<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1996 Commission File Number 000-21786
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
(Exact name of registrant as specified in its charter)
---------------------
Delaware 57-0962375
------------------------ ------------------------------------
(State of Incorporation) (IRS Employer Identification Number)
7909 Parklane Road
Columbia, South Carolina 29223
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(803) 741-3000
-------------------------------------------------
(Registrant's telephone no., including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of class
--------------
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or in any amendment to
this Form 10-K. [ ]
<PAGE> 2
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $171,923,103.75 as of February 28, 1997, based on the closing
price of $15.00 per share of such stock on the NASDAQ National Market System on
such date.
As of February 28, 1997, 19,308,548 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document of the Registrant Form 10-K Reference Locations
1996 Annual Report to Shareholders Parts II and IV
1997 Proxy Statement Part III
<PAGE> 3
PART I
ITEM 1. BUSINESS
General
Resource Bancshares Mortgage Group, Inc., (the Company), was organized
under Delaware law in 1992 to acquire and operate the mortgage banking business
of the banking subsidiaries of Resource Bancshares Corporation (RBC), which
commenced operations in May 1989. The assets and liabilities of these banking
subsidiaries were transferred to the Company on June 3, 1993, as part of the
Company's initial public offering.
The Company purchases mortgage loans through its correspondents and the
wholesale division. The Company also originates mortgage loans through its
retail division, Intercounty Mortgage, Inc. (IMI), which commenced operations as
a wholly-owned subsidiary of the Company in May 1995. Substantially all of the
mortgage loans purchased and originated by the Company are sold to institutional
purchasers, including national and regional broker/dealers, as mortgage-backed
securities issued or guaranteed by the Federal National Mortgage Association
(FNMA), the Federal Home Loan Mortgage Corporation (FHLMC) or the Government
National Mortgage Association (GNMA). Substantially all the mortgage loans are
sold with the rights to service the loans being retained by the Company. The
servicing is either held in the Company's portfolio or sold separately.
The Company receives loan servicing fees and subservicing fees on loans
it purchases from correspondents and the wholesale division and loans originated
by the retail division. The Company retains servicing rights on the majority of
these loans until the loans are sold and transferred. The Company also receives
loan servicing fees on mortgage servicing rights acquired through bulk
acquisitions of servicing rights related to loans originated by other lenders.
To further position itself as a nationwide producer and supplier of
mortgage loans and mortgage servicing, the Company intends to increase its
market penetration and the breadth of its mortgage origination sources,
particularly in the western and northeastern United States, by: (i) maintaining
corporate flexibility to operate in fluctuating mortgage markets; (ii) remaining
among the mortgage industry's lowest-cost producers; (iii) continuing its
commitment to high quality in underwriting and customer service; (iv) utilizing
advanced technology; and (v) entering into the subprime lending market.
The Company does not hold any material trademarks, licenses, franchises
or concessions.
Loan Production
Correspondents
Through its correspondents, the Company purchases mortgage loans that
have been made by such correspondents to residential property owners.
Correspondents are primarily mortgage lenders, mortgage brokers, savings and
loan associations and small commercial banks. At December 31, 1996, the Company
had 871 correspondents originating mortgage loans in 49 states and the District
of Columbia.
Loan production for the Company by correspondents is widely dispersed,
with the top 20 correspondents supplying the Company with 35% of its dollar
volume of correspondent loans during 1996. With the increase in volume of
production and the further development of correspondent relationships during
1996 over prior years, the Company further spread the concentration of mortgage
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loan production volume over more correspondents, thus reducing its dependence on
selected individual correspondents. During 1996, the top five correspondents
accounted for approximately 15% of the year's mortgage loan correspondent
purchase volume. This compares to the top five correspondents accounting for
approximately 13.4% and 43% of the mortgage loan purchase volume during 1995 and
1994, respectively. No single correspondent accounted for more than 3.4% of the
Company's mortgage loan purchase volume in 1996. In 1995, 4.5% of the Company's
total mortgage loan purchase volume was acquired from the Company's
highest-volume correspondent. In 1994, each of the Company's two highest-volume
correspondents accounted for more than 10% of the Company's total mortgage loan
purchase volume.
Management believes that lending through correspondents is an efficient
and cost-effective method of producing loans because of the low fixed expenses
and capital investment required of the Company. Historically, retail mortgage
loan origination has involved higher fixed overhead costs such as offices,
furniture, computer equipment and telephones, as well as additional personnel
costs such as sales representatives. Because the correspondents incur the cost
of operating branch office networks and generating loans, the Company lowers its
cost structure and provides the correspondents with cost-efficient access to the
secondary loan markets. By emphasizing correspondent lending, the Company can
match its costs more directly with the volume of loans purchased, so that a
substantial portion of the Company's cost is variable rather than fixed.
Management also believes that, by emphasizing the correspondent origination
approach, the Company has greater flexibility to adjust to varying market
conditions. As conditions change, the Company can expand into new geographic
markets without incurring significant additional costs by utilizing existing and
new correspondents that operate in each new market. The use of correspondents
also enables the Company to exit markets easily if circumstances dictate.
The Company attracts and maintains relationships with correspondents by
offering a variety of services that provide incentives for the correspondents to
sell mortgage loans to the Company. The Company's strategy with respect to its
correspondents is to provide a high level of service rather than the lowest
price. Services provided include timely underwriting and approval or rejection
of a loan (within 48 hours after receipt of a completed loan application),
timely purchase of loans (within 96 hours after being approved for acquisition),
seminars on how to process and prepare a loan application and updates on current
underwriting practices. In addition, the Company provides correspondents with a
variety of products and delivery capabilities and multiple means of funding
loans. As the mortgage lending market increases in sophistication and loan-price
differentials narrow among mortgage bankers, the Company believes that the level
of service and commitment it provides to its correspondents will be paramount to
its continued success. Management also believes that a correspondent generally
prefers to sell loans to a mortgage banker that is not competing with the
correspondent for retail originations.
Management believes that through correspondent lending it can manage
risks and maintain good quality control. Correspondents have to meet established
standards to be approved by the Veteran's Administration (VA), the U. S.
Department of Housing and Urban Development (HUD) or private mortgage insurance
companies. A correspondent qualifies to participate in the Company's
correspondent program only after a thorough review of its reputation and
mortgage lending expertise, including a review of references and financial
statements and a personal visit by one or more representatives of the Company.
After a correspondent qualifies for the Company's program, the Company closely
monitors the correspondent's performance in terms of delinquency ratios,
document exceptions and other pertinent data. Furthermore, all mortgage loans
purchased by the Company through correspondents are subject to various aspects
of the Company's underwriting criteria, and correspondents are required to
repurchase loans or otherwise indemnify the Company for its losses in the event
of fraud or misrepresentation in the origination process and for certain other
reasons, including noncompliance with underwriting standards.
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All loan applications are subject to the Company's underwriting
criteria and the guidelines set forth by the Federal Housing Authority (FHA),
the VA, GNMA, FNMA, FHLMC or private investors, as applicable. The Company or
the correspondent, in the case of a correspondent with delegated underwriting
authority, verifies each applicant's income and bank deposits, as well as the
accuracy of the other information submitted by the applicant, and obtains and
reviews a credit report from a credit reporting agency, a preliminary title
report and a real estate appraisal. Generally, delegated underwriting authority
is granted by the Company to its larger correspondents and is granted only to
correspondents who meet certain financial strength, delinquency ratio,
underwriting and quality control standards that the Company has established for
granting delegated underwriting authority to correspondents.
With respect to FHA and VA loans, HUD and the VA, respectively, have
established approval guidelines for the underwriting of loans to be covered by
FHA insurance or VA guaranty. The Company is approved by both HUD and the VA to
underwrite FHA and VA loans originated through its retail division subsidiary,
IMI, as well as loans submitted by specified correspondents and wholesale
brokers. The Company purchases FHA and VA loans only from those correspondents
who are approved to underwrite FHA and VA loans and from those correspondents
for whom the Company has been approved to underwrite FHA and VA loans. For those
FHA and VA loans purchased from correspondents and brokers, the appropriate FHA
mortgage insurance premium or VA Funding Fee must be remitted by the
correspondent prior to purchase by the Company.
The Company has implemented a quality control program to monitor
compliance with the Company's established lending and servicing policies and
procedures, as well as with applicable laws and regulatory guidelines. The
Company believes that the implementation and enforcement of its comprehensive
underwriting criteria and its quality control program are significant elements
in the Company's efforts to purchase high-quality mortgage loans and servicing
rights. The Company's quality control department examines loans in order to
evaluate the loan purchasing function for compliance with underwriting criteria.
The quality control department also reviews loan applications for compliance
with federal and state lending standards, which may involve reverifying
employment and bank information and obtaining separate credit reports and
property appraisals.
Wholesale Division
As other financial institutions were exiting the wholesale mortgage
lending business, the Company made a decision in late 1994 to incorporate
expansion into the wholesale mortgage market into its primary business strategy.
Expansion into the wholesale mortgage banking business involves the
establishment of wholesale branch offices and the incurrence of the fixed
expenses associated with maintaining those offices. However, wholesale mortgage
purchases typically provide for higher profit margins than correspondent
production, and each branch office can serve a relatively sizable geographic
area compared to the retail market by establishing relationships with large
numbers of independent mortgage loan brokers who bear most of the cost of
identifying and interacting directly with loan applicants. Accordingly,
management believes that the wholesale division affords the Company an
opportunity to identify markets where higher profit margins and diversification
of the Company's sources of loan volumes can be appropriately balanced against
the increased earnings risks associated with a somewhat higher fixed-cost
structure.
At December 31, 1996, the Company had 13 wholesale branches, serving
approximately 2,322 brokers. The offices are located in Arizona (1), Colorado
(1), Florida (1), Georgia (1), Illinois (1), Maryland (1), Massachusetts (1),
Missouri (1), North Carolina (1), Ohio (1), Texas (2) and Washington (1). The
Company receives loan applications through these brokers, underwrites each loan,
funds each
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loan at closing and prepares all closing documentation. The wholesale branches
also handle all shipping and follow-up procedures on these loans. All loan
applications processed by the wholesale division are subject to underwriting and
quality control comparable to the standards used in the Company's correspondent
lending program.
Retail Division
The establishment of the retail division was made in the context of the
demographics and market conditions affecting the northeast and is expected to be
unique within the context of the Company's primary business strategies of
continuing to increase the number of correspondents and expand the wholesale
division. The establishment of the retail division further diversified the
Company's sources of loan volume and permitted management to obtain as employees
a group of seasoned originators who had previously worked together for 13 years
in the mortgage banking industry.
With the establishment of the retail division in 1995 through the
opening of six branches located in New York (4), New Jersey (1) and Pennsylvania
(1), the Company began to originate mortgage loans through its employees. At
December 31, 1996, the retail division had 209 employees. From its organization
in 1995 through December 31, 1996, the retail division originated $879 million
in mortgage loans. The retail division operates through IMI. The Company
requires the retail division to use underwriting and quality control standards
similar to the standards used in the Company's correspondent lending and
wholesale lending programs.
The following table shows mortgage loan production volume by division
for each of the three years in the period ended December 31, 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
($ in Thousands) 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Correspondent Division $7,915,323 $6,252,008 $2,855,334
Wholesale Division 1,411,643 673,201 19,931
Retail Division 668,759 210,565
---------- ---------- ----------
Total Loan Production $9,995,725 $7,135,774 $2,875,265
========== ========== ==========
</TABLE>
The Company purchases and originates conventional mortgage loans and
mortgage loans insured by the FHA or partially guaranteed by the VA. All
mortgage loans purchased or originated by the Company are purchased or
originated for resale. Currently, substantially all of the Company's loans are
conforming loans, i.e., mortgage loans that qualify for inclusion in purchase
and guarantee programs sponsored by FNMA, FHLMC and GNMA.
The Company purchases and originates a variety of mortgage loan
products that are designed, in conjunction with the requirements of prospective
purchasers of such loans, to respond to consumer needs and competitive factors.
In addition to 15-year and 30-year conventional mortgage loans and 15-year and
30-year FHA loans and VA loans, the Company purchases and originates products
designed to provide lower rates or lower principal and interest payments to
borrowers, including balloon mortgage loans that have relatively short maturity
dates (e.g., five or seven years) and longer amortization schedules (e.g., 25 or
30 years) and adjustable rate mortgage loans. The Company also purchases and
originates mortgage loans featuring a variety of combinations of interest rates
and discount points so that borrowers may elect to pay higher points at closing
and less interest over the life of the loan, or pay a higher interest rate and
reduce or eliminate points payable at closing. The portion of total loans held
for sale at any time that
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consists of a particular product type depends upon the interest rate environment
at the time such loans are made. The Company does not believe that any of its
products pose unusual risks.
The following table shows mortgage loan production volume by type of
loan for each of the three years in the period ended December 31, 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
($ in Millions) 1996 1995 1994
-------------------- -------------------- ---------------------
<S> <C> <C> <C>
CONVENTIONAL LOANS:
Volume $ 6,197.3 $ 4,495.6 $ 987.7
Percentage of total volume 62% 63% 34%
FHA / VA LOANS:
Volume $ 3,798.4 $ 2,640.2 $ 1,887.6
Percentage of total volume 38% 37% 66%
TOTAL LOANS:
Volume $ 9,995.7 $ 7,135.8 $ 2,875.3
Number of loans 98,237 72,792 40,260
Average loan size ($ in Thousands) $101.8 $ 98.0 $ 71.4
</TABLE>
The following table shows loan production volume by state for the year
ended December 31, 1996, for each state that represented 5% or more of the
Company's total loan production volume for 1996.
<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------
($ in Thousands) Percent of
State Amount Total
- ---------------------------------- ----------- -----------
<S> <C> <C>
Illinois $ 1,132,912 11.33%
Colorado 825,972 8.26%
Florida 720,501 7.21%
Texas 686,108 6.86%
Georgia 597,131 5.97%
Massachusetts 584,561 5.85%
Maryland 556,207 5.57%
Minnesota 521,028 5.21%
New York 505,531 5.06%
All Other 3,865,774 38.68%
----------- -------
TOTAL $ 9,995,725 100.00%
=========== =======
</TABLE>
Sale of Loans
The Company customarily sells all mortgage loans that it originates or
purchases, retaining the mortgage servicing rights, which currently are sold
separately. Under ongoing programs established with FNMA and FHLMC, the Company
aggregates its conforming conventional loans into pools that are assigned to
FNMA or FHLMC in exchange for mortgage-backed securities. The Company's FHA
mortgage loans and VA mortgage loans are generally pooled and sold in the form
of GNMA mortgage-backed securities. The Company pays certain fees to FHLMC, FNMA
or GNMA, as applicable, in connection with these programs. The Company then
sells FHLMC, FNMA and GNMA securities to securities dealers.
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Substantially all of the Company's mortgage loans qualify under the
various FNMA, FHLMC and GNMA program guidelines, which include specific property
and credit standards, including a loan size limit. The small number that do not
qualify are sold to private investors.
In the case of conventional loans, subject to the obligations of any
primary mortgage insurer, the Company is generally at risk for any mortgage loan
default until the loan is sold (typically less than 45 days). Once the Company
sells the loan, the risk of loss from mortgage loan default and foreclosure
generally passes to the purchaser or insurer of the loan. In the case of FHA and
VA loans, the Company has, from the time such a loan is originated or purchased
until the first borrower payment is due, a minimum of 31 days to request
insurance or a guarantee certificate. Once the insurance or the guarantee
certificate is issued, the Company has no risk of default, except with respect
to certain losses related to foreclosures of FHA mortgage loans and losses that
exceed the VA's guarantee limitations. In connection with the Company's loan
exchanges and sales, the Company makes representations and warranties customary
in the industry relating to, among other things, compliance with laws,
regulations and program standards and as to accuracy of information. In the
event of a breach of these representations and warranties, the Company may
become liable for certain damages or may be required to repurchase such loans.
Typically, any flaws with respect to repurchased loans are corrected and the
loans are resold or are repurchased by the original correspondent pursuant to
prior agreement. Although the Company has not incurred losses in any material
respect as a result of mortgage loan repurchases due to breaches in
representations and warranties, there can be no assurance that the Company will
not experience such losses in the future.
Prior to the sale of originated or purchased mortgage loans, the
Company uses hedging techniques to reduce its exposure to interest rate risk.
The Company projects the portion of the pipeline loans that the Company
anticipates will close. The Company assesses the interest-rate risk associated
with the commitments that it has extended to originate or purchase loans and
evaluates the interest-rate risk of these commitments based upon a number of
factors, including the remaining term of the commitment, the interest rate at
which the commitment was provided, current interest rates and interest-rate
volatility. The Company constantly monitors these factors and adjusts its
hedging when appropriate throughout each business day. The Company's hedging
currently consists of utilizing a combination of mandatory forward sales
commitments on mortgage-backed securities and mortgage loans and options on
mortgage-backed securities.
The sale of mortgage loans may generate a gain or loss to the Company.
Gains or losses result primarily from two factors. First, the Company may
originate or purchase a loan at a price (i.e., interest rate and discount) that
may be higher or lower than the Company would receive if it immediately sold the
loan in the secondary market. These pricing differences occur principally as a
result of competitive pricing conditions in the primary loan origination market.
Second, gains or losses upon the sale of loans may result from changes in
interest rates that cause changes in the market value of the loans, or
commitments to originate or purchase loans, from the time the price commitment
is given to the customer until the time that the loan is sold by the Company to
the investor. To reduce the effect of interest-rate changes on the gain and loss
on loan sales, the Company generally commits to sell all its warehouse loans and
a portion of its pipeline loans to investors for delivery at a future time for a
stated price.
In connection with its loan sale program, which involves the sale of
mortgage loans and mortgage-backed securities on a forward or other deferred
delivery and payment basis, the Company has credit risk exposure to the extent
purchasers are unable to meet the terms of their forward purchase contracts. As
is customary in the marketplace, none of the forward payment obligations of any
of the Company's counterparties is currently secured or subject to margin
requirements, although the Company
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attempts to limit its credit exposure on forward sales arrangements by entering
into forward sales contracts solely with institutions that the Company believes
are sound credit risks, and by limiting exposure to any single counterparty by
selling to a number of investors. For example, it is the Company's current
policy, based on the Company's current size, that not more than the lesser of
(i) $350 million or (ii) 40% of the total forward purchase contracts outstanding
at any time be with any single counterparty. All counterparties are obligated to
settle such sales in accordance with the terms of the related forward sale
agreement.
Loan Servicing
Loan servicing includes collecting and remitting mortgage loan
payments, accounting for principal and interest, holding escrow funds for
payment of mortgage-related expenses such as taxes and insurance, making
advances to cover delinquent payments, making inspections as required of the
mortgaged premises, contacting delinquent mortgagors, supervising foreclosures
and property dispositions in the event of unremedied defaults and generally
administering mortgage loans. A servicer's obligation to provide mortgage loan
servicing and its right to collect fees are set forth in a servicing contract.
Failure to service the mortgage loans in accordance with contract requirements
may lead to the termination of the servicing rights and the loss of future
servicing fees.
The Company's current strategy is to pool and sell a significant
percentage of its produced mortgage servicing rights to other approved
servicers. The Company currently follows a strategy of retaining a relatively
small portion of its produced mortgage servicing rights and exploring
opportunities to sell available-for-sale servicing rights in bulk transactions.
The Company's credit facilities require it to maintain at all times a mortgage
servicing rights portfolio with an underlying unpaid principal balance of at
least $4.0 billion. The Company's policy with respect to the sale, purchase or
retention of mortgage servicing rights may change in the future.
In addition to servicing its mortgage servicing rights portfolios, the
Company also subservices mortgage servicing rights portfolios sold by it during
approximately 90 days between the sales date and the transfer date. In the
future, the Company also may seek other subservicing business.
The Company receives fees for servicing mortgage loans, ranging
generally from 0.25% to 0.44% per annum on the declining unpaid principal
balances of the loans. Servicing fees are collected by the Company from monthly
mortgage loan payments. Other sources of loan servicing revenues include fees
incidental to the services provided.
As a servicer of mortgage loans underlying mortgage-backed securities,
the Company is obligated to make timely payments of principal and interest to
security holders, whether or not such payments have been made by mortgagors on
the underlying mortgage loans. Similarly, in the event of foreclosure, the
Company is responsible for covering with its own funds principal and foreclosure
costs to the extent not covered by FHA insurance or a VA guarantee.
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The following table shows the delinquency percentages (excluding
bankruptcies and foreclosures) of the Company's mortgage servicing rights
portfolio (excluding loans serviced under subservicing agreements) at December
31, 1996.
Days Delinquent
---------------
30 2.31%
60 0.40%
90+ days 0.20%
---------------
Total Delinquencies 2.91%
===============
At December 31, 1996, the Company's mortgage servicing rights portfolio
had an underlying unpaid principal balance of $6.7 billion. The portfolio
generally reflected characteristics representative of the then-current market
conditions and had a weighted average note rate of 7.92%, which is somewhat
higher than for current production.
In 1996, the Company produced or purchased servicing rights associated
with loans having an aggregate underlying principal balance of $10.0 billion and
had an average balance of aggregate underlying unpaid principal balance of loans
being serviced of $6.4 billion. Typically, the Company sells the majority of its
produced mortgage servicing rights between 90 days and 180 days of purchase.
Nevertheless, certain market and operating characteristics, including original
costs, adjusted basis, market values, coupon rates, delinquency rates and
current prepayment rates are considered to determine whether mortgage servicing
rights should be held for longer periods of time.
The following table provides certain information regarding the
Company's mortgage servicing rights portfolio at December 31, 1996.
<TABLE>
<CAPTION>
Percentage of
Unpaid Principal Total Unpaid
Year of Number of Percentage of Amount Principal
Origination Loans Total Loans ($ in thousands) Amount
----------- ----- ----------- ---------------- -------------
<S> <C> <C> <C> <C>
1991 or earlier 4,343 5.8% $ 221,287 3.3%
1992 14,924 19.7% 1,034,868 15.5%
1993 16,129 21.3% 1,312,131 19.7%
1994 10,105 13.4% 932,871 14.0%
1995 4,177 5.5% 402,602 6.0%
1996 25,894 34.3% 2,766,508 41.5%
------ ------ ----------- ------
Total 75,572 100.00% $ 6,670,267 100.00%
====== ====== =========== ======
</TABLE>
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The following table sets forth the Company's mortgage servicing rights portfolio
by loan type:
<TABLE>
<CAPTION>
($ in Thousands) At December 31, 1996
-----------------------------------------------------------------------------
Aggregate Weighted Weighted
Number Principal Average Average
Loan Type of Loans Balance Coupon Service Fee
- ------------------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
FHA 16,347 $ 1,109,294 8.04% 0.4773%
VA 5,668 454,699 8.19% 0.4618%
FNMA 20,659 1,704,025 7.81% 0.4329%
FHLMC 28,087 2,947,186 7.81% 0.3319%
FmHA 13 739 8.93% 0.4400%
Private 1,006 76,380 8.41% 0.3423%
Warehouse 3,792 377,944 7.63% 0.3672%
---------------- ----------------- ---------------- -----------------
TOTAL 75,572 $ 6,670,267 7.92% 0.3900%
================ ================= ================ =================
</TABLE>
The Company's mortgage servicing rights portfolio is generally divided
into two segments. The portion of the portfolio that is generated by current
loan production is classified as "held-for-sale", and the portion of the
portfolio that was acquired through bulk acquisitions is classified as
"available-for-sale". The Company's held-for-sale portfolio had an aggregate
underlying unpaid principal balance of $1,827.8 million at December 31, 1996.
The Company's available-for-sale portfolio had an aggregate underlying unpaid
principal balance of $4,842.5 million at December 31, 1996.
As the servicing rights of the available-for-sale portfolio are
generally held as a longer-term investment, there are certain prepayment risks
inherent to it that do not attach to the portion of the portfolio held-for-sale
(the portfolio held-for-sale is generally sold within 90 to 180 days). During
periods of declining interest rates, prepayments of mortgage loans increase as
homeowners seek to refinance at lower rates, resulting in a decrease in the
value of the Company's available-for-sale portfolio. Mortgage loans with higher
interest rates are more likely to result in prepayments. The following table
sets forth certain information regarding the aggregate underlying unpaid
principal balance of mortgage loans in the available-for-sale portfolio serviced
by the Company. The table includes both fixed and adjustable rate loans.
AVAILABLE-FOR-SALE PORTFOLIO
<TABLE>
<CAPTION>
($ in Thousands) At December 31, 1996
------------------------------------------------------
Aggregate Percentage of Total
Principal Unpaid Principal
Mortgage Interest Rate Balance Amount
- -------------------------------- ------------------------- -------------------------
<S> <C> <C>
Less than 7.00% $ 619,091 12.79%
7.00% - 7.99% 1,998,893 41.28%
8.00% - 8.49% 1,034,068 21.35%
8.50% - 8.99% 932,359 19.25%
9.00% - 9.49% 150,513 3.11%
Greater than 9.49% 107,527 2.22%
------------------------- --------------------------
TOTAL $ 4,842,451 100.00%
========================= =========================
</TABLE>
The following table sets forth the geographic distribution of the
Company's available-for-sale portfolio for those states representing more than
3% of the portfolio:
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<TABLE>
<CAPTION>
($ in Thousands) At December 31, 1996
----------------------------------------------------------
Aggregate Percent of
Principal Total Aggregate
State Balance Principal Balance Amount
- ------------------------ -------------------- -----------------------------------
<S> <C> <C>
Massachusetts $ 644,733 13.31%
Connecticut 441,664 9.12%
California 381,788 7.88%
Texas 356,226 7.36%
Florida 256,952 5.31%
New York 231,807 4.79%
Illinois 227,232 4.69%
Colorado 178,797 3.69%
Georgia 161,659 3.34%
New Jersey 159,169 3.29%
All others 1,802,424 37.22%
-------------------- -----------------------------------
TOTAL $ 4,842,451 100.00%
==================== ===================================
</TABLE>
The following table sets forth certain information regarding the
aggregate underlying unpaid principal balance of the mortgage loans in the
held-for-sale portfolio serviced by the Company. The table includes both fixed
and adjustable rate loans.
HELD-FOR-SALE PORTFOLIO
<TABLE>
<CAPTION>
($ in Thousands) At December 31, 1996
----------------------------------------------------
Aggregate Percentage of Total
Principal Unpaid Principal
Mortgage Interest Rate Balance Amount
- -------------------------------- -------------------------- -------------------------
<S> <C> <C>
Less than 7.00% $ 161,806 8.85%
7.00% - 7.99% 487,094 26.65%
8.00% - 8.49% 649,219 35.52%
8.50% - 8.99% 419,170 22.93%
9.00% - 9.49% 90,902 4.97%
Greater than 9.49% 19,625 1.08%
-------------------------- -------------------------
TOTAL $ 1,827,816 100.00%
========================== =========================
</TABLE>
To help the Company manage its risk related to prepayments of its
servicing portfolio, the Company has purchased interest-rate floor contracts,
which provide an interest rate differential on a fixed portion of the portfolio
should interest rates fall below a certain level. For a more detailed discussion
of interest rate floor contracts, see Note 15 of the Company's Consolidated
Financial Statements, found in the Company's accompanying 1996 Annual Report to
Shareholders included herein and hereby incorporated by reference.
10
<PAGE> 13
Financing of Mortgage Banking Operations
The Company's primary cash-flow requirement involves the funding of
loan production, which is met primarily through external borrowings. The Company
has entered into a 364-day, $570 million warehouse line of credit provided by a
syndicate of unaffiliated banks that expires in July 1997. The credit agreement
includes covenants requiring the Company to maintain (i) a minimum net worth of
$130 million, plus net income subsequent to July 31, 1996 and capital
contributions and minus permitted dividends, (ii) a ratio of total liabilities
to net worth of not more than 8.0 to 1.0, excluding debt incurred pursuant to
gestation and repurchase financing agreements, (iii) its eligibility as a
servicer of GNMA, FHA, VA, FNMA and FHLMC mortgage loans and (iv) a mortgage
servicing rights portfolio with an underlying unpaid principal balance of at
least $4.0 billion. The provisions of the agreement also restrict the Company's
ability to pay dividends in any fiscal quarter that exceed 50% of the Company's
net income for the quarter, or to engage significantly in any type of business
unrelated to the mortgage banking business and the servicing of mortgage loans.
Additionally, the Company has entered into a $200 million, 364-day term
revolving credit facility with a syndicate of unaffiliated banks. An $80 million
portion of the revolver facility converts on July 31, 1997, into a four-year
term loan. The facility is secured by the Company's servicing portfolio
designated as "available-for-sale." A $70 million portion of the revolver
facility matures on July 31, 1997, and is secured by the Company's servicing
portfolio designated as "held-for-sale." A $50 million portion of the revolver
facility matures on July 31, 1997, and is secured by a first-priority security
interest in receivables on servicing rights sold. The facility includes
covenants identical to those described above with respect to the warehouse line
of credit.
The Company was in compliance with the above-mentioned debt covenants
at December 31, 1996. Although management anticipates continued compliance,
there can be no assurance that the Company will be able to comply with the debt
covenants specified for each of its financing agreements. Failure to comply
could result in the loss of the related financing.
The Company has also entered into an uncommitted gestation financing
arrangement. The interest rate on funds borrowed pursuant to this arrangement is
based on a spread over the Federal Funds rate. The gestation line has a funding
limit of $1.0 billion.
The Company entered into a $5 million unsecured line of credit in
September 1996. The line of credit expires in September 1997. The interest rate
on funds borrowed through this line of credit is prime plus one half percent.
The Company entered into a $6.6 million, 364-day revolving credit
facility secured by certain real property of the Company. This facility was
retired in August of 1996.
There can be no assurance that the Company will be able to comply with
the covenants in its various credit facilities, and failure to comply could
result in the loss of the related financing. In addition, there can be no
assurance that the Company will be able to renew these arrangements at the end
of their terms or obtain replacement financing on terms acceptable to the
Company. To the extent that the Company loses its financing sources, or if the
Company experiences difficulty in selling its mortgage loans or mortgage-backed
securities, it may have to curtail its mortgage loan origination and purchase
activities, which could have a material adverse effect on the Company's
operations and financial condition. However, management believes it will be able
to renew or, alternatively, obtain similar financing in the future on terms that
are satisfactory to the Company.
11
<PAGE> 14
Beginning in June 1995, the Company had from time to time borrowed up
to $19 million on a short-term unsecured basis from RBC. Interest on the loans
was at the prime rate. There was no indebtedness to RBC at December 31, 1996.
The Company has no plans in the foreseeable future to borrow from RBC.
Seasonality
The mortgage banking industry is generally subject to seasonal trends.
These trends reflect the general pattern of resale of homes, which typically
peak during the spring and summer seasons and decline to lower levels from
mid-November through January. Refinancings tend to be less seasonal and more
closely related to changes in interest rates. The mortgage servicing business is
generally not subject to seasonal trends, except to the extent that growth of
the portfolio is generally higher in periods of greater mortgage loan
originations.
Competition
The mortgage banking industry is highly competitive. The Company
competes with financial institutions, mainly mortgage companies, commercial
banks and savings and loan associations and, to a certain extent, credit unions
and insurance companies. The Company competes principally by purchasing or
originating a variety of mortgage loans, emphasizing the quality of its service
and pricing the loans at competitive rates. Many of the Company's competitors
have financial resources that are substantially greater than those of the
Company. Many of the nation's largest mortgage companies and commercial banks
have a significant number of branch offices in areas in which the Company's
correspondents and wholesale and retail branches operate. Increased competition
for mortgage loans from larger lenders may result in a decrease in the volume of
loans purchased by the Company, thereby possibly reducing the Company's
revenues. The Company does not have a significant market share of mortgage
banking activities in the areas in which it conducts operations.
Fluctuations in Performance
The Company's operating results can fluctuate substantially from period
to period as a result of a number of factors, including the volume of loan
production, interest rates, the level of amortization of mortgage servicing
rights required by prepayment rates and the performance of the Company's
servicing portfolio hedge. In particular, the Company's results are strongly
influenced by the level of loan production, which is influenced by the
interest-rate environment and other economic factors. Accordingly, the net
income of the Company may fluctuate substantially from period to period.
Regulation
The operations of the Company are subject to extensive regulation by
federal and state governmental authorities and are subject to various laws and
judicial and administrative decisions that, among other things, regulate
credit-granting activities, require disclosures to customers, govern secured
transactions and establish collection, repossession and claims handling
procedures and other trade practices. The Company is subject to the rules and
regulations of the FHA, FHLMC, FNMA, GNMA, the VA and state regulatory
authorities with respect to originating, processing, underwriting, selling,
securitizing and servicing mortgage loans.
In addition, there are other federal and state statutes and
regulations, as well as judicial decisions, affecting such activities. Those
rules and regulations, among other things, impose licensing obligations on the
Company, establish eligibility criteria for mortgage loans, prohibit
discrimination and establish
12
<PAGE> 15
underwriting guidelines that include provisions for inspections and appraisals,
require credit reports on prospective borrowers and fix maximum loan amounts,
and with respect to VA loans, fix maximum interest rates. Moreover, lenders such
as the Company are required to submit annually to the FHA, FHLMC, FNMA, GNMA and
the VA audited financial statements, and each regulatory entity has its own
financial requirements. The Company's affairs also are subject to examination by
the FHA, FHLMC, FNMA, GNMA and the VA at all times to assure compliance with the
applicable regulations, policies and procedures. Mortgage origination activities
are subject to, among others, the Equal Credit Opportunity Act, the Federal
Truth-in-Lending Act and the Real Estate Settlement Procedures Act and the
regulations promulgated thereunder, which prohibit discrimination and require
the disclosure of certain basic information to mortgagors concerning credit
terms and settlement costs. Many of the aforementioned regulatory requirements
are designed to protect the interests of consumers, while others protect the
owners or insurers of mortgage loans. Failure to comply with these requirements
can lead to loss of approved status, termination of servicing contracts without
compensation to the servicer, demands for indemnification or loan repurchases,
class-action lawsuits and administrative enforcement actions.
Certain states require that interest be paid to mortgagors on funds
deposited by them in escrow to cover mortgage-related payments such as property
taxes and insurance premiums. Currently there are 10 states in which the Company
does business where it is required to pay interest on escrow accounts. Loans
from these 10 states amounted to approximately 35.4% of the Company's mortgage
servicing rights portfolio at December 31, 1996. The amount of interest paid on
escrow accounts for 1996 was approximately $467,000.
From time to time, state and federal legislation has been proposed to
regulate certain practices with respect to mortgage servicers holding escrow
accounts of borrowers. Such proposed legislation has included provisions that
would (i) require that interest be paid on escrow accounts, (ii) permit
mortgagors to terminate escrow accounts at such time as their loan balances
decline below a specified level and (iii) require calculation of escrow balances
by mortgage banks on a basis that would be less advantageous to such companies
than presently permitted. The Company seeks to benefit from interest-rate
reductions on its borrowings by depositing escrow accounts at its lending banks,
and the Company would be adversely affected by enactment of such legislation. It
is impossible to predict whether such legislation or any similar legislation
regulating escrow practices will be enacted, or if enacted, what form it will
take. If any additional legislative restrictions are imposed on the Company by
state or federal laws or regulations, the effect on the Company's results of
operations would depend on the requirements of such laws or regulations, and
such effect could be materially adverse. In addition to legislative changes, a
change of prevailing judicial interpretations regarding a servicer's duty to pay
interest on the escrow deposits could be materially adverse to the Company's
results of operations.
There are various state and local laws and regulations affecting the
Company's operations. The Company is in possession of licenses in all states in
which it does business that require such licenses. Conventional mortgage
operations also may be subject to state usury statutes. FHA and VA mortgage
loans are exempt from the effect of such statutes.
Employees
As of December 31, 1996, the Company had approximately 1,027 employees,
substantially all of whom were full-time employees. None of the Company's
employees are represented by a union. The Company considers its relations with
its employees to be good.
13
<PAGE> 16
Executive Officers of the Registrant
EDWARD J. SEBASTIAN, age 50, has been Chairman and Chief Executive
Officer of the Company since September 1992. He is also Chairman of the Board
and Chief Executive Officer of RBC, a position he has held since RBC was founded
by him in September 1986.
DAVID W. JOHNSON, JR., age 48, has been Vice Chairman of the Company
since October 1992 and Managing Director since July 1993. He joined the Company
in May 1989 when it was a division of Republic National Bank (Republic). From
that time and until June 3, 1993, he was an Executive Vice President of
Republic.
RICHARD M. DUNCAN, age 48, has been Senior Executive Vice President of
Production since January 1997. Previously he had been Executive Vice President
of Production since January 1995. He has been with the Company since May 1994,
joining it as Senior Vice President of Business Development. From May 1984
through April 1994, Mr. Duncan was an Executive Vice President of Fleet Mortgage
Group, Inc.
STEVEN F. HERBERT, age 41, has been Senior Executive Vice President and
Chief Financial Officer of the Company since January 1997. Previously, he had
been Executive Vice President and Chief Financial Officer since July 1995. From
September 1985 through June 1995, Mr. Herbert was employed by Price Waterhouse
LLP, most recently as the Client Services Director of the Columbia, South
Carolina office.
ITEM 2. PROPERTIES
The Company's corporate and administrative headquarters, which are
owned by the Company, is located in Columbia, South Carolina. This facility
comprises a building having approximately 120,000 square feet and 16.5 acres of
land. The Company purchased an additional 17.9 acres of land adjacent to the
above property in January 1996. In addition, the Company leases smaller amounts
of office space in 19 states, consisting primarily of wholesale and retail
branch offices and regional underwriting centers.
The Company's primary computer data system is provided through ALLTEL
Information Services, Mortgage Division (ALLTEL) (formerly Computer Power, Inc.
of Jacksonville, Florida). Company personnel enter data on computer hardware
located in-house. The data is transmitted directly to ALLTEL where it is
processed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings. In the
ordinary course of its business, the Company is from time to time subject to
litigation.
14
<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Since June 3, 1993, the Company's Common Stock has been traded in the
over-the-counter market on the NASDAQ National Market System under the symbol
"REMI." Additional information required by this item is set forth under the
captions "Stock Data" and "Corporate Information" in the Company's accompanying
1996 Annual Report to Shareholders and is hereby incorporated herein by
reference.
On January 27, 1996, the Company issued 8,205 shares (8,779 after
consideration of the Stock Dividends as defined in the Annual Report) of its
common stock, par value $0.01 per share, to each David W. Johnson, Jr. and Lee
E. Shelton. These shares were issued pursuant to the terms of Messrs. Johnson
and Shelton's employment agreements dated as of June 3, 1993 and represented a
portion of their bonuses for 1995. The fair market value of the shares on the
date of issuance to each Mr. Johnson and Mr. Shelton was $127,173 based on the
Stock Dividend adjusted closing price of $14.49 per share on the NASDAQ Market
System on such date. The Company believes that the issuance of the shares to
Messrs. Johnson and Shelton was exempt from the registration requirements of the
Securities and Exchange Act of 1993, as amended, under Section 4 (2) by virtue
of their positions as Vice Chairmen and Managing Directors of the Company.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Financial
Highlights" in the Company's accompanying 1996 Annual Report to Shareholders is
hereby incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" (including all
tables presented under that caption) in the Company's accompanying 1996 Annual
Report to Shareholders is hereby incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information set forth in the Company's accompanying 1996
Annual Report to Shareholders is hereby incorporated herein by reference:
15
<PAGE> 18
The Consolidated Financial Statements of Resource Bancshares Mortgage
Group, Inc., together with the report thereon of Price Waterhouse LLP dated
February 3, 1997, including all Notes to such Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in accountants or disagreements with
accountants on accounting and financial disclosure matters that require
disclosure pursuant to Item 304 of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information set forth (i) under the caption "Proposal No. 1: Election
of Directors" in the definitive 1997 Proxy Statement of the Company furnished to
shareholders in connection with its 1997 Annual Meeting (the "1997 Proxy
Statement"), with respect to the name of each nominee or director, his age, his
positions and offices with the registrant, his business experience, his
directorships in other public companies and his service on the registrant's
Board of Directors, and (ii) under the caption "Section 16 (a) Beneficial
Ownership Reporting Compliance" in the 1997 Proxy Statement with respect to
Section 16 matters is hereby incorporated herein by reference. Information with
respect to executive officers is set forth in Item 1 of this Report on Form 10-K
under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to the remuneration of executive officers and
certain other matters set forth in the 1997 Proxy Statement (i) under the
caption "Compensation of Officers and Directors" and (ii) under the caption
"Compensation Committee Interlocks and Insider Participation" to the extent such
information is required by Item 402 of Regulation S-K to be set forth herein,
hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to the security ownership of (i) persons who
beneficially own 5% or more of the outstanding shares of the Company's common
stock, par value $.01 per share, (ii) directors, nominees and named executive
officers individually and (iii) directors and executive officers as a group set
forth in the 1997 Proxy Statement under the caption "Beneficial Ownership" is,
to the extent such information is required by Item 403 of Regulation S-K to be
set forth herein, hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to relationships and related transactions
between the Company and any director, nominee for director, executive officer,
security holder owning 5% or more of the Company's voting securities or any
associate or member of the immediate family of any of the above, as set forth in
the 1997 Proxy Statement under the caption "Compensation Committee Interlocks
and Insider Participation" is, to the extent such information is required by
Item 404 of Regulation S-K to be set forth herein, hereby incorporated herein by
reference.
16
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. The following documents are filed as part of this report:
Page In Annual Report*
(1) Consolidated Financial Statements as of December 31, 1996:
<TABLE>
<S> <C>
Consolidated Balance Sheet at December 31, 1996 and 1995 ........................................33
Consolidated Statement of Income for each of the years in the three-year period ended
December 31, 1996 ......................................................................34
Consolidated Statement of Changes in Stockholders' Equity
for each of the years in the three-year period ended December 31, 1996 .................35
Consolidated Statement of Cash Flows for each of the years in the three-year period ended
December 31, 1996 ......................................................................36
Notes to Consolidated Financial Statements ......................................................37
</TABLE>
* Incorporated by reference from the indicated pages of the 1996
Annual Report to Shareholders.
(2) All other schedules are omitted because they are not applicable, or the
required information is shown in the consolidated financial statements
or notes thereto.
(3) The exhibits filed as part of this report and exhibits incorporated
herein by reference to other documents are listed in the Index to
Exhibits to this Annual Report on Form 10-K (pages A to D).
b. Not applicable
c. The exhibits filed as part of this report and exhibits incorporated herein
by reference to other documents are listed in the Index to Exhibits to this
Annual Report on Form 10-K (pages A to D).
d. Not applicable
------------------------
With the exception of the information herein expressly incorporated by
reference, the Company's 1996 Annual Report to Shareholders and 1996 Proxy
Statement are not deemed filed as part of this Annual Report on Form 10-K.
17
<PAGE> 20
SIGNATURE
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
Date: March 28, 1997 By: s/ Edward J. Sebastian
-------------------------
Edward J. Sebastian
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
s/Edward J. Sebastian Chairman of the Board and Chief March 28, 1997
- --------------------------------- Executive Officer and Director
Edward J. Sebastian (principal executive officer)
s/ Steven F. Herbert Senior Executive Vice President March 28, 1997
- --------------------------------- and Chief Financial Officer (principal
Steven F. Herbert financial and accounting officer)
s/David W. Johnson, Jr. Vice Chairman of the Board March 28, 1997
- --------------------------------- and Managing Director
David W. Johnson, Jr.
s/John W. Currie Secretary and Director March 28, 1997
- ---------------------------------
John W. Currie
Director
- ---------------------------------
John C. Baker
Director
- ---------------------------------
Stuart M. Cable
Director
- ---------------------------------
Boyd M. Guttery
s/John O. Wolcott Director March 28, 1997
- ---------------------------------
John O. Wolcott
</TABLE>
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Registrant incorporated by reference to *
Exhibit 3.3 of the Registrant's Registration No. 33-53980
3.2 Amended and Restated Bylaws of the Registrant incorporated by reference to *
Exhibit 3.4 of the Registrant's Registration No. 33-53980
4.1 Specimen Certificate of Registrant's Common Stock incorporated by reference *
to Exhibit 4.1 of the Registrant's Registration No. 33-53980
4.2 Second Amended and Restated Secured Revolving /Term Credit Agreement dated as of July *
31, 1996, between the Registrant and the Banks Listed on the Signature Pages Thereof,
Bank One, Texas, National Association, First Bank National Association, NationsBank of
Texas, N.A. and Texas Commerce Bank, National Association, as Co-agents and the
Bank of New York as Agent and Collateral Agent incorporated by reference to Exhibit 4.2
of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1996
4.3 Second Amended and Restated Revolving/Term Security Collateral Agency Agreement *
dated as of July 31, 1996, between the Registrant and The Bank of New York as Collateral
Agent and Secured Party incorporated by reference to Exhibit 4.3 of the Registrant's Form
10-Q for the period ended September 30, 1996
10.1 Employment Agreement dated June 3, 1993, between the Registrant and *
David W. Johnson, Jr. as amended by amendment dated October 22, 1993
incorporated by reference to Exhibit 10.1 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993
10.2 Employment Agreement dated June 3, 1993, between the Registrant and *
Lee E. Shelton as amended by amendment dated October 22, 1993 incorporated
by reference to Exhibit 10.2 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993
10.3 Tax Agreement dated May 26, 1993, between Resource Bancshares Corporation (RBC) *
and the Registrant incorporated by reference to Exhibit 10.3 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993
10.4 Formation Agreement dated May 26, 1993, among Republic National Bank, the *
Registrant, RBC and 1st Performance National Bank incorporated by reference to
Exhibit 10.4 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993
10.5 Office Building Lease dated March 8, 1991, as amended by Modification of Office *
Lease dated October 1, 1991, incorporated by reference to Exhibit 10.5 of the Registrant's
Registration No. 33-53980
10.6 Assignment and Assumption of Office Lease incorporated by reference to Exhibit 10.6 *
of the Registrant's Registration No. 33-53980
</TABLE>
A
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
10.7 (A) Stock Option Agreement between the Registrant and David W. Johnson, Jr. *
incorporated by reference to Exhibit 10.8 (A) of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993
(B) Stock Option Agreement between the Registrant and Lee E. Shelton
incorporated by reference to Exhibit 10.8 (B) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993
10.8 (A) Termination Agreement dated June 3, 1993, between the Registrant and *
David W. Johnson, Jr. incorporated by reference to Exhibit 10.9 (A) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993
(B) Termination Agreement dated June 3, 1993, between the Registrant
and Lee E. Shelton incorporated by reference to Exhibit 10.9 (B) of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993
10.9 (A) Deferred Compensation Agreement dated June 3, 1993, between the Registrant and *
David W. Johnson, Jr. incorporated by reference to Exhibit 10.10 (A) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993
(B) Deferred Compensation Agreement dated June 3, 1993, between the
Registrant and Lee E. Shelton incorporated by reference to Exhibit
10.10 (B) of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993
(C) Deferred Compensation Rabbi Trust, for David W. Johnson, dated January 19, 1994,
between RBC and First Union National Bank of North Carolina incorporated by reference
to Exhibit 10.10 (C) of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993
(D) Deferred Compensation Rabbi Trust, for Lee E. Shelton dated January
19, 1994, between RBC and First Union National Bank of North Carolina
incorporated by reference to Exhibit 10.10 (D) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993
10.10 Registration Rights Agreement dated May 26, 1993, between RBC and the Registrant *
incorporated by reference to Exhibit 10.11 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993
10.11 Flexible Benefits Plan incorporated by reference to Exhibit 10.16 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1993
10.12 Section 125 Plan incorporated by reference to Exhibit 10.17 of the Registrant's Annual *
Report on Form 10-K for the year ended December 31, 1993
10.13 Pension Plan incorporated by reference to Exhibit 10.18 of the Registrant's Annual *
Report on Form 10-K for the year ended December 31, 1993
</TABLE>
B
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
10.14 Governmental Real Estate Sub-Lease-Office, between Resource Bancshares Mortgage *
Group, Inc. and the South Carolina Department of Labor, Licensing and Regulation
incorporated by reference to Exhibit 10.19 of the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1994
10.15 First Sub-Lease Amendment to Governmental Real Estate Sub-Lease-Office, *
between Resource Bancshares Mortgage Group, Inc. and the South Carolina Department
of Labor, Licensing and Regulation incorporated by reference to Exhibit
10.20 of the Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1994
10.16 Amendment I to Pension Plan incorporated by reference to Exhibit 10.21 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1994
10.17 Amendment II to Pension Plan incorporated by reference to Exhibit 10.22 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1994
10.18 Phantom 401(k) Plan incorporated by reference to Exhibit 10.24 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1994
10.19 Pension Restoration Plan incorporated by reference to Exhibit 10.25 of the Registrant's *
Annual Report on Form 10-K for the year ended December 31, 1994
10.20 Stock Investment Plan incorporated by reference to Exhibit 4.1 of the Registrant's *
Registration No. 33-87536
10.21 Amendment I to Stock Investment Plan incorporated by reference to Exhibit 10.27 *
of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
10.22 Employee Stock Ownership Plan incorporated by reference to Exhibit 10.29 *
of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
10.23 Amended Resource Bancshares Mortgage Group, Inc. Successor Employee Stock *
Ownership Trust Agreement dated December 1, 1994, between the Registrant and
Marine Midland Bank incorporated by reference to Exhibit 10.30 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994
10.24 ESOP Loan and Security Agreement dated January 12, 1995, between the Registrant *
and The Resource Bancshares Mortgage Group, Inc. Employee Stock Ownership Trust
incorporated by reference to Exhibit 10.31 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994
10.25 Employment Agreement dated June 30, 1995, between the Registrant and Steven F. Herbert *
incorporated by reference to Exhibit 10.34 of the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1995
10.26 Formula Stock Option Plan incorporated by reference to Exhibit 10.36 of the Registrant's *
Quarterly Report on Form 10-Q for the period ended September 30, 1995
10.27 Omnibus Stock Award Plan incorporated by reference to Exhibit 10.37 of the Registrant's *
Quarterly Report on Form 10-Q for the period ended September 30, 1995
</TABLE>
C
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
10.28 Employment Agreement dated September 25, 1995, between the Registrant and *
Richard M. Duncan incorporated by reference to Exhibit 10.38 of the Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1995
10.29 Request for Extension of Governmental Real Estate Sub-Lease-Office, between the Registrant *
and the South Carolina Department of Labor, Licensing and Regulation dated
December 12, 1995 incorporated by reference to Exhibit 10.39 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995
10.30 First Amendment to Registration Rights Agreement dated March 11, 1996, between *
the Registrant and RBC incorporated by reference to Exhibit 10.40 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995
10.31 First Amendment to Employee Stock Ownership Plan dated October 31, 1995 *
incorporated by reference to Exhibit 10.41 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995
10.32 Amendment to Pension Plan effective January 1, 1995 incorporated by reference *
to Exhibit 10.42 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995
10.33 Resource Bancshares Mortgage Group, Inc. Non-Qualified Stock Option Plan _____
dated September 1, 1996
10.34 Amended and Restated Retirement Savings Plan dated April 1, 1996 _____
10.35 First Amendment to Amended and Restated Retirement Savings Plan dated as of _____
November 8, 1996
10.36 ESOP Loan and Security Agreement dated May 3, 1996, between the Registrant and _____
The Resource Bancshares Mortgage Group, Inc. Employee Stock Ownership Trust
11.1 Statement re Computation of Net Income per Share _____
13.1 1996 Annual Report to Shareholders _____
21.1 Subsidiaries of the Registrant _____
23.1 Consents of Price Waterhouse LLP _____
27.1 Financial Data Schedule _____
</TABLE>
- ----------------------------------
* Incorporated by reference
D
<PAGE> 1
EXHIBIT 10.33
PHANTOM FORM - NO DIVIDENDS
NON-QUALIFIED STOCK OPTION AGREEMENT
Pursuant to
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
NON-QUALIFIED STOCK OPTION PLAN
This Non-Qualified Stock Option Agreement is entered into as of the
_____ day of _____________, 199___, between Resource Bancshares Mortgage Group,
Inc., a Delaware corporation (the "Company"), and _______________________ (the
"Optionee").
1. Definitions.
Capitalized terms used in this Option Agreement but not defined herein
are used herein as defined in the Plan. In addition, throughout this Option
Agreement, the following terms shall have the meanings indicated:
(a) "Exercise Date" shall have the meaning indicated in
paragraph 3 hereof.
(b) "Option Period" shall mean the period commencing on
the date of this Option Agreement and ending at the close of the Company's
business on _____________.
(c) "Plan" shall mean the Resource Bancshares Mortgage
Group, Inc. Non-Qualified Stock Option Plan.
(d) "Securities Act" shall mean the Securities Act of
1933, as amended.
2. Award of Option.
Effective upon the date hereof, and subject to the terms and
conditions set forth herein and in the Plan, the Company has awarded to the
Optionee the option to purchase from the Company, at an exercise price of
$_________ per share, up to but not exceeding in the aggregate ____________
shares of Common Stock.
3. Exercise of Option.
<PAGE> 2
(a) Except as provided below, on or after _____________
the Option shall be exercisable, in whole or in part, at any time and from time
to time during the Option Period, but not thereafter. If not earlier
terminated, the Option shall terminate and may not be exercised if the Optionee
ceases to be employed by the Company except (i) if the Optionee's employment
terminates for any reason other than conduct that in the judgment of the Board
involves dishonesty or action by the Optionee that is detrimental to the best
interest of the Company, then the Optionee may at any time within three months
after termination of the Optionee's employment exercise the Option but only to
the extent the Option was vested (as provided below) on the date of termination
of employment; (ii) if the Optionee's employment terminates on account of total
and permanent disability, then the Optionee may at any time within one year
after termination of the Optionee's employment exercise the Option with respect
to all shares to which it pertains; and (iii) if the Optionee dies while in the
employ of the Company, or within the three month or one year period following
termination of the Optionee's employment as described in clause (i) or (ii)
above, then the Option may be exercised with respect to all shares to which it
pertains at any time within one year following the Optionee's death by the
person or persons to whom the Optionee's rights under the Option shall pass by
will or by the laws of descent and distribution. Notwithstanding anything to
the contrary in this subsection, the Option may not be exercised by anyone
after the expiration of its term.
The Option shall be deemed to be vested as follows:
then the percentage of
the Option that is
if the date is: vested is:
on or before the date
first written above, %
----------
after the date first written
above but on or before
, %
- -------------- ----------
after ___________ but
on or before
, %
- -------------- ----------
after ___________ but
on or before
, %
- -------------- ----------
after , 100%
--------------
2
<PAGE> 3
(b) No less than 100 shares of Common Stock may be
purchased upon any one exercise of the Option granted hereby unless the number
of shares purchased at such time is the total number of shares in respect of
which the Option is then exercisable.
(c) Upon exercise of the Option, the Option exercise
price shall be payable in United States dollars, in cash (including by check)
or (unless the Board otherwise prescribes) in shares of Common Stock owned by
the Optionee for a period exceeding six months, or in a combination of cash and
such Common Stock. If all or any portion of the Option exercise price is paid
in Common Stock owned by the Optionee, then that stock shall be valued at its
Fair Market Value as of the date the Option is exercised. The Option shall be
deemed to be exercised on the date (the "Exercise Date") that the Company
receives full payment of the exercise price for the number of shares for which
the Option is being exercised.
(d) During the lifetime of the Optionee, the Option shall
be exercisable only by the Optionee and shall not be assignable or transferable
by the Optionee and no person shall acquire any rights therein. The Option may
be transferred by will or the laws of descent and distribution.
4. Compliance with the Securities Act; No Registration Rights.
Anything in this Option Agreement to the contrary notwithstanding, if,
at any time specified herein for the issuance of Option Shares, any law,
regulation or requirement of any governmental authority having jurisdiction in
the premises shall require the Company or the Optionee, in the judgment of the
Company, to take any action in connection with the shares then to be issued,
then the issue of such shares shall be deferred until such action shall have
been taken. Nothing in this Option Agreement shall be construed to obligate
the Company at any time to file or maintain the effectiveness of a registration
statement under the Securities Act, or under the securities laws of any state
or other jurisdiction, or to take or cause to be taken any action that may be
necessary in order to provide an exemption from the registration requirements
of the Securities Act under Rule 144 or any other exemption with respect to the
Option Shares or otherwise for resale or other transfer by the Optionee (or by
the executor or administrator of the Optionee's estate or a person who acquired
the Option or any Option Shares or other rights by bequest or inheritance or by
reason of the death of the Optionee) as a result of the exercise of the Option
evidenced by this Option Agreement.
5. Resolution of Disputes.
Any dispute or disagreement that arises under, or as a result of, or
pursuant to, this Option Agreement shall be determined by the Board in its
absolute and uncontrolled discretion, and any such determination or other
determination by the Board under or pursuant to this Option
3
<PAGE> 4
Agreement, and any interpretation by the Board of the terms of this Option
Agreement, shall be conclusive as to all persons affected thereby.
6. Miscellaneous.
(a) Binding on Successors and Representatives. The
parties understand that this Option Agreement shall be binding not only upon
themselves, but also upon their heirs, executors, administrators, personal
representatives, successors and assigns (including any transferee of a party
hereto); and the parties agree, for themselves and their successors, assigns
and representatives, to execute any instrument that may be necessary or
desirable legally to effect such understanding.
(b) Entire Agreement; Relationship to Plan. The Optionee
acknowledges that he or she has received a copy of the Plan. This Option
Agreement, together with the Plan, constitutes the entire agreement of the
parties with respect to the Option and supersedes any previous agreement,
whether written or oral, with respect thereto. This Option Agreement has been
entered into in compliance with the terms of the Plan; to the extent that any
interpretive conflict may arise between the terms of this Option Agreement and
the terms of the Plan, the terms of the Plan shall control.
(c) Amendment. Neither this Option Agreement nor any of
the terms and conditions herein set forth may be altered or amended orally, and
any such alteration or amendment shall be effective only when reduced to
writing and signed by each of the parties or their respective successors or
assigns.
(d) Construction of Terms. Any reference herein to the
singular or plural shall be construed as plural or singular whenever the
context requires.
(e) Notices. All notices and requests under this Option
Agreement shall be in writing and shall be deemed to have been given when
personally delivered or sent prepaid certified mail:
(i) if to the Company, to the following address:
Resource Bancshares Mortgage Group, Inc.
7909 Parklane Road
Columbia, South Carolina 29223
Attention: Chairman
or to such other address as the Company shall designate by notice.
4
<PAGE> 5
(ii) if to the Optionee, to the Optionee's
address appearing in the Company's records, or to
such other address as the Optionee shall designate
by notice.
(f) Governing Law; Submission to Jurisdiction. This
Option Agreement shall be governed by and construed in accordance with the laws
of the State of South Carolina. The parties hereby consent to the exclusive
jurisdiction and venue of the Court of Common Pleas in Richland County, South
Carolina for purposes of adjudicating any issue arising hereunder.
(g) Severability. The invalidity or unenforceability of
any particular provision of this Option Agreement shall not affect the other
provisions hereof, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provisions were omitted.
IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement as of the day and year first above written.
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
By:
------------------------------------
Edward J. Sebastian
Chief Executive Officer
OPTIONEE:
(SEAL)
----------------------------------------
Name:
5
<PAGE> 6
EXHIBIT 10.33
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
NON-QUALIFIED STOCK OPTION PLAN
ARTICLE I
PURPOSE; EFFECTIVE DATE; DEFINITIONS
1.1 Purpose. The Resource Bancshares Mortgage Group, Inc.
Non-Qualified Stock Option Plan (the "Plan") is intended to secure for Resource
Bancshares Mortgage Group, Inc. (the "Company") and its shareholders the
benefits of the incentive inherent in common stock ownership by the employees
of the Company who are largely responsible for the Company's future growth and
continued financial success and to afford such persons the opportunity to
obtain or increase their proprietary interest in the Company on a favorable
basis and thereby have an opportunity to share in its success.
1.2 Effective Date. Subject to the approval of the Board, this
Plan shall be effective on and after September 1, 1996.
1.3 Definitions. Throughout this Plan, the following terms
shall have the meanings indicated:
(a) "Agreement" shall mean a Non-Qualified Stock Option
Agreement between the Company and an Employee evidencing an Option grant.
(b) "Board" shall mean the Board of Directors of the
Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended, any successor revenue laws of the United States, and the rules and
regulations promulgated thereunder.
(d) "Common Stock" shall mean the common stock, par value
$.01 per share, of the Company.
(e) "Company" shall mean Resource Bancshares Mortgage
Group, Inc., a Delaware corporation.
(f) "Employee" shall mean any person engaged or proposed to
be engaged as an officer or employee of the Company.
(g) "Fair Market Value" shall mean, with respect to the
Common Stock on any day, the closing sales price of a share of Common Stock for
that day or, if the principal market for trading the Common Stock is not open
or if no closing sales price of a share of
<PAGE> 7
Common Stock is available on that day, the closing sales price of a share of
Common Stock for the day immediately preceding that day for which a closing
sales price is available. The market value of an Option granted under the Plan
on any day shall be the market value of the underlying Common Stock, determined
as aforesaid, less the exercise price of the Option.
(h) "Option" shall mean an option to purchase shares of
Common Stock granted by the Board to an Employee pursuant to this Plan. Options
pursuant to this Plan do not qualify as incentive stock options under Code
Section 422.
(i) "Option Shares" shall mean the shares of Common Stock
purchased upon exercise of an Option.
(j) "Plan" shall mean this Resource Bancshares Mortgage
Group, Inc. Non-Qualified Stock Option Plan, as the same may be amended from
time to time.
ARTICLE II
ADMINISTRATION
2.1 Board Administration. This Plan and the Options awarded
hereunder shall be interpreted, construed and administered by the Board in its
sole discretion. An Employee who has been granted an Option under the Plan may
appeal to the Board in writing any decision or action of the Board with respect
to the Plan that adversely affects the Employee. Upon review of such appeal
and in any other case where the Board has acted with respect to the Plan, the
interpretation and construction by the Board of any provisions of this Plan or
of any Agreement shall be conclusive and binding on all parties.
2.2 Powers. The Board shall have authority to grant Options
pursuant to an Agreement providing for such terms (not inconsistent with the
provisions of this Plan) as the Board may consider appropriate. Such terms
shall include, without limitation, as applicable, the number of shares, the
exercise price, the medium and time of payment, the term of each award and any
vesting requirements and may include conditions (in addition to those contained
in this Plan) on the exercisability of all or any part of an Option.
Notwithstanding any such conditions, the Board may, in its discretion,
accelerate the time at which any Option may be exercised. In addition, the
Board shall have complete discretionary authority to prescribe the form of
Agreements; to adopt, amend and rescind rules and regulations pertaining to the
administration of the Plan; and to make all other determinations necessary or
advisable for the administration of this Plan. The express grant in the Plan
of any specific power to the Board shall not be construed as limiting any power
or authority of the Board. All expenses of administering this Plan shall be
borne by the Company.
2
<PAGE> 8
2.3 Good Faith Determinations. No member of the Board shall be
liable for any action or determination made in good faith with respect to this
Plan or any Option granted hereunder.
ARTICLE III
ELIGIBILITY; SHARES SUBJECT TO PLAN
3.1 Eligibility. The Board shall from time to time determine
and designate the Employees of the Company to be awarded Options under this
Plan and the number of Options to be awarded to each such Employee. In making
any such award, the Board may take into account the nature of services rendered
by an Employee, commissions or other compensation earned by the Employee, the
capacity of the Employee to contribute to the success of the Company and other
factors that the Board may consider relevant.
3.2 Shares Subject to this Plan. Subject to the provisions of
Section 4.2 (relating to adjustment for changes in Common Stock), the maximum
number of shares that may be issued under this Plan shall not exceed in the
aggregate 400,000 shares of Common Stock. Such shares may be authorized and
unissued shares or authorized and issued shares that have been reacquired by
the Company. If any Options granted under this Plan shall for any reason
terminate or expire or be surrendered without having been exercised in full,
the shares not purchased under such Options shall be available again for grant
hereunder.
ARTICLE IV
OPTIONS
4.1 Grant; Terms and Conditions. The Board, in its discretion,
may from time to time grant Options to any Employee eligible to be awarded
Options under this Plan. Each Employee who is granted an Option shall enter
into an Agreement with the Company in a form specified by the Board and
containing such provisions as the Board, in its sole discretion, shall from
time to time approve consistent with this Plan. The Agreements need not be
identical, but each Agreement by appropriate language shall include the
substance of all of the following terms and conditions:
(a) Number of Shares. Each Agreement shall state the number
of shares to which it pertains.
(b) Option Exercise Price. Each Agreement shall state the
Option exercise price. The date of the grant of an Option shall be the date
specified by the Board in its grant of the Option. The price at which each
share of Common Stock covered by an Option granted
3
<PAGE> 9
under the Plan may be purchased shall be the price determined by the Board, in
its absolute discretion, to be suitable to attain the purposes of this Plan.
(c) Medium and Time of Payment. Upon the exercise of
an Option, the Option exercise price shall be payable in United States dollars,
in cash (including by check) or (unless the Board otherwise prescribes) in
shares of Common Stock owned by the optionee for a period exceeding six months,
or in a combination of cash and such Common Stock. If all or any portion of
the Option exercise price is paid in Common Stock owned by the optionee, then
that stock shall be valued at its Fair Market Value as of the date immediately
prior to the date the Option is exercised. An Option shall be deemed to be
exercised on the date that the Company receives full payment of the exercise
price for the number of shares for which the Option is being exercised.
(d) Term and Exercise of Options. The term of each
Option shall be determined by the Board; provided that the exercise of an
Option shall in no event be more than ten years and one month from the date of
grant. An Agreement may in the discretion of the Board contain provisions
relating to vesting of Options. Not less than 100 shares may be purchased at
any one time unless the number purchased is the total number at the time
purchasable under the Option. During the lifetime of the optionee, the Option
shall be exercisable only by him or her and shall not be assignable or
transferable by him or her and no person shall acquire any rights therein. An
Option may be transferred (unless the Board otherwise prescribes) by will or
the laws of descent and distribution. Every Agreement shall provide that,
unless earlier terminated, Options granted pursuant to this Plan shall be
exercisable at any time on or after the date of exercise set forth in the
Agreement. Notwithstanding the foregoing, an Option shall terminate and may
not be exercised if the Employee to whom it is granted ceases to be employed by
the Company, except that the Agreement may, in the discretion of the Board,
provide: (1) that, if such Employee's employment terminates for any reason
other than conduct that in the judgment of the Board involves dishonesty or
action by the Employee that is detrimental to the best interest of the Company,
then the Employee may at any time within three months after termination of his
or her employment exercise his or her Option but only to the extent the Option
was either exercisable by him or her or vested on the date of termination of
employment; (2) that, if such Employee's employment terminates on account of
total and permanent disability, then the Employee may at any time within one
year after termination of his or her employment exercise his or her Option with
respect to all shares to which it pertains; and (3) that, if such Employee dies
while in the employ of the Company, or within the three month or one year
period following termination of his or her employment as described in clause
(1) or (2) above, then his or her Option may be exercised with respect to all
shares to which it pertains at any time within one year following his or her
death by the person or persons to whom his or her rights under the Option shall
pass by will or by the laws of descent and distribution. Notwithstanding
anything to the contrary in this subsection, an Option may not be exercised by
anyone after the expiration of its term.
4
<PAGE> 10
4.2 Recapitalization; Reorganization. Subject to any required
action by the shareholders of the Company, the maximum number of shares of
Common Stock that may be issued under this Plan pursuant to Section 3.2 above,
the number of shares of Common Stock covered by each outstanding Option and the
per share exercise price under each outstanding Option shall be adjusted, in
each case, to the extent and in the manner the Board deems appropriate for any
increase or decrease in the number of issued shares of Common Stock resulting
from a reorganization, recapitalization, stock split, stock dividend,
combination of shares, merger, consolidation, rights offering, subdivision or
consolidation of shares or the payment of a stock dividend (but only on the
Common Stock) or any other change in the corporate structure or shares of the
Company.
Subject to any action that may be required on the part of
the shareholders of the Company, if the Company is the surviving corporation in
any merger, then each outstanding Option shall pertain to and apply to the
securities or other consideration that a holder of the number of shares of
Common Stock subject to the Option would have been entitled to receive in the
merger. A dissolution, liquidation or consolidation of the Company or a merger
in which the Company is not the surviving corporation, other than a merger
effected for the purpose of changing the Company's domicile, shall cause each
outstanding Option to terminate, provided that each holder shall, in such
event, have the right immediately prior to such dissolution, liquidation,
consolidation or merger to exercise his or her Option in whole or in part.
Notwithstanding the foregoing, in no event shall any Option be exercisable
after the date of termination of the exercise period of such Option. In the
case of a merger effected for the purpose of changing the Company's domicile,
each outstanding Option shall continue in effect in accordance with its terms
and shall apply or relate to the same number of shares of common stock of such
surviving corporation as the number of shares of Common Stock to which it
applied or related immediately prior to such merger, adjusted for any increase
or decrease in the number of outstanding shares of common stock of the
surviving corporation effected without receipt of consideration.
In the event of a change in the Common Stock as presently
constituted, which change is limited to a change of all of the authorized
shares with par value into the same number of shares with a different par value
or without par value, the shares resulting from any such change shall be deemed
to be the Common Stock within the meaning of this Plan.
The foregoing adjustments shall be made by the Board, whose
determination shall be final, binding and conclusive.
The Company may pay to each optionee amounts in respect of
dividends (cash or property) that are paid from time to time on issued and
outstanding Common Stock. The amount paid to each optionee with respect to
each dividend shall be equivalent to the dividend the optionee would have
received had the optionee been the owner of a number of shares of
5
<PAGE> 11
Common Stock equal to the number of the optionee's unexercised Options on the
dividend record date.
Except as expressly provided in this Section, the holder of
an Option shall have no rights by reason of (i) any subdivision or
consolidation of shares of any class, (ii) any stock dividend, (iii) any other
increase or decrease in the number of shares of stock of any class, (iv) any
dissolution, liquidation, consolidation, merger or spin-off, split-off or
split-up of assets of the Company or stock of another corporation or (v) any
issuance by the Company of shares of stock of any class or securities
convertible into shares of stock of any class. Moreover, except as expressly
provided in this subsection, the occurrence of one or more of such events shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number of or exercise price for shares of Common Stock subject to the
Option.
The grant of an Option pursuant to this Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell or
otherwise transfer all or any part of its business or assets.
4.3 Rights as a Shareholder. Subject to Section 5.9 of this
Plan regarding uncertificated shares, an optionee or a transferee of an Option
shall have no rights as a shareholder with respect to any shares covered by his
or her Option until the date of the issuance of a stock certificate to him or
her for those shares upon payment of the exercise price. No adjustments or
payments shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except
as provided in Section 4.2.
4.4 Modification, Extension and Renewal of Options. Subject to
the terms and conditions and within the limitations of this Plan, the Board may
modify, extend or renew outstanding Options granted under this Plan or accept
the surrender of outstanding Options (to the extent not theretofore exercised)
and authorize the granting of new Options in substitution therefor (to the
extent not theretofore exercised). No modification of an Option shall, without
the consent of the optionee, alter or impair any rights or obligations under
any Option theretofore granted under this Plan.
4.5 Other Terms and Conditions. Through the Agreements
authorized under this Plan, the Board may impose such other terms and
conditions, not inconsistent with the terms hereof, on the grant or exercise of
Options, as it deems advisable.
ARTICLE V
MISCELLANEOUS
6
<PAGE> 12
5.1 Withholding Taxes. An Employee granted Options under this
Plan shall be conclusively deemed to have authorized the Company to withhold
from the salary, commissions or other compensation of such Employee funds in
amounts or property (including Common Stock) in value equal to any federal,
state and local income, employment or other withholding taxes applicable to the
income recognized by such Employee and attributable to the Options or Option
Shares, when and to the extent, if any, required by law; provided, however,
that, in lieu of the withholding of federal, state and local taxes as herein
provided, the Company may require that the Employee (or other person exercising
such Option) pay the Company an amount equal to the federal, state and local
withholding taxes on such income at the time such withholding is required or
such other time as shall be satisfactory to the Company; and provided further,
that as an alternative to complying with withholding requirements as provided
above in this sentence, an optionee may elect by written notice to the Company
at the time of exercise of an Option to have the number of shares of Common
Stock issued in connection with such exercise reduced by such number of shares
such that the market value of the Option relating to the shares not being
issued as a result of such reduction shall be equal to the required withholding
(but in no event in excess of withholding resulting from using the maximum
marginal federal and state tax rates in effect).
5.2 Amendment, Suspension, Discontinuance or Termination of
Plan. The Board may from time to time amend, suspend or discontinue this Plan
or revise it in any respect whatsoever for the purpose of maintaining or
improving the effectiveness of this Plan as an incentive device, for the
purpose of conforming this Plan to applicable governmental regulations or to
any change in applicable law or regulations or for any other purpose permitted
by law; provided, however, that no such action by the Board shall adversely
affect any Option theretofore granted under this Plan without the consent of
the holder so affected.
5.3 Governing Law. This Plan and all rights and obligations
hereunder shall be construed in accordance with and governed by the laws of the
State of South Carolina.
5.4 Designation. This Plan may be referred to in other
documents and instruments as the "Resource Bancshares Mortgage Group, Inc.
Non-Qualified Stock Option Plan."
5.5 Indemnification of Directors. In addition to such other
rights of indemnification as they may have as directors, the members of the
Board shall be indemnified by the Company against the reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any investigation, action, suit or proceeding, or in connection
with any appeal therefrom, to which they or any of them may be a party by
reason of any action taken or failure to act under or in connection with this
Plan or any Option and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in or dismissal or
other discontinuance of any such investigation, action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such
investigation, action, suit or proceeding that such Board member is liable for
negligence or misconduct in the
7
<PAGE> 13
performance of his or her duties; provided that, within 60 days after
institution of any such investigation, action, suit or proceeding, a Board
member shall in writing offer the Company the opportunity, at its own expense,
to handle and defend the same.
5.6 Reservation of Shares. The Company shall at all times
during the term of this Plan, and so long as any Option shall be outstanding,
reserve and keep available (and will seek or obtain from any regulatory body
having jurisdiction any requisite authority in order to issue) such number of
shares of its Common Stock as shall be sufficient to satisfy the requirements
of this Plan. Inability of the Company to obtain from any regulatory body of
appropriate jurisdiction authority considered by the Company to be necessary or
desirable to the lawful issuance of any shares of its Common Stock hereunder
shall relieve the Company of any liability in respect of the nonissuance or
sale of such Common Stock as to which such requisite authority shall not have
been obtained.
5.7 Application of Funds. The proceeds received by the Company
from the sale of Common Stock pursuant to Options will be used for general
corporate purposes.
5.8 No Obligation to Exercise. The granting of an Option shall
impose no obligation upon the holder to exercise or otherwise realize the value
of that Option.
5.9 Uncertificated Shares. Each Employee who exercises an
Option to acquire Common Stock may, but need not, be issued a stock certificate
in respect of the Common Stock so acquired. A "book entry" (i.e., a
computerized or manual entry) shall be made in the records of the Company to
evidence the issuance of shares of Common Stock to an Employee where no
certificate is issued in the name of the Employee. Such Company records,
absent manifest error, shall be binding on Employees. In all instances where
the date of issuance of shares may be deemed significant but no certificate is
issued in accordance with this Section 5.9, the date of the book entry shall be
the relevant date for such purposes.
5.10 Loans. For the purpose of assisting an optionee to
exercise an Option, the Company may, in the discretion of the Board, make loans
to the optionee or guarantee loans made by third parties to the optionee, in
any case on such terms and conditions as the Board may authorize, provided such
loans or guarantees are made on a full recourse basis.
5.11 Other Actions. Nothing contained in the Plan shall be
construed to limit the authority of the Company to exercise its corporate
rights and powers, including, but not by way of limitation, the right of the
Company to grant or assume options for proper corporate purposes other than
under the Plan with respect to any employee or other person, firm, corporation
or association.
5.12 Approval of Stockholders. No Options awarded pursuant to
this Plan shall be enforceable against the Company unless and until the Plan
shall have been ratified by the
8
<PAGE> 14
stockholders of the Company in the manner and to the extent required as a
result of the Common Stock being included in the NASDAQ National Market and the
General Corporation Law of Delaware.
<PAGE> 1
EXHIBIT 10.34
THE CORPORATEPLAN FOR RETIREMENT(SM)
(PROFIT SHARING/401(K) PLAN)
A FIDELITY PROTOTYPE PLAN
NON-STANDARDIZED ADOPTION AGREEMENT 002
BASIC PLAN NO. 07
<PAGE> 2
ADOPTION AGREEMENT
ARTICLE 1
NON-STANDARDIZED PROFIT SHARING PLAN
1.01 PLAN INFORMATION
<TABLE>
<S> <C>
(A) NAME OF PLAN:
This is the Resource Bancshares Mortgage Group, Inc. Retirement
Savings Plan (the "Plan").
------------------------------------------------------------
(B) TYPE OF PLAN:
(1) /X/ 401(k) and Profit Sharing
(2) / / Profit Sharing Only
(3) / / 401(k) Only
(C) NAME OF PLAN ADMINISTRATOR, IF NOT THE EMPLOYER:
Retirement Plan Committee/RBMG
Address: 7909 Parklane Road, Columbia, SC 29223
Phone Number: (803) 741-3000
The Plan Administrator is the agent for service of legal process for the Plan.
(D) LIMITATION YEAR (check one):
(1) /X/ Calendar Year
(2) / / Plan Year
(3) / / Other:___________
(E) THREE DIGIT PLAN NUMBER: 001
(F) PLAN YEAR END (month/day): December 31
(G) PLAN STATUS (check one):
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
(1) / / Effective Date of new Plan:
(2) /X/ Amendment Effective Date: 4/1/96 . This is (check one):
-----------
(A) / / an amendment of The CORPORATEplan for RetirementSM Adoption
Agreement previously executed by the Employer; or
(B) / / a conversion from another plan document into The CORPORATEplan
for RetirementSM.
The original effective date of the Plan: 7/1/93
---------------
The substantive provisions of the Plan shall apply prior to the Effective
Date to the extent required by the Tax Reform Act of 1986 or other
applicable laws.
1.02 EMPLOYER
(A) THE EMPLOYER IS Resource Bancshares Mortgage Group, Inc.
Address: 7909 Parklane Road
Columbia, South Carolina 29223
Contact's Name: Thomas J. Little, Jr. and Tom McCants
Telephone Number: (803) 741-3231 (803) 741-3784
---------------------------------------------------------------------------
(1) Employer's Tax Identification Number: 57-0962375
(2) Business form of Employer (check one):
(A) /x/ Corporation (D) / / Governmental
(B) / / Sole proprietor or partnership (E) / / Tax-exempt organization
(C) / / Subchapter S Corporatio (F) / / Rural Electric Cooperative
(3) Employer's fiscal year end: December 31
----------------------------
(4) Date business commenced: May, 1993
----------------------------
</TABLE>
2
<PAGE> 4
(B) THE TERM "EMPLOYER" INCLUDES THE FOLLOWING RELATED EMPLOYER(S)
(as defined in Section 2.01(a)(26)):
Intercounty Mortgage, Inc.
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
1.03 COVERAGE
(A) ALL EMPLOYEES WHO MEET THE CONDITIONS SPECIFIED BELOW WILL BE ELIGIBLE
TO PARTICIPATE IN THE PLAN:
(1) SERVICE REQUIREMENT (check one):
(A) [ ] no service requirement.
(B) [ ] three consecutive
months of service (no minimum number
Hours of Service can be required).
(C) [ ] six consecutive months of service (no minimum
number Hours of Service can be required).
(D) [X] one Year of Service (1,000 Hours of
Service is required during the
Eligibility Computation Period.)
(2) AGE REQUIREMENT (check one):
(A) [ ] no age requirement.
(B) [X] must have attained age 21___ (not to exceed 21).
3
<PAGE> 5
(3) THE CLASS OF EMPLOYEES ELIGIBLE TO PARTICIPATE IN
THE PLAN (check one):
(A) [ ] includes all Employees of the Employer.
(B) [X] includes all Employees of the Employer except
for (check the appropriate box(es)):
(i) [ ] Employees covered by a collective bargaining
agreement.
(ii) [ ] Highly Compensated Employees as defined in
Code Section 414(q).
(iii) [ ] Leased Employees as defined in Section
2.01(a)(18).
(iv) [ ] Nonresident aliens who do not receive any
earned income from the Employer which
constitutes United States source income.
(V) [ ] Other
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
NOTE: No exclusion in this section may create a
discriminatory class of employees. An Employer's Plan
must still pass the Internal Revenue Code coverage and
participation requirements if one or more of the above
groups of Employees have been excluded from the Plan.
(B) THE ENTRY DATE(S) SHALL BE (check one):
(1) [ ] the first day of each Plan Year (do not select if Section
1.03 (a)(1)(D) is elected or if there is an age requirement
of greater than 20 1/2 in Section 1.03(a)(2)(B)).
(2) [X] the first day of each Plan Year and the date six months
later.
(3) [ ] the first day of each Plan Year and the first day of the
fourth, seventh, and tenth months.
(4) [ ] the first day of each month.
4
<PAGE> 6
(C) DATE OF INITIAL PARTICIPATION - AN EMPLOYEE WILL BECOME A PARTICIPANT
UNLESS EXCLUDED BY SECTION 1.03(A)(3) ABOVE ON THE ENTRY DATE
IMMEDIATELY FOLLOWING THE DATE THE EMPLOYEE COMPLETES THE SERVICE AND
AGE REQUIREMENT(S) IN SECTION 1.03(A), IF ANY, EXCEPT (check one):
(1) [ ] No exceptions.
(2) [ ] Employees employed on the Effective Date in Section 1.01(g)
will become Participants on that date.
(3) [ ] Employees who meet the age and service requirement(s) of
Section 1.03(a) on the Effective Date in Section 1.01(g)
will become Participants on that date.
1.04 COMPENSATION
(A) FOR PURPOSES OF DETERMINING CONTRIBUTIONS UNDER THE PLAN, COMPENSATION
SHALL BE AS DEFINED IN SECTION 2.01(A)(7), BUT EXCLUDING (check the
appropriate box(es)):
(1) [ ] Overtime Pay.
(2) [ ] Bonuses.
(3) [ ] Commissions.
(4) [ ] The value of a qualified or a non-qualified
stock option granted to an Employee by the
Employer to the extent such value is
includable in the Employee's taxable income.
NOTE: These exclusions shall not apply for purposes of the "Top
Heavy" requirements in Section 9.03 or for allocating
Discretionary Employer Contributions if an Integrated Formula
is elected in Section 1.05(a)(2).
(5) [X] No exclusions.
5
<PAGE> 7
(B) COMPENSATION FOR THE FIRST YEAR OF PARTICIPATION
Contributions for the Plan Year in which an Employee first
becomes a Participant shall be determined based on the
Employee's Compensation (check one):
(1) [ ] For the entire Plan Year.
(2) [ ] For the portion of the Plan Year in which the
Employee is eligible to participate in the Plan.
1.05 CONTRIBUTIONS
(A) [X] EMPLOYER CONTRIBUTIONS :
(1) [ ] FIXED FORMULA - NONINTEGRATED FORMULA (check (A)
or (B)):
(A) [ ] Fixed Percentage Employer Contribution:
For each Plan Year, the Employer will
contribute for each eligible Participant an
amount equal to __________% (not to exceed
15%) of such Participant's Compensation.
(B) [ ] Fixed Flat Dollar Employer Contribution:
For each Plan Year, the Employer will
contribute for each eligible Participant an
amount equal to $_________.
(2) [X] DISCRETIONARY FORMULA
The Employer may decide each Plan Year whether to
make a discretionary Employer contribution on
behalf of eligible Participants in accordance with
Section 4.06. Such contributions shall be allocated
to eligible Participants based upon the following
(check (A) or (B)):
(A) [X] Nonintegrated Allocation Formula: In the
ratio that each eligible Participant's
Compensation bears to the total Compensation
paid to all eligible Participants for the
Plan Year.
(B) [ ] Integrated Allocation Formula:
In accordance with Section 4.06.
NOTE: An Employer who maintains any other plan
that provides for Social Security
Integration (permitted disparity) may not
elect (2)(B).
6
<PAGE> 8
(3) ELIGIBILITY REQUIREMENT(S)
A Participant shall be entitled to Employer Contributions
for a Plan Year under this Subsection (a) if the
Participant satisfies the following requirement(s) (Check
the appropriate box(es) - Options (B) and (C) may not be
elected together):
(A) [X] is employed by the Employer on the last day of
the Plan Year.
(B) [ ] earns at least 500 Hours of Service during the
Plan Year.
(C) [X] earns at least 1,000 Hours of Service during the
Plan Year.
(D) [ ] no requirements.
NOTE: If option (A), (B) or (C) above
is selected then Employer contributions can only
be FUNDED by the Employer AFTER Plan Year end.
Employer contributions funded during the Plan Year
shall not be subject to the eligibility
requirements of this Section 1.05(a)(3).
(B) [ ] DEFERRAL CONTRIBUTIONS
(1) REGULAR CONTRIBUTIONS
The Employer shall make a Deferral Contribution in
accordance with Section 4.01 on behalf of each Participant
who has an executed salary reduction agreement in effect
with the Employer for the payroll period in question, not
to exceed _ 15________% (NO MORE THAN 15%) of
Compensation for that period.
(A) A Participant may increase or decrease, on a
prospective basis, his salary reduction
agreement percentage (check one):
(i) [ ] As of the beginning of each
payroll period.
(ii) [ ] As of the first day of each
month.
(iii) [ ] As of the next Entry Date.
(iv) [ ] (Specify, but must be at
least once per Plan Year)
----------------------------
----------------------------
(B) A Participant may revoke, on a
prospective basis, a salary reduction
agreement at any time upon proper notice
to the Administrator but in such case may
not file a new salary reduction
agreement until (check one):
(i) [ ] The first day of the next Plan
Year.
(ii) [ ] Any subsequent Plan Entry Date
(iii)[ ] (Specify, but must be at least
once per Plan Year)
------------------------------
------------------------------
7
<PAGE> 9
(2) [ ] CATCH-UP CONTRIBUTIONS
The Employer may allow Participants upon proper notice
and approval to enter into a special salary reduction
agreement to make additional Deferral Contributions in an
amount up to 100% of their Compensation for the payroll
period(s) in the final month of the Plan Year.
(3) [ ] BONUS CONTRIBUTIONS
The Employer may allow Participants upon proper notice and
approval to enter into a special salary reduction agreement to
make Deferral Contributions in an amount up to 100% of any
Employer paid cash bonuses made for such Participants during
the Plan Year. The Compensation definition elected by the
Employer in Section 1.04(a) must include bonuses if bonus
contributions are permitted.
NOTE: A Participant's contributions under (2) and/or
(3) may not cause the Participant to exceed the
percentage limit specified by the Employer in (1)
after the Plan Year. The Employer has the right to
restrict a Participant's right to make Deferral
Contributions if they will adversely affect the Plan's
ability to pass the actual deferral percentage and/or
the actual contribution
percentage test.
(4) [X] QUALIFIED DISCRETIONARY CONTRIBUTIONS
The Employer may contribute an amount which it designates as
a Qualified Discretionary Contribution to be included in the
actual deferral percentage or actual contribution percentage
test. Qualified Discretionary Contributions shall be
allocated to Non-highly Compensated Employees (check one):
(A) [X] in the ratio which each such Participant's
Compensation for the Plan Year bears to the
total of all such Participants' Compensation for
the Plan Year.
(B) [ ] as a flat dollar amount for each such Participant
for the Plan Year.
8
<PAGE> 10
(C) [X] MATCHING CONTRIBUTIONS (only if Section 1.05(b) is checked)
(1) THE EMPLOYER SHALL MAKE A MATCHING CONTRIBUTION ON BEHALF OF
EACH PARTICIPANT IN AN AMOUNT EQUAL TO THE FOLLOWING
PERCENTAGE OF A PARTICIPANT'S DEFERRAL CONTRIBUTIONS DURING
THE PLAN YEAR (check one):
(A) [ ] 50%
(B) [ ] 100%
(C) [ ] %
-----
(D) [ ] (Tiered Match) _________ % of the first ______% of
the Participant's Compensation contributed to the
Plan,
________ % of the next ______% of the Participant's
Compensation contributed to the Plan,
________ % of the next ______% of the Participant's
Compensation contributed to the Plan.
NOTE: THE PERCENTAGES SPECIFIED ABOVE FOR MATCHING
CONTRIBUTIONS MAY NOT INCREASE AS THE PERCENTAGE OF
COMPENSATION CONTRIBUTED INCREASES.
(E) [X] The percentage declared for the year, if any, by a
Board of Directors' Resolution (or by a Letter of
Intent for a Sole Proprietor or Partnership).
(2) [ ] THE EMPLOYER MAY AT PLAN YEAR END MAKE AN ADDITIONAL
MATCHING CONTRIBUTION EQUAL TO A PERCENTAGE
DECLARED BY THE EMPLOYER, THROUGH A BOARD OF DIRECTORS'
RESOLUTION (OR BY A LETTER OF INTENT FOR A SOLE
PROPRIETOR OR PARTNERSHIP), OF THE DEFERRAL
CONTRIBUTIONS MADE BY EACH PARTICIPANT DURING THE PLAN
YEAR (only if an option is checked under Section
1.05(c)(1)).
(3) [ ] MATCHING CONTRIBUTION LIMITS (check the appropriate box):
(A) [ ] Deferral Contributions in excess of ________%
of the Participant's Compensation for the
period in question shall not be considered for
Matching Contributions.
Note: If the Employer elects a percentage
limit in (A) above and requests the
Trustee to account separately for matched and
unmatched Deferral Contributions, the Matching
Contributions allocated to each Participant
must be computed, and the percentage limit
applied, based upon each payroll period.
(B) [ ] Matching Contributions for each Participant
for each Plan Year shall be limited to
$___________.
9
<PAGE> 11
(4) ELIGIBILITY REQUIREMENT(S)
A Participant who makes Deferral Contributions during the Plan Year
under Section 1.05(b) shall be entitled to Matching Contributions for that
Plan Year if the Participant satisfies the following requirement(s)
(Check the appropriate box(es). Options (B) and (C) may not be elected
together):
(A) [ ] Is employed by the Employer on the last day of the Plan Year.
(B) [ ] Earns at least 500 Hours of Service during the Plan Year.
(C) [ ] Earns at least 1,000 Hours of Service during the Plan Year.
(D) [ ] Is not a Highly Compensated Employee for the Plan Year.
(E) [ ] Is not a Partner of the Employer, if the Employer is a
Partnership.
(F) [X] No requirements.
NOTE: If option (A), (B) or (C) above is selected then
Matching Contributions can only be FUNDED by the Employer
AFTER the Plan Year ends. Any Matching Contribution funded
before Plan Year end shall not be subject to the eligibility
requirements of this Section 1.05(c)(4)). If option (A),
(B), or (C) is adopted during a Plan Year, such option shall not
become effective until the first day of the next Plan Year.
(D) [ ] EMPLOYEE AFTER-TAX CONTRIBUTIONS (check one):
(1) [ ] FUTURE CONTRIBUTIONS
Participants may make voluntary non-deductible Employee Contributions
pursuant to Section 4.09 of the Plan. This option may only be
elected if the Employer has elected to permit Deferral Contributions
under Section 1.05(b). Matching Contributions by the Employer are not
allowed on any voluntary non-deductible Employee Contributions.
Withdrawals are limited to one per year unless Employee Contributions
were allowed under a previous plan document which authorized more
frequent withdrawals.
(2) [ ] FROZEN CONTRIBUTIONS
Participants may not make voluntary non-deductible Employee
Contributions, but he Employer does maintain frozen Participant
voluntary non-deductible Employee Contribution Accounts.
10
<PAGE> 12
1.06 RETIREMENT AGE(S)
(A) [X] THE NORMAL RETIREMENT AGE UNDER THE PLAN IS (check one):
(1) [X] age 65.
(2) [ ] age ____ (specify between 55 and 64).
(3) [ ] later of the age ___ (can not exceed 65) or
the fifth anniversary of the Participant's Employment
Commencement Date.
(B) [ ] THE EARLY RETIREMENT AGE IS THE FIRST DAY OF THE MONTH AFTER
THE PARTICIPANT ATTAINS AGE ____________ (SPECIFY 55 OR
GREATER) AND COMPLETES _______________ YEARS OF SERVICE
FOR VESTING.
(C) [X] A PARTICIPANT IS ELIGIBLE FOR DISABILITY RETIREMENT IF HE/SHE
(check the appropriate box(es)):
(1) [ ] satisfies the requirements for benefits under
the Employer's Long-Term Disability Plan.
(2) [X] satisfies the requirements for Social Security
disability benefits.
(3) [X] is determined to be disabled by a physician
approved by the Employer.
11
<PAGE> 13
1.07 VESTING SCHEDULE
(A) THE PARTICIPANT'S VESTED PERCENTAGE IN EMPLOYER
CONTRIBUTIONS (FIXED OR DISCRETIONARY) ELECTED IN SECTION 1.05(A)
AND/OR MATCHING CONTRIBUTIONS ELECTED IN SECTION 1.05(C) SHALL BE
BASED UPON THE SCHEDULE(S) SELECTED BELOW, EXCEPT WITH RESPECT TO
ANY PLAN YEAR DURING WHICH THE PLAN IS TOP-HEAVY. THE SCHEDULE
ELECTED IN SECTION 1.12(D) SHALL AUTOMATICALLY APPLY FOR A
TOP-HEAVY PLAN YEAR AND ALL PLAN YEARS THEREAFTER UNLESS THE
EMPLOYER HAS ALREADY ELECTED A MORE FAVORABLE VESTING SCHEDULE
BELOW.
<TABLE>
<S> <C> <C> <C>
(1) EMPLOYER CONTRIBUTIONS (2) MATCHING CONTRIBUTIONS
(check one): (check one):
(A) [ ] N/A - No Employer Contributions (A) [ ] N/A - No Matching Contributions
(B) [ ] 100% Vesting immediately (B) [ ] 100% Vesting immediately
(C) [ ] 3 year cliff (see C below) (C) [ ] 3 year cliff (see C below)
(D) [X] 5 year cliff (see D below) (D) [ ] 5 year cliff (see D below)
(E) [ ] 6 year graduated (see E below) (E) [ ] 6 year graduated (see E below)
(F) [ ] 7 year graduated (see F below) (F) [ ] 7 year graduated (see F below)
(G) [ ] Other vesting (complete G1 below) (G) [X] Other vesting (complete G2 below)
</TABLE>
<TABLE>
<CAPTION>
YEARS OF VESTING SCHEDULE
SERVICE FOR ----------------
VESTING C D E F G1 G2
------- - - - - -- --
<S> <C> <C> <C> <C> <C> <C>
0 0% 0% 0% 0% ___ 0%__
1 0% 0% 0% 0% ___ 25%_
2 0% 0% 20% 0% ___ 50%_
3 100% 0% 40% 20% ___ 75%_
4 100% 0% 60% 40% ___ 100%
5 100% 100% 80% 60% ___ ___
6 100% 100% 100% 80% ___ ___
7 100% 100% 100% 100% 100% 100%
</TABLE>
NOTE: A schedule elected under G1 or G2 above must be at least as favorable as
one of the schedules in C, D, E or F above.
(B) [ ] YEARS OF SERVICE FOR VESTING SHALL EXCLUDE:
(1) [ ] for new plans, service prior to the Effective Date as defined in
Section 1.01(g)(1).
(2) [ ] for existing plans converting from another plan document, service
prior to the original Effective Date as defined in Section
1.01(g)(2).
12
<PAGE> 14
1.08 PREDECESSOR EMPLOYER SERVICE
[ ] SERVICE FOR PURPOSES OF ELIGIBILITY IN SECTION 1.03(A)(1) AND
VESTING IN SECTION 1.07(A) OF THIS PLAN SHALL INCLUDE SERVICE
WITH THE FOLLOWING EMPLOYER(S):
(A)
-------------------------------------------------------------
(B)
-------------------------------------------------------------
(C)
-------------------------------------------------------------
(D)
-------------------------------------------------------------
1.09 PARTICIPANT LOANS
PARTICIPANT LOANS (check (a) or (b)):
(A) [X] WILL BE ALLOWED IN ACCORDANCE WITH SECTION 7.09, SUBJECT TO A
$1,000 MINIMUM AMOUNT AND WILL BE GRANTED (check (1) or (2)):
(1) [X] for any purpose.
(2) [X] for hardship withdrawal (as defined in Section 7.10)
purposes only.
(B) [ ] WILL NOT BE ALLOWED.
1.10 HARDSHIP WITHDRAWALS
PARTICIPANT WITHDRAWALS FOR HARDSHIP PRIOR TO TERMINATION OF EMPLOYMENT
(check one):
(A) [X] WILL BE ALLOWED IN ACCORDANCE WITH SECTION 7.10, SUBJECT TO A
$1,000 MINIMUM AMOUNT.
(B) [ ] WILL NOT BE ALLOWED.
13
<PAGE> 15
1.11 DISTRIBUTIONS
<TABLE>
<S> <C>
(A) SUBJECT TO ARTICLES 7 AND 8 AND (B) BELOW, DISTRIBUTIONS UNDER THE
PLAN WILL BE PAID (check the appropriate box(es)):
(1) [X] as a lump sum.
(2) [ ] under a systematic withdrawal plan (installments).
(B) [ ] CHECK IF A PARTICIPANT WILL BE ENTITLED TO RECEIVE A
DISTRIBUTION OF ALL OR ANY PORTION OF THE FOLLOWING ACCOUNTS
WITHOUT TERMINATING EMPLOYMENT UPON ATTAINMENT OF AGE 591/2
(CHECK ONE):
(1) [ ] Deferral Contribution Account
(2) [ ] All Accounts
(C) [X] CHECK IF THE PLAN WAS CONVERTED (BY PLAN AMENDMENT) FROM
ANOTHER DEFINED CONTRIBUTION PLAN, AND THE BENEFITS WERE
PAYABLE AS (check the appropriate box(es)):
(1) [ ] a form of single or joint and survivor life annuity.
(2) [ ] an in-service withdrawal of vested employer contributions
maintained in a participant's account (check (A) and/or
(B)):
(A) [ ] for at least _______________ (24 or more) months.
(B) [ ] after the Participant has at least 60 months of
participation.
(3) [X] another distribution option that is a "protected benefit"
under Section 411(d)(6) of the Internal Revenue Code.
Please attach a separate page identifying the distribution
option(s).
</TABLE>
These additional forms of benefit may be provided for such plans under
Articles 7 or 8.
NOTE: Under Federal Law, distributions to Participants must generally
begin no later than April 1 following the year in which the
Participant attains age 70 1/2.
14
<PAGE> 16
1.12 TOP HEAVY STATUS
(A) THE PLAN SHALL BE SUBJECT TO THE TOP-HEAVY PLAN REQUIREMENTS OF
ARTICLE 9 (check one):
(1) [ ] for each Plan Year.
(2) [X] for each Plan Year, if any, for which the Plan is
Top-Heavy as defined in Section 9.02.
(3) [ ] Not applicable. (This option is available for plans
covering only employees subject to a collective bargaining
agreement and there are no Employer or Matching
Contributions elected in Section 1.05.)
(B) IN DETERMINING TOP-HEAVY STATUS, IF NECESSARY, FOR AN EMPLOYER WITH
AT LEAST ONE DEFINED BENEFIT PLAN, THE FOLLOWING ASSUMPTIONS SHALL
APPLY:
(1) [X] Interest rate: _5.0_% per annum
(2) [X] Mortality table: _UP84________
(3) [ ] Not Applicable.
(C) IN THE EVENT THAT THE PLAN IS TREATED AS TOP-HEAVY FOR A PLAN YEAR,
EACH NON-KEY EMPLOYEE SHALL RECEIVE AN EMPLOYER CONTRIBUTION OF AT
LEAST 3 (3, 4, 5, OR 7 1/2) % OF COMPENSATION FOR THE PLAN YEAR IN
ACCORDANCE WITH SECTION 9.03 (check one):
(1) [ ] under this Plan in any event.
(2) [X] under this Plan only if the Participant is
not entitled to such contribution under another qualified
plan of the Employer.
(3) [ ] Not applicable. (This option is available for plans
covering only employees subject to a collective
bargaining agreement and there are no Employer or
Matching Contributions elected in Section 1.05.)
NOTE: Such minimum Employer contribution may be less than the
percentage indicated in (c) above to the extent provided
in Section 9.03(a).
15
<PAGE> 17
(D) IN THE EVENT THAT THE PLAN IS TREATED AS TOP-HEAVY FOR A PLAN YEAR,
THE FOLLOWING VESTING SCHEDULE SHALL APPLY INSTEAD OF THE
SCHEDULE(S) ELECTED IN SECTION 1.07(A) FOR SUCH PLAN YEAR AND EACH
PLAN YEAR THEREAFTER (check one):
<TABLE>
<CAPTION>
(1) [X] 100% vested after _3____________ (not in
excess of 3) Years of Service for Vesting.
(2) [ ] Years of Service for Vesting Vesting Percentage Must be at Least
<S> <C> <C>
0 ________ 0%
1 ________ 0%
2 ________ 20%
3 ________ 40%
4 ________ 60%
5 ________ 80%
6 ________ 100%
</TABLE>
NOTE: If the schedule(s) elected in Section 1.07(a) is(are) more
favorable in all cases than the schedule elected in (d) above,
then the schedule(s) in Section 1.07(a) will continue to apply
even in Plan Years in which the Plan is Top- Heavy.
1.13 TWO OR MORE PLANS - CODE SECTION 415 LIMITATION ON ANNUAL ADDITIONS
If the Employer maintains or ever maintained another qualified plan in
which any Participant in this Plan is (or was) a participant or could
become a participant, the Employer must complete this section. The
Employer must also complete this section if it maintains a welfare
benefit fund, as defined in Section 419(e) of the Code, or an individual
medical account, as defined in Section 415(l)(2) of the Code, under which
amounts are treated as annual additions with respect to any Participant
in this Plan.
(A) IF THE EMPLOYER MAINTAINS, OR MAINTAINED, ANY OTHER DEFINED
CONTRIBUTION PLAN WHICH IS NOT A MASTER OR PROTOTYPE PLAN,
ANNUAL ADDITIONS FOR ANY LIMITATION YEAR TO THIS PLAN WILL BE
LIMITED (check one):
(1) [X] in accordance with Section 5.03 of this Plan.
(2) [ ] in accordance with another method set forth
on an attached separate sheet.
(3) [ ] Not Applicable.
16
<PAGE> 18
(B) IF THE EMPLOYER MAINTAINS, OR MAINTAINED, ANY DEFINED BENEFIT PLAN(S),
THE SUM OF THE DEFINED CONTRIBUTION FRACTION AND DEFINED BENEFIT
FRACTION FOR A LIMITATION YEAR MAY NOT EXCEED THE LIMITATION SPECIFIED
IN CODE SECTION 415(E), MODIFIED BY SECTION 416(H)(1) OF THE CODE.
THIS COMBINED PLAN LIMIT WILL BE MET AS FOLLOWS (check one):
(1) [X] Annual Additions to this Plan are limited so
that the sum of the Defined Contribution
Fraction and the Defined Benefit Fraction
does not exceed 1.0.
(2) [ ] another method of limiting Annual Additions
or reducing projected annual benefits is set
forth on an attached schedule.
(3) [ ] Not Applicable.
1.14 ESTABLISHMENT OF TRUST AND INVESTMENT DECISIONS
(A) INVESTMENT DIRECTIONS
Participant Accounts will be invested (check one):
(1) [ ] in accordance with investment directions provided
to the Trustee by the Employer for allocating all
Participant Accounts among the options listed in (b) below.
(2) [X] in accordance with investment directions provided
to the Trustee by each Participant for allocating his
entire Account among the options listed in (b) below.
(3) [ ] in accordance with investment directions provided
to the Trustee by each Participant for all contribution
sources in a Participant's Account except the following
sources shall be invested as directed by the Employer
(check (A) and/or (B)):
(A) [ ] Fixed or Discretionary Employer Contributions
(B) [ ] Employer Matching Contributions
The Employer must direct the applicable sources among the
same investment options made available for Participant
directed sources listed in (b) below.
17
<PAGE> 19
(B) PLAN INVESTMENT OPTIONS
The Employer hereby establishes a Trust under the Plan in accordance
with the provisions of Article 14, and the Trustee signifies acceptance
of its duties under Article 14 by its signature below. Participant
Accounts under the Trust will be invested among the Fidelity Funds listed
below pursuant to Participant and/or Employer directions.
<TABLE>
<CAPTION>
Fund Name Fund Number
--------- -----------
<S> <C> <C>
(1) Growth & Income Portfolio 027
------------------------------------------ ----------------
(2) Puritan Fund 004
(3) Contrafund 022
(4) Disciplined Equity Fund 315
(5) Magellan Fund 021
(6) Overseas Fund 094
(7) Managed Income Portfolio 632
(8) Emerging Growth 324
(9)
------------------------------------------ ----------------
(10)
------------------------------------------ ----------------
</TABLE>
NOTE: An additional annual recordkeeping fee will be charged for each fund in
excess of five funds.
To the extent that the Employer selects as an investment option the
Managed Income Portfolio of the Fidelity Group Trust for Employee Benefit
Plans (the "Group Trust"), the Employer hereby (A) agrees to the terms
of the Group Trust and adopts said terms as a part of this Agreement and
(B) acknowledges that it has received from the Trustee a copy of the
Group Trust, the Declaration of Separate Fund for the Managed Income
Portfolio of the Group Trust, and the Circular for the Managed Income
Portfolio.
NOTE: The method and frequency for change of investments will be determined
under the rules applicable to the selected funds or, if applicable, the
rules of the Employer adopted in accordance with Section 6.03.
Information will be provided regarding expenses, if any, for changes in
investment options.
18
<PAGE> 20
1.15 RELIANCE ON OPINION LETTER
An adopting Employer may not rely on the opinion letter issued by the
National Office of the Internal Revenue Service as evidence that this
Plan is qualified under Section 401 of the Code. If the Employer
wishes to obtain reliance that his or her Plan(s) are qualified,
application for a determination letter should be made to the appropriate
Key District Director of the Internal Revenue Service. Failure to fill
out the Adoption Agreement properly may result in disqualification of
the Plan.
This Adoption Agreement may be used only in conjunction with Fidelity
Prototype Plan Basic Plan Document No. 07. The Prototype Sponsor
shall inform the adopting Employer of any amendments made to the Plan or
of the discontinuance or abandonment of the prototype plan document.
1.16 PROTOTYPE INFORMATION:
Name of Prototype Sponsor: Fidelity Management & Research Co.
Address of Prototype Sponsor: 82 Devonshire Street
Boston, MA 02109
Questions regarding this prototype document may be directed to the
following telephone number: 1-(800) 343-9184.
<PAGE> 21
THE CORPORATEPLAN FOR RETIREMENT
THE PROFIT SHARING/401(K) PLAN
FIDELITY BASIC PLAN DOCUMENT NO. 07
<PAGE> 22
THE CORPORATE PLAN FOR RETIREMENT
PROFIT SHARING/401(K) PLAN
ARTICLE 1
ADOPTION AGREEMENT
ARTICLE 2
DEFINITIONS
2.01 - Definitions
ARTICLE 3
PARTICIPATION
3.01 - Date of Participation
3.02 - Resumption of Participation Following Reemployment
3.03 - Cessation or Resumption of Participation Following a Change in Status
3.04 - Participation by Owner-Employee; Controlled Businesses
3.05 - Omission of Eligible Employee
ARTICLE 4
CONTRIBUTIONS
4.01 - Deferral Contributions
4.02 - Additional Limit on Deferral Contributions
4.03 - Matching Contributions
4.04 - Limit on Matching Contributions and Employee Contributions
4.05 - Special Rules
4.06 - Fixed/Discretionary Employer Contributions
4.07 - Time of Making Employer Contributions
4.08 - Return of Employer Contributions
4.09 - Employee Contributions
4.10 - Rollover Contributions
4.11 - Deductible Voluntary Employee Contributions
4.12 - Additional Rules for Paired Plans
ARTICLE 5
PARTICIPANTS' ACCOUNTS
5.01 - Individual Accounts
5.02 - Valuation of Accounts
5.03 - Code Section 415 Limitations
ARTICLE 6
INVESTMENT OF CONTRIBUTIONS
6.01 - Manner of Investment
6.02 - Investment Decisions
6.03 - Participant Directions to Trustee
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<PAGE> 23
ARTICLE 7
RIGHT TO BENEFITS
7.01 - Normal or Early Retirement
7.02 - Late Retirement
7.03 - Disability Retirement
7.04 - Death
7.05 - Other Termination of Employment
7.06 - Separate Account
7.07 - Forfeitures
7.08 - Adjustment for Investment Experience
7.09 - Participant Loans
7.10 - In-Service Withdrawals
7.11 - Prior Plan In-Service Distribution Rules
ARTICLE 8
DISTRIBUTION OF BENEFITS PAYABLE AFTER TERMINATION OF SERVICE
8.01 - Distribution of Benefits to Participants and Beneficiaries
8.02 - Annuity Distributions
8.03 - Joint and Survivor Annuities/Preretirement Survivor Annuities
8.04 - Installment Distributions
8.05 - Immediate Distributions
8.06 - Determination of Method of Distribution
8.07 - Notice to Trustee
8.08 - Time of Distribution
8.09 - Whereabouts of Participants and Beneficiaries
ARTICLE 9
TOP-HEAVY PROVISIONS
9.01 - Application
9.02 - Definitions
9.03 - Minimum Contribution
9.04 - Adjustment to the Limitation on Contributions and Benefits
9.05 - Minimum Vesting
ARTICLE 10
AMENDMENT AND TERMINATION
10.01 - Amendment by Employer
10.02 - Amendment by Prototype Sponsor
10.03 - Amendments Affecting Vested and/or Accrued Benefits
10.04 - Retroactive Amendments
10.05 - Termination
10.06 - Distribution Upon Termination of the Plan
10.07 - Merger or Consolidation of Plan; Transfer of Plan Assets
ARTICLE 11
AMENDMENT AND CONTINUATION OF PREDECESSOR PLAN; TRANSFER OF FUNDS
TO OR FROM OTHER QUALIFIED PLANS
11.01 - Amendment and Continuation of Predecessor Plan
11.02 - Transfer of Funds from an Existing Plan
11.03 - Acceptance of Assets by Trustee
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<PAGE> 24
11.04 - Transfer of Assets from Trust
ARTICLE 12
MISCELLANEOUS
12.01 - Communication to Participants
12.02 - Limitation of Rights
12.03 - Nonalienability of Benefits and Qualified Domestic Relations Orders
12.04 - Facility of Payment
12.05 - Information Between Employer and Trustee
12.06 - Effect of Failure to Qualify Under Code
12.07 - Notices
12.08 - Governing Law
ARTICLE 13
PLAN ADMINISTRATION
13.01 - Powers and Responsibilities of the Administrator
13.02 - Nondiscriminatory Exercise of Authority
13.03 - Claims and Review Procedures
13.04 - Named Fiduciary
13.05 - Costs of Administration
ARTICLE 14
TRUST AGREEMENT
14.01 - Acceptance of Trust Responsibilities
14.02 - Establishment of Trust Fund
14.03 - Exclusive Benefit
14.04 - Powers of Trustee
14.05 - Accounts
14.06 - Approving of Accounts
14.07 - Distribution from Trust Fund
14.08 - Transfer of Amounts from Qualified Plan
14.09 - Transfer of Assets from Trust
14.10 - Separate Trust or Fund for Existing Plan Assets
14.11 - Voting; Delivery of Information
14.12 - Compensation and Expenses of Trustee
14.13 - Reliance by Trustee on other Persons
14.14 - Indemnification by Employer
14.15 - Consultation by Trustee with Counsel
14.16 - Persons Dealing with the Trustee
14.17 - Resignation or Removal of Trustee
14.18 - Fiscal Year of the Trust
14.19 - Discharge of Duties by Fiduciaries
14.20 - Amendment
14.21 - Plan Termination
14.22 - Permitted Reversion of Funds to Employer
14.23 - Governing Law
4
<PAGE> 25
ARTICLE 1. ADOPTION AGREEMENT.
ARTICLE 2. DEFINITIONS.
2.01. DEFINITIONS.
(a) Wherever used herein, the following terms have the meanings set
forth below, unless a different meaning is clearly required by the
context:
(1) "Account" means an account established on the books of the
Trust for the purpose of recording contributions made on behalf of a
Participant and any income, expenses, gains or losses incurred
thereon.
(2) "Administrator" means the Employer adopting this Plan, or other
person designated by the Employer in Section 1.01(c).
(3) "Adoption Agreement" means Article 1, under which the Employer
establishes and adopts, or amends, the Plan and Trust and designates
the optional provisions selected by the Employer, and the Trustee
accepts its responsibilities under Article 14. The provisions of
the Adoption Agreement shall be an integral part of the Plan.
(4) "Annuity Starting Date" means the first day of the first period
for which an amount is payable as an annuity or in any other form.
(5) "Beneficiary" means the person or persons entitled under
Section 7.04 to receive benefits under the Plan upon the death of a
Participant, provided that for purposes of Section 7.04 such term
shall be applied in accordance with Section 401(a)(9) of the Code
and the regulations thereunder.
(6) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(7) "Compensation" shall mean
(A) for purposes of Article 4 (Contributions), compensation as
defined in Section 5.03(e)(2) excluding any items elected by
the Employer in Section 1.04(a), reimbursements or other
expense allowances, fringe benefits (cash and non-cash), moving
expenses, deferred compensation and welfare benefits, but
including amounts that are not includable in the gross income
of the Participant under a salary reduction agreement by reason
of the application of Sections 125, 402(a)(8), 402(h), or
403(b) of the Code; and
(B) for purposes of Section 2.01(a)(16) (Highly Compensated
Employees), Section 5.03 (Code Section 415 Limitations), and
Section 9.03 (Top-Heavy Plan Minimum Contribution),
compensation as defined in Section 5.03(e)(2).
<PAGE> 26
Compensation shall generally be based on the amount actually
paid to the Participant during the Plan Year or, for purposes of
Article 4 if so elected by the Employer in Section 1.04(b), during
that portion of the Plan Year during which the Employee is eligible
to participate. Notwithstanding the preceding sentence,
compensation for purposes of Section 5.03 (Code Section 415
Limitations) shall be based on the amount actually paid or made
available to the Participant during the Limitation Year.
Compensation for the initial Plan Year for a new plan shall be based
upon eligible Participant Compensation, subject to Section 1.04(b),
from the Effective Date listed in Section 1.01(g)(1) through the end
of the first Plan Year.
In the case of any Self-Employed Individual, Compensation shall
mean the Individual's Earned Income.
For years beginning after December 31, 1988, the annual
Compensation of each Participant taken into account for determining
all benefits provided under the plan for any determination period
shall not exceed $200,000. This limitation shall be adjusted by the
Secretary at the same time and in the same manner as under Section
415(d) of the Code, except that the dollar increase in effect on
January 1 of any calendar year is effective for years beginning in
such calendar year and the first adjustment to the $200,000
limitation is effected on January 1, 1990. If a plan determines
Compensation on a period of time that contains fewer than 12
calendar months, then the annual Compensation limit is the amount
equal to the annual Compensation limit for the calendar year in
which the Compensation period begins multiplied by the ratio
obtained by dividing the number of full months in the period by 12.
If Compensation for any prior determination period is taken into
account in determining an Employee's allocations or benefits for the
current determination period, the Compensation for such prior year
is subject to the applicable annual compensation limit in effect for
that prior year. For this purpose, for years beginning before
January 1, 1990, the applicable annual compensation limit is
$200,000.
In determining the Compensation of a Participant for purposes of
this limitation, the rules of Section 414(q)(6) of the Code shall
apply, except that in applying such rules, the term "family" shall
include only the spouse of the Participant and any lineal
descendants of the Participant who have not attained age 19 before
the close of the year. If the $200,000 limitation is exceeded as a
result of the application of these rules, then the limitation shall
be prorated among the affected individuals in proportion to each
such individual's Compensation as determined under this Section
prior to the application of this limitation.
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<PAGE> 27
(8) "Earned Income" means the net earnings of a Self-Employed
Individual derived from the trade or business with respect to which
the Plan is established and for which the personal services of such
individual are a material income-providing factor, excluding any
items not included in gross income and the deductions allocated to
such items, except that for taxable years beginning after December
31, 1989 net earnings shall be determined with regard to the
deduction allowed under Section 164(f) of the Code, to the extent
applicable to the Employer. Net earnings shall be reduced by
contributions of the Employer to any qualified plan, to the extent a
deduction is allowed to the Employer for such contributions under
Section 404 of the Code.
(9) "Eligibility Computation Period" means each 12-consecutive
month period beginning with the Employment Commencement Date and
each anniversary thereof or, in the case of an Employee who, before
completing the eligibility requirements set forth in Section
1.03(a)(1), incurs a break in service for participation purposes and
thereafter returns to the employ of the Employer or Related
Employer, each 12-consecutive month period beginning with the first
day of reemployment and each anniversary thereof.
A "break in service for participation purposes" shall mean an
Eligibility Computation Period during which the participant does not
complete more than 500 Hours of Service with the Employer.
(10) "Employee" means any employee of the Employer, any
Self-Employed Individual or Owner-Employee. The Employer must
specify in Section 1.03(a)(3) any Employee or class of Employees not
eligible to participate in the Plan. If the Employer elects to
exclude collective bargaining employees, the exclusion applies to
any employee of the Employer included in a unit of employees covered
by an agreement which the Secretary of Labor finds to be a
collective bargaining agreement between employee representatives and
one or more employers unless the collective bargaining agreement
requires the employee to be included within the Plan. The term
"employee representatives" does not include any organization more
than half the members of which are owners, officers, or executives
of the Employer.
For purposes of the Plan, an individual shall be considered to
become an Employee on the date on which he first completes an Hour
of Service and he shall be considered to have ceased to be an
Employee on the date on which he last completes an Hour of Service.
The term also includes a Leased Employee, such that contributions or
benefits provided by the leasing organization which are attributable
to services performed for the Employer shall be treated as provided
by the Employer. Notwithstanding the above, a Leased Employee shall
not be considered an Employee if Leased Employees do not constitute
more than 20 percent of the Employer's non-highly compensated
work-force (taking into account all Related Employers) and the
Leased Employee is covered by a money purchase pension plan
maintained by the
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<PAGE> 28
leasing organization and providing (A) a nonintegrated employer
contribution rate of at least 10 percent of compensation, as defined
for purposes of Section 415(c)(3) of the Code, but including amounts
contributed pursuant to a salary reduction agreement which are
excludable from gross income under Section 125, Section 402(a)(8),
Section 402(h) or Section 403(b) of the Code, (B) full and immediate
vesting, and (C) immediate participation by each employee of the
leasing organization.
(11) "Employer" means the employer named in Section 1.02(a) and any
Related Employers required by this Section 2.01(a)(11). If Article
1 of the Employer's Plan is the Standardized Adoption Agreement, the
term "Employer" includes all Related Employers. If Article 1 of the
Employer's Plan is the Non-standardized Adoption Agreement, the term
"Employer" includes those Related Employers designated in Section
1.02(b).
(12) "Employment Commencement Date" means the date on which the
Employee first performs an Hour of Service.
(13) "ERISA" means the Employee Retirement Income Security Act of
1974, as from time to time amended.
(14) "Fidelity Fund" means any Registered Investment Company or
Managed Income Portfolio of the Fidelity Group Trust for Employee
Benefit Plans which is made available to plans utilizing the
CORPORATEplan for Retirement.
(15) "Fund Share" means the share, unit, or other evidence of
ownership in a Fidelity Fund.
(16) "Highly Compensated Employee" means both highly compensated
active Employees and highly compensated former Employees.
A highly compensated active Employee includes any Employee who
performs service for the Employer during the determination year and
who, during the "look-back year," (A) received compensation from the
Employer in excess of $75,000 (as adjusted pursuant to Section
415(d) of the Code), (B) received compensation from the Employer in
excess of $50,000 (as adjusted pursuant to Section 415(d) of the
Code) and was a member of the top-paid group for such year, or (C)
was an officer of the Employer and received compensation during such
year that is greater than 50 percent of the dollar limitation in
effect under Section 415(b)(1)(A) of the Code. The term "Highly
Compensated Employee" also includes (i) Employees who are both
described in the preceding sentence if the term "determination year"
is substituted for the term "look-back year" and the Employee is one
of the 100 Employees who received the most compensation from the
Employer during the determination year, and (ii) Employees who are
5-percent owners at any time during the look-back year or
determination year.
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<PAGE> 29
If no officer has satisfied the compensation requirement of (C)
above during either a determination year or look-back year, the
highest paid officer for such year shall be treated as a highly
compensated Employee.
For this purpose, the determination year shall be the Plan Year.
The look-back year shall be the twelve- month period immediately
preceding the determination year. The Employer may elect to make
the look-back year calculation for a determination on the basis of
the calendar year ending with or within the applicable determination
year, as prescribed by Section 414(q) of the Code and the
regulations issued thereunder.
A highly compensated former Employee includes any Employee who
separated from service (or was deemed to have separated) prior to
the determination year, performs no service for the Employer during
the determination year, and was a highly compensated active Employee
for either the separation year or any determination year ending on
or after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back
year, a family member of either a 5-percent owner who is an active
or former Employee or a highly compensated Employee who is one of
the 10 most highly compensated Employees ranked on the basis of
compensation paid by the Employer during such year, then the family
member and the 5-percent owner or top-ten highly compensated
Employee shall be aggregated. In such case, the family member and
5-percent owner or top-ten highly compensated Employee shall be
treated as a single Employee receiving compensation and plan
contributions or benefits equal to the sum of such compensation and
contributions or benefits of the family member and 5-percent owner
or top-ten highly compensated Employee. For purposes of this
Section, family member includes the spouse, lineal ascendants and
descendants of the Employee or former Employee and the spouses of
such lineal ascendants and descendants.
The determination of who is a highly compensated Employee,
including the determinations of the number and identity of Employees
in the top-paid group, the top 100 Employees, the number of
Employees treated as officers, and the compensation that is
considered, will be made in accordance with Section 414(q) of the
Code and the regulations thereunder.
(17) "Hour of Service" means, with respect to any Employee,
(A) Each hour for which the Employee is directly or indirectly
paid, or entitled to payment, for the performance of duties for
the Employer or a Related Employer, each such hour to be
credited to the Employee for the Eligibility Computation Period
in which the duties were performed;
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<PAGE> 30
(B) Each hour for which the Employee is directly or indirectly
paid, or entitled to payment, by the Employer or Related
Employer (including payments made or due from a trust fund or
insurer to which the Employer contributes or pays premiums) 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,
disability, layoff, jury duty, military duty, or leave of
absence, each such hour to be credited to the Employee for the
Eligibility Computation Period in which such period of time
occurs, subject to the following rules:
(i) No more than 501 Hours of Service shall be credited
under this paragraph (B) on account of any single
contin-uous period during which the Employee performs no
duties;
(ii) Hours of Service shall not be credited under this
paragraph (B) for a payment which solely reimburses the
Employee for medically-related expenses, or which is made
or due under a plan maintained solely for the purpose of
complying with applicable workmen's compensation,
unemployment compensation or disability insurance laws;
and
(iii) If the period during which the Employee performs
no duties falls within two or more Eligibility Computation
Periods and if the payment made on account of such period
is not calculated on the basis of units of time, the Hours
of Service credited with respect to such period shall be
allocated between not more than the first two such
Eligibility Computation Periods on any reasonable basis
consistently applied with respect to similarly situated
Employees; and
(C) Each hour not counted under paragraph (A) or (B) for which
back pay, irrespective of mitigation of damages, has been
either awarded or agreed to be paid by the Employer or a
Related Employer, shall be credited to the Employee for the
Eligibility Computation Period to which the award or agreement
pertains rather than the Eligibility Computation Period in
which the award agreement or payment is made.
For purposes of determining Hours of Service, Employees of
the Employer and of all Related Employers will be treated as
employed by a single employer. For purposes of paragraphs (B)
and (C) above, Hours of Service will be calculated in
accordance with the provisions of Section 2530.200b-2(b) of the
Department of Labor regulations, which are incorporated herein
by reference.
Solely for purposes of determining whether a break in
service for participation purposes has occurred in a
computation period, an individual who is absent from work for
maternity or paternity reasons shall receive credit for
6
<PAGE> 31
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 (i) by
reason of the pregnancy of the individual, (ii) by reason of a
birth of a child of the individual, (iii) by reason of the
placement of a child with the individual in connection with the
adoption of such child by such individual, or (iv) 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.
(18) "Leased Employee" means any individual who provides services to the
Employer or a Related Employer (the "recipient") but is not otherwise an
employee of the recipient if (A) such services are provided pursuant to
an agreement between the recipient and any other person (the "leasing
organization"), (B) such individual has performed services for the
recipient (or for the recipient and any related persons within the
meaning of Section 414(n)(6) of the Code) on a substantially full-time
basis for at least one year, and (C) such services are of a type
historically performed by employees in the business field of the
recipient.
(19) "Normal Retirement Age" means the normal retirement age specified
in Section 1.06(a) of the Adoption Agreement. If the Employer enforces a
mandatory retirement age, the Normal Retirement Age is the lesser of that
mandatory age or the age specified in Section 1.06(a).
(20) "Owner-Employee" means, if the Employer is a sole proprietorship,
the individual who is the sole proprietor, or if the Employer is a
partnership, a partner who owns more than 10 percent of either the
capital interest or the profits interest of the partnership.
(21) "Participant" means any Employee who participates in the Plan in
accordance with Article 3 hereof.
(22) "Plan" means the plan established by the Employer in the form of
the prototype plan, as set forth herein as a new plan or as an amendment
to an existing plan, by executing the Adoption Agreement, together with
any and all amendments hereto.
(23) "Plan Year" means the 12-consecutive-month period ending on the
date designated by the Employer in Section 1.01(f).
(24) "Prototype Sponsor" means Fidelity Management and Research Company
or its successor.
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<PAGE> 32
(25) "Registered Investment Company" means any one or more
corporations, partnerships or trusts registered under the Investment
Company Act of 1940 for which Fidelity Management and Research Company
serves as investment advisor.
(26) "Related Employer" means any employer other than the Employer
named in Section 1.02(a) if the Employer and such other employer are
members of a controlled group of corporations (as defined in Section
414(b) of the Code) or an affiliated service group (as defined in
Section 414(m)), or are trades or businesses (whether or not
incorporated) which are under common control (as defined in Section
414(c)), or such other employer is required to be aggregated with the
Employer pursuant to regulations issued under Section 414(o).
(27) "Self-Employed Individual" means an individual who has Earned
Income for the taxable year from the Employer or who would have had
Earned Income but for the fact that the trade or business had no net
profits for the taxable year.
(28) "Trust" means the trust created by the Employer in accordance with
the provisions of Section 14.01.
(29) "Trust Agreement" means the agreement between the Employer and the
Trustee, as set forth in Article 14, under which the assets of the Plan
are held, administered, and managed.
(30) "Trust Fund" means the property held in Trust by the Trustee for
the Accounts of the Participants and their Beneficiaries.
(31) "Trustee" means the Fidelity Management Trust Company, or its
successor.
(32) "Year of Service for Participation" means, with respect to any
Employee, an Eligibility Computation Period during which the Employee
has been credited with at least 1,000 Hours of Service. If the Plan
maintained by the Employer is the plan of a predecessor employer, an
Employee's Years of Service for Participation shall include years of
service with such predecessor employer. In any case in which the Plan
maintained by the Employer is not the plan maintained by a predecessor
employer, service for such predecessor shall be treated as service for
the Employer, to the extent provided in Section 1.08.
(33) "Years of Service for Vesting" means, with respect to any
Employee, the number of whole years of his periods of service with the
Employer or a Related Employer (the elapsed time method to compute
vesting service), subject to any exclusions elected by the Employer in
Section 1.07(b). An Employee will receive credit for the aggregate of
all time period(s) commencing with the Employee's Employment
Commencement Date and ending on the date a break in service begins,
unless any such years are excluded by Section 1.07(b). An Employee will
also receive credit for any period of
8
<PAGE> 33
severance of less than 12 consecutive months. Fractional periods of a
year will be expressed in terms of days.
In the case of a Participant who has 5 consecutive 1-year breaks in
service, all years of service after such breaks in service will be
disregarded for the purpose of vesting the Employer-derived account
balance that accrued before such breaks, but both pre-break and
post-break service will count for the purposes of vesting the Employer-
derived account balance that accrues after such breaks. Both accounts
will share in the earnings and losses of the fund.
In the case of a Participant who does not have 5 consecutive 1-year
breaks in service, both the pre-break and post-break service will count
in vesting both the pre-break and post-break employer-derived account
balance.
A break in service is a period of severance of at least 12
consecutive months. Period of severance is a continuous period of time
during which the Employee is not employed by the Employer. Such period
begins on the date the Employee retires, quits or is discharged, or if
earlier, the 12-month anniversary of the date on which the Employee was
otherwise first absent from service.
In the case of an individual who is absent from work for maternity
or paternity reasons, the 12-consecutive month period beginning on the
first anniversary of the first date of such absence shall not constitute
a break in service. 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 the 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.
If the Plan maintained by the Employer is the plan of a predecessor
employer, an Employee's Years of Service for Vesting shall include years
of service with such predecessor employer. In any case in which the Plan
maintained by the Employer is not the plan maintained by a predecessor
employer, service for such predecessor shall be treated as service for
the Employer to the extent provided in Section 1.08.
(b) Pronouns used in the Plan are in the masculine gender but include the
feminine gender unless the context clearly indicates otherwise.
ARTICLE 3. PARTICIPATION.
3.01. DATE OF PARTICIPATION. All Employees in the eligible class (as defined
in Section 1.03(a)(3)) who are in the service of the Employer on the Effective
Date will become Participants on the date elected by the Employer in Section
1.03(c). Any other Employee will become a
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<PAGE> 34
Participant in the Plan as of the first Entry Date on which he first satisfies
the eligibility requirements set forth in Section 1.03(a). In the event that
an Employee who is not a member of an eligible class (as defined in Section
1.03(a)(3)) becomes a member of an eligible class, the individual shall
participate immediately if such individual had already satisfied the
eligibility requirements and would have otherwise previously become a
Participant.
If an eligibility requirement other than one Year of Service is elected in
1.03(a)(1), an Employee may not be required to complete a minimum number of
Hours of Service before becoming a Participant. An otherwise eligible Employee
subject to a minimum months of service requirement shall become a Participant
on the first Entry Date following his completion of the required number of
consecutive months of employment measured from his Employment Commencement Date
to the coinciding date in the applicable following month. For purposes of
determining consecutive months of service, the Related Employer and predecessor
employer rules contained in Sections 2.01(a)(17) and 2.01(a)(32) shall apply.
3.02. RESUMPTION OF PARTICIPATION FOLLOWING REEMPLOYMENT. If a Participant
ceases to be an Employee and thereafter returns to the employ of the Employer
he will be treated as follows:
(a) he will again become a Participant on the first date on which he
completes an Hour of Service for the Employer following his
reemployment and is in the eligible class of Employees as defined in
Section 1.03(a)(3), and
(b) any distribution which he is receiving under the Plan will cease
except as otherwise required under Section 8.08.
3.03. CESSATION OR RESUMPTION OF PARTICIPATION FOLLOWING A CHANGE IN STATUS.
If any Participant continues in the employ of the Employer or Related Employer
but ceases to be a member of an eligible class as defined in Section
1.03(a)(3), the individual shall continue to be a Participant for most purposes
until the entire amount of his benefit is distributed; however, the individual
shall not be entitled to receive an allocation of contributions or forfeitures
during the period that he is not a member of the eligible class. Such
Participant shall continue to receive credit for service completed during the
period for purposes of determining his vested interest in his Accounts. In the
event that the individual subsequently again becomes a member of an eligible
class of Employees, the individual shall resume full participation immediately
upon the date of such change in status.
3.04. PARTICIPATION BY OWNER-EMPLOYEE; CONTROLLED BUSINESSES.
If the Plan provides contributions or benefits for one or more Owner-Employees
who control both the trade or business with respect to which the Plan is
established and one or more other trades or businesses, the Plan and any plan
established with respect to such other trades or businesses must, when looked
at as a single plan, satisfy Sections 401(a) and 401(d) of the Code with
respect to the employees of this and all such other trades or businesses. If
the Plan provides contributions or benefits for one or more Owner-Employees who
control one or more
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other trades or businesses, the Employees of each such other trade or business
must be included in a plan which satisfies Sections 401(a) and 401(d) of the
Code and which provides contributions and benefits not less favorable than
provided for Owner-Employees under the 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 this Section, an Owner-Employee, or two or more
Owner-Employees, shall be considered to control a trade or business if such
Owner-Employee, or such Owner-Employees together, (a) own the entire interest
in an unincorporated trade or business or (b) in the case of a partnership, own
more than 50 percent of either the capital interest or the profits interest in
such partnership. For this purpose, 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 controlled by such
Owner-Employee or such Owner-Employees.
3.05. OMISSION OF ELIGIBLE EMPLOYEE. If any Employee who should be included
as a Participant in the Plan is erroneously omitted and discovery of such
omission is not made until after a contribution by his Employer for the year
has been made, the Employer shall make a subsequent contribution, if necessary,
so that the omitted Employee receives the total amount which the said Employee
would have received had he not been omitted. For purposes of this Section
3.05, the term "contribution" shall not include Deferral Contributions and
Matching Contributions made pursuant to Sections 4.01 and 4.03, respectively.
ARTICLE 4. CONTRIBUTIONS.
4.01. DEFERRAL CONTRIBUTIONS.
(a) 4.01. If so provided by the Employer in Section
1.05(b), each Participant may elect to execute a salary
reduction agreement with the Employer to reduce his Compensation
by a specified percentage not exceeding 15% per payroll period,
subject to any exceptions elected by the Employer in Section
1.05(b)(2) and 1.05(b)(3) and equal to a whole number multiple
of one (1) percent. Such agreement shall become effective on
the first day of the first payroll period for which the Employer
can reasonably process the request. The Employer shall make a
Deferral Contribution on behalf of the Participant corresponding
to the amount of said reduction, subject to the restrictions set
forth below. Under no circumstances may a salary reduction
agreement be adopted retroactively.
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<PAGE> 36
(b) A Participant may elect to change or discontinue the percentage
by which his Compensation is reduced by notice to the Employer as
provided in Section 1.05(b)(1).
(c) No Participant shall be permitted to have Deferral Contributions
made under the Plan, or any other qualified plan maintained by the
Employer, during the taxable year, in excess of the dollar
limitation contained in Section 402(g) of the Code in effect at the
beginning of such taxable year.
A Participant may assign to the Plan any Excess
Deferrals made during the taxable year of the Participant by
notifying the Plan Administrator on or before March 15 following the
taxable year of the amount of the Excess Deferrals to be assigned to
the Plan. A Participant is deemed to notify the Administrator of
any Excess Deferrals that arise by taking into account only those
Deferral Contributions made to the Plan and any other plan of the
Employer. Notwithstanding any other provision of the Plan, Excess
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 Deferrals were so assigned for the preceding
year and who claims Excess Deferrals for such taxable year.
"Excess Deferrals" shall mean those Deferral
Contributions that are includable in a Participant's gross income
under Section 402(g) of the Code to the extent such Participant's
Deferral Contributions for a taxable year exceed the dollar
limitation under such Code section. For purposes of determining
Excess Deferrals, the term "Deferral Contributions" shall include
the sum of all Employer Contributions made on behalf of such
Participant pursuant to an election to defer under any qualified
CODA as described in Section 401(k) of the Code, any simplified
employee pension cash or deferred arrangement as described in
Section 402(h)(1)(B) of the Code, any eligible deferred compensation
plan under Section 457 of the Code, any plan as described under
Section 501(c)(18) of the Code, and any Employer Contributions made
on the behalf of a Participant for the purchase of an annuity
contract under Section 403(b) of the Code pursuant to a salary
reduction agreement. Deferral Contributions shall not include any
deferrals properly distributed as excess annual additions. Excess
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.
Excess Deferrals shall be adjusted for any income or
loss up to the date of distribution. The income or loss allocable
to Excess Deferrals is (1) income or loss allocable to the
Participant's Deferral Contributions Account for the taxable year
multiplied by a fraction, the numerator of which is such
Participant's Excess Deferrals for the year and the denominator is
the Participant's Account balance attributable to Deferral
Contributions without regard to any income or loss occurring during
such taxable year, or (2) such other amount determined under any
reasonable method, provided that such method is used consistently
for all Participants
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<PAGE> 37
in calculating the distributions required under this Section 4.01(c)
and Sections 4.02(d) and 4.04(d) for the Plan Year, and is used by
the Plan in allocating income or loss to Participants' Accounts.
Income or loss allocable to the period between the end of the Plan
Year and the date of distribution shall be disregarded in
determining income or loss.
(d) In order for the Plan to comply with the requirements of
Sections 401(k), 402(g) and 415 of the Code and the regulations
promulgated thereunder, at any time in a Plan Year the Administrator
may reduce the rate of Deferral Contributions to be made on behalf
of any Participant, or class of Participants, for the remainder of
that Plan Year, or the Administrator may require that all Deferral
Contributions to be made on behalf of a Participant be discontinued
for the remainder of that Plan Year. Upon the close of the Plan
Year or such earlier date as the Administrator may determine, any
reduction or discontinuance in Deferral Contributions shall
automatically cease until the Administrator again determines that
such a reduction or discontinuance of Deferral Contributions is
required.
4.02. ADDITIONAL LIMIT ON DEFERRAL CONTRIBUTIONS.
(a) 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.
(b) The following special rules apply for the purposes of this
Section:
(1) The ADP for any Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to have Deferral
Contributions (and Qualified Discretionary Contributions if
treated as Deferral Contributions for purposes of the ADP test)
allocated to his or her accounts under two or more arrangements
described in Section 401(k) of the Code that are maintained by
the Employer, shall be determined as if such Deferral
Contributions (and, if applicable, such Qualified Discretionary
Contributions) were made under a single arrangement. If a
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<PAGE> 38
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 Section 401(k) of the Code.
(2) In the event that this Plan satisfies the requirements of
Sections 401(k), 401(a)(4), or 410(b) of the Code only if aggregated
with one or more other plans, or if one or more other plans satisfy
the requirements of such Sections of the Code only if aggregated
with this plan, then this Section 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 section 401(k) of the Code only if
they have the same Plan Year.
(3) 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 Deferral Contributions (and Qualified
Discretionary Contributions if treated as Deferral Contributions for
purposes of the ADP test) and Compensation of such Participant shall
include the Deferral Contributions (and, if applicable, Qualified
Discretionary Contributions) and Compensation for the Plan Year of
Family Members (as defined in Section 414(q)(6) of the Code).
Family Members, with respect to between the end of the Plan Year and
the date of distribution shall be disregarded in determining income
or loss.
Excess Contributions shall be distributed from the Participant's
Qualified Discretionary Contribution account only to the extent that
such Excess Contributions exceed the balance in the Participant's
Deferral Contributions account.
(4) For purposes of determining the ADP test, Deferral Contributions
and Qualified Discretionary Contributions must be made before the
last day of the twelve-month period immediately following the Plan
Year to which contributions relate.
(5) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ADP test and the amount of Qualified
Discretionary Contributions used in such test.
(6) 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.
(c) The following definitions shall apply for purposes of this Section:
(1) "Actual Deferral Percentage" shall mean, for a specified group
of Participants for a Plan Year, the average of the ratios
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<PAGE> 39
(calculated separately for each Participant in such group) of (A)
the amount of Employer contributions actually paid over to the Trust
on behalf of such Participant for the Plan Year to (B) the
Participant's Compensation for such Plan Year. Employer
contributions on behalf of any Participant shall include (i) any
Deferral Contributions made pursuant to the Participant's deferral
election, including Excess Deferrals of Highly Compensated
Employees, but excluding (a) Excess Deferrals of Non-highly
Compensated Employees that arise solely from Deferral Contributions
made under the Plan or plans of the Employer and (b) Deferral
Contributions that are taken into account in the Contribution
Percentage test (provided the ADP test is satisfied both with and
without exclusion of these Deferral Contributions) and (ii) at the
election of the Employer, Qualified Discretionary Contributions.
Matching Contributions, whether or not non-forfeitable when made,
shall not be considered as Employer Contributions for purposes of
this paragraph. For purposes of computing Actual Deferral
Percentages, an Employee who would be a Participant but for the
failure to make Deferral Contributions shall be treated as a
Participant on whose behalf no Deferral Contributions are made.
(2) "Excess Contributions" shall mean, with respect to any Plan
Year, the excess of
(a) The aggregate amount of Employer contributions actually
taken into account in computing the ADP of Highly Compensated
Employees for such Plan Year, over
(b) 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).
(3) "Qualified Discretionary Contributions" shall mean contributions
made by the Employer as elected in Section 1.05(b)(4) and allocated
to Participant Accounts of Non-highly Compensated Employees that
such 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 Deferral Contributions. Participants shall
not be required to satisfy any hours of service or employment
requirement in order to receive an allocation of such contributions.
(d) 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
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<PAGE> 40
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
of Section 414(q)(6) of the Code shall be allocated among the
family members in proportion to the Deferral Contributions (and
amounts treated as Deferral Contributions) of each family member
that is combined to determine the combined ADP.
Excess Contributions shall be treated as annual additions under the
Plan.
Excess Contributions shall be adjusted for any income or loss up to
the date of distribution. The income or loss allocable to Excess
Contributions is (1) income or loss allocable to the Participant's
Deferral Contribution Account (and if applicable, the Qualified
Discretionary Contribution Account) 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 attributable to Deferral Contributions without
regard to any income or loss occurring during such Plan Year, or (2)
an amount determined under any reasonable method, provided that such
method is used consistently for all Participants in calculating any
distributions required under Section 4.02(d) and Sections 4.01(c)
and 4.04(d) for the Plan Year, and is used by the Plan in allocating
income or loss to the Participants' Accounts. Income or loss
allocable to the period between the end of the Plan Year and the
date of distibution shall be disregarded in determining income or
loss.
Excess Contributions shall be distributed from the Participant's
Qualified Discretionary Contribution Account only to the extent that
such Excess Contributions exceed the balance in the Participant's
Deferral Contributions Account.
4.03 MATCHING CONTRIBUTIONS: If so provided by the Employer in Section
1.05(c), the Employer shall make a Matching Contribution on behalf of each
Participant who had Deferral Contributions made on his behalf during the year
and who meets the requirement, if any, of Section 1.05(c)(4). The amount of
the Matching Contribution shall be determined in accordance with Section
1.05(c), subject to the limitations set forth in Section 4.04 and Section 404
of the Code. Matching Contributions will not be allowed to be made by the
Employer on any voluntary non-deductible Employee Contributions.
4.04 LIMIT ON MATCHING CONTRIBUTIONS AND EMPLOYEE CONTRIBUTIONS:
(a) 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:
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<PAGE> 41
(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.
(b) The following special rules apply for purposes of this section:
(1) If one or more Highly Compensated Employees participate in
both a qualified cash or deferred arrangement described in
Section 401(k) of the Code (hereafter "CODA") and a plan subject
to the ACP test maintained by the Employer and the sum of the
ADP and ACP of those Highly Compensated Employees subject to
either or both tests exceeds the Aggregate Limit, then the ACP
of those Highly Compensated Employees who also participate in a
CODA will be reduced (beginning with such Highly Compensated
Employee whose ACP is the highest) so that the limit is not
exceeded. The amount by which each Highly Compensated
Employee's Contribution Percentage Amounts is reduced shall be
treated as an Excess Aggregate Contribution. The ADP and ACP of
the Highly Compensated Employees are determined after any
corrections required to meet the ADP and ACP tests. Multiple
use does not occur if either the ADP or ACP of the Highly
Compensated Employees does not exceed 1.25 multiplied by the ADP
and ACP of the Non-highly Compensated Employees.
(2) For purposes of this section, 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 section
401(a) of the Code, or arrangements described in section 401(k)
of the Code that are maintained by the Employer, shall be
determined as if the total of such Contribution Percentage
Amounts was made under each plan. If a Highly Compensated
Employee participates in two or more cash or deferred
arrangements that have different plan years, all cash or
deferred arrangements ending with or within the same calendar
year shall be treated as a single arrangement. Notwithstanding
the foregoing, certain plans shall be treated as separate if
mandatorily disaggregated under regulations under Section 401(m)
of the Code.
(3) In the event that this Plan satisfies the requirements of
Sections 401(m), 401(a)(4) or 410(b) of the Code only
if aggregated with one or more other plans, or if one or more
other plans satisfy the requirements of such sections of the
Code only
17
<PAGE> 42
if aggregated with this Plan, then this section 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 Section 401(m) of the Code only if they have
the same Plan Year.
(4) 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 Section 414(q)(6)
of the Code). 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.
(5) For purposes of determining the Contribution Percentage
test, Employee Contributions made pursuant to Section 1.05(d)(1)
are considered to have been made in the Plan Year in which
contributed to the Trust. Matching Contributions and Qualified
Discretionary 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.
(6) The Employer shall maintain records sufficient to
demonstrate satisfaction of the ACP test and the amount of
Qualified Discretionary Contributions used in such test.
(7) The determination and treatment of the Contribution
Percentage of any Participant shall satisfy such other
requirements as may be prescribed by the Secretary of Treasury.
(c) The following definitions shall apply for purposes of this
Section:
(1) "Aggregate Limit" shall mean the greater of (A) or (B)
where (A) is 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 Section 401(m) of the Code for the Plan Year
beginning with or within the Plan Year of the CODA and (ii) the
lesser of 200% or two plus the lesser of such ADP or ACP and
where (B) is the sum of (i) 125 percent of the lesser 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 Section 401(m) of the Code for the Plan Year beginning with
or within the Plan Year of the CODA and (ii) the lesser of 200%
or two plus the greater of such ADP or ACP.
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<PAGE> 43
(2) "Average Contribution Percentage" or "ACP" shall mean the
average of the Contribution Percentages of the Eligible
Participants in a group.
(3) "Contribution Percentage" shall mean the ratio (expressed as
a percentage) of the Participant's Contribution Percentage
Amounts to the Participant's Compensation for the Plan Year.
(4) "Contribution Percentage Amounts" shall mean the sum of the
Employee Contributions and Matching Contributions 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. If so elected by the Employer in
Section 1.05(b)(4), the Employer may include Qualified
Discretionary Contributions in the Contribution Percentage
Amounts. The Employer also may elect to use Deferral
Contributions in the Contribution Percentage Amounts so long as
the ADP test is met before the Deferral Contributions are used
in the ACP test and continues to be met following the exclusion
of those Deferral Contributions that are used to meet the ACP
test.
(5) "Deferral Contribution" shall mean any contribution made at
the election of the Participant pursuant to a salary reduction
agreement in accordance with Section 4.01(a).
(6) "Eligible Participant" shall mean any Employee who is
eligible to make an Employee Contribution, or a Deferral
Contribution (if the Employer takes such contributions into
account in the calculation of the Contribution Percentage), or
to receive a Matching Contribution.
(7) "Employee Contribution" shall mean any voluntary
non-deductible contribution made 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 in a separate
Account to which earnings and losses are allocated.
(8) "Matching Contribution" shall mean an Employer contribution
made to this or any other defined contribution plan on behalf of
a Participant on account of a Participant's Deferral
Contribution.
(9) "Excess Aggregate Contributions" shall mean, with respect to
any Plan Year, the excess of
(A) 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
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<PAGE> 44
(B) The maximum Contribution Percentage Amounts permitted by
the ACP test (determined by reducing contributions made on
behalf of Highly Compensated Employees in the order of their
Contribution Percentages beginning with the highest of such
percentages).
Such determination shall be made after first
determining Excess Deferrals pursuant to Section 4.01 and
then determining Excess Contributions pursuant to Section
4.02.
(d) Notwithstanding any other provision of the 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 of Section 414(q)(6) of the Code
shall be allocated among the family members in proportion to the
Employee and 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.
Excess Aggregate Contributions shall be adjusted for
any income or loss up to the date of distribution. The income or
loss allocable to Excess Aggregate Contributions is (1) income or
loss allocable to the Participant's Employee Contribution Account,
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 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 income or loss occurring during
such Plan Year, or (2) such other amount determined under any
reasonable method, provided that such method is used consistently
for all Participants in calculating any distributions required under
Section 4.04(d) and Sections 4.01(c) and 4.02(d) for the Plan Year,
and is used by the Plan in allocating income or loss to the
Participants' Accounts. Income or loss allocable to the period
between the end of the Plan Year and the date of distribution shall
be disregarded in determining income or loss.
Forfeitures of Excess Aggregate Contributions shall be
applied to reduce Employer contributions; the forfeitures shall be
held in the money market fund, if any, listed in Section 1.14(b)
pending such application.
Excess Aggregate Contributions shall be forfeited, if
forfeitable, or distributed on a prorata basis from the
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Participant's Employee Contribution Account, Matching
Contribution Account and if applicable, the Participant's
Deferral Contributions Account or Qualified Discretionary
Contribution Account or both.
4.05. SPECIAL RULES. Deferral Contributions and Qualified Discretionary
Contributions and income allocable to each are not distributable to a
Participant or his or her Beneficiary or Beneficiaries, in accordance with such
Participant's or beneficiary's or beneficiaries' election, earlier than upon
separation from service, death, or disability, except as otherwise provided in
Section 7.10, 7.11 or 10.06. Such amounts may also be distributed, but after
March 31, 1988, in the form of a lump sum only, upon
(a) Termination of the Plan without establishment of another
defined contribution plan, other than an employee stock ownership plan
(as defined in Section 4975(e) or Section 409 of the Code) or a
simplified employee pension plan as defined in Section 408(k) of the
Code.
(b) The disposition by a corporation to an unrelated
corporation of substantially all of the assets (within the meaning of
Section 409(d)(2) of the Code) 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
Section 409(d)(2) of the Code) if such corporation continues to
maintain this Plan, but only with respect to Employees who continue
employment with such subsidiary.
The Participant's accrued benefit derived from Deferral Contributions,
Qualified Discretionary Contributions and Employee Contributions (as defined in
Section 4.09) is nonforfeitable. Separate Accounts for Deferral Contributions,
Qualified Discretionary Contributions, Employee Contributions and Matching
Contributions will be maintained for each Participant. Each Account will be
credited with the applicable contributions and earnings thereon.
4.06. FIXED/DISCRETIONARY EMPLOYER CONTRIBUTIONS. If so provided by the
Employer in Sections 1.05(a)(1) or 1.05(a)(2), for the Plan Year in which the
Plan is adopted and for each Plan Year thereafter, the Employer will make Fixed
or Discretionary Employer contributions to the Trust in accordance with Section
1.05 to be allocated as follows:
(a) Fixed Employer contributions shall be allocated among
eligible Participants (as determined in accordance with Section
1.05(a)(3)) in the manner specified in Section 1.05(a).
(b) Discretionary Employer contributions shall be
allocated among eligible Participants, as determined in accordance with
Section 1.05(a)(3), as follows:
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(1) If the Non-Integrated Formula is elected in Section
1.05(a)(2)(A), such contributions shall be allocated to eligible
Participants in the ratio that each Participant's Compensation bears to
the total Compensation paid to all eligible Participants for the Plan
Year; or
(2) If the Integrated Formula is elected in Section 1.05(a)(2)(B),
such contributions shall be allocated in the following steps:
(A) First, to each eligible
Participant in the same ratio that the sum
of the Participant's Compensation and
Excess Compensation for the Plan Year bears
to the sum of the Compensation and Excess
Compensation of all Participants for the
Plan Year. This allocation as a percentage
of the sum of each Participant's
Compensation and Excess Compensation shall
not exceed 5.7%.
(B) Any remaining Discretionary
Employer Contribution shall be allocated to
each eligible Participant in the same ratio
that each Participant's Compensation for
the Plan Year bears to the total
Compensation of all Participants for the
Plan Year.
For purposes of this Section, "Excess
Compensation" means Compensation in excess of the
taxable wage base, as determined under Section 230 of
the Social Security Act, in effect on the first day of
the Plan Year. Further, this Section 4.06(b)(2) shall
be modified as provided in Section 9.03 for years in
which the Plan is top heavy under Article 9.
4.07. TIME OF MAKING EMPLOYER CONTRIBUTIONS. The Employer will pay its
contribution for each Plan Year not later than the time prescribed by law for
filing the Employer's federal income tax return for the fiscal (or taxable)
year with or within which such Plan Year ends (including extensions thereof).
The Trustee will have no authority to inquire into the correctness of the
amounts contributed and paid over to the Trustee, to determine whether any
contribution is payable under this Article 4, or to enforce, by suit or
otherwise, the Employer's obligation, if any, to make a contribution to the
Trustee.
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4.08. RETURN OF EMPLOYER CONTRIBUTIONS. The Trustee shall, upon request by
the Employer, return to the Employer the amount (if any) determined under
Section 14.22. Such amount shall be reduced by amounts attributable thereto
which have been credited to the Accounts of Participants who have since
received distributions from the Trust, except to the extent such amounts
continue to be credited to such Participants' Accounts at the time the amount
is returned to the Employer. Such amount shall also be reduced by the losses
of the Trust attributable thereto, if and to the extent such losses exceed the
gains and income attributable thereto, but will not be increased by the gains
and income of the Trust attributable thereto, if and to the extent such gains
and income exceed the losses attributable thereto. In no event will the return
of a contribution hereunder cause the balance of the individual Account of any
Participant to be reduced to less than the balance which would have been
credited to the Account had the mistaken amount not been contributed.
4.09. EMPLOYEE CONTRIBUTIONS. If the Employer elected to permit Deferral
Contributions in Section 1.05(b) and if so provided by the Employer in Section
1.05(d), each Participant may elect to make Employee Contributions to the Plan
in accordance with the rules and procedures established by the Employer and in
an amount not less than one percent (1%) and not greater than ten percent (10%)
of such Participant's Compensation for the Plan Year. Such contributions and
all Employee Contributions for Plan Years beginning after December 31, 1986,
shall be subject to the nondiscrimination requirements of Section 401(m) of the
Code as set forth in Section 4.04.
For purposes of this Plan, "Employee Contributions" shall mean any
voluntary non-deductible contribution made to a plan by or on behalf of a
Participant that is or was included in the Participant's gross income in the
year in which made and that is maintained under a separate account to which
applicable earnings and losses are allocated. Excess Contributions may not be
recharacterized as Employee Contributions.
Employee Contributions shall be paid over to the Trustee not later than
thirty (30) days following the end of the month in which the Participant makes
the contribution. A Participant shall have a fully vested 100% nonforfeitable
right to his Employee Contributions and the earnings or losses allocated
thereon. Distributions of Employee Contributions shall be made in accordance
with Section 7.10.
4.10. ROLLOVER CONTRIBUTIONS.
(a) Rollover of Eligible Rollover Distributions
(1) An Employee who is or was a distributee of an "eligible rollover
distribution"(as defined in Section 402(c)(4) of the Code and the
regulations issued thereunder) from a qualified plan may directly
transfer all or any portion of such distribution to the Trust or
transfer all or any portion of such distribution to the Trust within
sixty (60) days of payment. The transfer shall be made in the form
of cash or allowable Fund Shares only.
(2) The Employer may refuse to accept rollover contributions or
instruct the Trustee not to accept rollover contributions under the
Plan.
(b) Treatment of Rollover Amount.
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<PAGE> 48
(1) An account will be established for the transferring
Employee under Article 5, the rollover amount will be credited
to the account and such amount will be subject to the terms
of the Plan, including Section 8.01, except as otherwise
provided in this Section 4.10.
(2) The rollover account will at all times be fully vested
in and nonforfeitable by the Employee.
(c) Entry into Plan by Transferring Employee. Although an amount
may be transferred to the Trust Fund under this Section 4.10 by an
Employee who has not yet become a Participant in accordance with
Article 3, and such amount is subject to the terms of the Plan as
described in paragraph (b) above, the Employee will not become a
Participant entitled to share in Employer contributions until he has
satisfied such requirements.
(d) Monitoring of Rollovers.
(1) The Administrator shall develop such procedures
and require such information from transferring Employees as it
deems necessary to insure that amounts transferred under this
Section 4.10 meet the requirements for tax-free rollovers
established by such Section and by Section 402(c) of the Code.
No such amount may be transferred until approved by the
Administrator.
(2) If a transfer made under this Section 4.10 is
later determined by the Administrator not to have met the
requirements of this Section or of the Code or Treasury
regulations, the Trustee shall, within a reasonable time after
such determination is made, and on instructions from the
Administrator, distribute to the Employee the amounts then held
in the Trust attributable to the transferred amount.
4.11. DEDUCTIBLE VOLUNTARY EMPLOYEE CONTRIBUTIONS. The 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
and which will share in the gains and losses of the trust in the same manner as
described in Section 5.02. No part of the deductible voluntary contribution
Account will be used to purchase life insurance. Subject to Article 8, the
Participant may withdraw any part of the deductible voluntary contribution
Account upon request.
4.12. ADDITIONAL RULES FOR PAIRED PLANS. If the Employer has adopted a
qualified plan under Fidelity Basic Plan Document No. 09 which is to be
considered as a paired plan with this Plan, the elections in Section 1.03 must
be identical to the Employer's corresponding elections for the other plan.
When the paired plans are top-heavy or are deemed to be top-heavy as provided
in Section 9.01, the plan paired with this Plan will provide a minimum
contribution to each non-key Employee which is equal to 3 percent (or such
other percent elected by the Employer in Section 1.12(c)) of such Employee's
Compensation. Notwithstanding the
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<PAGE> 49
preceding sentence, the minimum contribution shall be provided by this Plan
if contributions under the other plan paired with this Plan are frozen.
ARTICLE 5. PARTICIPANTS' ACCOUNTS.
5.01. INDIVIDUAL ACCOUNTS. The Administrator will establish and maintain an
Account for each Participant which will reflect Employer and Employee
Contributions made on behalf of the Participant and earnings, expenses, gains
and losses attributable thereto, and investments made with amounts in the
Participant's Account. The Administrator will establish and maintain such
other accounts and records as it decides in its discretion to be reasonably
required or appropriate in order to discharge its duties under the Plan.
5.02. VALUATION OF ACCOUNTS. Participant Accounts will be valued at their
fair market value at least annually as of a date specified by the Administrator
in accordance with a method consistently followed and uniformly applied, and on
such date earnings, expenses, gains and losses on investments made with amounts
in each Participant's Account will be allocated to such Account. Participants
will be furnished statements of their Account values at least once each Plan
Year.
5.03. CODE SECTION 415 LIMITATIONS. Notwithstanding any other provisions of
the Plan:
Subsections (a)(1) through (a)(4)--(These subsections apply to
Employers who do not maintain any qualified plan, including a Welfare Benefit
Fund, an Individual Medical Account, or a simplified employee pension in
addition to this Plan.)
(a)(1) If the Participant does not participate in, and has never
participated in any other qualified plan, Welfare Benefit Fund,
Individual Medical Account, or a simplified employee pension, as defined
in section 408(k) of the Code, maintained by the Employer, which
provides an annual addition as defined in Section 5.03(e)(1), the amount
of Annual Additions to a Participant's Account for a Limitation Year
shall 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.
(a)(2) Prior to the determination of the Participant's actual
Compensation for a Limitation Year, the Maximum Permissible Amount may
be determined on the basis of a reasonable estimation of the
Participant's compensation for such Limitation Year, uniformly
determined for all Participants similarly situated. Any Employer
contributions based on estimated annual compensation shall be reduced by
any Excess Amounts carried over from prior years.
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<PAGE> 50
(a)(3) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for such Limitation Year
shall be determined on the basis of the Participant's actual
Compensation for such Limitation Year.
(a)(4) If, pursuant to subsection (a)(3) or as a result of the
allocation of forfeitures or a reasonable error in determining the total
Elective Deferrals there is an Excess Amount with respect to a
Participant for a Limitation Year, such Excess Amount shall be disposed
of as follows:
(A) Any nondeductible voluntary employee contributions
("employee contributions") or Elective Deferrals, to the extent they
would reduce the Excess Amount, will be returned to the Participant.
Any gains attributable to returned employee contributions will also be
returned or will be treated as additional employee contributions for the
Limitation Year in which the employee contributions were made.
(B) If after the application of paragraph (A) an Excess amount
still exists and the Participant is in the service of the Employer which
is covered by the Plan at the end of the Limitation Year, then such
Excess Amount shall be reapplied to reduce future Employer contributions
under this Plan for the next Limitation Year (and for each succeeding
year, as necessary) for such Participant, so that in each such Year the
sum of actual Employer contributions plus the reapplied amount shall
equal the amount of Employer contributions which would otherwise be made
to such Participant's Account.
(C) If after the application of paragraph (A) an Excess Amount
still exists and the Participant is not in the service of the Employer
which is covered by the Plan at the end of a Limitation Year, then such
Excess Amount will be held unallocated in a suspense account. The
suspense account will be applied to reduce future Employer contributions
for all remaining Participants in the next Limitation Year and each
succeeding Limitation Year if necessary.
(D) If a suspense account is in existence at any time during the
Limitation Year pursuant to this subsection, it will not participate in
the allocation of the Trust Fund's investment gains and losses. All
amounts in the suspense account must be allocated to the Accounts of
Participants before any Employer contribution may be made for the
Limitation Year. Except as provided in paragraph (A), Excess Amounts
may not be distributed to Participants or former Participants.
Subsections (b)(1) through (b)(6)--(These subsections apply to Employers
who, in addition to this Plan, maintain one or more plans, all of which are
qualified Master or Prototype defined contribution Plans, any Welfare Benefit
Fund, any Individual Medical Account, or any simplified employee pension.)
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<PAGE> 51
(b)(1) If, in addition to this Plan, the Participant is covered under
any other qualified defined contribution plans (all of which are
qualified Master or Prototype Plans), Welfare Benefit Funds, Individual
Medical Accounts, or simplified employee pension Plans, maintained by
the Employer, that provide an annual addition as defined in Section
5.03(e)(1), the amount of Annual Additions to a Participant's Account
for a Limitation Year shall not exceed the lesser of
(A) the Maximum Permissible Amount, reduced by the sum of any
Annual Additions to the Participant's accounts for the same Limitation
Year under such other qualified Master or Prototype defined contribution
plans, and Welfare Benefit Funds, Individual Medical Accounts, and
simplified employee pensions, or
(B) any other limitation contained in this Plan.
If the annual additions with respect to the Participant under other
qualified Master or Prototype defined contribution Plans, Welfare
Benefit Funds, Individual Medical Accounts, and simplified employee
pensions 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 qualified Master or
Prototype defined contribution Plans, Welfare Benefit Funds, Individual
Medical Accounts, and simplified employee pensions 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.
(b)(2) Prior to the determination of the Participant's actual
Compensation for the Limitation Year, the amounts referred to in
(b)(1)(A) above may be determined on the basis of a reasonable
estimation of the Participant's compensation for such Limitation Year,
uniformly determined for all Participants similarly situated. Any
Employer contribution based on estimated annual compensation shall be
reduced by any Excess Amounts carried over from prior years.
(b)(3) As soon as is administratively feasible after the end of the
Limitation Year, the amounts referred to in (b)(1)(A) shall be
determined on the basis of the Participant's actual Compensation for
such Limitation Year.
(b)(4) If a Participant's Annual Additions under this Plan and all such
other plans result in an Excess Amount, such Excess Amount shall be
deemed to consist of the Annual Additions last allocated, except that
Annual Additions attributable to a simplified employee
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<PAGE> 52
pension will be deemed to have been allocated first, followed by Annual
Additions to a Welfare Benefit Fund or Individual Medical Account
regardless of the actual allocation date.
(b)(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 attributed to this Plan will be the
product of
(A) the total Excess Amount allocated as of such date (including
any amount which would have been allocated but for the limitations
of Section 415 of the Code), and
(B) the ratio of (i) the Annual Additions allocated to the
Participant as of such date under this Plan, and (ii) the Annual
Additions allocated as of such date under all qualified defined
contribution plans (determined without regard to the limitations
of Section 415 of the Code).
(b)(6) Any Excess Amounts attributed to this Plan shall be disposed
of as provided in subsection (a)(4).
Subsection (c)--(This subsection applies only to Employers who, in
addition to this Plan, maintain one or more qualified plans which are qualified
defined contribution plans other than Master or Prototype Plans.)
(c) If the Employer also maintains another plan which is a
qualified defined contribution plan other than a Master or
Prototype Plan, Annual Additions allocated under this Plan on
behalf of any Participant shall be limited in accordance with
the provisions of (b)(1) through (b)(6), as though the other plan
were a Master or Prototype Plan, unless the Employer provides
other limitations in the Adoption Agreement.
Subsection (d)--(This subsection applies only to Employers who, in
addition to this Plan, maintain or at any time maintained a qualified defined
benefit plan.)
(d) If the Employer maintains, or at any time maintained, a
qualified defined benefit plan, the sum of any Participant's
Defined Benefit Fraction and Defined Contribution Fraction shall
not exceed the combined plan limitation of 1.0 in any Limitation
Year. The combined plan limitation will be met as provided by
the Employer in the Adoption Agreement.
Subsections (e)(1) through (e)(11)--(Definitions.)
(e)(1) "Annual Additions" means the sum of the following amounts
credited to a Participant for a Limitation Year:
(A) all Employer contributions,
(B) all Employee Contributions,
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(C) all forfeitures,
(D) amounts allocated, after March 31, 1984, to an Individual
Medical Account 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 Section 419A(d)(3) of the Code, under
a Welfare Benefit Fund maintained by the Employer are treated
as Annual Additions to a defined contribution plan, and
(E) allocations under a simplified employee pension.
For purposes of this Section 5.03, amounts reapplied to
reduce Employer contributions under subsection (a)(4) shall also be
included as Annual Additions.
(e)(2) "Compensation" means wages as defined in Section 3401(a) of the
Code and all other payments of compensation to an employee by the
employer (in the course of the employer's trade or business) for which
the employer is required to furnish the employee a written statement
under Sections 6041(d) and 6051(a)(3) of the Code. Compensation must be
determined without regard to any rules under Section 3401(a) of the Code
that limit the remuneration included in wages based on the nature or
location of the employment or the services performed (such as the
exception for agricultural labor in Section 3401(a)(2) of the Code.)
For any Self-Employed Individual compensation will mean Earned Income.
For limitation years beginning after December 31, 1991, for purposes of
applying the limitations of this article, compensation for a limitation
year is the compensation actually paid or made available during such
limitation year.
(e)(3) "Defined Benefit Fraction" means a fraction, the numerator of
which is the sum of the Participant's annual benefits (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) under all the defined benefit plans (whether
or not terminated) maintained by the Employer, each such annual benefit
computed on the assumptions that the Participant will remain in
employment until the normal retirement age under each such plan (or the
Participant's current age, if later) and that all other factors used to
determine benefits under such plan will remain constant for all future
Limitation Years, and the denominator of which is the lesser of 125
percent of the dollar limitation determined for the Limitation Year
under Sections
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415(b)(1)(A) and 415(d) of the Code or 140 percent of the Participant's
highest average Compensation for 3 consecutive calendar years of service
during which the Participant was active in each such plan, including any
adjustments under Section 415(b) of the Code. However, 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 then the denominator of the Defined Benefit Fraction
shall not be less than 125 percent of the Participant's total accrued
benefit 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, under all such defined benefit plans that
met, individually and in the aggregate, the requirements of Section 415
of the Code for all Limitation Years beginning before January 1, 1987.
(e)(4) "Defined Contribution Fraction" means a fraction, the numerator
of which is the sum for the current and all prior Limitation Years of
(A) all Annual Additions (if any) to the Participant's accounts under
each defined contribution plan (whether or not terminated) maintained by
the Employer and (B) all 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 Participant's Annual Additions attributable to all Welfare
Benefit Funds, Individual Medical Accounts, and simplified employee
pensions, 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 during which the Participant was an Employee
(regardless of whether the Employer maintained a defined contribution
plan in any such year).
The maximum aggregate amount in any Limitation Year is the lesser
of 125 percent of the dollar limitation in effect under Section
415(c)(1)(A) of the Code for each such year or 35 percent of the
Participant's Compensation for each such year.
If the Participant was a participant as of the first day of the
first Limitation Year beginning after December 31, 1986, in one or
more defined contribution plans maintained by the Employer which were in
existence on May 6, 1986, then the numerator of the Defined Contribution
Fraction shall 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 (i) the
excess of the sum of the fractions over 1.0 and (ii) 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 6, 1986, but using the
Section 415 limitation applicable to the first Limitation Year beginning
on or after January 1, 1987.
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The annual addition for any limitation year beginning before
January 1, 1987 shall not be recomputed to treat all
employee contributions as annual additions.
(e)(5) "Employer" means the Employer and any Related Employer that
adopts this Plan. In the case of a group of employers which constitutes
a controlled group of corporations (as defined in Section 414(b) of the
Code as modified by Section 415(h)) or which constitutes trades or
businesses (whether or not incorporated) which are under common control
(as defined in Section 414(c) of the Code as modified by Section 415(h)
of the Code) or which constitutes an affiliated service group (as
defined in Section 414(m)of the Code) and any other entity required to
be aggregated with the Employer pursuant to regulations issued under
Section 414(o) of the Code, all such employers shall be considered a
single employer for purposes of applying the limitations of this Section
5.03.
(e)(6) "Excess Amount" means the excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible Amount.
(e)(7) "Individual Medical Account" means an individual medical account
as defined in Section 415(l)(2) of the Code.
(e)(8) "Limitation Year" means the Plan Year. All qualified plans of
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.
(e)(9) "Master or Prototype Plan" means a plan the form of which is the
subject of a favorable opinion letter from the Internal Revenue Service.
(e)(10) "Maximum Permissible Amount" means for a Limitation Year with
respect to any Participant the lesser of (A) $30,000 or, if greater, 25
percent of the dollar limitation set forth in Section 415(b)(1) of the
Code, as in effect for the Limitation Year, or (B) 25 percent of the
Participant's Compensation for the Limitation Year. 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 limitation in (e)(10)(A)
multiplied by a fraction whose numerator is the number of months in the
short Limitation Year and whose denominator is 12.
The compensation limitation referred to in subsection (e)(10)(B)
shall not apply to any contribution for medical benefits within the
meaning of Section 401(h) or Section 419A(f)(2) of the Code after
separation from service which is otherwise treated as an Annual Addition
under Section 419A(d)(2) or Section 415(l)(1) of the Code.
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(e)(11) "Welfare Benefit Fund" means a welfare benefit fund as defined
in Section 419(e) of the Code.
ARTICLE 6. INVESTMENT OF CONTRIBUTIONS.
6.01. MANNER OF INVESTMENT. All contributions made to the Accounts of
Participants shall be held for investment by the Trustee. The Accounts of
Participants shall be invested and reinvested only in eligible investments
selected by the Employer in Section 1.14(b), subject to Section 14.10.
6.02. INVESTMENT DECISIONS. Investments shall be directed by the Employer or
by each Participant or both, in accordance with the Employer's election in
Section 1.14(a). Pursuant to Section 14.04, the Trustee shall have no
discretion or authority with respect to the investment of the Trust Fund.
(a) With respect to those Participant Accounts for which Employer
investment direction is elected, the Employer has the right to direct
the Trustee in writing with respect to the investment and reinvestment
of assets comprising the Trust Fund in the Fidelity Fund(s) designated
in Section 1.14(b) and as allowed by the Trustee.
(b) If Participant investment direction is elected, each Participant
shall direct the investment of his Account among the Fidelity Funds
listed in Section 1.14(b). The Participant shall file initial
investment instructions with the Administrator, on such form as the
Administrator may provide, selecting the Funds in which amounts credited
to his Account will be invested.
(1) Except as provided in this Section 6.02, only authorized
Plan contacts and the Participant shall have access to a
Participant's Account. While any balance remains in the Account of
a Participant after his death, the Beneficiary of the Participant
shall make decisions as to the investment of the Account as though
the Beneficiary were the Participant. To the extent required by a
qualified domestic relations order as defined in Section 414(p) of
the Code, an alternate payee shall make investment decisions with
respect to a Participant's Account as though such alternate payee
were the Participant.
(2) If the Trustee receives any contribution under the Plan as
to which investment instructions have not been provided, the Trustee
shall promptly notify the Administrator and the Administrator shall
take steps to elicit instructions from the Participant. The Trustee
shall credit any such contribution to the Participant's Account and
such amount shall be invested in the Fidelity Fund selected by the
Employer for such purposes or, absent Employer selection, in the
most conservative Fidelity Fund listed in Section 1.14(b), until
investment instructions have been received by the Trustee.
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<PAGE> 57
(c) All dividends, interest, gains and distributions of any nature
received in respect of Fund Shares shall be reinvested in additional
shares of that Fidelity Fund.
(d) Expenses attributable to the acquisition of investments shall be
charged to the Account of the Participant for which such investment is
made.
6.03. PARTICIPANT DIRECTIONS TO TRUSTEE. All Participant initial investment
instructions filed with the Administrator pursuant to the provisions of Section
6.02 shall be promptly transmitted by the Administrator to the Trustee. A
Participant shall transmit subsequent investment instructions directly to the
Trustee by means of the telephone exchange system maintained by the Trustee for
such purposes. The method and frequency for change of investments will be
determined under the (a) rules applicable to the investments selected by the
Employer in Section 1.14(b) and (b) the additional rules of the Employer, if
any, limiting the frequency of investment changes, which are included in a
separate written administrative procedure adopted by the Employer and accepted
by the Trustee. The Trustee shall have no duty to inquire into the investment
decisions of a Participant or to advise him regarding the purchase, retention
or sale of assets credited to his Account.
ARTICLE 7. RIGHT TO BENEFITS.
7.01. NORMAL OR EARLY RETIREMENT. Each Participant who attains his Normal
Retirement Age or, if so provided by the Employer in Section 1.06(b), Early
Retirement Age, will have a 100-percent nonforfeitable interest in his Account
regardless of any vesting schedule elected in Section 1.07. If a Participant
retires upon the attainment of Normal or Early Retirement Age, such retirement
is referred to as a normal retirement. Upon his normal retirement the balance
of the Participant's Account, plus any amounts thereafter credited to his
Account, subject to the provisions of Section 7.08, will be distributed to him
in accordance with Article 8.
If a Participant separates from service before satisfying the age
requirements for early retirement, but has satisfied the service requirement,
the Participant will be entitled to elect an early retirement distribution upon
satisfaction of such age requirement.
7.02. LATE RETIREMENT. If a Participant continues in the service of the
Employer after attainment of Normal Retirement Age, he will continue to have a
100-percent nonforfeitable interest in his Account and will continue to
participate in the Plan until the date he establishes with the Employer for his
late retirement. Until he retires, he has a continuing election to receive all
or any portion of his Account. Upon the earlier of his late retirement or the
distribution date required under Section 8.08, the balance of his Account, plus
any amounts
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thereafter credited to his Account, subject to the provisions of Section 7.08,
will be distributed to him in accordance with Article 8 below.
7.03. DISABILITY RETIREMENT. If so provided by the Employer in Section
1.06(c), a Participant who becomes disabled will have a 100-percent
nonforfeitable interest in his Account, the balance of which Account, plus any
amounts thereafter credited to his Account, subject to the provisions of
Section 7.08, will be distributed to him in accordance with Article 8 below.
A Participant is considered disabled if he cannot engage in any substantial,
gainful activity because of a medically determinable physical or mental
impairment likely to result in death or to be of a continuous period of not
less than 12 months, and terminates his employment with the Employer. Such
termination of employment is referred to as a disability retirement.
Determinations with respect to disability shall be made by the Administrator
who may rely on the criteria set forth in Section 1.06(c) as evidence that the
Participant is disabled.
7.04. DEATH. Subject, if applicable, to Section 8.04, if a Participant dies
before the distribution of his Account has commenced, or before such
distribution has been completed, his Account shall become 100 percent vested
and his designated Beneficiary or Beneficiaries will be entitled to receive the
balance or remaining balance of his Account, plus any amounts thereafter
credited to his Account, subject to the provisions of Section 7.08.
Distribution to the Beneficiary or Beneficiaries will be made in accordance
with Article 8.
A Participant may designate a Beneficiary or Beneficiaries, or change
any prior designation of Beneficiary or Beneficiaries by giving notice to the
Administrator on a form designated by the Administrator. If more than one
person is designated as the Beneficiary, their respective interests shall be as
indicated on the designation form. In the case of a married Participant, the
Participant's spouse shall be deemed to be the designated Beneficiary unless
the Participant's spouse has consented to another designation in the manner
described in Section 8.03(d).
A copy of the death notice or other sufficient documentation must be
filed with and approved by the Administrator. If upon the death of the
Participant there is, in the opinion of the Administrator, no designated
Beneficiary for part or all of the Participant's Account, such amount will be
paid to his surviving spouse or, if none, to his estate (such spouse or estate
shall be deemed to be the Beneficiary for purposes of the Plan). If a
Beneficiary dies after benefits to such Beneficiary have commenced, but before
they have been completed, and, in the opinion of the Administrator, no person
has been designated to receive such remaining benefits, then such benefits
shall be paid in a lump sum to the deceased Beneficiary's estate.
7.05. OTHER TERMINATION OF EMPLOYMENT. If a Participant terminates his
employment for any reason other than death or normal, late, or disability
retirement, he will be entitled to a termination benefit equal to the sum of
(a) the vested percentage(s) of the value of the Matching and/or
Fixed/Discretionary Contributions to his Account, as
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adjusted for income, expense, gain, or loss, such percentage(s) determined in
accordance with the vesting schedule(s) selected by the Employer in Section
1.07, and (b) the value of the Deferral, Employee, Qualified Discretionary and
Rollover Contributions to his Account as adjusted for income, expense, gain or
loss. The amount payable under this Section 7.05 will be subject to the
provisions of Section 7.08 and will be distributed in accordance with Article 8
below.
7.06. SEPARATE ACCOUNT. If a distribution from a Participant's Account has
been made to him at a time when he has a nonforfeitable right to less than 100
percent of his Account, the vesting schedule in Section 1.07 will thereafter
apply only to amounts in his Account attributable to Employer contributions
allocated after such distribution. The balance of his Account immediately
after such distribution will be transferred to a separate account which will be
maintained for the purpose of determining his interest therein according to the
following provisions.
At any relevant time prior to a forfeiture of any portion thereof under
Section 7.07, a Participant's nonforfeitable interest in his Account held in a
separate account described in the preceding paragraph will be equal to P(AB +
(RxD))-(RxD), where P is the nonforfeitable percentage at the relevant time
determined under Section 7.05; AB is the account balance of the separate
account at the relevant time; D is the amount of the distribution; and R is the
ratio of the account balance at the relevant time to the account balance after
distribution. Following a forfeiture of any portion of such separate account
under Section 7.07 below, any balance in the Participant's separate account
will remain fully vested and nonforfeitable.
7.07. FORFEITURES. If a Participant terminates his employment, any portion of
his Account (including any amounts credited after his termination of
employment) not payable to him under Section 7.05 will be forfeited by him upon
the complete distribution to him of the vested portion of his Account, if any,
subject to the possibility of reinstatement as described in the following
paragraph. For purposes of this paragraph, if the value of an Employee's
vested Account balance is zero, the Employee shall be deemed to have received a
distribution of his vested interest immediately following termination of
employment. Such forfeitures will be applied to reduce the contributions of
the Employer next payable under the Plan (or administrative expenses of the
Plan); the forfeitures shall be held in a money market fund pending such
application.
If a Participant forfeits any portion of his Account under the preceding
paragraph but again becomes an Employee after such date, then the amount so
forfeited, without any adjustment for the earnings, expenses, or losses or
gains of the assets credited to his Account since the date forfeited, will be
recredited to his Account (or to a separate account as described in Section
7.06, if applicable) but only if he repays to the Plan before the earlier of
five years after the date of his reemployment or the date he incurs 5
consecutive 1-year breaks in service following the date of the distribution the
amount previously distributed to him, without interest, under Section 7.05. If
an
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Employee is deemed to receive a distribution pursuant to this Section 7.07, and
the Employee resumes employment before 5 consecutive 1-year breaks in service,
the Employee shall be deemed to have repaid such distribution on the date of
his reemployment. Upon such an actual or deemed repayment, the provisions of
the Plan (including Section 7.06) will thereafter apply as if no forfeiture had
occurred. The amount to be recredited pursuant to this paragraph will be
derived first from the forfeitures, if any, which as of the date of recrediting
have yet to be applied as provided in the preceding paragraph and, to the
extent such forfeitures are insufficient, from a special Employer contribution
to be made by the Employer.
If a Participant elects not to receive the nonforfeitable portion of his
Account following his termination of employment, the non-vested portion of his
Account shall be forfeited after the Participant has incurred five consecutive
1-year breaks in service as defined in Section 2.01(a)(33).
No forfeitures will occur solely as a result of a Participant's
withdrawal of Employee contributions.
7.08. ADJUSTMENT FOR INVESTMENT EXPERIENCE. If any distribution under this
Article 7 is not made in a single payment, the amount retained by the Trustee
after the distribution will be subject to adjustment until distributed to
reflect the income and gain or loss on the investments in which such amount is
invested and any expenses properly charged under the Plan and Trust to such
amounts.
7.09. PARTICIPANT LOANS. If permitted under Section 1.09, the Administrator
shall allow Participants to apply for a loan from the Plan, subject to the
following:
(a) Loan Application. All Plan loans shall be administered by the
Administrator. Applications for loans shall be made to the
Administrator on forms available from the Administrator. Loans shall be
made available to all Participants on a reasonably equivalent
basis. For this purpose, the term "Participant" means any Participant
or Beneficiary, including an alternate payee under a qualified domestic
relations order, as defined in Section 414(p) of the Code, who is a
party-in-interest (as determined under ERISA Section 3(14)) with respect
to the Plan except no loans will be made to (1) an Employee who makes a
rollover contribution in accordance with Section 4.10 who has not
satisfied the requirements of Section 3.01 or (2) a shareholder-
employee or Owner-Employee. For purposes of this requirement, a
shareholder-employee means an employee or officer of an electing small
business (Subchapter S) corporation who owns (or is considered as owning
within the meaning of Section 318(a)(1) of the Code), on any day during
the taxable year of such corporation, more than 5% of the outstanding
stock of the corporation.
A Participant with an existing loan may not apply for another
loan until the existing loan is paid in full and may not refinance an
existing loan or attain a second loan for the purpose of paying
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off the existing loan. A Participant may not apply for more
than one loan during each Plan Year.
(b) Limitation of Loan Amount/Purpose of Loan. Loans shall not be
made available to Highly Compensated Employees in an amount greater
than the amount made available to other Employees. No loan to any
Participant or Beneficiary can be made to the extent that such loan
when added to the outstanding balance of all other loans to the
Participant or Beneficiary would exceed the lesser of (1) $50,000
reduced by the excess (if any) of the highest outstanding balance of
loans during the one-year period ending on the day before the loan
is made over the outstanding balance of loans from the plan on the
date the loan is made, or (2) one-half the present value of the
nonforfeitable Account of the Participant. For the purpose of the
above limitation, all loans from all plans of the Employer and
Related Employers are aggregated. A Participant may not request a
loan for less than $1,000. The Employer may provide that loans only
be made from certain contribution sources within Participant
Account(s) by notifying the Trustee in writing of the restricted
source.
Loans may be made for any purpose or if elected by the
Employer in Section 1.09(a), on account of hardship only. A loan
will be considered to be made on account of hardship only if made on
account of an immediate and heavy financial need described in
Section 7.10(b)(1).
(c) Terms of Loan. All loans shall bear a reasonable rate of
interest as determined by the Administrator based on the prevailing
interest rates charged by persons in the business of lending money
for loans which would be made under similar circumstances. The
determination of a reasonable rate of interest must be based on
appropriate regional factors unless the Plan is administered on a
national basis in which case the Administrator may establish a
uniform reasonable rate of interest applicable to all regions.
All loans shall by their terms require that repayment
(principal and interest) be amortized in level payments, not less
than quarterly, over a period not extending beyond five years from
the date of the loan unless such loan is for the purchase of a
Participant's primary residence, in which case the repayment period
may not extend beyond ten years from the date of the loan. A
Participant may prepay the outstanding loan balance prior to
maturity without penalty.
(d) Security. Loans must be secured by the Participant's
Accounts not to exceed 50 percent of the Participant's vested
Account. A Participant must obtain the consent of his or her
spouse, if any, to use a Participant Account as security for the
loan, if the provisions of Section 8.03 apply to the Participant.
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
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or notary public. Such consent shall thereafter be binding with
respect to the consenting spouse or any subsequent spouse with
respect to that loan.
(e) Default. The Administrator shall treat a loan in default if
(1) any scheduled repayment remains unpaid more than 90 days
or
(2) there is an outstanding principal balance existing on a
loan after the last scheduled repayment date.
Upon default or termination of employment, the entire
outstanding principal and accrued interest shall be immediately
due and payable. If a distributable event (as defined by the
Code) has occurred, the Administrator shall direct the Trustee
to foreclose on the promissory note and offset the Participant's
vested Account by the outstanding balance of the loan. If a
distributable event has not occurred, the Administrator shall
direct the Trustee to foreclose on the promissory note and
offset the Participant's vested Account as soon as a
distributable event occurs.
(f) Pre-existing loans. The provision in paragraph (a) of
this Section 7.09 limiting a Participant to one outstanding loan
shall not apply to loans made before the Employer adopted this
prototype plan document. A Participant may not apply for a new
loan until all outstanding loans made before the Employer
adopted this prototype plan have been paid in full. The Trustee
may accept any loans made before the Employer adopted this
prototype plan document except such loans which require the
Trustee to hold as security for the loan property other than the
Participant's vested Account.
As of the effective date of amendment of this Plan in
Section 1.01(g)(2), the Trustee shall have the right to
reamortize the outstanding principal balance of any Participant loan
that is delinquent. Such reamortization shall be based upon the
remaining life of the loan and the original maturity date may
not be extended.
Notwithstanding any other provision of this Plan, the portion of
the Participant's vested Account used as a security interest held by
the plan by reason of a loan outstanding to the Participant shall be
taken into account for purposes of determining the amount of the
Account payable at the time of death or distribution, but only if
the reduction is used as repayment of the loan. If less than 100%
of the Participant's vested Account (determined without regard to
the preceding sentence) is payable to the surviving spouse, then the
Account shall be adjusted by first reducing the vested Account by
the amount of the security used as repayment of the loan, and then
determining the benefit payable to the surviving spouse.
No loan to any Participant or Beneficiary can be made to the
extent that such loan when added to the outstanding balance of all
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other loans to the Participant or Beneficiary would exceed the
lesser of (1) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans during the one-year period ending on
the day before the loan is made over the outstanding balance of
loans from the plan on the date the loan is made or (2) one-half the
present value of the nonforfeitable Account of the Participant. For
the purpose of the above limitation, all loans from all plans of the
Employer and Related Employers are aggregated.
7.10. IN-SERVICE/HARDSHIP WITHDRAWALS. Subject to the provisions of Article
8, a Participant shall not be permitted to withdraw any Employer or Employee
Contributions (and earnings thereon) prior to retirement or termination of
employment, except as follows:
(a) AGE 59 1/2. If permitted under Section 1.11(b), a Participant
who has attained the age of 59 1/2 is permitted to withdraw upon request all or
any portion of the Accounts specified by the Employer in 1.11(b).
(b) HARDSHIP. If permitted under Section 1.10, a Participant may
apply to the Administrator to withdraw some or all of his Deferral
Contributions (and earnings thereon accrued as of December 31, 1988) and, if
applicable, Rollover Contributions and such other amounts allowed by a
predecessor plan, if such withdrawal is made on account of a hardship. For
purposes of this Section, a distribution is made on account of hardship if made
on account of an immediate and heavy financial need of the Employee where such
Employee lacks other available resources. Determinations with respect to
hardship shall be made by the Administrator and shall be conclusive for
purposes of the Plan, and shall be based on the following special rules:
(1) The following are the only financial needs considered immediate
and heavy: expenses incurred or necessary for medical care (within
the meaning of Section 213(d) of the Code) of the Employee, the
Employee's spouse, children, or dependents; the purchase (excluding
mortgage payments) of a principal residence for the Employee; payment
of tuition and related educational fees for the next twelve (12)
months of post-secondary education for the Employee, the Employee's
spouse, children or dependents; or the need to prevent the eviction
of the Employee from, or a foreclosure on the mortgage of, the
Employee's principal residence.
(2) A distribution will be considered as necessary to satisfy an
immediate and heavy financial need of the Employee only if:
(i) The Employee has obtained all distributions,
other than the hardship distributions, and all nontaxable
(at the time of the loan) loans currently available under all
plans maintained by the Employer;
(ii) The Employee suspends Deferral Contributions and
Employee Contributions to the Plan for the 12-month period
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following the date of his hardship distribution. The suspension
must also apply to all elective contributions and Employee
Contributions to all other qualified plans and non-qualified
plans maintained by the Employer, other than any mandatory
employer contribution portion of a defined benefit plan,
including stock option, stock purchase and other similar plans,
but not including health and welfare benefit plans (other than
the cash or deferred arrangement portion of a cafeteria plan);
(iii) 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
(iv) The Employee agrees to limit Deferral
Contributions (elective contributions)to the Plan and any other
qualified plan maintained by the Employer for the Employee's
taxable year immediately following the taxable year of the
hardship distribution to the applicable limit under Section
402(g) of the Code for such taxable year less the amount of such
Employee's Deferral Contributions for the taxable year of the
hardship distribution.
(3) A Participant must obtain the consent of his or her spouse,
if any, to obtain a hardship withdrawal, if the provisions of Section
8.03 apply to the Participant.
(c) EMPLOYEE CONTRIBUTIONS. A Participant may elect to withdraw, in
cash, up to one hundred percent of the amount then credited to his
Employee Contribution Account. Such withdrawals shall be limited to one
(1) per Plan Year unless this prototype plan document is an amendment of
a prior plan document, in which case the rules and restrictions
governing Employee Contribution withdrawals, if any, are incorporated
herein by reference.
7.11. PRIOR PLAN IN-SERVICE DISTRIBUTION RULES. If designated by the Employer
in Section 1.11(b), a Participant shall be entitled to withdraw at anytime
prior to his termination of employment, subject to the provisions of Article 8
and the prior plan, any vested Employer Contributions maintained in a
Participant's Account for the specified period of time.
ARTICLE 8. DISTRIBUTION OF BENEFITS PAYABLE AFTER TERMINATION OF SERVICE.
8.01. DISTRIBUTION OF BENEFITS TO PARTICIPANTS AND BENEFICIARIES.
(a) Distributions from the Trust to a Participant or to the
Beneficiary of the Participant shall be made in a lump sum in cash or,
if elected by the Employer in Section 1.11, under a systematic
withdrawal plan (installment(s)) upon retirement, death,
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disability, or other termination of employment, unless another form
of distribution is required or permitted in accordance with
paragraph (d) of this Section 8.01 or Sections 1.11(c), 8.02, 8.03,
8.04 or 11.02. A distribution may be made in Fund Shares, at the
election of the Participant, pursuant to the qualifying rollover of
such distribution to a Fidelity Investments individual retirement
account.
(b) Distributions under a systematic withdrawal plan must be made in
substantially equal annual, or more frequent, installments, in cash,
over a period certain which does not extend beyond the life
expectancy of the Participant or the joint life expectancies of the
Participant and his Beneficiary, or, if the Participant dies prior
to the commencement of his benefits the life expectancy of the
Participant's Beneficiary, as further described in Section 8.04.
(c) Notwithstanding the provisions of Section 8.01(b) above, if a
Participant's Account is, and at the time of any prior
distribution(s) was, $3,500 or less, the balance of such Account
shall be distributed in a lump sum as soon as practicable following
retirement, disability, death or other termination of employment.
(d) This paragraph (d) applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under
this Article 8, a distributee may elect, at the time and in the
manner prescribed by the 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.
The following definitions shall apply for purposes of this paragraph
(d):
(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 Section 401(a)(9) of the Code;
and the portion of any distribution that is not includable 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 Section 408(a) of the
Code, an individual retirement annuity described in Section
408(b) of the Code, an annuity plan described in Section 403(a)
of the Code, or a qualified trust described in Section 401(a) of
the Code, that accepts the distributee's eligible rollover
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distribution. However, in the case of an eligible rollover
distribution to a 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 Section 414(p) of the
Code, 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.
8.02. ANNUITY DISTRIBUTIONS. If so provided in Section 1.11(c), a Participant
may elect distributions made in whole or in part in the form of an annuity
contract subject to the provisions of Section 8.03.
(a) An annuity contract distributed under the Plan must be purchased
from an insurance company and must be nontransferable. The terms of
an annuity contract shall comply with the requirements of the Plan
and distributions under such contract shall be made in accordance
with Section 401(a)(9) of the Code and the regulations thereunder.
(b) The payment period of an annuity contract distributed to the
Participant pursuant to this Section may be as long as the
Participant lives. If the annuity is payable to the Participant and
his spouse or designated Beneficiary, the payment period of an
annuity contract may be for as long as either the Participant or his
spouse or designated Beneficiary lives. Such an annuity may provide
for an annuity certain feature for a period not exceeding the life
expectancy of the Participant. If the annuity is payable to the
Participant and his spouse such period may not exceed the joint life
and last survivor expectancy of the Participant and his spouse, or,
if the annuity is payable to the Participant and a designated
Beneficiary, the joint life and last survivor expectancy of the
Participant and such Beneficiary. If the Participant dies prior to
the commencement of his benefits, the payment period of an annuity
contract distributed to the Beneficiary of the Participant may be as
long as the Participant's Beneficiary lives, and may provide for an
annuity certain feature for a period not exceeding the life
expectancy of the Beneficiary. Any annuity contract distributed
under the Plan must provide for nonincreasing payments.
8.03. JOINT AND SURVIVOR ANNUITIES/PRERETIREMENT SURVIVOR ANNUITIES.
(a) Application. The provisions of this Section supersede any
conflicting provisions of the Plan; however, paragraph (b) of this
Section shall not apply if the Participant's Account does not exceed
or at the time of any prior distribution did not exceed
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$3,500. A Participant is described in this Section only if (i) the
Participant has elected distribution of his Account in the form of
an Annuity Contract in accordance with Section 8.02, or (ii) the
Trustee has directly or indirectly received a transfer of assets
from another plan (including a predecessor plan) to which Section
401(a)(11) of the Code applies with respect to such Participant.
(b) Retirement Annuity. Unless the Participant elects to waive
the application of this subsection in a manner satisfying the
requirements of subsection (d) below, to the extent applicable to
the Participant, within the 90-day period preceding his Annuity
Starting Date (which election may be revoked, and if revoked,
remade, at any time in such period), the vested Account due any
Participant to whom this subsection (b) applies will be paid to him
by the purchase and delivery to him of an annuity contract described
in Section 8.02 providing a life annuity only form of benefit or, if
the Participant is married as of his Annuity Starting Date,
providing an immediate annuity for the life of the Participant with
a survivor annuity for the life of the Participant's spouse
(determined as of the date of distribution of the contract) which is
50 percent of the amount of the annuity which is payable during the
joint lives of the Participant and such spouse. The Participant may
elect to receive distribution of his benefits in the form of such
annuity as of the earliest date on which he could elect to receive
retirement benefits under the Plan. Within the period beginning 90
days prior to the Participant's Annuity Starting Date and ending 30
days prior to such Date, the Administrator will provide such
Participant with a written explanation of (1) the terms and
conditions of the annuity contract described herein, (2) the
Participant's to make, and the effect of, an election to waive
application of this subsection, (3) the rights of the Participant's
spouse under subsection (d), and (4) the right to revoke and the
period of time necessary to revoke the election to waive application
of this subsection.
(c) Annuity Death Benefit. Unless the Participant elects to
waive the application of this subsection in a manner satisfying the
requirements of subsection (d) below at any time within the
applicable election period (which election may be revoked, and if
revoked, remade, at any time in such period), if a married
Participant to whom this Section applies dies before his Annuity
Starting Date, then notwithstanding any designation of a Beneficiary
to the contrary, 50 percent of his vested Account will be applied to
purchase an annuity contract described in Section 8.02 providing an
annuity for the life of the Participant's surviving spouse, which
contract will then be promptly distributed to such spouse. In lieu
of the purchase of such an annuity contract, the spouse may elect in
writing to receive distributions under the Plan as if he or she had
been designated by the Participant as his Beneficiary with respect
to 50 percent of his Account. For purposes of this subsection, the
applicable election period will commence on the first day of the
Plan Year in which the Participant attains age 35 and will end on
the date of the
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Participant's death, provided that in the case of a Participant who
terminates his employment the applicable election period with
respect to benefits accrued prior to the date of such termination
will in no event commence later than the date of his termination of
employment. A Participant may elect to waive the application of
this subsection prior to the Plan Year in which he attains age 35,
provided that any such waiver will cease to be effective as of the
first day of the Plan Year in which the Participant attains age 35.
The Administrator will provide a Participant to whom this
subsection applies with a written explanation with respect to the
annuity death benefit described in this subsection (c) comparable to
that required under subsection (b) above. Such explanation shall be
furnished within whichever of the following periods ends last: (1)
the period beginning with the first day of the Plan Year in which
the Participant reaches age 32 and ending with the end of the Plan
Year preceding the Plan Year in which he reaches age 35, (2) a
reasonable period ending after the Employee becomes a Participant,
(3) a reasonable period ending after this Section 8.04 first becomes
applicable to the Participant in accordance with Section 8.04(a),
(4) in the case of a Participant who separates from service before
age 35, a reasonable period of time ending after separation from
service. For purposes of the preceding sentence, the two-year
period beginning one year prior to the date of the event described
in clause (2), (3) or (4), whichever is applicable, and ending one
year after such date shall be considered reasonable, provided, that
in the case of a Participant who separates from service under (4)
above and subsequently recommences employment with the Employer, the
applicable period for such Participant shall be redetermined in
accordance with this subsection.
(d) Requirements of Elections. This subsection will be satisfied
with respect to a waiver or designation which is required to satisfy
this subsection if such waiver or designation is in writing and
either
(1) the Participant's spouse consents thereto in writing, which
consent must acknowledge the effect of such waiver or
designation and be witnessed by a notary public or Plan
representative, or
(2) the Participant establishes to the satisfaction of the
Administrator that the consent of the Participant's spouse
cannot be obtained because there is no spouse, because the
spouse cannot be located, or because of such other circumstances
as the Secretary of Treasury may prescribe.
Any consent by a spouse, or establishment that the consent of
a spouse may not be obtained, will be effective only with
respect to a specific Beneficiary (including any class of
Beneficiaries or any contingent Beneficiaries) or form of
benefits identified in the Participant's waiver or
designation, unless the consent of the
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by the Participant without any requirement of further consent by
the spouse. A consent which permits such designations by the
Participant shall acknowledge that the spouse has the right to
limit consent to a specific Beneficiary and form of benefits and
that the spouse voluntarily elects to relinquish both such
rights. A consent by a spouse shall be irrevocable once made.
Any such consent, or establishment that such consent may not
be obtained, will be effective only with respect to such spouse.
For purposes of subsections (b) and (c) above, no consent of a
spouse shall be valid unless the notice required by whichever
subsection is applicable has been provided to the Participant.
(e) Former Spouse. For purposes of this Section 8.03, a former
spouse of a Participant will be treated as the spouse or surviving
spouse of the Participant, and a current spouse will not be so
treated, to the extent required under a qualified domestic relations
order, as defined in Section 414(p) of the Code.
(f) Vested Account Balance. For purposes of this Section, vested
Account shall include the aggregate value of the Participant's
vested Account derived from Employer and Employee Contributions
(including rollovers), whether vested before or upon death. The
provisions of this Section shall apply to a Participant who is
vested in amounts attributable to Employer contributions, Employee
Contributions, or both, upon death or at the time of distribution.
8.04 INSTALLMENT DISTRIBUTIONS. This Section shall be interpreted and applied
in accordance with the regulations under Section 401(a)(9) of the Code,
including the minimum distribution incidental benefit requirement of Section
1.401(a)(9)- 2 of the Proposed Treasury Regulations, or any successor
regulations of similar import.
(a) In General. If a Participant's benefit may be distributed in
accordance with Section 8.01(b), the amount to be distributed for
each calendar year for which a minimum distribution is required
shall be at least an amount equal to the quotient obtained by
dividing the Participant's interest in his Account by the life
expectancy of the Participant or Beneficiary or the joint life and
last survivor expectancy of the Participant and his Beneficiary,
whichever is applicable. For calendar years beginning before
January 1, 1989, if a Participant's Beneficiary is not his spouse,
the method of distribution selected must insure that at least 50
percent of the present value of the amount available for
distribution is paid within the life expectancy of the Participant.
For calendar years beginning after December 31, 1988, the amount to
be distributed for each calendar year shall not be less than an
amount equal to the quotient obtained by dividing the Participant's
interest in his Account by the lesser of (1) the applicable life
expectancy under Section 8.01(b), or (2) if a Participant's
Beneficiary is not his spouse, the applicable divisor determined
under Section 1.401(a)(9)-2, Q&A 4 of the Proposed Treasury
Regulations, or any successor regulations of similar import.
Distributions after the death of the Participant shall be made
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using the applicable life expectancy under (1) above, without regard
to Section 1.401(a)(9)-2 of such regulations.
The minimum distribution required under this subsection
(a) for the calendar year immediately preceding the calendar year in
which the Participant's required beginning date, as determined under
Section 8.08(b), occurs shall be made on or before the Participant's
required beginning date, as so determined. Minimum distributions
for other calendar years shall be made on or before the close of
such calendar year.
(b) Additional Requirements for Distributions After Death of
Participant.
(1) Distribution beginning before Death. If the Participant
dies before distribution of his benefits has begun,
distributions shall be made in accordance with the provisions of
this paragraph. Distributions under Section 8.01(a) shall be
completed by the close of the calendar year in which the fifth
anniversary of the death of the Participant occurs.
Distributions under Section 8.01(b) shall commence, if the
Beneficiary is not the Participant's spouse, not later than the
close of the calendar year immediately following the calendar
year in which the death of the Participant occurs.
Distributions under Section 8.01(b) to a Beneficiary who is the
Participant's surviving spouse shall commence not later than the
close of the calendar year in which the Participant would have
attained age 70 1/2 or, if later, the close of the calendar year
immediately following the calendar year in which the death of
the Participant occurs. In the event such spouse dies prior to
the date distribution to him or her commences, he or she will be
treated for purposes of this subsection (other than the
preceding sentence) as if he or she were the Participant. If
the Participant has not designated a Beneficiary, or the
Participant or Beneficiary has not effectively selected a method
of distribution, distribution of the Participant's benefit shall
be completed by the close of the calendar year in which the
fifth anniversary of the death of the Participant occurs.
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.
For purposes of this subsection (b)(1), the life expectancy of a
Beneficiary who is the Participant's surviving spouse shall be
recalculated annually unless the Participant's spouse
irrevocably elects otherwise prior to the time distributions are
required to begin. Life expectancy shall be computed in
accordance with the provisions of subsection (a) above.
(2) Distribution beginning after Death. If the Participant dies
after distribution of his benefits has begun, distributions to
the Participant's Beneficiary will be made at least as
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rapidly as under the method of distribution being used as of the
date of the Participant's death.
For purposes of this Section 8.04(b), distribution of a
Participant's interest in his Account will be considered to begin as
of the Participant's required beginning date, as determined under
Section 8.08(b). If distribution in the form of an annuity
irrevocably commences prior to such date, distribution will be
considered to begin as of the actual date distribution commences.
(c) Life Expectancy. For purposes of this Section, life expectancy
shall be recalculated annually in the case of the Participant or a
Beneficiary who is the Participant's spouse unless the Participant
or Beneficiary irrevocably elects otherwise prior to the time
distributions are required to begin. If not recalculated in
accordance with the foregoing, life expectancy shall be calculated
using the attained age of the Participant or Beneficiary, whichever
is applicable, as of such individual's birth date in the first year
for which a minimum distribution is required reduced by one for each
elapsed calendar year since the date life expectancy was first
calculated. For purposes of this Section, life expectancy and joint
life and last survivor expectancy shall be computed by use of the
expected return multiples in Table V and VI of section 1.72-9 of the
income tax Regulations.
A Participant's interest in his Account for purposes of this
Section 8.04 shall be determined as of the last valuation date in
the calendar year immediately preceding the calendar year for which
a minimum distribution is required, increased by the amount of any
contributions allocated to, and decreased by any distributions from,
such Account after the valuation date. Any distribution for the
first year for which a minimum distribution is required made after
the close of such year shall be treated as if made prior to the
close of such year.
8.05. IMMEDIATE DISTRIBUTIONS. If the Account distributable to a Participant
exceeds, or at the time of any prior distribution exceeded, $3,500, no
distribution will be made to the Participant before he reaches his Normal
Retirement Age (or age 62, if later), unless the written consent of the
Participant has been obtained. Such consent shall be made in writing within
the 90-day period ending on the Participant's Annuity Starting Date. Within
the period beginning 90 days before the Participant's Annuity Starting Date and
ending 30 days before such Date, the Administrator will provide such
Participant with written notice comparable to the notice described in Section
8.03(b) containing a general description of the material features and an
explanation of the relative values of the optional forms of benefit available
under the Plan and informing the Participant of his right to defer receipt of
the distribution until his Normal Retirement Age (or age 62, if later).
The consent of the Participant's spouse must also be obtained if the
Participant is subject to the provisions of Section 8.03(a), unless the
distribution will be made in the form of the applicable retirement
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annuity contract described in Section 8.03(b). A spouse's consent to early
distribution, if required, must satisfy the requirements of Section 8.03(d).
Neither the consent of the Participant nor the Participant's spouse shall
be required to the extent that a distribution is required to satisfy Section
401(a)(9) or Section 415 of the Code. In addition, upon termination of the Plan
if it does not offer an annuity option (purchased from a commercial provider)
and if the Employer or any Related 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 will, without the
Participant's consent, be distributed to the Participant. However, if any
Related Employer maintains another defined contribution plan (other than an
employee stock ownership plan as defined in Section 4975(e)(7) of the Code)
then the Participant's Account will be transferred, without the Participant's
consent, to the other plan if the Participant does not consent to an immediate
distribution.
8.06. DETERMINATION OF METHOD OF DISTRIBUTION. The Participant will determine
the method of distribution of benefits to himself and may determine the method
of distribution to his Beneficiary. Such determination will be made prior to
the time benefits become payable under the Plan. If the Participant does not
determine the method of distribution to his Beneficiary or if the Participant
permits his Beneficiary to override his determination, the Beneficiary, in the
event of the Participant's death, will determine the method of distribution of
benefits to himself as if he were the Participant. A determination by the
Beneficiary must be made no later than the close of the calendar year in which
distribution would be required to begin under Section 8.04(b) or, if earlier,
the close of the calendar year in which the fifth anniversary of the death of
the Participant occurs.
8.07. NOTICE TO TRUSTEE. The Administrator will notify the Trustee in writing
whenever any Participant or Beneficiary is entitled to receive benefits under
the Plan. The Administrator's notice shall indicate the form of benefits that
such Participant or Beneficiary shall receive and (in the case of distributions
to a Participant) the name of any designated Beneficiary or Beneficiaries.
8.08. TIME OF DISTRIBUTION. In no event will distribution to a Participant be
made latest than the earlier of the dates described in (a) and (b) below:
(a) Absent the consent of the Participant (and his spouse, if
appropriate), the 60th day after the close of the Plan Year in which
occurs the later of the date on which the Participant attains age
65, the date on which the Participant ceases to be employed by the
Employer, or the 10th anniversary of the year in which the
Participant commenced participation in the Plan; and
(b) April 1 of the calendar year first following the calendar year
in which the Participant attains age 70 1/2 or, in the case of a
Participant who had attained age 70 1/2 before January 1, 1988,
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the required beginning date determined in accordance with (1) or (2)
below:
(1) 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.
(2) 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.
Notwithstanding the foregoing, in the case of a Participant who attained
age 70 1/2 during 1988 and who had not retired prior to January 1, 1989, the
required beginning date described in this paragraph shall be April 1, 1990.
Notwithstanding (a) above, the failure of a Participant (and spouse) to
consent to a distribution while a benefit is immediately distributable, within
the meaning of Section 8.05, shall be deemed to be an election to defer
commencement of payment of any benefit sufficient to satisfy (a) above.
Once distributions have begun to a 5-percent owner under (b) above, they
must continue to be distributed, even if the Participant ceases to be a
5-percent owner in a subsequent year.
For purposes of (b) above, a Participant is treated as a 5-percent owner
if such Participant is a 5-percent owner as defined in Section 416(i) of the
Code (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.
The Administrator shall notify the Trustee in writing whenever a
distribution is necessary in order to comply with the minimum distribution
rules set forth in this Section.
8.09. WHEREABOUTS OF PARTICIPANTS AND BENEFICIARIES. The Administrator will
at all times be responsible for determining the whereabouts of each Participant
or Beneficiary who may be entitled to benefits under the Plan and will at all
times be responsible for instructing the Trustee in writing as to the current
address of each such Participant or Beneficiary. The Trustee will be entitled
to rely on the latest written statement received from the Administrator as to
such addresses. The Trustee will be under no duty to make any distributions
under the Plan
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unless and until it has received written instructions from the Administrator
satisfactory to the Trustee containing the name and address of the distributee,
the time when the distribution is to occur, and the form which the distribution
will take. Notwithstanding the foregoing, if the Trustee attempts to make a
distribution in accordance with the Administrator's instructions but is unable
to make such distribution because the whereabouts of the distributee is
unknown, the Trustee will notify the Administrator of such situation and
thereafter the Trustee will be under no duty to make any further distributions
to such distributee until it receives further written instructions from the
Administrator. If a benefit is forfeited because the Administrator determines
that the Participant or Beneficiary cannot be found, such benefit will be
reinstated by the Sponsor if a claim is filed by the Participant or Beneficiary
with the Administrator and the Administrator confirms the claim to the Sponsor.
ARTICLE 9. TOP-HEAVY PROVISIONS.
9.01 APPLICATION. If the Plan is or becomes a Top-Heavy Plan in any Plan Year
or is automatically deemed to be Top- Heavy in accordance with the Employer's
election in Section 1.12(a)(1) of the Adoption Agreement, the provisions of
this Article 9 shall supersede any conflicting provision in the Plan.
9.02 DEFINITIONS. For purposes of this Article 9, the following terms have
the meanings set forth below:
(a) Key Employee. Any Employee or former Employee (and the Beneficiary of
any such Employee) who at any time during the determination period was (1)
an officer of the Employer whose annual Compensation exceeds 50 percent of
the dollar limitation under Section 415(b)(1)(A) of the Code, (2) an owner
(or considered an owner under Section 318 of the Code) of one of the ten
largest interests in the Employer if such individual's annual Compensation
exceeds the dollar limitation under Section 415(c)(1)(A) of the Code, (3)
a 5-percent owner of the Employer, or (4) a 1-percent owner of the
Employer who has annual Compensation of more than $150,000. For purposes
of this paragraph, the determination period is the Plan Year containing
the Determination Date and the four preceding Plan Years. The
determination of who is a Key Employee shall be made in accordance with
Section 416(i)(1) of the Code and the regulations thereunder. Annual
Compensation means compensation as defined in Section 5.03(e)(2), but
including amounts contributed by the Employer pursuant to a salary
reduction agreement which are excludable from the employee's gross income
under Section 125, Section 402(a)(8), and Section 403(b) of the Code.
(b) Top-Heavy Plan. The Plan is a Top-Heavy Plan if any of the
following conditions exists:
(1) the Top-Heavy Ratio for the Plan exceeds 60 percent and the
Plan is not part of any Required Aggregation Group or Permissive
Aggregation Group,
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(2) the Plan is a part of a Required Aggregation Group but not
part of a Permissive Aggregation Group and the Top-Heavy Ratio for
the Required Aggregation Group exceeds 60 percent, or
(3) the Plan is a part of a Required Aggregation Group and a
Permissive Aggregation Group and the Top- Heavy Ratio for both
Groups exceeds 60 percent.
(c) Top-Heavy Ratio.
(1) With respect to this Plan, or with respect to any Required
Aggregation Group or Permissive Aggregation Group that consists
solely of defined contribution plans (including any simplified
employee pension plans) 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 is a fraction, the numerator of which is the sum of the
account balances of all Key Employees under the plans as of the
Determination Date (including any part of any account balance
distributed in the 5-year period ending on the Determination Date),
and the denominator of which is the sum of all account balances
(including any part of any account balance distributed in the 5-year
period ending on the Determination Date) of all participants under
the plans as of the Determination Date. Both the numerator and
denominator of the Top-Heavy Ratio shall be increased, to the extent
required by Section 416 of the Code, to reflect any contribution
which is due but unpaid as of the Determination Date.
(2) With respect to any Required Aggregation Group or Permissive
Aggregation Group that includes one or more defined benefit plans
which, during the 5-year period ending on the Determination Date,
has covered or could cover a Participant in this Plan, the Top-Heavy
Ratio is a fraction, the numerator of which is the sum of the
account balances under the defined contribution plans for all Key
Employees and the present value of accrued benefits under the
defined benefit plans for all Key Employees, and the denominator of
which is the sum of the account balances under the defined
contribution plans for all participants and the present value of
accrued benefits under the defined benefit plans for all
participants. Both the numerator and denominator of the Top-Heavy
Ratio shall be increased for any distribution of an account balance
or an accrued benefit made in the 5-year period ending on the
Determination Date and any contribution due but unpaid as of the
Determination Date.
(3) For purposes of (1) and (2) above, the value of Accounts 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
Section 416 of the Code and the regulations thereunder for the first
and second plan years of a defined benefit plan. The Account and
accrued benefits of a Participant
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(A) who is not a Key Employee but who was a Key Employee in a prior
year, or (B) who has not been credited with at least one Hour of
Service with the Employer 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,
shall be made in accordance with Section 416 of the Code and the
regulations thereunder. Deductible employee contributions shall not
be taken into account for purposes of computing the Top-Heavy Ratio.
When aggregating plans, the value of Accounts and accrued benefits
shall be calculated with reference to the Determination Dates that
fall within the same calendar year.
For purposes of determining if the Plan, or any other plan
included in a Required Aggregation Group of which this Plan is a
part, is a Top-Heavy Plan, the accrued benefit in a defined benefit
plan of an Employee other than a Key Employee shall be determined
under (i) the method, if any, that uniformly applies for accrual
purposes under all plans maintained by the Employer, or (ii) if
there is no such method, as if such benefit accrued not more rapidly
than the slowest accrual rate permitted under the fractional accrual
rate of Section 411(b)(1)(C) of the Code.
(d) Permissive Aggregation Group. The Required Aggregation Group plus any
other qualified plans of the Employer or a Related Employer which,
when considered as a group with the Required Aggregation Group, would
continue to satisfy the requirements of Sections 401(a)(4) and 410 of the
Code.
(e) Required Aggregation Group.
(1) Each qualified plan of the Employer or Related Employer in which
at least one Key Employee participates, or has participated at
any time during the determination period (regardless of whether the
plan has terminated), and
(2) any other qualified plan of the Employer or Related Employer
which enables a plan described in (1) above to meet the requirements
of Sections 401(a)(4) or 410 of the Code.
(f) Determination Date. For any Plan Year of the Plan 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 Plan Year.
(g) Valuation Date. The Determination Date.
(h) Present Value. Present value shall be based only on the
interest rate and mortality table specified in the Adoption
Agreement.
9.03. MINIMUM CONTRIBUTION.
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(a) Except as otherwise provided in (b) and (c) below, the
Fixed/Discretionary Contributions made on behalf of any Participant
who is not a Key Employee shall not be less than the lesser of 3
percent (or such other percent elected by the Employer in Section
1.12(c)) of such Participant's Compensation or, in the case where
the Employer has no defined benefit plan which designates this Plan
to satisfy Section 401 of the Code, the largest percentage of
Employer contributions, as a percentage of the first $200,000 of the
Key Employee's Compensation, made on behalf of any Key Employee for
that year. If the Employer selected the Integrated Formula in
Section 1.05(a)(2), the minimum contribution shall be determined
under paragraph (e) of this Section 9.03. Further, the minimum
contribution under this Section 9.03 shall be made even though,
under other Plan provisions, the Participant would not otherwise be
entitled to receive a contribution, or would have received a lesser
contribution for the year, because (1) the Participant failed to
complete 1,000 Hours of Service or any equivalent service
requirement provided in the Adoption Agreement; or (2) the
Participant's Compensation was less than a stated amount.
(b) The provisions of (a) above shall not apply to any Participant
who was not employed by the Employer on the last day of the Plan
Year.
(c) The Employer contributions for the Plan Year made on behalf of
each Participant who is not a Key Employee and who is a participant
in a defined benefit plan maintained by the Employer shall not be
less than 5 percent of such Participant's Compensation, unless the
Employer has provided in Section 1.12(c) that the minimum
contribution requirement will be met in the other plan or plans of
the Employer.
(d) The minimum contribution required under (a) above (to the extent
required to be nonforfeitable under Section 416(b) of the Code) may
not be forfeited under Section 411(a)(3)(B) or 411(a)(3)(D) of the
Code.
(e) If the Employer elected an Integrated Formula in Section
1.05(a)(2), the allocation steps in Section 4.06(b)(2) shall be
preceded by the following steps:
(1) The Discretionary Employer Contributions will be
allocated to each eligible Participant (as determined under
this Section 9.03) in the ratio that the Participant's
Compensation bears to all Participants' Compensation, but not in
excess of 3%(or such other percent elected by the Employer in
Section 1.12(c).
(2) Any Discretionary Employer Contributions remaining
after (e)(1) above will be allocated to each eligible
Participant in the ratio that the Participant's Excess
Compensation for the Plan Year bears to the Excess Compensation
of all eligible Participants, but not in excess of 3%(or such
other percent elected by the Employer in Section 1.12(c)).
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9.04. ADJUSTMENT TO THE LIMITATION ON CONTRIBUTIONS AND BENEFITS. If this
Plan is in Top-Heavy status, the number 100 shall be substituted for the number
125 in subsections (e)(3) and (e)(4) of Section 5.03. However, this
substitution shall not take effect with respect to this Plan in any Plan Year
in which the following requirements are satisfied:
(a) The Employer contributions for such Plan Year made on behalf of
each Participant who is not a Key Employee and who is a participant
in a defined benefit plan maintained by the Employer is not less
than 7 1/2 percent of such Participant's Compensation.
(b) The sum of the present value as of the Determination Date of (1)
the aggregate accounts of all Key Employees under all defined
contribution plans of the Employer and (2) the cumulative accrued
benefits of all Key Employees under all defined benefit plans of the
Employer does not exceed 90 percent of the same amounts determined
for all Participants under all plans of the Employer that are
Top-Heavy Plans, excluding Accounts and accrued benefits for
Employees who formerly were but are no longer Key Employees.
The substitutions of the number 100 for 125 shall not take
effect in any Limitation Year with respect to any Participant for
whom no benefits are accrued or contributions made for such Year.
9.05. MINIMUM VESTING. For any Plan Year in which the Plan is a Top-Heavy
Plan and all Plan Years thereafter, the Top- Heavy vesting schedule elected in
Section 1.12(d) will automatically apply to the Plan. The Top-Heavy vesting
schedule applies to all benefits within the meaning of Section 411(a)(7) of the
Code except those attributable to Employee Contributions or those already
subject to a vesting schedule which vests at least as rapidly in all cases as
the schedule elected in Section 1.12(d), including benefits accrued before the
Plan becomes a Top-Heavy Plan. Further, no decrease in a Participant's
nonforfeitable percentage may occur in the event the Plan's status as a
Top-Heavy Plan changes for any Plan Year. However, this Section 9.05 does not
apply to the Account of any Employee who does not have an Hour of Service after
the Plan has initially become a Top-Heavy Plan and such Employee's Account
attributable to Employer Contributions will be determined without regard to
this Section 9.05.
ARTICLE 10. AMENDMENT AND TERMINATION.
10.01 AMENDMENT BY EMPLOYER. The Employer reserves the authority, subject to
the provisions of Article 1 and Section 10.03, to amend the Plan:
(a) Changes to Elections Contained in the Adoption Agreement. By
filing with the Trustee an amended Adoption Agreement, executed by
the Employer only, on which said Employer has indicated a change or
changes in provisions previously elected by it. Such changes are to
be effective on the effective date of such amended Adoption
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Agreement except that retroactive changes to a previous election or
elections pursuant to the regulations issued under Section 401(a)(4)
of the Code shall be permitted. Any such change notwithstanding, no
Participant's Account shall be reduced by such change below the
amount to which the Participant would have been entitled if he had
voluntarily left the employ of the Employer immediately prior to the
date of the change. The Employer may from time to time make any
amendment to the Plan that may be necessary to satisfy Sections 415
or 416 of the Code because of the required aggregation of multiple
plans by completing overridingplan language in the Adoption
Agreement. The Employer may also add certain model amendments
published by the Internal Revenue Service which specifically provide
that their adoption will not cause the Plan to be treated as an
individually designed plan; or
(b) Other Changes. By amending any provision of the Plan for any
reason other than those specified in (a) above. However, upon
making such amendment, including a waiver of the minimum funding
requirement under Section 412(d) of the Code, the Employer may no
longer participate in this prototype plan arrangement and will be
deemed to have an individually designed plan. Following such
amendment, the Trustee may transfer the assets of the Trust to the
trust forming part of such newly adopted plan upon receipt of
sufficient evidence (such as a determination letter or opinion
letter from the Internal Revenue Service or an opinion of counsel
satisfactory to the Trustee) that such trust will be a qualified
trust under the Code.
10.02. AMENDMENT BY PROTOTYPE SPONSOR. The Prototype Sponsor may in its
discretion amend the Plan or the Adoption Agreement at any time, subject to the
provisions of Article 1 and Section 10.03, and provided that the Prototype
Sponsor mails a copy of such amendment to the Employer at its last known
address as shown on the books of the Prototype Sponsor.
10.03. AMENDMENTS AFFECTING VESTED AND/OR ACCRUED BENEFITS.
(a) Except as permitted by Section 10.04, no amendment to the Plan
shall be effective to the extent that it has the effect of
decreasing a Participant's Account or eliminating an optional form
of benefit with respect to benefits attributable to service before
the amendment. Furthermore, if the vesting schedule of the Plan is
amended, the nonforfeitable interest of a Participant in his
Account, determined as of the later of the date the amendment is
adopted or the date it becomes effective, will not be less than the
Participant's nonforfeitable interest in his Account determined
without regard to such amendment.
(b) If the Plan's vesting schedule is amended, including any
amendment resulting from a change to or from Top-Heavy Plan status,
or the Plan is amended in any way that directly or indirectly
affects the computation of a Participant's nonforfeitable interest
in his Account, each Participant with at least three (3) Years of
Service for Vesting with the Employer may elect, within a
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reasonable period after the adoption of the amendment, to have the
nonforfeitable percentage of his Account computed under the Plan
without regard to such amendment. The Participant's election may be
made within 60 days from the latest of (1) the date the amendment is
adopted, (2) the date the amendment becomes effective, or (3) the
date the Participant is issued written notice of the amendment by
the Employer or the Administrator.
10.04. RETROACTIVE AMENDMENTS. An amendment made by the Prototype Sponsor in
accordance with Section 10.02 may be made effective on a date prior to the
first day of the Plan Year in which it is adopted if such amendment is
necessary or appropriate to enable the Plan and Trust to satisfy the applicable
requirements of the Code or to conform the Plan to any change in federal law,
or to any regulations or ruling thereunder. Any retroactive amendment by the
Employer shall be subject to the provisions of Section 10.01.
10.05. TERMINATION. The Employer has adopted the Plan with the intention and
expectation that contributions will be continued indefinitely. However, said
Employer has no obligation or liability whatsoever to maintain the Plan for any
length of time and may discontinue contributions under the Plan or terminate
the Plan at any time by written notice delivered to the Trustee without any
liability hereunder for any such discontinuance or termination.
10.06. DISTRIBUTION UPON TERMINATION OF THE PLAN. Upon termination or partial
termination of the Plan or complete discontinuance of contributions thereunder,
each Participant (including a terminated Participant with respect to amounts
not previously forfeited by him) who is affected by such termination or partial
termination or discontinuance will have a fully vested interest in his Account,
and, subject to Section 4.05 and Article 8, the Trustee will distribute to each
Participant or other person entitled to distribution the balance of the
Participant's Account in a single lump sum payment. In the absence of such
instructions, the Trustee will notify the Administrator of such situation and
the Trustee will be under no duty to make any distributions under the Plan
until it receives written instructions from the Administrator. Upon the
completion of such distributions, the Trust will terminate, the Trustee will be
relieved from all liability under the Trust, and no Participant or other person
will have any claims thereunder, except as required by applicable law.
10.07. MERGER OR CONSOLIDATION OF PLAN; TRANSFER OF PLAN ASSETS. In case of
any merger or consolidation of the Plan with, or transfer of assets and
liabilities of the Plan to, any other plan, provision must be made so that each
Participant would, if the Plan then terminated, receive a benefit immediately
after the merger, consolidation or transfer which is equal to or greater than
the benefit he would have been entitled to receive immediately before the
merger, consolidation or transfer if the Plan had then terminated.
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ARTICLE 11. AMENDMENT AND CONTINUATION OF PREDECESSOR PLAN; TRANSFER OF
FUNDS TO OR FROM OTHER QUALIFIED PLANS.
11.01. AMENDMENT AND CONTINUATION OF PREDECESSOR PLAN. In the event the
Employer has previously established a plan (the "predecessor plan") which is a
defined contribution plan under the Code and which on the date of adoption of
the Plan meets the applicable requirements of section 401(a) of the Code, the
Employer may, in accordance with the provisions of the predecessor plan, amend
and continue the predecessor plan in the form of the Plan and become the
Employer hereunder, subject to the following:
(a) Subject to the provisions of the Plan, each individual who was a
Participant or former Participant in the predecessor plan
immediately prior to the effective date of such amendment and
continuation will become a Participant or former Participant in the
Plan;
(b) No election may be made under the vesting provisions of the
Adoption Agreement if such election would reduce the benefits of a
Participant under the Plan to less than the benefits to which he
would have been entitled if he voluntarily separated from the
service of the Employer immediately prior to such amendment and
continuation;
(c) No amendment to the Plan shall decrease a Participant's accrued
benefit or eliminate an optional form of benefit and if the
amendment of the predecessor plan in the form of the Plan results in
a change in the method of crediting service for vesting purposes
between the general method set forth in Section 2530.200b-2 of the
Department of Labor Regulations and the elapsed-time method in
Section 2.01(a)(33) of the Plan, each Participant with respect to
whom the method of crediting vesting service is changed shall be
treated in the manner set forth by the provisions of Section
1.410(a)-7(f)(1) of the Treasury Regulations which are incorporated
herein by reference;
(d) The amounts standing to the credit of a Participant's Account
immediately prior to such amendment and continuation which represent
the amounts properly attributable to (1) contributions by the
Participant and (2) contributions by the Employer and forfeitures
will constitute the opening balance of his Account or Accounts under
the Plan;
(e) Amounts being paid to a former Participant or to a Beneficiary
in accordance with the provisions of the predecessor plan will
continue to be paid in accordance with such provisions;
(f) Any election and waiver of the qualified pre-retirement annuity
in effect after August 23, 1984, under the predecessor plan
immediately before such amendment and continuation will be deemed a
valid election and waiver of Beneficiary under Section 8.04 if such
designation satisfies the requirements of Section 8.04(d), unless
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and until the Participant revokes such election and waiver
under the Plan; and
(g) Unless the Employer and the Trustee agree otherwise, all assets
of the predecessor trust will be deemed to be assets of the Trust as
of the effective date of such amendment. Such assets will be
invested by the Trustee as soon as reasonably practicable pursuant
to Article 6. The Employer agrees to assist the Trustee in any way
requested by the Trustee in order to facilitate the transfer of
assets from the predecessor trust to the Trust Fund.
11.02. TRANSFER OF FUNDS FROM AN EXISTING PLAN. The Employer may from time to
time direct the Trustee, in accordance with such rules as the Trustee may
establish, to accept cash, allowable Fund Shares or participant loan promissory
notes transferred for the benefit of Participants from a trust forming part of
another qualified plan under the Code, provided such plan is a defined
contribution plan. Such transferred assets will become assets of the Trust as
of the date they are received by the Trustee. Such transferred assets will be
credited to Participants' Accounts in accordance with their respective
interests immediately upon receipt by the Trustee. A Participant's interest
under the Plan in transferred assets which were fully vested and nonforfeitable
under the transferring plan will be fully vested and nonforfeitable at all
times. Such transferred assets will be invested by the Trustee in accordance
with the provisions of paragraph (g) of Section 11.01 as if such assets were
transferred from a predecessor plan. No transfer of assets in accordance with
this Section may cause a loss of an accrued or optional form of benefit
protected by Section 411(d)(6) of the Code.
11.03. ACCEPTANCE OF ASSETS BY TRUSTEE. The Trustee will not accept assets
which are not either in a medium proper for investment under the Plan, as set
forth in Section 1.14(b), or in cash. Such assets shall be accompanied by
written instructions showing separately the respective contributions by the
prior employer and by the Employee, and identifying the assets attributable to
such contributions. The Trustee shall establish such accounts as may be
necessary or appropriate to reflect such contributions under the Plan. The
Trustee shall hold such assets for investment in accordance with the provisions
of Article 6, and shall in accordance with the written instructions of the
Employer make appropriate credits to the Accounts of the Participants for whose
benefit assets have been transferred.
11.04. TRANSFER OF ASSETS FROM TRUST. The Employer may direct the Trustee to
transfer all or a specified portion of the Trust assets to any other plan or
plans maintained by the Employer or the employer or employers of a former
Participant or Participants, provided that the Trustee has received evidence
satisfactory to it that such other plan meets all applicable requirements of
the Code. The assets so transferred shall be accompanied by written
instructions from the Employer naming the persons for whose benefit such assets
have been transferred, showing separately the respective contributions by the
Employer and by each Participant, if any, and identifying the assets
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attributable to the various contributions. The Trustee shall have no further
liabilities with respect to assets so transferred.
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ARTICLE 12. MISCELLANEOUS.
12.01. COMMUNICATION TO PARTICIPANTS. The Plan will be communicated to all
Participants by the Employer promptly after the Plan is adopted.
12.02. LIMITATION OF RIGHTS. Neither the establishment of the Plan and the
Trust, nor any amendment thereof, nor the creation of any fund or account, nor
the payment of any benefits, will be construed as giving to any Participant or
other person any legal or equitable right against the Employer, Administrator
or Trustee, except as provided herein; and in no event will the terms of
employment or service of any Participant be modified or in any way affected
hereby. It is a condition of the Plan, and each Participant expressly agrees
by his participation herein, that each Participant will look solely to the
assets held in the Trust for the payment of any benefit to which he is entitled
under the Plan.
12.03. NONALIENABILITY OF BENEFITS AND QUALIFIED DOMESTIC RELATIONS ORDERS.
The benefits provided hereunder will not be subject to alienation, assignment,
garnishment, attachment, execution or levy of any kind, either voluntarily or
involuntarily, and any attempt to cause such benefits to be so subjected will
not be recognized, except to such extent as may be required by law. 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 by the Plan
Administrator to be a qualified domestic relations order, as defined in Section
414(p) of the Code, or any domestic relations order entered before January 1,
1985. The Administrator must establish reasonable procedures to determine the
qualified status of a domestic relations order. Upon receiving a domestic
relations order, the Administrator will promptly 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 Administrator must determine the qualified status of the order and
must notify the Participant and each alternate payee, in writing, of its
determination. The Administrator must provide notice under this paragraph by
mailing to the individual's address specified in the domestic relations order,
or in a manner consistent with the Department of Labor regulations.
If any portion of the Participant's Account is payable during the period
the Administrator is making its determination of the qualified status of the
domestic relations order, the Administrator must make a separate accounting of
the amounts payable. If the 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, the Administrator will direct the Trustee to
distribute the payable amounts in accordance with the order. If the
Administrator does not make his determination of the qualified status of the
order within the 18-month determination period, the Administrator will 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
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prospectively if the Administrator later determines the order is a qualified
domestic relations order.
A domestic relations order will not fail to be deemed a qualified
domestic relations order merely because it requires the distribution or
segregation of all or part of a Participant's Account with respect to an
alternate payee prior to the Participant's earliest retirement age (as defined
in Section 414(p) of the Code) under the Plan. A distribution to an alternate
payee prior to the Participant's attainment of the earliest retirement age is
available only if (a) the order specifies distribution at that time and (b) if
the present value of the alternate payee's benefits under the Plan exceeds
$3,500, and the order requires, and the alternate payee consents to, a
distribution occurring prior to the Participant's attainment of earliest
retirement age.
12.04. FACILITY OF PAYMENT. In the event the Administrator determines, on the
basis of medical reports or other evidence satisfactory to the Administrator,
that the recipient of any benefit payments under the Plan is incapable of
handling his affairs by reason of minority, illness, infirmity or other
incapacity, the Administrator may direct the Trustee to disburse such payments
to a person or institution designated by a court which has jurisdiction over
such recipient or a person or institution otherwise having the legal authority
under state law for the care and control of such recipient. The receipt by
such person or institution of any such payments shall be complete acquittance
therefore, and any such payment to the extent thereof, shall discharge the
liability of the Trust for the payment of benefits hereunder to such recipient.
12.05. INFORMATION BETWEEN EMPLOYER AND TRUSTEE. The Employer agrees to
furnish the Trustee, and the Trustee agrees to furnish the Employer, with such
information relating to the Plan and Trust as may be required by the other in
order to carry out their respective duties hereunder, including without
limitation information required under the Code and any regulations issued or
forms adopted by the Treasury Department thereunder or under the provisions of
ERISA and any regulations issued or forms adopted by the Labor Department
thereunder.
12.06. EFFECT OF FAILURE TO QUALIFY UNDER CODE. Notwithstanding any other
provision contained herein, if the Employer fails to obtain or retain approval
of the Plan by the Internal Revenue Service as a qualified Plan under the Code,
the Employer may no longer participate in this prototype Plan arrangement and
will be deemed to have an individually designed plan.
12.07. NOTICES. Any notice or other communication in connection with this
Plan shall be deemed delivered in writing if addressed as provided below and if
either actually delivered at said address or, in the case of a letter, three
business days shall have elapsed after the same shall have been deposited in
the United States mails, first-class postage prepaid and registered or
certified:
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(a) If to the Employer or Administrator, to it at the address set
forth in the Adoption Agreement, to the attention of the person
specified to receive notice in the Adoption Agreement;
(b) If to the Trustee, to it at the address set forth in the
Adoption Agreement;
or, in each case at such other address as the addressee shall have specified by
written notice delivered in accordance with the foregoing to the addressor's
then effective notice address.
12.08. GOVERNING LAW. The Plan and the accompanying Adoption Agreement will
be construed, administered and enforced according to ERISA, and to the extent
not preempted thereby, the laws of the Commonwealth of Massachusetts.
ARTICLE 13. PLAN ADMINISTRATION.
13.01. POWERS AND RESPONSIBILITIES OF THE ADMINISTRATOR. The Administrator
has the full power and the full responsibility to administer the Plan in all of
its details, subject, however, to the requirements of ERISA. The
Administrator's powers and responsibilities include, but are not limited to,
the following:
(a) To make and enforce such rules and regulations as it deems
necessary or proper for the efficient administration of the Plan;
(b) To interpret the Plan, its interpretation thereof in good faith
to be final and conclusive on all persons claiming benefits under
the Plan;
(c) To decide all questions concerning the Plan and the eligibility
of any person to participate in the Plan;
(d) To administer the claims and review procedures specified in
Section 13.03;
(e) To compute the amount of benefits which will be payable to any
Participant, former Participant or Beneficiary in accordance with
the provisions of the Plan;
(f) To determine the person or persons to whom such benefits will be
paid;
(g) To authorize the payment of benefits and provide for the
distribution of Code Section 402(f) notices;
(h) To comply with the reporting and disclosure requirements of Part
1 of Subtitle B of Title I of ERISA;
(i) To appoint such agents, counsel, accountants, and consultants as
may be required to assist in administering the Plan;
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(j) By written instrument, to allocate and delegate its fiduciary
responsibilities in accordance with Section 405 of ERISA including
the formation of an Administrative Committee to administer the Plan;
(k) To provide bonding coverage as required under Section 412 of
ERISA.
13.02. NONDISCRIMINATORY EXERCISE OF AUTHORITY. Whenever, in the
administration of the Plan, any discretionary action by the Administrator is
required, the Administrator shall exercise its authority in a nondiscriminatory
manner so that all persons similarly situated will receive substantially the
same treatment.
13.03. CLAIMS AND REVIEW PROCEDURES.
(a) Claims Procedure. If any person believes he is being denied any
rights or benefits under the Plan, such person may file a claim in
writing with the Administrator. If any such claim is wholly or
partially denied, the Administrator will notify such person of its
decision in writing. Such notification will contain (1) specific
reasons for the denial, (2) specific reference to pertinent Plan
provisions, (3) a description of any additional material or
information necessary for such person to perfect such claim and an
explanation of why such material or information is necessary, and
(4) information as to the steps to be taken if the person wishes to
submit a request for review. Such notification will be given within
90 days after the claim is received by the Administrator (or within
180 days, if special circumstances require an extension of time for
processing the claim, and if written notice of such extension and
circumstances is given to such person within the initial 90-day
period). If such notification is not given within such period, the
claim will be considered denied as of the last day of such period
and such person may request a review of his claim.
(b) Review Procedure. Within 60 days after the date on which a
person receives a written notice of a denied claim (or, if
applicable, within 60 days after the date on which such denial is
considered to have occurred), such person (or his duly authorized
representative) may (1) file a written request with the
Administrator for a review of his denied claim and of pertinent
documents and (2) submit written issues and comments to the
Administrator. The Administrator will notify such person of its
decision in writing. Such notification will be written in a manner
calculated to be understood by such person and will contain specific
reasons for the decision as well as specific references to pertinent
Plan provisions. The decision on review will be made within 60 days
after the request for review is received by the Administrator (or
within 120 days, if special circumstances require an extension of
time for processing the request, such as an election by the
Administrator to hold a hearing, and if written notice of such
extension and circumstances is given to such person within the
initial 60-day period). If the decision on review is not made
within such period, the claim will be considered denied.
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13.04. NAMED FIDUCIARY. The Administrator is a "named fiduciary" for purposes
of Section 402(a)(1) of ERISA and has the powers and responsibilities with
respect to the management and operation of the Plan described herein.
13.05. COSTS OF ADMINISTRATION. Unless some or all are paid by the Employer,
all reasonable costs and expenses (including legal, accounting, and employee
communication fees) incurred by the Administrator and the Trustee in
administering the Plan and Trust will be paid first from the forfeitures (if
any) resulting under Section 7.07, then from the remaining Trust Fund. All
such costs and expenses paid from the Trust Fund will, unless allocable to the
Accounts of particular Participants, be charged against the Accounts of all
Participants on a prorata basis or in such other reasonable manner as may be
directed by the Employer.
ARTICLE 14. TRUST AGREEMENT.
14.01. ACCEPTANCE OF TRUST RESPONSIBILITIES. By executing the Adoption
Agreement, the Employer establishes a trust to hold the assets of the Plan. By
executing the Adoption Agreement, the Trustee agrees to accept the rights,
duties and responsibilities set forth in this Article 14.
14.02. ESTABLISHMENT OF TRUST FUND. A trust is hereby established under the
Plan and the Trustee will open and maintain a trust account for the Plan and,
as part thereof, Participants' Accounts for such individuals as the Employer
shall from time to time give written notice to the Trustee are Participants in
the Plan. The Trustee will accept and hold in the Trust Fund such
contributions on behalf of Participants as it may receive from time to time
from the Employer. The Trust Fund shall be fully invested and reinvested in
accordance with the applicable provisions of the Plan in Fund Shares or as
otherwise provided in Section 14.10.
14.03. EXCLUSIVE BENEFIT. The Trustee shall hold the assets of the Trust Fund
for the exclusive purpose of providing benefits to Participants and
Beneficiaries and defraying the reasonable expenses of administering the Plan.
No assets of the Plan shall revert to the Employer except as specifically
permitted by the terms of the Plan.
14.04. POWERS OF TRUSTEE. The Trustee shall have no discretion or authority
with respect to the investment of the Trust Fund but shall act solely as a
directed trustee of the funds contributed to it. In addition to and not in
limitation of such powers as the Trustee has by law or under any other
provisions of the Plan, the Trustee will have the following powers, each of
which the Trustee exercises solely as directed Trustee in accordance with the
written direction of the Employer except to the extent a Plan asset is subject
to Participant direction of investment and provided that no such power shall be
exercised in any manner inconsistent with the provisions of ERlSA:
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(a) to deal with all or any part of the Trust Fund and to invest all
or a part of the Trust Fund in investments available under the Plan, without
regard to the law of any state regarding proper investment;
(b) to retain uninvested such cash as it may deem necessary or
advisable, without liability for interest thereon, for the administration of
the Trust;
(c) to sell, convert, redeem, exchange, or otherwise dispose of all
or any part of the assets constituting the Trust Fund;
(d) to enforce by suit or otherwise, or to waive, its rights on
behalf of the Trust, and to defend claims asserted against it or the Trust,
provided that the Trustee is indemnified to its satisfaction against liability
and expenses;
(e) to employ such agents and counsel as may be reasonably necessary
in collecting, managing, administering, investing, distributing and protecting
the Trust Fund or the assets thereof and to pay them reasonable compensation;
(f) to compromise, adjust and settle any and all claims against or
in favor of it or the Trust;
(g) to oppose, or participate in and consent to the reorganization,
merger, consolidation, or readjustment of the finances of any enterprise, to
pay assessments and expenses in connection therewith, and to deposit securities
under deposit agreements;
(h) to apply for or purchase annuity contracts in accordance with
Section 8.02;
(i) to hold securities unregistered, or to register them in its own
name or in the name of nominees;
(j) to appoint custodians to hold investments within the
jurisdiction of the district courts of the United States and to deposit
securities with stock clearing corporations or depositories or similar
organizations;
(k) to make, execute, acknowledge and deliver any and all
instruments that it deems necessary or appropriate to carry out the powers
herein granted; and
(l) generally to exercise any of the powers of an owner with respect
to all or any part of the Trust Fund.
The Employer specifically acknowledges and authorizes that
affiliates of the Trustee may act as its agent in the performance of
ministerial, nonfiduciary duties under the Trust. The expenses and
compensation of such agent shall be paid by the Trustee.
The Trustee shall provide the Employer with reasonable notice of any
claim filed against the Plan or Trust or with regard to any related
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matter, or of any claim filed by the Trustee on behalf of the Plan or Trust or
with regard to any related matter.
14.05. ACCOUNTS. The Trustee will keep full accounts of all receipts and
disbursements and other transactions hereunder. Within 60 days after the close
of each Plan Year, within 60 days after termination of the Trust, and at such
other times as may be appropriate, the Trustee will determine the then net fair
market value of the Trust Fund as of the close of the Plan Year, as of the
termination of the Trust, or as of such other time, whichever is applicable,
and will render to the Employer and Administrator an account of its
administration of the Trust during the period since the last such accounting,
including all allocations made by it during such period.
14.06. APPROVING OF ACCOUNTS. To the extent permitted by law, the written
approval of any account by the Employer or Administrator will be final and
binding, as to all matters and transactions stated or shown therein, upon the
Employer, Administrator, Participants and all persons who then are or
thereafter become interested in the Trust. The failure of the Employer or
Administrator to notify the Trustee within six (6) months after the receipt of
any account of its objection to the account will, to the extent permitted by
law, be the equivalent of written approval. If the Employer or Administrator
files any objections within such six (6) month period with respect to any
matters or transactions stated or shown in the account, and the Employer or
Administrator and the Trustee cannot amicably settle the question raised by
such objections, the Trustee will have the right to have such questions settled
by judicial proceedings. Nothing herein contained will be construed so as to
deprive the Trustee of the right to have judicial settlement of its accounts.
In any proceeding for a judicial settlement of any account or for instructions,
the only necessary parties will be the Trustee, the Employer and the
Administrator.
14.07. DISTRIBUTION FROM TRUST FUND. The Trustee shall make such distribution
from the Trust Fund as the Employer or Administrator may in writing direct, as
provided by the terms of the Plan, upon certification by the Employer or
Administrator that the same is for the exclusive benefit of Participants or
their Beneficiaries, or for the payment of expenses of administering the Plan.
14.08. TRANSFER OF AMOUNTS FROM QUALIFIED PLAN. If the Plan provides that
amounts may be transferred to the Plan from another qualified plan or trust
under Section 401(a) of the Code, such transfer shall be made in accordance
with the provisions of the Plan and with such rules as may be established by
the Trustee. The Trustee will only accept assets which are in a medium proper
for investment under this agreement or in cash. Such amounts shall be
accompanied by written instructions showing separately the respective
contributions by the prior employer and the transferring Employee, and
identifying the assets attributable to such contributions. The Trustee shall
hold such assets for investment in accordance with the provisions of this
agreement.
14.09. TRANSFER OF ASSETS FROM TRUST. Subject to the provisions of the Plan,
the Employer may direct the Trustee to transfer all or a specified
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portion of the Trust assets to any other plan or plans maintained by the
Employer or the employer or employers of a former Participant or Participants,
provided that the Trustee has received evidence satisfactory to it that such
other plan meets all applicable requirements of the Code. The assets so
transferred shall be accompanied by written instructions from the Employer
naming the persons for whose benefit such assets have been transferred, showing
separately the respective contributions by the Employer and by each
Participant, if any, and identifying the assets attributable to the various
contributions. The Trustee shall have no further liabilities with respect to
assets so transferred.
14.10. SEPARATE TRUST OR FUND FOR EXISTING PLAN ASSETS. With the consent of
the Trustee, the Employer may maintain a trust or fund (including a group
annuity contract) under this prototype plan document separate from the Trust
Fund for Plan assets purchased prior to the adoption of this prototype plan
document which are not Fidelity Funds listed in Section 1.14(b). The Trustee
shall have no authority and no responsibility for the Plan assets held in such
separate trust or fund. The duties and responsibilities of the trustee of a
separate trust shall be provided by a separate trust agreement, between the
Employer and the trustee.
Notwithstanding the preceding paragraph, the Trustee or an affiliate of
the Trustee may agree in writing to provide ministerial recordkeeping services
for guaranteed investment contracts held in the separate trust or fund. The
guaranteed investment contract(s) shall be valued as directed by the Employer
or the Trustee of the separate trust.
The trustee of the separate trust (hereafter referred to as "trustee")
will be the owner of any insurance contract purchased prior to the adoption of
this prototype plan document. The insurance contract(s) must provide that
proceeds will be payable to the trustee; however the trustee shall be required
to pay over all proceeds of the contract(s) to the Participant's designated
Beneficiary in accordance with the distribution provisions of this plan. A
Participant's spouse will be the designated Beneficiary of the proceeds in all
circumstances unless a qualified election has been made in accordance with
Article 8. Under no circumstances shall the trust retain any part of the
proceeds. In the event of any conflict between the terms of this plan and the
terms of any insurance contract purchased hereunder, the plan provisions shall
control.
Any life insurance contracts held in the Trust Fund or in the separate
trust are subject to the following limits:
(a) Ordinary life - For purposes of these incidental
insurance provisions, ordinary life insurance contracts are contracts
with both nondecreasing death benefits and nonincreasing premiums. If
such contracts are held, less than 1/2 of the aggregate employer
contributions allocated to any Participant will be used to pay the
premiums attributable to them.
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(b) Term and universal life - No more than 1/4 of the aggregate
employer contributions allocated to any participant will be used to pay
the premiums on term life insurance contracts, universal life insurance
contracts, and all other life insurance contracts which are not ordinary
life.
(c) Combination - The sum of 1/2 of the ordinary life insurance
premiums and all other life insurance premiums will not exceed 1/4 of
the aggregate employer contributions allocated to any Participant.
14.11. VOTING; DELIVERY OF INFORMATION. The Trustee shall deliver, or cause
to be executed and delivered, to the Employer or Plan Administrator all
notices, prospectuses, financial statements, proxies and proxy soliciting
materials received by the Trustee relating to securities held by the Trust or,
if applicable, deliver these materials to the appropriate Participant or the
Beneficiary of a deceased Participant. The Trustee shall not vote any
securities held by the Trust except in accordance with the written instructions
of the Employer, Participant or the Beneficiary of the Participant, if the
Participant is deceased; however, the Trustee may, in the absence of
instructions, vote "present" for the sole purpose of allowing such shares to be
counted for establishment of a quorum at a shareholders' meeting. The Trustee
shall have no duty to solicit instructions from Participants, Beneficiaries, or
the Employer.
14.12. COMPENSATION AND EXPENSES OF TRUSTEE. The Trustee's fee for performing
its duties hereunder will be such reasonable amounts as the Trustee may from
time to time specify by written agreement with the Employer. Such fee, any
taxes of any kind which may be levied or assessed upon or with respect to the
Trust Fund, and any and all expenses, including without limitation legal fees
and expenses of administrative and judicial proceedings, reasonably incurred by
the Trustee in connection with its duties and responsibilities hereunder will,
unless some or all have been paid by said Employer, be paid first from
forfeitures resulting under Section 7.07, then from the remaining Trust Fund
and will, unless allocable to the Accounts of particular Participants, be
charged against the respective Accounts of all Participants, in such reasonable
manner as the Trustee may determine.
14.13. RELIANCE BY TRUSTEE ON OTHER PERSONS. The Trustee may rely upon and
act upon any writing from any person authorized by the Employer or
Administrator to give instructions concerning the Plan and may conclusively
rely upon and be protected in acting upon any written order from the Employer
or Administrator or upon any other notice, request, consent, certificate, or
other instructions or paper reasonably believed by it to have been executed by
a duly authorized person, so long as it acts in good faith in taking or
omitting to take any such action. The Trustee need not inquire as to the basis
in fact of any statement in writing received from the Employer or
Administrator.
The Trustee will be entitled to rely on the latest certificate it has
received from the Employer or Administrator as to any person or persons
authorized to act for the Employer or Administrator hereunder
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and to sign on behalf of the Employer or Administrator any directions or
instructions, until it receives from the Employer or Administrator written
notice that such authority has been revoked.
Notwithstanding any provision contained herein, the Trustee will be under
no duty to take any action with respect to any Participant's Account (other
than as specified herein) unless and until the Employer or Administrator
furnishes the Trustee with written instructions on a form acceptable to the
Trustee, and the Trustee agrees thereto in writing. The Trustee will not be
liable for any action taken pursuant to the Employer's or Administrator's
written instructions (nor for the collection of contributions under the Plan,
nor the purpose or propriety of any distribution made thereunder).
14.14. INDEMNIFICATION BY EMPLOYER. The Employer shall indemnify and save
harmless the Trustee from and against any and all liability to which the
Trustee may be subjected by reason of any act or conduct (except willful
misconduct or negligence) in its capacity as Trustee, including all expenses
reasonably incurred in its defense.
14.15. CONSULTATION BY TRUSTEE WITH COUNSEL. The Trustee may consult with
legal counsel (who may be but need not be counsel for the Employer or the
Administrator) concerning any question which may arise with respect to its
rights and duties under the Plan and Trust, and the opinion of such counsel
will, to the extent permitted by law, be full and complete protection in
respect of any action taken or omitted by the Trustee hereunder in good faith
and in accordance with the opinion of such counsel.
14.16. PERSONS DEALING WITH THE TRUSTEE. No person dealing with the Trustee
will be bound to see to the application of any money or property paid or
delivered to the Trustee or to inquire into the validity or propriety of any
transactions.
14.17. RESIGNATION OR REMOVAL OF TRUSTEE. The Trustee may resign at any time
by written notice to the Employer, which resignation shall be effective 60 days
after delivery to the Employer. The Trustee may be removed by the Employer by
written notice to the Trustee, which removal shall be effective 60 days after
delivery to the Trustee.
Upon resignation or removal of the Trustee, the Employer may appoint a
successor trustee. Any such successor trustee will, upon written acceptance of
his appointment, become vested with the estate, rights, powers, discretion,
duties and obligations of the Trustee hereunder as if he had been originally
named as Trustee in this Agreement.
Upon resignation or removal of the Trustee, the Employer will no longer
participate in this prototype plan and will be deemed to have adopted an
individually designed plan. In such event, the Employer shall appoint a
successor trustee within said 60-day period and the Trustee will transfer the
assets of the Trust to the successor trustee upon receipt of sufficient
evidence (such as a determination letter or opinion letter from the Internal
Revenue Service or an opinion of
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counsel satisfactory to the Trustee) that such trust will be a qualified trust
under the Code.
The appointment of a successor trustee shall be accomplished by delivery
to the Trustee of written notice that the Employer has appointed such successor
trustee, and written acceptance of such appointment by the successor trustee.
The Trustee may, upon transfer and delivery of the Trust Fund to a successor
trustee, reserve such reasonable amount as it shall deem necessary to provide
for its fees, compensation, costs and expenses, or for the payment of any other
liabilities chargeable against the Trust Fund for which it may be liable. The
Trustee shall not be liable for the acts or omissions of any successor trustee.
14.18. FISCAL YEAR OF THE TRUST. The fiscal year of the Trust will coincide
with the Plan Year.
14.19. DISCHARGE OF DUTIES BY FIDUCIARIES. The Trustee and the Employer and
any other fiduciary shall discharge their duties under the Plan and this Trust
Agreement solely in the interests of Participants and their Beneficiaries in
accordance with the requirements of ERISA.
14.20. AMENDMENT. In accordance with provisions of the Plan, and subject to
the limitations set forth therein, this Trust Agreement may be amended by an
instrument in writing signed by the Employer and the Trustee. No amendment to
this Trust Agreement shall divert any part of the Trust Fund to any purpose
other than as provided in Section 2 hereof.
14.21. PLAN TERMINATION. Upon termination or partial termination of the Plan
or complete discontinuance of contributions thereunder, the Trustee will make
distributions to the Participants or other persons entitled to distributions as
the Employer or Administrator directs in accordance with the provisions of the
Plan. In the absence of such instructions and unless the Plan otherwise
provides, the Trustee will notify the Employer or Administrator of such
situation and the Trustee will be under no duty to make any distributions under
the Plan until it receives written instructions from the Employer or
Administrator. Upon the completion of such distributions, the Trust will
terminate, the Trustee will be relieved from all liability under the Trust, and
no Participant or other person will have any claims thereunder, except as
required by applicable law.
14.22. PERMITTED REVERSION OF FUNDS TO EMPLOYER. If it is determined by the
Internal Revenue Service that the Plan does not initially qualify under Section
401 of the Code, all assets then held under the Plan will be returned by the
Trustee, as directed by the Administrator, to the Employer, but only if the
application for determination is made by the time prescribed by law for filing
the Employer's return for the taxable year in which the Plan was adopted or
such later date as may be prescribed by regulations. Such distribution will be
made within one year after the date the initial qualification is denied. Upon
such distribution the Plan will be considered to be rescinded and to be of no
force or effect.
70
<PAGE> 95
Contributions under the Plan are conditioned upon their deductibility
under Section 404 of the Code. In the event the deduction of a contribution
made by the Employer is disallowed under Section 404 of the Code, such
contribution (to the extent disallowed) must be returned to the Employer within
one year of the disallowance of the deduction.
Any contribution made by the Employer because of a mistake of fact must
be returned to the Employer within one year of the contribution.
14.23. GOVERNING LAW. This Trust Agreement will be construed, administered
and enforced according to ERISA and, to the extent not preempted thereby, the
laws of the Commonwealth of Massachusetts.
71
<PAGE> 96
CORPORATEPLAN FOR RETIREMENTSM
PROFIT SHARING/401(K) PLAN
FIDELITY BASIC PLAN DOCUMENT NO. 07
AMENDMENT ONE
SECTION 2.01(A)(7) "COMPENSATION" is amended to include:
In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to the contrary, for plan years
beginning on or after January 1, 1994, the annual compensation of each Employee
taken into account under the plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding
12 months, over which compensation is determined (determination period)
beginning in such calendar year. If a determination period consists of fewer
than 12 months, the OBRA '93 annual compensation will be multiplied by a
fraction, the numerator of which is the number of months in the determination
period, and the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference in
this plan to the limitation under section 401(a)(17) of the Code shall mean the
OBRA '93 annual compensation limit set forth in this provision.
Notwithstanding 2.01(a)(7)(A), for purpose of Section 4.02 (Additional Limit on
Deferral Contributions) and Section 4.04 (Limit on Matching Contributions), the
Employer may use Compensation as defined in Section 5.03(e)(2) excluding
reimbursements or other expense allowances, fringe benefits (cash and
non-cash), moving expenses, deferred compensation and welfare benefits, but
including amounts that are not includable in the gross income of the
Participant under a salary reduction agreement by reason of the application of
Section 125, 402(a)(8), 402(h) or 403(b) of the Code.
If compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current plan
year, the compensation for that prior determination period is subject to the
OBRA '93 annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning before the first
day of the first plan year beginning on or after January 1, 1994, the OBRA '93
annual compensation limit is $150,000.
SECTION 8.01(D) "DISTRIBUTION OF BENEFITS TO PARTICIPANTS AND BENEFICIARIES" is
amended to include:
(5) If a distribution is one to which sections 401(a)(11) and 417
of the Internal Revenue Code do not apply, such distribution may commence less
than 30 days after the notice required under section 1.411(a)-11(c) of the
Income Tax Regulations is given, provided that:
(1) the administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after receiving
the notice to consider the decision of whether or not to elect a
distribution (and, if applicable, a particular distribution option), and
(2) the Participant, after receiving the notice, affirmatively
elects a distribution.
<PAGE> 1
EXHBIT 10.35
STATE OF SOUTH CAROLINA ) FIRST AMENDMENT TO THE
) AMENDED AND RESTATED
PLAN
COUNTY OF RICHLAD )
THIS AGREEMENT, made as of this _____ day of November, 1996, by
RESOURCE BANCSHARES MORTGAGE GROUP, INC. (the "Company")
WITNESSETH:
WHEREAS, the Company maintains the Resource Bancshares Mortgage Group,
Inc. Retirement Savings Plan, effective as of July 1, 1993 (the "Plan") for the
benefit of the eligible employees; and
WHEREAS, effective April 1, 1996, the Company amended and restated the
Plan into a prototype plan utilizing the Fidelity Prototype Plan Basic Plan
Document No. 07 and the applicable adoption agreement (the "Restated Plan");
and
WHEREAS, in the opinion of the Board of Directors of the Company, the
provisions of the Restated Plan should be amended so as to clarify the Restated
Plan's eligibility requirements and vesting provisions by authorizing the award
of credit for service with Resource Bancshares Corporation; and
WHEREAS, in Section 10.1 of the Restated Plan, the Company reserved
the right by action of its Board of Directors to amend the Restated Plan.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company covenants and agrees that the Restated
Plan as set forth is amended as follows:
1. Effective April 1, 1996, Section 1.08 of the Adoption
Agreement shall be amended by inserting:
(a) Resource Bancshares Corporation ("RBC").
The Company reserves the right by action of the Board of Directors to
amend at any time any of the terms and provisions of this First Amendment.
Except as expressly or by necessary implication amended hereby, the Restated
Plan shall continue in full force and effect.
<PAGE> 2
IN WITNESS WHEREOF, the Company has caused this Amendment to be
executed by its duly authorized officers as of the day and year first above
written.
RESOURCE BANCSHARES
MORTGAGE GROUP, INC.
By:
-------------------------------------
----------------------------------------
[CORPORATE SEAL]
ATTEST:
- -----------------------------------
John W. Currie, Secretary
2
<PAGE> 1
EXHIBIT 10.36
THE ESOP LOAN AND SECURITY AGREEMENT
BETWEEN
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
AND
THE RESOURCE BANCSHARES MORTGAGE GROUP, INC.
EMPLOYEE STOCK OWNERSHIP TRUST
<PAGE> 2
ESOP LOAN AND SECURITY AGREEMENT
THIS AGREEMENT, is dated May 3, 1996 by and between RESOURCE BANCSHARES
MORTGAGE GROUP, INC. (the "Company") and the RESOURCE BANCSHARES MORTGAGE GROUP,
INC. EMPLOYEE STOCK OWNERSHIP TRUST, a trust established under the laws of the
State of New York (the "Borrower").
BACKGROUND. Using funds borrowed from the Company, the Borrower has
previously purchased shares of capital stock of the Company. The Company has
agreed to loan additional funds to the Borrower (the "ESOP Loan") to enable the
Borrower to purchase additional shares of the capital stock of the Company (the
"Shares") from shareholders of the Company.
NOW, THEREFORE, in consideration of the promises herein contained, and
each intending to be legally bound hereby, the parties agree as follows:
ARTICLE I. DEFINITIONS.
As used herein:
"Code" means the Internal Revenue Code of 1986, as amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" has the meaning set forth in ARTICLE V of this
Agreement.
"Laws" means all ordinances, statutes, regulations, orders,
injunctions, writs or decrees of any government or political subdivision or
agency thereof, or of any court or similar entity established by any thereof.
"ESOP Note" shall mean a secured promissory note which is issued by the
Borrower to evidence any indebtedness incurred by the Borrower to the Company to
purchase additional shares of capital stock of the Company (the "Shares").
"Obligations" means the obligation of the Borrower to pay the principal
of and interest on an ESOP Note in accordance with the terms thereof and to
satisfy all of its
<PAGE> 3
other liabilities hereunder to the Company, including any extensions,
modifications, or renewals thereof and substitutions therefor.
"Person" means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, joint venture, court or
government or political subdivision or agency thereof.
"Plan" means the Resource Bancshares Mortgage Group, Inc. Employee
Stock Ownership Plan, effective as of January 1, 1994.
"Rate" means the interest rate set forth in each ESOP Note.
ARTICLE II. THE LOAN.
2.01 General Terms. Subject to the terms and conditions of this
Agreement, the Company agrees to make one or more term loans to the Borrower,
each to be evidenced by and payable as provided in a separate ESOP Note.
2.02 Payment and Prepayment. The Borrower shall repay the principal
balance of each ESOP Note (plus accrued interest thereon) at the times and in
the amounts set forth in that ESOP Note. The Borrower may prepay without penalty
the principal amount of each ESOP Note outstanding in whole or, from time to
time, in part. All such partial prepayments shall be applied against the
installments of principal in the inverse order of their maturity.
2.03 Interest Rate and Payments of Interest. Interest on the principal
balance of each ESOP Note from time to time outstanding will be payable at the
Rate, and calculated on the basis of a 360-day year, counting the actual number
of days elapsed, and shall be payable in arrears at the same time that principal
payments (including any prepayments) are made.
If, at any time, the Rate shall be deemed by any competent court of
law, governmental agency or tribunal to exceed the maximum rate of interest
permitted by applicable Laws, then, for such time as the Rate is deemed
excessive, its application shall be suspended and there shall be charged instead
the maximum rate of interest permissible under such Laws.
2.04 Order of Payment. Payments under each ESOP Note shall be applied
first against any interest accrued as of the date of such payment, and then
against the outstanding principal balance. If more than one ESOP Note is
outstanding, the Borrower shall designate which ESOP Note each payment shall be
applied against. If the Borrower
-2-
<PAGE> 4
shall fail to make such a designation, then such payment shall be applied
against the oldest ESOP Note with a principal balance outstanding at the time of
such payment.
2.05 Payment to the Company. All sums payable to the Company hereunder
and on each ESOP Note shall be paid directly to the Company in immediately
available funds. The Company shall, at the Borrower's request, provide the
Borrower from time to time with statements of all amounts due under each ESOP
Note.
2.06 Limitation on Repayment. The indebtedness reflected by each ESOP
Note is intended to be an "exempt loan" within the meaning of Section 4975(d)(3)
of the Code and Section 408(b)(3) of the ERISA. Accordingly, subject to the
provisions of Section 6.03, payments of principal and interest shall not exceed
the sum of all contributions (excluding any contributions of capital stock of
the Company) that are made to the Borrower by the Company to enable the Borrower
to meet its obligations under this Agreement and on each ESOP Note, any earnings
on such Company contributions and any cash dividends on the Shares purchased
with the proceeds thereof (whether or not such Shares have been released from
pledge under Section 6.02 at the time the dividend is paid, but subject to the
requirements of Section 404(k) of the Code), less payments made in prior years.
The Company shall have no recourse against the Borrower other than (a) cash
contributions that are made to the Borrower by the Company to enable the
Borrower to meet its obligations with respect to a particular ESOP Note, (b) any
earnings attributable to the investment of such cash contributions, (c) any cash
dividends on the Shares purchased with the proceeds thereof, and (d) the Shares
remaining subject to pledge under this Article II but only to the extent
permitted under Section 6.03.
ARTICLE III. THE BORROWER'S AND THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
3.01 Borrower. To induce the Company to enter into this Agreement, the
Borrower represents and warrants to the Company as follows:
(A) The Borrower has the power and authority to execute, deliver
and perform its obligations under this Agreement and each ESOP Note, and to
incur the Obligations herein and therein provided for, and has taken all action
necessary to authorize the execution, delivery and performance of this
Agreement.
(B) Neither the execution nor the delivery of this Agreement
by the Borrower will constitute a default under or conflict with any agreement,
contract, document, or instrument to which the Borrower now is a party.
-3-
<PAGE> 5
(C) There is no litigation or proceeding pending against the
Borrower, or to the knowledge of the Borrower, threatened that, if decided
adversely to the Borrower, would have a material adverse effect upon its
financial condition.
3.02 Company. To induce the Borrower to enter into this Agreement, the
Company represents and warrants to the Borrower as follows:
(A) Corporate Authority. The Company has all requisite power
and authority to execute, deliver and perform its obligations under this
Agreement. The Company has taken all corporate action to authorize the execution
of this Agreement. This Agreement has been duly executed and delivered on behalf
of the Company by the authorized corporate officers.
(B) Compliance with Laws and Obligations. Neither the execution
of this Agreement by the Company nor the fulfillment of any of the Company's
obligations under this Agreement will conflict with, or result in a breach or
violation of, or constitute a default under any law, rule, regulation, order,
injunction or decree of any court, and binding on the Company, or any other
obligation, loan, contract or agreement of the Company.
3.03 Survival. All of the representations and warranties set forth in
Paragraphs 3.01 and 3.02 shall survive until all Obligations are satisfied in
full.
ARTICLE IV. THE BORROWER'S AND THE COMPANY'S COVENANTS.
The Borrower and the Company do hereby covenant and agree that, so long
as any of the Obligations remain unsatisfied, they will comply with the
following covenants:
4.01 Borrower.
(A) Use of Proceeds. All of the proceeds of a loan represented
by each ESOP Note shall be used by the Borrower solely to acquire Shares. Such
purchase shall be made in a lawful manner, consistent with the fiduciary
requirements of ERISA and the prohibited transaction requirements of the Code.
In the event that the Borrower shall for any reason fail to use all of such
proceeds within a reasonable time after their draw (within the meaning of Treas.
Reg. ss. 54.4975-7(b)(4)) for the purchase of Shares, the Borrower shall
promptly return such unused proceeds to the Company, in accordance with the loan
prepayment provisions of this Agreement.
-4-
<PAGE> 6
(B) Continued Qualification. The Borrower will at all times
operate in a manner resulting in the Plan's continued qualification under
Sections 401(a) and 4975(e)(7) of the Code.
(C) Records. The Borrower at all times will keep accurate and
complete records of its affairs and the Pledged Shares. The Company or its
agents shall have the right to inspect, audit, check, and make extracts from the
books, records, journals, orders, receipts, correspondence, and other data of
the Borrower.
4.02 Company.
(A) Payment of Costs Incurred by the Borrower. The Company will
pay all reasonable costs, expenses and fees incurred by the Borrower and by
the Trustee of the Borrower in connection with this Agreement.
(B) Contributions. The Company will make cash contributions to
the Borrower in such amounts and at such times which, when combined with any
cash dividends which it pays on the Shares purchased therewith, will be
sufficient to enable the Borrower to timely make all principal and interest
payments on each ESOP Note. A contribution or dividend by the Company to enable
the Borrower to make any given payment shall be made sufficiently prior to the
date such payment is due to provide for timely payment on each ESOP Note and
shall be made in immediately available funds.
ARTICLE V. EVENT OF DEFAULT.
If the Borrower shall fail to pay when due any installment of principal
or interest payable under an ESOP Note, or if there shall be any breach by
Borrower of any covenant, agreement, condition precedent, or undertaking of
Borrower contained in this Agreement or an ESOP Note, there shall be an Event of
Default hereunder with respect to that ESOP Note.
ARTICLE VI. PLEDGE OF SHARES, REMEDIES.
6.01 Pledge. To secure the payment and performance of its Obligations
hereunder and under each ESOP Note, Borrower hereby assigns, transfers and
pledges the Shares (the "Pledged Shares") purchased with the proceeds of that
ESOP Note to the Company. Collateral shall be released from this pledge
automatically in accordance with the formula prescribed in Section 6.02. The
Company, as pledgee, may at its discretion require the Borrower to deliver
custody of some or all of the Pledged Shares to the Company prior to its
release, and shall have full power to assign its rights or prospective rights as
Pledgee.
-5-
<PAGE> 7
Prior to the occurrence of an Event of Default, the Borrower shall be
entitled to collect and receive all dividends, income, installment sale
proceeds, revenue, and profits accruing with respect to the Pledged Shares, and
shall have full power with respect to the voting, sale, and other exercise of
discretionary shareholder rights with respect to the Pledged Shares.
6.02 Release. As of each Valuation Date (as defined in the Plan) during
the term of each ESOP Note, a number of the Pledged Shares attributable thereto
shall be released from pledge hereunder and delivered by the Company to the
Borrower. The number of Pledged Shares to be so released shall be calculated by
multiplying the number of such Pledged Shares held by the Company under that
ESOP Note (immediately before the release) by a fraction: the numerator of the
fraction shall be the amount of principal and interest paid with respect to that
ESOP Note for the fiscal year ending on that date; the denominator of the
fraction shall be the sum of the numerator and the remaining payments of
principal and interest thereon.
6.03 Remedies. In the case of an Event of Default, the sole remedy of
the Company shall be as set forth in this Section 6.03. In the case of an Event
of Default, the Company as pledgee shall be entitled to realize upon the Pledged
Shares securing the ESOP Note which is subject to the Event of Default up to but
not exceeding the amount of Borrower's failure to meet the required payment
schedule under that ESOP Note (and not considering any acceleration thereof).
The Company as pledgee is entitled to sell at public or private sale or
otherwise dispose of any part of such Pledged Shares up to the amount of the
Borrower's failure to meet the required payment schedule hereunder, and after
deducting from the proceeds of such sale or other disposition all expenses
(including reasonable expenses for legal services), the Company may apply any
such proceeds toward the satisfaction of the Obligations, up to the amount of
the Borrower's failure to meet the required payment schedule hereunder. Any
remainder of the proceeds after satisfaction of the Event of Default shall be
distributed as required by applicable laws. Notice of any sale or other
disposition shall be given to the Borrower at least 30 business days before the
time of any such sale or disposition, which the Borrower hereby agrees shall be
reasonable notice of such sale or disposition. Subsequent to the occurrence of
an Event of Default, Company shall be entitled to collect and receive all
dividends, income, installment sale proceeds, revenue, and profits accruing with
respect to the Pledged Shares securing that ESOP Note, to be applied against the
Obligations as described herein, and shall have full power with respect to the
voting, sale, and other exercise of discretionary shareholder rights with
respect to that portion of the Pledged Shares the fair market value of which is
not in excess of the Borrower's failure to meet the required payment schedule on
that ESOP Note.
6.04 No Waivers. No delay or omission by the Company to exercise any
right or remedy shall impair any other right or remedy or be construed to be a
waiver of any
-6-
<PAGE> 8
default or an acquiescence therein. Every right and remedy herein conferred or
now or hereafter existing at law, in equity, or by statute may be exercised
separately or concurrently and in such order and as often as may be deemed
reasonable by the Company.
ARTICLE VII. MISCELLANEOUS.
7.01 Further Assurance. From time to time, the Borrower will execute
and deliver to the Company such additional documents and will provide such
additional information as the Company may reasonably require to carry out the
terms of this Agreement and be informed of the Borrower's status and affairs.
7.02 Notices. Any notices, consents or information required or
requested or permitted by this Agreement shall be in writing and shall be deemed
delivered if delivered in person or if sent by certified mail, postage prepaid,
return receipt requested, or telegraph, as follows, unless such address is
changed by written notice hereunder:
(A) If to the Borrower:
Marine Midland Bank, Trustee
Resource Bancshares Mortgage Group, Inc.
Employee Stock Ownership Trust
250 Park Avenue, 4th Floor
New York, NY 10177
Attention: Stephen J. Hartman, Jr.
(B) If to Company:
Resource Bancshares Mortgage Group, Inc.
7909 Parklane Road
Columbia, SC 29223
Attention: R. Michael Watson, Jr.
7.03 Applicable Law, Venue. The substantive Laws of the State of New
York shall govern the construction of this Agreement and the rights and remedies
of the parties hereto, to the extent not pre-empted by ERISA.
7.04 Assignment and Amendment. This Agreement shall inure to the
benefit of, and shall be binding upon, the respective successors and permitted
assigns of the parties hereto. The Borrower has no right to assign any of its
rights or obligations hereunder without the prior written consent of the
Company. This Agreement, and the documents executed and delivered pursuant
hereto and in connection herewith, constitute the entire
-7-
<PAGE> 9
agreement between the parties and may be amended only by a writing signed on
behalf of each the Company (or its assigns) and the Borrower.
7.05 Severability. If any provision of this Agreement shall be held
invalid under any applicable Laws, such invalidity shall not affect any other
provision of this Agreement that can be given effect without the invalid
provision, and, to this end, the provisions hereof are severable.
7.06 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
7.07 Non-Recourse. The Company and any subsequent holder of each ESOP
Note shall have no recourse against the Borrower with respect to the
Obligations, except to the extent of the Pledged Shares.
7.08 Entire Agreement. This Agreement, each ESOP Note, and the
documents executed and delivered pursuant hereto, constitute the entire
agreement between the parties and may be amended only by a writing signed on
behalf of each party.
7.09 ERISA Construction. Whenever possible, each provision of this
Agreement and each ESOP Note shall be construed and interpreted in such manner
as to be effective and valid under ERISA and the Code, and regulations issued
thereunder, but if any provision of this Agreement or an ESOP Note shall be
prohibited by, or invalid or unenforceable under such statutes or regulations,
such provision shall be ineffective and unenforceable to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement or that ESOP Note.
7.10 Action Taken As Trustee. The Trustee has executed and delivered
this Agreement and will execute and deliver each ESOP Note, not in its
individual or corporate capacities, but solely as Trustee of the Borrower. The
performance of this Agreement by the Trustee and any and all duties, obligations
and liabilities of the Trustee hereunder will be effected by it only as Trustee.
The Trustee does not undertake, nor shall have, any
-8-
<PAGE> 10
individual liability or obligation of any nature whatsoever by virtue of the
execution and delivery of this Agreement or an ESOP Note, or the
representations, covenants or warranties contained herein.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on May __, 1996.
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
--------------------------------------
, Managing Director
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
EMPLOYEE STOCK OWNERSHIP TRUST
MARINE MIDLAND BANK, TRUSTEE
By:
----------------------------------
Stephen J. Hartman, Jr., solely in his
capacity as authorized signer for the
Trustee of the Resource Bancshares
Mortgage Group, Inc. Employee Stock
Ownership Trust, and not in his individual
capacity.
-9-
<PAGE> 1
EXHIBIT 11.1
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
STATEMENT RE: COMPUTATION OF NET INCOME PER SHARE,
PRIMARY and FULLY DILUTED EARNINGS PER SHARE
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1996
-------------------------------------------------------------------------
<S> <C>
Net income $19,623
Net income per share (1) $ 1.08
Primary and fully diluted earnings per share (2) $ 1.05
</TABLE>
1) The number of common shares outstanding used to compute net income per share
was 18,240,994, which includes the retroactive adjustment for the seven percent
stock dividend that was issued on September 24, 1996.
2) Primary and fully diluted earnings per share for the year ended December
31, 1996, was calculated based on weighted average shares outstanding of
18,787,671 and 18,824,535, respectively, which assumes the exercise of options
covering 1,287,587 shares and computes incremental shares using the treasury
stock method.
<PAGE> 1
EXHIBIT 13.1
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
TABLE OF CONTENTS
Mission Statement
Letter to Our Shareholders
Production and Servicing Highlights
Selected Financial Highlights
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Consolidated Financial Statements and Notes
Report of Independent Accountants
Stock Data
Directors and Officers
Corporate Information
MISSION STATEMENT
To maximize shareholders' value by engaging primarily in the business of
correspondent, wholesale and retail mortgage banking, while maintaining
flexibility in our review of other opportunities.
To service our clients and our clients' customers in an efficient, economically
responsible and fair manner.
To support our people and the communities in which they reside.
<PAGE> 2
LETTER TO OUR SHAREHOLDERS:
As we reflect back on 1996, a year of records, we remain focused on the future.
After all, it is our vision for the future, rather than our achievements of
the past, that will ensure your investment in the Company provides the returns
you are seeking.
1996-A RECORD YEAR
During 1996, your Company achieved record market share, loan production, total
revenue and net income. But for the non-recurring, fourth-quarter charge of
$3.2 million ($0.17 per share), earnings per share would also have set a new
record of $1.25. During the year we also successfully completed a $63.9
million follow-on stock offering, instituted a quarterly cash dividend program,
and acquired over $1.4 billion in servicing through bulk transactions. By the
close of 1996, we had solidified our presence in the mortgage marketplace,
becoming the 11th-largest loan originator in the country (up from 13th in 1995
and 37th in 1994).
All this was achieved without neglecting our loan production platform, the
heart and soul of the Company. During 1996, we hired two new account
executives to facilitate our entry into the California market and expanded our
number of approved correspondents from 726 to 871. Similarly, we opened three
new wholesale branches in the major metropolitan markets of Baltimore, Denver
and St. Louis. The total number of approved brokers who deliver product
through RBMG increased from 1,144 to 2,322, a rise of 103%. These investments
in the agency-eligible side of our business are expected to help expand both
market share and profitability in the years ahead.
Although these achievements continued our year-in, year-out track record of
creating enhanced shareholder value, we candidly acknowledge we did not meet
all of our financial goals for 1996. Returns on equity and assets of 16.8% and
2.2%, respectively (prior to consideration of the non-recurring 1996 charge),
were below our long-term targets, but we look to improve on these percentages
in the future.
<TABLE>
<CAPTION>
ESTIMATED MARKET SHARE
1993 1994 1995 1996
- ---------------------------------
<S> <C> <C> <C>
0.42% 0.37% 1.11% 1.26%
</TABLE>
<TABLE>
<CAPTION>
MORTGAGE LOANS PURCHASED/ORIGINATED
(In Millions)
1992 1993 1994 1995 1996
- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
$2,458 $4,239 $2,875 $7,136 $9,996
</TABLE>
<PAGE> 3
THE FUTURE
It is with great excitement that we report to you our plans for the future -- a
plan whose essence is captured in the theme of this year's Annual Report:
GROWTH THROUGH DIVERSIFICATION.
Recognizing that the Company serves two distinct customer groups -- small loan
producers and large mortgage loan servicers -- we are now positioned as a
nationwide loan wholesaler, providing efficient secondary market access to
smaller producers of agency-eligible loan products. Simultaneously, we are
also positioned among the largest national suppliers of servicing rights to the
still-consolidating mortgage servicing industry. Although our financial
achievements testify to the prudence of our strategic approach, we are
nonetheless perceived by the marketplace as a non-diversified, single-industry
lender operating in an increasingly commoditized market. We believe our plan
of GROWTH THROUGH DIVERSIFICATION can overcome this perception -- leading to
enhanced shareholder value in the form of improved price-to-earnings and
price-to-book multiples.
After considerable study, we selected the subprime mortgage marketplace, which
is countercyclical to the agency-eligible market, as a nearly ideal opportunity
for diversifying our revenue sources. Specifically, we can access this
marketplace as a wholesaler with the same objective of providing efficient
secondary market access to small producers of subprime loan products.
Simultaneously, we can leverage our low-cost operational infrastructure and our
existing loan production platform -- along with our reputation for exceptional
customer service -- to rapidly establish a nationwide presence in this
industry.
We are pleased to report that our plan is already well underway. In January,
1997, we signed a letter of intent to merge with Meritage Mortgage Corporation,
a wholesale originator of subprime mortgages on the West Coast. Meritage was
formed just over a year ago, but its key personnel have over a decade of
successful experience as subprime mortgage lenders. By merging with Meritage
and its management expertise, we would expect to jump-start our plans to make
an aggressive entry into this marketplace. Simultaneously, we've assembled a
staff of experienced subprime lenders in Columbia, who have started building an
East Coast operation to complement the efforts of Meritage on the West Coast.
Upon consummation of the Meritage merger, which we expect to complete during
the second quarter, we are increasingly confident that these initiatives will
contribute significantly to our 1997 earnings performance.
<TABLE>
<CAPTION>
TOTAL REVENUES NET INCOME
($000) ($000)
1993 1994 1995 1996 1992 1993 1994 1995 1996
- ------- ------- ------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$47,756 $56,622 $76,697 $126,617 $11,250 $17,580 $18,043 $14,219 $19,623
</TABLE>
<PAGE> 4
OUR GOAL
On June 3, 1993 the Company went public at a stock dividend-adjusted offering
price of $6.12 per share. In just a little over three and one-half years, our
stock price has risen 133% to close at $14.25 as of December 31, 1996. In
short, our goal over the next three and one-half years is to replicate our
superior stockholder returns through implementation of our plan of GROWTH
THROUGH DIVERSIFICATION.
We appreciate your continued commitment and support. In return, we will
continue to apply the very best of our talents, our abilities and our energies
with the objective of creating ever greater value for you, our stockholder.
Edward J. Sebastian
Chairman & Chief Executive Officer
March 18, 1997
<TABLE>
<CAPTION>
PROFITABILITY REVIEW
BEFORE NON-RECURRING CHARGE
1993 1994 1995 1996
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings Per Share $ 0.80 $ 1.16 $ 0.92 $ 1.25
ROA 4.81% 5.25% 1.95% 2.22%
ROE 38.50% 25.98% 17.00% 16.78%
</TABLE>
Note: All earnings per share data has been adjusted for the Stock Dividends
<TABLE>
<CAPTION>
PROFITABILITY REVIEW
AFTER NON-RECURRING CHARGE
1993 1994 1995 1996
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings Per Share $ 0.80 $ 1.16 $ 0.92 $ 1.08
ROA 4.81% 5.25% 1.95% 1.91%
ROE 38.50% 25.98% 17.00% 14.43%
</TABLE>
Note: All earnings per share data has been adjusted for the Stock Dividends
<TABLE>
<CAPTION>
STOCK PERFORMANCE
MAY 26, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1995 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RBMG 100 121.4 132.3 217.7 233.0
NASDAQ 100 110.4 108.0 152.7 187.8
MBA Peer Group 100 97.4 87.2 126.4 158.2
</TABLE>
<PAGE> 5
PRODUCTION AND SERVICING HIGHLIGHTS
INCREASED PRODUCTION
<TABLE>
<CAPTION>
TOP MORTGAGE ORIGINATORS IN 1996 (VOLUME IN BILLIONS)
- --------------------------------------------------------------------------------------------
RANK RANK LENDER VOLUME MARKET SHARE
(1996) (1995)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 1 Norwest Mortgage, Inc.* $51.48 6.4%
2 2 Countrywide Home Loans $38.82 4.8%
3 4 Chase Manhattan Mortgage* $33.56 4.2%
4 20 HomeSide Lending $19.64 2.4%
(BancBoston)*
5 6 Fleet Mortgage $17.81 2.2%
11 13 RBMG, Inc. $ 9.96 1.2%
</TABLE>
*Chase Manhattan Mortgage's numbers reflect merger with Chemical, Norwest
Mortgage's numbers reflect acquisition of Prudential Home Mortgage, and
HomeSide Lending's numbers reflect the acquisition of Barnett Mortgage. Source:
Inside Mortgage Finance, January 24, 1997
Production volume rose over 40% in 1996, the Company's second straight year of
exceptional growth and fourth in the past five. Our market share also rose,
from 1.11% to 1.26% (a 13.5% increase), pushing the Company into 11th place
nationally among mortgage loan originators, up from 13th place in 1995.
<TABLE>
<CAPTION>
PRODUCTION MIX
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Correspondent 99% 88% 79%
Wholesale 1% 9% 14%
Retail 3% 7%
---- ---- ----
Total 100% 100% 100%
</TABLE>
As our wholesale and retail channels increased their percentage contribution to
the Company's volume, core margins showed steady improvement over the last half
of the year, growing from $0.61 per share on $5.6 billion in production in the
first six months, to $0.64 (prior to the non-recurring item in the fourth
quarter) on only $4.4 billion in production from July through December. These
improved margins bode well for future profitability.
<PAGE> 6
CORRESPONDENT LENDING
<TABLE>
<CAPTION>
CORRESPONDENT LOAN PRODUCTION
($ millions)
1992 1993 1994 1995 1996
- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
$2,458 $4,239 $2,855 $6,252 $7,915
</TABLE>
Correspondent mortgage banking remains the Company's primary production
channel, still providing nearly 80% of total Company origination volume in
1996. As evidence of our commitment to correspondent lending, the Company
chose this line of business to lead the Company's first venture into
California, placing two new account executives there late in the year. Growth
in this division remained solid, as correspondent production for the year rose
to $7.9 billion, a 27% increase over 1995. The number of approved
correspondents rose by 145, representing a 20% increase.
<TABLE>
<CAPTION>
GROWTH OF THE CORRESPONDENT NETWORK
- -------------------------------------------------------------------------------
12/31/94 12/31/95 12/31/96
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Approved Correspondents 485 726 871
Regional Account Executives 9 10 11
Production (in billions) $2.9 $6.3 $7.9
</TABLE>
TOP CORRESPONDENT/BROKER ORIGINATORS IN 1996
(VOLUME IN BILLIONS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
RANK LENDER WHOLESALE* TOTAL WHOLESALE AS
(1996) ORIGINATIONS ORIGINATIONS % OF TOTAL
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Countrywide Home Loans $30.54 $38.82 78.7%
2 Norwest Mortgage, Inc. $25.16 $51.48 48.9%
3 HomeSide Lending (BancBoston) $18.74 $19.64 95.4%
4 Chase Manhattan Mortgage $22.09 $33.56 65.8%
5 Fleet Mortgage $14.29 $17.81 80.2%
6 RBMG, Inc. $ 9.29 $ 9.96 93.3%
</TABLE>
*Wholesale includes correspondent and broker originations.
Source: Inside Mortgage Finance, February 14, 1997
EXCEPTIONAL CUSTOMER SERVICE KEEPS OUR CORRESPONDENTS/BROKERS HAPPY. THE
RESULTS SPEAK FOR THEMSELVES.
As a result of continued strong performance by the Company's correspondent
division, plus continued investment in our wholesale division, the Company
retained its position as
<PAGE> 7
the country's sixth-largest correspondent/broker mortgage originator. The
addition of the California market and continued emphasis on the Texas and
Pacific Northwest markets should position RBMG as a top-five
correspondent/broker originator. 93.3% of RBMG's 1996 loan production was
originated through correspondent/broker channels, which is the Company's
primary business focus because of its inherent lower cost structure. According
to Inside Mortgage Finance, RBMG's percentage is among the highest of the top
15 lenders in this category.
PLATFORM EXPANSION
WHOLESALE LENDING
<TABLE>
<CAPTION>
WHOLESALE LOAN PRODUCTION
($ thousands)
1994 1995 1996
- --------- --------- -----------
<S> <C> <C>
$19,931 $673,201 $1,411,643
</TABLE>
Since the formation of this division in late 1994, it has grown dramatically,
now contributing 14% of the Company's production volume. 1996 production
outpaced that of 1995 by nearly $750 million, a 110% increase.
<TABLE>
<CAPTION>
NUMBER OF BRANCHES APPROVED BROKERS
1994 1995 1996 1994 1995 1996
- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
3 10 13 190 1,144 2,322
</TABLE>
The number of approved brokers more than doubled in 1996. The recent addition
of branches in Denver, St. Louis and the metropolitan Baltimore area, bringing
the number of the Company's wholesale branches to 13, affords opportunity for
future growth as well. The Company continues to evaluate other new markets as
candidates for additional wholesale branches, including various California
locations. The Company also intends to leverage its wholesale branch network
as a base on which to build its subprime originations platform. Continued
consolidation among the larger banks and mortgage companies will cause a steady
stream of brokers entering the business as these companies downsize and merge
operations.
<PAGE> 8
<TABLE>
<CAPTION>
DIRECT OPERATING EXPENSES
(AS BASIS POINTS OF PRODUCTION)
1994 1995 1996
- --------- --------- ---------
<S> <C> <C>
214 bps 55bps 60bps
</TABLE>
With further expansion of the wholesale division and resulting increased
production from 1994 to 1996, the Company has been able to reduce the
division's operating expenses as a percentage of production.
RBMG'S EXPANSION INTO WHOLESALE AND RETAIL OPERATIONS HAS BEEN SUCCESSFUL.
BOTH DIVISIONS ARE NOW OPERATING PROFITABLY.
RETAIL LENDING
<TABLE>
<CAPTION>
RETAIL LOAN PRODUCTION
($ thousands)
1995 1996
- ------------- -----------
<S> <C>
$210,565 $668,759
</TABLE>
In 1996, the Company began to fully realize the results of its entrance into
the retail mortgage market in May 1995. Production from this channel grew
from $211 million in 1995 to $669 million in 1996, an increase of $458 million,
or 218%. Five new "satellite" branches were opened during the year to
facilitate further market penetration. In addition, two joint ventures were
initiated late in the year that are expected to further contribute to profits.
<TABLE>
<CAPTION>
DIRECT OPERATING EXPENSES
(AS BASIS POINTS OF PRODUCTION)
1995 1996
--------- ---------
<S> <C>
359 bps 239 bps
</TABLE>
As production has increased from 1995 to 1996, there has been a corresponding
decrease in direct operating expenses as a percentage of production. The
Company has been able to manage costs by leveraging the expertise of its
seasoned retail management group, who have worked together for more than 13
years. Opportunities to fine tune and enhance the retail operations are still
abundant. A closing operation is now operative in New York that will enable
RBMG to retain a greater portion of fee income while incurring little
additional expense.
<PAGE> 9
EXPANDING SERVICING PORTFOLIO
LOAN SERVICING HIGHLIGHTS
<TABLE>
<CAPTION>
SERVICING PORTFOLIO BALANCES
($ in millions)
1992 1993 1994 1995 1996
- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C>
$1,198 $1,921 $4,040 $5,563 $6,670
</TABLE>
The Company continued to pursue its strategy of bargain hunting in the
acquisition of bulk servicing packages in 1996. By utilizing a combination of
in-house and analyst portfolio valuation techniques, we identified and acquired
several reasonably priced packages, totaling $1.4 billion for 1996. Given the
current fierce competition for servicing, resulting in agressive bidding for
most packages offered for sale, the Company began to execute an alternative
approach to build its longer-term portfolio in 1996 by routinely retaining a
percentage of our own production each quarter.
BY ROUTINELY SELLING A HIGH PERCENTAGE OF THE SERVICING IT PRODUCES, RBMG CAN
EFFECTIVELY MANAGE PREPAYMENT RISK AND IMMEDIATELY REALIZE THE CASH VALUE OF
THE SERVICING IT CREATES.
<TABLE>
<CAPTION>
SERVICING PORTFOLIO SUMMARY
- -----------------------------------------------------------------------------
12/31/95 12/31/96
- -----------------------------------------------------------------------------
<S> <C> <C>
OWNED:
Portfolio Balance ($000) $5,562,930 $6,670,267
Loans Serviced 64,579 75,572
Average Loan Size $ 86,141 $ 88,758
Weighted Average Note Rate 7.84% 7.92%
Weighted Average Maturity (Months) 302 288
Weighted Average Service Fee 42bps 39bps
Total Delinquencies (Loan Count) 3.42% 3.75%
Basis - Multiple of Service Fee 4.26x 4.22x
SUBSERVICED:
Portfolio Balance ($000) $2,258,806 $1,988,475
Loans Serviced 25,484 20,515
Average Loan size $ 88,636 $ 96,928
Average Owned and Subserviced Portfolio Balance
($000) $6,397,186 $8,814,560
</TABLE>
Although the subservicing portfolio balance at the end of 1996 was 12% less
than the 1995 year-end balance, the average portfolio balance for 1996 that is
owned and subserviced has increased by 38% over the 1995 average. As a
combined result of acquisitions and retentions, the Company grew its servicing
portfolio nearly 20% over the
<PAGE> 10
past year. Our intent for 1997 is to accelerate this growth, using both
approaches, with a goal of $10 billion by sometime during 1998.
EXPANDING INTO SUBPRIME MARKET
SUBPRIME LENDING
Perhaps the most exciting prospect the Company faces currently is its venture
into the subprime lending market. Assuming our pending merger with Meritage
Mortgage, Corporation closes, the Company would gain an immediate foothold in
this market. Even more promising, Meritage is still a young company - despite
the substantial cumulative experience of its key personnel - with considerable
potential for rapid growth.
Add to this scenario the simultaneous formation of an East-Coast subprime unit,
also laden with experience, and the Company is poised to become a significant
player in the industry.
To generate even greater returns from our new subprime operations, the Company
is aggressively pursuing the capacity to perform its own securitizations. In
fact, current plans foresee completing our first securitization perhaps as
early as the second quarter of 1997.
"REMI's entry into the subprime market should position it for strong future
growth."
UBS Securities,
Equity Research, (REMI),
February 27, 1997
<PAGE> 11
STOCK PERFORMANCE
<TABLE>
<CAPTION>
STOCK PERFORMANCE
- --------------------------------------
12/31/93 12/31/94 12/31/95 12/31/96
- --------------------------------------
<S> <C> <C> <C>
$7.43 $8.09 $13.32 $14.25
</TABLE>
"REMI is still in its initial growth stage."
UBS Securities,
Equity Research, (REMI),
February 27, 1997
"Resource's stock remains a bargain at $14.25 a share ... selling at just 8.1
times projected 1997 earnings. Industry leader Countrywide Credit, by
contrast, with more modest growth prospects, is trading at 10.7 times projected
earnings."
Smart Money Magazine
March 1997
"The company has always been able to make money when others weren't...They know
what they are doing."
Rick Lawson, Weitz & Company
as quoted in
Smart Money Magazine
March 1997
<PAGE> 12
SELECTED FINANCIAL HIGHLIGHTS
($ in thousands, except share information)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
At or for the Year Ended December 31,
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $ 16,902 $ 8,635 $ 7,686 $ 9,616 $ 9,200
Net gain on sale of mortgage loans 79,178 33,822 1,160 2,167 2,262
Gain on sale of mortgage
servicing rights 1,105 7,346 33,375 29,202 17,491
Loan servicing fees 28,763 24,205 14,196 6,128 3,216
Total revenues 126,617 76,697 56,622 47,756 32,826
Salary and employee benefits 55,578 31,199 15,986 12,203 10,048
Total expenses (including taxes) 106,994 62,478 38,579 30,176 21,576
Net income 19,623 14,219 18,043 17,580 11,250
PER COMMON SHARE DATA (2)
Net income per common share $ 1.08 $ 0.92 $ 1.16 $ 0.80 (1) N/A
Market value per common share at year-end 14.25 13.32 8.09 7.43 N/A
Book value per common share at year-end 8.16 6.00 5.21 4.04 N/A
Cash dividends per common share 0.06
BALANCE SHEET
Mortgage loans held for sale
and mortgage-backed securities $ 802,335 $ 1,035,229 $ 119,044 $ 587,208 $ 330,305
Mortgage servicing rights, net 109,815 99,912 65,840 15,123 10,630
Total assets 1,028,394 1,231,097 237,631 639,425 364,328
Total liabilities 871,093 1,137,693 157,017 576,942 344,388
Stockholders' equity and parent
equity in the division 157,301 93,404 80,614 62,483 19,940
STATISTICS
Total loan production $ 9,995,725 $ 7,135,774 $ 2,875,265 $ 4,239,100 $ 2,458,302
Total servicing portfolio
(including subservicing) 8,658,742 7,821,736 5,876,508 3,049,270 1,830,825
Return on average assets 1.91% 1.95% 5.25% N/A (3) N/A (3)
Return on average equity 14.43% 17.00% 25.98% N/A (3) N/A (3)
</TABLE>
(1) Resource Bancshares Mortgage Group, Inc.'s initial public offering was
consummated on June 3, 1993. Net income per common share for 1993 was
calculated based on net income subsequent to the date of the initial public
offering through December 31, 1993, of $12,465.
(2) Amounts have been adjusted for Stock Dividends as defined elsewhere in this
Annual Report.
(3) Because of the significantly different capital structure of the Company
prior to its initial public offering, these statistics are not comparatively
meaningful for periods prior to, and including the date on which, the initial
public offering was consummated.
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial information and the Consolidated Financial Statements of the
Company (including the notes thereto) contained elsewhere in this document. To
the extent that any statement below (or elsewhere in this document) is not a
statement of historical fact and could be considered a forward-looking
statement, the "Risk Factors" discussion set forth in the Company's final
Prospectus dated March 11, 1996, identifies important factors that could cause
actual results to differ materially from those in the forward-looking statement.
THE COMPANY
Resource Bancshares Mortgage Group, Inc. (the Company), was organized
under Delaware law in 1992 to acquire and operate the mortgage banking business
of Resource Bancshares Corporation (RBC), which commenced operations in May
1989. The assets and liabilities of the mortgage banking business of RBC were
transferred to the Company on June 3, 1993, when the Company sold 58% of its
common stock in an initial public offering. As a result, RBC retained a
significant ownership interest in the Company. As of December 31, 1996, RBC
owned approximately 38% of the outstanding common stock of the Company.
The Company is principally engaged in the purchase and origination of
residential mortgage loans, which it aggregates into mortgage-backed securities
issued or guaranteed by the Federal Home Loan Mortgage Corporation (FHLMC), the
Federal National Mortgage Association (FNMA) and the Government National
Mortgage Association (GNMA). The Company sells the mortgage-backed securities it
creates to institutional purchasers with the rights to service the underlying
loans being retained by the Company. The servicing rights retained are generally
sold separately but may be held for extended periods by the Company.
LOAN PRODUCTION
The Company purchases mortgage loans from its correspondents and
through its wholesale division. The Company originates mortgage loans through
its retail division.
A summary of loan production by source for the periods indicated is set
forth below:
<TABLE>
<CAPTION>
($ IN THOUSANDS) FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Loan Production:
Correspondent Division $7,915,323 $6,252,008 $2,855,334
Wholesale Division 1,411,643 673,201 19,931
Retail Division 668,759 210,565
---------- ---------- ----------
Total Loan Production $9,995,725 $7,135,774 $2,875,265
========== ========== ==========
</TABLE>
<PAGE> 14
Historically, the Company was exclusively focused on purchasing loans
through its correspondents. In order to diversify its sources of loan volume,
the Company started a wholesale operation, which purchased its first loan in May
1994, and a retail operation, which originated its first loan in May 1995.
Accordingly, correspondent operations have accounted for a diminishing
percentage of the Company's loan production (79% for 1996, as compared to 88%
for 1995 and 99% for 1994) as the wholesale and retail operations have grown.
Management anticipates that wholesale and retail operations will continue to
account for an increasing percentage of total loan production as those divisions
are further expanded and approach capacity. In general, management has targeted
as a near-term goal a production mix of approximately 70% correspondent , 20%
wholesale and 10% retail.
A summary of key information relevant to industry loan production activity is
set forth below:
<TABLE>
<CAPTION>
($ IN THOUSANDS) AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
U.S. 1-4 Family Mortgage Originations Statistics (1):
U.S. 1-4 Family Mortgage Originations $791,000,000 $644,000,000 $769,000,000
Adjustable Rate Mortgage Market Share 27.00% 30.00% 39.00%
Company Information:
Loan Production $ 9,995,725 $ 7,135,774 $ 2,875,265
Estimated Company Market Share 1.26% 1.11% 0.37%
</TABLE>
(1) Source: Mortgage Bankers Association of America, Economics Department.
Although nationwide production increased by 23% from 1995 to 1996, the
Company was able to increase its production by 40% during the same time period,
thereby increasing its 1996 market share by 14% over that for 1995. The 40%
increase in Company loan production was primarily due to the combined positive
impact of: 1) the overall increase in the market volume of originations
nationwide, which is related to the mortgage interest-rate environment among
other factors; 2) expansion of the Company's production network, including
realization of a full year's production from the wholesale and retail divisions;
and 3) the decline in the adjustable-rate mortgage (ARM) share of the U.S.
market, from 30% in 1995 to 27% for 1996. The Company is primarily focused on
purchase and origination of fixed-rate, 1-4 family residential mortgage loans.
As such, the Company is competitively disadvantaged in economic environments
that tend to favor ARMs over fixed-rate mortgages (Generally lower long-term
fixed-rate and flatter yield-curve environments tend to favor fixed-rate
originations.)
Although nationwide production decreased by 16% from 1994 to 1995, the
Company was able to increase its production by 148% during the same time period,
thereby nearly tripling its market share from 0.37% for 1994 to 1.11% for 1995.
The increase in the Company's loan production was primarily due to the expansion
of the Company's production network and the decline in the ARM share of the U.S.
market from 39% in 1994 to 30% for 1995.
<PAGE> 15
Correspondent Loan Production
Through its correspondents, the Company purchases loans that have been
originated by such correspondents with property owners. Correspondents are
primarily mortgage lenders, larger mortgage brokers and smaller savings and loan
associations and commercial banks.
The Company continues to emphasize correspondent loan production as its
primary business focus because of the lower fixed expenses and capital
investment required of the Company. That is, the Company can develop a cost
structure that is more directly variable with loan production because the
correspondent incurs most of the fixed costs of operating and maintaining branch
office networks and of identifying and interacting directly with loan
applicants.
A summary of key information relevant to the Company's correspondent loan
production activities is set forth below:
<TABLE>
<CAPTION>
($ IN THOUSANDS) AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Correspondent Loan Production $7,915,323 $6,252,008 $2,855,334
Estimated Correspondent Market Share 1.00% 0.97% 0.37%
Approved Correspondents 871 726 485
</TABLE>
The Company's correspondent market share increased slightly, to 1.00%
for 1996 as compared to 0.97% for 1995. This rise is primarily due to the
Company's correspondent production increasing by 27% for 1996, while nationwide
production increased by only 23%. The Company's correspondent production
outpaced nationwide trends primarily due to the Company's 20% growth in the
network of approved correspondents, to 871 at December 31, 1996, from 726 at
December 31, 1995.
The 119% increase in correspondent loan production, from $2.9 billion
for 1994 to $6.3 billion for 1995, was primarily due to the combined positive
impact of expansion of the Company's correspondent network and the decline in
the ARM share of the U.S. market, from 39% in 1994 to 30% for 1995. The number
of approved correspondents increased by 241 or 50% during 1995, from 485 at
December 31, 1994, to 726 at December 31, 1995. These positive factors more than
offset the negative effects of the 16% reduction in the overall U.S. market for
1-4 family residential mortgage loans. As a result, the Company's correspondent
market share nearly tripled, to 0.97% for 1995 from 0.37% for 1994.
Wholesale Loan Production
In May 1994, the Company began its expansion into the wholesale
mortgage banking business. In connection therewith, the Company receives loan
applications through brokers, underwrites the loan, funds the loan at closing
and prepares all closing documentation. The wholesale branches also handle all
shipping and follow-up procedures on loans. Although the establishment of
wholesale branch offices involves the incurrence of the fixed expenses
associated with maintaining those offices, wholesale operations also provide for
higher profit margins than correspondent loan production. Additionally, each
branch office can serve a relatively sizable geographic area by establishing
relationships with large numbers of
<PAGE> 16
independent mortgage loan brokers who bear much of the cost of identifying and
interacting directly with loan applicants.
A summary of key information relevant to the Company's wholesale
production activities is set forth below:
<TABLE>
<CAPTION>
($ IN THOUSANDS) AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Wholesale Loan Production $1,411,643 $ 673,201 $ 19,931
Estimated Wholesale Market Share 0.18% 0.10% 0.00%
Wholesale Division Direct Operating Expenses $ 8,540 $ 3,697 $ 427
Approved Brokers 2,322 1,144 190
Number of Branches 13 10 3
Number of Employees 126 98 15
</TABLE>
The 110% ($738 million) increase in wholesale loan production, from
$673 million for 1995 to $1.4 billion for 1996, was driven primarily by the full
year impact for 1996 of production out of the new branches added during 1995. As
a result thereof, together with the associated significant increase in broker
relationships, our wholesale market share increased 80% year to year.
Similarly, the $653 million increase in wholesale production from 1994
to 1995 resulted from a combination of branch expansion during 1995, and the
associated growth in established broker relationships.
Management anticipates the wholesale division will continue to account
for an increasing percentage of the Company's total loan production as existing
operations approach capacity and as the branch network is further expanded.
Retail Loan Production
In mid-1995, the Company expanded into the retail mortgage banking
business in the northeast. The establishment of the retail division was made in
the context of the demographics and market conditions affecting the northeast
and is expected to be unique within the context of the Company's primary
business strategies of continuing to increase the number of correspondents and
expand its wholesale division. The retail operation further diversifies the
Company's sources of loan volume and permitted management to retain a group of
seasoned and profitable originators who had previously worked together for 13
years. Management believes that in this particular case these positive
considerations, together with the higher relative profit margins typical for
retail originations, outweigh the increased earnings risk associated with the
retail division's higher fixed-cost structure.
A summary of key information relevant to the Company's retail
production activities that commenced in May 1995 is set forth below:
<PAGE> 17
<TABLE>
<CAPTION>
($ IN THOUSANDS) AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Retail Loan Production $668,759 $210,565 N/A
Estimated Retail Market Share 0.08% 0.03% N/A
Retail Division Direct Operating Expenses $ 15,963 $ 7,584 N/A
Number of Branches 6 6 N/A
Number of Employees 209 158 N/A
</TABLE>
The $458 million increase in retail loan production, to $669 million
for 1996 from $211 million for 1995, relates to the Company's initial May 1995
expansion into this production channel. The increase in market share to 0.08%
for 1996 from 0.03% for 1995 resulted primarily from realization of a full
year's production from the retail channel in 1996.
Management anticipates that the retail division will account for an
increasing percentage of the Company's total loan production as the existing
operations approach capacity. However, there are no current plans to increase
the number of retail branches.
LOAN SERVICING
Loan servicing includes collecting and remitting mortgage loan
payments, accounting for principal and interest, holding escrow funds for
payment of mortgage-related expenses such as taxes and insurance, making
advances to cover delinquent payments, making inspections as required of the
mortgaged premises, contacting delinquent mortgagors, supervising foreclosures
and property dispositions in the event of unremedied defaults and generally
administering mortgage loans.
The Company's strategy is to sell a substantial portion of its produced
mortgage servicing rights to other approved servicers. Typically, the Company
sells mortgage servicing rights within 90 to 180 days of purchase or
origination. However, for strategic reasons, the Company also strives to
maintain a servicing portfolio whose size is determined by reference to the
Company's cash operating costs which, in turn, is largely determined by
reference to the size of its loan production platform. By continuing to focus on
the low-cost correspondent production channel, the Company is able to minimize
the cash operating cost of its loan production platform and thus the
strategically required size of its loan servicing operation.
A summary of key information relevant to the Company's loan servicing
activities is set forth below:
<PAGE> 18
<TABLE>
<CAPTION>
($ IN THOUSANDS) AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Underlying Unpaid Principal Balances:
Beginning Balance $ 5,562,930 $ 4,039,847 $ 1,920,593
Loan Production (net of servicing-
released production) 9,912,365 6,615,441 2,875,265
Net Change in Work-in-Process 535,847
Bulk Acquisitions 1,354,592 390,632 3,352,928
Sales of Servicing (9,521,451) (4,622,018) (3,802,498)
Paid-In-Full Loans (504,312) (400,897) (133,289)
Amortization, Curtailments, and Other, net (669,704) (460,075) (173,152)
----------- ----------- -----------
Ending Balance 6,670,267 5,562,930 4,039,847
Subservicing Ending Balance 1,988,475 2,258,806 1,836,661
----------- ----------- -----------
Total Underlying Unpaid Principal Balances $ 8,658,742 $ 7,821,736 $ 5,876,508
=========== =========== ===========
Loan Servicing Fees $ 28,763 $ 24,205 $ 14,196
Cash Operating Expenses $ 81,135 $ 45,053 $ 24,972
Coverage Ratio 35% 54% 57%
Average Underlying Unpaid Principal Balances
(including subservicing) $ 8,814,560 $ 6,397,186 $ 4,298,435
Weighted Average Note Rate 7.92% 7.84% 7.87%
Weighted Average Servicing Fee 0.39% 0.42% 0.46%
Delinquency (30+ days), Including Bankruptcies
and Foreclosures 3.75% 3.42% 3.36%
Number of Servicing Division Employees 128 115 85
</TABLE>
The $2.4 billion or 38% increase in the average underlying unpaid
principal balance of mortgage loans being serviced for 1996 as compared to 1995
is primarily related to the Company's increased loan production volumes during
1996 and the Company's $1.4 billion in bulk acquisitions of servicing primarily
during the third quarter of 1996. Since the Company generally sells servicing
rights related to the loans it produces within 90 to 180 days of purchase or
origination, increased production volumes generally result in a higher volume of
mortgage servicing rights held in inventory pending sale. The $2.1 billion or
49% increase in the average underlying unpaid principal balance of mortgage
loans being serviced for 1995 as compared to 1994 is primarily related to the
Company's increased loan production volumes during 1995. The 35% coverage ratio
for 1996 is below the Company's strategic goal to generally maintain such ratio
at between 50% and 80%. The Company is continuing to review bulk purchase
opportunities with the objective of increasing this ratio.
<PAGE> 19
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED
DECEMBER 31, 1995
SUMMARY
Total revenues of the Company increased 65%, to $126.6 million for 1996
as compared to $76.7 million for 1995. The $49.9 million increase in revenues
was primarily due to an $8.3 million increase in net interest income and a $39.1
million increase in gains on sales of mortgage loans and mortgage servicing
rights. These increases in revenues were partially offset by a $36.1 million
increase in operating expenses (exclusive of amortization and taxes). The
increase in net interest income is due to the increase in annual production
volumes as well as the steeper 1996 yield-curve environment. Similarly, the
increase in gains on sales of loans and servicing rights is related to the
Company's increased loan production volumes for 1996. The increase in operating
expenses is primarily attributable to increased costs associated with increased
loan production and loan servicing volumes, increased costs associated with
further development of the wholesale and retail operations, and a non-recurring
charge. Direct costs related to the Company's development of its retail and
wholesale operations account for approximately $8.4 million and $4.8 million, or
23% and 13%, respectively, of the total increase in operating expenses
(exclusive of amortization and taxes) for 1996. Approximately $5.2 million of
the increase in operating expenses, which is partially offset by a $2.0 million
decrease in income taxes, is attributable to a non-recurring charge related to
certain contractual employment obligations.
As a consequence of the foregoing, pre-tax net income increased 37% or
$8.3 million. After-tax net income also increased 38%, or $5.4 million, for 1996
as compared to 1995.
The following sections discuss the components of the Company's results
of operations in greater detail.
NET INTEREST INCOME
The following table analyzes net interest income in terms of rate and
volume variances of the interest spread (the difference between interest rates
earned on loans and mortgage-backed securities and interest rates paid on
interest-bearing sources of funds).
<PAGE> 20
<TABLE>
<CAPTION>
Variance
Average Volume Average Rate Interest Attributable to
- -------------------- ------------- ----------------- -----------------
1996 1995 1996 1995 1996 1995 Variance Rate Volume
- -------- -------- ---- ---- ------- ------- -------- ------- -------
($ in thousands) INTEREST INCOME ($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans Held for Sale and
$816,597 $603,735 7.70% 7.86% Mortgage-Backed Securities $62,858 $47,477 $15,381 $(1,358) $16,739
- -------- -------- ---- ---- ------- ------- ------- ------- -------
INTEREST EXPENSE
331,356 250,767 4.52% 5.46% Warehouse Line 14,993 13,695 1,298 (3,103) 4,401
462,058 304,680 5.66% 6.11% Gestation Line 26,135 18,621 7,514 (2,104) 9,618
15,336 49,358 8.19% 7.77% Servicing Secured Line 1,256 3,835 (2,579) 64 (2,643)
18,639 4,776 5.89% 6.18% Servicing Sales Receivable Line 1,098 295 803 (53) 856
7,842 8,479 8.50% 8.46% Other Borrowings 667 717 (50) 4 (54)
Facility Fees and Other Charges 1,807 1,679 128 128
- -------- -------- ---- ---- ------- ------- ------- ------- -------
835,231 618,060 5.50% 6.28% Total Interest Expense 45,956 38,842 7,114 (5,192) 12,306
- -------- -------- ---- ---- ------- ------- ------- ------- -------
N/A N/A 2.20% 1.58% NET INTEREST INCOME $16,902 $ 8,635 $ 8,267 $ 3,834 $ 4,433
- -------- -------- ---- ---- ------- ------- ------- ------- -------
</TABLE>
Net interest income increased 96% to $16.9 million for 1996 compared to
$8.6 million for 1995. The $8.3 million increase in net interest income is
primarily attributable to the 35% increase in the average volume of mortgages
held for sale and mortgage-backed securities for 1996 from that of 1995. Net
interest income also increased due to a 62 basis-point increase in the
interest-rate spread, to 220 basis points for 1996 as compared to 158 basis
points for 1995. The increase in interest-rate spread was associated primarily
with the steeper 1996 yield curve environment. The Company's mortgages and
mortgage-backed securities are generally sold and replaced within 30 to 35 days.
The Company generally borrows at rates based upon short-term indices, while its
asset yields are primarily based upon long-term mortgage rates.
NET GAINS ON SALES OF MORTGAGE LOANS AND MORTGAGE SERVICING RIGHTS
Net gains on sales of mortgage loans and mortgage servicing rights
increased $39.1 million to $80.3 million for 1996 as compared to $41.2 million
for 1995. As further discussed below, this increase is primarily due to higher
volumes of mortgage loans and mortgage servicing rights sold during 1996
compared to 1995, as well as the effects of increased profit margins on sales.
Net Gain on Sale of Mortgage Loans
A reconciliation of gain on sale of mortgage loans for the periods
indicated follows:
<PAGE> 21
<TABLE>
<CAPTION>
($ IN THOUSANDS) FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Gross proceeds on sale of mortgage loans $ 10,307,177 $ 6,275,802
Initial allocated acquisition basis of mortgage loans sold 10,296,282 6,275,415
------------ -----------
Unadjusted gain on sale of mortgage loans 10,895 387
Loan origination and correspondent program administrative fees 34,405 15,497
------------ -----------
Unadjusted aggregate margin 45,300 15,884
Acquisition basis allocated to mortgage servicing rights 34,181 18,913
Gains deferred to reduce mortgage servicing rights (922)
Net change in deferred administrative fees (303) (53)
------------ -----------
Net gain on sale of mortgage loans $ 79,178 $ 33,822
============ ===========
</TABLE>
The Company sold loans during 1996 with an aggregate unpaid principal
balance of $10.3 billion compared to sales of $6.3 billion for 1995. The amount
of proceeds received on sales of mortgage loans exceeded the initial unadjusted
acquisition cost of the loans sold by $10.9 million (11 basis points) for 1996
as compared to $0.4 million (1 basis point) for 1995. The Company received loan
origination and correspondent program administrative fees of $34.4 million (33
basis points) on these loans during 1996 and $15.5 million (25 basis points)
during 1995. The Company had allocated $34.2 million (33 basis points) to basis
in mortgage servicing rights for loans sold in 1996 as compared to $18.9 million
(30 basis points) allocated to loans sold in 1995. This is a result of the
adoption of SFAS No. 122 for loans acquired after April 1, 1995. Also, there is
no gain deferred against mortgage servicing rights during 1996 due to the
adoption of SFAS No. 122, while $0.9 million was deferred for 1995 prior to
implementation of SFAS No. 122 on April 1, 1995. As a result, net gain on sale
of mortgage loans increased to $79.2 million for 1996 versus $33.8 million for
1995. This increase was primarily due to the 65% increase in the volume of
mortgage loans sold, as well as an 18 basis-point increase in the unadjusted
aggregate margin on the sale of mortgage loans, from 25 basis points for 1995 to
43 basis points for 1996.
Gain on Sale of Mortgage Servicing Rights
A reconciliation of the components of gain on sale of mortgage
servicing rights for the periods indicated follows:
<PAGE> 22
<TABLE>
<CAPTION>
($ IN THOUSANDS) FOR THE YEAR ENDED DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Underlying unpaid principal balances of mortgage loans on
which servicing rights were sold during the period $ 9,528,240 $ 4,622,018
=========== ===========
Gross proceeds from sales of mortgage servicing rights 196,406 94,027
Initial allocated acquisition basis, net of amortization 164,611 77,484
----------- -----------
Unadjusted gain on sale of mortgage servicing rights 31,795 16,543
Acquisition basis allocated from mortgage loans, net of
amortization (30,690) (12,803)
Previously deferred administrative fees and gain on sale of
mortgage loans recognized 3,606
----------- -----------
Gain on sale of mortgage servicing rights $ 1,105 $ 7,346
=========== ===========
</TABLE>
During 1996, the Company completed 34 sales of mortgage servicing
rights representing $9.5 billion of underlying unpaid principal mortgage loan
balances. This compares to 24 sales of mortgage servicing rights representing
$4.6 billion of underlying unpaid principal mortgage loan balances in 1995. The
unadjusted gain on the sale of mortgage servicing rights was $31.8 million (33
basis points) for 1996, up from $16.5 million (36 basis points) for 1995. The
Company reduced this unadjusted gain by $30.7 million in 1996, compared with a
$12.8 million reduction in 1995, due to the adoption of SFAS No. 122 effective
April 1, 1995. Also, prior to adoption of SFAS No. 122, the Company recognized
$3.6 million in previously deferred administrative fees and gains on sales of
mortgage loans. The acquisition basis allocated from mortgage loans, net of
amortization, as a percentage of unadjusted gain on sale of mortgage servicing
rights, is 97% for 1996 as compared to 77% for 1995. The lower percentage for
1995 is because SFAS No. 122 was not adopted until the second quarter of 1995.
As such, a basis allocation adjustment was not recorded for the first quarter of
1995.
NET SERVICING MARGIN
Loan servicing fees were $28.8 million for 1996, compared to $24.2
million for 1995, an increase of 19%. This increase is primarily related to an
increase in the average aggregate underlying unpaid principal balance of
mortgage loans serviced, to $8.8 billion during 1996 from $6.4 billion during
1995, an increase of 38%. Similarly, amortization of mortgage servicing rights
also increased, to $14.9 million during 1996 from $9.4 million during 1995, an
increase of 60%. The increase in amortization is primarily attributed to the
growth in the average balance of the mortgage loans serviced and the higher
basis in the servicing rights resulting from SFAS No. 122. As a result, net
servicing margin decreased 7% to $13.8 million during 1996, from $14.9 million
during 1995.
Included in loan servicing fees for 1996 and 1995 are subservicing fees
received by the Company of $960,000 and $695,000, respectively. The subservicing
fees are associated with temporary subservicing agreements between the Company
and purchasers of mortgage servicing rights.
The following table summarizes the net servicing margin for both 1996
and 1995:
<PAGE> 23
<TABLE>
<CAPTION>
($ IN THOUSANDS) FOR THE YEAR ENDED DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Loan servicing fees $ 28,763 $ 24,205
Amortization of mortgage servicing rights 14,934 9,352
---------- ----------
Net servicing margin $ 13,829 $ 14,853
========== ==========
Average underlying unpaid principal balance of
mortgage loans serviced $8,814,560 $6,397,186
</TABLE>
OTHER INCOME
Other income decreased during 1996 compared to 1995, primarily due to
the prospective recharacterization of certain loan-related gain and loss amounts
in connection with the implementation of SFAS No. 122.
EXPENSES
The $36.1 million increase in operating expenses (excluding
amortization of mortgage servicing rights) was centered in salary and employee
benefits, which increased $24.4 million or 78%. Approximately $5.2 million of
the increase in operating expenses, partially offset by a $2.0 million decrease
in income taxes, is attributable to recognition of a non-recurring charge
related to certain contractual employment obligations. The Company increased its
employee headcount by 147, from 880 at December 31, 1995, to 1,027 at December
31, 1996. The increased employee headcount and associated increase in salary and
employee benefit costs were necessitated by the Company's increased loan
production and increased servicing volume for 1996 as compared to 1995, which
were up 40% and 38%, respectively. Employee headcount attributable to expansion
of the wholesale and retail divisions accounted for 79 of the total 147 increase
and for $13.2 million of the total $36.1 million increase in operating expenses
(excluding amortization of mortgage servicing rights).
INCOME TAX EXPENSE
Income tax expense includes both federal and state income taxes. The
effective tax rates for 1996 and 1995 were 35.8% and 36.2%, respectively. Income
tax expense increased by 35%, to $10.9 million for 1996 from $8.1 million for
1995, due to the above-described factors that resulted in a 37% or $8.3 million
increase in income before taxes, which was partially offset by the Company
utilizing certain primarily non-recurring state tax credits of $1.7 million.
<PAGE> 24
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED
DECEMBER 31, 1994
SUMMARY
Total revenues of the Company increased 35% to $76.7 million for 1995
as compared to $56.6 million for 1994. The $20.1 million increase in revenues
was centered in loan servicing fees, which increased $10.0 million (due to the
increase in the average underlying unpaid principal balance of mortgage loans
being serviced by the Company), and in gains on sales of mortgage loans and
mortgage servicing rights, which increased $6.7 million (due to increases in the
Company's loan production). Similarly, expenses of the Company (exclusive of
income tax expense) increased 84%, to $54.4 million for 1995 as compared to
$29.5 million for 1994. The $24.9 million increase in expenses was centered in
personnel expense, which increased $15.2 million (due to increased employee
headcount associated with the higher volumes of loan production and loan
servicing activities, as well as the Company's expansion into wholesale and
retail operations) and in amortization of mortgage servicing rights, which
increased $4.8 million (due to the increased size of the Company's mortgage
servicing portfolio).
As a consequence of the foregoing, pre-tax net income decreased 18% or
$4.8 million, while after-tax net income decreased 21% or $3.8 million for 1995
as compared to 1994.
NET INTEREST INCOME
The following table analyzes net interest income in terms of rate and
volume variances of the interest spread (the difference between interest rates
earned on loans and mortgage-backed securities and interest rates paid on
interest-bearing sources of funds).
<TABLE>
<CAPTION>
Variance
Average Volume Average Rate Interest Attributable to
- ------------------- ------------ ----------------- -----------------
1995 1994 1995 1994 1995 1994 Variance Rate Volume
- -------- -------- ---- ---- ------- ------- -------- ------- -------
($ in thousands) INTEREST INCOME ($ in thousands)
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans Held for Sale and
$603,735 $274,855 7.86% 7.63% Mortgage-Backed Securities $47,477 $20,974 $26,503 $ 1,406 $25,097
- -------- -------- ---- ---- ------- ------- ------- ------- -------
INTEREST EXPENSE
250,767 86,901 5.46% 4.76% Warehouse Line 13,695 4,137 9,558 1,757 7,801
304,680 159,329 6.11% 4.52% Gestation Line 18,621 7,194 11,427 4,864 6,563
49,358 382 7.77% 7.33% Servicing Secured Line 3,835 28 3,807 217 3,590
4,776 6.18% Servicing Sales Receivable Line 295 295 295
8,479 8.46% Other Borrowings 717 717 717
Facility Fees and Other Charges 1,679 1,929 (250) (250)
- -------- -------- ---- ---- ------- ------- ------- ------- -------
618,060 246,612 6.28% 5.39% Total Interest Expense 38,842 13,288 25,554 6,588 18,966
- -------- -------- ---- ---- ------- ------- ------- ------- -------
N/A N/A 1.58% 2.24% Net Interest Income $ 8,635 $ 7,686 $ 949 $(5,182) $ 6,131
======== ======== ==== ==== ======= ======= ======= ======= =======
</TABLE>
Net interest income increased 12% to $8.6 million for 1995 as compared
to $7.7 million for 1994. The $0.9 million increase in net interest margin is
primarily attributable to the 120% increase in the average volume of mortgages
held for sale and mortgage-backed securities for 1995 as compared to 1994. This
increase in volume more than offset the negative effects of the decrease in the
interest-rate spread of 66 basis points. The decrease in interest-rate spread
was
<PAGE> 25
primarily the result of the narrower spreads between long-and short-term rates
in 1995 as compared to 1994. That is, since the Company's mortgages and
mortgage-backed securities are generally sold and replaced within 30-35 days,
the Company generally borrows at rates based upon short-term indices, while its
asset yields are primarily based upon long-term mortgage rates.
NET GAINS ON SALES OF MORTGAGE LOANS AND MORTGAGE SERVICING RIGHTS
Net gains on sales of mortgage loans and mortgage servicing rights
increased $6.7 million or 19% to $41.2 million for 1995 as compared to $34.5
million for 1994. As further discussed below, this increase was primarily due to
higher production volumes, which caused the volumes of mortgage loans and
mortgage servicing rights sold for 1995 to increase as compared to 1994. The
positive effects of increased sales volumes were partially offset by thinner
profit margins on sales.
NET GAIN ON SALE OF MORTGAGE LOANS
A reconciliation of selected components of gain on sale of mortgage
loans for the periods indicated follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) FOR THE YEAR ENDED DECEMBER 31,
------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Gross proceeds on sales of mortgage loans $ 6,275,802 $ 3,353,880
Initial allocated acquisition basis of mortgage loans sold 6,275,415 3,343,429
----------- -----------
Unadjusted gain on sale of mortgage loans 387 10,451
Loan origination and correspondent program administrative fees 15,497 9,047
----------- -----------
Adjusted gain on sale of mortgage loans 15,884 19,498
Acquisition basis allocated to mortgage servicing rights 18,913
Gains deferred to reduce mortgage servicing rights (922) (18,338)
Net change in deferred administrative fees (53)
=========== ===========
Net gain on sale of mortgage loans $ 33,822 $ 1,160
=========== ===========
</TABLE>
The Company sold loans during 1995 with an aggregate unpaid principal
balance of $6.3 billion, compared to sales of $3.4 billion for 1994. Since the
Company sells substantially all the loans it produces, the $2.9 billion or 87%
increase in gross proceeds on sales of mortgage loans is due primarily to the
previously discussed increase in loan production for 1995 as compared to 1994.
The amount of proceeds received on sales of mortgage loans exceeded the initial
acquisition basis in the loans sold by $0.4 million for 1995 and $10.5 million
for 1994. The Company received loan origination and correspondent program
administrative fees of $15.5 million on these loans during 1995 and $9.0
million during 1994. As a result, adjusted gain on sale of mortgage loans
decreased 19%, to $15.9 million for 1995 versus $19.5 million for 1994, in
spite of an 87% increase in the volume of mortgage loans sold, primarily due to
the implementation of SFAS No. 122. The positive effects of increased sales
volume were partially offset by a 33 basis-point decrease in the margin of
unadjusted gain on sale of mortgage loans, from 58 basis points for 1994 to 25
basis points for
<PAGE> 26
1995. The thinner profit margin is primarily attributable to competitive pricing
conditions in the Company's primary markets for 1995 as compared to 1994.
Prior to April 1, 1995, and in conjunction with the acquisition of
mortgage loans, the Company capitalized as mortgage servicing rights the portion
of the purchase price that represented the premium paid for the right to service
the mortgage loans. The amount capitalized was subsequently reduced, if the
mortgage loans were sold at a gain, by the amount of such gain. Effective April
1, 1995, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 122, ("Accounting for Mortgage Servicing Rights-An Amendment of FASB
Statement No. 65"), and, as required thereby, the Company began allocating the
total cost of a whole mortgage loan to the mortgage servicing right and the loan
(without servicing rights) based on relative fair market values. The amount
capitalized as mortgage servicing rights is no longer required to be reduced if
the loan is sold at a gain. Accordingly, the reduction in the amount of gains
deferred to reduce mortgage servicing rights, from $18.3 million for 1994 to
$0.9 million for 1995, is due to implementation of SFAS No. 122 effective April
1, 1995. Although implementation of SFAS No. 122 accounts for a significant
portion of the increase in the amount reported as net gain on sale of mortgage
loans, the implementation also accounts for a significant portion of the
decrease in the amount reported as gain on sale of mortgage servicing rights, as
discussed below.
Gain on Sale of Mortgage Servicing Rights
A reconciliation of selected components of gain on sale of mortgage
servicing rights for the periods indicated follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS) FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994
----------- ----------
<S> <C> <C>
Underlying unpaid principal balances of mortgage loans on
which servicing rights were sold during the period $ 4,622,018 $3,802,498
=========== ==========
Gross proceeds from sales of mortgage servicing rights 94,027 60,805
Initial allocated acquisition basis, net of amortization 77,484 54,005
----------- ----------
Unadjusted gain on sale of mortgage servicing rights 16,543 6,800
Acquisition basis allocated from mortgage loans, net of
amortization (12,803)
Previously deferred administrative fees and gain on sale of
mortgage loans recognized 3,606 26,575
=========== ==========
Gain on sale of mortgage servicing rights $ 7,346 $ 33,375
=========== ==========
</TABLE>
During 1995, the Company completed 24 sales of mortgage servicing
rights representing $4.6 billion of underlying unpaid principal mortgage loan
balances, compared to 11 sales of mortgage servicing rights representing $3.8
billion of underlying unpaid principal balances in 1994. Unadjusted gain on sale
of mortgage servicing rights was $16.5 million for 1995, compared to $6.8
million for 1994. This increase was primarily due to implementation of SFAS No.
122, which provides for initial capitalization of mortgage servicing rights
using a relative fair value allocation approach that has resulted in narrower
unadjusted margins upon sales.
<PAGE> 27
Similarly, the decline in previously deferred administrative fees and gain on
sale of mortgage loans recognized is due to adoption of SFAS No. 122 effective
April 1, 1995, which eliminated the requirement that gains on sale of mortgage
loans and administrative fees be deferred as a reduction of basis in mortgage
servicing rights. Thus, the $26.0 million decline in gain on sale of mortgage
servicing rights is primarily related to adoption of SFAS No. 122.
The prices obtained by the Company upon the sale of its mortgage
servicing rights depend upon a number of factors, including the general supply
of, and demand for, mortgage servicing rights, as well as prepayment and
delinquency rates on the portfolio of mortgage servicing rights being sold.
Interest-rate changes and product mix can affect the ability to sell or the
profitability of a sale of mortgage servicing rights to a third party.
Additionally, competitive pressures impact prices paid to acquire mortgage
servicing rights, which impact profitability upon disposition. Purchasers of
mortgage servicing rights analyze a variety of factors, including prepayment
sensitivity of servicing rights, to determine the purchase price they are
willing to pay. Thus, sales of mortgage servicing rights related to higher
interest-rate loans may be less profitable than sales of mortgage servicing
rights related to lower interest-rate loans. Because these factors are largely
beyond the control of the Company, there can be no assurance as to the level of
future profitability from the sale of mortgage servicing rights.
NET SERVICING MARGIN
The following table summarizes the net servicing margin for both 1995
and 1994:
<TABLE>
<CAPTION>
($ IN THOUSANDS) FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Loan servicing fees $ 24,205 $ 14,196
Amortization of mortgage servicing rights 9,352 4,574
---------- ----------
Net servicing margin $ 14,853 $ 9,622
========== ==========
Average underlying unpaid principal balance of
mortgage loans serviced $6,397,186 $4,298,435
</TABLE>
Loan servicing fees were $24.2 million for 1995, compared to $14.2
million for 1994. Similarly, amortization of mortgage servicing rights increased
to $9.4 million during 1995 from $4.6 million during 1994. As a result, net
servicing margin increased to $14.8 million during 1995, compared to $9.6
million during 1994, an increase of 54%. These increases primarily relate to a
49% increase in the average aggregate underlying unpaid principal balance of
mortgage loans serviced, to $6.4 billion during 1995 from $4.3 billion during
1994.
Included in loan servicing fees for 1995 and 1994 are subservicing fees
received by the Company of $695,000 and $565,000, respectively. The subservicing
fees are associated with temporary subservicing agreements between the Company
and purchasers of mortgage servicing rights.
<PAGE> 28
OTHER INCOME
Other income increased during 1995 compared to 1994, primarily due to
increased administrative fees received from sales of servicing-released loans
during 1995 as compared to 1994.
EXPENSES
The $20.1 million increase in operating expenses (excluding
amortization of mortgage servicing rights) was centered in salary and employee
benefits, which increased $15.2 million, or 95%. During 1995, the Company
increased its employee headcount by 529, from 351 at December 31, 1994, to 880
at December 31, 1995. The increased employee headcount and associated 95%
increase in salary and employee benefit costs were necessitated by the Company's
increased loan production and average loan servicing volumes, which were up 148%
and 54%, respectively. Employee headcount attributable to expansion of the
wholesale division and establishment of the retail division accounted for 241 of
the total 529 increase and for $10.9 million of the total $20.1 million increase
in operating expenses. The $4.9 million increase in operating expense categories
other than salaries and wages is also attributable to the Company's increased
level of core business activities, which caused most other such categories of
expense to increase.
INCOME TAX EXPENSE
Income tax expense includes both federal and state income taxes. The
effective tax rates for 1995 and 1994 were 36.2% and 33.4%, respectively. Income
tax expense decreased by 11% to $8.1 million during 1995 from $9.0 million
during 1994 due to the above-described factors, which resulted in an 18% or $4.8
million decrease in income before taxes. Additionally, the effective tax rate
for 1994 was reduced by the qualification of the Company for a corporate
headquarters tax credit from the state of South Carolina, $1.5 million of which
was reflected as a reduction of tax expense for 1994.
<PAGE> 29
FINANCIAL CONDITION
During 1996, the Company experienced a 40% increase in the volume of
mortgage loans originated and acquired compared to 1995. Mortgage loan
production increased to $10.0 billion during 1996 from $7.1 billion during 1995.
The December 31, 1996, mortgage application pipeline (mortgage loans not yet
closed but for which the interest rate has been locked) was approximately $500
million.
The Company continued to establish new correspondent relationships
during 1996. The number of correspondents approved to do business in the
Company's correspondent lending program increased to 871 at December 31, 1996,
from 726 at December 31, 1995.
The Company continued expansion of the wholesale network during 1996,
with the addition of branches in Colorado, Missouri, and Maryland. This
increased the number of wholesale branches in operation at December 31, 1996, to
13. In addition to the 13 wholesale branches, each of the Company's six retail
branches operated through Intercounty Mortgage, Inc. (IMI) is eligible to do
business in the wholesale market. At December 31, 1996, there were approximately
2,322 wholesale brokers approved to do business with the Company as compared to
approximately 1,144 at December 31, 1995. Of the 2,322 approved brokers, 186 are
approved to do business with IMI branches.
The Company's retail division, IMI, employed 209 people at December 31,
1996, with offices in New York (4), New Jersey and Pennsylvania.
The Company continues to face the same challenges as other companies
within the mortgage banking industry and as such is not immune from significant
volume declines precipitated by a rise in interest rates or other factors beyond
the Company's control. Management of the Company recognizes these challenges and
continues to manage the Company accordingly.
Mortgage loans held for sale and mortgage-backed securities totaled
$802.3 million at December 31, 1996, versus $1.0 billion at December 31, 1995, a
decrease of 22%. The Company's servicing portfolio (exclusive of loans under
subservicing agreements) increased to $6.7 billion at December 31, 1996, from
$5.6 billion at December 31, 1995, an increase of 20%.
Short-term borrowings, which are the Company's primary source of funds,
totaled $805.7 million at December 31, 1996, compared to $1.0 billion at
December 31, 1995, a decrease of 20%. The decrease in the balance outstanding at
December 31, 1996, resulted from decreased funding requirements related to the
decrease in the balance of mortgage loans held for sale and mortgage-backed
securities at December 31, 1996, as compared to the balance at December 31,
1995. At December 31, 1996, there were no long-term borrowings, compared with
$65.5 million at December 31, 1995.
Other liabilities totaled $54.0 million as of December 31, 1996,
compared to the December 31, 1995, balance of $56.6 million, a decrease of $2.6
million, or 5%. The decrease in other
<PAGE> 30
liabilities resulted primarily from a decrease at month end in the volume of
loans acquired through certain correspondent funding programs of the Company.
In connection with the Company's primary business activities, which involve loan
servicing activities and the purchase or origination of loans and the sale of
the related loans and servicing rights, the Company is actively involved in
certain risk management activities as more fully described in Note 13 to the
Consolidated Financial Statements.
<PAGE> 31
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash-flow requirement involves the funding of
loan production, which is met primarily through external borrowings. The Company
has entered into a 364-day, $570 million warehouse line of credit provided by a
syndicate of unaffiliated banks that expires in July 1997. The credit agreement
includes covenants requiring the Company to maintain (i) a minimum net worth of
$130 million, plus net income subsequent to July 31, 1996, and capital
contributions and minus permitted dividends, (ii) a ratio of total liabilities
to net worth of not more than 8.0 to 1.0, excluding debt incurred pursuant to
gestation and repurchase financing agreements, (iii) its eligibility as a
servicer of GNMA, FHA, VA, FNMA and FHLMC mortgage loans and (iv) a mortgage
servicing rights portfolio with an underlying unpaid principal balance of at
least $4 billion. The provisions of the agreement also restrict the Company's
ability (i) to pay dividends in any fiscal quarter which exceed 50% of the
Company's net income for the quarter or (ii) to engage significantly in any type
of business unrelated to the mortgage banking business and the servicing of
mortgage loans.
Additionally, the Company entered into a $200 million, 364-day term
revolving credit facility with a syndicate of unaffiliated banks. An $80 million
portion of the revolver facility converts on July 31,1997, into a four-year term
loan. The facility is secured by the Company's servicing portfolio designated as
"available-for-sale". A $70 million portion of the revolver facility matures on
July 31, 1997, and is secured by the Company's servicing portfolio designated as
"held-for-sale". A $50 million portion of the revolver facility matures on July
31, 1997, and is secured by a first-priority security interest in receivables on
servicing rights sold. The facility includes covenants identical to those
described above with respect to the warehouse line of credit.
The Company was in compliance with the above-mentioned debt covenants
at December 31, 1996. Although management anticipates continued compliance,
there can be no assurance that the Company will be able to comply with the debt
covenants specified for each of these financing agreements. Failure to comply
could result in the loss of the related financing.
The Company has also entered into an uncommitted gestation financing
arrangement. The interest rate on funds borrowed pursuant to the gestation line
is based on a spread over the Federal Funds rate. The gestation line has a
funding limit of $1 billion.
The Company entered into a $5 million unsecured line of credit in
September 1996. The line of credit expires in September 1997.
The Company entered into a $6.6 million, 364-day revolving credit
facility secured by certain real property of the Company. This revolving credit
facility was retired in the third quarter of 1996.
<PAGE> 32
Beginning in June 1995, the Company had from time to time borrowed up
to $19 million on a short-term unsecured basis from RBC. Interest on those
borrowings was at the prime rate. There was no indebtedness to RBC at December
31, 1996. The Company has no plans in the foreseeable future to borrow from RBC.
The Company issued five percent stock dividends on March 8, 1994,
September 12, 1994, May 8, 1995, and August 31, 1995. A ten percent stock
dividend was issued on June 30, 1995, and a seven percent stock dividend was
issued on September 24, 1996. All of the above are collectively referred to as
the Stock Dividends. On March 15, 1996, the Company completed a public offering
of 3,512,961 shares of common stock (3,758,868 shares after consideration of the
Stock Dividends) priced at $14.50 per share ($13.55 after consideration of the
Stock Dividends). The Company sold 2,200,000 shares (2,354,000 shares after
consideration of the Stock Dividends) in the offering, while certain
stockholders sold the remaining 1,312,961 shares (1,404,868 shares after
consideration of the Stock Dividends). In a concurrent private placement, the
Company sold an additional 896,552 shares of common stock at the offering price
of $14.50 per share ($13.55 after consideration of the Stock Dividends) to RBC,
which owned approximately 41% of the Company's outstanding common stock prior to
the public offering and private placement and approximately 39% immediately
thereafter. Net proceeds to the Company after underwriting discounts and
offering expenses totaled approximately $43 million. Proceeds of the offering
were used to repay indebtedness to RBC and were otherwise used for other general
corporate purposes, including the continued growth and general expansion of the
Company's business activities.
<PAGE> 33
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED BALANCE SHEET
($ in thousands, except share information)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
DECEMBER 31,
1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 2,492 $ 2,161
Receivables 60,668 57,893
Mortgage-backed securities 123,447 22,391
Mortgage loans held for sale 678,888 1,012,838
Mortgage servicing rights, net 109,815 99,912
Premises and equipment, net 21,135 16,314
Accrued interest on loans held for sale 4,491 9,464
Other assets 27,458 10,124
----------- -----------
Total assets $ 1,028,394 $ 1,231,097
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings $ 805,730 $ 1,005,557
Long-term borrowings 65,530
Accrued expenses 11,386 10,036
Other liabilities 53,977 56,570
----------- -----------
Total liabilities 871,093 1,137,693
----------- -----------
Stockholders' equity
Preferred stock - par value $.01 - 5,000,000 shares authorized; no
shares issued or outstanding
Common stock - par value $.01 - 25,000,000 shares authorized;
19,285,020 and 14,550,462 shares issued and outstanding at
December 31, 1996 and 1995, respectively 193 146
Additional paid-in capital 149,653 84,533
Retained earnings 12,007 10,725
Unearned shares of employee stock ownership plan (4,552) (2,000)
----------- -----------
Total stockholders' equity 157,301 93,404
----------- -----------
Commitments and contingencies (Notes 7 and 13)
----------- -----------
Total liabilities and stockholders' equity $ 1,028,394 $ 1,231,097
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 34
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except share information)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Interest income $ 62,858 $ 47,477 $ 20,974
Interest expense (45,956) (38,842) (13,288)
- ------------------------------------------------------------------------------------------
Net interest income 16,902 8,635 7,686
Net gain on sale of mortgage loans 79,178 33,822 1,160
Gain on sale of mortgage servicing rights 1,105 7,346 33,375
Loan servicing fees 28,763 24,205 14,196
Other income 669 2,689 205
- ------------------------------------------------------------------------------------------
Total revenues 126,617 76,697 56,622
- ------------------------------------------------------------------------------------------
EXPENSES
Salary and employee benefits 55,578 31,199 15,986
Occupancy expense 5,640 3,066 1,595
Amortization of mortgage servicing rights 14,934 9,352 4,574
General and administrative expenses 19,917 10,788 7,391
- ------------------------------------------------------------------------------------------
Total expenses 96,069 54,405 29,546
- ------------------------------------------------------------------------------------------
Income before income taxes 30,548 22,292 27,076
Income tax expense (10,925) (8,073) (9,033)
- ------------------------------------------------------------------------------------------
Net income $ 19,623 $ 14,219 $ 18,043
- ------------------------------------------------------------------------------------------
Weighted average common shares outstanding 18,240,994 15,411,036 15,498,607
Net income per common share $ 1.08 $ 0.92 $ 1.16
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 35
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands, except share information)
<TABLE>
<CAPTION>
ADDITIONAL UNEARNED TOTAL
COMMON STOCK PAID-IN RETAINED ESOP STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES EQUITY
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 10,825,000 $ 108 $ 55,061 $ 7,314 $ $ 62,483
Issuance of restricted stock 8,878 * 89 89
Stock dividend adjustment 1,110,426 11 5,007 (5,019) (1)
Net income 18,043 18,043
---------------------------------------------------------------------------
Balance, December 31, 1994 11,944,304 119 60,157 20,338 80,614
Issuance of restricted stock 43,402 * 406 406
Stock dividend adjustment 2,550,258 27 23,805 (23,832)
Loans to Employee Stock Ownership Plan (2,000) (2,000)
Shares issued under Dividend
Reinvestment and Stock Purchase Plan 12,498 * 165 165
Net income 14,219 14,219
---------------------------------------------------------------------------
Balance, December 31, 1995 14,550,462 146 84,533 10,725 (2,000) 93,404
Issuance of restricted stock 16,410 * 256 256
Net proceeds of public offering 3,426,552 34 47,417 47,451
Stock dividend adjustment 1,261,332 13 17,115 (17,128)
Cash dividends (1,119) (1,119)
Shares issued or purchased under Dividend
Reinvestment and Stock Purchase Plan
and Stock Investment Plan 30,264 * 180 (94) 86
Loans to Employee Stock Ownership Plan (3,000) (3,000)
Shares committed to be released under
Employee Stock Ownership Plan 152 448 600
Net income 19,623 19,623
---------------------------------------------------------------------------
Balance, December 31, 1996 19,285,020 $ 193 $149,653 $ 12,007 $ (4,552) $157,301
===========================================================================
</TABLE>
*Amount less than $1
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 36
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 19,623 $ 14,219 $ 18,043
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 17,566 10,991 5,671
Deferred income tax (benefit) expense (2,463) 11,046 4,467
Employee Stock Ownership Plan Compensation 600
Provision for estimated foreclosure losses 817 168 635
Increase in receivables (2,775) (26,999) (13,698)
Acquisition of mortgage loans (9,995,725) (7,135,774) (2,875,265)
Proceeds from sales of mortgage loans
and mortgage-backed securities 10,307,177 6,275,802 3,353,880
Acquisition of mortgage servicing rights (220,335) (129,641) (92,012)
Sales of mortgage servicing rights 196,406 94,027 60,805
Net gain on sales of mortgage loans and servicing rights (80,283) (41,168) (34,535)
Decrease (increase) in accrued interest on loans 4,973 (8,787) 1,348
Increase in other assets (16,897) (23,281) (1,319)
Increase (decrease) in accrued expenses and other liabilities 1,220 23,647 (18,079)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 229,904 (935,750) 409,941
- -----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment (7,453) (5,510) (3,565)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (7,453) (5,510) (3,565)
- -----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from borrowings 31,468,370 23,478,835 9,631,764
Repayment of borrowings (31,733,727) (22,533,020) (10,038,712)
Debt issuance costs (437) (1,197) (1,700)
Issuance of restricted stock 256 406 89
Stock dividend adjustments (1)
Activity under Employee Stock Ownership Plan (3,000) (2,000)
Shares issued under Dividend Reinvestment and Stock Purchase Plan 86 165
Net proceeds from public offering 47,451
Cash dividends (1,119)
- -----------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (222,120) 943,189 (408,560)
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 331 1,929 (2,184)
Cash, beginning of year 2,161 232 2,416
- -----------------------------------------------------------------------------------------------------------------
Cash, end of year $ 2,492 $ 2,161 $ 232
=================================================================================================================
SUPPLEMENTAL ACTIVITIES
Interest paid $ 46,860 $ 36,264 $ 14,636
Taxes paid 11,245 3,710 6,846
Non-cash activity under Employee Stock Ownership Plan 600
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS, EXCEPT SHARE INFORMATION)
Note 1 - The Company:
Resource Bancshares Mortgage Group, Inc. (the Company), was organized
under Delaware law in 1992 to acquire and operate the mortgage banking business
of Resource Bancshares Corporation (RBC), which commenced operations in May
1989. The assets and liabilities of the mortgage banking business of RBC were
transferred to the Company on June 3, 1993, when the Company sold 58% of its
common stock in an initial public offering. As a result, RBC retained a
significant ownership interest in the Company. As of December 31, 1996, RBC
owned approximately 38% of the outstanding common stock of the Company.
Following consummation of the initial public offering, the Company continued to
engage in the mortgage banking business that was formerly conducted by RBC.
The Company is principally engaged in the purchase and origination of
residential mortgage loans, which it aggregates into mortgage-backed securities
issued or guaranteed by the Federal Home Loan Mortgage Corporation (FHLMC), the
Federal National Mortgage Association (FNMA) and the Government National
Mortgage Association (GNMA). The Company sells the mortgage-backed securities it
creates to institutional purchasers with the rights to service the underlying
loans being retained by the Company. The servicing rights retained are generally
sold separately but may be held for extended periods by the Company.
Note 2 - Summary of Significant Accounting Policies:
The accounting and reporting policies of the Company reflect industry
practices and conform in all material respects with generally accepted
accounting principles. Certain minor amounts from prior years have been
reclassified to conform to current period presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Intercounty Mortgage, Inc. (IMI). All
significant intercompany accounts and transactions have been eliminated.
Significant Estimates
In preparing the financial statements, management is required to make
estimates based on available information that can affect the reported amounts of
assets, liabilities and disclosures as of the balance sheet date and revenues
and expenses for the related periods. Such estimates relate principally to the
Company's allowance for foreclosure losses. Additionally, estimates concerning
the fair values of mortgage loans held for sale, servicing rights, servicing
hedges and the Company's other hedging instruments are all relevant to ensuring
that mortgage loans are carried at the lower of cost or market, and that
potential impairments of servicing rights are recognized as and if required.
Because of the inherent uncertainties associated with any
<PAGE> 38
estimation process and due to possible future changes in market and economic
conditions that will affect fair values, it is possible that actual future
results in realization of the underlying assets and liabilities could differ
significantly from the amounts reflected as of the balance sheet date.
Investment Securities
Investments in debt securities are classified in three categories:
held-to-maturity securities (reported at amortized cost); trading securities
(reported at fair value, with unrealized gains or losses included in earnings);
and available-for-sale securities (reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component of
stockholders' equity). Substantially all of the Company's investments are in the
form of mortgage-backed securities that are held for sale in conjunction with
the Company's mortgage banking activities. Such securities are classified as
trading securities. The cost of securities sold is based on the specific
identification method.
Mortgage Loans Held for Sale
Mortgage loans held for sale are stated at the lower of aggregate cost
or market.
Mortgage Servicing Rights
Prior to April 1, 1995, and in conjunction with the acquisition of
mortgage loans, the Company capitalized as mortgage servicing rights the portion
of the purchase price that represented the premium paid for the right to service
the mortgage loans. The amount capitalized was subsequently reduced if the
mortgage loans were sold at a gain. Effective April 1, 1995 the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 122, "Accounting for
Mortgage Servicing Rights - An Amendment of FASB Statement No. 65." Accordingly,
effective April 1, 1995, and as required by SFAS No. 122, the Company now
allocates the total cost of a whole mortgage loan to the mortgage servicing
rights and the loan (without servicing rights) based on relative fair values.
The amount capitalized is no longer required to be reduced if the mortgage loan
is sold at a gain. The market value of servicing rights acquired in bulk
transactions, rather than as a by-product of the Company's loan production
activities, is initially capitalized at the lower of cost or the estimated
present value of future expected net servicing income. Amounts capitalized as
mortgage servicing rights are amortized over the period of, and in proportion
to, estimated future net servicing income. The Company periodically assesses its
capitalized mortgage servicing rights for impairment (on a stratified basis)
based on the estimated market values of those rights. Impairments are recognized
as a valuation allowance for each impaired stratum. Market value is estimated by
reference to a third-party analysis that values such rights in consideration of
current forward committed delivery prices, prevailing interest, prepayment and
default rates, and other relevant factors as appropriate or allocable to each
valuation stratum.
Loan Origination and Correspondent Program Administration Fees
Fees charged in connection with loan origination and fees charged to
loan correspondents in conjunction with certain administrative functions
performed by the Company in connection with the acquisition of mortgage loans
are deferred and reduce the carrying value of the underlying
<PAGE> 39
mortgage loans. Allocable portions of such fees are included in the
determination of the gain or loss when the related mortgage loans or servicing
rights are sold.
Sales of Mortgage Loans and Mortgage Servicing Rights
Gains or losses on sales of mortgage loans are determined at settlement
date and are measured by the difference between the net proceeds, adjusted for
the value of excess servicing fees, and the carrying amount of the underlying
mortgage loans. Prior to implementation of SFAS No. 122, gains not in excess of
the amortized basis of mortgage servicing rights capitalized in conjunction with
the acquisition of the loans were applied as a reduction of mortgage servicing
rights and gains in excess of the amortized basis in mortgage servicing rights
and losses on the sales of mortgage loans were recognized at settlement date.
Effective with the implementation of SFAS No. 122, gains on sales of mortgage
loans are no longer required to be deferred as a reduction of basis in mortgage
servicing rights, and gains and losses on sales of mortgage servicing rights are
recognized at the sale date, which is the date the sales contract is closed and
substantially all risks and rewards of ownership pass to the buyer.
Stock Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which is effective for
transactions entered into in fiscal years beginning after December 15, 1995.
SFAS No. 123 defines a fair-value-based method of accounting for stock-based
compensation. The statement allows measurement of compensation cost generally in
conformity with past practice under Accounting Principles Board Opinion No. 25,
(APB No. 25), "Accounting for Stock Issued to Employees," provided pro forma
disclosure is made concerning net income as if the fair value approach had been
applied. The Company adopted the disclosure approach permitted by SFAS No. 123
effective January 1, 1996, and, as also permitted, continues to apply the
compensatory measurement principles of APB No. 25.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Maintenance and repairs are expensed as
incurred.
Estimated Foreclosure Losses
As a servicer of mortgage loans, the Company will incur certain losses
in the event it becomes necessary to carry out foreclosure actions on loans
serviced. Generally, such losses relate to FHA or VA loans, which are insured or
guaranteed on a limited basis. Substantially all other serviced loans are fully
guaranteed against such losses by the securitizing government agency. The
allowance for estimated losses on foreclosure, which is part of the mortgage
servicing rights basis, is determined based on delinquency trends and
management's evaluation of the probability that foreclosure actions will be
necessary. The allowance for estimated losses on foreclosure was $1,550, $1,000,
and $1,150 at December 31, 1996, 1995 and 1994, respectively.
<PAGE> 40
Income Taxes
The Company records taxes under an asset and liability approach,
recognizing deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and tax bases
of assets and liabilities. Deferred income taxes arise primarily from timing
differences between the accounting methods used for mortgage servicing rights
and estimated foreclosure losses for income tax and financial reporting
purposes. Current tax expense (benefit) of $13,388, ($2,973) and $4,566 for the
years ended December 31, 1996, 1995 and 1994, are included in other liabilities.
Statement of Cash Flows
The Company has adopted the indirect method of reporting cash flows.
New Accounting Standards
In June 1996, the Financial Accounting Standards Board issued SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", which is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after December
31, 1996. SFAS No. 125 is based upon consistent application of a
financial-components approach that focuses on control. Under this approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. The standard is not expected to materially impact the
Company's financial condition or results of operations. The Company plans to
adopt SFAS No. 125 effective January 1, 1997, as required.
Note 3 - Joint Ventures:
In August 1996, Intercounty Mortgage, Inc. (IMI), entered into a joint
venture agreement with ERA Specht Realty, Inc. The joint venture, Corridor
Mortgage Company, LLC (Corridor), is engaged primarily in the business of
providing broker services on first-lien mortgage loans to mortgage bankers. IMI
owns 51% of Corridor and made an initial contribution of $10 in January 1997.
Corridor did not become operational until the first quarter of 1997.
Accordingly, there are no transactions recorded in the Company's 1996
consolidated financial statements relating to Corridor. For financial reporting
purposes, Corridor's assets, liabilities and earnings will be consolidated with
those of IMI, and the minority member's interest in the joint venture will be
included in the Company's consolidated financial statements as minority
interest.
In December 1996, IMI entered into a joint venture agreement with
Lawyers Title Insurance Corporation. The joint venture, Excel Title Agency, LLC
(ETA), is engaged primarily in the business of providing core title services in
connection with the closing of real estate transactions and acts as a title
insurance agent. IMI owns 49% of ETA and made an initial $25 contribution to
form the joint venture in December 1996. The Company will account for this
investment on the equity method. Accordingly, IMI's investment is reported as an
investment in joint venture within other assets on the balance sheet. ETA did
not become operational until the first quarter
<PAGE> 41
of 1997. Accordingly, there is no share of operational income or loss recorded
in the Company's 1996 consolidated financial statements.
Note 4 - Receivables:
Receivables consist primarily of amounts due to the Company related to
sales of mortgage servicing rights and advances of delinquent principal,
interest, tax and insurance payments related to loans serviced. Management does
not anticipate any significant losses on realization of the receivables.
Receivables consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Mortgage servicing rights sales $ 33,609 $ 31,764
Servicing advances 14,752 8,791
Other 12,307 17,338
======== ========
$ 60,668 $ 57,893
======== ========
</TABLE>
Note 5 - Fair Value and Impairments of Mortgage Servicing Rights:
For purposes of evaluating its servicing portfolio for impairment, the
Company disaggregates its portfolio into two primary segments:
available-for-sale and held-for-sale.
The segment of the portfolio designated as available-for-sale is
comprised of servicing rights that were purchased in bulk transactions or that
were retained out of production pursuant to individual portfolio retention
decisions. The available-for-sale portfolio is disaggregated for purposes of
measuring potential impairments according to each individual bulk purchase or
portfolio retention decision, which the Company has determined to be the
appropriate approach to disaggregation by predominant risk characteristic for
this portfolio segment. However, as permitted by SFAS No. 122, the portion of
this portfolio acquired prior to implementation is not further disaggregated for
purposes of measuring potential impairments. With respect to each such risk
tranche, the fair value thereof, which is based upon a third-party analysis that
considers current forward committed delivery prices, prevailing interest,
prepayment and default rates and other relevant factors, together with the fair
value of hedges allocated thereto (which is based upon broker quotes) is
compared to amortized carrying values of the mortgage servicing rights for
purposes of measuring potential impairment. At December 31, 1996, the underlying
unpaid principal balance of the available-for-sale portfolio totaled $4,842,253,
its fair value was estimated as $91,508, the fair value of hedges allocated
thereto was estimated as $5,056, and the carrying value of the portfolio was
$76,136, which is net of accumulated amortization of $18,198. At December 31,
1995, the underlying unpaid principal balance of the available-for-sale
portfolio totaled $3,047,554, its fair value was estimated as $49,340, the fair
value of hedges allocated thereto was estimated as $8,916, and the carrying
value of the portfolio was $49,979.
<PAGE> 42
No impairment provisions were required for 1996 or for 1995 with respect to this
segment of the portfolio.
The segment of the portfolio designated as held-for-sale is comprised
of recently produced servicing rights that are scheduled for sale and have been
allocated to specific forward servicing sales contracts. The held-for-sale
portfolio is disaggregated for purposes of measuring possible impairments
according to the specific forward sales contracts to which allocated, which the
Company has determined to be the appropriate approach to disaggregation by
predominant risk characteristic for this portfolio segment. For each such risk
tranche, the fair value thereof, which is based upon the allocated forward
committed delivery price, is compared to amortized carrying value for purposes
of measuring potential impairment. At December 31, 1996, the underlying unpaid
principal balance of the held-for-sale portfolio totaled $1,828,014, its fair
value was estimated as $37,109, and its carrying value was $36,057, which is net
of accumulated amortization of $683. At December 31, 1995, the underlying unpaid
principal balance of the held-for-sale portfolio totaled $2,515,376, its fair
value was estimated as $50,811, and its carrying value was $49,933. No
impairment provisions were required for 1996 or for 1995 with respect to this
segment of the portfolio.
Note 6 - Premises and Equipment:
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
Estimated
Useful DECEMBER 31,
Lives 1996 1995
----------- -------- --------
<S> <C> <C> <C>
Building 25 years $ 6,714 $ 6,579
Building improvements 10-15 years 939 103
Furniture, fixtures and equipment 5-10 years 16,772 11,586
-------- --------
24,425 18,268
Less-Accumulated depreciation (6,337) (3,714)
-------- --------
18,088 14,554
Land 3,047 1,760
-------- --------
$ 21,135 $ 16,314
======== ========
</TABLE>
Depreciation expense was $2,632 in 1996, $1,639 in 1995 and $1,097 in 1994.
Note 7 - Lease Commitments:
The Company has entered into various non-cancelable operating lease
agreements, primarily for office space. Certain of these leases contain renewal
options and escalation clauses.
<PAGE> 43
At December 31, 1996, the annual minimum rental commitments for
non-cancelable leases with remaining terms in excess of one year are as follows:
<TABLE>
<S> <C>
1997 $ 1,891
1998 1,566
1999 1,282
2000 850
2001 and thereafter 254
=======
$ 5,843
=======
</TABLE>
Minimum rental commitments have not been reduced by minimum sublease
rentals of $1,721 that are due in the future under non-cancelable subleases.
Rent expense for operating leases, exclusive of sublease rental income of $385
for 1996, $354 for 1995, and $217 for 1994, was $1,905 in 1996, $1,147 in 1995,
and $552 in 1994.
Note 8 - Short-Term and Long-Term Borrowings:
The Company has entered into a 364-day, $570,000 warehouse line of
credit provided by a syndicate of unaffiliated banks that expires in July 1997.
The credit agreement includes covenants requiring the Company to maintain (i) a
minimum net worth of $130,000, plus net income subsequent to July 31, 1996, and
capital contributions and minus permitted dividends, (ii) a ratio of total
liabilities, excluding debt incurred pursuant to gestation and repurchase
financing agreements, to adjusted net worth of not more than 8.0 to 1.0, (iii)
its eligibility as a servicer of GNMA, FHA, VA, FNMA and FHLMC mortgage loans
and (iv) a mortgage servicing rights portfolio with an underlying unpaid
principal balance of at least $4,000,000. The provisions of the agreement also
restrict the Company's ability to pay dividends in any fiscal quarter that
exceed 50% of the Company's net income for the quarter; or to engage
significantly in any type of business unrelated to the mortgage banking business
and the servicing of mortgage loans. At December 31, 1996 and 1995, the total
amounts outstanding under this and its predecessor facilities were $540,900 and
$468,020, respectively.
Additionally, the Company has entered into a $200,000, 364-day
revolving credit facility with a syndicate of unaffiliated banks. An $80,000
portion of the revolver facility converts on July 31, 1997, into a four-year
term loan and is secured by the portion of the Company's servicing portfolio
designated as "available-for-sale". A $70,000 portion of the revolver facility
matures on July 31, 1997, and is secured by the portion of the Company's
servicing portfolio designated as "held-for-sale". A $50,000 portion of the
revolver facility matures on July 31, 1997, and is secured by a first-priority
security interest in receivables on servicing rights sold. The facility includes
covenants identical to those described above with respect to the warehouse line
of credit. At December 31, 1996 and 1995, the total amounts outstanding under
this and its predecessor facilities were $35,000 and $90,150, respectively.
The Company was in compliance with the above-mentioned debt covenants
at December 31, 1996. Although management anticipates continued compliance,
there can be no assurance that
<PAGE> 44
the Company will be able to comply with the debt covenants specified for each of
its financing agreements. Failure to comply could result in the loss of the
related financing.
The Company has also entered into an uncommitted gestation financing
arrangement. The interest rate on funds borrowed pursuant to the gestation line
is based on a spread over the Federal Funds rate. The gestation line has a
funding limit of $1,000,000. The total amounts outstanding under this and its
predecessor facility at December 31, 1996 and 1995 were $229,831 and $487,336,
respectively.
The Company entered into a $5,000 unsecured line of credit in September
1996. The line of credit expires in September 1997. The interest rate on funds
borrowed through this line of credit is prime plus 0.5%. There were no amounts
outstanding on this line of credit at December 31, 1996.
The Company had entered into a $6,580, 364-day revolving credit
facility secured by certain real property of the Company. This revolving credit
facility was retired in the third quarter of 1996. The interest rate on funds
borrowed through this facility approximated the average Federal Funds rate plus
2.125%.
Beginning in June 1995, the Company had from time to time borrowed up
to $19,000 on a short-term, unsecured basis from RBC. Interest on the loans was
at the prime rate, and the Company incurred interest expense of $258 and $527
related to these borrowings during 1996 and 1995, respectively. There was no
indebtedness to RBC at December 31, 1996. The Company has no plans in the
foreseeable future to borrow from RBC.
The monthly average outstanding amount under these credit agreements
during 1996 was $835,231, at a weighted average rate of 5.50%. The Company
incurred interest expense of $45,956 on these borrowings in 1996. The Company
also incurred facility fees related to these credit agreements totaling $1,266,
which is included in interest expense. The Company incurred initial arrangement
fees of $437 in 1996, which have been capitalized and are included in other
assets in the accompanying consolidated balance sheet. These initial fees are
being amortized to interest expense over the term of the related credit
agreements. Amortization expense for 1996 was $490. Additional advances
available to the Company under these credit agreements at December 31, 1996,
amounted to $969,270.
The monthly average outstanding amount under these credit agreements
during 1995 was $618,060, at a weighted average rate of 6.28%. The Company
incurred interest expense of $38,842 on these borrowings in 1995. The Company
also incurred facility fees related to these credit agreements totaling $1,092,
which is included in interest expense. The Company incurred initial arrangement
fees of $1,197, which have been capitalized and are included in other assets in
the accompanying consolidated balance sheet. These initial fees are being
amortized to interest expense over the term of the related credit agreements.
Amortization during 1995 was $812. Additional advances available to the Company
under these credit agreements at December 31, 1995, amounted to $765,493.
<PAGE> 45
Note 9 - Capital Transactions:
The Company issued five percent stock dividends on March 8, 1994,
September 12, 1994, May 8, 1995, and August 31, 1995. A ten percent stock
dividend was issued on June 30, 1995, and a seven percent stock dividend was
issued on September 24, 1996. All of the above are collectively referred to as
the Stock Dividends. Earnings per share have been restated for the effects of
the Stock Dividends.
On March 15, 1996, the Company completed a second public offering of
3,512,961 shares of common stock (3,758,868 shares after consideration of the
Stock Dividends) priced at $14.50 per share ($13.55 after consideration of the
Stock Dividends). The Company sold 2,200,000 shares (2,354,000 shares after
consideration of the Stock Dividends) in the offering while certain selling
stockholders sold the remaining 1,312,961 shares (1,404,868 shares after
consideration of the Stock Dividends). In concurrent private placements the
Company sold an additional 896,552 shares of common stock at the offering price
of $14.50 per share (959,311 shares at $13.55 after consideration of the Stock
Dividends) to RBC, which owned approximately 41% of the Company's outstanding
common stock prior to the public offering and private placement and
approximately 39% immediately thereafter. Net proceeds to the Company after
underwriting discounts and estimated offering expenses totaled approximately $43
million. Proceeds of the offering were used to repay indebtedness to RBC and for
other general corporate purposes, including the continued growth and general
expansion of the Company's business activities.
During the fourth quarter of 1995, the Company established the Dividend
Reinvestment and Stock Purchase Plan (DRIP). The DRIP offers stockholders a
convenient method of purchasing Company common stock at a 5% discount from
market prices through the reinvestment of cash dividends and through optional
cash payments. Optional cash payments may be made quarterly up to $15 per
quarter. The price per common share will be 95% of the average closing sale
price per common share for the 20 trading days prior to the date on which
dividends are paid, in the case of a dividend reinvestment transaction, or on
the date on which the Company's fiscal quarter ends, in the case of an optional
cash payment transaction. The Company reserves the right to modify the pricing
terms or any other provisions of the DRIP at any time. To meet demands of the
optional quarterly cash contributions received through the DRIP and for the
reinvestment of dividends through the DRIP, the Company either issues new shares
or the DRIP agent purchases shares on the open market. The Board of Directors
has authorized the issuance of 1,000,000 shares under the DRIP (1,070,000 after
consideration of the Stock Dividends). At December 31, 1996 there were 223,642
shares outstanding under the DRIP.
<PAGE> 46
Note 10 - Income Taxes:
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Current:
Federal $ 13,060 $ (2,519) $4,566
State 328 (454)
-------- -------- ------
13,388 (2,973) 4,566
Deferred (2,463) 11,046 4,467
======== ======== ======
$ 10,925 $ 8,073 $9,033
======== ======== ======
</TABLE>
During 1996 and 1995, the Company qualified for state tax headquarters
credits of $1,687 and $1,663, respectively, reducing current state tax expense
that otherwise would have been payable for 1996 and 1995. In addition, during
1994 the Company initially elected a new method of accounting for mortgage
servicing rights for purposes of filing its tax returns for the period beginning
June 3, 1993, and ending December 31, 1993. This new tax accounting method
accelerated tax deductions related to mortgage servicing rights into earlier
periods and accounts for the reallocation of approximately $5,744 from current
to deferred tax expenses during 1994.
The effective tax rate varied from the statutory federal tax rate of
35% for 1996, 1995 and 1994 due to the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1996 1995 1994
------------------ ----------------- --------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------- ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Tax expense at statutory rate $10,692 35.0% $7,802 35.0% $ 9,477 35.0 %
State tax, net of federal benefit 107 .4% 178 .8% 30 .1 %
Other, net 126 .4% 93 .4% (474) (1.7)%
------- ---- ------ ---- ------- ----
$10,925 35.8% $8,073 36.2% $ 9,033 33.4 %
======= ==== ====== ==== ======= ====
</TABLE>
Deferred tax expense (benefit) results from timing differences in the
recognition of revenue and expenses for income tax and financial reporting
purposes. The sources and the tax effects of each are as follows:
<PAGE> 47
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Mortgage servicing rights $ 92 $ 12,528 $ 4,752
Deferred compensation (2,204) (383)
Mark to market loans held for sale 521 (521)
Foreclosure reserve (1,053) (44) (243)
State headquarters tax credit
carryforwards generated (370) 135 (135)
Depreciation 511 15 148
Other, net 40 (684) (55)
-------- -------- -------
$ (2,463) $ 11,046 $ 4,467
======== ======== =======
</TABLE>
Deferred tax (assets) liabilities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Deferred compensation $ (2,671) $ (467)
Mark to market loans held for sale (521)
Foreclosure reserve (1,537) (484)
State headquarters tax credit carryforwards (370)
Other, net (615) (671)
-------- --------
(5,193) (2,143)
-------- --------
Mortgage servicing rights 13,975 13,883
Depreciation 912 401
Other, net
16
-------- --------
14,887 14,300
======== ========
Net deferred tax liability $ 9,694 $ 12,157
======== ========
</TABLE>
There are no valuation allowances provided for any of the Company's
deferred tax assets based on management's belief that it is more likely than not
that deferred tax assets will be realized.
Note 11 - Related Party Transactions:
In connection with the initial public offering, RBC entered into an
agreement with two officers of the Company to pay each $200 per year through
2000, provided they remained in the employment of the Company. During 1996 and
1995, RBC paid $400 for each year, pursuant to the terms of these agreements.
The Company recorded no expenses related to these agreements during 1996 or
1995.
Beginning in June 1995, the Company had from time to time borrowed up
to $19,000 on a short-term unsecured basis from RBC. Interest on the loans was
at the prime rate, and the Company incurred interest expense of $258 related to
these borrowings during 1996. Interest
<PAGE> 48
expense incurred for 1995 was $527. The average outstanding balance under this
financing arrangement was $3,000 for 1996 and $6,099 for 1995. At December 31,
1995, the principal amount of such indebtedness aggregated $19,000. There was no
indebtedness to RBC at December 31, 1996. The Company has no plans in the
foreseeable future to borrow from RBC.
Note 12 - Stock Options and Restricted Stock Plan:
Contemporaneous with the initial public offering, certain executives of
the Company were granted options to purchase 600,000 shares of common stock of
the Company at the initial offering price of the stock of $8.75 per share
(858,390 shares at $6.12 per share after giving effect to the Stock Dividends).
The options have a term of ten years and become exercisable at a rate of 20% per
year during the period from May 26, 1994 through May 26, 1998. At December 31,
1996, 515,034 options were exercisable. No additional options have been granted,
and none have been exercised or forfeited.
In addition, in connection with the employment of certain officers,
such officers are entitled to receive restricted stock as part of their
compensation. In connection therewith, the Company issued 16,410 restricted
shares at a price of $15.58 per share on January 27, 1996 (17,558 shares at
$14.56 per share after giving effect to the Stock Dividends), 43,402 restricted
shares at a price of $9.36 per share on January 26, 1995 (56,320 shares at $7.21
per share after giving effect to the Stock Dividends), and 8,878 restricted
shares at a price of $10.41 per share on January 21, 1994 (12,700 shares at
$7.28 per share after giving effect to the Stock Dividends). Costs associated
with these grants are included as compensation expense of the Company in the
accompanying consolidated financial statements.
On October 21, 1993, the Company adopted a phantom stock plan that
provided for the awarding of up to 300,000 (429,195 after giving effect to the
Stock Dividends) deferred compensation units to officers and certain key
employees. The plan specified a five-year vesting schedule. In addition, from
time to time the Board of Directors has approved participation in a special
phantom stock plan for certain officers of the Company.
During 1996, the Company terminated all of its phantom stock plans and
canceled all outstanding grants thereunder. In connection therewith, each former
participant in the phantom stock plans was awarded an option under a new
nonqualified stock option plan for each unit canceled under the phantom stock
plans. Other terms of the awarded options were substantially similar to the
underlying canceled units.
<PAGE> 49
Activity in the phantom stock plans and the new nonqualified stock
option plan is summarized below:
<TABLE>
<CAPTION>
UNITS FORFEITED
UNITS CANCELED OR UNITS
PHANTOM STOCK PLANS: GRANTED REDEEMED OUTSTANDING
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1994 114,109 3,307 110,802
-1995 activity 121,250 36,846 84,404
-Effect of Stock Dividends 47,632 8,543 39,089
-------- ------- --------
Balance at December 31, 1995 282,991 48,696 234,295
-1996 activity 35,084 (35,084)
-Effect of Stock Dividends 2,419 42 2,377
-Plan cancellation (285,410) (83,822) (201,588)
-------- ------- --------
Balance at December 31, 1996
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
UNITS UNITS FORFEITED UNITS
NONQUALIFIED STOCK OPTION PLAN: GRANTED OR EXERCISED OUTSTANDING
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995
- 1996 activity 201,588 201,588
- Effect of Stock Dividends 11,569 11,569
------- ------ -------
Balance at December 31, 1996 213,157 213,157
======= ====== =======
</TABLE>
Of the 213,157 units outstanding at December 31, 1996 under the
nonqualified stock option plan, the following are strike prices and percents
vested:
<TABLE>
<CAPTION>
EXPIRATION UNITS STRIKE PERCENT
DATE OUTSTANDING PRICE VESTED
----------------------------------------------------------
<S> <C> <C> <C>
January 21, 2004 101,578 $ 7.28 40%
January 26, 2005 19,465 7.19 20%
January 26, 2005 75,261 7.22 20%
July 1, 2005 16,853 11.17 20%
</TABLE>
During 1995, the Company established an Omnibus Employee Stock Award
Plan (the Omnibus Plan). The purpose of this plan is to provide key employees
who are largely responsible for the Company's growth and continued success with
the opportunity to have or increase their proprietary interest in the Company
through the granting of any one or any combination of options, stock
appreciation rights, restricted stock and unrestricted stock. This plan is
authorized to issue up to 200,000 shares of common stock (224,700 shares after
giving effect to the Stock Dividends). Units issued under this plan vest 20% per
year on each anniversary of the grant date and expire 10 years after the grant
date.
<PAGE> 50
Activity in the Omnibus Plan is summarized below:
<TABLE>
<CAPTION>
UNITS UNITS FORFEITED UNITS
OMNIBUS PLAN: GRANTED OR EXERCISED OUTSTANDING
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
- -1995 activity 100,000 100,000
------- ------- -------
Balance at December 31, 1995 100,000 100,000
- -1996 activity 104,000 104,000
- -Effect of Stock Dividends 12,040 12,040
------- ------- -------
Balance at December 31, 1996 216,040 216,040
======= ======= =======
</TABLE>
Of the 216,040 units outstanding at December 31, 1996 under the Omnibus
Employee Stock Award Plan, the following are strike prices and percents vested:
<TABLE>
<CAPTION>
EXPIRATION UNITS STRIKE PERCENT
DATE OUTSTANDING PRICE VESTED
---------------------------------------------------------
<S> <C> <C> <C>
January 26, 2006 23,540 $14.56 0%
October 30, 2005 107,000 14.96 20%
March 21, 2006 53,500 14.03 0%
November 8, 2006 17,000 15.03 0%
November 12, 2006 7,500 14.98 0%
December 3, 2006 7,500 14.56 0%
</TABLE>
During 1995, the Company established a Formula Stock Option Plan. The
purpose of this plan is to provide annually (on each September 1) to the
non-employee directors of the Company options to purchase 10,000 shares of the
common stock of the Company. All options vest 20% on the date of grant and 20%
each year thereafter on the anniversary date of the grant and expire 10 years
after the grant date. The plan is authorized to issue up to 150,000 shares of
common stock (168,525 shares after giving effect to the Stock Dividends). On
September 1, 1995, 50,000 options were issued at a market strike price of $15.91
per share (53,500 options at a strike price of $14.87 per share after giving
effect to the Stock Dividends). On September 1, 1996, 50,000 options were issued
at a market strike price of $13.25 per share (53,500 at a strike price of $12.38
after consideration of the Stock Dividends).
The phantom stock plan was a variable stock award plan for accounting
purposes. Accordingly, compensation expense was accrued by reference to the
difference between current market value over the value base adjusted for the
cumulative vested status of the underlying units. The Company's other
aforedescribed option plans are considered fixed stock award plans for
accounting purposes. Accordingly, total compensation expense for these fixed
plans is measured as the difference between the market value on the date of the
grant over the strike price which fixed total expense is then recognized over
the vesting period. The Company recognized compensation expense related to the
aforedescribed plans (exclusive of the restricted stock plan which is expensed
as incurred) of $283, $748 and $60 for 1996, 1995 and 1994, respectively.
<PAGE> 51
For purposes of providing the pro forma disclosures required under SFAS
No. 123, the fair value of stock options granted in 1996 and 1995 was estimated
at the date of grant using a Black-Scholes option pricing model. The
Black-Scholes option pricing model was originally developed for use in
estimating the fair value of traded options which have different characteristics
than the Company's employee stock options. The model is also sensitive to
changes in the subjective assumptions which can materially affect fair value
estimates. As a result, management believes that the Black-Scholes model may not
necessarily provide a reliable single measure of the fair value of employee
stock options.
For purposes of SFAS No. 123, each award was separately valued using
the 10 year constant maturity treasury rate on the date of grant (rates ranged
from 5.634% to 6.941%) as the risk-free interest rate. The expected life of each
grant was assumed to be equal to the term to expiration as of the grant date
(expected lives ranged from 7.2 to 10.0 years). The expected dividend yield was
established based upon the dividend policies of the Company as of the date of
award. Finally, for purposes of assigning a volatility factor, the historical
100 day volatility factor was reviewed for selected points in time over the past
two-years and the average of all such selected points of 44.89% was assigned to
all 1995 and 1996 awards for purposes of the SFAS No. 123 valuation.
SFAS No. 123, for purposes of the required pro forma disclosures,
permits straight-line amortization of the estimated fair value of the options
over the vesting period. Had compensation cost for the Company's 1996 and 1995
stock-based option awards been determined consistent with the requirements of
SFAS No. 123, net income and earnings per share would have been reported as
follows for 1996 and 1995.
<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Net income as reported $ 19,623 $ 14,219
After-tax adjustment for SFAS No. 123 (409) (134)
-------- --------
Pro forma net income as adjusted $ 19,214 $ 14,085
======== ========
Pro forma net income per common share $ 1.05 $ 0.91
</TABLE>
Due to the inclusion of only 1995 and 1996 option grants, the effects
of applying SFAS No. 123 in 1995 and 1996 may not be representative of the pro
forma impact in future years.
Note 13 - Commitments and Contingencies:
The Company was servicing and subservicing 96,087, 90,063 and 78,136
loans owned by others, with unpaid balances aggregating approximately
$8,700,000, $7,800,000 and $5,900,000, at December 31, 1996, 1995 and 1994,
respectively. Related escrow funds totaled approximately $56,900, $56,800 and
$31,200 as of December 31, 1996, 1995 and 1994, respectively. Loans serviced for
others and the related escrow funds are not included in the accompanying
consolidated balance sheet.
<PAGE> 52
The Company has issued mortgage-backed securities under programs
sponsored by GNMA and FNMA. In connection with servicing mortgage-backed
securities guaranteed by GNMA or FNMA, the Company advances certain principal
and interest payments to security holders prior to their collection from
specific mortgagors. Additionally, the Company must remit certain payments of
property taxes and insurance premiums in advance of collecting them from
specific mortgagors and make certain payments of attorney's fees and other costs
related to loans in foreclosure. These amounts are included in servicing
advances under the caption receivables in the accompanying consolidated
financial statements.
In the ordinary course of business, the Company is exposed to liability
under representations and warranties made to purchasers and insurers of mortgage
loans and the purchasers of servicing rights. Under certain circumstances, the
Company may be required to repurchase mortgage loans or indemnify the purchasers
of loans or servicing rights for losses if there has been a breach of
representations or warranties. Liabilities are estimated at the date of sale and
included in the determination of the gain or loss on sale. Such estimated
liabilities are included in the allowance for foreclosure losses, a reduction of
mortgage servicing rights basis.
In the ordinary course of its business, the Company is from time to
time subject to litigation. The Company is not a party to any material legal
proceedings.
Note 14 - Employee Benefits:
On July 1, 1993, the Company established a 401(k) Retirement Savings
Plan which is available to all regular, full-time active employees with 12
months continuous service. The plan allows employees to contribute up to 15% of
their gross earnings on a before-tax basis annually, subject to the maximum
established by law. Employees become eligible to participate in the plan as of
January 1, or July 1, following the completion of 12 months continuous service.
The Company contributes to the plan on a matching basis in an amount determined
annually by the Board of Directors. The Company match percentage for 1996 and
1995 was 50% of the employee's contribution up to a maximum of 3% of the
employee's gross earnings. An employee vests in the Company's matching
contribution at a rate of 25% per year. The Company recorded $375, $147 and $116
of matching contributions as compensation expense during 1996, 1995 and 1994
respectively.
On January 1, 1994, the Company established a defined benefit pension
plan covering substantially all employees. Under the plan, retirement benefits
are based upon years of service and the employee's level of compensation during
the last five years prior to retirement. It is the Company's funding policy to
make, at a minimum, the annual contribution required by the Employee Retirement
Income Security Act of 1974, as amended.
<PAGE> 53
Pension expense included the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995
----- -----
<S> <C> <C>
Service cost $ 263 $ 129
Interest cost on projected benefit obligation 90 48
Actual return on assets (4) (7)
Amortization of unrecognized prior service costs 30 30
Amortization of unrecognized losses (gains) 10 (8)
Asset loss deferred (23) (1)
----- -----
$ 366 $ 191
===== =====
</TABLE>
The projected benefit obligation under the plan at December 31, 1996
and 1995 is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------- -----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 369 $ 190
Nonvested benefit obligation 293 218
------- -----
Accumulated benefit obligation 662 408
Benefits attributable to future salaries 454 362
------- -----
Projected benefit obligation 1,116 770
Fair value of plan assets (420) (275)
------- -----
696 495
Items not recognized:
Unrecognized prior service cost (321) (351)
Unrecognized net gain (6) (18)
Asset loss deferred (23) (1)
------- -----
Total unrecognized items (350) (370)
------- -----
Accrued pension expense 346 125
Adjustment for minimum liability 8
------- -----
Net pension liability $ 346 $ 133
======= =====
</TABLE>
Assumptions used in accounting for the plan were:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Weighted average discount rate 7.50% 7.25%
Average rate of increase in compensation levels 4.00% 5.00%
Expected long-term rate of return on plan assets 8.00% 8.00%
</TABLE>
On January 1, 1995, the Company established the Stock Investment Plan
(the Stock Plan) covering substantially all employees. Under the Stock Plan,
eligible employees may contribute,
<PAGE> 54
through payroll deductions, a minimum of $10.00 per month to a maximum of
$1,500.00 per month, to acquire common stock of the Company. The purchase price
of such stock will be equal to 85% of the fair market value on the purchase date
with the Company subsidizing the remaining 15% of the cost. The Company is
responsible for custodian charges (including brokerage expenses incurred in
connection with the purchase of shares) and all costs of maintaining and
executing transfers. This plan will continue until 100,000 shares of stock
(129,764 shares after giving effect to the Stock Dividends) have been purchased
by employees. As of December 31, 1996, 52,710 shares have been purchased under
the Stock Plan. The Company has subsidized approximately $94 and $46 relating to
the noncompensatory Stock Plan discount for 1996 and 1995, respectively.
On January 1, 1995, the Company established the Employee Stock
Ownership Plan (the ESOP) covering substantially all employees. Contributions to
the ESOP, which are at the discretion of and determined annually by the Board of
Directors, are not to exceed the maximum amount deductible under the applicable
sections of the Internal Revenue Code and are funded annually. However, such
contributions must be adequate to meet the required principal and interest
payments on the underlying loans discussed below.
During 1996 and 1995, the ESOP borrowed $3,000 and $2,000,
respectively, from the Company to purchase 224,169 and 200,944 shares of the
Company's common stock which are pledged to secure loans outstanding. The
principal amount of the 1995 loan is repayable in equal quarterly installments
of $100, which commenced in January 1996. The principal amount of the 1996 loan
is repayable in annual installments of $600 which commence in May 1997. In
accordance with these loan agreements, the ESOP repaid $400 to the Company in
1996. An additional $48 was paid on these loans in 1996 from the cash dividends
paid on the unallocated ESOP shares. In accordance with the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership
Plans", the Company records compensation expense equal to the fair value of
shares on the date such shares are committed to be released to employees. Shares
are considered committed to be released under the applicable plan formula as the
principal amount of the underlying loans are repaid. There was no compensation
expense related to the ESOP for 1995 since debt repayments did not begin until
January 1996. For the year ended December 31, 1996, 40,323 shares were released
and compensation expense related to the ESOP was $600. The fair market value of
the 409,752 unallocated shares held at December 31, 1996 was $5,839. Fair market
value of the 40,323 allocated shares was $575 at December 31, 1996.
Administrative expenses of the ESOP for 1996 and 1995 paid by the Company
totaled $19 and $27, respectively, and have been included as a component of
salaries and employee benefits.
Note 15 - Financial Instruments and Risk Management:
The Company is a party to various derivative financial instruments and
financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers and to reduce its own
exposure to risks related to fluctuating interest rates. These
<PAGE> 55
financial instruments include mortgage purchase commitments, mandatory delivery
commitments, put and call option contracts, futures contracts and interest rate
floor contracts. The Company uses these financial instruments exclusively for
purposes of managing its resale pricing and interest rate risks.
The Company's mortgage loans held for sale are acquired or originated
through a network of correspondents, wholesale brokers and retail branches. In
connection therewith, the Company routinely enters into optional mortgage
purchase commitments to acquire or originate specific in-process mortgage loans
when and if closed by the counterparty, at the option of the mortgagor. Mortgage
purchase commitments obligate the Company to acquire mortgage loans on a delayed
delivery basis, which may extend for a period of 60 days, at a price which is
fixed as of the date of the contract.
Accordingly, the Company is subject to the risk that the market value
of its on-balance sheet mortgage loans held for sale and the mortgage loans it
is obligated to purchase under its mortgage purchase commitments may change
significantly prior to resale. In order to limit its resale price exposure, the
Company enters into mandatory delivery commitments which are contracts for
delayed delivery of mortgage loans to third parties. Mandatory delivery
commitments obligate the Company to sell mortgage loans on a delayed delivery
basis at a price which is fixed as of the date of the contract. Since mandatory
delivery commitments enable the Company to fix its resale prices for both
on-balance sheet mortgage loans held for sale (for which a fixed price has
already been paid) and for anticipated loan closures subject to mortgage
purchase commitments (which fix the delayed purchase price for the resultant
mortgage loans), these instruments can effectively limit the Company's resale
price exposures.
The percentages of anticipated loan closures under mortgage purchase
commitments that are covered by mandatory delivery commitments not allocated to
on-balance sheet mortgages held for sale are monitored continuously. The
Company's resultant expected exposure to resale pricing risk is continuously
adjusted to consider changing expectations regarding anticipated loan closure
percentages and other market conditions. Generally, the Company buys put and
call option contracts on U.S. Government Securities to effect modest adjustments
of its overall exposure to resale pricing exposures.
Purchased call option contracts enable the Company, at its option, to
acquire an underlying financial security from a third party at a specified price
for a fixed period of time. Purchased put option contracts enable the Company,
at its option, to sell an underlying financial security to a third party at a
specified price and for a fixed period of time. Since these financial
instruments essentially enable the Company to fix the purchase or sale price on
financial instruments whose changes in value have historically correlated
closely with changes in value of mortgage loans, these instruments can be used
effectively to adjust the Company's overall exposure to resale pricing risks. In
addition, these instruments have the advantages of being available in smaller
denominations than are typical of the Company's mandatory delivery commitments
and of being traded in a highly liquid and efficient secondary market.
<PAGE> 56
Periodically, the Company also buys or sells futures contracts as part
of its hedging activities. Generally, futures positions are outstanding for
short periods of time and are used to hedge against price movements of another
financial instrument while execution of that instrument is bid among brokers.
Futures may be similarly used to hedge against price movements when another
financial instrument is illiquid due to temporary market conditions. There were
no open futures positions as of December 31, 1996 or 1995.
The Company typically sells its produced mortgage servicing rights
between 90 and 180 days of origination or purchase of the related loan pursuant
to committed prices under forward sales contracts. The Company also maintains a
portfolio of mortgage servicing rights which though available-for-sale, are not
currently scheduled for sale pursuant to the Company's forward sales contracts.
In connection therewith, the Company is subject to the risk that the economic
value of those mortgage servicing rights may decline in the event of a
significant decline in long-term interest rates. A significant decline in
interest rates generally causes an increase in mortgage loan prepayments (for
example increased refinancing) which in turn tends to reduce the future expected
cash flows (and economic value) of associated mortgage servicing rights.
Interest rate floor contracts provide for the Company to receive an interest
rate differential on a notional amount of outstanding principal to the extent
that interest rates decline below a specified rate which is fixed as of the date
of the contract. Accordingly, the value of an interest rate floor contract tends
to increase while the value of a mortgage servicing right tends to decrease in a
declining interest rate environment. As such, interest rate floor contracts can
effectively mitigate the Company's exposure to declines in the economic value of
its servicing rights in a declining interest rate environment.
The above described financial instruments involve, to varying degrees,
elements of credit and interest rate risk which are in excess of the amounts
recognized in the balance sheet. The Company believes that these instruments do
not represent a significant exposure to credit loss since the amounts subject to
credit risks are controlled through collateral requirements, credit approvals,
limits and monitoring procedures. The Company is exposed to credit losses in the
event of non-performance by counter parties to certain of its financial
instruments, but it does not expect any counter parties to fail since such risks
are managed through limits and monitoring procedures. The Company does not have
a significant exposure to any individual customer, correspondent or counterparty
in connection with these financial instruments. Except for mortgage purchase
commitments, the Company does not require collateral or other security to
support the financial instruments with credit risk whose contract or notional
amounts are summarized as follows:
<PAGE> 57
<TABLE>
<CAPTION>
CONTRACT AMOUNT AT DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Mortgage purchase commitments $ 528,672 $ 786,800
Financial instruments whose contract amounts exceed the amount of credit risk:
Mandatory delivery commitments (allocated against mortgages
held for sale) 644,200 1,025,300
Mandatory delivery commitments (allocated against mortgage
purchase commitments) 400,708 705,900
Purchased option contracts 100,000 175,000
Forward servicing sales contracts 11,469,076 12,290,700
Interest rate floor contracts 528,200 453,200
</TABLE>
Mortgage loan purchase commitments expose the Company to credit loss in
the event the purchase commitments are funded as mortgage loans and if counter
parties default prior to resale. The maximum credit loss to which the Company is
exposed is the notional amount of the commitments. However, the Company does not
believe the commitments represent a significant exposure to credit loss because
the related loans are secured by 1-4 family homes, most loans are insured or
guaranteed through private mortgage insurance or government approval programs
and subjected to underwriting standards specified by government agencies or
private mortgage insurance. The estimated credit exposure on financial
instruments whose contract amounts exceed the amount of credit risk is the
increase in market value of the instrument.
The Company generally does not charge a premium to its correspondents
in connection with issuance of its mortgage purchase commitments nor is a
premium charged to the Company in connection with its acquisition of mandatory
delivery or forward servicing sales contracts.
Premiums paid for purchased put and call option and futures contracts
are initially deferred and included in other assets in the balance sheet. Other
assets included $934 and $1,412 at December 31, 1996 and 1995, respectively, of
such deferred premiums. Ultimately, such deferred premiums and related realized
gains or losses from these activities are recorded as a component of gains and
losses on sales of mortgage loans at the earlier of the expiration of the
underlying contract or when exercise of the contract is deemed remote.
Premiums paid for interest rate floor contracts are initially deferred
and included in other assets in the balance sheet and subsequently amortized
over the term of the underlying contract. Amounts received as interest rate
differentials under floor contracts are recorded as a reduction of basis in
mortgage servicing rights. Other assets included $2,611 and $1,695 at December
31, 1996 and 1995, respectively, of unamortized premiums. For the years ended
December 31, 1996 and 1995, respectively, $620 and $464 of deferred premiums
paid for interest rate floor contracts were amortized to expense. Open contracts
and the cost thereof are considered in determining the market value and cost of
mortgage servicing rights held for investment.
<PAGE> 58
The current variable rate index (CMT Treasury rate) was 6.42% and 5.57%
at December 31, 1996 and 1995, respectively. Other terms of the interest rate
floor contracts outstanding at December 31, 1996, are summarized as follows:
<TABLE>
<CAPTION>
Notional
Contract Date Expiration Date Amount Floor Rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
September 19, 1994 September 19, 1997 $ 75,000 6.845%
September 19, 1994 September 19, 1999 81,000 6.345%
September 19, 1994 September 19, 1999 51,000 6.845%
February 13, 1995 February 13, 1998 21,200 7.067%
February 13, 1995 February 13, 2000 20,000 7.067%
February 13, 1995 February 13, 2000 45,000 6.567%
June 7, 1996 June 7, 1999 50,000 6.600%
August 20, 1996 August 20, 2001 60,000 5.570%
August 20, 1996 August 20, 2001 65,000 5.570%
August 20, 1996 August 20, 2001 60,000 5.570%
--------
$528,200
========
</TABLE>
<PAGE> 59
Note 17 - Fair Value of Financial Instruments:
The following table presents the carrying amounts and fair values of
the Company's financial instruments at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
-------------------- -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets
Cash $ 2,492 $ 2,492 $ 2,161 $ 2,161
Receivables 60,668 60,668 57,893 57,893
Mortgage loans held for sale and
mortgage-backed securities 802,335 803,137 1,035,229 1,036,415
Liabilities
Short-term borrowings 805,730 805,730 1,005,557 1,005,557
Long-term borrowings 65,530 65,530
</TABLE>
<TABLE>
<CAPTION>
1996 1995
============================= ===============================
Notional Carrying Estimated Notional Carrying Estimated
Amount Value Fair Value Amount Value Fair Value
-------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Off-balance sheet instruments
Mortgage purchase commitments $528,672 $ $(1,450) $786,800 $ $ 7,539
Mandatory delivery commitments
(allocated to mortgage purchase
commitments) 400,708 1,598 705,900 (5,400)
Purchased option contracts 100,000 934 502 175,000 1,412 1,513
Interest rate floor contracts 528,200 2,611 5,056 453,200 1,695 11,058
</TABLE>
The following notes summarize the significant methods and assumptions
used in estimating the fair values of financial instruments.
Cash, receivables and short-term borrowings are short-term in nature.
Accordingly, they are valued at their carrying amounts which are a reasonable
estimation of fair value.
Mortgage loans held for sale and mortgage-backed securities covered by
mandatory delivery commitments allocated thereto are valued based upon
commitment delivery prices. Uncommitted mortgage loans held for sale are valued
by reference to quoted market prices for mortgage-backed securities, after
appropriate adjustments thereto. For purposes of developing the estimated fair
value, the portfolio has been segregated by product type, term and coupon
interest rate.
Short-term and long-term borrowings are all tied to near term variable
rate indices. Accordingly they are valued at their carrying amounts, which are a
reasonable estimation of fair values.
<PAGE> 60
Mortgage purchase commitments are valued based upon the difference
between quoted mandatory delivery commitment prices (which are used by the
Company to price its mortgage purchase commitments) and the committed prices.
Mandatory delivery commitments are valued based upon the difference
between quoted prices for such commitments and the prices applicable to the
underlying commitment.
Purchased option contracts are valued based upon quoted prices for such
option contracts.
Interest rate floor contracts are valued based upon broker quotations.
Note 18 - Subsequent Events:
The Company and Meritage Mortgage Corporation (Meritage) have signed a
letter of intent for the Company to merge with Meritage. Meritage is a wholesale
originator of subprime mortgages headquartered in Portland, Oregon that was
organized in November 1995 and has origination offices in the Portland, San
Jose, Tacoma/Seattle, Tulsa and Denver metropolitan areas. During the year ended
December 31, 1996, Meritage produced approximately $107,000 of subprime mortgage
loans. Subprime mortgage production was approximately $40,000 for the fourth
quarter. As of December 31, 1996, Meritage employed 66 people. The Company will
exchange approximately $2,000 of cash and 926,000 shares of the Company's common
stock, for all of the outstanding common stock of Meritage. Approximately
427,000 of the 926,000 Company shares are being issued contingent upon Meritage
achieving specified increasingly higher levels of subprime mortgage production
during the 30 months following closing.
In January 1997, the Company reached resolution concerning certain of its
contractual employment obligations. In connection therewith, the Company
recorded a non-recurring charge of $5,200 (partially offset by a $2,000
reduction of income tax expense) in the accompanying consolidated financial
statements for 1996.
<PAGE> 61
Note 16 - Quarterly Financial Data (Unaudited):
<TABLE>
<CAPTION>
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 3,243 $ 5,037 $ 4,500 $ 4,122 $ 16,902
Net gain on sale of mortgage loans 18,533 21,503 19,312 19,830 79,178
Gain on sale of mortgage servicing rights 66 123 775 141 1,105
Loan servicing fees 7,130 6,729 7,520 7,384 28,763
Other income 78 220 106 265 669
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues 29,050 33,612 32,213 31,742 126,617
- -----------------------------------------------------------------------------------------------------------------------------------
Salary and employee benefits 12,666 12,849 12,315 17,748(1) 55,578
Occupancy expense 1,276 1,364 1,485 1,515 5,640
Amortization of mortgage servicing rights 3,670 3,646 3,748 3,870 14,934
Provision for foreclosure losses 100 100 91 526 817
General and administrative expenses 4,087 5,463 4,767 4,783 19,100
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 21,799 23,422 22,406 28,442 96,069
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 7,251 10,190 9,807 3,300 30,548
Income tax expense (2,791) (3,923) (3,626) (585) (10,925)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 4,460 $ 6,267 $ 6,181 $ 2,715 $ 19,623
- -----------------------------------------------------------------------------------------------------------------------------------
Net income per common share $ 0.28 $ 0.33 $ 0.33 $ 0.14 $ 1.08
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 794 $ 1,428 $ 3,172 $ 3,241 $ 8,635
Net gain on sale of mortgage loans 550 2,547 13,733 16,992 33,822
Gain on sale of mortgage servicing rights 1,816 4,024 188 1,318 7,346
Loan servicing fees 5,851 5,237 6,344 6,773 24,205
Other income 537 721 446 985 2,689
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues 9,548 13,957 23,883 29,309 76,697
- -----------------------------------------------------------------------------------------------------------------------------------
Salary and employee benefits 3,800 4,876 9,842 12,681 31,199
Occupancy expense 393 676 886 1,111 3,066
Amortization of mortgage servicing rights 2,028 2,119 2,458 2,747 9,352
Provision for foreclosure losses 16 19 40 93 168
General and administrative expenses 1,636 2,278 3,220 3,486 10,620
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 7,873 9,968 16,446 20,118 54,405
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,675 3,989 7,437 9,191 22,292
Income tax expense (642) (1,529) (2,841) (3,061) (8,073)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,033 $ 2,460 $ 4,596 $ 6,130 $ 14,219
- -----------------------------------------------------------------------------------------------------------------------------------
Net income per common share $ 0.06 $ 0.16 $ 0.30 $ 0.40 $ 0.92
</TABLE>
(1) Includes non-recurring charge of $5,200.
<PAGE> 62
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Resource Bancshares
Mortgage Group, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity, and of
cash flows present fairly, in all material respects, the financial position of
Resource Bancshares Mortgage Group, Inc. and its subsidiary at December 31, 1996
and 1995, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for mortgage servicing rights in 1995.
Price Waterhouse LLP
Columbia, South Carolina
February 3, 1997
<PAGE> 63
STOCK DATA
Information pertaining to high and low stock prices for each quarter
during 1996, 1995 and 1994 is given in the following chart. All per share data
have been adjusted to reflect the Stock Dividends issued by the Company.
The Company began paying cash dividends in 1996. Cash dividends, each
of $0.03 per share, were paid to shareholders of record as of September 3, 1996
and November 29, 1996. These cash dividends were paid on September 24, 1996 and
December 13, 1996. (See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for restrictions on the Company's ability
to pay cash dividends.)
As of February 28, 1997, there were approximately 812 record holders of
the Company's common stock.
[GRAPH]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Quarter 12-31-93 3-31-94 6-30-94 9-30-94 12-31-94 3-31-95 6-30-95 9-30-95 12-31-95 3-31-96 6-30-96 9-30-96 12-31-96
High $9.41 $8.98 $8.44 $8.28 $8.86 $8.47 $11.34 $17.06 $15.66 $17.06 $14.84 $14.25 $15.75
Low $6.97 $6.61 $6.42 $6.23 $7.50 $6.17 $ 7.70 $10.02 $12.61 $12.91 $10.16 $10.63 $12.88
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
DIRECTORS OFFICERS
<S> <C> <C>
Edward J. Sebastian Edward J. Sebastian Thomas S. Palmer
Chairman of the Board Chairman of the Board Senior Vice President
Chief Executive Officer Chief Executive Officer Correspondent Production
Resource Bancshares Mortgage Group, Inc.
Columbia, South Carolina David W. Johnson, Jr. Larry W. Reed
Vice Chairman Senior Vice President
David W. Johnson, Jr. Managing Director Subprime Lending
Vice Chairman
Managing Director Steven F. Herbert Gregory A. Samp
Resource Bancshares Mortgage Group, Inc. Senior Executive Vice President Senior Vice President
Columbia, South Carolina Chief Financial Officer Director of Operations
John W. Currie Richard M. Duncan Judy B. Schneider
Attorney Senior Executive Vice President Senior Vice President
McNair Law Firm P.A. Production Loan Operations
Columbia, South Carolina
law firm D. Hugh Burgess Joseph P. Sheridan, Jr.
Senior Vice President Senior Vice President
Stuart M. Cable General Auditor Retail Production
Attorney
Goodwin, Proctor & Hoar, LLP Jordan D. Dorchuck Ronald C. Simpson, Jr.
Boston, Massachusetts Senior Vice President Senior Vice President
law firm General Counsel Secondary Marketing
John C. Baker D. Keith Gettman Edward F. Wallace, Jr.
Baker Capital Corp. Senior Vice President Senior Vice President
New York, New York Secondary Marketing and Wholesale Production
venture capital firm Subprime Lending
Steven D. Walls
*Boyd M. Guttery Robin H. Holmes Senior Vice President
Business Consultant Senior Vice President Controller
Private Investor Underwriting and Insuring and Guaranteeing
Atlanta, Georgia
Brian L. Kunar
*John O. Wolcott Senior Vice President
Executive Vice President Loan Administration
Olayan America Corporation
New York, New York Thomas J. Little, Jr.
investment company Senior Vice President
Human Resources
*Audit Committee
</TABLE>
<PAGE> 65
CORPORATE INFORMATION
Exchange: NASDAQ
Symbol: REMI
Internet Address: http://www.rbmg.com
INVESTOR RELATIONS CONTACT
Steven F. Herbert
Senior Executive Vice President
and Chief Financial Officer
Resource Bancshares Mortgage Group, Inc.
7909 Parklane Road
Columbia, South Carolina 29223
Tel: (803) 741-3539
Fax: (803) 741-3586
DIVIDEND REINVESTMENT PLAN
Resource Bancshares Mortgage Group, Inc.
has an optional Dividend Reinvestment and
Stock Purchase Plan. Shareholders interested
in participating can contact the Investor Relations
Contact listed above.
FORM 10K AND OTHER INFORMATION
Copies of the Resource Bancshares
Mortgage Group, Inc., Annual Report
on Form 10K, as filed with the Securities
and Exchange Commission, will be furnished
without charge to shareholders upon
written request to Steven F. Herbert
at the address set forth above.
<PAGE> 1
EXHIBIT 21.1
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
SUBSIDIARIES OF THE REGISTRANT
1. Intercounty Mortgage Inc., a wholly-owned subsidiary of the Company,
was formed by the Company in January 1995 and is incorporated in the
state of Delaware.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of Amendment No. 3 of the Registration Statement on Form S-3
(No. 333-00638) of Resource Bancshares Mortgage Group, Inc. of our report dated
February 3, 1997 appearing on page 56 of the 1996 Annual Report to Shareholders
of Resource Bancshares Mortgage Group, Inc. which is incorporated in this Annual
Report on Form 10-K. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Columbia, South Carolina
March 25, 1997
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-87536) of Resource Bancshares Mortgage Group, Inc.
of our report dated February 3, 1997 appearing on page 56 of the 1996 Annual
Report to Shareholders which is incorporated in this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Columbia, South Carolina
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,492
<SECURITIES> 0
<RECEIVABLES> 60,668
<ALLOWANCES> 0
<INVENTORY> 912,150
<CURRENT-ASSETS> 1,007,259
<PP&E> 27,472
<DEPRECIATION> 6,337
<TOTAL-ASSETS> 1,028,394
<CURRENT-LIABILITIES> 871,093
<BONDS> 0
0
0
<COMMON> 193
<OTHER-SE> 157,108
<TOTAL-LIABILITY-AND-EQUITY> 1,028,394
<SALES> 62,858
<TOTAL-REVENUES> 126,617
<CGS> 76,152
<TOTAL-COSTS> 96,069
<OTHER-EXPENSES> 19,917
<LOSS-PROVISION> 817
<INTEREST-EXPENSE> 45,956
<INCOME-PRETAX> 30,548
<INCOME-TAX> 10,925
<INCOME-CONTINUING> 30,548
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,623
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
