super Hurdle, paid to the Officer
will be $100,000 per year.
Note: Projected earnings at budgeted volume and budgeted profit and
assuming attainment of Hurdle bonus = $114,718.
5. Life Insurance. The Officer agrees that the Company, at its discretion,
may apply for and procure in its own name and for its own benefit, life
insurance in any amount or amounts considered advisable and that the
Officer shall have no right, title, or interest therein; and, further, he
agrees to submit to any reasonable medical or other examination and to
execute and deliver any application or other instrument, in writing,
necessary to effectuate such insurance.
6. Business Expenses. Consistent with established Company policy, the
Company will compensate the Officer for his eligible business expenses to
include: travel, meals, and miscellaneous expenses incurred locally; and
travel, meals, lodging, and miscellaneous expenses incurred while the
Officer is away on business. Such reimbursement shall be made by the
Company upon submission of a signed statement by the Officer itemizing
such expenses.
7. Termination.
(a) Voluntary Company Termination: The Company may terminate this
Agreement at any time upon two (2) months' notice to the Officer; and
the Company shall be obligated to pay the Officer two (2) months'
compensation plus one (1) month's compensation pro-rated for each two
(2) years of continuous service as an Officer (vice president or
above) of the Company or any affiliated sister company, up to a
maximum of ten (10) additional months' compensation. A month's
compensation shall be determined as the greater of:
(1) The combined total of one-sixth (1/6) of the base compensation
which was paid to the Officer during the prior six (6) month
period and one-twelfth (1/12) of any incentive compensation
which was paid to the Officer during the prior twelve (12) month
period or
(2) The combined total of one-sixth (1/6) of the base compensation
which was paid to the Officer during the prior six-month period
and a pro rata share, based upon the number of full weeks
worked, of any incentive compensation due and owing for the year
in which the Officer is terminated.
If the Officer is separated by the Company in accordance with
Paragraph 7(a), it is expressly understood that it is not a
termination of employment as defined in 7(c) herein.
(b) Voluntary Officer Termination: The Officer may terminate this
Agreement at any time upon two (2) months' notice to the Company, and
the Company shall be obligated to pay to the Officer two (2) months'
compensation. A month's compensation shall be determined as defined
in 7(a).
(c) Involuntary Company Termination: The Company may also terminate this
Agreement on one (1) day's notice, if the termination is for any of
the following employment-related causes, and, in that event, the
Company shall not be obligated to pay the Officer any further
compensation:
(c-1) Willful failure or refusal of the Officer to adequately
perform the duties and obligations of his employment, if
such willful failure or refusal is determined upon review
by an arbitration committee of three (3) Officers appointed
by the Chief Human Resources Officer.
(c-2) Any breach by the Officer of the provisions of this
Agreement, if such breach is determined upon review by an
arbitration committee of three (3) Officers appointed by
the Chief Human Resources Officer.
(c-3) Conviction of the Officer for any felony or other criminal
offense involving dishonesty or moral turpitude which is
related to his employment with the Company or to his duties
as an Officer;
(c-4) Other just cause, if such just cause is determined upon
review by an arbitration committee of three (3) Officers
appointed by the Chief Human Resources Officer.
8. Death.
(a) In the event of the Officer's death during the term of this
Agreement, it shall terminate immediately. Unless the Officer has
left a different designation on file with the Company, the Officer's
surviving spouse or, if there is no surviving spouse, the minor
children (to include all children who are full-time students
regardless of age) or, if there are no surviving children, the
Officer's estate shall be entitled to receive six (6) months'
compensation due the Officer. A month's compensation shall be
determined as defined in paragraph 7(a). This compensation shall be
paid in equal monthly installments, commencing the first of the month
following the Officer's death, and shall be paid proportionately over
a period of eighteen (18) months.
(b) In addition, should the Officer at any time die while a party to this
Agreement, the Company shall pay within three (3) months after the
date of the Officer's death, a death benefit of Five Thousand Dollars
($5,000.00) to the Officer's surviving spouse or, if there is no
surviving spouse, to the surviving children in equal shares or, if
there are no surviving children, to the Officer's estate, unless the
Officer has left a different designation on file with the Company.
9. Disability. If, during the term of this Agreement, the Officer should
fail to perform his duties hereunder on account of illness or other
incapacity, and such illness or incapacity shall continue for a period of
six (6) months, the Company shall have the right to terminate this
Agreement. In that event, the Company shall be obligated to pay the
Officer his compensation up to the date of termination. Such compensation
may be reduced by the amount of any proceeds received by the Officer from
any Company-funded program such as disability insurance, Worker's
Compensation, or Social Security, during the six (6) month period.
10. Discontinuance of Business. If, during the term of this Agreement, the
Company should involuntarily discontinue or interrupt the operation of its
business for a period of one (1) month, this Agreement shall automatically
terminate without further liability on the part of either the parties
hereto.
11. Restrictions.
(a) The Officer acknowledges that:
(a-1) During the course of his employment with the Company and
during the term of this Agreement, the Officer has and
shall continue to have access to learn, be provided with,
prepare, or create Confidential Information, all of which
is of substantial value to the Company's business and the
disclosure of which would be harmful to the Company.
(a-2) In the event, either during the term of this Agreement or
any time thereafter, the Officer should disclose to any
other person or entity any such Confidential Information,
use for the Officer's own benefit or for the benefit of any
other person or entity any such Confidential Information,
or make copies or notes of any such Confidential
Information except as may be required in the normal course
of the Officer's duties, such conduct would be inconsistent
with and a breach of the confidence and trust inherent in
the Officer's position with the Company, unless such
information has already become common knowledge, or unless
the Officer is compelled to disclose such information by
governmental process.
(b) During the term of this Agreement, the Officer agrees to devote all
of his working time and best efforts to further the interests of the
Company, and he shall not directly or indirectly, alone or as a
partner, officer, director, or stockholder of any other institution,
be engaged in any other commercial activity whatsoever, or continue
or assume any other corporate affiliations without the consent of the
Board of Directors of the Company.
EXCEPTION: It shall not be deemed a violation of this Agreement for
the Officer to engage in independent consulting activities including
Corporate Directorships for third party companies and individuals,
and to retain the compensation therefore for his individual use,
providing such consultation does not involve services and advice
given to any firm or company on the activities and business of this
Company or any of its subsidiaries or affiliates, and further
provided such consultation is not with a customer or competitor of
the Company without the prior written approval of the Board of
Directors of Company. It is further understood that such consulting
shall be on personal time.
(c) The Officer acknowledges:
(c-1) The Company's products and services are highly specialized
items.
(c-2) The Company has a proprietary interest in the identity of
its customers and customer lists.
(c-3) During the term of this Agreement, the Officer will have
access to and become familiar with various trade secrets
and highly confidential information of the Company,
including but not necessarily limited to, documents and
information regarding the Company's services, systems,
lease and financing programs, re-marketing programs, sales,
pricing, costs, specialized requirements of customers,
prospective applicants for employment, current employees,
information recorded on present or past credit
applications, current or past financing vehicles or
products by and between the Company and the banking
community or related community, internal managerial
accounting systems, and information systems. The Officer
acknowledges that such confidential information and trade
secrets are owned and shall continue to be owned solely by
the Company.
(d) The Officer covenants to the Company that for a period of one (1)
year following the date of Termination of Employment, as defined in
Paragraph 7 of this Agreement, he shall not, either directly or
indirectly, or through any person or other entity, or by any other
means:
(d-1) Use confidential information or trade secrets for any
purpose whatsoever or divulge such information to any
person other than the Company or persons to whom the
Company has given consent, unless such information has
already become common knowledge, or unless the Officer is
compelled to disclose such information by governmental
process.
(d-2) Directly or indirectly solicit or sell any of the Company's
products or services to any person, company, firm, or
corporation who is or was a customer of the Company
(customer is defined as dealer, manufacturer, vendor,
borrower, lessee, or any other person or entity who deals
with the Company in its normal course of business) at the
time of termination of the Officer's employment. The
Officer agrees not to solicit such customers on behalf of
himself or any other person, company, firm, or corporation.
(e) In the event that a court of competent jurisdiction determines that
the provisions of paragraph 11(c) and 11(d), or any part thereof, are
invalid or unenforceable by reason of overly broad territorial or
excessive time restrictions or otherwise, then the parties to the
Agreement request such court to modify such restrictions or paragraph
to the extent necessary in order that the same shall be valid and
enforceable and to enforce the same to that extent.
(f) Upon his separation of employment for any reason, the Officer shall
immediately deliver to the Company all documentation and other
property which belongs to the Company which pertains to the business
or financial affairs of the Company.
(g) The parties to this Agreement acknowledge that any breach, violation,
or default by the Officer of the provisions contained in paragraphs
11(d) and 11(f) of this Agreement would result in irreparable harm
and damage to the Company, which harm and damage would be extremely
difficult to quantify and, accordingly, the Officer consents to the
jurisdiction of a court of equity and (1) the entry of an injunction,
temporary or permanent, enjoining the Officer from competing with the
Company in violation of the provisions of paragraph 11(d) hereof, and
(2) the entry by said court of an order requiring the Officer to
deliver to the Company documentation or other property which belongs
to the Company as required in paragraph 11(f).
12. Benefits. The Company agrees to provide the Officer during the term of
this Agreement such additional benefits, commonly known as "employee
benefits," which are generally extended by the Company to its Officers.
Notwithstanding the foregoing and provided the Officer remains employed by
the Company, all employee benefits received by the Officer at the time of
the effective date of this Agreement shall be maintained throughout the
term of this Agreement, unless expressly prohibited by law or unless any
or all such employee benefits are discontinued, decreased, or in any way
modified by the Company for all Officers, for all persons serving in a
capacity similar to that of the Officer, or for all employees of the
Company. Employee benefits include, but are not limited to, holidays,
vacations, health insurance, life/accidental death insurance, long-term
disability insurance, short-term disability benefits, expense supplement
plan, educational assistance program, employee assistance program, health
maintenance organization, sick leave, Christmas cash bonus, and service
recognition awards. Any intended modification of employee benefits as
defined herein will be in writing.
13. Stock Options. If this Agreement is terminated for any reason, the
Company will extend to the Officer a period of sixty (60) calendar days,
during which the Officer shall have the right to exercise any stock
options, in whole or in part, as may have been granted under the Horrigan
American, Inc., Stock Option Agreements.
14. Effect of Waiver. The waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
15. Arbitration. Any controversy arising from or related to this Agreement
shall be determined by arbitration in the City of Reading in accordance
with the rules of the American Arbitration Association, and judgment upon
any such determination or award may be entered in any court having
jurisdiction.
16. Notice. Any and all notices referred to herein shall be sufficient if
furnished in writing and sent by registered mail to the representative
parties at the address subscribed below following their signatures to this
Agreement.
17. Assignment. The rights and benefits of the Company under this Agreement
shall be transferable, and all covenants and agreements hereunder shall
inure to the benefits of and be enforceable by or against its successors
and assigns.
_______________________________ _______________________________
AEL Leasing Co., Inc. Officer
American Commercial Credit Corp.
Flying Hills Corporate Center
Reading, Pennsylvania 19607
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this first (1st) day of January 1994, by and between AEL
Leasing Co., Inc., and American Commercial Credit Corp. (hereinafter called
"Company") and W. Michael Horrigan (hereinafter called "Officer").
Background
The Company is presently engaged primarily in the business of commercial
leasing and lending. The Officer is presently serving as Executive Vice
President and Chief Administrative Officer of the Company.
During the course of his employment by the Company, the Officer has acquired
valuable experience, knowledge, expertise, and management skills. It is the
desire of both the Company and the Officer that the employment relationship
existing between them continue to the mutual benefit of each.
W I T N E S S E T H :
1. Employment and Duties. The Company hereby employs the Officer to
perform such duties as may be determined and assigned to him by his
immediate supervisor.
2. Performance. The Officer agrees to devote all of his working time
and best efforts to the performance of his duties as Executive Vice
President and Chief Administrative Officer and to the performance
of other such duties as are assigned to him from time to time by his
immediate supervisor.
3. Term. Except in the case of earlier termination, as hereinafter
specifically provided, the term of this Agreement shall be from
January 1, 1994, through December 31, 1994; provided, however, that
this Agreement shall be extended by one calendar day for each
expired calendar day after January 1, 1994, until December 31, 1994,
with the alternate termination of this Agreement not later than
December 31, 1995. Notwithstanding the foregoing extension of the
Agreement, the Company and the Officer may mutually agree to
renegotiate this Agreement or enter into a new Agreement
after December 31, 1994.
4. Compensation. Compensation, wherever used in this Agreement, shall
mean all base compensation and all earned incentive compensation.
(a) For all the services to be rendered by the Officer in any
capacity hereunder, including services as an officer, member of
any committee, or any other duties assigned to him by his
immediate supervisor, the Company agrees to pay the Officer a
base salary of $87,200 per annum, payable in equal semi-monthly
installments on the fifteenth (15th) and last day of each month.
The Company, at its option, may increase the Officer's
compensation at any time at its convenience.
(b) The Company further agrees to pay the Officer incentive
compensation according to the following programs:
HAI Super Hurdle
AEL/ACC/AELH Hurdle
Phantom Stock Plan
5. Life Insurance. The Officer agrees that the Company, at its
discretion, may apply for and procure in its own name and for its
own benefit, life insurance in any amount or amounts considered
advisable and that the Officer shall have no right, title, or
interest therein; and, further, he agrees to submit to any
reasonable medical or other examination and to execute and deliver
any application or other instrument, in writing, necessary to
effectuate such insurance.
6. Business Expenses. Consistent with established Company policy, the
Company will compensate the Officer for his eligible business expenses
to include: travel, meals, and miscellaneous expenses incurred
locally; and travel, meals, lodging, and miscellaneous expenses
incurred while the Officer is away on business. Such reimbursement
shall be made by the Company upon submission of a signed statement
by the Officer itemizing such expenses.
7. Termination.
(a) Voluntary Company Termination: The Company may terminate this
Agreement at any time upon two (2) months' notice to the
Officer; and the Company shall be obligated to pay the Officer
two (2) months' compensation plus one (1) month's compensation
pro-rated for each two (2) years of continuous service as an
Officer (vice president or above) of the Company or any
affiliated sister company, up to a maximum of ten (10)
additional months' compensation. A month's compensation shall
be determined as the greater of:
(1) The combined total of one-sixth (1/6) of the base
compensation which was paid to the Officer during the
prior six (6) month period and one-twelfth (1/12) of any
incentive compensation which was paid to the Officer during
the prior twelve (12) month period or
(2) The combined total of one-sixth (1/6) of the base
compensation which was paid to the Officer during the prior
six-month period and a pro rata share, based upon the
number of full weeks worked, of any incentive compensation
due and owing for the year in which the Officer is
terminated.
If the Officer is separated by the Company in accordance with
Paragraph 7(a), it is expressly understood that it is not a
termination of employment as defined in 7(c) herein.
(b) Voluntary Officer Termination: The Officer may terminate this
Agreement at any time upon two (2) months' notice to the
Company, and the Company shall be obligated to pay to the
Officer two (2) months' compensation. A month's compensation
shall be determined as defined in 7(a).
(c) Involuntary Company Termination: The Company may also
terminate this Agreement on one (1) day's notice, if the
termination is for any of the following employment-related
causes, and, in that event, the Company shall not be obligated
to pay the Officer any further compensation:
(c-1) Willful failure or refusal of the Officer to adequately
perform the duties and obligations of his employment, if
such willful failure or refusal is determined upon review
by an arbitration committee of three (3) Officers appointed
by the Chief Human Resources Officer.
(c-2) Any breach by the Officer of the provisions of this
Agreement, if such breach is determined upon review by an
arbitration committee of three (3) Officers appointed by
the Chief Human Resources Officer.
(c-3) Conviction of the Officer for any felony or other criminal
offense involving dishonesty or moral turpitude which is
related to his employment with the Company or to his duties
as an Officer;
(c-4) Other just cause, if such just cause is determined upon
review by an arbitration committee of three (3) Officers
appointed by the Chief Human Resources Officer.
8. Death.
(a) In the event of the Officer's death during the term of this
Agreement, it shall terminate immediately. Unless the Officer
has left a different designation on file with the Company, the
Officer's surviving spouse or, if there is no surviving spouse,
the minor children (to include all children who are full-time
students regardless of age) or, if there are no surviving
children, the Officer's estate shall be entitled to receive six
(6) months' compensation due the Officer. A month's compensa-
tion shall be determined as defined in paragraph 7(a). This
compensation shall be paid in equal monthly installments,
commencing the first of the month following the Officer's death,
and shall be paid proportionately over a period of eighteen
(18) months.
(b) In addition, should the Officer at any time die while a party
to this Agreement, the Company shall pay within three (3) months
after the date of the Officer's death, a death benefit of Five
Thousand Dollars ($5,000.00) to the Officer's surviving spouse
or, if there is no surviving spouse, to the surviving children
in equal shares or, if there are no surviving children, to the
Officer's estate, unless the Officer has left a different
designation on file with the Company.
9. Disability. If, during the term of this Agreement, the Officer should
fail to perform his duties hereunder on account of illness or other
incapacity, and such illness or incapacity shall continue for a period of
six (6) months, the Company shall have the right to terminate this
Agreement. In that event, the Company shall be obligated to pay the
Officer his compensation up to the date of termination. Such compensation
may be reduced by the amount of any proceeds received by the Officer from
any Company-funded program such as disability insurance, Worker's
Compensation, or Social Security, during the six (6) month period.
10. Discontinuance of Business. If, during the term of this Agreement, the
Company should involuntarily discontinue or interrupt the operation of its
business for a period of one (1) month, this Agreement shall automatically
terminate without further liability on the part of either the parties
hereto.
11. Restrictions.
(a) The Officer acknowledges that:
(a-1) During the course of his employment with the Company and
during the term of this Agreement, the Officer has and
shall continue to have access to learn, be provided with,
prepare, or create Confidential Information, all of which
is of substantial value to the Company's business and the
disclosure of which would be harmful to the Company.
(a-2) In the event, either during the term of this Agreement or
any time thereafter, the Officer should disclose to any
other person or entity any such Confidential Information,
use for the Officer's own benefit or for the benefit of any
other person or entity any such Confidential Information,
or make copies or notes of any such Confidential
Information except as may be required in the normal course
of the Officer's duties, such conduct would be inconsistent
with and a breach of the confidence and trust inherent in
the Officer's position with the Company, unless such
information has already become common knowledge, or unless
the Officer is compelled to disclose such information by
governmental process.
(b) During the term of this Agreement, the Officer agrees to devote all
of his working time and best efforts to further the interests of the
Company, and he shall not directly or indirectly, alone or as a
partner, officer, director, or stockholder of any other institution,
be engaged in any other commercial activity whatsoever, or continue
or assume any other corporate affiliations without the consent of the
Board of Directors of the Company.
EXCEPTION: It shall not be deemed a violation of this Agreement for
the Officer to engage in independent consulting activities including
Corporate Directorships for third party companies and individuals,
and to retain the compensation therefore for his individual use,
providing such consultation does not involve services and advice
given to any firm or company on the activities and business of this
Company or any of its subsidiaries or affiliates, and further
provided such consultation is not with a customer or competitor of
the Company without the prior written approval of the Board of
Directors of Company. It is further understood that such consulting
shall be on personal time.
(c) The Officer acknowledges:
(c-1) The Company's products and services are highly specialized
items.
(c-2) The Company has a proprietary interest in the identity of
its customers and customer lists.
(c-3) During the term of this Agreement, the Officer will have
access to and become familiar with various trade secrets
and highly confidential information of the Company,
including but not necessarily limited to, documents and
information regarding the Company's services, systems,
lease and financing programs, re-marketing programs, sales,
pricing, costs, specialized requirements of customers,
prospective applicants for employment, current employees,
information recorded on present or past credit
applications, current or past financing vehicles or
products by and between the Company and the banking
community or related community, internal managerial
accounting systems, and information systems. The Officer
acknowledges that such confidential information and trade
secrets are owned and shall continue to be owned solely by
the Company.
(d) The Officer covenants to the Company that for a period of one (1)
year following the date of Termination of Employment, as defined in
Paragraph 7 of this Agreement, he shall not, either directly or
indirectly, or through any person or other entity, or by any other
means:
(d-1) Use confidential information or trade secrets for any
purpose whatsoever or divulge such information to any
person other than the Company or persons to whom the
Company has given consent, unless such information has
already become common knowledge, or unless the Officer is
compelled to disclose such information by governmental
process.
(d-2) Directly or indirectly solicit or sell any of the Company's
products or services to any person, company, firm, or
corporation who is or was a customer of the Company
(customer is defined as dealer, manufacturer, vendor,
borrower, lessee, or any other person or entity who deals
with the Company in its normal course of business) at the
time of termination of the Officer's employment. The
Officer agrees not to solicit such customers on behalf of
himself or any other person, company, firm, or corporation.
(e) In the event that a court of competent jurisdiction determines that
the provisions of paragraph 11(c) and 11(d), or any part thereof, are
invalid or unenforceable by reason of overly broad territorial or
excessive time restrictions or otherwise, then the parties to the
Agreement request such court to modify such restrictions or paragraph
to the extent necessary in order that the same shall be valid and
enforceable and to enforce the same to that extent.
(f) Upon his separation of employment for any reason, the Officer shall
immediately deliver to the Company all documentation and other
property which belongs to the Company which pertains to the business
or financial affairs of the Company.
(g) The parties to this Agreement acknowledge that any breach, violation,
or default by the Officer of the provisions contained in paragraphs
11(d) and 11(f) of this Agreement would result in irreparable harm
and damage to the Company, which harm and damage would be extremely
difficult to quantify and, accordingly, the Officer consents to the
jurisdiction of a court of equity and (1) the entry of an injunction,
temporary or permanent, enjoining the Officer from competing with the
Company in violation of the provisions of paragraph 11(d) hereof, and
(2) the entry by said court of an order requiring the Officer to
deliver to the Company documentation or other property which belongs
to the Company as required in paragraph 11(f).
12. Benefits. The Company agrees to provide the Officer during the term of
this Agreement such additional benefits, commonly known as "employee
benefits," which are generally extended by the Company to its Officers.
Notwithstanding the foregoing and provided the Officer remains employed by
the Company, all employee benefits received by the Officer at the time of
the effective date of this Agreement shall be maintained throughout the
term of this Agreement, unless expressly prohibited by law or unless any
or all such employee benefits are discontinued, decreased, or in any way
modified by the Company for all Officers, for all persons serving in a
capacity similar to that of the Officer, or for all employees of the
Company. Employee benefits include, but are not limited to, holidays,
vacations, health insurance, life/accidental death insurance, long-term
disability insurance, short-term disability benefits, expense supplement
plan, educational assistance program, employee assistance program, health
maintenance organization, sick leave, Christmas cash bonus, and service
recognition awards. Any intended modification of employee benefits as
defined herein will be in writing.
13. Stock Options. If this Agreement is terminated for any reason, the
Company will extend to the Officer a period of sixty (60) calendar days,
during which the Officer shall have the right to exercise any stock
options, in whole or in part, as may have been granted under the Horrigan
American, Inc., Stock Option Agreements.
14. Effect of Waiver. The waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
15. Arbitration. Any controversy arising from or related to this Agreement
shall be determined by arbitration in the City of Reading in accordance
with the rules of the American Arbitration Association, and judgment upon
any such determination or award may be entered in any court having
jurisdiction.
16. Notice. Any and all notices referred to herein shall be sufficient if
furnished in writing and sent by registered mail to the representative
parties at the address subscribed below following their signatures to this
Agreement.
17. Assignment. The rights and benefits of the Company under this Agreement
shall be transferable, and all covenants and agreements hereunder shall
inure to the benefits of and be enforceable by or against its successors
and assigns.
_______________________________ __________________________
AEL Leasing Co., Inc. Officer
American Commercial Credit Corp.
Flying Hills Corporate Center
Reading, Pennsylvania 19607
<PAGE>
EXHIBIT 10.12
Horrigan American, Inc.
401(k) Retirement Plan
ORIGINALLY EFFECTIVE JANUARY 1, 1963
AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1989
Horrigan American, Inc.
401(k) Retirement Plan
This amended and restated plan, executed on the date indicated at the end
hereof, is made effective as of January 1, 1989, except as provided otherwise
in Section 1.3(c), by Horrigan American, Inc., a Corporation, with its
principal office located in Reading, PA.
W I T N E S S E T H :
WHEREAS, effective January 1, 1963, the employer established the plan for its
employees and desires to continue to maintain a permanent qualified plan in
order to provide its employees and their beneficiaries with financial security
in the event of retirement, disability or death; and
WHEREAS, it is desired to amend said plan;
NOW THEREFORE, the premises considered, the original plan is hereby replaced by
this amended and restated plan, and the following are the provisions of the
qualified plan of the employer as restated herein; provided, however, that each
employee who was previously a participant shall remain a participant, and no
employee who was a participant in the plan before the date of amendment shall
receive a benefit under this amended plan which is less than the benefit he was
then entitled to receive under the plan as of the day prior to the amendment.
ARTICLE I DEFINITIONS
Section 1.1 References
(a) Code means the Internal Revenue Code of 1986, as it may be amended from
time to time.
(b) ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
Section 1.2 Compensation
(a) Compensation means, except as provided in paragraph (b) hereof, any
earnings reportable as W-2 wages for Federal income tax withholding
purposes and earned income, plus elective contributions, for the plan
year.
Elective contributions are amounts excludible from the employee's gross
income and contributed by the employer, at the employee's election to:
(1) A cafeteria plan (excludible under Code Section 125);
(2) A Code Section 401(k) arrangement (excludible under Code Section
402(a)(8));
(3) A simplified employee pension (excludible under Code Section
402(h)); or
(4) A tax sheltered annuity (excludible under Code Section 403(b)).
"Earned Income" means net earnings from self-employment in the trade or
business with respect to which the employer has established the plan,
provided that personal services of the individual are a material income
producing factor. Net earnings shall be determined without regard to
items excluded from gross income and the deductions allocable to those
items. Net earnings shall be determined after the deduction allowed to
the self-employed individual for all contributions made by the employer to
a qualified plan and, for plan years beginning after December 31, 1989,
the deduction allowed to the self-employed under Code Section 164(f) for
self-employment taxes.
Any reference in this plan to compensation shall be a reference to the
definition in this Section 1.2, unless the plan reference specifies a
modification to this definition. The plan administrator shall take into
account only compensation actually paid by the employer for the relevant
period. A compensation payment includes compensation by the employer
through another person under the common paymaster provisions in Code
Sections 3121 and 3306. Compensation from an employer which is not a
participating employer under this plan shall be excluded.
(b) Exclusions From Compensation - Notwithstanding the provisions of paragraph
1.2(a), the following types of remuneration shall be excluded from the
participant's compensation:
Key Management Bonuses
(c) Limitations on Compensation -
(1) Compensation Dollar Limitation - For any plan year beginning after
December 31, 1988, the plan administrator shall take into account
only the first $200,000 (or beginning January 1, 1990, such larger
amount as the Commissioner of Internal Revenue may prescribe) of any
participant's compensation for determining all benefits provided
under the plan. The compensation dollar limitation for a plan year
shall be the limitation amount in effect on January 1 of the calendar
year in which the plan year begins. For any plan year beginning
before January 1, 1989, this $200,000 limitation (but not the family
aggregation requirement described in the next paragraph) applies only
if the plan is top-heavy for such plan year or operates as a deemed
top-heavy plan for such plan year. If the plan should determine
compensation on a period of time that contains fewer than 12 calendar
months (such as for a short plan year), the annual compensation
dollar limitation shall be an amount equal to the compensation dollar
limitation for the plan year multiplied by the ratio obtained by
dividing the number of full months in the period by 12.
(2) Application of Compensation Limitation to Certain Family Members -
The $200,000 compensation limitation applies to the combined
compensation of the employee and of any family member aggregated with
the employee under Code Section 414(q)(6) who is either (A) the
employee's spouse, or (B) the employee's lineal descendant under the
age of 19. If, for a plan year, the combined compensation of the
employee and such family members who are participants entitled to an
allocation for that plan year exceeds the compensation dollar
limitation, compensation for each such participant, for purposes of
the contribution and allocation provisions of Article III, means his
adjusted compensation.
Adjusted compensation is the amount which bears the same ratio to the
compensation dollar limitation as the affected participant's
compensation (without regard to the compensation dollar limitation)
bears to the combined compensation of all the affected participants
in the family unit. If the plan uses permitted disparity, the plan
administrator first shall determine the integration level of each
affected family member participant using actual compensation. The
total of the affected participants' compensations equal to or less
than the applicable integration levels may not exceed the
compensation dollar limitation. The combined excess compensation of
the affected participants in the family unit may not exceed the
compensation dollar limitation minus the amount determined under the
preceding sentence. If the combined excess compensation exceeds this
limitation, the plan administrator will prorate the limitation on the
excess compensation among the affected participants in the family
unit in proportion to each such individual's actual compensation
minus his integration level.
(d) Compensation for Nondiscrimination Test - For purposes of determining
whether the plan discriminates in favor of highly compensated
employees, compensation means compensation as defined in this Section
1.2, except that the employer will not give effect to any exclusion
from compensation specified in Section 1.2(b). Notwithstanding the
above, the employer may elect to exclude from this nondiscrimination
definition of compensation any items of compensation excludible under
Code Section 414(s) and the applicable Treasury regulations, provided
such adjusted definition conforms to the nondiscrimination
requirements of those regulations.
(e) Compensation for Compliance with Section 5.6 - For purposes of
conducting the actual deferral percentage test or the average
contribution percentage test, compensation means compensation as
defined in Section 1.2(a) for the entire plan year except that for
the plan year in which the employee first becomes a participant,
compensation means the employee's compensation for the portion of the
plan year in which the employee actually is a participant.
Section 1.3 Dates
(a) Accounting Date means the date(s) on which investment results are
allocated to participants' accounts, including the allocation date
for the profit sharing contribution and any interim accounting
date(s) noted below:
March 31, June 30, September 30, interim investment allocation dates.
(b) Allocation Date means the date(s) on which any contribution is
allocated to participants' accounts. The profit sharing contribution
shall be allocated as of the last day of the plan year. Employer
matching contributions shall be allocated as of the last day of each
month.
(c) The Effective Date of the plan is January 1, 1963.
The effective date of this amendment and restatement is January 1, 1989;
provided, however that the plan provisions required to comply with the
Tax Reform Act of 1986 (TRA '86), the Omnibus Budget Reconciliation Act of
1986 (OBRA '86), the Omnibus Budget Reconciliation Act of 1987 (OBRA '87),
and the Technical and Miscellaneous Revenue Act of 1988 (TAMRA) shall
generally be effective on the first day of the plan year beginning after
December 31, 1988, except as specified otherwise in this plan or in TRA
'86, OBRA '86, OBRA '87 or TAMRA. The plan provisions required to comply
with the 1989 Revenue Reconciliation Act shall generally be effective on
the first day of the plan year beginning after December 31, 1989, except
as specified otherwise in this plan or in said Act.
Notwithstanding anything herein to the contrary, the provisions noted
below shall become effective on the alternate effective date indicated.
If the alternate effective date is subsequent to the effective date of
this amendment, the prior provisions of the plan shall continue in effect
until such alternate effective date.
<TABLE>
<CAPTION>
Reference Alternate Effective Date
<S> <C> <C>
Section 1.3(a) Accounting Date January 1, 1994
Section 3.2(c)(1) Allocation Formula January 1, 1993
Section 3.3 Qualified Non-Elective Contributions January 1, 1994
Section 3.4 Employee 401(k) Elective Deferral Contributions January 1, 1994
Section 3.6 Employer Matching Contributions January 1, 1994
Section 4.2(b) Forfeitures January 1, 1993
Section 4.3(d) Eligible Rollover Distribution January 1, 1993
</TABLE>
(d) Plan Entry Date means the participation date(s) specified in Article
II.
(e) Plan Year means the 12-consecutive month period beginning on January
1 and ending on December 31.
(f) Limitation Year (for purposes of limitations on benefits and
contributions under Code Section 415) means the plan year.
Section 1.4 Employee
(a) (1) Employee means any person employed by the employer, including an
owner-employee or other self-employed individual (as defined in
paragraph (3)). The term employee shall include any employee of
the employer maintaining the plan or of any other employer
required to be aggregated with such employer under Code Sections
414(b), (c), (m) or (o). The term employee shall also include
any leased employee deemed to be an employee of any employer as
provided in Code Sections 414(n) or (o) and as defined in
paragraph (2).
(2) Leased Employee means an individual (who otherwise is not an
employee of the employer) who, pursuant to a leasing agreement
between the employer and any other person, has performed
services for the employer (or for the employer and any persons
related to the employer within the meaning of Code Section
144(a)(3)) on a substantially full time basis for at least one
year and who performs services historically performed by
employees in the employer's business field. If a leased
employee is treated as an employee by reason of this Section
1.4(a)(2), compensation from the leasing organization which is
attributable to services performed for the employer shall be
considered as compensation under the plan. Contributions or
benefits provided a leased employee by the leasing organization
which are attributable to services performed for the employer
shall be treated as provided by the employer.
Safe harbor plan exception - The plan shall not treat a leased
employee as an employee if the leasing organization covers the
employee in a safe harbor plan and, prior to application of this
safe harbor plan exception, 20% or less of the employer's
employees (other than highly compensated employees) are leased
employees. A safe harbor plan is a money purchase pension plan
providing immediate participation, full and immediate vesting,
and a nonintegrated contribution formula equal to at least 10%
of the employee's compensation without regard to employment by
the leasing organization on a specified date. The safe harbor
plan must determine the 10% contribution on the basis of
compensation as defined in Code Section 415(c)(3) plus elective
contributions.
(3) Owner-Employee/Self Employed Individual - Owner-employee means
a self-employed individual who is a sole proprietor, (if the
employer is a sole proprietorship) or who is a partner (if the
employer is a partnership) owning more than 10 percent of either
the capital or profits interest of the partnership.
Self-employed individual means an individual who has earned
income for the taxable year from the trade or business for which
the plan is established, or who would have had earned income but
for the fact that the trade or business had no net profits for
the taxable year.
(b) Highly Compensated Employee means an employee who, during the plan
year or during the preceding 12-month period:
(1) is a more than 5% owner of the employer (applying the
constructive ownership rules of Code Section 318, and applying
the principles of Code Section 318, for an unincorporated
entity);
(2) has compensation in excess of $75,000 (as adjusted by the
Commissioner of Internal Revenue for the relevant year);
(3) has compensation in excess of $50,000 (as adjusted by the
Commissioner of Internal Revenue for the relevant year) and is
part of the top-paid 20% group of employees (based on
compensation for the relevant year); or
(4) has compensation in excess of 50% of the dollar amount
prescribed in Code Section 415(b)(1)(A) (relating to defined
benefit plans) and is an officer of the employer.
If the employee satisfies the definition in clause (2), (3) or (4) in the
plan year but did not satisfy clause (2), (3) or (4) during the preceding
12-month period and does not satisfy clause (1) in either period, then the
employee is a highly compensated employee only if he is one of the 100
most highly compensated employees for the plan year. The number of
officers taken into account under clause (4) shall not exceed the greater
of 3 or 10% of the total number (after application of the Code Section
414(q) exclusions) of employees, but no more than 50 officers. If no
employee satisfies the compensation requirement in clause (4) for the
relevant year, the highest paid officer will be treated as satisfying
clause (4) for that year.
The term highly compensated employee also includes any former employee who
separated from service (or has a deemed separation from service, as
determined under Treasury regulations) prior to the plan year, performs no
service for the employer during the plan year, and was a highly
compensated employee either for the separation year or any plan year
ending on or after his 55th birthday. If the former employee's separation
from service occurred before January 1, 1987, he is a highly compensated
employee only if he satisfied clause (1) of this Section 1.4(b) or
received compensation in excess of $50,000 during the year of his
separation from service (or the prior year), or during any year ending
after his 54th birthday.
For purposes of determining who is a highly compensated employee under
this Section 1.4(b), compensation means compensation as defined in Section
1.2, except that any exclusions from compensation specified in Section 1.2
(b) shall not apply. The plan administrator shall make the determination
of who is a highly compensated employee, including the determinations of
the number and identity of the top paid 20% group, the top 100 paid
employees, the number of officers includible in clause (4) and the
relevant compensation, consistent with Code Section 414(q) and regulations
issued under that Code Section. The employer may make a calendar year
election to determine the highly compensated employees for the plan year,
as prescribed by Treasury regulations. A calendar year election must
apply to all plans and arrangements of the employer.
For purposes of applying any nondiscrimination test required under the
plan or Code, in a manner consistent with applicable Treasury regulations,
the plan administrator will treat a highly compensated employee and all
family members (a spouse, a lineal ascendant or descendant, or a spouse of
a lineal ascendant or descendant) as a single highly compensated employee,
but only if the highly compensated employee is a more than 5% owner or is
one of the 10 highly compensated employees with the greatest compensation
for the plan year. This aggregation rule applies to a family member even
if that family member is a highly compensated employee without family
aggregation.
Section 1.5 Employer
Employer means Horrigan American, Inc. or any successor entity by merger,
purchase, consolidation, or otherwise; or an organization affiliated with
the employer which may assume the obligations of this plan with respect to
its employees by becoming a party to this plan. Another employer whether
or not it is affiliated with the sponsor employer may adopt this plan to
cover its employees by filing with the sponsor employer a written
resolution adopting the plan, upon which the sponsor employer shall
indicate its acceptance of such employer as an employer under the plan.
Each such employer shall be deemed to be the employer only as to persons
who are on its payroll.
The following employers have adopted this plan and have been accepted by
the sponsor employer on or before the date this amendment and restatement
is executed:
Participating Employer EIN
AEL Leasing Co., Inc. 23-1720013
American Real Estate Investment and Development Co. 23-2294785
The Business Outlet, Inc. 23-2347549
Horrigan Companies, Inc. 23-1636676
Section 1.6 Fiduciaries
(a) Named Fiduciary means the person or persons having fiduciary
responsibility for the management and control of plan assets.
(b) Plan administrator means the person or persons appointed by the
named fiduciary to administer the plan.
(c) Trustee means the trustee named in the trust agreement executed
pursuant to this plan, or any duly appointed successor trustee.
(d) Investment Manager means a person or corporation other than the
trustee appointed for the investment of plan assets.
Section 1.7 Participant/Beneficiary
(a) Participant means an eligible employee of the employer who becomes a
member of the plan pursuant to the provisions of Article II, or a
former employee who has an accrued benefit under the plan.
(b) Beneficiary means a person designated by a participant who is or may
become entitled to a benefit under the plan. A beneficiary who
becomes entitled to a benefit under the plan remains a beneficiary
under the plan until the trustee has fully distributed his benefit to
him. A beneficiary's right to (and the plan administrator's, or a
trustee's duty to provide to the beneficiary) information or data
concerning the plan shall not arise until he first becomes entitled
to receive a benefit under the plan.
Section 1.8 Participant Accounts
(a) Profit Sharing Account means the balance of the separate account
derived from profit sharing employer contributions, including
forfeitures (if any) (if so provided under Section 3.2).
(b) Qualified Non-elective Contribution Account means the balance of the
separate account derived from employer's qualified non-elective
contributions (if so provided under Section 3.3).
(c) Employee 401(k) Elective Deferral Account means the balance of the
separate account derived from the participant's elective deferrals
(if so provided under Section 3.4).
(d) Employee Nondeductible Contribution Account means the balance of the
separate account derived from the participant's non-deductible
employee contributions (if so provided under Section 3.5).
(e) Employer Matching Contribution Account means the balance of the
separate account derived from employer's matching contributions (if
so provided under Section 3.6).
(f) Rollover/Transfer Account means the balance of the separate account
derived from rollover contributions and/or transfer contributions (if
so provided under Section 3.7).
(g) Recharacterized Funds Account means the balance of the separate
account derived from recharacterized amounts treated as being
contributed by the participant (if so provided under Section 3.5(c)).
(h) Accrued Benefit means the total of the participant's account balances
as of the accounting date falling on or before the day on which the
accrued benefit is being determined.
Section 1.9 Plan
Plan means Horrigan American, Inc.401(k) Retirement Plan as set forth
herein and as it may be amended from time to time.
Section 1.10 Service
(a) Service means any period of time the employee is in the employ of the
employer, including any period the employee is on an unpaid leave of
absence authorized by the employer under a uniform, nondiscriminatory
policy applicable to all employees. Separation from service means
that the employee no longer has an employment relationship with the
employer.
(b) (1) Hour of Service means:
(A) Each hour for which an employee is paid, or entitled to
payment, for the performance of duties for the employer.
These hours shall be credited to the employee for the
computation period in which the duties are performed; and
(B) Each hour for which an employee is paid, or entitled to
payment, by the employer on account of a period of time
during which no duties are performed (irrespective of
whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of
absence. No more than 501 hours of service shall be
credited under this paragraph for any single continuous
period (whether or not such period occurs in a single
computation period). An hour of service shall not be
credited to an employee under this paragraph if the
employee is paid, or entitled to payment, under a plan
maintained solely for the purpose of complying with
applicable worker's compensation or unemployment
compensation or disability insurance laws. Hours under
this paragraph shall be calculated and credited pursuant to
Section 2530.200b-2 of the Department of Labor Regulations
which are incorporated herein by this reference; and
(C) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the employer.
The same hours of service shall not be credited both under
paragraph (A) or paragraph (B), as the case may be, and
under this paragraph (C). These hours shall be credited to
the employee for the computation period or periods to which
the award or agreement pertains rather than the computation
period in which the award, agreement or payment is made.
Hours of service shall be determined on the basis of actual
hours for which an employee is paid or entitled to payment.
The above provisions shall be construed so as to resolve
any ambiguities in favor of crediting employees with hours
of service.
(2) Solely for purposes of determining whether a break in service
for participation and vesting purposes has occurred in a
computation period, an individual who is absent from work for
maternity or paternity reasons shall receive credit for the
hours of service which would otherwise have been credited to
such individual but for such absence, or in any case in which
such hours cannot be determined, 8 hours of service per day of
such absence. For purposes of this paragraph, an absence from
work for maternity or paternity reasons means an absence (A) by
reason of the pregnancy of the individual, (B) by reason of a
birth of a child of the individual, (C) by reason of the
placement of a child with the individual in connection with the
adoption of such child by such individual, or (D) for purposes
of caring for such child for a period beginning immediately
following such birth or placement. The hours of service
credited under this paragraph shall be credited: (A) in the
computation period in which the absence begins if the crediting
is necessary to prevent a break in service in that period, or
(B) in all other cases, in the following computation period.
(3) Hours of service shall be credited for employment with other
members of an affiliated service group (under Code Section
414(m)), a controlled group of corporations (under Code Section
414(b)), or a group of trades or businesses under common control
(under Code Section 414(c)), of which the adopting employer is a
member. Hours of service shall also be credited for any leased
employee who is considered an employee for purposes of this plan
under Code Section 414(n) or Code Section 414(o).
(c) (1) Year of Service means a 12-consecutive month computation period
during which the employee completes the required number of hours
of service with the employer as specified in Sections 2.1 or
4.1.
(2) Predecessor Service - If the employer maintains the plan of a
predecessor employer, service with such predecessor employer
shall be treated as service for the employer. If the employer
does not maintain the plan of a predecessor employer, then
service as an employee of a predecessor employer shall not be
considered as service under the plan, except as noted below:
- Service as an employee of American Amdev Hospitality, Inc.
(predecessor employer) shall be considered as service under the
plan for the purposes of determining eligibility years of
service (under Section 2.1) and vesting years of service (under
Section 4.1).
Service as an employee of a predecessor employer shall be
considered as service for the employer hereunder for the
purposes of applying the limitations on benefits and allocations
under Code Section 415.
(d) Break in Service (or One Year Break in Service) means a
12-consecutive month computation period during which a participant or
former participant does not complete the specified number of hours of
service with the employer as set forth in Sections 2.1(b) and 4.1(b).
Section 1.11 Trust
(a) Trust means the qualified trust created under the employer's plan.
(b) Trust Fund means all property held or acquired by the plan.
ARTICLE II PARTICIPATION
Section 2.1 Eligibility Service
(a) Eligibility Year of Service means an eligibility computation period
during which the employee completes at least 1,000 hours of service
with the employer.
(b) One Year Break in Service means for the purposes of this Article II
an eligibility computation period during which the participant or
former participant does not complete more than 500 hours of service
with the employer.
(c) Eligibility Computation Period - The initial eligibility computation
period shall be the 12-consecutive month period beginning with the
day on which the employee first performs an hour of service with the
employer (employment commencement date).
Succeeding eligibility computation periods shall coincide with the
plan year, beginning with the first plan year which commences prior
to the first anniversary of the employee's employment commencement
date regardless of whether the employee is credited with the required
number of hours of service during the initial eligibility computation
period. An employee who is credited with the required number of
hours of service in both the initial eligibility computation period
and the first plan year which commences prior to the first
anniversary of the employee's employment commencement date shall be
credited with two years of service for purposes of eligibility to
participate.
Section 2.2 Plan Participation
(a) Eligibility
(1) Age/service requirements - An employee who is a member of the
eligible class of employees shall be eligible for plan
participation after he has satisfied the following participation
requirements:
(A) Completion of 1 year of service, and
(B) Attainment of age 21.
(2) Eligible class of employees - All employees of the employer
shall be eligible to be covered under the plan; provided,
however, that leased employees who are considered employees
under the plan shall not be eligible for participation, unless
such exclusion would cause the plan to fail to satisfy the
participation test or the coverage test of Code Section 410 or
the nondiscrimination requirements of Code Section 401(a)(4).
(b) Entry Date - An eligible employee shall participate in the plan on
the earlier of the January 1 or July 1 entry date coinciding with or
immediately following the date on which he has met the age and
service requirements. If an employee who is not a member of the
eligible class of employees becomes a member of the eligible class,
such employee shall participate immediately, if he has satisfied the
age and service requirements and would have otherwise previously
become a participant.
Section 2.3 Termination of Participation
A participant shall continue to be an active participant of the plan so
long as he is a member of the eligible class of employees and he does not
incur a one-year break in service due to termination of employment. He
shall become an inactive participant when he incurs a one-year break in
service due to termination of employment, or at the end of the plan year
during which he ceases to be a member of the eligible class of employees.
He shall cease participation completely upon the later of his receipt of a
total distribution of his nonforfeitable account balance(s) under the plan
or the forfeiture of the nonvested portion of the account balance(s).
Section 2.4 Re-Participation (Break In Service Rules)
(a) Vested Participant - A former participant who had a nonforfeitable
right to all or a portion of his account balance derived from
employer contributions at the time of his termination from service
shall become a participant immediately upon returning to the employ
of the employer, if he is a member of the eligible class of
employees.
(b) Nonvested Participant - In the case of a former participant who did
not have any nonforfeitable right to his account balance derived from
employer contributions at the time of his termination from service,
years of service before a period of consecutive one-year breaks in
service shall not be taken into account in computing service if the
number of consecutive one-year breaks in service in such period
equals or exceeds the greater of 5 or the aggregate number of years
of service before such breaks in service. Such aggregate number of
years of service shall not include any years of service disregarded
under the preceding sentence by reason of prior breaks in service.
If such former participant's years of service before termination from
service are disregarded pursuant to the preceding paragraph, he shall
be considered a new employee for eligibility purposes. If such
former participant's years of service before termination from service
may not be disregarded pursuant to the preceding paragraph, he shall
participate immediately upon returning to the employ of the employer,
if he is a member of the eligible class of employees.
(c) Return to Eligible Class - If a participant becomes an inactive
participant, because he is no longer a member of the eligible class
of employees, but does not incur a break in service; such inactive
participant shall become an active participant immediately upon
returning to the eligible class of employees. If such participant
incurs a break in service, eligibility shall be determined under the
re-participation rules in paragraphs (a) and (b) above.
ARTICLE III ALLOCATIONS TO PARTICIPANT ACCOUNTS
Section 3.1 General Provisions
(a) Maintenance of Participant Accounts - The plan administrator shall
maintain separate accounts covering each participant under the plan
as herein described. Such accounts shall be increased by
contributions, reallocation of forfeitures (if any), investment
income, and market value appreciation of the fund. They shall be
decreased by market value depreciation of the fund, forfeiture of
nonvested amounts, benefit payments, withdrawals and expenses.
(b) Amount and Payment of Employer Contribution
(1) Amount of Contribution - For each plan year, the employer
contribution to the plan shall be the amount which is determined
under the provisions of this Article; provided, however, that
the employer may not make a contribution to the plan for any
plan year to the extent the contribution would exceed the
participants' maximum permissible amounts under Code Section
415. Further, the employer contribution shall not exceed the
maximum amount deductible under Code Section 404.
The employer contributes to this plan on the conditions that its
contribution is not due to a mistake of fact and that the
Internal Revenue Service will not disallow the deduction for its
contribution. The trustee, upon written request from the
employer, shall return to the employer the amount of the
employer's contribution made due to a mistake of fact or the
amount of the employer's contribution disallowed as a deduction
under Code Section 404. The trustee shall not return any
portion of the employer's contribution under the provisions of
this paragraph more than one year after the earlier of: (A)
The date on which the employer made the contribution due to a
mistake of fact; or (B) The time of disallowance of the
contribution as a deduction, and then, only to the extent of the
disallowance. The trustee will not increase the amount of the
employer contribution returnable under this Section for any
earnings attributable to the contribution, but the trustee will
decrease the employer contribution returnable for any losses
attributable to it. The trustee may require the employer to
furnish whatever evidence it deems necessary to confirm that the
amount the employer has requested be returned is properly
returnable under ERISA.
(2) Payment of Contribution - The employer shall make its
contribution to the plan within the time prescribed by the Code
or applicable Treasury regulations. Subject to the consent of
the trustee, the employer may make its contribution in property
rather than in cash, provided the contribution of property is
not a prohibited transaction under the Code or ERISA.
(c) Limitations and Conditions - Notwithstanding the allocation
procedures set forth in this Article, the allocations to
participants' accounts shall be limited or modified to the extent
required to comply with the provisions of Article V (limitations on
allocations under Code Section 415, related employer provisions under
Code Section 414 and top-heavy provisions under Code Section 416).
In any limitation year in which the allocation to one or more
participants' accounts would be in excess of the limitations on
allocations under Code Section 415, the annual additions under this
plan will be reduced to the extent necessary to comply with such
limitations first. If any further reduction is required, the annual
additions or benefits under any other plan which the employer also
sponsors will then be reduced with respect to such participants.
Section 3.2 Profit Sharing Contributions
(a) Amount of Contribution - The employer shall determine, in its sole
discretion, the amount of profit sharing employer contribution to be
made to the plan each year; provided, however, that the employer
shall contribute such amount as may be required for restoration of a
forfeited amount under Section 4.2.
(b) Conditions for Allocations - An active participant shall be eligible
for an allocation of the employer profit sharing contribution and
forfeitures as of an allocation date, provided that he satisfies the
following conditions:
(1) He completed at least 1,000 hours of service during the current
plan year, except that the hours of service requirement shall
not apply with respect to any minimum top heavy allocation as
provided in Section 5.5.,
AND
(2) He is employed by the employer on the last day of the plan year.
Notwithstanding the above conditions for allocation of contributions,
if the plan would otherwise fail to satisfy the participation test or
coverage test of Code Section 410 or the nondiscrimination
requirements of Code Section 401(a)(4), the plan administrator shall
amend the plan in a nondiscriminatory manner to provide for the
participation of additional employees and/or to cause additional
active participants to be eligible for an allocation.
(c) (1) Allocation Formula
The employer profit sharing contribution and forfeitures for the
plan year shall be allocated to the account of each eligible
participant in the ratio that such participant's compensation
bears to the compensation of all participants.
(2) Top-Heavy Plan Years
In any year in which this plan is top-heavy (as defined in
Section 5.5(e)(2)) when aggregated with the prior Horrigan
American, Inc. Employee Stock Ownership Plan which the employer
also sponsors, the top-heavy minimum benefit requirement shall
be met under this plan.
The top-heavy minimum benefit with respect to a participant
shall first be met by any allocation to the Qualified
Non-elective Contribution Account for the plan year. Then the
contributions and forfeitures allocable to the profit sharing
account shall be adjusted as necessary for compliance. The
total of the contributions and forfeitures allocated to such
accounts of each participant shall not be less than an amount
equal to 3% of such participant's compensation or the largest
percentage of employer contribution and forfeiture allocated
under both plans on behalf of any key employee for that year,
whichever is less.
If a participant only participates in this plan, his Qualified
Non-elective Contribution Account and profit sharing account
will receive a cumulative allocation that is not less than an
amount equal to 3% of his compensation or the largest percentage
of employer contribution and forfeiture allocated under both
plans on behalf of any key employee for that year, whichever is
less.
(3) Compensation - For purposes of the allocation of the employer
profit sharing contribution, compensation means compensation as
defined in Section 1.2 for the entire plan year, except that for
the plan year in which the employee first becomes a participant,
compensation means the employee's compensation for the portion
of the plan year in which the employee actually is a
participant.
Section 3.3 Qualified Non-Elective Contributions
The employer may make qualified non-elective contributions on behalf of
either the non-highly compensated active participants or all active
participants that are sufficient to satisfy either the actual deferral
percentage test or the average contribution percentage test, or both,
pursuant to regulations under the Code in lieu of distributing excess
contributions as provided in Section 5.6(b)(2) of the plan, or excess
aggregate contributions as provided in Subsection 5.6(c)(2) of the plan.
Qualified non-elective contributions are contributions (other than profit
sharing contributions or employer matching contributions) which are made
by the employer and allocated to participants' qualified non-elective
contribution accounts and any forfeitures which are so applied that the
participants may not elect to receive in cash until distributed from the
plan; that are nonforfeitable when made; and that are distributable only
in accordance with the distribution provisions that are applicable to
elective deferrals and qualified matching contributions.
(a) Amount of Contribution - The amount of such contributions for each
plan year shall be an amount determined by the employer, in its sole
discretion, after the plan administrator has determined the amount
needed to satisfy test requirements, the test or tests to be
satisfied with such contributions, and the classification of active
participants (all or only the non-highly compensated) to receive the
contribution.
(b) Allocation of Contribution -
(1) Allocation of such contributions shall be made under one of the
following methods to either all active participants or all
non-highly compensated active participants as determined by the
plan administrator for the plan year:
(A) In the ratio which each eligible participant's compensation
for the plan year bears to the total compensation of all
eligible participants for such plan year.
(B) In the ratio which each eligible participant's compensation
not in excess of a specified dollar amount for the plan
year bears to the total compensation of all eligible
participants not in excess of such specified dollar amount
for such plan year. The plan administrator shall set the
specified dollar amount at the level necessary to enable
the plan to satisfy the test or tests being met through the
contribution.
(C) The contribution shall be allocated to those non-highly
compensated employees earning the least compensation during
the plan year as needed to enable the plan to meet the test
requirements the contribution is being used to meet.
(2) Top-Heavy Plan Years
The top-heavy minimum benefit requirements shall be met as
provided under Section 3.2(c)(2) concerning profit sharing and
qualified non-elective contribution allocations.
Section 3.4 Employee 401(k) Elective Deferral Contributions
(a) Amount of Contribution - The employer shall contribute each plan year
on behalf of each active participant who elects salary deferral a sum
equal to the amount which the participant has elected to defer under
a salary reduction arrangement or under a cash or deferred
arrangement. The contribution shall be credited to the participant's
employee 401(k) elective deferral account.
(b) Salary Reduction Election
(1) Availability of Election - An active participant may effect a
salary reduction agreement with the employer under which an
employer contribution will be made to the plan on behalf of such
participant only if he elects to reduce his compensation or to
forgo an increase in his compensation. The amount of salary
deferral may range from 1% to 10% of compensation.
The plan administrator may limit the amount of salary reduction
at any time, if he determines that such limitation is necessary
to meet Internal Revenue Service requirements for a [qualified
cash or deferred arrangement] under Code Section 401(k) and
regulations issued pursuant thereto and as set forth in Section
5.6.
(2) Election Procedures - A written notice of a participant's salary
reduction election shall be given to the employer and to the
plan administrator upon such forms as may be provided by the
plan administrator. The written notice shall be given at least
30 days before January 1, April 1, July 1, or October 1 on which
it is to be effective. However, in no event shall such notice
be given or be effective before the adoption of the employee
401(k) election deferral contribution provision under the plan.
A participant electing salary reduction will be deemed to desire
to continue at the same rate, unless he notifies the plan
administrator at least 30 days before the applicable date of his
desire to change the amount of salary reduction. The revised
election shall be effective on the applicable date. A salary
reduction may be discontinued at any time upon 30 days notice on
the required form. A participant who has declined or suspended
salary reduction may elect salary reduction at a subsequent
election date by written notification to the plan administrator
in the manner and on the forms as provided under this paragraph.
However, if a participant receives a hardship distribution, his
right to elect a salary reduction shall be suspended for 12
months after the receipt of such distribution. Further, the
participant may not elect a salary reduction for his taxable
year immediately following the taxable year of the hardship
distribution in excess of the applicable limit under Code
Section 402(g) for such taxable year less the amount of such
participant's salary reduction for the taxable year of the
hardship distribution.
(3) Conditions - The participant's salary reduction election shall
apply only to compensation which becomes currently available to
the employee after the effective date of the election. The
employer shall apply the salary reduction election to all of the
participant's compensation (and to increases in compensation),
unless the participant's salary reduction election specifies
that the election is to be limited to certain compensation.
(c) Cash or Deferred Election -
No contribution shall be made under this plan pursuant to a cash or
deferred election. All elective deferrals shall be made under a
salary deferral election.
Section 3.5 Employee Nondeductible Contributions
Employee nondeductible contributions are not permitted under this plan and
no amount shall be credited to the employee nondeductible contribution
account. A participant may not treat his excess contributions as an
amount distributed to him and then contributed by him to the plan as an
employee nondeductible contribution as described in Section 5.6(b)(3).
Section 3.6 Employer Matching Contributions
Employer matching contributions shall be made under the provisions of this
Section. Such contributions shall be credited to the employer matching
contribution account.
(a) Qualified Matching Contributions
The employer matching contribution shall not be treated as a
qualified matching contribution. A qualified matching contribution
means matching contributions which are subject to the distribution
and nonforfeitability requirements under Code Section 401(k) when
made.
(b) Contributions Subject to Matching - Employer matching contributions
shall be made with respect to any contributions made under a salary
reduction agreement to the extent provided below. The contributions
shall be credited to the employer matching contribution account of
each eligible participant.
(c) Conditions for Allocation - An active participant shall be eligible
for an allocation of an employer matching contribution as of an
allocation date, provided that he made a contribution which is
subject to matching during the current plan year.
(d) Allocation Formula - The employer matching contribution and any
applicable forfeitures shall be equal to the employer matching
percentage applied to the participant's contributions for the current
plan year which are subject to matching; provided that a
participant's contributions in excess of 6% of his compensation for
the allocation period shall be disregarded for purposes of allocating
the employer matching contributions. Further, the participant's
contributions for the current plan year which are subject to matching
shall be reduced by any such contributions withdrawn during the plan
year. The employer matching percentage shall be equal to 50%.
(e) Forfeitures of Excess Aggregate Contributions
Excess aggregate contributions which are determined under the average
contribution percentage test and which are attributed to employer
matching contributions shall be distributed to the extent vested with
a proportional amount of the nonvested employer matching contribution
being forfeited as of the last day of the plan year in which the
excess arose. Also, any forfeitures required for compliance with
Code Section 401(a)(4) shall occur as of such date. The forfeitures
shall be treated in the manner described in Section 4.2(c)(2).
The forfeitures shall be applied to reduce any employer matching
contribution or any qualified non-elective contribution.
Section 3.7 Rollover/Transfer Contributions
(a) Rollover Contributions - A participant may contribute to his
rollover/transfer account any amounts which he previously received
either as a lump sum distribution (as defined in Code Section
402(d)(4)) or within one taxable year as a distribution from another
qualified plan on account of termination of that plan provided that:
(1) He transferred such distribution to an Individual Retirement
Account or Annuity within sixty (60) days after receipt, or
(2) He transferred such distribution to this plan within sixty (60)
days after receipt.
Before accepting a rollover contribution, the trustee may require an
employee to furnish satisfactory evidence that the proposed transfer
is in fact a [rollover contribution] which the Code permits an
employee to make to a qualified plan.
(b) Transfer Contributions - With the consent of the plan administrator,
the participant may have funds transferred directly to this plan from
another qualified plan. Consent shall not be given if the optional
forms of payment to which the funds are subject under the prior plan
are not properly disclosed by the prior plan or cannot be
accommodated by this plan and trust.
Further, this plan shall not accept any direct or indirect transfers
(in a transfer after December 31, 1984) from a defined benefit plan,
money purchase plan (including a target benefit plan), stock bonus or
profit sharing plan which would otherwise have provided for a life
annuity form of payment to the participant.
(c) Contributions Before Plan Entry Date - An employee, (who is in the
eligible class of employees) prior to satisfying the plan's
eligibility conditions, may make a rollover or transfer contribution
to the plan to the same extent and in the same manner as a
participant. If an employee makes a rollover or transfer
contribution to the plan before satisfying the plan's eligibility
conditions, the plan administrator and trustee will treat the
employee as a participant for all purposes of the plan, except the
employee is not a participant for purposes of contributions or
forfeitures under the plan until he actually becomes a participant in
the plan. If the employee has a separation from service prior to
becoming a participant, the trustee will distribute his rollover or
transfer contribution account to him.
(d) Distribution - The rollover/transfer account shall be subject to
distribution in the same manner as an employer-derived contribution.
Withdrawals may be made from a rollover/transfer account under the
terms and conditions of Section 4.4 if this plan permits any such
in-service withdrawals.
To the extent that a distribution is attributable to a direct
transfer from another qualified plan, the Joint and Survivor
Requirements of Section 5.3 shall be met as if the distribution were
being made from such prior plan.
Section 3.8 Allocation of Investment Results
(a) General Allocation Procedures
Investment income and market value appreciation or depreciation shall
be allocated to each account of each participant who has accrued
benefits in proportion to the respective account balances on each
accounting date. For this purpose, each account balance shall be
equal to the average balance for the period commencing on the day
following the prior accounting date and ending on the current
accounting date.
(b) Investment Elections
A participant may elect to have all of his accounts invested in such
investment fund or combination of investment funds as may be
established by the trustee and made available for the benefit of
participants; provided, however, that in no event may the participant
direct that any portion of his account(s) be invested in collectibles
(as defined in Code Section 408(m)). A participant's investment
election shall not apply to any portion of any account which may be
invested in a participant loan sub-account established under Section
4.4. The investment results shall be allocated to the participant's
account(s) based upon earnings and losses on the participant's share
in such investment fund or funds. Participant investment elections
shall be in writing on a form provided by the plan administrator and
signed by the participant. An election must be received by the plan
administrator at least 15 days before the accounting date as of which
it will be effective. An election may be revoked only by another
election and will remain in effect until such revocation.
ARTICLE IV PAYMENT OF PARTICIPANT ACCOUNTS
Section 4.1 Vesting Service Rules
(a) Vesting Year of Service means a vesting computation period during
which the employee completes at least 1,000 hours of service with the
employer. All of an employee's years of service with the employer
shall be counted to determine the nonforfeitable percentage in the
employee's account balance(s) derived from employer contributions,
except:
(1) Years of service disregarded under the break in service rules in
paragraph (d) below. (Post-ERISA break in service rules)
(2) Years of service before the effective date of ERISA if such
service would have been disregarded under the break in service
rules of the prior plan in effect from time to time before such
date. For this purpose, break in service rules are rules which
result in the loss of prior vesting or benefit accruals, or
which deny an employee eligibility to participate, by reason of
separation or failure to complete a required period of service
within a specified period of time. (Pre-ERISA break in service
rules)
(b) One Year Break in Service means for the purposes of this Article IV a
vesting computation period during which the participant or former
participant does not complete more than 500 hours of service with the
employer.
(c) Vesting Computation Period means the 12-consecutive month period
coinciding with the plan year.
(d) Break in Service Rules
(1) Vested Participant - A former participant who had a
nonforfeitable right to all or a portion of his account
balance(s) derived from employer contributions at the time of
his termination from service shall retain credit for all vesting
years of service prior to a break in service.
(2) Nonvested Participant - In the case of a former participant who
did not have any nonforfeitable right to his account balance(s)
derived from employer contributions at the time of his
termination from service, years of service before a period of
consecutive one-year breaks in service shall not be taken into
account in computing service if the number of consecutive
one-year breaks in service in such period equals or exceeds the
greater of 5 or the aggregate number of years of service before
such breaks in service. Such aggregate number of years of
service shall not include any years of service disregarded under
the preceding sentence by reason of prior breaks in service.
(3) Vesting for Pre-Break and Post-Break Accounts - In the case of a
participant who has 5 or more consecutive one-year breaks in
service, all years of service after such breaks in service shall
be disregarded for the purpose of vesting the employer-derived
account balance(s) that accrued before such breaks in service.
Whether or not such participant's pre-break service counts in
vesting the post-break employer-derived account balance(s) shall
be determined according to the rules set forth in sub-paragraphs
(1) and (2) above. Separate accounts shall be maintained for
each of the participant's pre-break and post-break
employer-derived account balance(s). All accounts shall share
in the investment earnings and losses of the fund.
Section 4.2 Vesting of Participant Accounts
(a) Determination of Vesting
(1) Normal Retirement - A participant's right to his account
balance(s) shall be 100% vested and nonforfeitable upon the
attainment of 65, the normal retirement age. If the employer
enforces a mandatory retirement age, the normal retirement age
shall be the lesser of the mandatory age or the age specified
herein.
(2) Late Retirement - If a participant remains employed after his
normal retirement age, his account balance(s) shall remain 100%
vested and nonforfeitable. Such participant shall continue to
receive allocations to his account as he did before his normal
retirement age.
(3) Early Retirement - In the case of a participant who has attained
age 55 and completed 7 years of service before his normal
retirement age, the participant's right to his account
balance(s) shall be 100% vested and nonforfeitable. Such
participant may retire before his normal retirement age without
the consent of the employer and receive payment of benefits from
the plan. If a participant separates from service before
satisfying the age requirement for early retirement, but has
satisfied the service requirement, the participant shall be
entitled to elect an early retirement benefit upon satisfaction
of such age requirement.
(4) Disability - If a participant separates from service due to
disability, such participant's right to his account balance(s)
as of his date of disability shall be 100% vested and
nonforfeitable. Disability means inability to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to
last for a continuous period of not less than 12 months. The
permanence and degree of such impairment shall be supported by
medical evidence. Notwithstanding such definition, a
participant who is eligible for Social Security disability
benefits shall automatically satisfy the definition of
disability. Disability shall be determined by the plan
administrator after consultation with a physician chosen by the
administrator. In the administration of this section, all
employees shall be treated in a uniform manner in similar
circumstances.
(5) (A) Death - In the event of the death of a participant who has
an accrued benefit under the plan, (whether or not he is an
active participant), 100% of the participant's account
balance(s) as of the date of death shall be paid to his
surviving spouse; except that, if there is no surviving
spouse, or if the surviving spouse has already consented in
a manner which is (or conforms to) a qualified election
under the joint and survivor annuity provisions of Code
Section 417(a) and regulations issued pursuant thereto and
as set forth in Section 5.3, then such balance(s) shall be
paid to the participant's designated beneficiary.
(B) Beneficiary Designation - Subject to the spousal consent
requirements of Section 5.3, the participant shall have the
right to designate his beneficiaries, including a
contingent death beneficiary, and shall have the right at
any time to change such beneficiaries. The designation
shall be made in writing on a form signed by the
participant and supplied by and filed with the plan
administrator. If the participant fails to designate a
beneficiary, or if the designated person or persons
predecease the participant, "beneficiary" shall mean the
spouse, children, parents, brothers and sisters, or estate
of the participant, in the order listed.
(6) Termination From Service - If a participant separates from the
service of the employer other than by retirement, disability or
death, his vested interest in his accounts shall be equal to the
account balance multiplied by the vesting percentage determined
below:
(A) Profit Sharing Account - The vesting percentage applicable
to the participant's profit sharing account shall be
determined based on his vesting years of service as
follows:
Years of Service Vesting Percentage
0-2 Years 0%
3 20%
4 40%
5 60%
6 80%
7 or More Years 100%
(B) Employer Matching Contribution Account - The vesting
percentage applicable to the participant's employer
matching contribution account shall be determined as
follows:
Years of Service Vesting Percentage
0-2 Years 0%
3 20%
4 40%
5 60%
6 80%
7 or More Years 100%
(C) Other Accounts - The participant shall always be 100%
vested in his following accounts: employee 401(k) elective
deferral account; employee nondeductible contribution
account; employer matching contribution account, if the
contributions are being treated as qualified matching
contributions under Section (3.6); qualified non-elective
contribution account; rollover/transfer account and
recharacterized funds account. The accrued benefit in such
accounts shall be nonforfeitable.
(b) Forfeitures
(1) Time of Forfeiture - If a participant terminates employment
before his account balances derived from employer contributions
are fully vested, the nonvested portion of his accounts shall be
forfeited on the earlier of:
(A) The last day of the vesting computation period in which the
participant first incurs 5 consecutive one-year breaks in
service, or
(B) The date the participant receives his entire vested accrued
benefit.
(2) Cashout Distributions and Restoration
(A) Cashout Distribution - If an employee terminates service
and the value of his vested account balances derived from
employer and employee contributions are not greater than
$3,500, the employee shall receive a distribution of the
value of the entire vested portion of such account balances
and the nonvested portion will be treated as a forfeiture.
For purposes of this section, if the value of an employee's
vested account balances is zero, he shall be deemed to have
received a distribution of such vested account balances.
An employee's vested account balance shall not include
accumulated deductible employee contributions within the
meaning of Code Section 72(o)(5)(B) for plan years
beginning prior to January 1, 1989.
If an employee terminates service and the value of his
vested account balances exceeds $3,500, he may elect to
receive the value of his vested account balances after such
termination as provided in Section 4.3. The nonvested
portion shall be treated as a forfeiture as of the date of
distribution. If the employee elects to have distributed
less than the entire vested portion of the account balances
derived from employer contributions, the part of the
nonvested portion that will be treated as a forfeiture is
the total nonvested portion multiplied by a fraction, the
numerator of which is the amount of the distribution
attributable to employer contributions and the denominator
of which is the total value of the vested employer-derived
account balances.
(B) Restoration of Accounts - If an employee receives a cashout
distribution pursuant to this section and resumes
employment covered under this plan before he incurs 5
consecutive one-year breaks in service, his
employer-derived account balances shall each be restored to
the amount on the date of distribution, if he repays to the
plan the full amount of the distribution attributable to
employer contributions before the earlier of 5 years after
the first date on which he is subsequently re-employed by
the employer, or the date he incurs 5 consecutive one-year
breaks in service following the date of the distribution.
If an employee is deemed to receive a distribution pursuant
to this Section 4.2(b)(2), and he resumes employment
covered under this plan before he incurs 5 consecutive
one-year breaks in service, upon the reemployment of such
employee his employer-derived account balances will be
restored to the amount on the date of such deemed
distribution.
Any amount required to restore such forfeitures shall be
deducted from forfeitures (including forfeitures of excess
aggregate contributions) occurring in the plan year of
restoration. If forfeitures are insufficient for the
restoration, the employer may make a contribution to the
plan for such plan year to satisfy the restoration.
However, by the end of the plan year following the plan
year of restoration, sufficient forfeitures or employer
contributions shall be credited to the account to satisfy
the restoration.
(c) Disposition of Forfeitures
(1) Profit Sharing Account -
Forfeitures of profit sharing accounts shall be reallocated
among the eligible active participants at the end of the plan
year in which such forfeitures occur in accordance with the
allocation procedures set forth in Section 3.2.
(2) Employer Matching Contribution Account -
Forfeitures of employer matching contribution accounts shall be
used to reduce the employer matching contribution for the plan
year in which such forfeitures occur.
(d) Withdrawal of Employee Nondeductible Contributions - No forfeitures
shall occur solely as a result of an employee's withdrawal of
employee nondeductible contributions.
(e) Unclaimed Benefits
(1) Forfeiture - The plan does not require the trustee or the plan
administrator to search for, or to ascertain the whereabouts of,
any participant or beneficiary. At the time the participant's
or beneficiary's benefit becomes distributable under the plan,
the plan administrator, by certified or registered mail
addressed to his last known address of record, shall notify any
participant or beneficiary that he is entitled to a distribution
under this plan. If the participant or beneficiary fails to
claim his distributive share or make his whereabouts known in
writing to the plan administrator within twelve months from the
date of mailing of the notice, the plan administrator shall
treat the participant's or beneficiary's unclaimed payable
accrued benefit as forfeited and shall reallocate such
forfeiture in accordance with paragraph (c). A forfeiture under
this paragraph shall occur at the end of the notice period or,
if later, the earliest date applicable Treasury regulations
would permit the forfeiture. These forfeiture provisions apply
solely to the participant's or beneficiary's accrued benefit
derived from employer contributions.
(2) Restoration - If a participant or beneficiary who has incurred a
forfeiture of his accrued benefit under the provisions of this
subsection makes a claim, at any time, for his forfeited accrued
benefit, the plan administrator shall restore the participant's
or beneficiary's forfeited accrued benefit to the same dollar
amount as the dollar amount of the accrued benefit forfeited,
unadjusted for any gains or losses occurring after the date of
the forfeiture. The plan administrator shall make the
restoration during the plan year in which the participant or
beneficiary makes the claim from forfeitures occurring in that
plan year. If forfeitures are insufficient for the restoration,
the employer shall make a contribution to the plan to satisfy
the restoration. The plan administrator shall direct the
trustee to distribute the participant's or beneficiary's
restored accrued benefit to him not later than 60 days after the
close of the plan year in which the plan administrator restores
the forfeited accrued benefit.
Section 4.3 Payment of Participant Accounts
(a) Time of Payment
(1) Commencement of Benefits - Unless the participant elects
otherwise, distribution of benefits shall begin no later than
the 60th day after the latest of the close of the plan year in
which:
(A) The participant attains age 65 (or the plan's normal
retirement age, if earlier);
(B) Occurs the 10th anniversary of the year in which the
participant commenced participation in the plan; or
(C) the participant terminates service with the employer, (i.e.
late retirement).
(2) Payment Upon Retirement, Disability, or Death - Subject to the
provisions set forth in Section 4.3(a)(1), in the Joint and
Survivor Requirements of Section 5.3 and in the Distribution
Requirements of Section 5.4, if the participant terminates
employment due to retirement, disability or death, his
account(s) shall be paid as soon as administratively possible
after the end of the calendar quarter of occurrence of the event
creating the right to a distribution.
(3) Payment Upon Other Termination of Employment - Subject to the
provisions set forth in Section 4.3(a)(1), in the Joint and
Survivor Requirements of Section 5.3, and in the Distribution
Requirements of Section 5.4, if the participant terminates
employment other than by retirement, disability or death, his
account(s) shall be paid as soon as administratively possible
after the end of the calendar quarter in which severance of
employment occurs.
(4) Notwithstanding the foregoing, the failure of a participant (and
spouse where the spouse's consent is required) to consent to a
distribution while a benefit is immediately distributable,
within the meaning of Section 5.3(c), shall be deemed to be an
election to defer commencement of payment of any benefit
sufficient to satisfy this section.
(b) Optional Form(s) of Payment - A participant or beneficiary may elect
to receive distribution of his account(s) in one of the optional
forms of payment outlined below, provided that such distribution
complies with the Distribution Requirements of Section 5.4 and the
Joint and Survivor Requirements of Section 5.3. However, the Joint
and Survivor Requirements other than the provisions of Section 5.3(c)
and (f) shall not apply to a distribution unless a life annuity of
any type is elected by the participant or unless this plan is, with
respect to the participant, a direct or indirect transferee of a
defined benefit plan, money purchase pension plan (including a target
benefit plan), or a stock bonus or profit sharing plan which would
otherwise have provided for a qualified joint and survivor life
annuity as the normal form of payment to the participant.
The participant or beneficiary shall file a written request for
benefits with the plan administrator before payments will commence.
If a participant fails to elect a form of payment, the trustee shall
pay the benefit in installment payments (or as a joint and survivor
annuity payments if the requirements of Section 5.3 apply) which meet
the requirements of Section 5.4.
Optional forms of payment include:
(1) A lump sum payment - If the vested accrued benefit is no more
than $3,500, benefits shall automatically be paid in a lump sum.
A lump sum benefit payment may be made in cash from the fund or
by distribution of assets in kind, provided that the participant
or beneficiary agrees to such distribution in kind and the
trustee determines a current fair market value of the assets to
be distributed.
(2) Installment payments over a period of years which meets the
Distribution Requirements of Section 5.4. Installment payments
may be made in cash from the fund or by distribution of an
annuity term certain contract.
(3) A life annuity of any type issued by an insurance company on the
life of the participant or beneficiary for such amount as the
vested account(s) will purchase, provided that the Joint and
Survivor Annuity Requirements of Section 5.3 and the
Distribution Requirements of Section 5.4 are met.
(c) General Payment Provisions
(1) All distributions due to be made under this plan shall be made
on the basis of the amount to the credit of the participant as
of the accounting date coincident with or immediately preceding
the occurrence of the event calling for a distribution.
If a distributable event occurs after an allocation date and
before allocations have been made to the account of the
participant, the distribution shall also include the amounts
allocable to the account as of such allocation date.
(2) If any person entitled to receive benefits hereunder is
physically or mentally incapable of receiving or acknowledging
receipt thereof, and if a legal representative has been
appointed for him, the plan administrator may direct the benefit
payment to be made to such legal representative.
(3) Each optional form of benefit provided under the plan shall be
made available to all participants on a nondiscriminatory basis.
The plan may not retroactively reduce or eliminate optional
forms of benefits and any other Code Section 411(d)(6) protected
benefits. Any reduction or elimination of optional forms of
benefits shall apply only to benefits accrued after the
effective date of such change.
(4) Any annuity contract distributed herefrom shall be
nontransferrable. The terms of any such annuity contract
purchased and distributed by the plan shall comply with the
requirements of this plan. The ownership of the annuity
contract shall reside with the participant. Any dividend,
refund or recovery on an annuity contract shall be credited to
the participant or beneficiary for whom the annuity contract was
purchased.
(d) Eligible Rollover Distributions
Effective for distributions made on or after January 1, 1993,
notwithstanding the optional forms of payment listed in Section
4.3(b), 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.
(1) 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 Code Section 401(a)(9) and the
portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(2) Eligible Retirement Plan - An eligible retirement plan is an
individual retirement account described in Code Section 408(a),
an individual retirement annuity described in Code Section
408(b), an annuity plan described in Code Section 403(a), or a
qualified trust described in Code Section 401(a), that accepts
the distributee's eligible rollover distribution. However, in
the case of an eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity.
(3) 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 Code Section 414(p), are
distributees with regard to the interest of the spouse or former
spouse.
(4) Direct Rollover - A direct rollover is a payment by the plan to
the eligible retirement plan specified by the distributee.
Section 4.4 In-Service Payments
(a) Withdrawals - A participant may withdraw amounts from his account(s)
before his separation from service only under the circumstances and
only to the extent provided below.
The Joint and Survivor Requirements of Section 5.3 shall not apply to
a withdrawal (except for the provisions of Section 5.3(c) and (f))
unless this plan is, with respect to the participant, a direct or
indirect transferee of a defined benefit plan, money purchase pension
plan (including a target benefit plan), or a stock bonus or profit
sharing plan which would otherwise have provided for a qualified
joint and survivor life annuity as the normal form of payment to the
participant.
Hardship Withdrawals from Employee 401(k) Elective Deferral Account
(1) Availability of Withdrawal Privilege - A participant who has a
financial hardship may request a withdrawal from his employee
401(k) elective deferral account, subject to the consent of the
plan administrator and subject to the limitations and conditions
set forth herein.
(2) Amount of Withdrawal - The amount which an eligible participant
may withdraw from his account shall not exceed the cumulative
amount of his 401(k) salary deferral contributions. Earnings
thereon may not be withdrawn.
(3) Request for Withdrawal - The participant's request to withdraw
must be made in writing to the plan administrator and shall be
subject to his consent. The basis for the plan administrator's
consenting to or refusing to consent to the participant's
request shall be demonstrated financial hardship of the
participant.
Hardship Withdrawals
For the purpose of this Section 4.4, a distribution will be made
on account of hardship if the distribution is necessary in light
of immediate and heavy financial need of the participant. A
distribution based upon financial hardship cannot exceed the
amount required to meet the immediate financial need created by
the hardship and not reasonably available from other resources
of the participant. The determination of the existence of
financial hardship and the amount required to be distributed to
meet the need created by the hardship must be made in accordance
with uniform and non-discriminatory standards established by the
plan administrator under these plan provisions.
An immediate and heavy financial need may be determined to exist
under certain facts and circumstances including the following:
(1) expenses incurred or necessary for medical care described in
Code Section 213(d) of the employee, the employee's spouse,
children, or dependents; (2) the purchase (excluding mortgage
payments) of a principal residence for the employee; (3) payment
of tuition and related educational fees for the next twelve
months of post-secondary education for the employee, the
employee's spouse, children or dependents; or (4) the need to
prevent the eviction of the employee from, or a foreclosure on
the mortgage of, the employee's principal residence.
A distribution will be considered as necessary to satisfy an
immediate and heavy financial need of the employee only if:
1. The employee has obtained all distributions, other than
hardship distributions, and all nontaxable loans under all
plans maintained by the employer;
2. All plans maintained by the employer provide that the
employee's elective deferrals (and employee nondeductible
contributions) will be suspended for twelve months after
the receipt of the hardship distribution;
3. The distribution is not in excess of the amount of an
immediate and heavy financial need (including amounts
necessary to pay any federal, state or local income taxes
or penalties reasonably anticipated to result from the
distribution); and
4. All plans maintained by the employer provide that the
employee may not make elective deferrals for the employee's
taxable year immediately following the taxable year of the
hardship distribution in excess of the applicable limit
under Code Section 402(g) for such taxable year less the
amount of such employee's elective deferrals for the
taxable year of the hardship distribution.
(b) Participant Loans
No participant loans shall be permitted under this plan.
Section 4.5 Distributions under Domestic Relations Orders
Nothing contained in this plan prevents the trustee, in accordance with
the direction of the plan administrator, from complying with the
provisions of a qualified domestic relations order (as defined in Code
Section 414(p)).
A distribution will not be made to an alternate payee until the
participant attains (or would have attained) his earliest retirement age.
For this purpose, earliest retirement age means the earlier of: (1) the
date on which the participant is entitled to a distribution under this
plan; or (2) the later of the date the participant attains age 50 or the
earliest date on which the participant could begin receiving benefits
under this plan if the participant separated from service.
Nothing in this Section gives a participant a right to receive
distribution at a time otherwise not permitted under the plan nor does it
permit the alternate payee to receive a form of payment not otherwise
permitted under the plan.
The plan administrator shall establish reasonable procedures to determine
the qualified status of a domestic relations order. Upon receiving a
domestic relations order, the plan administrator promptly will notify the
participant and any alternate payee named in the order, in writing, of the
receipt of the order and the plan's procedures for determining the
qualified status of the order. Within a reasonable period of time after
receiving the domestic relations order, the plan administrator shall
determine the qualified status of the order and shall notify the
participant and each alternate payee, in writing, of its determination.
The plan administrator shall provide notice under this paragraph by
mailing to the individual's address specified in the domestic relations
order, or in a manner consistent with Department of Labor regulations.
If any portion of the participant's nonforfeitable accrued benefit is
payable during the period the plan administrator is making its
determination of the qualified status of the domestic relations order, the
plan administrator shall make a separate accounting of the amounts
payable. If the plan administrator determines the order is a qualified
domestic relations order within 18 months of the date amounts first are
payable following receipt of the order, it shall direct the trustee to
distribute the payable amounts in accordance with the order. If the plan
administrator does not make its determination of the qualified status of
the order within the 18-month determination period, it shall direct the
trustee to distribute the payable amounts in the manner the plan would
distribute if the order did not exist and will apply the order
prospectively if it later determines the order is a qualified domestic
relations order.
To the extent it is not inconsistent with the provisions of the qualified
domestic relations order, the plan administrator may direct the trustee to
invest any partitioned amount in a segregated subaccount or separate
account and to invest the account in Federally insured, interest-bearing
savings account(s) or time deposit(s) (or a combination of both), or in
other fixed income investments. A segregated subaccount remains a part of
the trust, but it alone shares in any income it earns, and it alone bears
any expense or loss it incurs. The trustee will make any payments or
distributions under this section by separate benefit checks or other
separate distribution to the alternate payee(s).
ARTICLE V ADDITIONAL QUALIFICATION RULES
Section 5.1 Limitations on Allocations under Code Section 415
(a) Single Plan Limitations
(1) 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 Code Section
419(e) maintained by the employer, or an individual medical
account, as defined in Code Section 415(1)(2), maintained by the
employer, which provides an annual addition as defined in
Section 5.1(d)(1), 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 permissible amount 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 permissible amount,
the amount contributed or allocated will be reduced so that the
annual additions for the limitation year will equal the maximum
permissible amount.
(2) Prior to determining the participant's actual compensation for
the limitation year, the employer may determine the maximum
permissible amount for a participant on the basis of a
reasonable estimation of the participant's compensation for the
limitation year, uniformly determined for all participants
similarly situated.
(3) As soon as is administratively feasible after the end of the
limitation year, the maximum permissible amount for the
limitation year will be determined on the basis of the
participant's actual compensation for the limitation year.
(4) If pursuant to Section 5.1(a)(3) or as a result of either the
allocation of forfeitures or a reasonable error in determining
the amount of elective deferrals that may be made with respect
to a participant, there is an excess amount, the excess will be
disposed of as follows:
(A) Any employee nondeductible contributions, to the extent
they would reduce the excess amount, will be returned to
the participant.
(B) If after the application of paragraph (A) an excess amount
still exists, any elective deferrals, to the extent they
would reduce the excess amount, will be distributed to the
participant.
(C) If after the application of paragraph (B) an excess amount
still exists, the excess amount shall be allocated and
reallocated to the profit sharing account or qualified
non-elective contribution account of the other participants
in the plan to the extent permissible under the limitations
of this Section 5.1.
(D) If after the application of paragraph (C) an excess amount
still exists, the excess amount will be held unallocated in
a suspense account. The suspense account will be applied
to reduce future employer contributions for all active
participants in the next limitation year, and each
succeeding limitation year if necessary.
(E) If a suspense account is in existence at any time during a
limitation year pursuant to this Section 5.1(a)(4), it will
not participate in the allocation of the trust's investment
gains and losses. If a suspense account is in existence at
any time during a particular limitation year, all amounts
in the suspense account must be allocated and reallocated
to participants' accounts before any employer, elective
deferral or employee nondeductible contributions may be
made to the plan for that limitation year. Excess amounts
may not be distributed to participants or former
participants.
(b) Combined Limitations - Other Defined Contribution Plan
(1) This Subsection applies if, in addition to this plan, the
participant is covered under another qualified defined
contribution plan maintained by the employer, a welfare benefit
fund, as defined in Code Section 419(e) maintained by the
employer, or an individual medical account, as defined in Code
Section 415(1)(2), maintained by the employer, which provides an
annual addition as defined in Section 5.1(d)(1), during any
limitation year. The annual additions which may be credited to
a participant's account under this plan for any such limitation
year will not exceed the maximum permissible amount reduced by
the annual additions credited to a participant's account under
the other plans and welfare benefit funds for the same
limitation year. If the annual additions with respect to the
participant under other defined contribution plans and welfare
benefit funds maintained by the employer are less than the
maximum permissible amount and the employer contribution that
would otherwise be contributed or allocated to the participant's
account under this plan would cause the annual additions for the
limitation year to exceed this limitation, the amount
contributed or allocated will be reduced so that the annual
additions under all such plans and funds for the limitation year
will equal the maximum permissible amount. If the annual
additions with respect to the participant under such other
defined contribution plans and welfare benefit funds in the
aggregate are equal to or greater than the maximum permissible
amount, no amount will be contributed or allocated to the
participant's account under this plan for the limitation year.
(2) Prior to determining the participant's actual compensation for
the limitation year, the employer may determine the maximum
permissible amount for a participant in the manner described in
Section 5.1(a)(2).
(3) As soon as is administratively feasible after the end of the
limitation year, the maximum permissible amount for the
limitation year will be determined on the basis of the
participant's actual compensation for the limitation year.
(4) If, pursuant to Section 5.1(b)(3) or as a result of the
allocation of forfeitures, a participant's annual additions
under this plan and such other plans would result in an excess
amount for a limitation year, the excess amount will be deemed
to consist of the annual additions last allocated, except that
annual additions attributable to a welfare benefit fund or
individual medical account will be deemed to have been allocated
first regardless of the actual allocation date.
(5) If an excess amount was allocated to a participant on an
allocation date of this plan which coincides with an allocation
date of another plan, the excess amount will be disposed of in
the manner provided in Section 3.1(c).
(6) Any excess amount attributed to this plan will be disposed of in
the manner described in Section 5.1(a)(4).
(c) Combined Limitations - Other Defined Benefit Plan
If the employer maintains, or at any time maintained, a qualified
defined benefit plan covering any participant in this plan, the sum
of the participant's defined benefit plan fraction and defined
contribution plan fraction will not exceed 1.0 in any limitation
year. Any excess amounts shall be disposed of in the manner provided
in Section 3.1(c). Any excess amount attributed to this plan will be
disposed of in the manner described in Section 5.1(a)(4).
(d) Definitions (Code Section 415 Limitations)
(1) Annual Additions - The sum of the following amounts credited to
a participant's account for the limitation year:
(A) employer contributions,
(B) employee contributions,
(C) forfeitures, and
(D) amounts allocated, after March 31, 1984, to an individual
medical account, as defined in Code Section 415(l)(2),
which is part of a pension or annuity plan maintained by
the employer are treated as annual additions to a defined
contribution plan. Also amounts derived from contributions
paid or accrued after December 31, 1985, in taxable 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 are treated
as annual additions to a defined contribution plan.
For this purpose, any excess amount applied under Section
5.1(a)(4) or (b)(6) in the limitation year to increase the
accounts of participants who did not have an excess amount or to
reduce employer contributions will be considered annual
additions for such limitation year.
(2) Compensation - A participant's earned income and any earnings
reportable as W-2 wages for Federal income tax withholding
purposes as described in Section 1.2(a).
For limitation years beginning after December 31, 1991, for
purposes of applying the limitations of this Section 5.1,
compensation for a limitation year is the compensation actually
paid or includible in gross income during such limitation year.
Notwithstanding the preceding sentence, compensation for a
participant in a defined contribution plan who is permanently
and totally disabled (as defined in Code Section 22(e)(3)) is
the compensation such participant would have received for the
limitation year if the participant had been paid at the rate of
compensation paid immediately before becoming permanently and
totally disabled; such imputed compensation for the disabled
participant may be taken into account only if the participant is
not a highly compensated employee (as defined in Code Section
414(q)) and contributions made on behalf of such participant are
nonforfeitable when made.
(3) Defined Benefit Fraction - A fraction, the numerator of which is
the sum of the participant's projected annual benefits under all
the defined benefit plans (whether or not terminated) maintained
by the employer, and the denominator of which is the lesser of
125 percent of the dollar limitation determined for the
limitation year under Code Sections 415(b) and (d) or 140
percent of the highest average compensation, including any
adjustments under Code Section 415(b).
Notwithstanding the above, 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 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.
(4) Defined Contribution Dollar Limitation - $30,000 or if greater,
one-fourth of the defined benefit dollar limitation set forth in
Code Section 415(b)(1) as in effect on January 1 of each
calendar year with respect to the limitation year ending with or
within such calendar year.
(5) Defined Contribution Fraction - A fraction, the numerator of
which is the sum of the annual additions to the participant's
account under all the defined contribution plans (whether or not
terminated) maintained by the employer for the current and all
prior limitation years (including the annual additions
attributable to the participant's nondeductible employee
contributions to all defined benefit plans, whether or not
terminated, maintained by the employer, and the annual additions
attributable to all welfare benefit funds, as defined in Code
Section 419(e), and individual medical accounts, as defined in
Code Section 415(l)(2), maintained by the employer), and the
denominator of which is the sum of the maximum aggregate amounts
for the current and all prior limitation years of service with
the employer (regardless of whether a defined contribution plan
was maintained by the employer). The maximum aggregate amount
in any limitation year is the lesser of 125 percent of the
dollar limitation determined under Code Sections 415(b) and (d)
in effect under Code Section 415(c)(1)(A) or 35 percent of the
participant's compensation for such year.
If the employee was a participant as of the end 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 which were in existence on May 6, 1986, the numerator
of this fraction will be adjusted if the sum of this fraction
and the defined benefit fraction would otherwise exceed 1.0
under the terms of this plan. Under the adjustment, an amount
equal to the product of (1) the excess of the sum of the
fractions over 1.0 times (2) the denominator of this fraction,
will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions 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 limitation 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.
(6) Employer - For purposes of this Section 5.1, employer shall mean
the employer that adopts this plan, and all members of a
controlled group of corporations (as defined in Code Section
414(b) as modified by Section 415(h)), all commonly controlled
trades or businesses (as defined in Code Section 414(c) as
modified by Section 415(h)) or affiliated service groups (as
defined in Code Section 414(m)) of which the adopting employer
is a part, and any other entity required to be aggregated with
the employer pursuant to regulations under Code Section 414(o).
(7) Excess Amount - The excess of the participant's annual additions
for the limitation year over the maximum permissible amount.
(8) Highest Average Compensation - The average compensation for the
three consecutive years of service with the employer that
produces the highest average. A year of service with the
employer is the 12-consecutive month period coinciding with the
plan year.
(9) Limitation Year - A calendar year, or the 12-consecutive month
period coinciding with the plan year, unless the employer adopts
another 12-consecutive month period by means of a written
resolution. All qualified plans maintained by the employer must
use the same limitation year. If the limitation year is amended
to a different 12-consecutive month period, the new limitation
year must begin on a date within the limitation year in which
the amendment is made.
(10) Maximum Permissible Amount - The maximum annual addition that
may be contributed or allocated to a participant's account under
the plan for any limitation year shall not exceed the lesser of:
(A) the defined contribution dollar limitation as defined in
Subsection (d)(4); or
(B) 25 percent of the participant's compensation for the
limitation year.
The compensation limitation referred to in (B) 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 419A(d)(2).
If a short limitation year is created because of an amendment
changing the limitation year to a different 12-consecutive month
period, the maximum permissible amount will not exceed the
defined contribution dollar limitation multiplied by the
following fraction:
Number of months in the short limitation year 12
(11) Projected Annual Benefit - The annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity if
such benefit is expressed in a form other than a straight life
annuity or qualified joint and survivor annuity) to which the
participant would be entitled under the terms of the plan
assuming:
(A) the participant will continue employment until normal
retirement age under the plan (or current age, if later);
and
(B) the participant's compensation for the current limitation
year and all other relevant factors used to determine
benefits under the plan will remain constant for all future
limitation years.
Section 5.2 Control of Trades or Businesses by Owner-Employee
If this plan provides contributions or benefits for one or more
owner-employees who control both the business for which this plan is
established and one or more other trades or businesses, this plan and the
plan established for other trades or businesses must, when looked at as a
single plan, satisfy Code Sections 401(a) and (d) for the employees of
this and all other trades or businesses.
If the plan provides contributions or benefits for one or more
owner-employees who control one or more other trades or businesses, the
employees of the other trades or businesses must be included in a plan
which satisfies Code Sections 401(a) and (d) and which provides
contributions and benefits not less favorable than those provided for
owner-employees under this plan.
If an individual is covered as an owner-employee under the plans of two or
more trades or businesses which are not controlled and the individual
controls a trade or business, then the contributions or benefits of the
employees under the plan of the trades or businesses which are controlled
must be as favorable as those provided for him under the most favorable
plan of the trade or business which is not controlled.
For purposes of the preceding paragraphs, an owner-employee, or two or
more owner-employees, will be considered to control a trade or business if
the owner-employee, or two or more owner-employees together:
(1) own the entire interest in an unincorporated trade or business;
or
(2) in the case of a partnership, own more than 50 percent of either
the capital interest or the profits interest in the partnership.
For purposes of the preceding sentence, an owner-employee, or two or more
owner-employees shall be treated as owning any interest in a partnership
which is owned, directly or indirectly, by a partnership which such
owner-employee, or such two or more owner-employees, are considered to
control within the meaning of the preceding sentence.
Section 5.3 Joint and Survivor Annuity Requirements
The provisions of this Section 5.3 shall apply to any participant who is
credited with at least one hour of service with the employer on or after
August 23, 1984, and such other participants as provided in Paragraph (g).
However, with respect to any participant meeting the conditions of Section
5.3(f), only Section 5.3(c) and (f) shall apply.
(a) Qualified Joint and Survivor Annuity - Unless an optional form of
benefit is selected pursuant to a qualified election within the
90-day period ending on the annuity starting date, a married
participant's vested account balance will be paid in the form of a
qualified joint and survivor annuity and an unmarried participant's
vested account balance will be paid in the form of a life annuity
with a ten year guaranteed period. The participant may elect to have
such annuity distributed upon attainment of the earliest retirement
age under the plan.
(b) Qualified Preretirement Survivor Annuity - Unless an optional form of
benefit has been selected within the election period pursuant to a
qualified election, if a participant dies before the annuity starting
date, the participant's vested account balance shall be applied
toward the purchase of an annuity for the life of the surviving
spouse. The surviving spouse may elect to have such annuity
distributed within a reasonable period after the participant's death.
(c) Restrictions on Immediate Distributions - If the value of a
participant's vested account balance derived from employer and
employee contributions exceeds (or at the time of any prior
distribution exceeded) $3,500, and the account balance is immediately
distributable, the participant and the participant's spouse (or where
either the participant or the spouse has died, the survivor) must
consent to any distribution of such account balance. The consent of
the participant and the participant's spouse shall be obtained in
writing within the 90-day period ending on the annuity starting date.
The annuity starting date is the first day of the first period for
which an amount is paid as an annuity or any other form. The plan
administrator shall notify the participant and the participant's
spouse of the right to defer any distribution until the participant's
account balance is no longer immediately distributable. Such
notification shall include a general description of the material
features, and an explanation of the relative values of, the optional
forms of benefit available under the plan in a manner that would
satisfy the notice requirements of Code Section 417(a)(3), and shall
be provided no less than 30 days and no more than 90 days prior to
the annuity starting date.
Notwithstanding the foregoing, only the participant need consent to
the commencement of a distribution in the form of a qualified joint
and survivor annuity while the account balance is immediately
distributable. Furthermore, if payment in the form of a qualified
joint and survivor annuity is not required with respect to the
participant pursuant to Paragraph (f) of this Subsection 5.3, only
the participant need consent to the distribution of an account
balance that 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 Section 415. In addition, upon termination of this plan
if the plan does not offer an annuity option (purchased from a
commercial provider) and if the employer or any entity within the
same controlled group as the employer does not maintain another
defined contribution plan (other than an employee stock ownership
plan as defined in Code Section 4975(e)(7)), the participant's
account balance may, without the participant's consent, be
distributed to the participant. However, if any entity within the
same controlled group as the employer maintains another defined
contribution plan (other than an employee stock ownership plan as
defined in Code Section 4975(e)(7)), the participant's account
balance will be transferred, without the participant's consent, to
the other plan if the participant does not consent to an immediate
distribution.
An account balance is immediately distributable if any part of the
account balance could be distributed to the participant (or surviving
spouse) before the participant attains (or would have attained if not
deceased) the later of normal retirement age or age 62.
(d) Definitions (Code Section 417 Requirements)
(1) Election Period - The period which begins on the first day of
the plan year in which the participant attains age 35 and ends
on the date of the participant's death. If a participant
separates from service prior to the first day of the plan year
in which age 35 is attained, with respect to the account balance
as of the date of separation, the election period shall begin on
the date of separation.
(2) Pre-age 35 Waiver - A participant who will not yet attain age 35
as of the end of any current plan year may make a special
qualified election to waive the qualified preretirement survivor
annuity for the period beginning on the date of such election
and ending on the first day of the plan year in which the
participant will attain age 35. Such election shall not be
valid unless the participant receives a written explanation of
the qualified preretirement survivor annuity in such terms as
are comparable to the explanation required under Paragraph
(e)(1). Qualified preretirement survivor annuity coverage will
be automatically reinstated as of the first day of the plan year
in which the participant attains age 35. Any new waiver on or
after such date shall be subject to the full requirements of
this Subsection 5.3.
(3) Earliest Retirement Age - The earliest date on which, under the
plan, the participant could elect to receive retirement
benefits.
(4) Qualified Election - A waiver of a qualified joint and survivor
annuity or a qualified preretirement survivor annuity. Any
waiver of a qualified joint and survivor annuity or a qualified
preretirement survivor annuity shall not be effective unless:
(a) the participant's spouse consents in writing to the
election; (b) the election designates a specific beneficiary,
including any class of beneficiaries or any contingent
beneficiaries, which may not be changed without spousal consent
(or the spouse expressly permits designations by the participant
without any further spousal consent); (c) the spouse's consent
acknowledges the effect of the election; and (d) the spouse's
consent is witnessed by a plan representative or notary public.
Additionally, a participant's waiver of the qualified joint and
survivor annuity shall not be effective unless the election
designates a form of benefit payment which may not be changed
without spousal consent (or the spouse expressly permits
designations by the participant without any further spousal
consent). If it is established to the satisfaction of a plan
representative that there is no spouse or that the spouse cannot
be located, a waiver will be deemed a qualified election.
Any consent by a spouse obtained under this provision (or
establishment that the consent of a spouse may not be obtained)
shall be effective only with respect to such spouse. A consent
that permits designations by the participant without any
requirement of further consent by such spouse must acknowledge
that the spouse has the right to limit consent to a specific
beneficiary, and a specific form of benefit where applicable,
and that the spouse voluntarily elects to relinquish either or
both of such rights. A revocation of a prior waiver may be made
by a participant without the consent of the spouse at any time
before the commencement of benefits. The number of revocations
shall not be limited. No consent obtained under this provision
shall be valid unless the participant has received notice as
provided in Paragraph (e).
(5) Qualified Joint and Survivor Annuity - An immediate annuity for
the life of the participant with a survivor annuity for the life
of the spouse which is not less than 50 percent and not more
than 100 percent of the amount of the annuity which is payable
during the joint lives of the participant and the spouse and
which is the amount of benefit which can be purchased with the
participant's vested account balance. The percentage of the
survivor annuity under the plan shall be 50% (unless a different
percentage is elected by the participant).
(6) Spouse (Surviving Spouse) - The spouse or surviving spouse of
the participant, provided that a former spouse will be treated
as the spouse or surviving spouse and a current spouse will not
be treated as the spouse or surviving spouse to the extent
provided under a qualified domestic relations order as described
in Code Section 414(p).
(7) Annuity Starting Date - The first day of the first period for
which an amount is paid as an annuity or any other form.
(8) Vested Account Balance - The aggregate value of the
participant's vested account balances derived from employer and
employee contributions (including rollovers), whether vested
before or upon death, including the proceeds of insurance
contracts, if any, on the participant's life. The provisions of
this Subsection 5.3 shall apply to a participant who is vested
in amounts attributable to employer contributions, employee
contributions (or both) at the time of death or distribution.
(e) Notice Requirements
(1) In the case of a qualified joint and survivor annuity, the plan
administrator shall no less than 30 days and no more than 90
days prior to the annuity starting date provide each participant
a written explanation of: (i) the terms and conditions of a
qualified joint and survivor annuity; (ii) the participant's
right to make and the effect of an election to waive the
qualified joint and survivor annuity form of benefit; (iii) the
rights of a participant's spouse; and (iv) the right to make,
and the effect of, a revocation of a previous election to waive
the qualified joint and survivor annuity.
(2) In the case of a qualified preretirement survivor annuity as
described in Paragraph (b) of this Subsection, the plan
administrator shall provide each participant within the
applicable period for such participant a written explanation of
the qualified preretirement survivor annuity in such terms and
in such manner as would be comparable to the explanation
provided for meeting the requirements of Paragraph (e)(1)
applicable to a qualified joint and survivor annuity.
The applicable period for a participant is whichever of the
following periods ends last: (i) 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; (ii) a reasonable
period ending after the individual becomes a participant; (iii)
a reasonable period ending after Paragraph (e)(3) ceases to
apply to the participant; (iv) a reasonable period ending after
this Subsection 5.3 first applies to the participant.
Notwithstanding the foregoing, notice must be provided within a
reasonable period ending after separation from service in the
case of a participant who separates from service before
attaining age 35.
For purposes of applying the preceding paragraph, a reasonable
period ending after the enumerated events described in (ii),
(iii) and (iv) is the end of the two-year period beginning one
year prior to the date the applicable event occurs, and ending
one year after that date. In the case of a participant who
separates from service before the plan year in which he attains
age 35, notice shall be provided within the two-year period
beginning one year prior to separation and ending one year after
separation. If such a participant thereafter returns to
employment with the employer, the applicable period for such
participant shall be redetermined.
(3) Notwithstanding the other requirements of this Paragraph (e),
the respective notices prescribed by this Paragraph need not be
given to a participant if (1) the plan "fully subsidizes" the
costs of a qualified joint and survivor annuity or qualified
preretirement survivor annuity, and (2) the plan does not allow
the participant to waive the qualified joint and survivor
annuity or qualified preretirement survivor annuity and does not
allow a married participant to designate a nonspouse
beneficiary. For purposes of this Subparagraph (e)(3), a plan
fully subsidizes the costs of a benefit if no increase in cost,
or decrease in benefits to the participant may result from the
participant's failure to elect another benefit.
(f) Safe Harbor Rules
This Paragraph (f) shall apply to a participant in a profit-sharing
plan, and to any distribution, made on or after the first day of the
first plan year beginning after December 31, 1988, from or under a
separate account attributable solely to accumulated deductible
employee contributions, as defined in Code Section 72(o)(5)(B), and
maintained on behalf of a participant in a money purchase pension
plan, (including a target benefit plan) if the following conditions
are satisfied: (1) the participant does not or cannot elect payments
in the form of a life annuity; and (2) on the death of a participant,
the participant's vested account balance will be paid to the
participant's surviving spouse, but if there is no surviving spouse,
or if the surviving spouse has consented in a manner conforming to a
qualified election, then to the participant's designated beneficiary.
The surviving spouse may elect to have distribution of the vested
account balance commence within the 90-day period following the date
of the participant's death. The account balance shall be adjusted
for gains or losses occurring after the participant's death in
accordance with the provisions of the plan governing the adjustment
of account balances for other types of distributions. This Paragraph
(f) shall not be operative with respect to a participant in a
profit-sharing plan if the plan is a direct or indirect transferee of
a defined benefit plan, money purchase plan, a target benefit plan,
stock bonus, or profit-sharing plan which is subject to the survivor
annuity requirements of Code Section 401(a)(11) and section 417. If
this Paragraph (f) is operative, then the provisions of this
Subsection 5.3, other than Paragraphs (c) and (g) shall be
inoperative.
(1) The participant may waive the spousal death benefit described in
this Paragraph (f) at any time provided that no such waiver
shall be effective unless it satisfies the conditions of
Paragraph (d)(4) (other than the notification requirement
referred to therein) that would apply to the participant's
waiver of the qualified preretirement survivor annuity.
(2) For purposes of this Paragraph (f), vested account balance shall
mean, in the case of a money purchase pension plan or a target
benefit plan, the participant's separate account balance
attributable solely to accumulated deductible employee
contributions within the meaning of Code Section 72(o)(5)(B).
In the case of a profit-sharing plan, vested account balance
shall have the same meaning as provided in Paragraph (d)(8).
(g) Transitional Rules
(1) Any living participant not receiving benefits on August 23,
1984, who would otherwise not receive the benefits prescribed by
the previous Paragraphs of this Subsection 5.3 must be given the
opportunity to elect to have the prior Paragraphs of this
Subsection apply if such participant is credited with at least
one hour of service under this plan or a predecessor plan in a
plan year beginning on or after January 1, 1976, and such
participant had at least 10 years of vesting service when he or
she separated from service.
(2) Any living participant not receiving benefits on August 23,
1984, who was credited with at least one hour of service under
this plan or a predecessor plan on or after September 2, 1974,
and who is not otherwise credited with any service in a plan
year beginning on or after January 1, 1976, must be given the
opportunity to have his or her benefits paid in accordance with
Subparagraph (4).
(3) The respective opportunities to elect (as described in
Subparagraphs (1) and (2)) must be afforded to the appropriate
participants during the period commencing on August 23, 1984,
and ending on the date benefits would otherwise commence to said
participants.
(4) Any participant who has elected pursuant to Subparagraph (2) and
any participant who does not elect under Subparagraph (1) or who
meets the requirements of Subparagraph (1) except that such
participant does not have at least 10 years of vesting service
when he or she separates from service, shall have his or her
benefits distributed in accordance with all of the following
requirements if benefits would have been payable in the form of
a life annuity:
(A) Automatic joint and survivor annuity - If benefits in the
form of a life annuity become payable to a married
participant who:
(i) begins to receive payments under the plan on or
after normal retirement age; or
(ii) dies on or after normal retirement age while
still working for the employer; or
(iii) begins to receive payments on or after the
qualified early retirement age; or
(iv) separates from service on or after attaining
normal retirement age (or the qualified early
retirement age) and after satisfying the
eligibility requirements for the payment of
benefits under the plan and thereafter dies
before beginning to receive such benefits;
then such benefits will be received under this plan in the
form of a qualified joint and survivor annuity, unless the
participant has elected otherwise during the election
period. The election period must begin at least 6 months
before the participant attains qualified early retirement
age and end not more than 90 days before the commencement
of benefits. Any election hereunder will be in writing and
may be changed by the participant at any time.
(B) Election of early survivor annuity - A participant who is
employed after attaining the qualified early retirement age
will be given the opportunity to elect, during the election
period, to have a survivor annuity payable on death. If
the participant elects the survivor annuity, payments under
such annuity must not be less than the payments which would
have been made to the spouse under the qualified joint and
survivor annuity if the participant had retired on the day
before his or her death. Any election under this provision
will be in writing and may be changed by the participant at
any time. The election period begins on the later of (1)
the 90th day before the participant attains the qualified
early retirement age, or (2) the date on which
participation begins, and ends on the date the participant
terminates employment.
(C) For purposes of this Subparagraph (4), qualified early
retirement age is the latest of:
(i) the earliest date, under the plan, on which the
participant may elect to receive retirement
benefits;
(ii) the first day of the 120th month beginning before
the participant reaches normal retirement age; or
(iii) the date the participant begins participation.
Further, for purposes of this Subparagraph (4), a qualified
joint and survivor annuity is an annuity for the life of
the participant with an survivor annuity for the life of
the spouse as described in Paragraph (d)(5).
(h) Loans
If required under Section 4.4(b)(1)(A) of the plan, a participant
must obtain the consent of his spouse, if any, to use his account
balances as security for a 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 is to be so secured. The consent must be in
writing, must acknowledge the effect of the loan, and must be
witnessed by a plan representative or 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 account balances are used for renegotiation,
extension, renewal, or other revision of the loan.
Once a valid spousal consent has been obtained in compliance with
this provision, then, notwithstanding any other provision of this
plan, the portion of the participant's vested account balances 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 account balances 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 balances (determined without regard to the preceding
sentence) is payable to the surviving spouse, then the account
balances shall be adjusted by first reducing the vested account
balances by the amount of the security used as repayment of the loan,
and then determining the benefit payable to the surviving spouse.
Section 5.4 Distribution Requirements
Subject to Subsection 5.3 Joint and Survivor Annuity Requirements, the
requirements of this Subsection 5.4 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 Subsection apply to calendar years beginning after December 31, 1984.
All distributions required under this Subsection 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.
(a) Required Beginning Date - The entire interest of a participant must
be distributed or begin to be distributed no later than the
participant's required beginning date.
(b) Limits on Distribution Periods - 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 a 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.
(c) Determination of Amount to Be Distributed Each Year - 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.
(1) Individual Account -
(A) If a participant's benefit is to be distributed over (1) 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 (2) a period not extending beyond the life
expectancy of the designated beneficiary, the amount
required to be distributed for each calendar year,
beginning with distributions for the first distribution
calendar year, must at least equal the quotient obtained by
dividing the participant's benefit by the applicable life
expectancy.
(B) 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.
(C) 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 (1) the
applicable life expectancy or (2) 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
Paragraph (c)(1)(A) above as the relevant divisor without
regard to Proposed Regulations Section 1.401(a)(9)-2.
(D) 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 other calendar years, including the
minimum distribution for the distribution calendar year in
which the employee's required beginning date occurs, must
be made on or before December 31 of that distribution
calendar year.
(2) Other Forms - 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.
(d) Death Distribution Provisions
(1) Distribution beginning before death - If the participant dies
after distribution of his or her 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 or her interest begins, distribution
of the participant's entire interest shall be completed by
December 31 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
(A) or (B) below:
(A) 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;
(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 later of (i) December 31 of the calendar year
immediately following the calendar year in which the
participant died and (ii) 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 Paragraph (d)(2) by the time of his or her death, the
participant's designated beneficiary must elect the method
of distribution no later than the earlier of (1) December
31 of the calendar year in which distributions would be
required to begin under this Paragraph, or (2) 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 Paragraph (d)(2) above, if the surviving spouse
dies after the participant, but before payments to such spouse
begin, the provisions of Paragraph (d)(2) with the exception of
paragraph (B) therein, shall be applied as if the surviving
spouse were the participant.
(4) For purposes of this Paragraph (d), 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 the purposes of this Paragraph (d), distribution of a
participant's interest is considered to begin on the
participant's required beginning date (or, if Subparagraph (3)
above is applicable, the date distribution is required to begin
to the surviving spouse pursuant to Subparagraph (2) above). If
distribution in the form of an annuity irrevocably commences to
the participant before the required beginning date, the date
distribution is considered to begin is the date distribution
actually commences.
(e) Definitions (Code Section 401(a)(9) Requirements)
(1) Applicable Life Expectancy - The 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 as so
recalculated. The applicable calendar year shall be the first
distribution calendar year, and if life expectancy is being
recalculated such succeeding calendar year.
(2) Designated Beneficiary - The individual who is designated as the
beneficiary under the plan in accordance with Code Section
401(a)(9) and the proposed regulations thereunder.
(3) Distribution Calendar Year - 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 Paragraph (d)
above.
(4) Life Expectancy - Life expectancy and joint and last survivor
expectancy are computed by use of the expected return multiples
in Tables V and 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 Paragraph (d)(2)(B) above) 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.
(5) Participant's Benefit -
(A) 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 dates in the valuation calendar year
after the valuation date and decreased by distributions
made in the valuation calendar year after the valuation
date.
(B) Exception for second distribution calendar year. For
purposes of Subparagraph (5)(A) 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.
(6) Required Beginning Date - The required beginning date of a
participant is the first day of April of the calendar year
following the calendar year in which the participant attains age
70 1/2.
(A) The required beginning date of a participant who attains
age 70 1/2 before January 1, 1988, shall be determined in
accordance with (i) or (ii) below.
(i) Non-5-percent owners. The required beginning date of
a participant 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.
(ii) 5-percent owners. The required beginning date of a
participant who is a 5-percent owner during any year
beginning after December 31, 1979, is the first day of
April following the later of :
a. the calendar year in which the participant
attains age 70 1/2; or
b. 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.
The required beginning date of a participant who is
not a 5-percent owner who attains age 70 1/2 during
1988 and who has not retired as of January 1, 1989, is
April 1, 1990.
(B) 5-percent owner. A participant is treated as a 5-percent
owner for purposes of this Paragraph (e) if such
participant is a 5-percent owner as defined in Code Section
416(i) (determined in accordance with 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.
(C) Once distributions have begun to a 5-percent owner under
this Paragraph, they must continue to be distributed, even
if the participant ceases to be a 5-percent owner in a
subsequent year.
(f) Transitional Rule
(1) Notwithstanding the other requirements of this Section 5.4 and
subject to the requirements of Section 5.3, Joint and Survivor
Annuity Requirements, distribution on behalf of any employee,
including a 5-percent owner, may be made in accordance with all
of the following requirements (regardless of when such
distribution commences).
(A) The distribution by the trust is one which would not have
disqualified such trust under Code Section 401(a)(9) 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 employee whose interest in
the trust is being distributed or, if the employee is
deceased, by a beneficiary of such employee.
(C) Such designation was in writing, was signed by the employee
or the beneficiary, and was made before January 1, 1984.
(D) The employee had accrued a benefit under the plan as of
December 31, 1983.
(E) The method of distribution designated by the employee 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
employee's death, the beneficiaries of the employee 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 employee.
(2) For any distribution which commences before January 1, 1984, but
continues after December 31, 1983, the employee, 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 this Paragraph.
(3) If a designation is revoked any subsequent distribution must
satisfy the requirements of Code Section 401(a)(9) and the
proposed regulations thereunder. If a designation is revoked
subsequent to the date distributions are required to begin, the
trust must distribute by the end of the calendar year following
the calendar year in which the revocation occurs the total
amount not yet distributed which would have been required to
have been distributed to satisfy Code Section 401(a)(9) and the
proposed regulations thereunder, but for the Code Section
242(b)(2) election. For calendar years beginning after December
31, 1988, such distributions must meet the minimum distribution
incidental benefit requirements in Section 1.401(a)(9)-2 of the
Proposed Regulations. 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). In the case in which an amount is transferred
or rolled over from one plan to another plan, the rules in
Proposed Regulation Section 1.401(a)(9)-1 Q&A J-2 and Q&A J-3
shall apply.
Section 5.5 Top Heavy Provisions
(a) Application of Provisions - If the plan is or becomes top-heavy in
any plan year beginning after December 31, 1983, the provisions of
Subsection 5.5 will supersede any conflicting provisions in the plan.
(b) Minimum Allocation
(1) Except as otherwise provided in (3) and (4) below, the employer
contributions and forfeitures allocated on behalf of any
participant who is not a key employee shall not be less than the
lesser of three percent of such participant's compensation or in
the case where the employer has no defined benefit plan which
designates this plan to satisfy Code Section 401, the largest
percentage of employer contributions and forfeitures, as a
percentage of the first $200,000 of the key employee's
compensation, allocated on behalf of any key employee for that
year. For this purpose, amounts contributed to the key
employee's employee 401(k) elective deferral account shall be
included as allocations on his behalf for that year. This
minimum allocation shall be made even though, under other plan
provisions, the participant would not otherwise be entitled to
receive an allocation, or would have received a lesser
allocation for the year because of (i) the participant's failure
to complete 1,000 hours of service (or any equivalent provided
in the plan), or (ii) the participant's failure to make
mandatory employee contributions to the plan, or (iii)
compensation less than a stated amount.
(2) For purposes of computing the minimum allocation, compensation
shall mean compensation as defined in Section 1.2(a) of the
plan.
(3) The provision in (1) above shall not apply to any participant
who was not employed by the employer on the last day of the plan
year.
(4) The provision in (1) above shall not apply to any participant to
the extent the participant is covered under any other plan or
plans of the employer and the employer has provided in Section
3.2 or 3.3 that the minimum allocation or benefit requirement
applicable to top-heavy plans will be met in the other plan or
plans. If this plan is intended to meet the minimum allocation
or benefit requirement applicable to another plan or plans, the
employer shall so provide in Section 3.2 or 3.3, as appropriate.
(5) The minimum allocation required (to the extent required to be
nonforfeitable under Code Section 416(b)) may not be forfeited
under Code Section 411(a)(3)(B) or 411(a)(3)(D).
(c) Adjustments in Code Section 415 Limits - If the plan is top-heavy,
the defined benefit fraction and the defined contribution fraction
shall be computed by applying a factor of 1.0 (instead of 1.25) to
the applicable dollar limits under Code Section 415(b)(1)(A) and
415(c)(1)(A) for such year, unless the plan meets both the following
conditions:
(1) Such plan would not be a top-heavy plan if [90%] were
substituted for [60%] in the top-heavy tests; and
(2) The minimum employer contribution percentage under paragraph (b)
is 4 percent instead of 3 percent.
However, the reduced Code Section 415 factor of 1.0 shall not apply
under a top-heavy plan with respect to any individual so long as
there are no employer contributions, forfeitures, or voluntary
employee non-deductible contributions allocated to such individual.
(d) Minimum Vesting Schedules - For any plan year in which this plan is
top-heavy, the following minimum vesting schedule shall automatically
apply to the plan, if this schedule is more liberal than the
schedule(s) provided in Section 4.2(a)(6).
Years of Service Vesting Percentage
0-1 Year 0%
2 20%
3 40%
4 60%
5 80%
6 or More Years 100%
The minimum vesting schedule shall apply to all benefits within the
meaning of Code Section 411(a)(7) except those attributable to
employee contributions, including benefits accrued before the
effective date of Code Section 416 and benefits accrued before the
plan became top-heavy. Further, no decrease in a participant's
nonforfeitable percentage may occur in the event the plan's status as
top-heavy changes for any plan year, and the provisions of Section
7.2(d) shall apply. However, this Section does not apply to the
account balances of any employee who does not have an hour of service
after the plan has initially become top-heavy and such employee's
account balance attributable to employer contributions and
forfeitures will be determined without regard to this Section.
(e) Definitions (Code Section 416 Requirements)
(1) Key Employee - Any employee or former employee (and the
beneficiaries of such employee) who at any time during the
determination period was an officer of the employer if such
individual's annual compensation exceeds 50 percent of the
dollar limitation under Code Section 415(b)(1)(A), an owner (or
considered an owner under Code Section 318) of one of the ten
largest interests in the employer if such individual's
compensation exceeds 100 percent of the dollar limitation under
Code Section 415(c)(1)(A), a 5-percent owner of the employer, or
a 1-percent owner of the employer who has an annual compensation
of more than $150,000. Annual compensation means compensation
as defined in Code Section 415(c)(3), but including amounts
contributed by the employer pursuant to a salary reduction
agreement which are excludable from the employee's gross income
under Code Section 125, Section 402(a)(8), Section 402(h) or
Section 403(b). The determination period is the plan year
containing the determination date and the four (4) preceding
plan years.
The determination of who is a key employee will be made in
accordance with Code Section 416(i)(1) and the regulations
thereunder.
(2) Top-Heavy Plan - For any plan year beginning after December 31,
1983, this plan is top-heavy if any of the following conditions
exists:
(A) If the top-heavy ratio for this plan exceeds 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 group of plans exceeds 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 60 percent.
(3) Top-Heavy Ratio -
(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 5-year period ending on the determination
date(s) has or has had accrued benefits, the top-heavy
ratio for this plan alone or for the 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(s)
(including any part of any account balance distributed in
the 5-year period ending on the determination date(s)), and
the denominator of which is the sum of all account balances
(including any part of any account balance distributed in
the 5-year period ending on the determination date(s)),
both computed in accordance with Code Section 416 and the
regulations thereunder. Both the numerator and denominator
of the top-heavy ratio are increased to reflect any
contribution not actually made as of the determination
date, but which is required to be taken into account on
that date under Code Section 416 and the regulations
thereunder.
(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 5-year period ending
on the determination date(s) has or has had any 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 account balances under
the aggregated defined contribution plan or plans for all
key employees, determined in accordance with (A) above, and
the present value of accrued benefits under the aggregated
defined benefit plan or plans for all key employees as of
the determination date(s), and the denominator of which is
the sum of the account balances under the aggregated
defined contribution plan or plans for all participants,
determined in accordance with (A) above, and the present
value of accrued benefits under the defined benefit plan or
plans for all participants as of the determination date(s),
all determined in accordance with Code Section 416 and the
regulations thereunder. The accrued benefits under a
defined benefit plan in both the numerator and denominator
of the top-heavy ratio are increased for any distribution
of an accrued benefit made in the 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 a participant (1) who is not a key
employee but who was a key employee in a prior year, or (2)
who has not been credited with at least one hour of service
with any employer maintaining the plan at any time during
the 5-year period ending on the determination date will be
disregarded. The calculation of the top-heavy ratio, and
the extent to which distributions, rollovers, and transfers
are taken into account will be made in accordance with Code
Section 416 and the regulations thereunder. 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.
The accrued benefit of a participant other than a key
employee shall be determined under (1) the method, if any,
that uniformly applies for accrual purposes under all
defined benefit plans maintained by the employer, or (2) if
there is no such method, as if such benefit accrued not
more rapidly than the slowest accrual rate permitted under
the fractional rule of Code Section 411(b)(1)(C).
(4) Permissive Aggregation Group - The required aggregation group of
plans plus any other plan or plans of the employer which, when
considered as a group with the required aggregation group, would
continue to satisfy the requirements of Code Sections 401(a)(4)
and 410.
(5) Required Aggregation Group - (1) Each qualified plan of the
employer in which at least one key employee participates or
participated at any time during the determination period
(regardless of whether the plan has terminated), and (2) any
other qualified plan of the employer which enables a plan
described in (1) to meet the requirements of Code Sections
401(a)(4) or 410.
(6) Determination Date - For any plan year subsequent to the first
plan year, the last day of the preceding plan year. For the
first plan year of the plan, the last day of that year.
(7) Valuation Date - The last day of the plan year shall be the date
as of which account balances or accrued benefits are valued for
purposes of calculating the top-heavy ratio.
(8) Present Value - Present value shall be based only on the
interest and mortality rates specified in the employer's defined
benefit plan.
(9) Non-Key Employee - Any employee who is not a key employee.
Non-key employees include employees who are former key
employees.
Section 5.6 Limitations and Conditions Regarding Contributions under Code
Sections 402(g), 401(k) and 401(m)
(a) (1) Limit Maximum Amount of Elective Deferrals under Code Section
402(g)
No participant shall be permitted to have elective deferrals
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.
(2) Distribution of Excess Elective Deferrals
A participant may assign to this plan any excess elective
deferrals made during a taxable year of the participant by
following the claim procedure set forth in Subsection (a)(3).
Also, the employer may notify this plan on behalf of a
participant who has excess deferrals for the taxable year
calculated by taking into account only elective deferrals under
the plans maintained by the employer.
Notwithstanding any other provision of the plan, excess elective
deferrals, plus any income and minus any loss allocable thereto,
shall be distributed no later than April 15 to any participant
to whose account excess elective deferrals were assigned for the
preceding year and for whom excess elective deferrals have been
claimed for such taxable year.
(3) Claims
The participant's claim shall be in writing; shall be submitted
to the plan administrator no later than March 1; shall specify
the participant's excess deferral amount for the preceding
calendar year; and shall be accompanied by the participant's
written statement that if such amounts are not distributed, such
excess deferral amount, when added to amounts deferred under
other plans or arrangements described in Code Sections 401(k),
408(k), 457, or 403(b), exceeds the limit imposed on the
participant by Code Section 402(g) for the year in which the
deferral occurred.
(4) Definitions (Code Section 402(g) Limitations)
(A) Elective Deferrals shall mean any employer contributions
made to the plan at the election of the participant, in
lieu of cash compensation, and shall include contributions
made pursuant to a salary reduction agreement or other
deferral mechanism. With respect to any taxable year, a
participant's elective deferral is the sum of all employer
contributions made on behalf of such 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 Section 402(h)(1)(B), any
eligible deferred compensation plan under Section 457, any
plan as described under Section 501(c)(18), and any
employer contributions made on the behalf of a participant
for the purchase of an annuity contract under Section
403(b) pursuant to a salary reduction agreement. Elective
deferrals shall not include any deferrals properly
distributed as excess annual additions.
(B) Excess Elective Deferrals shall mean those elective
deferrals that are includible in a participant's gross
income under Code Section 402(g) to the extent such
participant's elective deferrals for a taxable year exceed
the dollar limitation under such Code Section. Excess
elective deferrals shall be treated as annual additions
under the plan, unless such amounts are distributed no
later than the first April 15 following the close of the
participant's taxable year.
(5) Determination Of Income Or Loss
Excess elective deferrals shall be adjusted for any income or
loss for the participant's taxable year. The income or loss
allocable to excess elective deferrals is the income or loss
allocable to the participant's employee 401(k) elective deferral
account for the taxable year multiplied by a fraction, the
numerator of which is such participant's excess elective
deferrals for the year and the denominator is the participant's
account balance attributable to elective deferrals without
regard to any income or loss occurring during such taxable year.
(b) (1) Actual Deferral Percentage Test
The actual deferral percentage (hereinafter "ADP") for
participants who are highly compensated employees for each plan
year and the ADP for participants who are non-highly compensated
employees for the same plan year must satisfy one of the
following tests: 1) The ADP for participants who are highly
compensated employees for the plan year shall not exceed the ADP
for participants who are non-highly compensated employees for
the same plan year multiplied by 1.25; or 2) The ADP for
participants who are highly compensated employees for the plan
year shall not exceed the ADP for participants who are
non-highly compensated employees for the same plan year
multiplied by 2.0, provided that the ADP for participants who
are highly compensated employees does not exceed the ADP for
participants who are non-highly compensated employees by more
than two (2) percentage points.
(A) Special Rules Applying to ADP Test
(i) The ADP for any participant who is a highly
compensated employee for the plan year and who is
eligible to have elective deferrals (and qualified
non-elective contributions or qualified matching
contributions, or both, to the extent treated as
elective deferrals for purposes of the ADP test)
allocated to his or her accounts under two or more
arrangements described in Code Section 401(k), that
are maintained by the employer, shall be determined as
if such elective deferrals (and, to the extent taken
into account, such qualified non-elective
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 regulations under
Code Section 401(k).
(ii) 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
sections only if aggregated with this plan, then this
Section 5.6(b)(1) shall be applied by determining the
ADP of employees as if all such plans were a single
plan. For plan years beginning after December 31,
1989, plans may be aggregated in order to satisfy Code
Section 401(k) only if they have the same plan year.
(iii) For purposes of determining the ADP of a participant
who is a 5-percent owner or one of the ten most
highly-paid highly compensated employees, the elective
deferrals (and qualified non-elective contributions or
qualified matching contributions, or both, to the
extent treated as elective deferrals for purposes of
the ADP test) and compensation of such participant
shall include the elective deferrals (and, to the
extent taken into account, qualified non-elective
contributions and qualified matching contributions, or
both) and compensation for the plan year of family
members (as defined in Code Section 414(q)(6)).
Family members, with respect to such highly
compensated employees, shall be disregarded as
separate employees in determining the ADP both for
participants who are non-highly compensated employees
and for participants who are highly compensated
employees.
(iv) For purposes of determining the ADP test, elective
deferrals, qualified non-elective contributions and
qualified matching contributions must be made before
the last day of the twelve-month period immediately
following the plan year to which contributions relate.
An elective deferral shall be taken into account only
if it relates to compensation that either (a) would
have been received by the participant in the plan year
but for the deferral election, or (b) is attributable
to services performed by the participant in the plan
year and would have been received by the participant
within 2 1/2 months after the last day of the plan
year but for the deferral election.
(v) The plan administrator shall maintain records
sufficient to demonstrate satisfaction of the ADP test
and the amount of qualified non-elective contributions
or qualified matching contributions, or both, used in
such test.
(vi) Qualified non-elective contributions may be taken into
account as elective deferrals only to the extent
needed to meet the ADP test. Qualified matching
contributions may be taken into account only to the
extent such contributions are not needed to meet the
average contribution percentage test unless it is the
intention of the plan administrator to test all
qualified non-elective and matching contributions
under the ADP test.
(vii) The determination and treatment of the ADP amounts of
any participant shall satisfy such other requirements
as may be prescribed by the Secretary of the Treasury.
(B) Actual Deferral Percentage shall mean, for a specified
group of participants for a plan year, the average of the
ratios (calculated separately for each participant in such
group) of (1) the amount of employer contributions actually
paid over to the trust on behalf of such participant for
the plan year to (2) the participant's compensation as
defined in Section 1.2(e). Employer contributions on
behalf of any participant shall include: (1) any elective
deferrals made pursuant to the participant's deferral
election, including excess elective deferrals of highly
compensated employees, but excluding (a) excess elective
deferrals of nonhighly compensated employees that arise
solely from elective deferrals made under the plan or plans
of this employer and (b) elective deferrals that are taken
into account in the average contribution percentage test
(provided the ADP test is satisfied both with and without
exclusion of these elective deferrals); and (2) at the
election of the employer, qualified non-elective
contributions and qualified matching contributions. For
purposes of computing actual deferral percentages, an
employee who would be a participant but for the failure to
make elective deferrals shall be treated as a participant
on whose behalf no elective deferrals are made. Amounts
distributed under Section 5.1(a)(4)(B) shall not be
included in the calculation.
(2) Distribution Of Excess Contributions
Notwithstanding any other provision of this plan, excess
contributions, plus any income and minus any loss allocable
thereto, shall be distributed no later than the last day of each
plan year to 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 deferrals (and amounts
treated as elective deferrals) of each family member that is
combined to determine the combined ADP.
Excess contributions (including the amounts recharacterized)
shall be treated as annual additions under the plan.
(A) Determination of Income or Loss - Excess contributions
shall be adjusted for any income or loss for the plan year.
The income or loss allocable to excess contributions is the
income or loss allocable to the participant's employee
401(k) elective deferral account (and, if applicable, the
qualified non-elective contribution account or the
qualified employer matching contribution account or both)
for the plan year multiplied by a fraction, the numerator
of which is such participant's excess contributions for the
year and the denominator is the participant's account
balance(s) attributable to elective deferrals (and
qualified non-elective contributions or qualified matching
contributions, or both, if any of such contributions are
included in the ADP test) without regard to any income or
loss occurring during such plan year.
(B) Accounting for Excess Contributions - Excess contributions
shall be distributed from the participant's employee 401(k)
elective deferral account and qualified employer matching
contribution account (if applicable) in proportion to the
participant's elective deferrals and qualified matching
contributions (to the extent used in the ADP test) for the
plan year. Excess contributions shall be distributed from
the participant's qualified non-elective contribution
account only to the extent that such excess contributions
exceed the balance in the participant's employee 401(k)
elective deferral account and employer matching
contribution account.
(C) Excess Contributions shall mean, with respect to any plan
year, the excess of: 1) The aggregate amount of employer
contributions actually taken into account in computing the
ADP of highly compensated employees for such plan year,
over 2) The maximum amount of such contributions permitted
by the ADP test (determined by reducing contributions made
on behalf of highly compensated employees in order of the
ADPs, beginning with the highest of such percentages).
Such determination shall be made after first determining
excess elective deferrals pursuant to Section 5.6(a).
(3) Recharacterization
A participant may treat his or her excess contributions as an
amount distributed to the participant and then contributed by
the participant to the plan as an employee nondeductible
contribution. Recharacterized amounts will remain
nonforfeitable and subject to the same distribution requirements
as elective deferrals. Therefore, such recharacterized amounts
shall be held in a recharacterized funds account which shall be
invested and otherwise accounted for in the same manner as an
employee 401(k) elective deferral account but which shall be
subject to the ADP test. Amounts may not be recharacterized by
a highly compensated employee to the extent that such amount in
combination with other employee nondeductible contributions made
by that employee would exceed any stated limit under the plan on
employee nondeductible contributions.
Recharacterization must occur no later than two and one-half
months after the last day of the plan year in which such excess
contributions arose and is deemed to occur no earlier than the
date the last highly compensated employee is informed in writing
of the amount recharacterized and the consequences thereof.
Recharacterized amounts will be taxable to the participant for
the participant's tax year in which the participant would have
received them in cash under a cash or deferred arrangement.
(c) (1) Limitations on Employee Contributions and Matching Contributions
Under Code Section 401(m)
The average contribution percentage (hereinafter "ACP") for
participants who are highly compensated employees for each plan
year and the ACP for participants who are non-highly compensated
employees for the same plan year must satisfy one of the
following tests: 1) The ACP for participants who are highly
compensated employees for the plan year shall not exceed the ACP
for participants who are non-highly compensated employees for
the same plan year multiplied by 1.25; or 2) The ACP for
participants who are highly compensated employees for the plan
year shall not exceed the ACP for participants who are
non-highly compensated employees for the same plan year
multiplied by two (2), provided that the ACP for participants
who are highly compensated employees does not exceed the ACP for
participants who are non-highly compensated employees by more
than two (2) percentage points.
(A) Special Rules For Limitations Under Code Section 401(m)
(i) Multiple Use: If one or more highly compensated
employees are subject to both the ADP test and the ACP
test and the sum of the ADP and ACP of those highly
compensated employees subject to either or both tests
exceeds the aggregate limit, then either the ADP or
the ACP of those highly compensated employees who are
subject to both tests will be reduced (beginning with
such highly compensated employee whose percentage is
the highest) so that the limit is not exceeded. The
plan administrator shall determine whether the ADP or
the ACP for the plan will be reduced for the plan
year. The amount by which each highly compensated
employee's percentage is reduced shall be treated as
either an excess contribution or an excess aggregate
contribution, as appropriate. The ADP and ACP of the
highly compensated employees are determined after any
corrections required to meet the ADP and ACP tests.
Multiple use does not occur if both the ADP and ACP of
the highly compensated employees does not exceed 1.25
multiplied by the ADP and ACP of the non-highly
compensated employees.
(ii) For purposes of this Section 5.6(c)(1), the
contribution percentage for any participant who is a
highly compensated employee and who is eligible to
have contribution percentage amounts allocated to his
or her 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,
shall be determined as if the total of such
contribution percentage amounts were 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
regulations under Code Section 401(m).
(iii) 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 such
sections only if aggregated with this plan, then this
Section 5.6(c)(1) shall be applied by determining the
contribution percentage of employees as if all such
plans were a single plan. For plan years beginning
after December 31, 1989, plans may be aggregated in
order to satisfy Code Section 401(m) only if they have
the same plan year.
(iv) For purposes of determining the contribution
percentage of a 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 the contribution percentage amounts and
compensation for the plan year of family members (as
defined in Code Section 414(q)(6)). Family members,
with respect to highly compensated employees, shall be
disregarded as separate employees in determining the
contribution percentage both for participants who are
non-highly compensated employees and for participants
who are highly compensated employees.
(v) For purposes of determining the contribution
percentage test, employee contributions are considered
to have been made in the plan year in which
contributed to the trust. Matching contributions and
qualified non-elective contributions will be
considered made for a plan year if made no later than
the end of the twelve-month period beginning on the
day after the close of the plan year.
(vi) The plan administrator shall maintain records
sufficient to demonstrate satisfaction of the ACP test
and the amount of qualified non-elective contributions
or qualified matching contributions, or both, used in
such test.
(vii) Employee 401(k) elective deferral contributions may be
taken into account; however, the ADP test shall be met
before any elective deferrals are used in the ACP test
and the elective deferrals needed to meet the ADP test
shall not be used to meet the ACP test. Qualified
non-elective contributions shall be taken into account
to the extent such contributions are not used to meet
the ADP test.
(viii) 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.
(B) Definitions: (Code Section 401(m) Limitations)
(i) Aggregate Limit shall mean the sum of (i) 125 percent
of the greater of the ADP of the non-highly
compensated employees for the plan year or the ACP of
non-highly compensated employees under the plan
subject to Code Section 401(m) for the plan year
beginning with or within the plan year of the 401(k)
plan and (ii) the lesser of 200% or two plus the
lesser of such ADP or ACP. "Lesser" is substituted
for "greater" in (i) above, and "greater" is
substituted for "lesser" after "two plus the" in (ii)
if it would result in a larger aggregate limit.
(ii) Average Contribution Percentage shall mean the average
of the contribution percentages of the eligible
participants in a group.
(iii) Contribution Percentage shall mean the ratio
(expressed as a percentage) of the participant's
contribution percentage amounts to the participant's
compensation as defined in Section 1.2(e).
(iv) Contribution Percentage Amounts shall mean the sum of
the employee nondeductible contributions, employer
matching contributions and employee 401(k) elective
deferrals (to the extent not taken into account for
purposes of the ADP test) made under the plan on
behalf of the 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
deferrals, excess contributions, or excess aggregate
contributions. Qualified non-elective contributions
may be included in the contribution percentage
amounts. Employee 401(k) elective deferrals may also
be used in calculating the contribution percentage
amounts so long as the ADP test is met before the
elective deferrals are used in the ACP test and the
ADP test continues to be met following the exclusion
of those elective deferrals that are used to meet the
ACP test. Amounts distributed under Section
5.1(a)(4)(A) and (B) shall not be included in the
calculation.
(v) Eligible Participant shall mean any employee who is
eligible to make an employee nondeductible
contribution, or an elective deferral (if the employer
takes such contributions into account in the
calculation of the contribution percentage), or to
receive an employer matching contribution (including
forfeitures). If an employee nondeductible
contribution is required as a condition of
participation in the plan, any employee who would be a
participant in the plan if such employee made such a
contribution shall be treated as an eligible
participant on behalf of whom no employee
contributions are made.
(vi) Employee Nondeductible Contribution (or employee
contribution) shall mean any contribution made under
Section 3.5 to the plan by or on behalf of a
participant that is included in the participant's
gross income in the year in which made and that is
maintained under a separate account to which earnings
and losses are allocated.
(vii) Matching Contribution shall mean an employer
contribution made to this or any other defined
contribution plan on behalf of a participant on
account of an employee nondeductible contribution made
by such participant, or on account of a participant's
elective deferral, under a plan maintained by the
employer.
(2) Distribution of Excess Aggregate Contributions
Notwithstanding any other provision of this plan, excess
aggregate contributions, plus any income and minus any loss
allocable thereto, shall be forfeited, if forfeitable, or if not
forfeitable, distributed 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 participants who are subject
to the family member aggregation rules shall be allocated among
the family members in proportion to the employee nondeductible
contributions and matching contributions (or amounts treated as
matching contributions) of each family member that is combined
to determine the combined ACP. 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
under the plan.
(A) Determination of Income or Loss - Excess aggregate
contributions shall be adjusted for any income or loss for
the plan year. The income or loss allocable to excess
aggregate contributions is the income or loss allocable to
the participant's employee nondeductible contribution
account, employer matching contribution account (if any,
and if all amounts therein are not used in the ADP test)
and, if applicable, qualified non-elective contribution
account and employee 401(k) elective deferral account for
the plan year multiplied by a fraction, the numerator of
which is such participant's excess aggregate contributions
for the year and the denominator is the participant's
account balance(s) attributable to contribution percentage
amounts without regard to any income or loss occurring
during such plan year.
(B) Forfeitures of Excess Aggregate Contributions - Forfeitures
of excess aggregate matching contributions may either be
reallocated to the accounts of non-highly compensated
employees or applied to reduce employer contributions, as
provided in Section 3.6(e).
(C) Accounting for Excess Aggregate Contributions - Excess
aggregate contributions shall be forfeited, if forfeitable
or distributed on a pro-rata basis from the participant's
employee nondeductible contribution account and employer
matching contribution account (and, if applicable, the
participant's qualified non-elective contribution account
or employee 401(k) elective deferral account, or both).
(D) Excess Aggregate Contributions shall mean, with respect to
any plan year, the excess of: 1) The aggregate contribution
percentage amounts taken into account in computing the
numerator of the contribution percentage actually made on
behalf of highly compensated employees for such plan year,
over 2) The maximum contribution percentage amounts
permitted by the ACP test (determined by reducing
contributions made on behalf of highly compensated
employees in order of their contribution percentages
beginning with the highest of such percentages).
Such determination shall be made after first determining
excess elective deferrals pursuant to Section 5.6(a) and
then determining excess contributions pursuant to Section
5.6(b)(2).
(d) Top-Heavy Requirements
Neither elective deferrals nor any matching contributions will be
taken into account for the purpose of satisfying the minimum
top-heavy contribution requirement. However, qualified non-elective
contributions may be taken into account for this purpose as provided
in Section 3.2(c)(2) or 3.3(b)(2), as appropriate.
(e) Restrictions on Payment of Certain Accounts
Elective deferrals, qualified non-elective contributions, and
qualified matching contributions, and income allocable to each are
not distributable to a participant or his beneficiary in accordance
with such person's election, earlier than upon separation from
service, death, or disability.
Such account balances may also be distributed upon:
(A) Termination of the plan without the establishment of
another defined contribution plan, other than an employee
stock ownership plan (as defined in Code Section 4975(e) or
409) or a simplified employee pension plan (as defined in
Code Section 408(k)).
(B) The disposition by a corporation to an unrelated
corporation of substantially all of the assets (within the
meaning of Code Section 409(d)(2)) used in a trade or
business of such corporation if such corporation continues
to maintain this plan after the disposition, but only with
respect to employees who continue employment with the
corporation acquiring such assets.
(C) The disposition by a corporation to an unrelated entity of
such corporation's interest in a subsidiary (within the
meaning of Code Section 409(d)(3)) if such corporation
continues to maintain this plan, but only with respect to
employees who continue employment with such subsidiary.
(D) The attainment of age 59 1/2.
(E) The hardship of the participant as described in Section
4.4(a).
All distributions that may be made pursuant to one or more of
the foregoing distributable events are subject to the spousal
and participant consent requirements as described in Section
5.3(c). In addition, distributions after March 31, 1988, that
are triggered by any of the first three events enumerated above
must be made in a lump sum.
Section 5.7 Deductible Voluntary Employee Contributions
The plan administrator will not accept deductible employee contributions
which are made for a taxable year beginning after December 31, 1986.
Contributions made prior to that date will be maintained in a separate
account which will be nonforfeitable at all times. The account will share
in the gains and losses of the trust in the same manner as described in
Section 3.8 of the plan. No part of the deductible voluntary contribution
account will be used to purchase life insurance. Subject to Section 5.3,
Joint and Survivor Requirements (if applicable), the participant may
withdraw any part of the deductible voluntary contribution account by
making a written application to the plan administrator.
ARTICLE VI ADMINISTRATION OF THE PLAN
Section 6.1 Fiduciary Responsibility
(a) Fiduciary Standards - A fiduciary shall discharge his duties with
respect to a plan solely in the interest of the participants and
beneficiaries and -
For the exclusive purpose of providing benefits to participants and
their beneficiaries and defraying reasonable expenses of
administering the plan;
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;
By diversifying the investments of the plan so as to minimize the
risk of large losses, unless under the circumstances it is clearly
prudent not to do so; and
In accordance with the documents and instruments governing the plan
insofar as such documents and instruments are consistent with the
provisions of ERISA.
(b) Allocation of Fiduciary Responsibility
(1) It is intended to allocate to each fiduciary, either named or
otherwise, the individual responsibility for the prudent
execution of the functions assigned to him. None of the
allocated responsibilities or any other responsibilities shall
be shared by two or more fiduciaries unless specifically
provided for in the plan.
(2) When one fiduciary is required to follow the directions of
another fiduciary, the two fiduciaries shall not be deemed to
share such responsibility. Instead, the responsibility of the
fiduciary giving the directions shall be deemed to be his sole
responsibility and the responsibility of the fiduciary receiving
directions shall be to follow those directions insofar as such
instructions on their face are proper under applicable law.
(3) Any person or group of persons may serve in more than one
fiduciary capacity with respect to this plan.
(4) A fiduciary under this plan may employ one or more persons,
including independent accountants, attorneys and actuaries to
render advice with regard to any responsibility such fiduciary
has under the plan.
(c) Indemnification by Employer - Unless resulting from the gross
negligence, willful misconduct or lack of good faith on the part of a
fiduciary who is an officer or employee of the employer, the employer
shall indemnify and save harmless such fiduciary from, against, for
and in respect of any and all damages, losses, obligations,
liabilities, liens, deficiencies, costs and expenses, including
without limitation, reasonable attorney's fees and other costs and
expenses incident to any suit, action, investigation, claim or
proceedings suffered in connection with his acting as a fiduciary
under the plan.
(d) Named Fiduciary - The person or persons named by the employer as
having fiduciary responsibility for the management and control of
plan assets shall be known as the "named fiduciary" hereunder. Such
responsibility shall include the appointment of the plan
administrator (Section 6.2(a)), the trustee (Section 6.4(a)) and the
investment manager (Section 6.4(b)), and the deciding of benefit
appeals (Section 6.3).
Section 6.2 Plan Administrator
(a) Appointment of Plan Administrator
The named fiduciary shall appoint a plan administrator who may be an
individual or an administrative committee consisting of no more than
five members. Vacancies occurring upon resignation or removal of a
plan administrator or a committee member shall be filled promptly by
the named fiduciary. Any administrator may resign at any time by
giving notice of his resignation to the named fiduciary, and any
administrator may be removed at any time by the named fiduciary. The
named fiduciary shall review at regular intervals the performance of
the administrator(s) and shall re-evaluate the appointment of such
administrator(s). After the named fiduciary has appointed the
administrator and has received a written notice of acceptance, the
fiduciary responsibility for administration of the plan shall be the
responsibility of the plan administrator or administrative committee.
(b) Duties and Powers of Plan Administrator
The plan administrator shall have the following duties and
discretionary powers and such other duties and discretionary powers
as relate to the administration of the plan:
(1) To determine in a non-discriminatory manner all questions
relating to the eligibility of employees to become participants.
(2) To determine in a non-discriminatory manner eligibility for
benefits and to determine and certify the amount and kind of
benefits payable to participants.
(3) To authorize all disbursements from the fund.
(4) To appoint or employ any independent person to perform necessary
plan functions and to assist in the fulfillment of
administrative responsibilities as he deems advisable, including
legal and actuarial counsel.
(5) When appropriate, to select an insurance company and annuity
contracts which, in his opinion, will best carry out the
purposes of the plan.
(6) To construe and interpret the plan and to make, publish,
interpret, alter, amend or revoke rules for the regulation of
the plan which are consistent with the terms of the plan and
with ERISA.
(7) To prepare and distribute, in such manner as determined to be
appropriate, information explaining the plan.
(c) Allocation of Fiduciary Responsibility Within Administrative
Committee
If the plan administrator is an administrative committee, the
committee shall choose from its members a chairman and a secretary.
The committee may allocate responsibility for those duties and powers
listed in Section 6.2(b)(1) and (2) (except determination of
qualification for disability retirement) and other purely ministerial
duties to one or more members of the committee. The committee shall
review at regular intervals the performance of any committee member
to whom fiduciary responsibility has been allocated and shall
re-evaluate such allocation of responsibility. After the committee
has made such allocations of responsibilities and has received
written notice of acceptance, the fiduciary responsibilities for such
administrative duties and powers shall then be considered as the
responsibilities of such committee member(s).
(d) Miscellaneous Provisions
(1) Administrative Committee Actions - The actions of such committee
shall be determined by the vote or other affirmative expression
of a majority of its members. Either the chairman or the
secretary may execute any certificate or other written direction
on behalf of the committee. A member of the committee who is a
participant shall not vote on any question relating specifically
to himself. If the remaining members of the committee, by
majority vote thereof, are unable to come to a determination of
any such question, the named fiduciary shall appoint a
substitute member who shall act as a member of the committee for
the special vote.
(2) Expenses - The plan administrator shall serve without
compensation for service as such. All reasonable expenses of
the plan administrator shall be paid by the employer or from the
fund.
(3) Examination of Records - The plan administrator shall make
available to any participant for examination during business
hours such of the plan records as pertain only to the
participant involved.
(4) Information to the Plan Administrator - To enable the plan
administrator to perform the administrative functions, the
employer shall supply full and timely information to the plan
administrator on all participants as the plan administrator may
require.
Section 6.3 Claims Procedure
(a) Notification - The plan administrator shall notify each participant
in writing of his determination of benefits. If the plan
administrator denies any benefit, such written denial shall include:
- The specific reasons for denial;
- Reference to provisions on which the denial is based;
- A description of and reason for any additional information
needed to process the claim; and
- An explanation of the claims procedure.
(b) Appeal - The participant or his duly authorized representative may:
- Request a review of the participant's case in writing to the
named fiduciary;
- Review pertinent documents;
- Submit issues and comments in writing.
The written request for review must be submitted no later than 60
days after receiving written notification of denial of benefits.
(c) Review - The named fiduciary must render a decision no later than 60
days after receiving the written request for review, unless
circumstances make it impossible to do so; but in no event shall the
decision be rendered later than 120 days after the request for review
is received.
Section 6.4 Trust Fund
(a) Appointment of Trustee
The named fiduciary shall appoint a trustee for the proper care and
custody of all funds, securities and other properties in the trust,
and for investment of plan assets (or for execution of such orders as
it receives from an investment manager appointed for investment of
plan assets). The duties and powers of the trustee shall be set
forth in a trust agreement executed by the employer, which is
incorporated herein by reference. The named fiduciary shall review
at regular intervals the performance of the trustee and shall
re-evaluate the appointment of such trustee. After the named
fiduciary has appointed the trustee and has received a written notice
of acceptance of its responsibility, the fiduciary responsibility
with respect to the proper care and custody of plan assets shall be
considered as the responsibility of the trustee. Unless otherwise
allocated to an investment manager, the fiduciary responsibility with
respect to investment of plan assets shall likewise be considered as
the responsibility of the trustee.
(b) Appointment of Investment Manager
The named fiduciary may appoint an investment manager who is other
than the trustee, which investment manager may be a bank or an
investment advisor registered with the Securities and Exchange
Commission under the Investment Advisors Act of 1940. Such
investment manager, if appointed, shall have sole discretion in the
investment of plan assets, subject to the funding policy. The named
fiduciary shall review at regular intervals no less frequently than
annually, the performance of such investment manager and shall
re-evaluate the appointment of such investment manager. After the
named fiduciary has appointed an investment manager and has received
a written notice of acceptance of its responsibility, the fiduciary
responsibility with respect to investment of plan assets shall be
considered as the responsibility of the investment manager.
(c) Funding Policy
The named fiduciary shall determine and communicate in writing to the
fiduciary responsible for investment of plan assets the funding
policy for the plan. The funding policy shall set forth the plan's
short-range and long-range financial needs, so that said fiduciary
may coordinate the investment of plan assets with the plan's
financial needs.
(d) Valuation of the Fund
The fund shall be valued by the trustee on the first day of each plan
year and as of any interim allocation date determined by the plan
administrator. The valuation shall be made on the basis of the
current fair market value of all property in the fund.
ARTICLE VII AMENDMENT AND TERMINATION OF PLAN
Section 7.1 Right to Discontinue and Amend
It is the expectation of the employer that it will continue this plan
indefinitely and make the payments of its contributions hereunder, but the
continuance of the plan is not assumed as a contractual obligation of the
employer and the right is reserved by the employer, at any time, to
reduce, suspend or discontinue its contributions hereunder.
Section 7.2 Amendments
Except as herein limited, the employer shall have the right to amend this
plan at any time to any extent that it may deem advisable. Such amendment
shall be stated in writing and executed by the employer.
The employer's right to amend the plan shall be limited as follows:
(a) No amendment shall increase the duties or liabilities of the plan
administrator, the trustee, or other fiduciary without their
respective written consent.
(b) No amendments shall have the effect of vesting in the employer any
interest in or control over any contracts issued pursuant hereto or
any other property in the fund.
(c) No amendment to the plan shall be effective to the extent that it has
the effect of decreasing a participant's accrued benefit.
Notwithstanding the preceding sentence, a participant's account
balance 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 balance 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
a 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 right to his employer-derived accrued
benefit will not be less than his percentage computed under the plan
without regard to such amendment.
(d) No amendment to the vesting schedule adopted by the employer
hereunder shall deprive a participant of his vested portion of his
employer contribution accounts to the date of such amendment. If the
plan's vesting schedule is amended, or the plan is amended in any way
that directly or indirectly affects the computation of the
participant's nonforfeitable percentage or if the plan is deemed
amended by an automatic change to or from a top-heavy vesting
schedule, each participant with at least 3 years of service with the
employer may elect, within a reasonable period after the adoption of
the amendment or change, to have the nonforfeitable percentage
computed under the plan without regard to such amendment or change.
For participants who do not have at least one hour of service in any
plan year beginning after December 31, 1988, [5 years of service]
shall be substituted for [3 years of service] in the preceding
sentence. The period during which the election may be made shall
commence with the date the amendment is adopted or deemed to be made
and shall end on the latest of:
(1) 60 days after the amendment is adopted;
(2) 60 days after the amendment becomes effective; or
(3) 60 days after the participant is issued written notice of the
amendment by the employer or plan administrator.
Section 7.3 Protection of Benefits in Case of Plan Merger
In the event of a merger or consolidation with, or transfer of assets to
any other plan, each participant will receive a benefit immediately after
such merger, consolidation or transfer (if the plan then terminated) which
is at least equal to the benefit the participant was entitled to
immediately before such merger, consolidation or transfer (if the plan had
terminated).
Section 7.4 Termination of Plan
(a) When Plan Terminates - This plan shall terminate upon the happening
of any of the following events: legal adjudication of the employer
as bankrupt; a general assignment by the employer to or for the
benefit of its creditors; the legal dissolution of the employer; or
termination of the plan by the employer.
(b) Allocation of Assets - Upon termination, partial termination or
complete discontinuance of employer contributions, the account
balance(s) of each affected participant who is an active participant
or who is not an active participant but has neither received a
complete distribution of his vested accrued benefit nor incurred five
one-year breaks in service shall be 100% vested and nonforfeitable.
The amount of the fund assets shall be allocated to each participant,
subject to provisions for expenses of administration of the
liquidation, in the ratio that such participant's account(s) bears to
all accounts. If a participant under this plan has terminated his
employment at any time after the first day of the plan year in which
the employer made his final contribution to the plan, and if any
portion of any account of such terminated participant was forfeited
and reallocated to the remaining participants, such forfeiture shall
be reversed and the forfeited amount shall be credited to the account
of such terminated participant.
ARTICLE VIII MISCELLANEOUS PROVISIONS
Section 8.1 Exclusive Benefit - Non-Reversion
The plan is created for the exclusive benefit of the employees of the
employer and shall be interpreted in a manner consistent with its being a
qualified plan as defined in Section 401(a) of the Internal Revenue Code
and with ERISA. The corpus or income of the trust may not be diverted to
or used for other than the exclusive benefit of the participants or their
beneficiaries (except for defraying reasonable expenses of administering
the plan).
Notwithstanding the above, a contribution paid by the employer to the
trust may be repaid to the employer under the following circumstances:
(a) Any contribution made by the employer because of a mistake of fact
must be returned to the employer within one year of the contribution.
(b) In the event the deduction of a contribution made by the employer is
disallowed under Code Section 404, such contribution (to the extent
disallowed) must be returned to the employer within one year of the
disallowance of the deduction.
(c) If the Commissioner of Internal Revenue determines that the plan is
not initially qualified under the Internal Revenue Code, any
contribution made incident to that initial qualification by the
employer must be returned to the employer within one year after the
date the initial qualification is denied, but only if the application
for the qualification is made by the time prescribed by law for
filing the employer's return for the taxable year in which the plan
is adopted, or such later date as the Secretary of the Treasury may
prescribe.
Section 8.2 Inalienability of Benefits
No benefit or interest available hereunder including any annuity contract
distributed herefrom shall be subject to assignment or alienation, either
voluntarily or involuntarily. The preceding sentence shall also apply to
the creation, assignment, or recognition of a right to any benefit payable
with respect to a participant pursuant to a domestic relations order,
unless such order is determined to be a qualified domestic relations order
as defined in Code Section 414(p), or any domestic relations order entered
before January 1, 1985. A loan made to a participant and secured by his
nonforfeitable account balance(s) under Section 4.4(b) will not be treated
as an assignment or alienation and such securing account balance(s) shall
be subject to attachment by the plan in the event of default.
Section 8.3 Employer-Employee Relationship
This plan is not to be construed as creating or changing any contract of
employment between the employer and its employees, and the employer
retains the right to deal with its employees in the same manner as though
this plan had not been created.
Section 8.4 Binding Agreement
This plan shall be binding on the heirs, executors, administrators,
successors and assigns as such terms may be applicable to any or all
parties hereto, and on any participants, present or future.
Section 8.5 Separability
If any provision of this plan shall be held invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provision hereof
and this plan shall be construed and enforced as if such provision had not
been included.
Section 8.6 Construction
The plan shall be construed in accordance with the laws of the state in
which the employer was incorporated (or is domiciled in the case of an
unincorporated employer) and with ERISA.
Section 8.7 Copies of Plan
This plan may be executed in any number of counterparts, each of which
shall be deemed as an original, and said counterparts shall constitute but
one and the same instrument which may be sufficiently evidenced by any one
counterpart.
Section 8.8 Interpretation
Wherever appropriate, words used in this plan in the singular may include
the plural or the plural may be read as singular, and the masculine may
include the feminine.
IN WITNESS WHEREOF, the Employer has caused this Plan to be executed this
day of , 19 .
EMPLOYER:
Horrigan American, Inc.
By:
Title:
<PAGE>
EXHIBIT 10.15
PHANTOM STOCK PLAN OF
HORRIGAN AMERICAN, INC.
AND AFFILIATED COMPANIES
<PAGE>
PHANTOM STOCK PLAN OF
HORRIGAN AMERICAN, INC.
AND AFFILIATED COMPANIES
TABLE OF CONTENTS
1. Purpose of Plan . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. General Provisions. . . . . . . . . . . . . . . . . . . . . . . . 1
3. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. Administration. . . . . . . . . . . . . . . . . . . . . . . . . . 4
5. Phantom Stock Unit Ledger . . . . . . . . . . . . . . . . . . . . 5
6. Aggregate Number of Phantom Stock Units . . . . . . . . . . . . . 5
7. Credits to Participant's Accounts . . . . . . . . . . . . . . . . 5
8. Vesting of Credits. . . . . . . . . . . . . . . . . . . . . . . . 6
9. Severance of Employment . . . . . . . . . . . . . . . . . . . . . 7
10. Termination of Plan . . . . . . . . . . . . . . . . . . . . . . . 8
11. Payment of Benefits . . . . . . . . . . . . . . . . . . . . . . . 9
12. Designation of Beneficiary. . . . . . . . . . . . . . . . . . . . 10
13. Independence. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
14. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
15. Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . 11
16. Limitation of Rights. . . . . . . . . . . . . . . . . . . . . . . 11
17. Adjustment in Number of Phantom Stock Units . . . . . . . . . . . 12
18. Non-alienation of Benefits. . . . . . . . . . . . . . . . . . . . 12
19. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 12
20. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
21. Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . 13
22. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
23. Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
24. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
25. Tax Consequences. . . . . . . . . . . . . . . . . . . . . . . . . 13
26. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
27. Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
PHANTOM STOCK PLAN OF
HORRIGAN AMERICAN, INC.
AND AFFILIATED COMPANIES
HORRIGAN AMERICAN, INC., AEL LEASING CO., INC., AMERICAN COMMERCIAL CREDIT
CORP. and AMERICAN REAL ESTATE INVESTMENT AND DEVELOPMENT CO. hereby adopt a
plan, to be known as the "Phantom Stock Plan of Horrigan American, Inc. and
Affiliated Companies", a deferred compensation program to be administered and
governed by and in accordance with the following terms and provisions:
1. Purpose of Plan. The purpose of this Plan is to enable the Companies
to attract and retain key Officers of outstanding competence, to promote the
shareholder point of view among key Officers and to provide an incentive to,
and a reward for, key Officers of the Companies by granting to such key
Officers certain deferred compensation rights pursuant to the terms and
provisions hereof. Neither the adoption of this Plan nor any of the terms or
provisions hereof shall be construed as entitling any Officer to any employment
rights arising hereunder or to any of the rights of a stockholder in any of the
Companies, it being the intention hereof only to adopt a plan of incentive
deferred compensation and to measure such compensation as herein set forth, but
in no respect to alter the relationship between any Officer and any of the
Companies except as specifically set forth herein.
2. General Provisions. Unless the context of this Plan clearly requires
otherwise:
(a) All accounting terms used in this Plan which are not
specifically defined in this Plan shall have the meanings assigned to them
in accordance with generally accepted accounting principles and practices.
(b) The word "including" shall be a word of enlargement rather than
a word of limitation and shall be deemed to mean "including but not
limited to" rather than "including only".
3. Defined Terms. Unless the context clearly requires otherwise, the
following words and phrases whenever used in the singular or the plural form
and capitalized shall have the following meanings for the purposes of this
Plan:
(a) "Account" shall mean the account of the Participant contained in
the Phantom Stock Unit Ledger.
(b) "Acknowledgment" shall mean the document, in form satisfactory
to the Administrative Committee, referred to in Paragraph 15(a) hereof
pursuant to which each Participant shall acknowledge and confirm to the
Administrative Committee the Participant's willingness to participate in
and to be bound by the Plan.
(c) "Administrative Committee" shall mean the committee established
by the Board of Directors of Horrigan American, Inc. pursuant to
Paragraph 4(a) hereof.
(d) "Affiliated Companies" shall mean AEL Leasing Co., Inc. and
American Commercial Credit Corp., corporations the capital stock of which
is wholly owned by American Equipment Leasing Co., Inc., the capital stock
of which is wholly owned by Horrigan American, Inc., and American Real
Estate Investment and Development Co., a corporation the capital stock of
which is wholly owned by Horrigan American, Inc.
(e) "Bankruptcy Code" shall mean the federal Bankruptcy Code, as
amended and supplemented from time to time, and any statutory successor
thereto.
(f) "Beneficiary" shall mean the Person referred to in Paragraph 12
hereof designated by the Participant to receive payments in the event of
the Participant's death.
(g) "Board of Directors" shall mean the duly elected directors of
the applicable Company.
(h) "Cause" shall mean and be the failure or refusal of the
Participant to perform his or her duties and obligations to any Company,
the occurrence of any breach or default by the Participant under any
agreement between any Company and the Participant, including any
employment agreement, the failure of the Participant to conform to the
highest ethical standards in representing any Company, or the commission
by the Participant of any criminal act or criminal misconduct, regardless
of whether such act or misconduct is prosecuted by applicable law
enforcement authorities.
(i) "Common Stock" shall mean shares of common stock of Horrigan
American, Inc.
(j) "Company" shall mean Horrigan American, Inc. or any of the
Affiliated Companies and any successor to any of the foregoing by merger,
consolidation, liquidation, division or other reorganization which has
made provision for adoption of this Plan and the assumption of the
obligations of Horrigan American, Inc. or any of the Affiliated Companies,
as applicable.
(k) "Companies" shall mean Horrigan American, Inc. and the
Affiliated Companies and any successor to any of the foregoing by merger,
consolidation, liquidation, division or other reorganization which has
made provision for adoption of this Plan and the assumption of the
obligations of Horrigan American, Inc. or any of the Affiliated Companies,
as applicable.
(l) "Credit" shall mean any credit expressed in dollars and cents
which is recorded in the Phantom Stock Unit Ledger in accordance with the
provisions of Section 7(a) or 7(b).
(m) "Customer" shall mean any Person, including but not limited to
any dealer, manufacturer, vendor, borrower or lessee, who deals with or
does business with any Company or any direct or indirect subsidiary of any
Company in such Company's normal course of business.
(n) "Effective Date" shall mean the date selected by the Board of
Directors of each of the Companies on which the Plan shall become
effective.
(o) "ESOP" shall mean the Employee Stock Option Plan of Horrigan
American, Inc. adopted by the Board of Directors thereof effective as of
January 1, 1984, as amended from time to time.
(p) "Excess Dividend" shall mean an amount equal to the excess, if
any, by which the aggregate dividend paid by Horrigan American, Inc., in
the then current fiscal year of Horrigan American, Inc., exceeds twenty
percent (20%) of the consolidated net earnings of Horrigan American, Inc.
for the immediately preceding fiscal year of Horrigan American, Inc.
divided by the number of issued and outstanding shares of Common Stock
with respect to which such aggregate dividend is issued.
(q) "Excess Value" shall mean the difference in the fair market
value of a share of Common Stock as of the date when a Participant is
awarded Phantom Stock Units by the Administrative Committee under this
Plan and the fair market value of a share of Common Stock as of the
Participant's Termination Date. Fair market value with respect to a share
of Common Stock as contemplated herein shall be determined by independent
appraisal in conjunction with the ESOP as more fully set forth in
Section 7(c) hereof.
(r) "Officer" shall mean any officer of any Company (whether or not
he or she is also a director thereof) who is employed by such Company on a
full-time basis and who, in the sole opinion of the Administrative
Committee, is one of the key personnel of such Company in a position to
contribute materially to its continued growth and development and to its
future financial success. The term shall not include Persons who are
retained by any Company as consultants only.
(s) "Participant" shall mean an Officer who is selected by the
Administrative Committee for participation in this Plan and who is awarded
Phantom Stock Units hereunder.
(t) "Person" shall mean any individual, corporation, partnership,
joint venture, trust, unincorporated organization, joint stock company or
other entity or organization.
(u) "Phantom Stock Plan of Horrigan American, Inc. and Affiliated
Companies" shall mean the Plan set forth herein.
(v) "Phantom Stock Unit" shall mean a unit awarded to a Participant
by the Administrative Committee pursuant to this Plan.
(w) "Phantom Stock Unit Ledger" shall mean the ledger referred to in
Paragraph 5 hereof.
(x) "Plan" shall mean the Phantom Stock Plan of Horrigan American,
Inc. and Affiliated Companies set forth herein.
(y) "Plan Termination Date" shall mean the date selected by the
Board of Directors of any of the Companies on which the Plan terminates as
to such Company.
(z) "Plan Rate" shall mean an annual rate of interest equal to the
applicable annual rate of interest for treasury bills having a one (1)
year maturity which were most recently issued by the United States
Department of the Treasury prior to the applicable Participant's
Termination Date.
(aa) "Retirement" shall mean a severance from employment of any
Participant with the Company which employs such Participant, other than
for Cause, upon or after attainment of age sixty-two (62) in accordance
with the then-applicable retirement policies of such Company.
(bb) "Termination Date" shall mean the date of a Participant's
severance from employment with the Company which employs such Participant
by reason of the Participant's Retirement, Total Disability, death or
termination of employment by the applicable Company for or without Cause,
or by reason of the termination of employment by the Participant or for
any other reason or in any other manner.
(cc) "Total Disability" shall mean the disability of a Participant by
reason of injury or sickness which renders the Participant unable to
perform all of the Participant's essential duties and obligations to the
Company which employs such Participant.
4. Administration.
(a) There is hereby established an Administrative Committee which
shall consist of three (3) persons, each of whom shall be a member of the
Board of Directors of Horrigan American, Inc., each of whom shall be
ineligible to become a Participant and each of whom shall serve at the
pleasure of the Board of Directors of Horrigan American, Inc. to
administer, construe and interpret this Plan. No person serving as a
member of the Administrative Committee shall receive any compensation for
his or her services. The Administrative Committee shall act by majority
vote.
(b) The construction and interpretation by the Administrative
Committee of any provision of this Plan, the administration thereof by the
Administrative Committee and all decisions and determinations made by the
Administrative Committee pursuant hereto, including all determinations
with respect to the amount of any Excess Dividend and of fair market value
of the Common Stock, if made in good faith, shall be final, binding and
conclusive for all purposes. Subject to the provisions of this Plan, the
Administrative Committee shall have the sole and exclusive power:
(i) to determine the Officers who shall participate in the Plan
from time to time;
(ii) to determine the number of Phantom Stock Units to be set
aside for each Participant;
(iii) to determine the number of Credits to be entered in the
Phantom Stock Unit Ledger to each Participant's Account; and
(iv) to make such other determinations as shall from time to
time be reasonably necessary to effectuate this Plan.
(c) In performing its duties hereunder, including the selection of
Participants, the Administrative Committee shall make such inquiry of the
Officers and other employees of each of the Companies as it, in its sole
discretion, deems appropriate.
(d) The Administrative Committee may, in its sole discretion,
delegate its duties to an Officer or other employee of any of the
Companies, or a committee composed of Officers or other employees of any
of the Companies, but may not delegate its authority to construe and
interpret this Plan, or to make the determinations specified in clauses
(i), (ii) and (iii) of Subparagraph (b) of this Paragraph 4.
5. Phantom Stock Unit Ledger. The Administrative Committee shall
establish a Phantom Stock Unit Ledger and thereafter from time to time as
appropriate enter therein the name of each Participant, the number of Phantom
Stock Units awarded to him or her by the Administrative Committee, the date of
such award, an amount which shall be equal to the aggregate fair market value
on the date of such award of an equal number of shares of Common Stock and such
other information as the Administrative Committee shall deem appropriate. The
Administrative Committee shall advise in writing each Participant and the
Company which employs such Participant of the foregoing as it pertains to such
Participant in such manner as the Administrative Committee shall deem
appropriate.
6. Aggregate Number of Phantom Stock Units. The aggregate number of
Phantom Stock Units standing in the Phantom Stock Unit Ledger for all
Participants at any one time shall not exceed one hundred twenty-five thousand
(125,000); provided, however, that upon severance of any Participant from
employment with any of the Companies (and provided that immediately thereafter
such Participant does not become an employee of any other Company), any Phantom
Stock Units theretofore awarded to such Participant shall no longer be
considered outstanding for the purposes of this Paragraph 6.
7. Credits to Participant's Accounts.
(a) So long as this Plan remains in effect and subject to the other
terms and provisions herein contained, the Administrative Committee shall
enter Credits in the Phantom Stock Unit Ledger to each Participant's
Account effective as of the dividend payment date applicable to the Common
Stock, the number of such Credits so entered to be in an amount equal to
the Excess Dividend, if any, multiplied by the number of Phantom Stock
Units standing in such Participant's Account on such date; provided,
however, that no such Credits shall be entered in the Phantom Stock Unit
Ledger to any Participant's Account with respect to any Excess Dividend
paid by the Company after the Participant's Termination Date or after any
date of termination of this Plan, even though the record date is prior
thereto. By way of illustration only, in the event that Participant X
shall have been awarded ten thousand (10,000) Phantom Stock Units by the
Administrative Committee and the Excess Dividend shall have been
determined by the Administrative Committee to be twenty cents ($0.20) per
Phantom Stock Unit, the Administrative Committee shall enter Credits in
the amount of Two Thousand Dollars ($2,000.00) (i.e., ten thousand
(10,000) Phantom Stock Units multiplied by twenty cents ($0.20) per
Phantom Stock Unit) to the Participant's Account in the Phantom Stock Unit
Ledger.
(b) So long as this Plan remains in effect and subject to the other
terms and provisions herein contained, on the Participant's Termination
Date the Administrative Committee shall enter Credits in the Phantom Stock
Unit Ledger to such Participant's Account, the number of such Credits so
entered to be in an amount equal to the Excess Value, if any, multiplied
by the number of Phantom Stock Units standing in such Participant's
Account on the Participant's Termination Date. No such Credits shall be
entered in the Phantom Stock Unit Ledger to any Participant's Account with
respect to any Excess Value realized after the Participant's Termination
Date or after any date of termination of this Plan. By way of
illustration only, in the event that on the Termination Date of
Participant X there shall be in such Participant's Account ten thousand
(10,000) Phantom Stock Units, the Participant shall be fully vested
pursuant to the provisions of this Plan and the Administrative Committee
shall have determined that the Excess Value is Two Dollars ($2.00) per
Phantom Stock Unit, the Administrative Committee shall enter Credits in
the amount of Twenty Thousand Dollars ($20,000.00) (i.e., ten thousand
(10,000) Phantom Stock Units multiplied by Two Dollars ($2.00) per Phantom
Stock Unit) to the Participant's Account in the Phantom Stock Unit Ledger.
(c) For purposes of this Plan, the fair market value of the Common
Stock as of any date shall be equal to the fair market value of the Common
Stock as set forth in the then most recent valuation of the Common Stock
which was made for purposes of valuing the Common Stock for the ESOP.
8. Vesting of Credits. So long as this Plan remains in effect and
subject to the other terms and provisions of this Plan, for the purposes of the
Credits referred to in Paragraph 7 hereof, each Participant shall be deemed to
be vested with respect to all Credits (regardless of the date awarded) based
upon each full year of service rendered by the Participant to any of the
Companies subsequent to becoming a Participant with respect to this Plan as
follows:
Full Years of Service Vesting
Under 5 years 0%
5 years 50%
6 years 60%
7 years 70%
8 years 80%
9 years 90%
10 years 100%
9. Severance of Employment.
(a) When a Participant's employment with any of the Companies is
severed by reason of the Participant's Retirement, Total Disability or
death:
(i) The Credits in the Participant's Account pursuant to the
provisions of Paragraph 7(a) hereof shall be deemed to be completely
vested in favor of the Participant without reference to the
provisions of Paragraph 8 hereof.
(ii) The Credits applicable to the Participant's Account by
reason of the application of Paragraph 7(b) hereof shall be deemed
completely vested in favor of the Participant without reference to
the provisions of Paragraph 8 hereof.
(b) When any Participant's employment with any of the Companies is
severed by the applicable Company without Cause:
(i) The Credits in the Participant's Account pursuant to the
provisions of Paragraph 7(a) hereof shall be deemed vested in favor
of the Participant to the extent provided in Paragraph 8 hereof.
(ii) The Credits applicable to the Participant's Account by
reason of the application of Paragraph 7(b) hereof shall be deemed
vested in favor of the Participant to the extent provided in
Paragraph 8 hereof.
(c) When any Participant's employment with any of the Companies is
severed by the applicable Company for Cause, is severed by the Participant
or is severed for any reason or in any manner other than those referred to
in Paragraphs 9(a) or (b) hereof, such Participant shall be entitled to no
benefits or payments of any nature under or with respect to this Plan
irrespective of the number of Credits which may be in such Participant's
Account on such Participant's Termination Date, the extent to which the
Participant is vested, or any other provision of this Plan.
(d) The phrase "severance of employment" shall mean the cessation of
employment of the Participant by any of the Companies, provided that such
Participant is not immediately thereafter employed by any other Company.
Notwithstanding anything to the contrary, in the event that the employment
of any Participant by any of the Companies is terminated for any reason
and such Participant is immediately thereafter employed by any other
Company, for purposes of this Plan, including the vesting provisions
contained in Section 8 hereof, such Participant's employment shall not be
deemed to have been severed.
(e) Notwithstanding anything to the contrary, all determinations
made in good faith by the Administrative Committee as to the nature and
reason with respect to the severance of any Participant's employment with
any of the Companies and as to any entitlement of any Participant to
benefits or payments hereunder shall be final, binding and conclusive for
all purposes.
10. Termination of Plan.
(a) The Board of Directors of any of the Companies may terminate
this Plan at any time as to such Company and without the concurrence of
any Participant.
(b) Except as expressly set forth in this Plan, no termination of
this Plan shall affect the right of any Participant or Beneficiary to
receive payments under this Plan.
(c) If the Board of Directors of any of the Companies shall elect to
terminate this Plan at any time, the Plan shall be deemed terminated with
respect to such Company and each of the Participants employed by such
Company (and not employed by any other Company) as of the effective date
of termination as established by the Board of Directors of the Company so
electing, but shall not be deemed to have been terminated with respect to
any other Company or with respect to any Participant employed by any other
Company. In the event that any Participant shall be employed by more than
one Company and, as of the effective date of termination, one or more, but
not all, of the Companies employing such Participant terminate this Plan
as aforesaid, such termination shall not affect such Participant or his or
her status under the Plan and such Participant shall continue as a
Participant under this Plan.
(d) If this Plan shall be terminated with respect to any Participant
within five (5) years subsequent to its Effective Date:
(i) Fifty percent (50%) of the Credits in the Participant's
Account pursuant to the provisions of Paragraph 7(a) hereof as of the
Plan Termination Date shall be deemed vested, notwithstanding the
provisions of Paragraph 8 hereof.
(ii) For the purposes of this Plan and the determination of
Excess Value hereunder, the Plan Termination Date shall be deemed to
be the Termination Date applicable to such Participant, and the
Administrative Committee shall award to such Participant's Account in
the Phantom Stock Unit Ledger fifty percent (50%) of the Credits
which would otherwise be applicable to such Participant's Account by
reason of the application of Paragraph 7(b) hereof, notwithstanding
the provisions of Paragraph 8 hereof.
(e) If this Plan shall be terminated with respect to any Participant
more than five (5) years subsequent to its Effective Date:
(i) For the purposes of this Plan and the determination of
Credits pursuant to the provisions of Paragraph 7(a) hereof, the Plan
Termination Date shall be deemed to be the Termination Date
applicable to such Participant, and the Credits in such Participant's
Account pursuant to the provisions of Paragraph 7(a) hereof shall be
deemed vested to the extent provided in Paragraph 8 hereof.
(ii) For the purposes of this Plan and the determination of
Excess Value hereunder, the Plan Termination Date shall be the
Termination Date applicable to such Participant and, notwithstanding
the provisions of Paragraph 8 hereof, the Administrative Committee
shall award to such Participant's Account in the Phantom Stock Unit
Ledger the Credits which would otherwise be applicable to such
Participant's Account by reason of the application of Paragraph 7(b)
hereof multiplied by the vesting percentage which would be applicable
to such Participant were the Plan Termination Date such Participant's
Termination Date.
11. Payment of Benefits.
(a) Upon severance of any Participant from employment with the
Companies, and except as otherwise set forth in this Plan, there shall be
paid to such Participant, or in the event of such Participant's death, to
the Beneficiary, to the extent that such Participant shall be vested under
the provisions of this Plan, an amount equal to the aggregate Credits in
the Participant's Account in the Phantom Stock Unit Ledger, plus any
Credits thereafter awarded to such Participant under the provisions of
Paragraph 7(b) hereof.
(b) (i) In the event that severance of any Participant from
employment with the Companies shall be by reason of death, Total
Disability or Retirement, the amounts payable under this Plan, at the
election of the Administrative Committee, shall be paid in a lump sum
payment to be made within nine (9) months following the Termination
Date or in quarter-annual installments, together with interest at the
Plan Rate on the unpaid aggregate amounts owing to the Participant
under this Plan over a ten (10) year period immediately following
such Participant's Termination Date, the first such payment to be
made within three (3) months immediately following such Participant's
Termination Date. Notwithstanding anything to the contrary, interest
on the unpaid aggregate amounts owing to the Participant under this
Plan shall accrue beginning as of the Participant's Termination Date
and shall not bear interest prior to such time.
(ii) In the event that severance of any Participant from
employment with the Companies shall be by reason of termination by
the applicable Company without Cause (and not by reason of death,
Total Disability or Retirement), the amounts payable under this Plan,
at the election of the Administrative Committee, shall be paid in a
lump sum payment to be made within nine (9) months following the
Participant's sixty-second (62) birthday or in quarter-annual
installments, together with interest at the Plan Rate on the unpaid
aggregate amounts owing to the Participant under this Plan over a ten
(10) year period immediately following such Participant's sixty-
second (62) birthday, the first such payment to be made within three
(3) months immediately following such Participant's sixty-second (62)
birthday. Notwithstanding anything to the contrary, interest on the
unpaid aggregate amounts owing to the Participant under this Plan
shall accrue beginning as of the Participant's sixty-second (62)
birthday and shall not bear interest prior to such time.
(c) The Administrative Committee in its absolute discretion may at
any time accelerate the payment of benefits in whole or in part under this
Plan to the Participant or to the Beneficiary.
(d) In the event that any Participant shall die prior to payment in
full of any amount owing under this Plan, the unpaid balance of such
amount shall be paid to the Participant's Beneficiary in the same manner
and at the same times as such payments would have been paid to the
Participant.
(e) To the extent that any Participant shall have been employed by
more than one of the Companies, all benefits paid under this Plan shall be
equitably apportioned between or among the applicable Companies which
employed such Participant in such manner as the Administrative Committee
shall deem appropriate based upon the period of time which such
Participant was employed by each of the Companies and the benefits which
have accrued to such Participant under this Plan during such time period.
In such event, each such Company shall be solely obligated to pay its
proportionate share of such benefits and none of the Companies shall be
obligated to pay the proportionate share of any other Company.
(f) Notwithstanding anything to the contrary, the payment of any
amount under this Plan is expressly subordinated as hereinafter set forth
to the prior payment of all existing and future indebtedness of each of
the Companies. Upon the occurrence of any receivership, insolvency,
assignment for the benefit of creditors, bankruptcy, reorganization or
liquidation, or upon the occurrence of any event which entitles any
creditor of any of the Companies to declare any material indebtedness of
any of the Companies to be due and payable prior to the stated maturity
thereof, no amounts owing under this Plan shall be paid to any Participant
or Beneficiary unless and until all other indebtedness of the Companies
shall have been paid in full. For purposes of this Subparagraph, the term
"material indebtedness" shall mean indebtedness in excess of One Hundred
Thousand Dollars ($100,000.00).
12. Designation of Beneficiary. Each Officer, upon becoming a
Participant, shall file with the Administrative Committee a notice in writing
designating one or more Beneficiaries to whom payments otherwise due the
Participant shall be made in the event of such Participant's death while
employed with the Companies or after severance therefrom subject, however, to
the other provisions of this Plan. The Participant shall have the right to
change the Beneficiary from time to time; provided, however, that any change
shall not become effective until written notice, in form reasonably
satisfactory to the Company, is received by the Administrative Committee.
13. Independence. The benefits provided under this Plan shall be
independent of, and in addition to, any benefits provided under any other
agreements that may exist from time to time between the Company and the
Participant, and any other compensation payable by the Company to the
Participant.
14. Insurance. Any Company employing any Participant, at its election,
may apply for and procure in its own name and for its own benefit life and/or
disability insurance in any amount or amounts considered advisable by the
applicable Board of Directors, and the Participant shall have no right, title
or interest therein; and further, as a condition precedent to participation or
continued participation in the Plan and the award of any Phantom Stock Units
hereunder, the Participant shall submit from time to time to any reasonable
medical or other examination and shall execute and deliver all applications and
other instruments necessary to effect such policies of insurance. The failure
of the Participant to fully abide by the provisions of this Paragraph shall
result in the forfeiture of any Credits which are or may thereafter be
applicable to such Participant's Account and the Participant's right to receive
any payments or benefits under this Plan. Nothing herein contained shall be
construed to require the Company to use any proceeds of, cash value of or other
monies derived from life or disability insurance for the purpose of funding or
paying any benefit to be paid or which is payable to the Participant, the
Beneficiary or any other Person under this Plan.
15. Conditions Precedent.
(a) As a condition precedent to the participation and continued
participation in this Plan and the award of any Phantom Stock Units
hereunder, the Participant shall execute and deliver to the Administrative
Committee an Acknowledgment which shall acknowledge Participant's
participation in the Plan and confirm the Participant's willingness to be
bound by the Plan.
(b) As a condition precedent to the receipt of any payments or
benefits under this Plan, the Participant shall, upon severance of the
Participant's employment with the Companies, execute a written agreement
with the Company in form and substance reasonably satisfactory to the
Administrative Committee pursuant to which the Participant shall covenant,
inter alia, to the Company by which the Participant was employed that the
Participant:
(i) Shall not use any information which is confidential or
proprietary to any of the Companies or any trade secrets of any of
the Companies for any purpose whatsoever or divulge or disclose such
information to any Person other than the Companies and Persons to
whom any of the Companies has given consent, unless such information
and secrets have already become common knowledge or unless the
Participant is compelled to disclose such information or secrets by
applicable governmental process.
(ii) For one (1) year following the Participant's Termination
Date, shall not directly or indirectly solicit or sell any of the
products or services of any of the Companies to any Person who is or
was a Customer of any of the Companies on the Termination Date.
(iii) For one (1) year following the Participant's
Termination Date, shall not directly or indirectly solicit any
Customer of any of the Companies.
16. Limitation of Rights. Nothing contained in this Plan shall be
construed to:
(a) give any Officer or other employee of any of the Companies any
right to be awarded any Phantom Stock Units other than in the sole
discretion of the Administrative Committee;
(b) give a Participant any rights whatsoever with respect to any
shares of Common Stock;
(c) limit in any way the right of any of the Companies to terminate
a Participant's employment with the Companies at any time; or
(d) be evidence of any agreement or understanding, express or
implied, that any of the Companies shall employ a Participant in any
particular position or at any particular rate of remuneration or for any
particular period of time.
17. Adjustment in Number of Phantom Stock Units. In the event of any
stock dividend on the Common Stock, any split-up or combination of shares of
the Common Stock, any reverse stock split with respect to the Common Stock, or
any other reorganization of any nature involving the Common Stock, an equitable
adjustment shall be made by the Administrative Committee with respect to this
Plan, including the aggregate number of Phantom Stock Units which may be
awarded under this Plan and the number of Phantom Stock Units in the
Participant's Account in the Phantom Stock Unit Ledger; provided, however, that
the Administrative Committee shall not be required to establish any fractional
Phantom Stock Units.
18. Non-alienation of Benefits. To the extent permitted by applicable
law, no right or benefit under this Plan shall be subject to anticipation,
alienation, assignment, pledge, encumbrance, garnishment, charge, sale,
transfer or other disposition, and any attempt to anticipate, alienate, assign,
pledge, encumber, charge, sell, transfer or otherwise dispose of the same shall
be void and of no effect. No right or benefit hereunder shall in any manner be
liable for or subject to the debts, contracts, liabilities, or torts of the
Participant or any Beneficiary entitled to such benefits. If any Participant
or Beneficiary hereunder should become bankrupt, insolvent, a debtor under the
Bankruptcy Code or attempt to anticipate, alienate, assign, pledge, encumber,
charge, sell, transfer or otherwise dispose of any right or benefit hereunder,
then such right or benefit, in the discretion of the Administrative Committee,
shall cease and determine, and in such event, the applicable Company may hold
or apply the same or any part thereof for the benefit of the Participant or
Beneficiary, his or her spouse, children, or other dependents, or any of them,
in such manner and in such proportion as the Administrative Committee may deem
proper.
19. Indemnification. To the extent permitted by applicable law, and in
addition to any right of indemnification by the Companies which any member of
the Administrative Committee might otherwise have, each of the Companies shall
indemnify each member of the Administrative Committee of and from any and all
loss, damage, cost and expense, including reasonable attorneys' fees, suffered
or incurred by such member for any act or determination made in good faith with
respect to this Plan.
20. Amendment.
(a) This Plan may not be amended except in writing.
(b) This Plan may be amended by the Boards of Directors of all of
the Companies without the consent of the Participants provided that such
amendment does not materially and adversely affect any benefit to which
any Participant is entitled as of the date of such amendment.
(c) Except as set forth in Subparagraph (b) of this Paragraph, this
Plan may not be amended without the consent of the Boards of Directors of
all of the Companies and of each Participant who, as of the effective date
of such amendment, shall be employed by any of the Companies.
(d) The addition of another corporation or corporations as an
Affiliated Company shall be deemed to be an amendment to this Plan which
is governed by Subparagraph (b) hereof and which does not materially and
adversely affect any benefit to which any Participant is entitled.
21. Effective Date. This Plan shall become operative and in effect on
such date as shall be fixed by the Board of Directors of each of the Companies,
in their discretion.
22. Waiver. No failure on the part of the Administrative Committee to
exercise, and no delay in exercising, any right under this Plan or permitted or
provided by statute, at law or in equity shall operate as a waiver thereof nor
an estoppel thereto, nor shall any single or partial exercise of any such right
or remedy preclude any other or future exercise thereof, or the exercise of any
other right or remedy.
23. Captions. The caption or heading of each Paragraph of this Plan does
not constitute a part of this Plan but is for informational purposes only.
24. Severability. If any provision of this Plan or the application
thereof to any party or circumstance be held invalid or unenforceable, the
remainder of this Plan, and the application of such provisions to other parties
or circumstances, shall not be affected thereby and to this end, the provisions
of this Plan are declared severable.
25. Tax Consequences. None of the Companies makes any representation as
to the tax consequences of this Plan or with respect to any benefits or
payments received by any Participant hereunder.
26. Arbitration. Any controversy arising from or related to this Plan
shall be determined by arbitration in the City of Reading, Berks County,
Pennsylvania, in accordance with the Rules of the American Arbitration
Association, and judgment upon any such determination or award may be entered
in any court having applicable jurisdiction.
27. Applicable Law. This Plan and all controversies hereunder shall be
governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania.
CERTIFICATION
This is to certify that the Phantom Stock Plan of Horrigan American, Inc.
and Affiliated Companies was duly adopted by the Boards of Directors of
Horrigan American, Inc., AEL Leasing Co., Inc., American Commercial Credit
Corp. and American Real Estate Investment and Development Co., respectively, at
their regularly scheduled meetings on ________________, 1993, to have an
Effective Date of _______________, 1993.
_________________________________ Secretary of Horrigan American, Inc.
DATED: ______________, 1993
__________________________________ Secretary of AEL Leasing Co., Inc.
DATED: ______________, 1993
__________________________________ Secretary of American Commercial
Credit Corp.
DATED: ______________, 1993
__________________________________ Secretary of American Real Estate
Investment and Development Co.
DATED: ______________, 1993
<PAGE>
EXHIBIT 11
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SCHEDULE OF COMMON SHARES OUTSTANDING
Number of common shares outstanding at January 1....... 3,300,298 3,323,055 3,339,761 3,360,096 2,500,383
Common shares issued................................... 12,034 16,521 12,792 24,400 25,472
Treasury stock acquired, net........................... (200,566) (39,278) (29,498) (44,735) --
Common shares issued under 4-for-3 stock split......... -- -- -- -- 834,241
---------- ---------- ---------- ---------- ----------
Number of common shares outstanding at December 31..... 3,111,766 3,300,298 3,323,055 3,339,761 3,360,096
========== ========== ========== ========== ==========
Weighted average number of common shares
outstanding (see note 1, to selected financial data). 3,278,159 3,310,584 3,328,109 3,361,468 3,367,106
========== ========== ========== ========== ==========
SCHEDULE OF NET EARNINGS APPLICABLE TO
COMMON SHARES (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Earnings (loss) from continuing operations............. $3,047 $(413) $1,382 $1,218 $2,602
Cash dividends declared on preferred stock............. (16) (16) (16) (16) (16)
---------- ---------- ---------- ---------- ----------
Earnings (loss) from continuing operations applicable
to common shares..................................... $3,031 $(429) $1,366 $1,202 $2,586
========== ========== ========== ========== ==========
Earnings (loss) from continuing operations per common
share(1)............................................. $ .92 $ (.13) $ .41 $ .36 $ .78
========== ========== ========== ========== ==========
<FN>
- ---------
(1) Earnings (loss) per common share is the same on both a primary and fully
diluted basis.
</TABLE>
1
<PAGE>
EXHIBIT 12
HORRIGAN AMERICAN, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Earnings (loss) from continuing operations before income taxes.... $ 4,947 $ (269) $ 2,270 $ 1,959 $ 4,159
Less equity in undistributed earnings (loss) of unconsolidated
affiliates...................................................... -- -- -- -- 5
-------- -------- -------- -------- --------
$ 4,947 $ (269) $ 2,270 $ 1,959 $ 4,154
-------- -------- -------- -------- --------
Add fixed charges
Interest........................................................ 9,028 11,250 12,879 13,773 13,182
Portion of rents representative of the interest factor.......... 162 194 174 180 175
-------- -------- -------- -------- --------
Total fixed charges........................................... 9,190 11,444 13,053 13,953 13,357
-------- -------- -------- -------- --------
Total earnings as adjusted.................................... $14,137 $11,175 $15,323 $15,912 $17,511
======== ======== ======== ======== ========
Ratio of earnings to fixed charges................................ 1.54 .98 1.17 1.14 1.31
=== === === === ===
</TABLE>
The Company guaranteed $2,400,000 of debt of unconsolidated real estate
partnerships as of December 31, 1993. The amount of fixed charges associated
with this guaranteed debt was $223,000 for 1993. The computation of the ratio
of earnings to fixed charges does not include the fixed charges associated
with the guaranteed debt because the Company has not been required to honor
the guarantees nor is it probable that the Company will be required to honor
the guarantees.
In 1992, earnings from continuing operations were inadequate to cover
fixed charges by $269,000. However, the ratio of earnings to fixed charges is
not intended to disclose cash flow from operations. In addition to the normal
noncash expenses, such as depreciation and provision for possible lease and
loan losses, the provision for write-down of real estate negatively affects
the ratio for 1992. The ratio of earnings to fixed charges would be 1.35 if
the provision for write-down of real estate were excluded.
2
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
STATE OF NAMES UNDER WHICH SUBSIDIARY
SUBSIDIARY INCORPORATION DOES BUSINESS
------- ------------- -------------------------------
American Equipment Leasing Pennsylvania
Co., Inc......................
AEL Leasing Co., Inc.......... Pennsylvania American Equipment Leasing
American Legal Funding
American Municipal Funding
American Rental Services
American Reli Financial
Information Systems Funding
Group
American Commercial Credit Pennsylvania
Corp..........................
Horrigan American Securities, Pennsylvania
Inc...........................
AEL Holdings, Inc............. Delaware
The Business Outlet, Inc...... Pennsylvania
American Real Estate Pennsylvania
Investment and Development
Co............................
American Hotel Management, Pennsylvania
Inc...........................
SUBSIDIARY PARTNERSHIPS STATE OF
----------------------- --------
REGISTRATION
------------
(Each partnership does business under its legal name only)
ARE Moorestown Partners........................ Pennsylvania
ARE Amcare One Partners........................ Pennsylvania
ARE Amcare Two Partners........................ Pennsylvania
ARE Amcare Three Partners...................... Pennsylvania
ARE Amcare Four Partners....................... Pennsylvania
ARE Norfolk Partners........................... Pennsylvania
ARE Pittsburgh V.M. Partners................... Pennsylvania
ARE Flying Hills One Partners.................. Pennsylvania
ARE Lehigh Valley Partners..................... Pennsylvania
ARE Fleetwood Partners......................... Pennsylvania
ARE Cincinnati Three Limited Partnership....... Pennsylvania
ARE Pottsville Partners........................ Pennsylvania
ARE Wadsworth Partners......................... Pennsylvania
American AMDEV Limited Partnership I........... Michigan
ARE Florida One Limited Partnership............ Pennsylvania
ARE South Fifth Street Partners................ Pennsylvania
ARE Tallahassee Limited Partners............... Pennsylvania
ARE Dayton Limited Partnership................. Pennsylvania
ARE West Reading Partnership................... Pennsylvania
ARE Riverfront Partnership..................... Pennsylvania
ARE Wyomissing Partners........................ Pennsylvania
AA & G Partners................................ Pennsylvania
ARE Sikeston Limited Partnership............... Pennsylvania
ARE Middleton Limited Partnership.............. Pennsylvania
ARE Old Bridge Limited Partnership............. Pennsylvania
ARE Mentor Limited Partnership................. Pennsylvania
ARE Amcare Five Limited Partnership............ Pennsylvania
S. G. Development Limited Partnership.......... Michigan
Eastern Boulevard Associates................... Pennsylvania
1
<PAGE>
SUBSIDIARY PARTNERSHIPS STATE OF
----------------------- --------
REGISTRATION
------------
(Each partnership does business under its legal name only)
ARE Houston One Limited Partnership............ Pennsylvania
ARE Central Texas Limited Partnership.......... Pennsylvania
ARE Central Florida Limited Partnership........ Pennsylvania
ARE Sarasota Limited Partnership............... Pennsylvania
ARE Royal Palm Limited Partnership............. Pennsylvania
ARE Delray Limited Partnership................. Pennsylvania
ARE St. Marys Limited Partnership.............. Pennsylvania
ARE Haddonfield Limited Partnership............ Pennsylvania
ARE Central Florida Two Limited Partnership.... Pennsylvania
2
<PAGE>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from
Horrigan American, Inc. and Subsidiaries and is qualified in its entirety by
reference to such financial statements.
APPENDIX A TO ITEM 601(C) OF REGULATION S-K
COMMERCIAL AND INDUSTRIAL COMPANIES
ARTICLE S OF REGULATION S-X
ITEM NUMBER ITEM DESCRIPTION AMOUNTS
- -------- ---------- ------
5-02(1) cash and cash items $2,160,000
5-02(2) marketable securities 2,697,000
5-02(3)(a)(1) notes and accounts receivable trade 127,582,000
5-02(4) allowances for doubtful accounts 5,438,000
5-02(6) inventory N/A
5-02(9) total current assets N/A
5-02(13) property, plant and equipment 41,696,000
5-02(14) accumulated depreciation 7,764,000
5-02(18) total assets 164,953,000
5-02(21) total current liabilities N/A
5-02(22) bonds, mortgages and similar debt 129,620,000
5-02(28) preferred stock--mandatory redemption N/A
5-02(29) preferred stock--no mandatory redemption 195,000
5-02(30) common stock 3,112,000
5-02(31) other stockholders" equity 25,350,000
5-02(32) total liabilities and stockholders' equity 164,953,000
5-03(b)1(a) net sales of tangible products 694,000
5-03(b)1 total revenues 24,963,000
5-03(b)2(a) cost of tangible goods sold N/A
5-03(b)2 total costs and expenses applicable to sales and 9,978,000
revenues
5-03(b)3 other costs and expenses N/A
5-03(b)5 provision for doubtful accounts and notes 1,573,000
5-03(b)(8) interest and amortization of debt discount 9,028,000
5-03(b)(10) income before taxes and other items 5,078,000
5-03(b)(11) income tax expense 1,900,000
5-03(b)(14) income/loss continuing operations 3,047,000
5-03(b)(15) discontinued operations N/A
5-03(b)(17) extraordinary items N/A
5-03(b)(18) cumulative effect--changes in accounting principles 0
5-03(b)(19) net income or loss 3,047,000
5-03(b)(20) earnings per share--primary 0.92
5-03(b)(20) earnings per share--fully diluted 0.92
1
