-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CggTJH07v5qiHad925rV7Iq5qWBFXjwKmHE0XWMHMw3N/x5/KP19MSVn93ao2HKR 3HwM0jAsMHc4bXJ2tC8S/g== 0000950134-97-002108.txt : 19970326 0000950134-97-002108.hdr.sgml : 19970326 ACCESSION NUMBER: 0000950134-97-002108 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970324 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED COMPANIES FINANCIAL CORP CENTRAL INDEX KEY: 0000217416 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 710430414 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07067 FILM NUMBER: 97561841 BUSINESS ADDRESS: STREET 1: 4041 ESSEN LN STREET 2: P O BOX 1591 CITY: BATON ROUGE STATE: LA ZIP: 70809 BUSINESS PHONE: 5049246007 10-K 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1996 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-7067 UNITED COMPANIES FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Louisiana 71-0430414 --------- ---------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 4041 Essen Lane Baton Rouge, Louisiana 70809 ---------------------- ----- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (504) 924-6007 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- -------------------------------- Common Stock, Par Value $2.00 NEW YORK STOCK EXCHANGE 6 3/4% PRIDES (SM), Convertible Preferred Stock, NEW YORK STOCK Par Value $2.00 EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant as reported on the New York Stock Exchange as of March 5, 1997 was $596,883,646. The number of shares of $2.00 par value stock issued and outstanding as of March 5, 1997 was 28,494,326 excluding 1,159,682 treasury shares. DOCUMENTS INCORPORATED BY REFERENCE The registrant's Definitive Proxy Statement to be prepared pursuant to Regulation 14A and filed in connection with solicitation of proxies for its Annual Meeting of Shareholders, to be held May 14, 1997, is incorporated by reference into Part III of this Form 10-K. ================================================================================ 2 PART I ITEM 1. BUSINESS GENERAL United Companies Financial Corporation (the "Company" or "UCFC"), founded in 1946, is a financial services holding company engaged in consumer lending. The Company's lending operations primarily are focused on the origination, purchase, sale and servicing of first mortgage, non-conventional, home equity loans which are typically not loans for the purchase of homes. These home equity loans, which are fixed and variable rate mortgage loans, are made primarily to individuals who may not otherwise qualify for conventional loans which are readily marketable to government-sponsored mortgage agencies or conduits and available through most commercial banks and many other lending institutions. The Company's home equity loan originations are accomplished primarily through the following distribution channels: (i) a retail branch network conducted through United Companies Lending Corporation(R) ("UC Lending"), (ii) a wholesale operation conducted through UNICOR MORTGAGE(R), Inc. and through GINGER MAE(R), Inc., a division of UC Lending, each of which offer home equity loan products, and (iii) a bulk loan purchase program conducted through Southern Mortgage Acquisition, Inc. ("SMA"), which from time to time purchases pools of home equity loans from other lenders. In addition, the Company's lending operations include manufactured housing loan products offered through its wholly owned subsidiary, United Companies Funding, Inc. ("UCFI"). These manufactured housing contracts are made primarily to finance the purchase of new or used manufactured homes and are typically secured by a first lien security interest in the manufactured homes. The Company also began offering in mid-1996 a secured credit card product which is presently targeted to the Company's home equity loan customer base. These credit card loans are typically secured by a second lien, behind the Company's first lien, on the borrower's residence. Loan production is funded principally through loan facilities pending loan sales. Substantially all of the home equity loans and manufactured housing contracts originated or purchased by the Company are sold in the secondary market principally through securitization transactions under Company sponsored shelf registration statements. In addition to its lending operations, the Company was historically engaged in insurance operations. During 1996, the Company sold all of the outstanding common stock of United Companies Life Insurance Company ("UCLIC"), its life and annuity insurance subsidiary, and United General Title Insurance Company ("UGTIC"), its title insurance subsidiary. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Discontinued Operations and Note 11 to the Notes to Consolidated Financial Statements. The Company was incorporated in the State of Louisiana in 1946 and its principal offices are located in Baton Rouge, Louisiana. It currently has approximately 2,500 employees. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. This Annual Report on Form 10-K contains forward-looking statements that reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those identified below, which could cause actual results to differ materially from historical results or those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The following non- exclusive factors could cause actual results to differ materially from historical results or those anticipated: (1) changes in the performance of the financial markets, in the demand for and market acceptance of the Company's products, and in general economic conditions, including interest rates; (2) the presence of competitors with greater financial resources and the impact of competitive products and pricing; (3) the effect of the Company's policies; and (4) the continued availability to the Company of adequate funding sources. 2 3 Distribution network. At December 31, 1996, the Company's lending activities were primarily conducted through the following distribution channels: UC LENDING, the Company's retail operation, consisted of 185 offices in 42 states at year end 1996. During 1996, UC Lending originated $1.1 billion in home equity loans compared to $939.1 million for 1995, representing an increase of 18%. During 1996, UC Lending strengthened its branch network by opening 45 new offices while closing 10 offices, ending the year with 185 offices in 42 states. Also in 1996, UC Lending focused on employee training programs, which included training over 1,000 originators. UNICOR, one of the Company's wholesale operations, produced $570.1 million in home equity loans in 1996 compared to $423.0 million for 1995, representing an increase of 35%. UNICOR continued to target the broker and correspondent community and was successful in adding an additional 770 brokers and correspondents for a total at year end 1996 of approximately 2,840. Geographically, UNICOR expanded its operations to an additional 4 states for a total of 48 at year end. GINGER MAE, another of the Company's wholesale operations which operates through financial institutions (banks, thrifts and credit unions), produced $118.9 million in home equity loans in 1996 compared to $50.8 million in 1995. GINGER MAE increased the number of financial institutions it serves from 240 at year end 1995 to 342 in a total of 26 states at year end 1996. SOUTHERN MORTGAGE ACQUISITION, which purchases home equity loans in bulk, produced $441.4 million in home equity loans in 1996 compared to $128.6 million for 1995. UNITED COMPANIES FUNDING, the Company's manufactured housing lender, completed its first full year of operations by producing $118.8 million in contracts in 1996. The manufactured housing unit originates loan products through dealers and directly to the consumer. At year end 1996, UCFI operated in 31 states through 1,725 dealers. Products and Production. The Company's principal products are home equity loans with a fixed amount and term to maturity, which are secured by a first lien mortgage on the borrower's residence. Typically the proceeds of the loan will be used by the borrower to refinance an existing first mortgage in order to finance home improvements or for debt consolidation. These types of loans are commonly referred to as "B" and "C" grade loans. These loans are distinct from home equity revolving lines of credit, which are generally secured by a second mortgage and typically carry a floating interest rate. The Company offers fixed rate and adjustable rate ("ARM") home equity loan products. In addition to home equity loans, the Company offers manufactured housing loan products made primarily to finance the purchase of new or used manufactured homes. These contracts are typically secured by (i) a security interest in the manufactured home purchased with the proceeds of such contracts or (ii) with respect to certain of the contracts, liens on the real estate to which the related manufactured homes are deemed permanently affixed. The Company also began offering in mid-1996 a secured credit card product which is presently targeted to the Company's home equity loan customer base. These credit cards are typically secured by a second lien, behind the Company's first lien, on the borrower's residence. 3 4 The following table reflects loan production by distribution network by product type for the periods indicated:
1996 1995 1994 ------------------------ ------------------------- ----------------------- AVERAGE AVERAGE AVERAGE AMOUNT LOAN SIZE AMOUNT LOAN SIZE AMOUNT LOAN SIZE ------------- --------- ------------- --------- ---------- --------- (IN THOUSANDS) Home Equity UC Lending Fixed . . . . . . . . . . $ 680,481 38 $ 740,707 37 $ 679,466 38 ARM . . . . . . . . . . . 430,374 69 198,369 78 11,560 90 ------------- ------------- ---------- 1,110,855 939,076 691,026 UNICOR Fixed . . . . . . . . . . 542,845 56 337,802 50 146,832 48 ARM . . . . . . . . . . . 27,259 107 85,208 104 45,248 97 ------------- ------------- ---------- 570,104 423,010 192,080 GINGER MAE Fixed . . . . . . . . . . 115,079 71 44,497 59 9,864 55 ARM . . . . . . . . . . . 3,805 131 6,351 115 201 101 ------------- ------------- ---------- 118,884 50,848 10,065 SMA Fixed . . . . . . . . . . 42,139 72 7,709 50 1,739 38 ARM . . . . . . . . . . . 399,306 111 120,894 156 13,911 58 ------------- ------------- ---------- 441,445 128,603 15,650 UCFI Fixed . . . . . . . . . . . 3,170 52 - - - - Manufactured housing -- chattel contracts UC Lending . . . . . . . . 1,289 18 - - - - UCFI . . . . . . . . . . . 115,631 30 887 - - - ------------- ------------- ---------- 116,920 887 - Total Production . . . $ 2,361,378 $ 1,542,424 $ 908,821 ============= ============= ==========
As of December 31, 1996, approximately 96.8% in aggregate principal amount of the home equity loans owned and/or serviced by the Company were secured by a first mortgage with the remaining 3.2% in aggregate principal amount secured by second or multi-property mortgages. During 1996, approximately $2.2 billion in first mortgage home equity loans and $67 million in second mortgage and multi-property home equity mortgage loans were originated or acquired by the Company. In the case of most home equity loans for home improvements, the loan proceeds are disbursed to an escrow agent which, according to guidelines established by the Company, releases such proceeds upon completion of the improvements or in draws as the work on the improvements progresses. The weighted average interest rate on home equity loans produced during 1996 was 11.2%, compared to 11.6% during 1995. Costs incurred by the borrower for loan origination, including origination points and appraisal, legal and title fees, are often included in the amount financed. The Company's principal market for its home equity loans is individuals who may not otherwise qualify for conventional loans which are readily marketable to the government-sponsored mortgage agencies or conduits and available through most commercial banks and many other lending institutions. Loans to such borrowers may present a greater credit risk and therefore produce higher loan origination fees and interest rates as compared to loans to customers of banks and thrifts. The Company believes that its customers generally place a higher priority on the amount of the monthly payment and prompt credit approval than on the interest rate and origination fees associated with the loan. Management of the Company believes that any greater credit risk arising out of making loans to these borrowers is compensated by higher fees and interest rates. There are generally numerous competitors for these borrowers in each of the Company's geographic markets. Principal competitors include recognized national and regional lenders. The Company believes that prompt underwriting and response to loan applications provides a competitive advantage in loan originations. 4 5 The Company's manufactured housing lending program is primarily conducted through UCFI. UCFI may (i) purchase contracts from approved manufactured housing dealers ("indirect financing"), (ii) originate contracts directly with individual owners or purchasers of manufactured homes ("direct financing") or (iii) make bulk purchases of contracts originated or acquired by other lending institutions or finance companies. These contracts are generally secured by a security interest in the manufactured home purchased with the proceeds of the loan. Through its affiliates, UCFI also originates contracts ("land and home contracts") which, in addition to being secured by security interests in the manufactured homes, are secured by liens on the real estate to which the manufactured homes are deemed permanently affixed. Manufactured home contracts are generally subject to minimum down payments of approximately 10% of the amount financed and the term of the contracts do not exceed 30 years. At December 31, 1996, UCFI was licensed to conduct business in 31 states. Through its regional managers, UCFI purchases manufactured housing contracts from manufactured housing dealers. UCFI's regional managers contact dealers located in their region and explain UCFI's available financing plans, terms, prevailing rates and credit and financing policies. If the dealer wishes to use UCFI's available customer financing, the dealer must make an application for dealer approval. Upon satisfactory results of UCFI's investigation of the dealer's creditworthiness and general business reputation, UCFI and the dealer execute a dealer agreement. As of December 31, 1996, the dealers with which UCFI has entered into dealer agreements are located in 31 states. UCFI provides indirect financing only for manufactured homes which are manufactured by an approved manufacturer. Approval may be requested by a dealer or a manufacturer. If UCFI's review of the manufacturer's creditworthiness and general business reputation is satisfactory, UCFI will approve the manufacturer's products as being eligible for indirect financing. All contracts that UCFI purchases from dealers are written on forms provided by UCFI and are purchased on an individually approved basis. The dealer submits the customer's credit application and purchase order to UCFI's executive offices where UCFI's underwriters make an analysis of the creditworthiness of the proposed buyer. If the application meets UCFI's guidelines and the credit is approved, UCFI purchases the contract after the manufactured home is delivered and set up and the customer has been contacted by telephone to obtain the customer's approval of the manufactured home and the delivery and set-up of the manufactured home. Financing is also provided directly to individuals who own or wish to purchase manufactured homes. The customer's credit application is submitted to UCFI or one of its affiliate's executive offices where the underwriters make an analysis of the creditworthiness of the customer. A customer's application will also be accepted over a toll-free telephone number established for that purpose. If the telephone application receives preliminary approval, it is further processed as with other customer applications. Manufactured housing contracts originated or acquired by other lending institutions or finance companies may also be purchased by the Company. Each contract so purchased will be re-underwritten prior to the purchase thereof using the then-current underwriting standards. Underwriting. Home equity loans. Supervision of the underwriting staff is centralized, however, each of the Company's distribution networks for home equity loans has its own staff of underwriters in order to provide better service to its respective customers. Regardless of the manner of origination, all home equity loans are underwritten (or, in the case of bulk purchases, are re-underwritten) prior to approval and funding utilizing substantially similar underwriting guidelines. The underwriting function is centralized at the home office. Underwriting guidelines are modified from time to time. The following is a description of the current underwriting guidelines, which are not materially different from prior guidelines. The underwriting process is intended to assess the prospective borrower's ability and willingness to repay the loan and the adequacy of the real property security as collateral for the loan granted. On a case-by-case basis, home equity loans may be made which vary from the underwriting guidelines; however, such variations are approved by the home office underwriting department. 5 6 The Company originates fixed-rate home equity loans with original terms to maturity not to exceed: 360 months for single family, owner occupied first mortgages; 360 months for single family, non-owner occupied first mortgages; 360 months for single family, combination owner occupied/rental property first mortgages; and 180 months for single family, owner occupied second mortgages. The fixed-rate loan amounts generally do not exceed $500,000 in the case of loans secured by first liens, and $150,000 in the case of loans secured by second liens, in each case unless a higher amount is specifically approved by the applicable underwriters. All of the fixed-rate home equity loans are fully amortizing, except for Balloon Loans which comprise 5.6% of the portfolio. UNICOR originates and the Company's other distribution networks may originate fixed-rate loans with an original term to maturity ranging from 60 to 240 months and a longer amortization schedule ranging from 180 to 360 months ("Balloon Loans"). Balloon Loans must be secured by first liens on residential properties. UNICOR and GINGER MAE also originate fixed-rate home equity loans which provide that the interest rate may decrease by one percentage point if the borrower makes the first 12 consecutive monthly payments without a delinquency. At that time, the monthly payments will be recalculated to fully amortize the loan at the reduced rate over the remaining term to maturity. Adjustable rate home equity loans generally amortize fully over a period not to exceed 360 months. The maximum loan amount for adjustable-rate home equity loans is $500,000 unless a higher amount is specifically approved by the applicable underwriters. The homes used for collateral to secure the home equity loans may be owner occupied, non-owner occupied rental properties or a combination of owner occupied rental properties, which in any case are one-to-four family residences (which may be a detached or semi-detached row house, townhouse, a condominium unit or a unit in a planned unit development). In addition, such loans may be secured by single-family owner occupied manufactured or mobile homes with land if the manufactured or mobile homes are permanently affixed and defined as real estate under applicable state law. Certain loans may be secured by a leasehold interest and the improvements thereon. Second mortgages are generally permitted only for fixed-rate home equity loans and generally are limited to one-to-four family owner occupied property. Such a loan secured by a second mortgage typically will not be made if the first mortgage is a balloon or an individual or owner financed mortgage. In general, the value of each property proposed as security for a home equity loan is required to be determined by a current appraisal from an independent appraiser who has been approved by the home office. The Company requires that the appraisal provide an adequately supported estimate of the value of the property proposed as security for the requested home equity loan and a complete, accurate description of the property. In some cases, the appraisal is subject to completion of improvements which are to be made with the proceeds of the home equity loan. The property is analyzed, based on the appraisal, to determine its acceptability as security for the loan requested. Manufactured housing contracts. The underwriting of manufactured housing contracts focuses primarily on the borrower's willingness and capacity to repay the debt. The analysis includes application of a credit scoring system and a review of the applicant's paying habits, length and likelihood of continued employment, and certain other factors. The Company's current underwriting guidelines for conventional contracts limit the maximum loan size to $200,000 in the case of chattel contracts (i.e., manufactured housing installment sales contracts and manufactured housing installment loan agreements) and $300,000 in the case of land-and home contracts (i.e., contracts where the manufactured home is deemed permanently affixed to the real estate on which it is located). Appraisals on used manufactured homes are performed by employees of the Company or by independent appraisers approved by the Company. The appraisals of such independent appraisers are validated by the Company's personnel through a review of the National Automobile Dealers Association base values and on-site inspections. The Company applies substantially the same loan-to-value ratio, appraisal and other underwriting standards and procedures to the land-and-home contracts as are applied to other home equity loans. Loan-to-Value. Home equity loans. The total amount of a home equity loan generally includes origination fees, credit life insurance premium, if any, prepaid interest and other closing costs (such as the cost of an appraisal report and title insurance premiums). Loan-to-value is the percentage equal to the note amount divided by the lesser of appraised value or the purchase price of the real estate. For fixed-rate and adjustable rate home equity loans originated through the Company's wholesale operations, the maximum loan-to-value is 90%, with the maximum for rural properties generally 6 7 being 80%. For home equity loans originated through the branch network, an Underwriting Loan-to-Value Ratio, as described below, is utilized. The total amount of a home equity loan, net of the origination fees, credit life insurance premium, if any, prepaid tax and insurance escrow, real estate tax service fee, loan application fee and prepaid interest, is defined as the "Cash Out." The "Underwriting Loan-to-Value Ratio" for underwriting purposes is the Cash Out divided by the appraised value or purchase price of the property, whichever is less. The Cash Out with respect to fixed-rate and adjustable-rate loans originated through the branch network is limited to 90% of the lesser of the applicable appraised value or purchase price of the property. Generally, the maximum Underwriting Loan-to-Value Ratio is 80% for a loan with a second mortgage on the property. With respect to rural properties, the maximum Underwriting Loan-to-Value Ratio (utilizing only up to ten acres and the improvements thereon) is 80%. The maximum Underwriting Loan-to-Value Ratio generally applicable to non-owner occupied homes is 75% and is generally 80% for owner occupied manufactured/mobile homes with land. Because the Underwriting Loan-to-Value Ratio is based on the Cash Out rather than the actual principal balance of the related loan, the loan-to-value ratio of such loan will be higher and could be substantially higher than the Underwriting Loan-to-Value Ratio. However, the loan-to-value ratio may not exceed 100%. Manufactured housing contracts. The "Value" used to calculate the original loan-to-value ratios of the contracts originated by UCFI is equal to (i) in the case of a chattel contract on a new manufactured home, the total cost of such manufactured home (allowing for the standard industry dealer markup of 30%), including sales and other taxes, filing and recording fees imposed by law and premiums for related insurance and optional equipment up to 25% of the base invoice and set-up fees, (ii) in the case of a chattel contract on a used manufactured home, either the total delivered sales price for such manufactured home, if available, or its appraised market value, plus, in either case, each of the following to the extent that the inclusion thereof does not exceed the appraised value of the manufactured home: sales and other taxes, filing and recording fees imposed by law and premiums for related insurance, or (iii) in the case of real estate securing a land-and-home contract, the total sales price of the real estate and the manufactured home together. "Value" used to calculate the original loan-to-value ratios of manufactured housing contracts originated by other distribution networks of the Company or acquired from third parties will equal the lesser of the appraised value or, in the case of a purchase, the purchase price of the manufactured home and the related real estate to which the manufactured home is permanently affixed. With respect to conventional chattel contracts for new manufactured homes, the Company may finance up to the lesser of (a) 95% of the cash sale price (including taxes, fees and insurance) of the manufactured home or (b) 130% of the manufacturer's invoice price of the manufactured home plus 100% of taxes, license fees and freight charges, 100% of the dealer's cost of additional dealer-installed equipment (not to exceed 25% of the base price of the manufactured home), and up to $1,500 of set-up costs per module. With respect to used manufactured homes, the Company may finance up to 100% of the lesser of (a) the total delivered sales price of the manufactured home (including taxes, fees, insurance and up to $1,500 of set-up costs per module), or (b) the appraised value of the manufactured home. Taxes, fees, and insurance may be included in the amount financed up to a maximum of 100% of the appraised value of the used manufactured home. The guidelines in this paragraph may be exceeded when the Company's underwriters deem it appropriate. Creditworthiness. Home equity loans/manufactured housing contracts. Verification of personal financial information for each applicant is required. The applicant's total monthly obligations (including principal and interest on each mortgage, tax assessments, other loans, charge accounts and all scheduled indebtedness) generally should not exceed 50% of a borrower's gross monthly income. In the case of adjustable-rate home equity loans, the debt ratio calculation is based upon the principal and interest payment amount utilizing the maximum rate on the second change date. Generally, the borrowers are required to have two years of employment with their current employer or two years of like experience. Applicants who are salaried employees must provide current employment information in addition to recent employment history. This information is verified for salaried borrowers based on written confirmation from employers, or a combination of a telephone confirmation from the employer and the most recent pay stub and the most recent W-2 tax form. A self-employed applicant is generally required to provide copies of complete federal income tax returns filed for the most recent two years. Re-verification of the foregoing information is generally not undertaken for home equity loans purchased through the bulk purchase program of the Company. 7 8 A credit report by an independent, nationally recognized credit reporting agency reflecting the applicant's credit history is required. The credit report should reflect all delinquencies of 30 days or more, repossessions, judgments, foreclosures, garnishments, bankruptcies and similar instances of adverse credit that can be discovered by a search of public records. Verification is required to be obtained of the first mortgage balance, if any, its status and whether local taxes, interest, insurance and assessments are included in the applicant's monthly payment. All taxes and assessments not included in the payment are required to be verified as current. A borrower's mortgage payment history should generally reflect no more than three payments over 30 days delinquent in the last twelve months; however, in some cases, a borrower is permitted to have no more than five payments over 30 days delinquent in the last twelve months and one payment over 60 days delinquent in the last twelve months. Credit analysis is subjective and subject to interpretation in the underwriting process. Other requirements. The Company generally requires title insurance coverage on each home equity loan or land and home manufactured housing contract it originates. The borrower is required to obtain property insurance in an amount sufficient to cover, in the case of a first mortgage, the new loan and in the case of a fixed-rate second mortgage, the new loan and any prior mortgage. If the sum of an outstanding first mortgage, if any, and the fixed-rate home equity loan exceeds the lesser of replacement or insurable value, insurance equal to the lesser of replacement or insurable value may be accepted. The Company requires that its name and address are properly added to the "mortgagee clause" of the insurance policy. In the event the policy does not provide for written notice of policy changes or cancellation, an endorsement adding such provision is required. The borrower is required to obtain flood insurance to the extent such insurance is available under the Flood Disaster Protection Act of 1973, as amended. After a loan is underwritten, approved and funded, the mortgage loan packages are reviewed by home office loan review personnel. A random sample of the mortgage loan packages are subsequently subjected to a quality control audit. Loan sales and securitizations. Substantially all of the home equity loans and manufactured housing contracts originated or purchased by the Company are sold. Since 1985, the Company has sold home equity loans originated by it in the secondary market, initially in transactions with government-sponsored mortgage agencies or conduits, later in private placement transactions with financial institutions and, since the second quarter of 1993, through shelf registration statements filed with the Securities and Exchange Commission by subsidiaries of the Company. Approximately $5.2 billion of pass-through certificates backed primarily by first mortgage home equity loans originated or purchased by the Company through its distribution networks have been issued under the registration statements and publicly sold since 1993. During 1996, a subsidiary of the Company filed a shelf registration statement with the Securities and Exchange Commission for the sale of manufactured housing contract pass-through certificates. The registration statement was declared effective in September of 1996 and the Company issued and publicly sold approximately $164 million of such certificates during the third and fourth quarters of 1996. The Company intends to continue to effect securitization transactions on a quarterly basis, but the amount and timing of sales of securities under the shelf registration statements will depend upon market and other conditions affecting the operations of the Company. The following table reflects certain information regarding home equity loan production and sales during the indicated periods:
1996 1995 1994 ------------ ------------ ------------ Home equity loan production . . . . . . . . . . . . $ 2,244,458 $ 1,541,537 $ 908,821 Home equity loan sales . . . . . . . . . . . . . . $ 2,245,406 $ 1,471,868 $ 977,653 Average coupon on loans sold . . . . . . . . . . . 11.20% 11.67% 11.80% Interest spread retained on loans sold . . . . . . 4.80% 4.98% 4.49%
The weighted average interest spread on loans sold (the difference between the stated rate on the loan and the rate paid to purchasers, less certain recurring fees) is determined without regard to expected credit losses. Servicing rights are retained on substantially all loans sold. 8 9 The Company's home equity loan securitization transactions are credit enhanced and the certificates issued pursuant thereto have received ratings of "Aaa" from Moody's Investors Service, Inc., "AAA" from Standard & Poor's, a division of The McGraw-Hill Companies, Inc. and "AAA" from Fitch Investors Service L.P. Credit enhancement is achieved in part through a guaranty provided by a third party insurer and by subordinating an amount (the "Subordinated Amount") of the excess interest spread retained by the Company to the payment of scheduled principal and interest on the certificates should there be a shortfall in collections from borrowers in the form of monthly mortgage payments during any given period. If cumulative payment defaults exceed the Subordinated Amount, the third party insurer is obligated to pay any further losses experienced by the owners of the pass-through certificates. The Company has, from time to time, used the Financial Guaranty Insurance Company and MBIA Insurance Corporation as third party insurers. Credit enhancement for one of the manufactured housing securitization transactions was achieved in part through a guaranty provided by a third party insurer and by a senior/subordinated structure for the other transaction. The certificates issued pursuant to the manufactured housing securitizations have received investment grade ratings by nationally recognized rating agencies. Each pooling and servicing agreement that governs the distribution of cash flows from the pooled loans requires the establishment of an account (the "Reserve Account") that may require an initial deposit by the Company. Thereafter, a portion of the excess interest is deposited in the Reserve Account. There are no events that will require the aggregate deposits to the Reserve Account to exceed the related Subordinated Amount. To the extent that losses are incurred on the loans underlying the pass-through certificates issued in a securitization transaction, such losses are paid out of the related Reserve Account to the extent that funds are available. The Company derives a significant portion of its income by realizing gains upon the sale of home equity loans and manufactured housing contracts (sometimes referred to collectively herein as "loans") due to the excess servicing income of such loans. Excess servicing income represents the excess of the interest rate payable by a borrower on a loan over the interest rate passed through to the investor acquiring an interest in such loan, less the Company's normal servicing fee and other applicable recurring fees. When loans are sold, the Company recognizes as current income the present value of the excess servicing income expected to be realized over the anticipated average life of the loans sold less future estimated credit losses relating to the loans sold. At December 31, 1996, the Company's balance sheet reflected capitalized excess servicing income of approximately $426 million. The Company's allowance for loan losses includes an allowance of approximately $73.1 million for loans serviced. The capitalized excess servicing income is computed using prepayment, default and interest rate assumptions that the Company believes market participants would use for similar instruments at the time of sale. The weighted average discount rate used to determine the present value of the balance of capitalized excess servicing income on home equity loans reflected on the Company's balance sheet at December 31, 1996, was approximately 10%. The Company is not aware of an active market for this kind of receivable. No assurance can be given that this receivable could in fact be sold at its stated value on the balance sheet. Capitalized excess servicing income is amortized over the lesser of the estimated or actual remaining life of the underlying loans as an offset against the excess servicing income component of servicing income actually received in connection with such loans. Although management of the Company believes that it has made reasonable estimates of the excess servicing income likely to be realized, it should be recognized that the rate of prepayment and the amount of defaults utilized by the Company are estimates and actual experience may vary from these estimates. The Company periodically reviews its prepayment assumptions in relation to current rates of prepayment and, if necessary, writes down the remaining asset to the net present value of the estimated remaining future excess servicing income. Rapid increases in interest rates or competitive pressures may result in a reduction of excess servicing income, thereby reducing the gains recognized by the Company upon the sale of loans in the future. The gain recognized by the Company upon the sale of loans will have been overstated if the excess servicing income actually received by the Company is less than originally assumed. An acceleration of future prepayments and/or delinquencies could result in capitalized excess servicing income amortization expense exceeding realized excess servicing income, thereby adversely affecting the Company's servicing income. Conversely, if the rate of prepayment and/or delinquencies is less than the amount assumed in determining loan sale gains, servicing income will be positively affected in future periods. 9 10 The ability of the Company to sell loans and/or mortgage-backed securities in the secondary market, or an alternative source of funding loan production, is essential for continuation of the Company's loan origination operations. A prolonged, substantial reduction in the size of the secondary market for home equity loans may adversely affect the Company's ability to sell its loan originations and/or mortgage-backed securities in the secondary market with consequent adverse impact on the Company's profitability and future originations. Moreover, market and other considerations could affect the timing of the Company's securitization transactions and delays in such sales could reduce the amount of gains recognized from the sale of loans in a given quarter. Loan Servicing. The Company retains the servicing on substantially all loans it originates. The following services are performed for investors to whom the Company has sold loans and for which it has retained servicing: investor reporting; collecting and remitting periodic principal and interest payments to investors and performing other administrative services, including maintaining required escrow accounts for payment of real estate taxes and standard hazard insurance; determining the adequacy of standard hazard insurance; advising investors of delinquent loans; conducting foreclosure proceedings, and inspecting and reporting on the physical condition of the mortgaged properties securing the mortgage loans; and disposing of foreclosed properties. The Company is generally obligated to advance interest on delinquent loans to the secondary market investors at the applicable pass-through rate until satisfaction of the note, liquidation of the mortgaged property or charge off of the loan. To the extent that the amount recovered through liquidation of collateral is insufficient to cover the unpaid balance of the loan, the Company incurs a loss until such losses aggregate the limit specified in the related loan sale agreement. In connection with its servicing activities, the Company sends to borrowers monthly statements that specify the fixed payment amount and due date in the case of fixed-rate home equity loans and the adjusted payment amount and due date in the case of adjustable-rate home equity loans and the late payment amount, if any. With respect to adjustable-rate home equity loans, the Company provides written notices to borrowers of upcoming rate adjustments reflecting the adjusted payment amounts. The Company, as master servicer, is required under each loan sale agreement to service the mortgage loans or manufactured housing contracts, as the case may be, either directly or through sub-servicers. Substantially all servicing activities are centralized at the home office. The contractual balances of loans owned and/or serviced, excluding real estate owned and/or serviced, by the Company were as follows for the dates indicated:
DECEMBER 31, -------------------------------------------- 1996 1995 1994 ------------ ------------ ------------ (IN THOUSANDS) Owned and serviced: Home equity . . . . . . . . . . . . . . . . $ 4,040,138 $ 2,701,481 $ 1,683,698 Commercial . . . . . . . . . . . . . . . . - 251,241 274,413 Manufactured housing . . . . . . . . . . . 115,137 888 - Other . . . . . . . . . . . . . . . . . . . 46,846 58,554 74,294 ------------ ------------ ------------ Total . . . . . . . . . . . . . . . $ 4,202,121 $ 3,012,164 $ 2,032,405 ============ ============ ============
Under the terms of the sale of UCLIC, servicing of commercial real estate loans owned by UCLIC and pass-through certificates owned by third parties and UCLIC which are backed by commercial real estate loans originated by the Company were transferred from the Company to UCLIC at the closing of the sale in July, 1996. At December 31, 1996, the Company's home equity portfolio of properties acquired in foreclosure or for which deeds in lieu of foreclosure have been accepted and held by the Company pending disposition represented approximately $7.8 million (excluding the allowance for loan losses attributable to these properties). This amount may include the first mortgage balance, delinquent first mortgage payments and certain advances made on the property. When the Company believes that borrowers with existing loans with the Company are likely to refinance such loans due to interest rate changes, equity build-up or other reasons, the Company actively attempts to retain such borrowers through solicitations of such borrowers to refinance with the Company. Such refinancings generate fee income and servicing income for the Company. 10 11 Delinquency and Loss Experience. The following two tables set forth information relating to delinquency, default and loan loss experience for the home equity loan portfolio serviced by the Company (including loans owned by the Company) as of the dates and for the periods indicated:
DECEMBER 31, -------------------------------------------- 1996 1995 1994 ------------ ---------- ---------- (DOLLARS IN THOUSANDS) Number of home equity loans . . . . . . . . . 88,491 69,723 52,289 Dollar amount of home equity loans . . . . . $ 4,040,138 $2,701,481 $1,683,698 Delinquency period(1) 30-59 days . . . . . . . . . . . . . . . . 3.39% 2.73% 2.13% 60-89 days . . . . . . . . . . . . . . . . 1.31% 0.61% 0.46% 90 days and over . . . . . . . . . . . . . 0.71% 0.28% 0.17% Defaults Foreclosures in process . . . . . . . . . . 3.36% 2.78% 3.01% Bankruptcy . . . . . . . . . . . . . . . . 1.83% 1.75% 1.90%
- ------------ (1) The dollar amount of delinquent home equity loans as a percentage of the total "dollar amount of home equity loans" as of the date indicated.
DECEMBER 31, -------------------------------------------------- 1996 1995 1994 --------------- -------------- -------------- (IN THOUSANDS) Average dollar amount of home equity loans outstanding during period . . . . . . . . . . . $ 3,370,810 $ 2,192,590 $ 1,404,419 Net losses Gross Losses(1) . . . . . . . . . . . . . . . . $ 19,484 $ 13,818 $ 12,745 Recoveries(2) . . . . . . . . . . . . . . . . . (2,371) (1,597) (1,051) --------------- -------------- -------------- Net Losses(3) . . . . . . . . . . . . . . . . . $ 17,113 $ 12,221 $ 11,694 =============== ============== ==============
(1) "Gross Losses" are amounts which have been determined to be uncollectible relating to home equity loans for each respective period. (2) "Recoveries" are recoveries from liquidation proceeds and deficiency judgments. (3) "Net Losses" means "Gross Losses" minus "Recoveries". Delinquent manufactured housing contracts (which for purposes hereof includes land and home contracts and chattel contracts) totaled $2.5 million, or 1.47% of the manufactured housing contracts owned and/or serviced at December 31, 1996. The above delinquency, default and loan loss experience represents the Company's recent experience. However, the delinquency, default and net loss percentages may be affected by the increase in the size and relative lack of seasoning of a substantial portion of the portfolio. In addition, the Company can neither quantify the impact of property value declines, if any, on the home equity loans nor predict whether, to what extent or how long, such declines may exist. In a period of such declines, the rates of delinquencies, defaults and losses on the home equity loans could be higher than those theretofore experienced in the residential mortgage lending industry in general. Adverse economic conditions (which may or may not affect real property values) may affect the timely payment by borrowers of scheduled payments of principal and interest on the home equity loans and, accordingly, the actual rates of delinquencies, defaults and losses. As a result, the information in the above tables should not be considered as a basis for assessing the likelihood, amount or severity of delinquencies, defaults or losses in the future on home equity loans and no assurance can be given that the delinquency, default and loss experience presented in the tables will be indicative of such experience on home equity loans. 11 12 OTHER OPERATIONS The Company has developed an office park which includes its home office building and investment properties owned by the Company. The Company owns three office buildings which have approximately 350,000 square feet of which 130,000 square feet were used by the Company and its subsidiaries at December 31, 1996. In addition, United Companies Realty and Development Co., Inc. ("UC Realty"), a wholly owned subsidiary of the Company, is a general partner in the ownership of a 100,000 square foot office building, also located in the office park. All of the investment properties were approximately 100% leased at December 31, 1996. UC Realty manages each of these properties as well as an additional 58,000 square foot building in the park owned by a third party. During 1996, UC Realty began construction of a 103,000 square foot office building, also located in the office park, substantially all of which will be used by the Company. The Company also operates a homeowners insurance agency and engages in telecommunications business which provides telephone service to the home office and tenants in the office park, neither of which are material to its operations. DISCONTINUED OPERATIONS For a discussion of Discontinued Operations, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Discontinued Operations and Note 11 to the Notes to Consolidated Financial Statements. GOVERNMENT REGULATION AND LEGISLATION The Company's operations are subject to extensive regulation, supervision and licensing by federal and state authorities. Regulated matters include, without limitation, maximum interest rates and fees which may be charged by the Company, disclosure in connection with loan originations, credit reporting requirements, servicing requirements, federal and state taxation, and multiple qualification and licensing requirements for doing business in various jurisdictions. The Company believes that it maintains all requisite licenses, permits and approvals which are material to its operations and is in compliance in all material respects with applicable federal and state regulations. The Company's loan origination activities are subject to the laws and regulations in each of the states in which those activities are conducted. The Company's activities as a lender are also subject to various federal laws including the Truth-in-Lending Act, the Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act and the Fair Credit Reporting Act. In the course of its business, the Company may acquire properties securing loans that are in default. There is a risk that hazardous or toxic waste could be found on such properties. In such event, the Company could be held responsible for the cost of cleaning up or removing such waste, and such cost could exceed the value of the underlying properties. There are currently proposed various laws, rules and regulations which, if adopted, could impact the Company. There can be no assurance that these proposed laws, rules and regulations, or other such laws, rules or regulations, will not be adopted in the future which could make compliance much more difficult or expensive, restrict the Company's ability to originate, broker or sell loans, further limit or restrict the amount of commissions, interest and other charges earned on loans originated or sold by the Company, or otherwise adversely affect the business or prospects of the Company. COMPETITION As a marketer of credit products, the Company faces intense competition. Traditional competitors in the financial services business include other mortgage banking companies, commercial banks, credit unions, thrift institutions, credit card issuers and finance companies. Many of these competitors in the financial services business are substantially larger and have more capital and other resources than the Company. Competition can take many forms including convenience in obtaining a loan, customer service, marketing and distribution channels and interest rates. In addition, the current level of gains realized by the Company and its existing competitors on the sale of its and their non-conventional loans could 12 13 attract additional competitors into this market with the possible effect of lowering gains on future loan sales as the result of increased loan origination competition. ITEM 2. PROPERTIES The Company's executive offices are located in its home office building in Baton Rouge, Louisiana. The Company occupies all of its home office building which has approximately 94,000 square feet. The executive offices of the Company's mortgage lending subsidiaries are located at the Company's home office building and adjacent investment property. At December 31, 1996, the retail division of the Company's mortgage lending operations were conducted in 42 states from 4 locations owned by the Company in 4 cities and from 181 additional leased offices in 179 cities. The offices owned or leased range in size from approximately 1,000 square feet to 3,650 square feet; leases expire from 1997 to 2002, excluding renewal options. Operations of the Company's manufactured housing lending subsidiary are based in Minneapolis, Minnesota in leased offices totaling approximately 34,000 square feet. During 1996, aggregate annual rental expense for leased office space was approximately $6.5 million. Management believes that the properties are adequately maintained and insured, and satisfactorily meet the requirements of the business conducted therein. ITEM 3. LEGAL PROCEEDINGS The nature of the Company's business is such that it is routinely involved in litigation and is a party to or subject to other items of pending or threatened litigation. Although the outcome of certain of these matters cannot be predicted, management of the Company believes, based upon information currently available, that the resolution of these various matters will not result in any material adverse effect on its consolidated financial condition. The remaining affairs of the Company's subsidiary, Foster Mortgage Corporation ("FMC"), a discontinued operation, are now being concluded under the supervision of a bankruptcy court. On December 21, 1993, the institutional lenders under FMC's primary credit facility (the "FMC Institutional Lenders") filed a petition in the U.S. bankruptcy court to cause the remaining affairs of FMC to be concluded under the supervision of the bankruptcy court. The FMC Institutional Lenders filed and the bankruptcy court approved a plan of liquidation for FMC providing for the appointment of a trustee selected by the FMC Institutional Lenders. The FMC Institutional Lenders allege that FMC has certain claims against the Company, including a claim with respect to the Company's alleged failure to remit all sums due FMC regarding federal income taxes under a tax agreement among the Company and its subsidiaries, including FMC, estimated by the FMC Institutional Lenders to range from $2 million to $29 million. FMC and the Company executed, subject to the approval of the bankruptcy court, a settlement agreement relating to payments between FMC and the Company in connection with the federal income tax benefits resulting from FMC's losses and to certain prior intercompany payments between FMC and the Company. The settlement agreement included a release by FMC in favor of the Company of any and all claims relating to federal income taxes. The FMC Institutional Lenders opposed the proposed settlement agreement. At the conclusion of a hearing on the proposed settlement on August 18, 1994, the bankruptcy court approved the portion of the settlement providing for a net payment by the Company of $1.65 million to FMC in satisfaction of the federal income tax benefits resulting from FMC's losses and the release of any claims regarding federal income taxes. The bankruptcy court declined to approve the other portion of the proposed settlement relating to payments received by the Company from FMC within twelve months of the bankruptcy filing. If the Company were required to refund such payments, the Company has estimated the potential additional loss to be $1.9 million, net of tax benefits. The decision of the bankruptcy court on the settlement was appealed by the FMC Institutional Lenders to the U.S. District Court which affirmed the bankruptcy court's decision. The FMC Institutional Lenders then appealed this decision to the U.S. Fifth Circuit Court of Appeals. In a decision rendered on November 9, 1995, the U.S. Fifth Circuit Court of Appeals reversed the district court, vacated the settlement between FMC and the Company and remanded the matter back to the district court for further proceedings. The trustee under the plan of liquidation has filed an adversary proceeding in the bankruptcy proceedings against the Company seeking avoidance of alleged preferential payments totaling $3.72 million and has also instituted a suit in federal court against the Company alleging claims under the tax agreement estimated by the trustee to range from $2 million to $29 million. On November 22, 1996, the district court referred the case to the bankruptcy court for adjudication. The bankruptcy court has not yet scheduled the case for trial. Management of the Company does not believe that any additional amounts are owed by the Company to FMC 13 14 or the trustee and is vigorously contesting the claims which have been brought against it for such amounts by the trustee. The Company did not guarantee any debt of FMC. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 14 15 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Common Stock Prices and Dividends On September 20, 1996, the Company's Common Stock began trading on the New York Stock Exchange (the "NYSE") under the symbol "UC". Prior to that date, the Company's Common Stock traded on the National Association of Securities Dealers Automated Quotation System/National Stock Market ("the Nasdaq Stock Market") under the symbol "UCFC". The following table sets forth for the periods indicated the high and low sale prices of the Company's Common Stock as reported on the NYSE subsequent to September 20, 1996 and on the Nasdaq Stock Market prior to this date and the per share cash dividends declared. All amounts have been adjusted for stock dividends.
SALES PRICES ------------------------------ CASH HIGH LOW DIVIDENDS ------------ ------------ ------------- 1996 First Quarter . . . . . . . . . . . . . . . . . $ 32.750 $ 22.25 $ .07 Second Quarter . . . . . . . . . . . . . . . . 36.750 28.00 .07 Third Quarter . . . . . . . . . . . . . . . . . 39.250 28.50 .07 Fourth Quarter . . . . . . . . . . . . . . . . 34.625 25.00 .08 ------------- Total . . . . . . . . . . . . . . . . . $ .29 ============= 1995 First Quarter . . . . . . . . . . . . . . . . . $ 18.250 $ 11.375 $ . 05 Second Quarter . . . . . . . . . . . . . . . . 23.375 11.375 .05 Third Quarter(1) . . . . . . . . . . . . . . . 36.750 22.125 .05 Fourth Quarter . . . . . . . . . . . . . . . . 37.375 25.500 .05 ------------- Total . . . . . . . . . . . . . . . . . $ .20 =============
__________ (1) On August 23, 1995, the Company announced a 100% Common Stock dividend payable on October 20, 1995, to stockholders of record on October 9, 1995. The Company has declared and paid regular quarterly cash dividends on its Common Stock since 1974. While the Company intends to continue to pay regular quarterly cash dividends on its Common Stock, its ability to do so will be subject to its earnings, financial condition, capital and regulatory requirements, credit facility restrictions and such other factors as the Company's Board of Directors may consider relevant. (See Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources.) Number of Common Equity Security Holders APPROXIMATE NUMBER OF COMMON EQUITY SECURITY HOLDERS
APPROXIMATE NUMBER OF SHAREHOLDERS TITLE OF CLASS AS OF MARCH 5, 1997 -------------- ------------------- Common Stock, $2.00 par value 3,082
15 16 ITEM 6. SELECTED FINANCIAL DATA The selected financial data set forth below are derived from the Company's audited Consolidated Financial Statements.
YEAR ENDED DECEMBER 31, (1)(2) ---------------------------------------------------------------------- 1996 1995 1994 1993 1992 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Total revenues . . . . . . . . . . $ 356,874 $ 260,289 $ 182,538 $ 123,876 $ 84,814 Total expenses . . . . . . . . . . 223,017 157,624 107,544 83,450 68,014 ----------- ----------- ----------- ----------- ---------- Income from continuing operations before income taxes . . . . . . . . . . . . . 133,857 102,665 74,994 40,426 16,800 Provision for income taxes . . . . 47,665 37,740 26,298 13,751 6,164 ----------- ----------- ----------- ----------- ---------- Income from continuing operations . . . . . . . . . . . 86,192 64,925 48,696 26,675 10,636 Income (loss) from discontinued operations(1) . . . (4,532) 4,543 838 (15,100) (390) ------------ ----------- ----------- ----------- ----------- Net income . . . . . . . . $ 81,660 $ 69,468 $ 49,534 $ 11,575 $ 10,246 ============ =========== =========== =========== =========== PER SHARE DATA (4): Primary: Income from continuing operations . . . . . . . . . . $ 2.69 $ 2.13 $ 1.71 $ 1.19 $ .54 Income (loss) from discontinued operations . . . (.14) .15 .03 (.68) (.02) ------------ ----------- ----------- ----------- ----------- Net income . . . . . . . . $ 2.55 $ 2.28 $ 1.74 $ .51 $ .52 ============ =========== =========== =========== =========== Fully Diluted: Income from continuing operations . . . . . . . . . . $ 2.64 $ 2.10 $ 1.71 $ 1.13 $ .54 Income (loss) from discontinued operations. . . . (.14) .15 .03 (.64) (.02) ------------ ----------- ----------- ----------- ----------- Net income . . . . . . . . $ 2.50 $ 2.25 $ 1.74 $ .49 $ .52 =========== =========== =========== =========== ========== Weighted average shares outstanding Primary . . . . . . . . . . . . 31,994 30,501 28,490 22,208 19,834 Fully diluted . . . . . . . . . 32,676 30,903 28,490 23,706 19,834 Cash dividends . . . . . . . . . . $ .29 $ .20 $ .1818 $ .1546 $ .1364 Book value per common share . . . . . . . . . . $ 11.73 $ 9.47 $ 7.38 $ 5.73 $ 4.85 Return on common equity (continuing operations) . . . . . . 26.5% 26.2% 27.4% 21.1% 11.5%
16 17
YEAR ENDED DECEMBER 31 -------------------------------------------------------------- 1996 1995 1994 1993 1992 ------------ ----------- ---------- ---------- ----------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA -- YEAR END: Temporary investments -- reserve accounts . . . . . . . . . . . $ 251,183 $ 155,254 $ 81,980 $ 27,672 $ 7,627 Loans . . . . . . . . . . . . . . 122,891 74,877 51,598 66,417 70,067 Capitalized excess servicing income . . . . . . . . . . . . 426,393 280,985 174,031 105,907 60,678 Total assets . . . . . . . . . . 1,002,516 760,184 514,197 389,499 323,001 Notes payable . . . . . . . . . . 425,671 265,756 223,668 165,500 191,100 Total liabilities . . . . . . . . 582,239 407,710 312,112 236,132 226,744 Stockholders' equity . . . . . . 420,277 352,474 202,085 153,368 96,258 OTHER DATA: Total loan production . . . . . . $ 2,361,378 $ 1,542,424 $ 908,821 $ 539,868 $ 301,234 Home equity loan production . . . 2,244,458 1,541,537 908,821 539,868 301,234 Average home equity loan size . . . . . . . . . . . . . 56 49 41 39 28 Home equity loans serviced -- year end(3) . . . 4,040,138 2,701,481 1,683,698 1,125,139 819,448 Total loans serviced -- year end(3) . . . . . . . . . 4,202,121 3,012,164 2,032,405 1,568,781 1,367,822 Average coupon on home equity loans produced . . . . . . . . 11.2% 11.6% 11.7% 11.8% 13.4% Loan origination fees as % of home equity loans . . . . . . 3.7% 4.4% 5.9% 7.0% 7.9% Weighted average interest spread retained on home equity loans sold . . . . . . 4.80% 4.98% 4.49% 6.06% 4.56% - ----------
(1) On July 24, 1996, the Company sold 100% of the capital stock of its wholly-owned life insurance subsidiary, United Companies Life Insurance Company ("UCLIC") and on February 29, 1996, the Company sold 100% of the capital stock of its wholly-owned title insurance subsidiary, United General Title Insurance Company ("UGTIC"). Previously, on May 7, 1993, the Company announced its decision to dispose of the net assets and operations of Foster Mortgage Corporation ("FMC"), a wholly-owned subsidiary of the Company. The operations of UCLIC, UGTIC and FMC have been reclassified as discontinued operations and the prior years' financial statements of the Company included herewith have been restated accordingly. (2) During the third quarter of 1995, the Company implemented, on a prospective basis, the provisions of FASB Statement of Financial Accounting Standards No. 122 ("SFAS No. 122") which revised the method of accounting for mortgage servicing rights on loans originated by the Company. SFAS No. 122 requires that a mortgage banking enterprise recognize as separate assets rights to service mortgage loans for others that have been acquired through either the purchase or origination of such loans. Prior to the adoption of SFAS No. 122, the Company recognized late charges and other ancillary income when collected and charged costs to service mortgage loans when incurred. (3) Excludes real estate owned and/or serviced. (4) All share and per share data have been adjusted to reflect stock dividends. 17 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following analysis should be read in conjunction with the Company's Consolidated Financial Statements and accompanying Notes presented elsewhere herein and identifies the major factors which influenced the results of operations of the Company during the indicated periods. The Company's lending operations primarily consist of the production (by origination or purchase), sale and servicing of first mortgage, non-conventional, home equity loans. In the fourth quarter of 1995, the Company expanded its lending operations to include additional manufactured housing loan products. Fundamental to the profitability and funding of the Company's lending operations is the sale of loans with servicing rights retained. The majority of the Company's revenue is derived from the gain recognized on the sale of loans and the recognition of net loan fees at the time of sale of the loans. Net loan fees on loans owned by the Company are recognized over the lives of the loans as an adjustment to yield using the interest method. The Company sells substantially all of its loan production in public securitization transactions through shelf registration statements of its subsidiaries. During 1996, 1995 and 1994, the Company sold publicly $2.2 billion, $1.5 billion and $973 million, respectively, of pass-through certificates backed by its home equity loans and, during 1996, $164 million of pass-through certificates backed by its manufactured housing contracts. The Company's lending operations are interest rate sensitive and, therefore, fluctuations in and the level of interest rates can have a variety of effects on the Company's profitability. In particular, significant changes in interest rates may impact the volume of loans produced, and will influence the funding costs of such production and the amount of gain recognized on loans sold in the secondary market. During periods of declining interest rates the lending operations will generally experience an increase in profitability as the interest spread should widen both on loans held by the Company as an investment and on loans sold in the secondary market. The weighted average interest spread on home equity loans sold to third parties (the difference between the stated rate on the loan and the rate paid to purchasers, less recurring fees) was 4.80%, 4.98% and 4.49% in 1996, 1995 and 1994, respectively. The weighted average interest spread on loans sold is determined without regard to credit losses, which are provided for separately by the Company. Although historically a lower interest rate environment has not resulted in a significant increase in the level of prepayment of loans originated and serviced by the Company, a significant and sustained reduction in interest rates could cause prepayments to increase, and thereby result in a contraction of the amount of loans owned and serviced and an accelerated amortization of capitalized excess servicing income. Increased prepayments reduce the time period during which the Company receives excess servicing income and other servicing income with respect to prepaid loans. Increased amortization of capitalized excess servicing income is a current charge to earnings. Likewise, if delinquencies or liquidations were to occur sooner in the portfolio of loans sold by the Company and/or with greater frequency than was initially assumed, capitalized excess servicing income amortization would occur more quickly than originally anticipated, which would have an adverse effect on servicing income in the period of such adjustment. In contrast, an increase in the level of interest rates for an extended period of time could adversely affect the ability of the Company to originate loans, as well as the profitability of the loan origination program, by increasing the cost of funding and reducing the interest spread on loans retained and loans sold. If actual prepayments with respect to loans sold occur more slowly than estimated at the time of sale, total income would exceed previously estimated amounts; however, no adjustments would be made to capitalized excess servicing income on the Company's consolidated balance sheet as such income would be recognized prospectively. (For further discussion of loan sale gains and capitalized excess servicing income see Note 1.2 to Notes to the Consolidated Financial Statements.) DISCONTINUED OPERATIONS United Companies Life Insurance Company On February 2, 1996, the Company signed an agreement to sell all of the outstanding capital stock of its wholly- 18 19 owned life insurance subsidiary, United Companies Life Insurance Company ("UCLIC"), subject to approval by the Company's shareholders, regulatory authorities and the satisfaction of certain other conditions. In June, 1996, the Company's shareholders approved the sale, and in July, 1996, regulatory approval was obtained and the remaining conditions to closing the transaction were satisfied. The sale was concluded on July 24, 1996. The sales price of $167.6 million was comprised of approximately $110 million in cash (including a $10 million cash dividend paid by UCLIC immediately prior to the closing) and UCLIC real estate and other assets which were distributed to the Company prior to the closing. The real estate distributed includes portions of the United Plaza office park, including the Company's home office. In addition, the Company purchased a convertible promissory note from PennCorp Financial Group, Inc. ("PennCorp"), the parent of the purchaser, for $15 million in cash and converted the note into 483,839 shares of the common stock of PennCorp. The Company recorded a net loss of $6.8 million on the transaction. As a result of the sale, the assets (including $67 million of assets transferred to the Company by UCLIC immediately prior to closing) and the operations of UCLIC have been classified as discontinued operations. Subsequent to the closing, the Company received notification from the purchaser alleging that it is entitled to a $2.2 million reduction in the sales price. The Company denies that the purchaser is entitled to any reduction. In addition, at December 31, 1996, the Company had not received payment of a $2.5 million intercompany receivable due from UCLIC at the date of sale. United General Title Insurance Company. On April 10, 1995, the Company made a decision to dispose of its investment in United General Title Insurance Company ("UGTIC"), a wholly owned subsidiary of the Company, and, on May 1, 1995, approved a formal plan of disposal. The decision to dispose of UGTIC was independent of the consummation of the sale thereof pursuant to the definitive stock sale agreement signed on August 11, 1995. As a result, the operations of UGTIC have been classified as discontinued operations, and, accordingly, the consolidated financial statements and the related notes of the Company segregate continuing and discontinued operations. The sale was concluded on February 29, 1996. The definitive stock sale agreement provided for the sale of 100% of the stock of UGTIC and contains a provision making the Company liable to UGTIC for claims from defalcations and fraud losses incurred by UGTIC which are unknown and occur prior to closing and are discovered within 24 months thereafter. The Company is also liable, up to $4.2 million, for policy claims paid over a ten year period after closing that exceed certain specified levels. The Company recorded a loss from discontinued operations (net of income tax benefit) of $3.5 million in 1995 and $1.1 million in 1996 in connection with the sale of UGTIC. Foster Mortgage Corporation On May 7, 1993, the Company decided to divest its subsidiary Foster Mortgage Corporation ("FMC"). As of November 30, 1993, the servicing rights owned by FMC, which constituted substantially all of its assets, were sold. On December 21, 1993, the institutional lenders under FMC's primary credit facility (the "FMC Institutional Lenders") filed a petition in the U.S. bankruptcy court to cause the remaining affairs of FMC to be concluded under the supervision of the bankruptcy court. The FMC Institutional Lenders filed and the bankruptcy court approved a plan of liquidation for FMC providing for the appointment of a trustee selected by the FMC Institutional Lenders. The FMC Institutional Lenders allege that FMC has certain claims against the Company, including a claim with respect to the Company's alleged failure to remit all sums due FMC regarding federal income taxes under a tax agreement among the Company and its subsidiaries, including FMC, estimated by the FMC Institutional Lenders to range from $2.1 million to $29 million. FMC and the Company executed, subject to the approval of the bankruptcy court, a settlement agreement relating to payments between FMC and the Company in connection with the federal income tax benefits resulting from FMC's losses and to certain prior intercompany payments between FMC and the Company. The settlement agreement included a release by FMC in favor of the Company of any and all claims relating to federal income taxes. The FMC Institutional Lenders opposed the proposed settlement agreement. At the conclusion of a hearing on the proposed settlement on August 18, 1994, the bankruptcy court approved the portion of the settlement providing for a net payment by the Company of $1.65 million to FMC in satisfaction of the federal income tax benefits resulting from FMC's losses and the release of any claims regarding federal income taxes. The bankruptcy court declined to approve the other portion 19 20 of the proposed settlement relating to payments received by the Company from FMC within twelve months of the bankruptcy filing. If the Company were required to refund such payments, the Company has estimated the potential additional loss to be $1.9 million, net of tax benefits. The decision of the bankruptcy court on the settlement was appealed by the FMC Institutional Lenders to the U.S. District Court which affirmed the bankruptcy court's decision. The FMC Institutional Lenders then appealed this decision to the U.S. Fifth Circuit Court of Appeals. In a decision rendered on November 9, 1995, the U.S. Fifth Circuit Court of Appeals reversed the district court, vacated the settlement between FMC and the Company and remanded the matter back to the district court for further proceedings. The trustee under the plan of liquidation has filed an adversary proceeding in the bankruptcy proceedings against the Company seeking avoidance of alleged preferential payments totaling $3.72 million and has also instituted a suit in federal court against the Company alleging claims under the tax agreement estimated to range from $2 million to $29 million. On November 22, 1996, the district court referred the case to the bankruptcy court for adjudication. The bankruptcy court has not yet scheduled the case for trial. Management of the Company does not believe that any additional amounts are owed by the Company to FMC or the trustee and is vigorously contesting the claims which have been brought against it for such amounts by the trustee under the plan of liquidation. The Company did not guarantee any debt of FMC. 1996, 1995 AND 1994 RESULTS OF OPERATIONS Net income for 1996 was $81.7 million ($2.50 per share based on 32.7 million weighted average shares outstanding) compared to $69.5 million for 1995 ($2.25 per share based on 30.9 million weighted average shares outstanding) and $49.5 million for 1994 ($1.74 per share based on 28.5 million weighted average shares outstanding). The increase in net income in 1996 resulted primarily from an increase in the amount of loans sold and the gain and fees recognized in connection therewith. Net income for 1996 was reduced by losses of $4.5 million recognized in connection with the Company's decisions to divest its insurance subsidiaries, United Companies Life Insurance Company and United General Title Insurance Company. Net income for 1995 and 1994 was increased by $4.5 million and $.8 million, respectively, as the result of net income earned by these subsidiaries. Revenues. The following table sets forth information regarding the components of the Company's revenues for the years ended December 31, 1996, 1995 and 1994.
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1996 1995 1994 ------------- -------------- ------------ (IN THOUSANDS) Loan sale gains . . . . . . . . . . . . . . . . . . .$ 199,030 $ 142,156 $ 86,735 Finance income, fees earned and other loan income . . 139,622 105,398 89,172 Investment income . . . . . . . . . . . . . . . . . . 13,156 7,403 2,963 Other . . . . . . . . . . . . . . . . . . . . . . . . 5,066 5,332 3,668 ------------- -------------- ------------ Total . . . . . . . . . . . . . . . . . . .$ 356,874 $ 260,289 $ 182,538 ============= ============== ============
Loan sale gains approximate the present value for the estimated lives of the loans (which includes for purposes hereof manufactured housing contracts) of the excess of the contractual rates on the loans sold over the sum of the pass-through rate paid to the buyer, a normal servicing fee, a trustee fee, a surety bond fee, if any, in securitization transactions. Loan sale gains for 1996, 1995 and 1994 was reduced by $47.6 million, $27.9 million and $19.3 million, respectively, to provide for estimated future losses on loans sold. The increase in the amount of loan sale gains was due primarily to a $774 million and a $494 million increase in the amount of home equity loans sold during 1996 and 1995, respectively, which increase was partially offset by a decrease in the interest spread retained by the Company and an increase in the constant prepayment rate used in the computation of loan sale gains in 1996. Loan sale gains in 1996 was increased by $12.0 million as the result of the securitization and public sale of approximately $164 million in manufactured housing contracts. Loan sale gains are reduced by estimated future credit losses on loans sold, transaction expenses and loan acquisition premiums. In addition, as further discussed in Note 1.2(c), during the third quarter of 1995, the Company implemented a new accounting pronouncement which required the capitalization of mortgage servicing rights on loans originated or purchased by the Company. Loan sale gains in 1996 includes the capitalization of mortgage servicing rights in the amount of $20.9 million compared to $6.0 million in 1995. 20 21 The Company from time to time enters into interest rate hedge mechanisms to manage its exposure to interest rate changes in connection with the securitization and sale of its loans. The Company closes out the hedge position to coincide with the related loan sale and recognizes the results of the hedge transaction in determining the amount of the related loan sale gain. Loan sale gains were increased in 1996 by approximately $.8 million and reduced by approximately $5.5 million in 1995 as the result of hedge transactions. There were no open hedge positions at December 31, 1996 or 1995. The following table presents information regarding loan sale transactions for the periods indicated.
HOME EQUITY LOANS MANUFACTURED HOUSING CONTRACTS ------------------------------------- -------------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------------------- -------------------------------- 1996 1995 1994 1996 1995 1994 ----------- ---------- ------- ------------ ------- ------- (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) Loans sold . . . . . . $ 2,245,406 $1,471,868 $ 977,653 $ 163,999 $ - $ - Average coupon . . . . 11.20% 11.67% 11.80% 11.20% - - Interest spread retained . . . . . 4.80% 4.98% 4.49% 3.55% - - Loan sale gains . . . . $ 187,029 $ 142,156 $ 86,735 $ 12,001 $ - $ -
Fluctuations in and the level of market interest rates will impact the interest spread retained by the Company on loans sold (which includes for purposes hereof manufactured housing contracts) and, potentially, the amount of its loan sale gains. An increase in the level of market interest rates will generally adversely affect the interest spread on loans sold, whereas such interest spread generally widens during a declining interest rate environment. The effect of actions which may be taken by the Company during a rising interest rate environment to mitigate the impact on earnings of fluctuations in market rates, such as increasing the coupon rate charged on its loan products, will generally lag the impact of market rate fluctuations. In connection with loan securitization transactions, the Company has used a prefunding feature which "locks in" the pass-through rate that the Company will pay to the investor on a predetermined amount of loans for future delivery. The Company is obligated for the difference between the earnings on the prefunded amount and the pass-through interest paid to the investor during the period from the date of the closing of the securitization transaction until the date of delivery of the loans. In connection with the securitization transactions which closed in the fourth quarter of 1996, approximately $16.3 million was held in a prefunding account for purchase of the Company's loans and contracts during the first quarter of 1997. Such loans and contracts were delivered in February, 1997. Finance income, fees earned and other loan income was comprised of the following items for the periods indicated:
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1996 1995 1994 ------------ ------------ ------------ (IN THOUSANDS) Servicing fees earned . . . . . . . . . . . . $ 135,599 $ 89,410 $ 62,807 Loan origination fees . . . . . . . . . . . . 84,608 68,442 56,576 Loan interest . . . . . . . . . . . . . . . . 21,482 9,238 685 Other loan income . . . . . . . . . . . . . . 10,032 8,576 7,347 Amortization . . . . . . . . . . . . . . . . (112,099) (70,268) (38,243) ------------ ------------ ------------ Total . . . . . . . . . . . . . . . $ 139,622 $ 105,398 $ 89,172 ============ ============ ============
The increase in servicing fees earned reflects the growth in the portfolio of loans serviced for third parties. The average portfolio of loans serviced for third party investors was $3.4 billion, $2.5 billion and $1.8 billion for 1996, 1995 and 1994, respectively. Loan origination fees in excess of direct origination costs on each loan held by the Company are recognized over the life of the loan or earlier at the time of sale of the loan to a third party. During 1996, 1995 and 1994, the 21 22 Company sold approximately $2.2 billion, $1.5 billion and $978 million, respectively, in home equity loans and recognized approximately $44.1 million, $36.0 million and $32.5 million, respectively, in net loan origination fees (which relate primarily to fixed rate retail production) in connection with these sales. The Company estimates that nonaccrual loans reduced loan interest for 1996, 1995 and 1994 by approximately $21.7 million, $13.3 million and $10.3 million; respectively. The Company is generally obligated to advance interest on delinquent loans serviced for third party investors until satisfaction of the note, liquidation of the collateral or charge off of the delinquent loan. During 1996, the average amount of non accrual loans owned and/or serviced by the Company was $166 million compared to approximately $105 million and $81 million in 1995 and 1994, respectively. Other loan income primarily includes insurance commissions and ancillary loan income. Investment income totaled $13.2 million for 1996 compared to investment income of $7.4 million and $3.0 million during 1995 and 1994, respectively. Investment income is primarily related to interest earned on temporary investments reserve accounts. Investment income in 1996 also includes approximately $2.4 million in unrealized gain on investments classified as trading securities. Other income relates to income earned by the Company's telecommunications business and property management with respect to its office park and overhead reimbursement from discontinued operations prior to their disposition. Expenses. The following table presents the components of the Company's expenses for the periods indicated.
YEAR ENDED DECEMBER 31, ------------------------------------------- 1996 1995 1994 ------------- ----------- ----------- (IN THOUSANDS) Personnel . . . . . . . . . . . . . . . . . $ 96,313 $ 70,762 $ 52,421 Interest . . . . . . . . . . . . . . . . . 38,626 25,559 13,362 Loan loss provision . . . . . . . . . . . . 14,049 11,973 8,398 Other operating . . . . . . . . . . . . . . 74,029 49,330 33,363 ------------- ----------- ----------- Total . . . . . . . . . . . . . . $ 223,017 $ 157,624 $ 107,544 ============= =========== ===========
The increase in personnel costs are primarily associated with the expansion of the Company's lending operations. Approximately 23% of the increase in personnel costs in 1996 compared to 1995 is related to the startup of the Company's manufactured housing lending operations. The remaining increase is primarily related to expansion of the Company's other lending distribution networks and incentive compensation related to an increase in home equity loan production. The Company's loan sale agreements generally provide for the subordination of cash and excess interest spread relating to the loans sold. Such subordination relates to credit losses which may occur after the sale of the loans and continues until the earlier of the payment in full of the loans or the termination of the agreement pursuant to which the loans were sold. Regardless of the structure of the loan sale transaction, the Company estimates the amount of future losses under the loan sale agreements and provides a reserve for such loss by reducing the amount of loan sale gain recognized. For estimated losses on the Company's owned portfolio, the Company establishes an allowance for loan losses through a charge to earnings. The increase in the loan loss provision is primarily related to an increase in the amount of charge offs in the portfolio of home equity loans owned and/or serviced. During 1996, 1995 and 1994, the Company charged off $19.5 million, $13.8 million and $12.7 million in home equity loans, respectively. Interest expense for 1996 increased approximately $13.1 million compared to 1995 principally due to an increase in the average amount of debt outstanding, primarily warehouse financing. Interest expense for 1995 increased approximately $12.2 million compared to 1994 primarily as a result of an increase in the weighted average interest rate and an increase in the average amount of debt outstanding. 22 23 Other operating expenses increased approximately $24.7 million and $16.0 million during 1996 and 1995, respectively, primarily as the result of costs associated with the expansion of the Company's lending operations. During 1996, 1995 and 1994, advertising expense totaled $12.9 million, $9.0 million and $3.1 million and occupancy and equipment expenses were $15.6 million, $10.9 million and $8.0 million, respectively. ASSET QUALITY AND RESERVES The quality of the loans owned and those serviced for third parties significantly affects the profitability of the Company. The values of and markets for these assets are dependent on a number of factors, including general economic conditions, interest rates and governmental regulations. Adverse changes in such factors, which become more pronounced in periods of economic decline, may affect the quality of these assets and the Company's resulting ability to sell these assets for acceptable prices. General economic deterioration can result in increased delinquencies on existing loans and reductions in collateral values. Substantially all of the home equity loans and manufactured housing contracts produced by the Company are sold in securitization transactions in which securities backed by these loans and contracts ("pass-through certificates") are publicly offered and sold, with servicing rights retained. The purchasers of the pass-through certificates receive a credit enhanced security which is provided in part in home equity loan securitizations through a guaranty provided by a third party insurer or, in connection with the initial manufactured housing contract securitization, through a senior/subordinated structure. Credit enhancement for the pass-through certificates is also provided by subordinating a cash deposit and the excess interest spread retained by the Company to the payment of scheduled principal and interest on the certificates. The subordination of the cash deposit and the excess interest spread retained by the Company relates to credit losses which may occur after the sale of the loans and contracts and generally continues until the earlier of the payment in full of the loans or termination of the agreement pursuant to which the loans and contracts were sold. If cumulative payment defaults exceed the amount subordinated, a third party insurer, except in the initial manufactured housing securitization, is obligated to pay any further losses experienced by the owners of the pass- through certificates. Such losses are borne first by the subordinated pass-through certificates in the Company's initial manufactured housing contract securitization. The Company is also obligated to cure, repurchase or replace loans and contracts which may be determined after the sale to violate representations and warranties relating to them and which are made by the Company at the time of the sale. The Company regularly evaluates the quality of the loan portfolio and estimates its risk of loss based upon historical loss experience, prevailing economic conditions, estimated collateral value and such other factors which, in management's judgment, are relevant in estimating the credit risk in owned and/or serviced loans. For loans and contracts sold, the Company records a provision for the estimated amount of credit losses at the time of sale, and records such amount on its balance sheet in the allowance for loan losses. Estimated losses on the owned portfolio are also provided for by an increase in the allowance for loan losses through a charge to current operating income. At December 31, 1996, the allowance for loan losses was $77.2 million. The maximum recourse associated with sales of home equity loans and manufactured housing contracts according to terms of the sale agreements totaled approximately $854 million at December 31, 1996, of which amount approximately $842 million relates to the subordinated cash and excess interest spread. Should credit losses on loans and contracts sold materially exceed the Company's estimates for such losses, such consequence will have a material adverse impact on the Company's operations. At December 31, 1996, the contractual balance of home equity loans serviced was approximately $4.0 billion, substantially all of which are owned by and serviced for third party investors. The portfolio is geographically diversified. Although the Company services loans in 50 states, at December 31, 1996 a substantial portion of the home equity loans serviced were originated in California (9.6%), Ohio (7.8%), Louisiana (7.8%) and Florida (7.6%), respectively, and no other state accounted for more than 7% of the serviced portfolio. In addition, at December 31, 1996, the Company serviced approximately $115 million of manufactured housing contracts, 46% of which were originated in Texas, 13% in South Carolina and 11% of which were originated in each of the states of Georgia and North Carolina. The risk inherent in geographic concentrations is dependent not only upon regional and general economic stability which affects property values, but also the financial well-being and creditworthiness of the borrower. 23 24 The following table provides certain contractual delinquency and default information for home equity loans serviced as of the dates indicated:
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 -------------------------- --------------------------- ---------------------------- % OF % OF % OF CONTRACTUAL CONTRACTUAL CONTRACTUAL CONTRACTUAL CONTRACTUAL CONTRACTUAL BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE ----------- ----------- ------------ ------------ ------------ ------------ (DOLLARS IN THOUSANDS) Home equity loans serviced . . . . $ 4,040,138 $ 2,701,481 $ 1,683,698 =========== ============ ============ Delinquency - ----------- 30-59 days . . . $ 136,976 3.39% $ 73,723 2.73% $ 35,844 2.13% 60-89 days . . . 53,124 1.31 16,471 0.61 7,745 0.46 90+ days . . . . 28,663 0.71 7,562 0.28 2,818 0.17 ----------- ----------- ------------ ------------ ------------ ------------ 218,763 5.41 97,756 3.62 46,407 2.76 ----------- ----------- ------------ ------------ ------------ ------------ Defaults - -------- Foreclosures in process . . . 135,779 3.36 75,104 2.78 50,738 3.01 Bankruptcy . . . 73,887 1.83 47,285 1.75 32,058 1.90 ----------- ----------- ------------ ------------ ------------ ------------ 209,666 5.19 122,389 4.53 82,796 4.91 ----------- ----------- ------------ ------------ ------------ ------------ $ 428,429 10.60% $ 220,145 8.15% $ 129,203 7.67% =========== =========== ============ ============ ============ ============
The contractual balances exclude home equity real estate owned and/or serviced which totaled $53.7 million, $30.1 million and $20.6 million at December 31, 1996, 1995 and 1994, respectively. The charge off rate on the average home equity loan portfolio for 1996, 1995 and 1994 was .51%, .56% and .84%, respectively. In connection with the sale of UCLIC discussed in Note 11 to the Notes to Consolidated Financial Statements, the servicing of substantially all of the commercial real estate mortgage loans was transferred to UCLIC. The table above excludes these loans which, prior to this transfer of servicing, were serviced without recourse. The following table provides certain contractual delinquency and default data with respect to the Company's home equity loans serviced, by year of loan origination, as of the dates indicated:
DECEMBER 31, 1996 ------------------------------------------------------------------------------------------------ DEFAULTS DELINQUENCY ----------------------------- TOTAL CONTRACTUAL ---------------------------------- FORECLOSURES BANK- DELINQUENCY YEAR OF ORIGINATION BALANCE 30-59 60-89 90+ TOTAL IN PROCESS RUPTCY TOTAL & DEFAULTS - ------------------- ----------- ----- ----- ----- ----- ---------- ------ ----- ----------- (DOLLARS IN THOUSANDS) 1990 & prior . . . $ 75,252 5.12% 1.20% 1.22% 7.54% 5.97% 4.85% 10.82% 18.36% 1991 . . . . . . . 38,114 5.26% 0.97% 0.83% 7.06% 5.45% 6.59% 12.04% 19.10% 1992 . . . . . . . 63,842 4.74% 1.74% 1.97% 8.45% 5.87% 5.40% 11.27% 19.72% 1993 . . . . . . . 199,037 4.39% 1.28% 1.07% 6.74% 4.94% 5.05% 9.99% 16.73% 1994 . . . . . . . 451,224 5.15% 1.58% 0.92% 7.65% 4.70% 6.37% 11.07% 18.72% 1995 . . . . . . . 1,069,818 4.75% 2.12% 1.17% 8.04% 2.64% 6.26% 8.90% 16.94% 1996 . . . . . . . 2,142,851 2.11% 0.86% 0.35% 3.32% 0.20% 0.95% 1.15% 4.47% ----------- Total . . . . . $ 4,040,138 3.39% 1.31% 0.71% 5.41% 3.36% 1.83% 5.19% 10.60% ===========
24 25
DECEMBER 31, 1995 ------------------------------------------------------------------------------------------------ DEFAULTS DELINQUENCY ----------------------------- TOTAL CONTRACTUAL ---------------------------------- FORECLOSURES BANK- DELINQUENCY YEAR OF ORIGINATION BALANCE 30-59 60-89 90+ TOTAL IN PROCESS RUPTCY TOTAL & DEFAULTS - ------------------- ----------- ----- ----- ----- ----- ---------- ------ ----- ----------- (DOLLARS IN THOUSANDS) 1989 & prior . . . $ 68,275 3.39% 0.95% 0.34% 4.68% 5.51% 4.83% 10.34% 15.02% 1990 . . . . . . . 44,862 3.76% 0.47% 0.19% 4.42% 5.46% 5.56% 11.02% 15.44% 1991 . . . . . . . 57,815 4.22% 0.74% 0.36% 5.32% 5.35% 5.84% 11.19% 16.51% 1992 . . . . . . . 98,473 3.81% 0.90% 0.89% 5.60% 5.96% 6.22% 12.18% 17.78% 1993 . . . . . . . 298,882 3.72% 0.58% 0.39% 4.69% 3.63% 4.55% 8.18% 12.87% 1994 . . . . . . . 668,797 4.03% 0.90% 0.40% 5.33% 2.29% 4.45% 6.74% 12.07% 1995 . . . . . . . 1,464,377 1.74% 0.45% 0.16% 2.35% 0.41% 1.12% 1.53% 3.88% ------------ Total . . . . . $ 2,701,481 2.73% 0.61% 0.28% 3.62% 2.78% 1.75% 4.53% 8.15% ============
DECEMBER 31, 1994 ------------------------------------------------------------------------------------------------ DEFAULTS DELINQUENCY ----------------------------- TOTAL CONTRACTUAL ---------------------------------- FORECLOSURES BANK- DELINQUENCY YEAR OF ORIGINATION BALANCE 30-59 60-89 90+ TOTAL IN PROCESS RUPTCY TOTAL & DEFAULTS - ------------------- ----------- ----- ----- ----- ----- ---------- ------ ----- ----------- (DOLLARS IN THOUSANDS) 1988 & prior . . . $ 64,458 2.34% 0.83% 0.55% 3.72% 6.07% 4.11% 10.18% 13.90% 1989 . . . . . . . 33,938 3.11% 0.54% 0.47% 4.12% 4.96% 6.67% 11.63% 15.75% 1990 . . . . . . . 64,682 3.16% 0.49% 0.47% 4.12% 5.83% 6.37% 12.20% 16.32% 1991 . . . . . . . 85,793 3.14% 0.77% 0.48% 4.39% 5.31% 6.36% 11.67% 16.06% 1992 . . . . . . . 146,178 3.41% 0.54% 0.40% 4.35% 5.58% 6.20% 11.78% 16.13% 1993 . . . . . . . 422,453 2.97% 0.66% 0.19% 3.82% 1.82% 3.96% 5.78% 9.60% 1994 . . . . . . . 866,196 1.27% 0.28% 0.02% 1.57% 0.27% 1.21% 1.48% 3.05% ------------ Total . . . . . $ 1,683,698 2.13% 0.46% 0.17% 2.76% 3.01% 1.90% 4.91% 7.67% ============
The above delinquency, default and loan loss experience represents the Company's recent experience. However, the delinquency, default and net loss percentages may be affected by the increase in the size and relative lack of seasoning of a substantial portion of the portfolio. In addition, the Company can neither quantify the impact of property value declines, if any, on the home equity loans and manufactured housing contracts nor predict whether or to what extent or how long such declines may exist. In a period of such declines, the rates of delinquencies, defaults and losses on the home equity loans and manufactured housing contracts could be higher than those theretofore experienced in the residential mortgage lending industry in general. Adverse economic conditions (which may or may not affect real property values) may affect the timely payment by borrowers of scheduled payments of principal and interest on the home equity loans and manufactured housing contracts and, accordingly, the actual rates of delinquencies, defaults and losses. As a result, the information in the above tables should not be considered as the only basis for assessing the likelihood, amount or severity of delinquencies, defaults or losses in the future and no assurance can be given that the delinquency, default and loss experience presented in the tables will be indicative of such experience. LIQUIDITY AND CAPITAL RESOURCES The principal cash requirements of the Company's lending operations arise from loan originations, deposits to reserve accounts, repayments of inter-company debt borrowed under the Company's senior notes and short-term borrowings, payments of operating and interest expenses, and income taxes related to loan sale transactions. Loan production is funded principally through proceeds of warehouse facilities pending loan sales. At December 31, 1996, the Company had three secured warehouse facilities available for its home equity loan product: (i) a 25 26 warehouse facility provided by a syndicate of commercial banks (the "Commercial Bank Warehouse"), (ii) a warehouse facility provided by the investment bank which acted as lead underwriter for the Company's fourth quarter home equity loan securitization (the "Investment Bank Warehouse"), and (iii) a warehouse facility provided by UCLIC (the "UCLIC Warehouse"). In June, 1996, the Commercial Bank Warehouse was increased from $150 million to $350 million and the lenders' commitment was extended from May, 1997 to May, 1998. As of December 31, 1996, $7.1 million was outstanding under the Commercial Bank Warehouse. The Investment Bank Warehouse was directly related to the fourth quarter home equity loan securitization, initially provided for funding up to $500 million of eligible home equity loans for such securitization and terminated upon the closing of the last delivery of loans under the prefunding accounts relative to this securitization. As of December 31, 1996, $150 million was available and no amounts were outstanding under the Investment Bank Warehouse. The UCLIC Warehouse, which was established upon the sale of UCLIC, provides for the purchase of up to $300 million in first mortgage residential loans and has a maturity of July, 1999. The Company has the right for a limited time to repurchase certain loans which are eligible for securitization and as of December 31, 1996, $16.6 million in loans eligible for securitization were funded under this facility. In addition, the Company had a manufactured housing contract warehouse which was directly related to the fourth quarter manufactured housing securitization and was provided by the investment bank which acted as lead underwriter for such securitization (the "Manufactured Housing Warehouse"). The Manufactured Housing Warehouse initially provided for funding up to $150 million of eligible manufactured housing contracts and terminated upon the closing of the last delivery of contracts under the prefunding accounts relative to this securitization. As of December 31, 1996, $50 million was available and no amounts were outstanding under the Manufactured Housing Warehouse. Substantially all of the home equity loans and manufactured housing contracts originated or acquired by the Company are sold. Net cash from operating activities of the Company in 1996 and 1995 reflects approximately $2.5 billion and $2.7 billion, respectively, in cash used for loan originations and acquisitions of home equity loans and manufactured housing contracts. The primary source of funding for loan originations is derived from the reinvestment of proceeds from the ultimate sale of these products in the secondary market which totaled approximately $2.5 billion and $2.7 billion in 1996 and 1995, respectively. In connection with the sale transactions in the secondary market, third-party surety bonds (except in the case of the initial manufactured housing contract securitization) and cash deposits by the Company as credit enhancements have been provided. The loan sale transactions have required the subordination of certain cash flows payable to the Company to the payment of principal and interest due to certificate holders. In connection with these transactions, the Company has been required, in some instances, to fund an initial deposit, and thereafter, in each transaction, a portion of the amounts receivable by the Company from the excess interest spread has been required to be placed and maintained in a reserve account to the extent of the subordination requirements. The subordination requirements generally provide that the excess interest spread is payable to a reserve account until a specified level of cash, which is less than the maximum subordination amount, is accumulated therein. The capitalized excess servicing income of the Company is subject to being utilized first to replenish cash paid from the reserve account to fund shortfalls in collections from borrowers who default on the payment of principal or interest on the loans and contracts underlying the pass-through certificates issued until the total of the Company's deposits into the reserve account equal the maximum subordination amount. After the Company's deposits into the reserve account equal the maximum subordination amount for a transaction, the subordination of the related excess interest spread (including the guarantee fee payable therefrom) for these purposes is terminated. The excess interest spread required to be deposited and maintained in the respective reserve accounts will not be available to support the cash flow requirements of the Company until such amount exceeds the maximum subordinated amount (other than amounts, if any, in excess of the specified levels required to be maintained in the reserve accounts, which may be distributed periodically to the Company). At December 31, 1996, the amounts on deposit in such reserve accounts totaled $251 million. In April, 1996, a subsidiary of the Company entered into a letter of credit and reimbursement agreement with the domestic branch of an international bank pursuant to which the bank issued a letter of credit to replace a substantial portion of the cash previously required to be maintained in the reserve accounts for five loan securitization transactions consummated in 1993 and 1994. As a consequence, $40 million was released from the related reserve accounts to the Company, and these proceeds, net of transaction costs, were used to pay down outstanding debt of the Company in April, 1996. 26 27 RATINGS. The Company, since 1994, has sold publicly three senior unsecured note offerings which total in the aggregate $325 million. At December 31, 1996, all of these senior notes, which have varying maturities, were rated "BBB" by Duff and Phelps Credit Rating Co., and Fitch Investors Service, L.P., "BBB-" by Standard & Poor's, a division of the McGraw-Hill Companies, Inc. and "Ba1" by Moody's Investor Services, Inc. In addition, the certificates issued in connection with the Company's home equity loan and manufactured housing contract securitization transactions have received investment grade ratings from one or more of these rating agencies. ACCOUNTING STANDARDS. In June, 1996 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS No. 125"). SFAS No. 125 focuses on control of the financial asset and provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS No. 125 provides certain conditions that must be met to determine that control of the financial asset has been surrendered. SFAS No. 125 requires that servicing assets and other retained interests in the transferred assets be measured by allocating the previous carrying amount between the assets sold, if any, and retained interests, if any, based on their relative fair values at the date of transfer. Implementation of SFAS No. 125 will require the Company to change the method of calculating the gain on sale of loans. In addition, the retained interest will be classified as a trading security under the provisions of SFAS No. 115 and, as such, will be recorded at fair value with the resultant unrealized gain or loss recorded in the results of operations in the period of change in value. The statement is effective for transfers and servicing of financial assets and extinguishments of liabilities after December 31, 1996, and is to be applied prospectively. Earlier or retroactive application is not permitted. The Company's analysis of the provisions of SFAS No. 125 is not complete at this time and, therefore, the Company cannot estimate the impact of SFAS No. 125 on the Company's financial results for the year ending December 31, 1997. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. This Annual Report on Form 10-K contains forward-looking statements that reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those identified below, which could cause actual results to differ materially from historical results or those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The following non-exclusive factors could cause actual results to differ materially from historical results or those anticipated: (1) changes in the performance of the financial markets, in the demand for and market acceptance of the Company's products, and in general economic conditions, including interest rates; (2) the presence of competitors with greater financial resources and the impact of competitive products and pricing; (3) the effect of the Company's policies; and (4) the continued availability to the Company of adequate funding sources. 27 28 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEPENDENT AUDITORS' REPORT To the Stockholders of United Companies Financial Corporation: We have audited the accompanying consolidated balance sheets of United Companies Financial Corporation and its subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of United Companies Financial Corporation and its subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. As discussed in Note 1.2(c) of the Notes to the Consolidated Financial Statements, in 1995, the Company changed its method of accounting for mortgage servicing rights to conform with Statement of Financial Accounting Standards No. 122. As discussed in Note 11 of the Notes to the Consolidated Financial Statements, on July 24, 1996, the Company sold all of the outstanding capital stock of its wholly-owned subsidiary, United Companies Life Insurance Company. As a result, the accompanying Consolidated Financial Statements present the accounts of United Companies Life Insurance Company as discontinued operations. DELOITTE & TOUCHE LLP Baton Rouge, Louisiana February 28, 1997 28 29 UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------------------- 1996 1995 ---------------- --------------- ASSETS (IN THOUSANDS) - ------ Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,064 $ 5,284 Temporary investments -- reserve accounts . . . . . . . . . . . . . . . . . . 251,183 155,254 Capitalized excess servicing income . . . . . . . . . . . . . . . . . . . . . 426,393 280,985 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,891 74,877 Investment securities Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,418 - Available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,510 219 Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . 61,483 36,897 Property -- net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,323 15,239 Net assets of discontinued operations . . . . . . . . . . . . . . . . . . . . - 163,293 Capitalized mortgage servicing rights . . . . . . . . . . . . . . . . . . . . 23,806 5,813 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,445 22,323 ---------------- --------------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,002,516 $ 760,184 ================ =============== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 425,671 $ 265,756 Deferred income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 52,971 41,692 Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 77,243 51,454 Managed cash overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27,052 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,354 21,756 ---------------- --------------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 582,239 407,710 ---------------- --------------- Stockholders' equity: Preferred stock, $2 par value; Authorized -- 20,000,000 shares; Issued -- 1,955,000 shares of 6 3/4% PRIDES(SM) ($44 per share liquidation preference) . . . . . . . 3,910 3,910 Common stock, $2 par value; Authorized -- 100,000,000 shares; Issued -- 29,627,734 and 29,302,246 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,255 58,604 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 184,397 179,848 Net unrealized gain on securities, net of income taxes . . . . . . . . . . 48 37 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,579 122,816 Treasury stock and ESOP debt . . . . . . . . . . . . . . . . . . . . . . . (17,912) (12,741) ---------------- --------------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 420,277 352,474 ---------------- --------------- Total liabilities and stockholders' equity . . . . . . . . . . . $ 1,002,516 $ 760,184 ================ ===============
See notes to consolidated financial statements. 29 30 UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, ------------------------------------------- 1996 1995 1994 ------------ ----------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Loan sale gains . . . . . . . . . . . . . . . . . . . . . $ 199,030 $ 142,156 $ 86,735 Finance income, fees earned and other loan income . . . . 139,622 105,398 89,172 Investment income . . . . . . . . . . . . . . . . . . . . 13,156 7,403 2,963 Other . . . . . . . . . . . . . . . . . . . . . . . . . . 5,066 5,332 3,668 ------------ ----------- ------------ Total . . . . . . . . . . . . . . . . . . . . . . 356,874 260,289 182,538 ------------ ----------- ------------ Expenses: Personnel . . . . . . . . . . . . . . . . . . . . . . . . 96,313 70,762 52,421 Interest . . . . . . . . . . . . . . . . . . . . . . . . 38,626 25,559 13,362 Loan loss provision . . . . . . . . . . . . . . . . . . . 14,049 11,973 8,398 Other operating . . . . . . . . . . . . . . . . . . . . . 74,029 49,330 33,363 ------------ ----------- ------------ Total . . . . . . . . . . . . . . . . . . . . . . 223,017 157,624 107,544 ------------ ----------- ------------ Income from continuing operations before income taxes . . . 133,857 102,665 74,994 Provision for income taxes . . . . . . . . . . . . . . . . 47,665 37,740 26,298 ------------ ----------- ------------ Income from continuing operations . . . . . . . . . . . . . 86,192 64,925 48,696 Income (loss) from discontinued operations: Income from discontinued operations, net of income tax expense of $1,651, $2,980 and $491, respectively . . . 3,199 6,020 838 Loss on disposal, net of income tax benefit of $868 and $794, respectively . . . . . . . . . . . . . . . . (7,731) (1,477) - ------------ ----------- ------------ Total . . . . . . . . . . . . . . . . . . . . . . (4,532) 4,543 838 ------------ ----------- ------------ Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 81,660 $ 69,468 $ 49,534 ============ =========== ============ Per share data: Income from continuing operations . . . . . . . . . . . . $ 2.64 $ 2.10 $ 1.71 Income (loss) from discontinued operations . . . . . . . (.14) .15 .03 ------------ ----------- ------------ Net income . . . . . . . . . . . . . . . . . . . . . . . $ 2.50 $ 2.25 $ 1.74 ============ =========== ============
See notes to consolidated financial statements. 30 31 UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1996 1995 1994 ------------- ------------ ------------- (IN THOUSANDS) Cash flows from continuing operating activities: Income from continuing operations . . . . . . . . . . . . . . . . $ 86,192 $ 64,925 $ 48,696 Adjustments to reconcile income from continuing operations to net cash provided by continuing operating activities: Increase in accrued interest receivable . . . . . . . . . . . . (24,586) (14,603) (6,535) Decrease (increase) in other assets . . . . . . . . . . . . . . 1,578 6,805 (9,437) Increase (decrease) in other liabilities . . . . . . . . . . . 6,301 (5,843) (1,425) Increase in capitalized excess servicing income . . . . . . . . (273,236) (187,624) (111,820) Amortization of capitalized excess servicing income . . . . . . 128,275 80,670 43,706 Investment losses . . . . . . . . . . . . . . . . . . . . . . . - 56 29 Loan loss provision . . . . . . . . . . . . . . . . . . . . . . 42,181 29,311 22,282 Increase in capitalized mortgage servicing rights . . . . . . . (20,872) (5,986) - Amortization of capitalized mortgage servicing rights . . . . 2,879 173 - Amortization and depreciation . . . . . . . . . . . . . . . . . 4,571 2,815 1,504 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 11,273 31,952 15,022 Proceeds from sales and principal collections of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,481,500 2,671,761 1,891,869 Originations and purchases of loans held for sale . . . . . . . (2,534,441) (2,707,549) (1,889,043) Increase from trading securities . . . . . . . . . . . . . . . (17,418) - - ------------- ------------ ------------- Net cash provided (used) by continuing operating activities . . . . . . . . . . . . . . . . . . . . . . . (105,803) (33,137) 4,848 ------------- ------------ ------------- Cash flows from discontinued operating activities . . . . . . . . - 1,569 (2,934) ------------- ------------ ------------- Cash flows from investing activities: Increase in temporary investments -- reserve accounts . . . . . (95,929) (73,274) (54,308) Proceeds from sales of available-for-sale securities . . . . . 413 95 - Purchase of available for sale securities . . . . . . . . . . . - (76) - Proceeds from disposition of insurance subsidiaries . . . . . . 106,870 - - Capital expenditures . . . . . . . . . . . . . . . . . . . . . (11,417) (9,627) (4,037) ------------- ----------- ------------- Net cash used by investing activities . . . . . . . . . . . (63) (82,882) (58,345) ------------- ----------- ------------- Cash flows from financing activities: Proceeds from senior debt and mortgage loan . . . . . . . . . . 102,593 103,219 125,192 Decrease in revolving credit debt . . . . . . . . . . . . . . . - (72,163) (82,838) Increase (decrease) in debt with maturities of three months or less . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,100 (14,750) 14,250 Increase in warehouse loan facility . . . . . . . . . . . . . . 4,351 19,321 - Proceeds from ESOP debt . . . . . . . . . . . . . . . . . . . . 6,350 6,283 - Payments on ESOP debt . . . . . . . . . . . . . . . . . . . . . (1,179) (321) - Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . (13,897) (8,677) (5,050) Increase (decrease) in managed cash overdraft . . . . . . . . . (27,052) 1,100 828 Proceeds from issuance of stock . . . . . . . . . . . . . . . . - 83,254 4,545 Increase in unearned ESOP compensation . . . . . . . . . . . . (5,171) (2,313) (2,434) Proceeds from exercise of stock options and warrants . . . . . 1,551 3,086 542 ------------- ------------ ------------- Net cash provided by financing activities . . . . . . . . . 114,646 118,039 55,035 ------------- ------------ ------------- Increase (decrease) in cash and cash equivalents . . . . . . . . 8,780 3,589 (1,396) Cash and cash equivalents at beginning of period . . . . . . . . 5,284 1,695 3,091 ------------ ------------ ------------- Cash and cash equivalents at end of period . . . . . . . . . . . $ 14,064 $ 5,284 $ 1,695 ============= ============ =============
See notes to consolidated financial statements. 31 32 UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NET TREASURY ADDITIONAL UNREALIZED STOCK AND TOTAL PREFERRED COMMON PAID-IN GAIN (LOSS) RETAINED ESOP STOCKHOLDERS' STOCK STOCK CAPITAL ON SECURITIES EARNINGS DEBT EQUITY ---------- --------- ----------- -------------- ------------ ----------- ------------- (in thousands) Balance, December 31, 1993 . . $ 50,740 $ 50,942 $ 59,988 $ (8,302) $ 153,368 Net income . . . . . . . . . . 49,534 49,534 Dividends paid . . . . . . . . 5,184 37,263 (47,497) (5,050) Increase in ESOP debt . . . . . (2,222) (2,222) Common stock options exercised . . . . . . . . . . 398 1,749 2,147 Treasury shares acquired . . . (604) (604) Common stock issued . . . . . . 600 3,945 4,545 Common stock warrants exercised . . . . . . . . . . 160 230 390 Mark-to-market adjustment on investments . . . . . . . . . $ (23) (23) ---------- --------- ----------- -------------- ------------ ----------- ------------- Balance, December 31, 1994 . . 57,082 94,129 (23) 62,025 (11,128) 202,085 Net income . . . . . . . . . . 69,468 69,468 Dividends paid . . . . . . . . (8,677) (8,677) Increase in ESOP debt . . . . . (1,613) (1,613) Common stock warrants exercised . . . . . . . . . . 704 696 1,400 Common stock options exercised . . . . . . . . . . 818 5,386 6,204 Preferred stock issued . . . . $ 3,910 79,344 83,254 Release of ESOP shares . . . . 293 293 Mark-to-market adjustment on investments . . . . . . . . . 60 60 ---------- --------- ----------- -------------- ------------ ----------- ------------- Balance, December 31, 1995 . . 3,910 58,604 179,848 37 122,816 (12,741) 352,474 Net income . . . . . . . . . . 81,660 81,660 Dividends paid . . . . . . . . (13,897) (13,897) Increase in ESOP debt . . . . . (5,171) (5,171) Common stock options exercised . . . . . . . . . . 651 4,002 4,653 Release of ESOP shares . . . . 547 547 Mark-to-market adjustment on investments . . . . . . . . . 11 11 ---------- --------- ----------- -------------- ------------ ----------- ------------- Balance, December 31, 1996 . . $ 3,910 $ 59,255 $ 184,397 $ 48 $ 190,579 $ (17,912) $ 420,277 ========== ========= =========== ============== ============ =========== =============
See notes to consolidated financial statements. 32 33 UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1. ACCOUNTING POLICIES 1.1 Principles of Consolidation. The consolidated financial statements include the accounts and operations of United Companies Financial Corporation and subsidiaries (the "Company" or "United Companies"), all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. 1.2 Loan Accounting. The Company originates and purchases loans (which includes for purposes hereof manufactured housing installment loan and installment sale contracts) for its own portfolio and for sale and/or securitization in the secondary market. Loans held for sale are carried at lower of cost or market. 1.2(a) Loan Sales. The Company sells substantially all loans which it originates or purchases and generally retains the servicing rights on loans sold. At the time of sale, the Company recognizes a gain on loans sold in an amount equal to the present value of the difference between the interest spread retained by the Company and a normal servicing fee and other expenses over the estimated life of the loan. Under the sales/servicing agreements, the buyer receives the principal collected on the loan and an agreed upon rate of return on the outstanding principal balance; the Company retains the excess of the interest at the contractual rate over the sum of the rate paid to the buyer (the "pass-through" rate) and, where applicable, the trustee fee and surety bond fee. Generally, this interest spread retained by the Company differs significantly from a normal servicing fee and is reflected on the Company's balance sheet as a receivable, capitalized excess servicing income. Capitalized excess servicing income is calculated using prepayment, default and interest rate assumptions that the Company believes market participants would use for similar financial instruments at the time of the sale but is not reduced for estimated credit losses under recourse provisions of the sale. Such estimated credit losses are provided at the time of sale by reducing the amount of gain recognized and are included in a liability on the Company's balance sheet as allowance for loan losses. The Company has developed its assumptions based on experience with its own loan portfolio and available market data. For home equity loans the Company uses prepayment assumptions based on the prepayment experience of its owned and serviced loan portfolio. Prepayment assumptions for manufactured housing contracts are based on comparable industry prepayment statistics. The weighted average discount rate used by the Company to determine the present value of expected cash flows from excess servicing arising from loan sale transactions occurring in 1996, 1995 and 1994 was 10%. The Company believes that the capitalized excess servicing income recognized at the time of sale does not exceed the amount that would have been received if it were sold in the marketplace. In calculating loan sale gains, the Company considers current economic and market conditions at the date of sale. In subsequent periods, the Company reviews as of each balance sheet date its prepayment assumptions in relation to current rate of prepayment and, if necessary, revises its estimates using the original discount rate. Any losses arising from adverse prepayment experience are recognized immediately. Favorable experience is recognized prospectively. 1.2(b) Nonrefundable Loan Fees. Loan origination fees and incremental direct costs associated with loan originations are deferred and recognized over the lives of the loans as an adjustment to yield, using the interest method. Unamortized costs and fees are recognized upon sale of the loan or related asset-backed securities to third parties. 1.2(c) Loan Servicing. The Company generally retains the right to service loans it originates or purchases and subsequently sells or securitizes in the secondary market. Fees for servicing loans are generally based on a stipulated percentage of the outstanding principal balance of such loans. Prior to the adoption of Statement of Financial Accounting Standards No. 122 ("SFAS 122"), "Accounting for Mortgage Servicing Rights", the Company recognized late charges and other ancillary income when collected and charged costs to service mortgage loans when incurred. The Company implemented the provisions of SFAS 122 in the third quarter of 1995 and, in connection therewith, changed its method 33 34 of accounting for mortgage servicing rights to recognize as separate assets rights to service loans for others that have been acquired through either the purchase or origination of such loans. 1.2(d) Allowance for Loan Losses. The Company's loan sale agreements generally provide for the subordination of cash and excess interest spread relating to the loans sold. Such subordination relates to credit losses which may occur after the sale of the loans and continues until the earlier of the payment in full of the loans or the termination of the agreement pursuant to which the loans were sold. In connection with the securitization and sale of pass-through certificates, the interest retained by the Company is generally subordinated to a limited extent to the sold certificates and will be used to fund a reserve account, thereby providing a credit enhancement to the holders of the certificates. Regardless of the structure of the loan sale transaction, the Company estimates the amount of future losses under the loan sale agreements and provides a reserve for such loss in determining the amount of gain recorded on the sale. The Company provides for estimated loan losses on loans owned by the Company by establishing an allowance for loan losses through a charge to earnings. The Company conducts periodic reviews of the quality of the loan portfolio and estimates the risk of loss based upon historical loss experience, prevailing economic conditions, estimated collateral value and such other factors which, in management's judgment, are relevant in estimating the adequacy of the Company's allowance for loan losses. While management uses the best information available in conducting its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions, collateral value or other elements used in conducting the review. 1.2(e) Other. Loans are placed on a nonaccrual status when they are past due 150 days. 1.2(f) Property Acquired in Satisfaction of Debt. The Company records properties received in settlement of loans ("real estate owned") at the lower of their market value less estimated costs to sell ("market") or the outstanding loan amount plus accrued interest ("cost"). The Company accomplishes this by providing a specific reserve, on a property by property basis, for the difference between market and cost. Market value is generally determined by property appraisals performed either by Company personnel or independent appraisers. The related adjustments are included in the Company's provision for loan losses. 1.3 Temporary Investments -- Reserve Accounts. In connection with its loan sale transactions, the Company has made initial cash deposits and has subordinated certain related cash flows payable to the Company to the payment of scheduled principal and interest to investors. The amounts on deposit are invested in certain instruments as permitted by the loan sale agreements and earnings thereon accrue to the Company. To the extent amounts on deposit exceed specified levels required by the subordination requirements, distributions are made to the Company, and, at the termination of the transaction, any remaining amounts on deposit will be distributed to the Company. 1.4 Property. Property is stated at cost less accumulated depreciation. Depreciation is computed on the straight-line and accelerated methods over the estimated useful lives of the assets. 1.5 Income Taxes. The Company and its subsidiaries file a consolidated federal income tax return. The Company allocates to its subsidiaries their proportionate share of the consolidated tax liability under a tax allocation agreement whereby each affiliate's federal income tax provision is computed on a separate return basis. Deferred income taxes are provided for the effect of revenues and expenses which are reported in different periods for financial reporting purposes than for tax purposes. Such differences result primarily from providing for loan losses, loan income, loan sale gains and depreciation. 1.6 Cash Equivalents. For purposes of the Statements of Cash Flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 1996, cash equivalents totaled $.8 million with interest rates ranging from 3% to 8% per annum. 1.7 Financial Instruments. The Company from time to time enters into interest rate hedge mechanisms to manage its exposure to interest rate changes in connection with the securitization and sale of its loans. The Company closes out the hedge position to coincide with the related loan sale and recognizes the results of the hedge transaction 34 35 in determining the amount of the related loan sale gain. The Company did not have any open hedge positions at December 31, 1995 or 1996. 1.8 Accounting Standards. On October 23, 1995, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 encourages, but does not require, the recognition of compensation expense for grants of stock, stock options and other equity instruments to employees based on a fair value method of accounting. Companies are permitted to continue to apply the existing accounting rules contained in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"); however, companies that choose to retain this method of accounting are required to provide expanded disclosures of pro forma net income and earnings per share in the notes to financial statements as if the new fair value method of accounting had been adopted. The provisions of SFAS No. 123 are effective for fiscal years beginning after December 15, 1995. The Company has elected to continue to apply the accounting rules contained in APB 25 and to comply with the additional disclosure requirements as set forth in SFAS No. 123. See also Note 9. In June, 1996 the FASB issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS No. 125"). SFAS No. 125 focuses on control of the financial asset and provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS No. 125 provides certain conditions that must be met to determine that control of the financial asset has been surrendered. SFAS No. 125 requires that servicing assets and other retained interests in the transferred assets be measured by allocating the previous carrying amount between the assets sold and the retained interests, if any, based on their relative fair values at the date of transfer. Implementation of SFAS No. 125 will require the Company to change the method of calculating the gain on the sale of loans. In addition, the retained interests will be classified as a trading security under the provisions of SFAS No. 115 and, as such, recorded at fair value with the resultant unrealized gain or loss recorded in the results of operations in the period of change in value. The statement is effective for transfers and servicing of financial assets and extinguishments of liabilities after December 31, 1996, and is to be applied prospectively. Earlier or retroactive application is not permitted. The Company's analysis of the provisions of SFAS No. 125 is not complete at this time and, therefore, the Company cannot estimate the impact of SFAS No. 125 on the Company's financial results for the year ending December 31, 1997. 1.9 Reclassifications. Certain prior year amounts have been reclassified to conform with the current year presentation. Such reclassifications had no effect on net income. 1.10 Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. CAPITALIZED EXCESS SERVICING INCOME A summary analysis of the changes in the Company's capitalized excess servicing income is as follows:
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1996 1995 1994 -------------- ------------ -------------- (IN THOUSANDS) Balance, beginning of year . . . . . . . . . $ 280,985 $ 174,031 $ 105,917 Capitalized excess servicing income . . . . . 273,236 187,624 111,820 Amortization of capitalized excess servicing income . . . . . . . . . . . . . (128,275) (80,670) (43,706) Other . . . . . . . . . . . . . . . . . . . . 447 - - -------------- ------------ -------------- Balance, end of year . . . . . . . . . . . . $ 426,393 $ 280,985 $ 174,031 ============== ============ ==============
The carrying value of capitalized excess servicing income is analyzed quarterly by the Company to determine if 35 36 actual prepayment experience has had any impact on the carrying value of this asset. If necessary, the Company revises its prepayment estimates using the original discount rate. Any losses arising from adverse prepayment experience are recognized immediately. Favorable prepayment experience is recognized prospectively. The weighted average discount rate used by the Company to determine the carrying value of Capitalized excess servicing income was 10% in 1996, 1995 and 1994. 3. LOANS 3.1 Loans Owned. The following schedule sets forth the components of Loans owned by the Company at December 31, 1996 and 1995.
DECEMBER 31, -------------------------------- 1996 1995 ---------- ---------- (IN THOUSANDS) Home equity loans . . . . . . . . . . . . . . . . $ 99,849 $ 67,673 Manufactured housing contracts . . . . . . . . . 7,397 234 Credit card receivables . . . . . . . . . . . . . 1,543 - Commercial loans . . . . . . . . . . . . . . . . 477 479 Conventional loans . . . . . . . . . . . . . . . 123 323 ---------- ---------- 109,389 68,709 Real estate owned: Home equity . . . . . . . . . . . . . . . . . 7,752 8,469 Commercial and other . . . . . . . . . . . . . 8,342 2,982 Manufactured housing . . . . . . . . . . . . . 372 - Nonrefundable loan fees . . . . . . . . . . . . . (2,945) (4,950) Other . . . . . . . . . . . . . . . . . . . . . . (19) (333) ---------- ---------- Total . . . . . . . . . . . . . . . . . $ 122,891 $ 74,877 ========== ==========
Included in Loans owned at December 31, 1996 and 1995 were nonaccrual loans totaling $6.6 million and $5.7 million, respectively. 3.2 Loans Serviced. The following table sets forth the loans serviced by the Company for third parties at December 31, 1996 and 1995, by type of loan. Substantially all of these loans were originated by the Company. As discussed in Note 11 "Discontinued Operations", the servicing of the commercial real estate mortgage loans was transferred to United Companies Life Insurance Company ("UCLIC") in July, 1996.
DECEMBER 31, ------------------------------------ 1996 1995 -------------- ------------- (IN THOUSANDS) Home equity . . . . . . . . . . . . . . . . . $ 3,940,289 $ 2,632,630 Manufactured housing . . . . . . . . . . . . 107,741 - Commercial . . . . . . . . . . . . . . . . . - 250,762 Conventional . . . . . . . . . . . . . . . . 44,649 58,215 -------------- ------------- Total . . . . . . . . . . . . . . . $ 4,092,679 $ 2,941,607 ============== =============
3.3 Loan Loss Allowance. The Company provides an estimate for future credit losses in an Allowance for loan losses for loans owned by the Company and for loans serviced for others. 36 37 A summary analysis of the changes in the Company's Allowance for loan losses is as follows:
YEAR ENDED DECEMBER 31, ----------------------------------------- 1996 1995 1994 ---------- ---------- ------------ (IN THOUSANDS) Balance at beginning of year . . . . . . . . . . . . . . $ 51,454 $ 34,478 $ 24,190 Loans charged to allowance Home equity . . . . . . . . . . . . . . . . . . . . . (19,484) (13,818) (12,745) Commercial and other . . . . . . . . . . . . . . . . . (3,190) (97) (141) Manufactured housing contracts . . . . . . . . . . . . (28) - - ---------- ---------- ------------ Total . . . . . . . . . . . . . . . . . . . . . (22,702) (13,915) (12,886) Recoveries on loans previously charged to allowance . . . . . . . . . . . . . . . . . . . . . 2,410 1,643 1,100 ---------- ---------- ------------ Net loans charged off . . . . . . . . . . . . . . . . (20,292) (12,272) (11,786) Loan loss provision on owned and serviced loans . . . . . 42,181 29,311 22,282 Commercial loan reserve transferred and reserve reclassification . . . . . . . . . . . . . 3,900 (63) (208) ---------- ---------- ------------ Balance at end of year . . . . . . . . . . . . . . . . . $ 77,243 $ 51,454 $ 34,478 ========== ========== ============
As of December 31, 1996, approximately $3.9 billion of home equity loans sold were serviced under agreements substantially all of which provide for the subordination of cash and excess interest spread owned by the Company for credit losses. The maximum recourse associated with sales of home equity loans and manufactured housing contracts according to terms of the loan sales agreements was approximately $854 million at December 31, 1996, of which $842 million relates to the subordinated cash and excess interest spread. The Company's estimate of its losses on home equity loans, based on historical loan loss experience, was approximately $65.4 million at December 31, 1996 and is recorded in the Company's allowance for loan losses. In addition, the maximum recourse associated with the sale of approximately $164 million of manufactured housing contract pass-through certificates according to the related contract sale agreements was approximately $12.8 million. The Company's estimate of its losses on these contracts, based on industry loss statistics, was approximately $7.7 million and is also recorded in the Company's allowance for loan losses. Should credit losses on loans sold with limited recourse, or subordination of cash and excess interest spread owned by the Company, materially exceed the Company's estimate for such losses, such consequence will have a material adverse impact on the Company's operations. 3.4 Concentration of Credit Risk. The Company's serviced portfolio is geographically diversified. Although the Company services mortgage loans in 50 states, at December 31, 1996, a substantial portion of home equity loans serviced were originated or acquired in California (9.6%), Ohio (7.8%), Louisiana (7.8%) and Florida (7.6%), respectively, and no other state accounted for more than 7% of the serviced portfolio. The portfolio of manufactured housing contracts serviced were originated primarily in Texas (45.7%), South Carolina (13.2%), Georgia (11.2%) and North Carolina (11.0%). The risk inherent in such concentrations is dependent not only upon regional and general economic stability which affects property values, but also the financial well-being and creditworthiness of the borrower. 3.5 Commitments. The Company uses a prefunding feature in connection with loan securitization transactions. At December 31, 1996 approximately $16.3 million was held in a prefunding account for the purchase of the Company's loans during the first quarter of 1997. 4. INVESTMENT SECURITIES. In accordance with the provisions of Statement of Financial Accounting Standards No. 115, the Company classifies securities in one of three categories: "held-to-maturity", "available-for-sale" or "trading". Securities classified as held-to-maturity are carried at amortized cost, whereas securities classified as trading or available-for-sale are recorded at fair value. The adjustment, net of applicable income taxes, for securities classified as available-for-sale is recorded in "Net unrealized gain (loss) on securities" and is included in Stockholders' equity on the consolidated balance sheets and the adjustment for securities classified as trading is recorded in "Investment income" in the statements of income. 37 38 At December 31, 1996, the Company's investment securities consisted of common stock classified as trading securities with a cost of $15.0 million and a carrying value of $17.4 million. Net unrealized gains on trading securities included in investment income was $2.4 million for the year ended December 31, 1996. The Company's available-for-sale portfolio included an investment in a limited partnership and other securities with a cost of $17.4 million and a carrying value of $17.5 million. 5. PROPERTY -- NET Property is summarized as follows:
DECEMBER 31, ----------------------------- 1996 1995 ------------ ------------ (IN THOUSANDS) Land and buildings . . . . . . . . . . . . . . . . . . . $ 36,145 $ 10,603 Furniture, fixtures and equipment . . . . . . . . . . . . 21,008 19,511 ------------ ------------ Total . . . . . . . . . . . . . . . . . . . . . 57,153 30,114 Less accumulated depreciation . . . . . . . . . . . . . . (10,830) (14,875) ------------ ------------ Total . . . . . . . . . . . . . . . . . . . . . $ 46,323 $ 15,239 ============ ============
Rental expense on operating leases, including real estate, computer equipment and automobiles, totaled $9.6 million, $7.7 million and $6.3 million during 1996, 1995 and 1994, respectively. Minimum annual commitments at December 31, 1996 under noncancellable operating leases are as follows (in thousands): 1997 . . . . . . . . . . . . . . . . . $ 8,972 1998 . . . . . . . . . . . . . . . . . 7,003 1999 . . . . . . . . . . . . . . . . . 3,926 2000 . . . . . . . . . . . . . . . . . 1,644 2001 . . . . . . . . . . . . . . . . . 1,007 Thereafter . . . . . . . . . . . . . . 2 ------------- Total . . . . . . . . . . . . $ 22,554 =============
6. NOTES PAYABLE Notes payable consisted of the following:
DECEMBER 31, --------------------------------- 1996 1995 ------------- ------------ (IN THOUSANDS) 9.35% Senior unsecured notes due November, 1999 . . . . . . . . $ 125,000 $ 125,000 7% Senior unsecured notes due July, 1998 . . . . . . . . . . . 100,000 100,000 7.7% Senior unsecured notes due January, 2004 . . . . . . . . 100,000 - Short-term borrowings . . . . . . . . . . . . . . . . . . . . . 47,100 - Warehouse facility . . . . . . . . . . . . . . . . . . . . . . 23,672 19,321 ESOP debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,133 5,962 Subordinated debentures . . . . . . . . . . . . . . . . . . . . 10,000 10,000 Mortgage loan . . . . . . . . . . . . . . . . . . . . . . . . . 5,473 5,473 Construction loan . . . . . . . . . . . . . . . . . . . . . . . 3,293 - ------------- ------------ Total . . . . . . . . . . . . . . . . . . . . . . . . $ 425,671 $ 265,756 ============= ============
In December, 1996 and in July, 1995, the Company publicly sold $100 million and $100 million, respectively, of its senior unsecured notes. The notes provide for interest payable semi-annually and are not redeemable prior to maturity. The notes rank on a parity with other unsecured and unsubordinated indebtedness of the Company. The net proceeds from the sale of the notes were used for working capital purposes and, in 1995, to repay the principal amount of indebtedness outstanding under the Company's existing revolving credit facility with a group of banks. 38 39 At December 31, 1996, the Company had three secured warehouse facilities available for its home equity loan product: (i) a warehouse facility provided by a syndicate of commercial banks (the "Commercial Bank Warehouse"), (ii) a warehouse facility provided by the investment bank which acted as lead underwriter for the Company's fourth quarter home equity loan securitization (the "Investment Bank Warehouse"), and (iii) a warehouse facility provided by UCLIC (the "UCLIC Warehouse"). In June, 1996, the Commercial Bank Warehouse was increased from $150 million to $350 million and the lenders' commitment was extended from May, 1997 to May, 1998. As of December 31, 1996, $7.1 million was outstanding under the Commercial Bank Warehouse. The Investment Bank Warehouse was directly related to the fourth quarter home equity loan securitization, initially provided for funding up to $500 million of eligible home equity loans for such securitization and terminated upon the closing of the last delivery of loans under the prefunding accounts relative to this securitization. As of December 31, 1996, $150 million was available and no amounts were outstanding under the Investment Bank Warehouse. The UCLIC Warehouse, which was established upon the sale of UCLIC, provides for the purchase of up to $300 million in first mortgage residential loans and has a maturity of July, 1999. The Company has the right for a limited time to repurchase certain loans which are eligible for securitization and as of December 31, 1996, $16.6 million in loans eligible for securitization were funded under this facility. In addition, the Company had a manufactured housing contract warehouse which was directly related to the fourth quarter manufactured housing securitization and was provided by the investment bank which acted as lead underwriter for such securitization (the "Manufactured Housing Warehouse"). The Manufactured Housing Warehouse initially provided for funding up to $150 million of eligible manufactured housing contracts and terminated upon the closing of the last delivery of contracts under the prefunding accounts relative to this securitization. As of December 31, 1996, $50 million was available and no amounts were outstanding under the Manufactured Housing Warehouse. The Company also has arrangements with banks providing for short-term unsecured borrowings of up to $148 million, $47 million of which was outstanding at December 31, 1996. Borrowings under these lines of credit bear interest at market or prime rates. Notes payable at December 31, 1996 include a $5.5 million mortgage loan on an office building adjacent to the Company's home office building. In addition, at December 31, 1996, notes payable includes $3.3 million borrowed under a $10 million committed line of credit for the construction of an office building adjacent to the Company's home office building. In May, 1993, United Companies Lending Corporation ("UC Lending"), a wholly owned subsidiary of the Company, entered into a subordinated debenture agreement with UCLIC. In connection with this agreement, UC Lending borrowed $10 million from UCLIC, $3 million of which matures in 1998 and bears an interest rate of 6.05% per annum, $3 million of which matures in 2000 and bears an interest rate of 6.64% per annum and $4 million of which matures in 2003 and bears an interest rate of 7.18% per annum. The Company made payments for interest of $36.9 million, $23.0 million and $11.8 million during the years ended December 31, 1996, 1995 and 1994, respectively. 7. INCOME TAXES The provision for income taxes attributable to continuing operations is as follows:
YEAR ENDED DECEMBER 31, ---------------------------------------- 1996 1995 1994 ----------- ----------- ---------- (IN THOUSANDS) Current . . . . . . . . . . . . . . . . . . . . . . . $ 36,391 $ 5,788 $ 11,276 Deferred . . . . . . . . . . . . . . . . . . . . . . 11,274 31,952 15,022 ----------- ----------- ---------- Total . . . . . . . . . . . . . . . . . . . $ 47,665 $ 37,740 $ 26,298 =========== =========== ==========
39 40 Reported income tax expense attributable to continuing operations differs from the amount computed by applying the statutory federal income tax rate to consolidated income from continuing operations before income taxes for the following reasons:
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1996 1995 1994 ------------- ------------- ------------- (IN THOUSANDS) Federal income tax at statutory rate . . . . . . . . . . $ 46,850 35,933 $ 26,248 Differences resulting from: State income taxes . . . . . . . . . . . . . . . . . . 770 511 (72) Other . . . . . . . . . . . . . . . . . . . . . . . . . 45 1,296 122 ------------- ------------- ------------- Reported income tax provisions . . . . . . . . . . . . . $ 47,665 $ 37,740 $ 26,298 ============= ============= =============
The significant components of the Company's net deferred income tax liability at December 31, 1996 and 1995 are as follows:
DECEMBER 31, ------------------------------ 1996 1995 ------------- ------------- (IN THOUSANDS) Deferred income tax assets: Allowance for loan losses . . . . . . . . . . . . . . . $ - $ 904 Nonrefundable loan fees . . . . . . . . . . . . . . . . 1,030 1,732 Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,075 850 ------------- ------------- 2,105 3,486 ------------- ------------- Deferred income tax liabilities: Loan income . . . . . . . . . . . . . . . . . . . . . . 41,320 42,883 Mark-to-market adjustment . . . . . . . . . . . . . . . 873 20 Mortgage servicing rights . . . . . . . . . . . . . . . 8,332 2,034 Real estate . . . . . . . . . . . . . . . . . . . . . . 4,150 241 Allowance for loan losses . . . . . . . . . . . . . . . 401 - ------------- ------------- 55,076 45,178 ------------- ------------- Net deferred income tax liability . . . . . . . . . . . . $ 52,971 $ 41,692 ============= =============
Payments made for income taxes during the years ended December 31, 1996, 1995 and 1994 were $31.0 million, $2.6 million and $26.9 million, respectively. At December 31, 1996 and 1995, the Company had a current income tax receivable of $1.0 million and $13.5 million, respectively, included in "Other assets". 8. CAPITAL STOCK The Company has authorization to issue up to 100,000,000 shares of its $2.00 par value common stock. There were 28,468,052 and 28,142,564 shares outstanding at December 31, 1996 and 1995, respectively, excluding 1,159,682 treasury shares. The Company also has authorization to issue 20,000,000 shares of preferred stock of which 1,955,000 shares are currently issued (see discussion of "PRIDES(SM)" below). Included in the authorized preferred stock are 1,000,000 shares of Series A Junior Participating preferred stock and 800,000 shares of Cumulative Convertible preferred stock, none of which is outstanding. On June 16, 1995, the Company concluded the sale of 1,955,000 shares of its Preferred Redeemable Increased Dividend Equity Securities(SM), 6 3/4% PRIDES(SM), Convertible Preferred Stock, par value $2.00 per share ("PRIDES(SM)"), at a price per share of $44.00. Dividends on the PRIDES(SM) are cumulative and are payable quarterly in arrears on each January 1, April 1, July 1 and October 1. Net proceeds to the Company were approximately $83.3 million. The net proceeds from the sale of shares of PRIDES(SM) were used for general corporate purposes. 40 41 The PRIDES(SM) rank prior to the Company's common stock as to payment of dividends and distribution of assets upon liquidation. The shares of PRIDES(SM) mandatorily convert into shares of common stock on July 1, 2000 (the "Mandatory Conversion Date") on a two share to one share basis (as adjusted for the 100% common stock dividend paid October 20, 1995), and the shares of PRIDES(SM) are convertible into shares of common stock at the option of the holder at any time prior to the Mandatory Conversion Date on the basis of 1.652 of a share of common stock for each share of PRIDES(SM), in each case subject to adjustment in certain events. In addition, the Company has the option to convert the shares of PRIDES(SM), in whole or in part, on or after July 1, 1998 until the Mandatory Conversion Date, into shares of its common stock according to a formula. On August 23, 1995, the Company's Board of Directors declared a two-for-one common stock split effected in the form of a 100% stock dividend on outstanding stock which was distributed October 20, 1995, to stockholders of record on October 9, 1995. All per share amounts, numbers of shares and related amounts for all periods presented in the accompanying financial statements and notes thereto have been retroactively adjusted to reflect this transaction. During 1996 and 1995, the Company paid cash dividends on its common stock in the amount of $8.1 million and $5.5 million, or $.29 and $.20 per share, respectively. In addition, during 1996 and 1995, the Company paid cash dividends on its PRIDES(SM) in the amount of $5.8 million or $2.97 per share and $3.1 million or $1.61 per share, respectively. On July 27, 1994, the Board of Directors authorized the redemption of the rights under the rights plan of the Company adopted in 1989 (the "1989 Rights Plan") and approved a new rights plan (the "1994 Rights Plan"). In connection with the redemption, the rights under the 1989 Rights Plan (the "1989 Rights") were redeemed at a price of $.0039526 per 1989 Right with the aggregate redemption price payable to each holder of the 1989 Rights to be rounded up to the nearest $.01. In approving the 1994 Rights Plan, the Board of Directors declared a dividend distribution of one preferred share purchase right for each outstanding share of the Company's Common Stock. The rights under the 1994 Rights Plan will become exercisable only upon the occurrence of certain events as specified therein (primarily certain changes in ownership of the Company). At December 31, 1996 and 1995, 1,159,682 shares of the Company's common stock, or 4% of the issued common stock, were held as treasury stock at a cost of $6.8 million. 9. EMPLOYEE BENEFIT PLANS 9.1 Employee Stock Ownership Plan. All employees who meet minimum age and service requirements participate in the Company's Employee Stock Ownership Plan ("ESOP"). The Company makes annual tax deductible contributions to the ESOP which are used to purchase additional shares of the Company's common stock or to pay debt service on shares acquired with the proceeds of loans ("leveraged shares"). The ESOP's leveraged shares are initially pledged as collateral for the debt incurred in connection with the acquisition of such shares. As the debt is repaid, the shares are released from collateral and allocated to plan participants. Contributions are allocated among participants based on years of service and compensation. Upon retirement, death or disability, the employee or a beneficiary receives the designated common stock. The Company's cash contributions to the ESOP were $3.0 million, $2.3 million and $2.2 million for the years ended December 31, 1996, 1995 and 1994, respectively. Shares held by the ESOP at December 31, 1996, 1995 and 1994 were approximately 3.7 million, 4.0 million and 4.7 million, respectively. During 1995, the ESOP was granted a $10 million line of credit from a financial institution, which line of credit was increased to $12 million during 1996. At December 31, 1996 the ESOP had notes payable with a balance of $11.1 million under this line of credit. Because the source of the loan payments is primarily contributions received by the ESOP from the Company, such debt is included in the Company's notes payable with a corresponding reduction of stockholders' equity. In accordance with Statement of Position 93-6 ("SOP 93-6"), leveraged shares purchased subsequent to December 31, 1992 are, upon release, reflected as compensation expense based on the then current market price of the shares. Shares which have not been committed to be released are not considered outstanding for purposes of the computation of earnings per share. Prior to 1995, 165,000 shares of the Company's common stock were considered outstanding of which 132,000 shares at December 31, 1996 were not considered outstanding for earnings per share purposes. At December 31, 1996, approximately 142,000 shares of common stock were committed to be released under the terms of the loan agreement. At December 31, 1996, 41 42 approximately 50,000 shares of common stock accounted for under the provisions of SOP 93-6 were committed to be released resulting in additional compensation expense of approximately $1.4 million during 1996. At December 31, 1996, the ESOP had approximately 780,000 leveraged shares, of which approximately 458,000 were accounted for under the provisions of SOP 93-6. The fair value of the 458,000 leveraged shares accounted for under the provisions of SOP 93-6 was $12.2 million at December 31, 1996. 9.2 Stock Option Plans. At December 31, 1996, the Company had four stock-based compensation plans, which are described below. The Company applies Accounting Principles Board Opinion 25 ("APB25") and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans as the exercise price of all stock options granted thereunder is equal to the fair market value at the date of grant. The compensation cost that has been charged against net income for restricted stock issued under the 1993 Stock Incentive Plan was $1.4 million and $.4 million for 1996 and 1995, respectively. Had compensation costs for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of Financial Accounting Standards Board Statement No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31, ------------------------------ 1996 1995 ----------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net income As reported . . . . $ 81,660 $ 69,468 Pro forma . . . . . 81,118 68,917 Primary earnings per share As reported . . . . 2.55 2.28 Pro forma . . . . . 2.54 2.26 Fully diluted earnings As reported . . . . 2.50 2.25 per share Pro forma . . . . . 2.48 2.23
On November 11, 1996, the Board of Directors approved and adopted, subject to shareholder approval, two additional stock option plans, the 1996 Long Term Incentive Compensation Plan and the 1996 Non-Employee Director Stock Plan. There were no awards granted under either of these plans in 1996. Fixed Stock Options. The Company has four fixed stock option plans. Under the 1986, 1989, and 1993 employee stock option plans and the 1993 Non-Employee Director Stock Option Plan (the "1993 Director Plan"), the Company may grant options for up to 1.1 million, .8 million, 1.3 million and .9 million shares of common stock, respectively. The term of the 1986 plan has expired and no new options may be awarded thereunder. At December 31, 1996, 11,234 and 182,464 shares of common stock were available for award under the 1989 and 1993 plans, respectively, and 599,200 shares of common stock were available for award under the 1993 Director Plan. Under the four plans, the exercise price of each option equals the fair market value of the Company's stock on the date of grant and the maximum term of an option is 10 years. Under the 1986 and 1989 employee plans, the options become exercisable two years from the grant date, and under the 1993 plan, the options become exercisable three years from the grant date. Options awarded under the 1993 Director Plan become exercisable three years after the date of grant. The fair value of each option grant is estimated on the date of grant using the Black Scholes option-pricing model with the following assumptions for grants in 1995: dividend yield of 1.2%; expected volatility of 27%; risk-free interest rate of 5.95%; and expected life of 5.4 years. The following assumptions were used for options granted in 1996: dividend yield of 1.2%; expected volatility of 45%; risk-free interest rate of 6.47%; and expected life of 5.4 years. A summary of the status of the Company's four stock option plans (excluding the restricted stock awards) as of 42 43 December 31, 1996 and 1995, and changes during the periods ending on those dates is presented below:
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1996 1995 ------------------------------ ------------------------------ WEIGHTED AVERAGE WEIGHTED-AVERAGE FIXED OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE ------------- --------- --------------- --------- --------------- Outstanding at beginning of year 1,831,860 $11.51 1,699,446 $ 5.90 Granted 58,700 33.19 584,700 22.55 Exercised (279,488) 5.55 (409,092) 4.11 Canceled (39,842) 15.83 (43,194) 10.75 ---------- ---------- Outstanding at end of year 1,571,230 13.27 1,831,860 11.51 ========== ========== Weighted-average fair value of options granted during the year $ 15.63 $ 7.60
The following table summarizes information about fixed stock options outstanding at December 31, 1996.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------------ ---------------------------- RANGE OF WEIGHTED-AVERAGE WEIGHTED- WEIGHTED- EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE PRICES OUTSTANDING CONTRACTUAL LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE -------- ----------- ------------------------ -------------- ----------- -------------- $2 to $7 829,434 5.4 $ 5.04 829,434 $ 5.04 $15 to $16 10,998 7.7 15.91 - - $16 to $23 633,398 8.2 21.04 - - $31 to $34 97,400 9.2 32.53 - - ------------ ----------- Total 1,571,230 7.8 13.27 829,434 5.04 ============ ===========
Restricted Stock Awards. As part of the Company's 1993 Incentive Plan, the Company may award restricted stock to selected executives and other key employees. While the 1993 plan only requires a vesting period of six months, awards of restricted stock have generally been made with vesting periods from one year to four years contingent upon the attainment by the Company of certain return on equity requirements. The following table summarizes information about restricted stock awards during the periods indicated:
Year Ended December 31, ------------------------------------------------------------------- 1996 1995 ------------------------------- ------------------------------- WEIGHTED-AVERAGE WEIGHTED-AVERAGE RESTRICTED STOCK AWARDS SHARES EXERCISE PRICE SHARES EXERCISE PRICE ----------------------- --------- --------------- ---------- --------------- Outstanding at beginning of year . . . . . . . . . . . . . . 80,000 $ - - $ - Granted . . . . . . . . . . . . 3,000 - 80,000 - Lapse of restriction . . . . . (46,000) - - Canceled . . . . . . . . . . . - - - ---------- ---------- Outstanding at end of year . . . . . . . . . . . . . . 37,000 - 80,000 - ========== ========== Weighted-average fair value of restricted stock granted during the year $ 34.00 $ 18.86
43 44 As of December 31, 1996, the 37,000 shares of restricted stock outstanding had a purchase price of zero and a weighted-average remaining contractual life of nine months. 9.3 Employees' Savings Plan and Trust. The United Companies Financial Corporation Employees' Savings Plan and Trust is designed to be a qualified plan under Sections 401(a) and 401(k) of the Internal Revenue Code. Under the plan, employees are allowed to defer income on a pre-tax basis through contributions to the plan and the Company matches a portion of such contributions. The Company's matching contributions totaled $1.5 million, $1.3 million and $1.0 million during 1996, 1995 and 1994, respectively. Employees have five investment options, one of which is to invest in the Company's common stock. The plan held 537,117 shares and 567,971 shares of the Company's common stock at December 31, 1996 and 1995, respectively. 9.4 Deferred Compensation Plans. Postretirement benefits are provided to eligible executive and senior officers of the Company under a deferred compensation plan. The cost (benefit) of this plan during 1996 and 1995 was $(.1) million and $.2 million, respectively. The Company calculated its postretirement benefit obligation as of December 31, 1996 using a weighted average discount rate of 7.1%. A reconciliation of the funded status of the deferred compensation plan as of December 31, 1996 and 1995 is as follows:
DECEMBER 31, NET DECEMBER 31, 1996 CHANGE 1995 -------------- ------------ --------------- (IN THOUSANDS) Accumulated postretirement benefit cost . . . . . . $ 1,771 $ (141) $ 1,912 Plan assets . . . . . . . . . . . . . . . . . . . . -- -- -- -------------- ------------ --------------- Funded status . . . . . . . . . . . . . . . . . . . 1,771 (141) 1,912 Unrecognized transition obligation . . . . . . . . (1,070) 68 (1,138) -------------- ------------ --------------- Accrued postretirement benefit cost . . . . . . . . $ 701 $ (73) $ 774 ============== ============ ===============
10. DISCLOSURE ABOUT FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107 ("SFAS No. 107") requires that the Company disclose the estimated fair values of its financial instruments, both assets and liabilities recognized and not recognized in its financial statements. SFAS No. 107 defines financial instruments as cash and contractual rights and obligations that require settlement in cash or by exchange of financial instruments. Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. The carrying value and fair value of the Company's financial assets and liabilities at December 31, 1996 and 1995 were as follows:
1996 1995 ----------------------- --------------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE --------- ---------- ------------ ----------- (IN THOUSANDS) (IN THOUSANDS) Financial assets: Cash and cash equivalents . . . . . . . . . . . . . . . $ 14,064 $ 14,064 $ 5,284 $ 5,284 Temporary investments -- reserve accounts . . . . . . . 251,183 251,183 155,254 155,254 Loans . . . . . . . . . . . . . . . . . . . . . . . . . 106,425 111,000 65,606 67,140 Capitalized excess servicing income . . . . . . . . . . 426,393 426,393 280,985 280,985 Capitalized mortgage servicing rights . . . . . . . . . 23,806 26,000 5,813 6,525 Financial liabilities: Notes payable . . . . . . . . . . . . . . . . . . . . . 425,671 431,000 265,756 280,277 Allowance for loan losses . . . . . . . . . . . . . . . 77,243 77,243 51,454 51,454 Managed cash overdraft . . . . . . . . . . . . . . . . - - 27,052 27,052
The above values do not reflect any premium or discount from offering for sale at one time the Company's entire holdings of a particular financial instrument. Fair value estimates are made at a specific point in time based on relevant 44 45 market information, if available. Because no market exists for certain of the Company's financial instruments, fair value estimates for these assets and liabilities were based on subjective estimates of market conditions and perceived risks of the financial instruments. Fair value estimates were also based on judgments regarding future loss and prepayment experience and were influenced by the Company's historical information. The following methods and assumptions were used to estimate the fair value of the Company's financial instruments: Cash and cash equivalents. The carrying amount of cash and cash equivalents approximates their fair values because these assets generally mature in 90 days or less and do not present any significant credit concerns. Temporary investments -- reserve accounts. The carrying value of temporary investments is considered to be a reasonable estimate of fair value. Loans. The fair value of the Company's loan portfolio was determined by segregating the portfolio by type of loan and further by its performing and nonperforming components. Performing loans were further segregated based on the due date of their payments, an analysis of credit risk by category was performed and a matrix of pricing by category was developed. Loans which had been identified for sale were valued at their estimated sales price, which includes the estimated value of the portion of the interest and fees which are not sold with the securities backed by the loans. Loans which were current but not identified for sale approximate the remaining principal balance which is believed to represent an estimate of market discount from similar loans identified for sale. The fair value of delinquent loans was estimated by using the Company's historical recoverable amount on defaulted loans. Real estate owned property is excluded from this disclosure because it is not considered a financial instrument. Capitalized excess servicing income. The value of capitalized excess servicing, which relates to the excess interest retained on loans sold, was estimated by discounting the future cash flows, adjusted for prepayments and estimated losses on loans sold with recourse. The carrying value is considered to be a reasonable estimate of fair value. Capitalized mortgage servicing rights. The fair value of capitalized mortgage servicing rights was based on the present value of estimated future cash flows related to servicing income. In estimating the fair value of these rights, the Company made assumptions which included the cost of servicing per loan, the discount rate, an inflation rate, ancillary income per loan, prepayment spreads and default rates. Allowance for loan losses. In estimating the fair value of the allowance for loan losses, the Company estimated the timing of cash flows and discounted these cash flows using a risk-free interest rate. Notes payable. Notes payable consists primarily of amounts payable for the Company's senior unsecured notes. The fair value of the senior unsecured notes is based upon the estimated current rate offered to the Company for debt of the same remaining maturity. The fair values presented herein are based on pertinent information available to management as of December 31, 1996. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein. 11. DISCONTINUED OPERATIONS United Companies Life Insurance Company. On February 2, 1996, the Company signed an agreement to sell all of the outstanding capital stock of its wholly-owned life insurance subsidiary, United Companies Life Insurance Company ("UCLIC"), subject to approval by the Company's shareholders, regulatory authorities and the satisfaction of certain other conditions. In June, 1996, the Company's shareholders approved the sale, and in July, 1996, regulatory approval was obtained and the remaining conditions to closing the transaction were satisfied. The sale was concluded on July 24, 1996 and resulted in a loss on the disposition of $6.8 million which was recorded in the Company's financial statements for the three months and six months ended June 30, 1996. The sales price of $167.6 million was comprised of 45 46 approximately $110 million in cash (including a $10 million dividend paid by UCLIC immediately prior to the closing) and UCLIC real estate and other assets which were distributed to the Company prior to the closing. The real estate distributed includes portions of the United Plaza office park, including the Company's home office. In addition, the Company purchased a convertible promissory note from PennCorp Financial Group, Inc. ("PennCorp"), the parent of the purchaser, for $15 million in cash and converted the note into 483,839 shares of the common stock of PennCorp. As a result of the sale, the assets (including $67 million of assets transferred to the Company by UCLIC immediately prior to closing) and the operations of UCLIC have been classified as discontinued operations. In connection with the sale of UCLIC, the Company entered into an agreement with UCLIC which will provide a facility for the purchase of up to $300 million in first mortgage home equity loans. The agreement provides that the Company shall have the right for a limited time to repurchase certain loans which are eligible for securitization. The agreement also has a sublimit of up to $150 million for loans that are not eligible for securitization. Subsequent to the closing, the Company received notification from the purchaser alleging that it is entitled to a $2.2 million reduction in the sales price. The Company denies that the purchaser is entitled to any reduction. In addition, at December 31, 1996, the Company had not received payment of a $2.5 million intercompany receivable due from UCLIC at the date of sale. During 1995 and 1994 revenues of UCLIC were $144.5 million and $138.1 million, respectively, and net income of UCLIC was $8.0 million and $5.9 million, respectively. United General Title Insurance Company. On April 10, 1995, the Company made a decision to dispose of its investment in United General Title Insurance Company ("UGTIC"), a wholly owned subsidiary of the Company, and, on May 1, 1995, approved a formal plan of disposal. The decision to dispose of UGTIC was independent of the consummation of the sale thereof pursuant to the definitive stock sale agreement signed on August 11, 1995. As a result, the operations of UGTIC have been classified as discontinued operations, and, accordingly, the consolidated financial statements and the related notes of the Company segregate continuing and discontinued operations. The sale was concluded on February 29, 1996 at a sales price of approximately $5.1 million. The definitive stock sale agreement provided for the sale of 100% of the stock of UGTIC and contains a provision making the Company liable to UGTIC for claims from defalcations and fraud losses incurred by UGTIC which are unknown and occur prior to closing and are discovered within 24 months thereafter. The Company is also liable, up to $4.2 million, for policy claims paid over a ten year period after closing that exceed certain specified levels. The Company recorded a loss from discontinued operations (net of income tax benefit) of $3.5 million in 1995 and $1.1 million in 1996 in connection with the sale of UGTIC. Revenues for UGTIC for the years ended December 31, 1995 and 1994 were $37.8 million and $45.5 million, respectively. Foster Mortgage Corporation. On May 7, 1993, the Company decided to divest its subsidiary Foster Mortgage Corporation ("FMC"). As of November 30, 1993, the servicing rights owned by FMC, which constituted substantially all of its assets, were sold. On December 21, 1993, the institutional lenders under FMC's primary credit facility (the "FMC Institutional Lenders") filed a petition in the U.S. bankruptcy court to cause the remaining affairs of FMC to be concluded under the supervision of the bankruptcy court. The FMC Institutional Lenders filed and the bankruptcy court approved a plan of liquidation for FMC providing for the appointment of a trustee selected by the FMC Institutional Lenders. The FMC Institutional Lenders allege that FMC has certain claims against the Company, including a claim with respect to the Company's alleged failure to remit all sums due FMC regarding federal income taxes under a tax agreement among the Company and its subsidiaries, including FMC, estimated by the FMC Institutional Lenders to range from $2.1 million to $29 million. FMC and the Company executed, subject to the approval of the bankruptcy court, a settlement agreement relating to payments between FMC and the Company in connection with the federal income tax benefits resulting from FMC's losses and to certain prior intercompany payments between FMC and the Company. The settlement agreement included a release by FMC in favor of the Company of any and all claims relating to federal income taxes. The FMC Institutional Lenders opposed the proposed settlement agreement. At the conclusion of a hearing on the 46 47 proposed settlement on August 18, 1994, the bankruptcy court approved the portion of the settlement providing for a net payment by the Company of $1.65 million to FMC in satisfaction of the federal income tax benefits resulting from FMC's losses and the release of any claims regarding federal income taxes. The bankruptcy court declined to approve the other portion of the proposed settlement relating to payments received by the Company from FMC within twelve months of the bankruptcy filing. If the Company were required to refund such payments, the Company has estimated the potential additional loss to be $1.9 million, net of tax benefits. The decision of the bankruptcy court on the settlement was appealed by the FMC Institutional Lenders to the U.S. District Court which affirmed the bankruptcy court's decision. The FMC Institutional Lenders then appealed this decision to the U.S. Fifth Circuit Court of Appeals. In a decision rendered on November 9, 1995, the U.S. Fifth Circuit Court of Appeals reversed the district court, vacated the settlement between FMC and the Company and remanded the matter back to the bankruptcy court for further proceedings. The trustee under the plan of liquidation has filed an adversary proceeding in the bankruptcy proceedings against the Company seeking avoidance of alleged preferential payments totaling $3.72 million and has also instituted a suit in federal court against the Company alleging claims under the tax agreement estimated to range from $2 million to $29 million. On November 22, 1996, the district court referred the case to the bankruptcy court for adjudication. The bankruptcy court has not yet scheduled the case for trial. Management of the Company does not believe that any additional amounts are owed by the Company to FMC or the trustee and is vigorously contesting the claims which have been brought against it for such amounts by the trustee under the plan of liquidation. The Company did not guarantee any debt of FMC. 12. CONTINGENCIES As discussed in Note 11 above, the Company, in February, 1996, concluded the sale of its investment in UGTIC. In connection therewith, the stock sale agreement includes a provision making the Company liable to UGTIC for claims from defalcations and fraud losses incurred by UGTIC which are unknown and occur prior to closing and are discovered within 24 months thereafter. The Company is also liable, up to $4.2 million, for policy claims paid over a ten year period after closing that exceed certain specified levels. As also discussed in Note 11 above, the U.S. Fifth Circuit Court of Appeals reversed the lower court decision approving the settlement agreement between FMC and the Company, vacated the settlement between FMC and the Company and remanded the matter for further proceedings. The trustee under the plan of liquidation has filed an adversary proceeding in the bankruptcy proceedings against the Company seeking avoidance of alleged preferential payments totaling $3.72 million and has also instituted a suit in federal court against the Company alleging claims under the tax agreement estimated to range from $2 million to $29 million. Management of the Company does not believe that any additional amounts are owed by the Company to FMC or the trustee and is vigorously contesting the claims which have been brought against it for such amounts by the trustee under the plan of liquidation. The Company did not guarantee any debt of FMC. As also discussed in Note 11 above, subsequent to the closing of the sale of all of the outstanding capital stock of UCLIC, the Company received notification from the purchaser alleging that it is entitled to a $2.2 million reduction in the sales price. The Company denies that the purchaser is entitled to any reduction. In addition, at December 31, 1996, the Company had not received payment of a $2.5 million intercompany receivable due from UCLIC at the date of sale. The Company is the subject of various litigation arising during the ordinary course of business. While the outcome of such litigation cannot be predicted with certainty, management does not expect the resolution of these matters to have a material adverse effect on the financial condition or results of operations of the Company. 47 48 13. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data is as follows:
THREE MONTHS ENDED ----------------------------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 ------------- ---------- ----------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 Total revenues . . . . . . . . . . . . . . . . . $ 73,290 $ 86,832 $ 98,824 $ 97,928 Income from continuing operations before income taxes . . . . . . . . . . . . . . . . . 26,892 33,056 37,997 35,912 Net income . . . . . . . . . . . . . . . . . . . 17,839 15,685 24,128 24,008 Per share data -- net income: Primary: Income from continuing operations . . . . . $ .54 $ .65 $ .75 $ .75 Income (loss) from discontinued operations . . . . . . . . . . . . . . . . .02 (.16) - - ------------- ---------- ----------- ------------- Total . . . . . . . . . . . . . . . . . . $ .56 $ .49 $ .75 $ .75 ============= ========== =========== ============= Fully Diluted: Income from continuing operations . . . . . $ .53 $ .64 $ .74 $ .74 Income (loss) from discontinued operations . . . . . . . . . . . . . . . . .02 (.16) - - ------------- ---------- ----------- ------------- Total . . . . . . . . . . . . . . . . . . $ .55 $ .48 $ .74 $ .74 ============= ========== =========== =============
THREE MONTHS ENDED ----------------------------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 ------------- ---------- ----------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 Total revenues . . . . . . . . . . . . . . $ 53,600 $ 64,601 $ 71,274 $ 70,814 Income from continuing operations before income taxes . . . . . . . . . . . . . . 16,380 25,814 31,399 29,072 Net income . . . . . . . . . . . . . . . . 12,696 16,426 21,248 19,098 Per share data -- net income: Primary: Income from continuing operations . . $ .37 $ .56 $ .62 $ .58 Income from discontinued operations . .08 .01 .05 .02 ------------- ---------- ----------- ------------- Total . . . . . . . . . . . . . . . $ .45 $ .57 $ .67 $ .60 ============= ========== =========== ============= Fully Diluted: Income from continuing operations . . $ .37 $ .55 $ .60 $ .57 Income from discontinued operations . .08 .01 .05 .02 ------------- ---------- ----------- ------------- Total . . . . . . . . . . . . . . . $ .45 $ .56 $ .65 $ .59 ============= ========== =========== =============
48 49 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 49 50 PART III The information called for by Part III (items 10, 11, 12 and 13) has been omitted since the Company will file with the Commission a definitive proxy statement pursuant to Regulation 14A or a definitive information statement pursuant to Regulation 14C, which involves the election of directors, within 120 days after the close of the year. 50 51 UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Financial Statements Included in Part II of this report: Independent Auditors' Report . . . . . . . . . . . Page 28 December 31, 1996 and 1995 Consolidated Balance Sheets . . . . . . . . . . . Page 29 For the three years ended December 31, 1996 Consolidated Statements of Income . . . . . . . . Page 30 Consolidated Statements of Cash Flows . . . . . . Page 31 Consolidated Statements of Stockholders' Equity . Page 32 Notes to Consolidated Financial Statements . . . . Pages 33-48
Financial Statement Schedules Included in Part IV of this report: Individual financial statements of the registrant have been omitted because consolidated financial statements of the registrant and its subsidiaries required by Item 8 have been included in Part II of this report and, as of December 31, 1996, the registrant was primarily an operating company and all subsidiaries are wholly owned. No financial statement schedules have been presented because they are not applicable or are not required or the information required to be set forth therein is included in the consolidated financial statements or notes thereto. Exhibits
EXHIBIT NO. DESCRIPTION OF DOCUMENT - ----------- ----------------------- 2(1) -- Amended and Restated Stock Purchase Agreement dated as of July 24, 1996 by and between the Company and Pacific Life and Accident Insurance Company 3.1(2) -- Restatement of Articles of Incorporation 3.2(3) -- By-Laws, as amended 4.1(4) -- Senior Indenture 4.2(4) -- Subordinated Indenture 4.3(4) -- First Supplemental Indenture with respect to 9.35% Senior Notes due November 1, 1999 4.4(4) -- Form of certificate for shares of Preferred Redeemable Increased Dividend Equity Securities 6 3/4% PRIDES(SM), Convertible Preferred Stock, par value $2.00 per share 4.5(5) -- Second Supplemental Indenture for 7% Senior Notes due July 15, 1998 4.6(6) -- Series A Junior Participating Preferred Stock Purchase Rights 4.7(18) -- Third Supplemental Indenture for 7.7% Senior Notes due January 15, 2004 10.1(19) -- Employee Stock Ownership Plan and Trust 10.2(7) -- Management Incentive Plan, as amended 10.3(19) -- Employees' Savings Plan
51 52 10.4(16) -- 1989 Stock Incentive Plan 10.5(16) -- 1989 Non-Employee Director Stock Option Plan 10.6(12) -- 1992 Form 11-K, Employees' Savings Plan and Trust 10.7(8) -- Stock Purchase Warrant dated as of July 1, 1993 10.8(13) -- 1993 Form 11-K, Employees' Savings Plan and Trust 10.9(17) -- 1993 Stock Incentive Plan 10.10(17) -- 1993 Non-Employee Director Stock Option Plan 10.11(14) -- 1994 Form 11-K, Employees' Savings Plan and Trust 10.12(9) -- 1995 Form 11-K, Employee Savings Plan 10.13(3) -- Indemnification agreements 10.14(10) -- Change of Control Agreement 10.15(10) -- Supplemental Retirement Agreement 10.16(10) -- Split Dollar Agreement 10.17(15) -- 1996 Form 11-K, Employee Savings Plan 11.1(19) -- Statement regarding computation of per share earnings 21.1(19) -- List of Subsidiaries of the Company 23.1(19) -- Consent of Deloitte & Touche LLP 27(19) -- Financial Data Schedule - ----------
(1) Incorporated herein by reference to the designated Exhibit on the Company's Current Report on Form 8-K filed on August 8, 1996. (2) Incorporated herein by reference to the designated Exhibit of the Company's Current Report on Form 8-K dated November 27, 1996. (3) Incorporated herein by reference to the designated Exhibit of the Company's Quarterly Report on Form 10-Q dated March 31, 1995. (4) Incorporated by reference to the designated Exhibits of the Company's Current Report on Form 8-K filed on June 16, 1995. (5) Incorporated herein by reference to the designated Exhibit to the Company's Current Report on Form 8-K filed July 26, 1995. (6) Incorporated by reference to the designated Exhibit of the Company's Form 8-A dated August 5, 1994. (7) Incorporated by reference from the designated Exhibit of the Company's Registration Statement on Form S-8 (SEC File No. 33-63069). (8) Incorporated herein by reference to the designated Exhibit of the Company's Registration Statement on Form S-3 (SEC File No. 33-52739). (9) Incorporated herein by reference to the Form 11-K filed June 28, 1996. (10) Incorporated herein by reference to the designated Exhibit on the Company's Annual Report on Form 10-K for the year ended December 31, 1995 filed March 19, 1996. (11) Incorporated by reference to the designated Exhibits of the Company's Current Report on Form 8-K filed December 19, 1996. (12) Incorporated by reference to the Company's Annual Report on Form 10-K, as amended, filed on April 30, 1993. (13) Incorporated by reference to the Company's Annual Report on Form 10-K, as amended, filed on June 29, 1994. (14) Incorporated by reference to the Form 11-K filed July 13, 1995. (15) To be filed on Form 11-K within 180 days after plan's fiscal year. (16) Incorporated herein by reference to the designated Exhibit of the Company's Registration Statement on Form S-8 (SEC File No. 33-29994). (17) Incorporated herein by reference to the designated Exhibit of the Company's Registration Statement on Form S-8 (SEC File No. 33-54955). (18) Incorporated herein by reference to the designated Exhibit of the Company's Current Report on Form 8-K dated December 5, 1996. 52 53 (19) Filed herewith: Exhibit 10.1 Exhibit 10.3 Exhibit 11.1 Exhibit 21.1 Exhibit 23.1 Exhibit 27 REPORTS ON FORM 8-K a. On November 27, 1996, the Company filed a Current Report on Form 8-K and included therein, under Item 7, Exhibit 3.1 Restatement of the Articles of Incorporation of United Companies Financial Corporation. b. On December 2, 1996, the Company filed a Current Report on Form 8-K to announce that it had terminated negotiations for the proposed acquisition of Empire Funding. c. On December 5, 1996, the Company filed a Current Report on Form 8-K and included therein, under Item 7, the following exhibits: 1.3 -- Terms Agreement dated December 12, 1996 for 7.70% Senior Notes due January 15, 2004. 4.13 -- Third Supplemental Indenture dated as of December 17, 1996 for 7.70% Senior Notes due January 15, 2004. 4.14 -- 7.70% Senior Note due January 14, 2004. 53 54 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 24, 1997 UNITED COMPANIES FINANCIAL CORPORATION By: /s/ SHERRY E. ANDERSON ------------------------------------------- Sherry E. Anderson Senior Vice President and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934 this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 24, 1997. /s/ J. TERRELL BROWN Chairman of the Board, - ------------------------------------- Chief Executive Officer J. Terrell Brown (Principal Executive Officer) /s/ JOHN D. DIENES President, Chief Operating Officer - ------------------------------------- and Director (Principal John D. Dienes Operating Officer) /s/ DALE E. REDMAN Executive Vice President, Chief - ------------------------------------- Financial Officer, and Director Dale E. Redman (Principal Financial Officer) /s/ JESSE O. GRIFFIN Senior Vice President and - ------------------------------------- Controller (Principal Jesse O. Griffin Accounting Officer) /s/ JAMES J. BAILEY, III Director - ------------------------------------- James J. Bailey, III
54 55 SIGNATURES /s/ ROBERT H. BARROW Director - ------------------------------------------------- Robert H. Barrow /s/ JOHN W. BARTON, SR. Director - ------------------------------------------------- John W. Barton, Sr. /s/ RICHARD A. CAMPBELL Director - ------------------------------------------------- Richard A. Campbell /s/ HARRIS J. CHUSTZ, JR. Director - ------------------------------------------------- Harris J. Chustz, Jr. /s/ ROY G. KADAIR, M.D. Director - ------------------------------------------------- Roy G. Kadair, M.D. /s/ O. MILES POLLARD, JR. Director - ------------------------------------------------- O. Miles Pollard, Jr. /s/ WILLIAM H. WRIGHT, JR. Director - ------------------------------------------------- William H. Wright, Jr.
55 56 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT - ----------- ----------------------- 2(1) -- Amended and Restated Stock Purchase Agreement dated as of July 24, 1996 by and between the Company and Pacific Life and Accident Insurance Company 3.1(2) -- Restatement of Articles of Incorporation 3.2(3) -- By-Laws, as amended 4.1(4) -- Senior Indenture 4.2(4) -- Subordinated Indenture 4.3(4) -- First Supplemental Indenture with respect to 9.35% Senior Notes due November 1, 1999 4.4(4) -- Form of certificate for shares of Preferred Redeemable Increased Dividend Equity Securities 6 3/4% PRIDES(SM), Convertible Preferred Stock, par value $2.00 per share 4.5(5) -- Second Supplemental Indenture for 7% Senior Notes due July 15, 1998 4.6(6) -- Series A Junior Participating Preferred Stock Purchase Rights 4.7(18) -- Third Supplemental Indenture for 7.7% Senior Notes due January 15, 2004 10.1(19) -- Employee Stock Ownership Plan and Trust 10.2(7) -- Management Incentive Plan, as amended 10.3(19) -- Employees' Savings Plan 10.4(16) -- 1989 Stock Incentive Plan 10.5(16) -- 1989 Non-Employee Director Stock Option Plan 10.6(12) -- 1992 Form 11-K, Employees' Savings Plan and Trust 10.7(8) -- Stock Purchase Warrant dated as of July 1, 1993 10.8(13) -- 1993 Form 11-K, Employees' Savings Plan 10.9(17) -- 1993 Stock Incentive Plan 10.10(17) -- 1993 Non-Employee Director Stock Option Plan 10.11(14) -- 1994 Form 11-K, Employees' Savings Plan and Trust 10.12(9) -- 1995 Form 11-K, Employee Savings Plan 10.13(3) -- Indemnification agreements 10.14(10) -- Change of Control Agreement 10.15(10) -- Supplemental Retirement Agreement 10.16(10) -- Split Dollar Agreement 10.17(15) -- 1996 Form 11-K, Employee Savings Plan 11.1(19) -- Statement regarding computation of per share earnings 21.1(19) -- List of Subsidiaries of the Company 23.1(19) -- Consent of Deloitte & Touche LLP 27(19) -- Financial Data Schedule - ----------
(1) Incorporated herein by reference to the designated Exhibit on the Company's Current Report on Form 8-K filed on August 8, 1996. (2) Incorporated herein by reference to the designated Exhibit of the Company's Current Report on Form 8-K dated November 27, 1996. (3) Incorporated herein by reference to the designated Exhibit of the Company's Quarterly Report on Form 10-Q dated March 31, 1995. (4) Incorporated by reference to the designated Exhibits of the Company's Current Report on Form 8-K filed on June 16, 1995. (5) Incorporated herein by reference to the designated Exhibit to the Company's Current Report on Form 8-K filed July 26, 1995. (6) Incorporated by reference to the designated Exhibit of the Company's Form 8-A dated August 5, 1994. (7) Incorporated by reference from the designated Exhibit of the Company's Registration Statement on Form S-8 (SEC File No. 33-63069). (8) Incorporated herein by reference to the designated Exhibit of the Company's Registration Statement 56 57 on Form S-3 (SEC File No. 33-52739). (9) Incorporated herein by reference to the Form 11-K filed June 28, 1996. (10) Incorporated herein by reference to the designated Exhibit on the Company's Annual Report on Form 10-K for the year ended December 31, 1995 filed March 19, 1996. (11) Incorporated by reference to the designated Exhibits of the Company's Current Report on Form 8-K filed December 19, 1996. (12) Incorporated by reference to the Company's Annual Report on Form 10-K, as amended, filed on April 30, 1993. (13) Incorporated by reference to the Company's Annual Report on Form 10-K, as amended, filed on June 29, 1994. (14) Incorporated by reference to the Form 11-K filed July 13, 1995. (15) To be filed on Form 11-K within 180 days after plan's fiscal year. (16) Incorporated herein by reference to the designated Exhibit of the Company's Registration Statement on Form S-8 (SEC File No. 33-29994). (17) Incorporated herein by reference to the designated Exhibit of the Company's Registration Statement on Form S-8 (SEC File No. 33-54955). (18) Incorporated herein by reference to the designated Exhibit of the Company's Current Report on Form 8-K dated December 5, 1996. (19) Filed herewith: Exhibit 10.1 Exhibit 10.3 Exhibit 11.1 Exhibit 21.1 Exhibit 23.1 Exhibit 27 57 EX-10.1 2 EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST 1 EXHIBIT 10.1 UNITED COMPANIES FINANCIAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST 2 TABLE OF CONTENTS
PAGE ARTICLE I INTRODUCTION . . . . . . . . . . . . 1 ARTICLE II DEFINITIONS . . . . . . . . . . . . 3 ARTICLE III ELIGIBILITY AND PARTICIPANTS . . . . 33 ARTICLE IV CONTRIBUTIONS TO THE TRUST . . . . . 35 ARTICLE V ALLOCATION OF EMPLOYER CONTRIBUTIONS . . . . . . . . . . . 38 ARTICLE VI INVESTMENT OF TRUST ASSETS: ALLOCATIONS TO PARTICIPANT'S ACCOUNT . . . . . . . . . . . . . . 40 ARTICLE VII DISTRIBUTION OF BENEFITS . . . . . . 43 ARTICLE VIII LIMITATIONS ON ALLOCATIONS . . . . . 56 ARTICLE IX PLAN ADMINISTRATOR . . . . . . . . . 60 ARTICLE X RESTRICTIONS ON DISPOSITION . . . . 65 ARTICLE XI NO REVERSION TO EMPLOYER . . . . . . 66 ARTICLE XII TRUSTEE POWERS, RIGHTS AND DUTIES . 67 ARTICLE XIII AMENDMENT, TERMINATION, OR DISCONTINUANCE . . . . . . . . . 75 ARTICLE XIV CLAIMS FOR BENEFITS: DENIALS AND APPEALS . . . . . . . . . . . . . . . 77 ARTICLE XV FUNDING . . . . . . . . . . . . . . . 78 ARTICLE XVI TOP-HEAVY PLAN LIMITS . . . . . . . . 79 ARTICLE XVII LOAN PROVISIONS . . . . . . . . . . . 80 ARTICLE XVIII RIGHTS AND OPTIONS ON DISTRIBUTED SHARES OF COMPANY STOCK . . . . . . . 87 ARTICLE XIX VALUATION OF EMPLOYER SECURITIES: TRANSACTIONS INVOLVING EMPLOYER SECURITIES . . . . . . . . . 88 ARTICLE XX MISCELLANEOUS . . . . . . . . . . . . 91
3 UNITED COMPANIES FINANCIAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BE IT KNOWN, that on the 1st day of September , 1994, and at the places hereinafter written, and in the presence of the witnesses hereinafter named and undersigned, personally came and appeared: UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under the laws of the State of Louisiana with its principal place of business located at 4041 Essen Lane, Baton Rouge, LA 70809, represented herein by Dale E. Redman , its Executive Vice President, duly authorized to act by virtue of a corporate resolution attached hereto and made a part hereof (hereinafter referred to as "Company" or "Employer"); AND HIBERNIA NATIONAL BANK, a national banking association organized under the laws of the United States of America, with its principal place of business in Baton Rouge, Louisiana, represented by its undersigned Trust Officer, duly authorized to represent the Bank (hereinafter referred to as "Trustee"). WITNESSETH: WHEREAS, the Employer wishes to reward the performance of its employees and to aid them in providing for themselves and their families; and WHEREAS, the Plan herein has been formulated by the Board of Directors of the Company and said Board has resolved that in its opinion the continuation and restatement of the Plan and Trust is advisable; and 1 4 WHEREAS, for the purpose of carrying out the Plan, the Board of Directors has authorized its officers to enter into an agreement of Trust with the above named Trustee(s); NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, it is mutually covenanted and agreed as follows: ARTICLE I INTRODUCTION A Profit Sharing Plan was originally adopted by the Company, effective January 1, 1960, as evidenced by an agreement entered into on December 31, 1960. The Profit Sharing Plan, as evidenced by the aforementioned trust agreement, including all amendments thereto, provided certain benefits, including retirement, death, disability and termination benefits, to employees who were eligible to participate thereunder, and such plan, as converted to a stock bonus plan on September 1, 1975, as amended and restated July 11, 1984, as amended and restated November 17, 1990, and as amended thereafter and as in effect on this date is hereinafter referred to as "Superseded Plan." Effective on the Effective Date of the amendment as herein defined, the above described Superseded Plan has been amended and restated as set forth in this agreement by and between United Companies Financial Corporation and Hibernia National Bank as Trustee, entitled UNITED COMPANIES FINANCIAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN (hereinafter referred to as the "Plan" or "Trust or "Plan and Trust"). The Superseded Plan is specifically designated as a leveraged employee stock ownership plan as that term is defined in Code section 4975(e)(7). The restatement of the Superseded Plan as the Plan and Trust is continuous and uninterrupted, and no gap either in time or effect exists between them or shall ever be construed to exist between them. The Plan is designed to invest primarily in Qualifying Employer Securities. The purpose of the Plan, as revised and restated, is to enable eligible Employees of the Employer to share in the profits of the Employer's business, to assist and encourage Employees to maintain a regular savings program, to provide an effective means for them to accumulate funds for their own retirement, to afford greater inducement for them to remain in the service of the Employer, and to enable them to share in the appreciation or depreciation and in the distribution of Qualifying Employer Securities accumulated in accordance with the Plan and Trust. Each Employee's interest hereunder and all assets acquired under the Plan as a result of Employer Contributions thereto and all income and other additions thereto shall be administered, 2 5 distributed, forfeited or otherwise governed by the provisions of this Plan. The Plan and Trust is designed to provide a technique of corporate finance for the Employer as well as intended to be for the exclusive benefit of Participants in the Plan and their Beneficiaries. Accordingly, it may be used to accomplish the following objectives: (1) To meet general financing requirements of the Employer, including capital growth and transfers in the ownership of Employer Stock. (2) To receive Loans (or other extensions of credit) to finance the acquisition of Qualifying Employer Securities with such Loans (or credit) secured by the Qualifying Employer Securities acquired with the proceeds of the Loan, by the guarantee of the Employer or an owner or Affiliate of the Employer, or by a commitment by the Employer to pay Employer Contributions to the Trust in amounts sufficient to enable principal and interest on such Loans to be paid. All covered Employees will be treated alike under the Plan and Trust; however, all benefits accrued to the benefit of Employees covered under the Superseded Plan as of the Effective Date of this restatement and amendment have been preserved for such Employees and such amounts will be credited to their accounts under the Plan or made available to them as distributions from the Plan as provided herein. ARTICLE II DEFINITIONS In this Plan, unless the context clearly implies otherwise, the singular includes the plural, and the masculine includes the feminine and the following words and phrases shall have the meanings set forth in this Article: 2.01 "ACCRUED BENEFIT" means the balance of each Participant's account. A Participant's right to his Accrued Benefit shall be nonforfeitable upon his death, his attaining Normal Retirement Age, or in the event he suffers a Disability. 2.02 "ADJUSTMENT FACTOR" shall mean the cost-of-living adjustment factor prescribed by the Secretary of the Treasury under section 415(d) of the Code for years beginning after December 31, 1987, as applied to such items and in such manner as the Secretary shall provide. 2.03 "AFFECTED EMPLOYEE" shall mean an Employee who is affected by a partial termination of the Plan. In the case of the partial termination resulting from the disposition of Foster Mortgage Corporation and/or its assets or business, the group of 3 6 Affected Employee consists of those Employees who satisfy the following conditions: (a) The Employee has commenced participation in the Plan on or before September 30, 1993; (b) The Employee is employed by Foster Mortgage Corporation on September 30, 1993 and does not at any time between September 30, 1993 and December 31, 1993 (prior to actual distribution of his benefit) complete an Hour of Service for the Company or for an Affiliated Employer other than Foster Mortgage Corporation; and (c) The Employee is in the Eligible Class of Employees at September 30, 1993. 2.04 "AFFILIATED EMPLOYER" shall mean the Employer and any corporation which is a member of a controlled group of corporations (as defined in section 414(b) of the Code) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in section 414(c) of the Code) with the Employer; any organization (whether or not incorporated) which is a member of an Affiliated Service Group which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to regulations under section 414(o) of the Code. 2.05 "AFFILIATED SERVICE GROUP" shall mean a group consisting of corporations or other entities with employees, one or more of which is a primary service organization and one or more of which is a service organization providing services to the primary service organization(s). The terms "primary service organization" and "service organization" shall be as defined in section 414(m) of the Code and the term "Affiliated Service Group" is intended to include all entities which are members of a group having the relationship described in section 414(m). 2.06 "AGE" of a person as determined with respect to any date shall mean the age on his most recent Birthday. 2.07 "AGGREGATION GROUP" shall mean the group of qualified Plans maintained by the Employer (including all commonly controlled employers and all members of an Affiliated Service Group with the Employer) which are aggregated with the Plan for purposes of determining whether the Plan (and all aggregated plans) is a Top-Heavy Plan. The required Aggregation Group means all such plans in which a Key Employee participates, and all other plans of the Employer which enable any plan of the Employer in which a Key Employee participates to meet the requirements of Code sections 401(a)(4) or 410. The permissive Aggregation Group means the required Aggregation Group, plus any other plan or plans of the Employer which, considered together as a group with 4 7 the required Aggregation Group would continue to satisfy Code sections 401(a)(4) and 410. Plans of the Employer which are in the permissive Aggregation Group shall be included if the Plan Administrator of the Plan or Plans, if required to be aggregated, and the Plan Administrator of the plan or plans, if any, not required to be aggregated but allowed to be aggregated concur in writing to such aggregation on or before the last day of the first Plan Year to which the Top-Heavy rules apply. If the Plans not required to be aggregated would not be Top-Heavy, and if the group, including such plans, would be Top-Heavy for a Plan Year, then such plans shall not be included in the Aggregation Group for such Plan Year. 2.08 "ALLOCATION LIMITATION YEAR" or "LIMITATION YEAR" means the calendar year, unless another twelve (12) consecutive month period is adopted by the Company for all plans of the Employer and all affiliated Employers pursuant to a written resolution of the Board. 2.09 "ANNIVERSARY DATE" means January 1, 1989 and each succeeding anniversary thereof. 2.10 "ANNUAL ADDITION" shall mean the amount allocated to a Participant's account during the Limitation Year that constitutes: (i) Employer Contributions, (ii) Employee Contributions, (iii) Forfeitures, and (iv) Amounts described in sections 415(l)(1) and 419A(d)(2) of the Code. Amounts forfeited and reapplied to reduce Employer Contributions shall also be included as Annual Additions. The Excess Amount applied under section 8.01(d) to reduce Employer Contributions will be considered an Annual Addition for the Limitation Year of such reduction. In the event that no more than one-third of Employer Contributions which are deductible under Code section 404(a)(9) as repayments of principal or interest on a Loan incurred for the purpose of acquiring Qualifying Employer Securities are allocated to Participants who are Highly Compensated Employees, Annual Additions shall not include (a) Forfeitures of Employer Securities acquired with the proceeds of such a Loan; and (b) Employer Contributions which are deductible under Code section 404(a)(9)(B) as Contributions used to pay the interest due on such a Loan, and which are charged against the Participant's account. Such exclusions shall apply to Forfeitures of Employer Securities purchased with the proceeds of a Loan and payments of interest on such Loans for all employee stock ownership plans of 5 8 all employers which are aggregated for the purposes of determining the limitations on Contributions and benefits for any Participant under Article VIII and Code section 415. 2.11 "BENEFICIARY" shall mean the person or persons (including an individual, testamentary or intervivos trust, estate, partnership, corporation, or other person or combination thereof) entitled to receive his Accrued Benefit at his death by executing the form prescribed by the Plan Administrator. If no designation is made or if the designation made is invalid, then the Beneficiary shall be deemed to be the Participant's spouse, if the spouse survives him; or if none then his surviving children, if any, sharing equally; or if none, then his surviving heirs at law, if any, sharing equally or if none, then his estate; however, if a Court of competent jurisdiction directs the payment to any other person, such as pursuant to a Qualified Domestic Relations Order, then such person shall be deemed the Beneficiary hereunder. A designated or deemed Beneficiary may waive his rights as a Beneficiary by written notice to the Trustee prior to distribution, in which case the Beneficiary shall be determined as if such person were not designated or deemed a Beneficiary. 2.12 "BOARD" means the board of directors of the Company. 2.13 "BREAK IN SERVICE" or "ONE YEAR BREAK IN SERVICE" means a twelve (12) consecutive month period during which the Participant has not completed 500 Hours of Service, except that a Participant shall not incur a One-Year Break in Service while on an authorized leave of absence. The twelve (12) consecutive month period shall be the same as the period used to compute Years of Service as defined in this Article II. 2.14 "CODE" means the Internal Revenue Code of 1986, as amended and in effect at the time of execution of this Plan & Trust document. 2.15 "COMMON CONTROL" of a corporation, partnership or proprietorship or other entity with the Employer shall mean that such corporation is in the relationship to the Employer described in section 414(b) of the Code or that such other entity is in the relationship to the Employer described in section 414(c) of the Code. For purposes of applying the limitations of Article VIII, section 414(b) and section 414(c) of the Code shall be as modified by section 415(h) of the Code. 2.16 "COMMON-LAW EMPLOYEE" a person who is an employee of the employer or who was an employee of a Former Employer which maintained a retirement plan which is a predecessor Plan to this Plan, but who is not and was not a Self- Employed Individual with respect to such Employer or Former Employer. 6 9 2.17 "COMPANY" means UNITED COMPANIES FINANCIAL CORPORATION. 2.18 "COMPANY STOCK" shall mean that class of common stock of the Company which is publicly traded. 2.19 "COMPENSATION" for a Participant for a Plan Year means such a Participant's Earned Income, wages, salaries, and fees for professional services and other amounts received for personal services actually rendered in the course of employment with the Employer maintaining the Plan (including, but not limited to, commissions paid salesmen, Compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, reimbursements, and expense allowances) specifically including for purposes of Articles IV and V, but not for purposes of Articles VIII and XVI, any amounts which would be includible in a Participant's income but for the fact that he made an election under a flexible benefits program (as described in Code Section 125) maintained by the Employer or Elective Deferrals under the United Companies Financial Corporation Employees' Savings Plan. Compensation shall, however, exclude the following: (a) Employer contributions to a plan of deferred compensation to the extent such contributions are not included in gross income of the Employee for the taxable year in which contributed, or on behalf of an Employee to a simplified employee pension plan to the extent such contributions are deductible under section 219(b)(7), and any distributions from a plan of deferred compensation whether or not includible in the gross income of the employee when distributed; (b) Amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by an Employee becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (c) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (d) Other amounts which receive special tax benefits, or contributions made by an employer (whether or not under a salary reduction agreement) towards the purchase of a 403(b) annuity contract (whether or not the contributions are excludible from the gross income of the employee); (e) Reimbursements of other expense allowances, fringe benefits (cash or noncash), moving expenses, deferred compensation, and welfare benefits; and 7 10 (f) Any compensation earned while an Inactive Participant (such as when the Employee is not a member of the Eligible Class of Employees), except that a Participant who participates for less than the full Plan Year on account of the age and service requirements shall include his compensation for the entire Plan Year. For purposes of Articles VIII and XVI, Compensation earned while an Inactive Participant shall be included. For purposes of allocations under Article V of the Plan any Elective Deferrals under a Code section 401(k) plan maintained by the Employer or salary reduction amounts under a Code section 125 plan maintained by the Employer, shall not reduce Compensation even though they may not be includible in the income of the Employee, except that such Elective Deferrals and other salary reductions shall be excluded from Compensation for purposes of determining the limitation on Annual Additions in Article VIII and the percentage of Compensation needed to meet the minimum Employer Contribution under Article XVI for a Plan Year in which the Plan is a Top Heavy Plan. For Plan Years beginning after December 31, 1988 and on or before December 31, 1993, Compensation of any Employee shall be limited to $200,000, as adjusted by the Adjustment Factor. In addition to other applicable limitations set forth in the plan, and notwithstanding any other provision of the plan to the contrary, for plan years beginning on or after January 1, 1994, the annual compensation of each employee taken into account under the plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For plan years beginning on or after January 1, 1994, any reference in this plan to the limitation under section 401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit set forth in this provision. If the compensation for any prior determination period is taken into account in determining an employee's benefits accruing in the current plan year, the compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. 8 11 For this purpose, for determination periods beginning before the first day of the first plan year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. For purposes of applying the $200,000 limit or $150,000 limit (as adjusted) on Compensation, all participants who are Family Members of a Highly Compensated Employee who is a Five Percent Owner or who is one of the ten (10) highest paid Employees participating in the Plan will be considered as being one (1) Employee and the $200,000 limit or $150,000 limit (as adjusted) will be allocated among such individuals by reducing the salary of any Family Member who is limited by Code section 415 to the lowest amount which permits this limit to be reached, thereafter by reducing the salary of the highest paid Family Member(s) until the aggregate dollar limit is met or until the next highest Family Member's compensation is reached in which case such next highest Family Member's compensation shall also be reduced at the same rate. This process shall be repeated until the $200,000 limit or $150,000 limit (as adjusted by the Adjustment Factor) is reached. A Family Member for this purpose shall include only the spouse of the Highly Compensated Employee and any lineal descendants of the Highly Compensated Employee who have not attained Age 19 before the last day of the Plan Year. If a Plan determines Compensation on a period of time that contains fewer than 12 calendar months, then the annual Compensation limit is applied by taking an amount equal to the annual Compensation limit for the calendar year in which the Compensation period begins, and multiplying such amount by the fraction obtained by dividing the number of full calendar months in the period by 12. 2.20 "CONTRIBUTION" means the amount of cash paid or securities transferred by the Employer to the Trustee pursuant to Article IV for any Plan Year. The Employer Contribution for a Plan Year shall mean the amount paid on account of such Plan Year by the Employer pursuant to section 4.01 to the Trustee during the period provided in Article IV for which Contributions may be made for the Plan Year and designated by the Employer as made for such Plan Year. Rollover Contributions shall be as defined in this Article II. 2.21 "DEFINED BENEFIT DOLLAR LIMITATION" shall mean the limitation set forth in section 415(b)(1) of the Code, as adjusted by the Adjustment Factor for the year in question. 2.22 "DEFINED BENEFIT PLAN FRACTION" of a Participant for any Limitation Year shall mean a fraction, the numerator of which is the sum of the Participant's Projected Annual Benefit under all defined benefit pension plans maintained by the Employer and any Affiliated Employer as of the last day of the Limitation Year 9 12 associated with such Plan Year, and the denominator of which is the lesser of (a) The product of 1.25 and the Defined Benefit Dollar Limitation, as adjusted by the Adjustment Factor. (b) The product of 1.4 and the amount which is the Participant's highest average annual Compensation for three (3) consecutive years. 2.23 "DEFINED CONTRIBUTION DOLLAR LIMITATION" shall mean $30,000 or, if greater, one-fourth of the defined benefit dollar limitation set forth in section 415(b)(1) of the Code as in effect for the Limitation Year. 2.24 "DEFINED CONTRIBUTION PLAN FRACTION" of a Participant for any Limitation Year shall mean a fraction, the numerator of which is the sum of Annual Additions to the Participant's account as of the close of the Plan Year associated with such Limitation Year, and the denominator of which is the sum of the lesser of the following amounts determined for such Plan Year and for each prior Year of Service which the Participant completed with the Employer: (a) The product of 1.25 and the Defined Contribution Dollar Limitation, or (b) The product of 1.4 and twenty-five (25%) percent of the Participant's Compensation for the Limitation Year. The Annual Additions for any Limitation Year beginning before January 1, 1987 shall not be recomputed to treat all Employee Contributions as Annual Additions. 2.25 "DESIGNATED BENEFICIARY" shall mean the individual who is the Designated Beneficiary specified on the Beneficiary Designation Form provided by the Plan Administrator; if there is no Designated Beneficiary specified on such form, then the surviving spouse, if any, shall be deemed to be the Designated Beneficiary. If no Beneficiary is named and if there is no surviving spouse, then the Participant's oldest child, if any, shall be deemed to have been designated. If no individual but a Trust is the named Beneficiary and if no Designated Beneficiary is specified, then the individual who is the largest beneficiary (using equivalent present value at Internal Revenue Service rates) of such Trust shall be considered the Designated Beneficiary; if several individuals are equal, then the oldest. If more than one individual is named, then the individual who is to receive the greatest amount (using equivalent present value) shall be the Designated Beneficiary; if more than one individual receives the largest amount, then the oldest shall be considered the Designated Beneficiary. The Designated Beneficiary is the 10 13 Beneficiary over whose life or life expectancy the payment of benefits may be made under Article VII. 2.26 "DETERMINATION DATE" for a Plan Year means the date as of which the Plan is determined to be a Top-Heavy Plan or not for such Plan Year. The Determination Date is the last day of the Plan Year preceding the Plan Year for which the determination is made, or, in the case of the first Plan Year of any Plan, the last day of such Plan Year. 2.27 "DIRECT ROLLOVER" A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 2.28 "DISABILITY" shall mean the inability of the Participant by reason of any medically determinable bodily injury or disease, to meet the requirements of his position with his Employer and which, in the opinion of a physician chosen by the Plan Administrator, will be permanent and continuous during the remainder of the Participant's lifetime and which, in the opinion of such physician, was not contracted, suffered or incurred while the Participant was engaged in or did not result from his having engaged in a criminal enterprise. A Participant or former Participant with such a permanent Disability shall be considered "Disabled". A Participant or former Participant shall not be considered to have such a Disability (notwithstanding his satisfaction of the requirements of the preceding paragraph) if in the reasonable opinion of the Plan Administrator, the Disability is a result of: (a) Injury or disease sustained by the Participant or former Participant while willfully and illegally participating in fights, riots, civil insurrections or while committing a felony; (b) Injury or disease sustained by the Participant or former Participant which was diagnosed or discovered subsequent to the date his employment was terminated. A Participant may not be considered Disabled for purposes of this Plan until he has completed two (2) Years of Service with the Employer. 2.30 "DISTRIBUTEE" A Distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the Alternate Payee under a qualified domestic relations order, as defined in section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse. 11 14 2.31 "DOMESTIC RELATIONS ORDER" means a judgment, decree or order (including the approval of a property settlement agreement) that relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child or other dependent of a Participant and is made a pursuant to a state domestic relations law, including a community property law. 2.32 "EARLY RETIREMENT DATE" of a Participant shall mean the date on which the sum of the Years of Service a Participant has completed with the Employer and the Participant's Age equals 75. 2.33 "EARNED INCOME" of a Self-Employed Individual means the net earnings from self-employment in the trade or business with respect to which the Plan is established, for which personal services of the individual are a material income-producing factor. Net earnings will be determined without regard to items not included in gross income and the deductions allocable to such items. Net earnings are reduced by contributions by the Employer to a qualified plan to the extent deductible under section 404 of the Code. 2.34 "EFFECTIVE DATE" shall be January 1, 1960. The Effective Date of this amendment and restatement shall be January 1, 1989, except as otherwise provided herein. 2.35 "ELIGIBILITY COMPUTATION PERIOD" shall mean the 12-month period beginning with the date on which the Employee completes an Hour of Service with the Employer and the successive 12-month periods beginning with anniversaries of such date. 2.36 "ELIGIBLE CLASS OF EMPLOYEES" shall mean the group of Employees of the Employer which includes all Employees, except those Employees who are members of a collective bargaining unit operating under a collective bargaining agreement in which retirement benefits were the subject of good faith negotiations, Employees who are nonresident alien individuals earning no earned income from sources within the United States, Leased Employees, and Employees of a non-adopting Affiliated Employer. No Owner-Employee or Shareholder-Employee shall be in the Eligible Class of Employees in his capacity as an Owner-Employee or Shareholder-Employee. The Eligible Class of Employees shall, beginning October 1, 1993, not include any Employees of Foster Mortgage Corporation with regard to Compensation earned from Foster Mortgage Corporation. An Employee of the former Foster Mortgage Corporation which has been acquired by the Employer through an asset purchase at November 1, 1990 shall be entitled to credit his service with the predecessor acquired corporation, but shall not meet the eligibility requirements until up to and including the date of acquisition, November 1, 1990. Accordingly, an Employee who is 12 15 in this Eligible Class of Employees and who has met the service requirements solely as a result of his service with Foster Mortgage Corporation shall be entitled to participate on the Entry Date next following November 1, 1990, which is January 1, 1991. Furthermore, such Employees of Foster Mortgage Corporation shall cease to be members of this Eligible Class of Employees on October 1, 1993, the date of transfer of Foster Mortgage Corporation. 2.37 "ELIGIBLE RETIREMENT PLAN" shall mean an Individual Retirement Account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an Individual retirement Account or Individual Retirement Annuity. 2.38 "ELIGIBLE ROLLOVER DISTRIBUTION" An Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's Designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer Securities). 2.39 "EMPLOYEE" means any person who is employed by the Employer, as the term Employee is defined in section 3121(d) of the Code and specifically excluding a person operating as an independent contractor with respect to the Employer. Employee shall include owner-employees and Self-Employed Individuals, as well as Shareholders and Common Law Employees. Employee shall include a Leased Employee. A Leased Employee shall not be considered an Employee of the recipient if: (a) Such Employee is covered by a money purchase pension plan providing: (i) A nonintegrated Employer Contribution rate of at least ten (10%) of Compensation, as defined in section 415(c)(3) of the Code, but including amounts contributed pursuant to a salary reduction agreement which are excludible from the 13 16 Employee's gross income under section 125, section 402(a)(8), section 402(h) or section 403(b) of the Code, (ii) Immediate participation, and (iii) Full and immediate vesting; and (b) Leased Employees do not constitute more than 20% of the recipient's nonhighly compensated workforce. Notwithstanding any other provisions of this Plan, for purposes of determining the number or identity of Highly Compensated Employees or for purposes of the pension requirements of section 414(n)(3) of the Code, the Employees of the Employer shall include Leased Employees, excluding those Leased Employees described in the preceding paragraph. 2.40 "EMPLOYEE CONTRIBUTIONS" shall mean Contributions to the Plan made by an Employee during the Plan Year. No such Contributions are permitted, except for Rollover Contributions, subject to the limitations of Article XII and those set by the Plan Administrator and Trustee. However, the Plan shall not accept Rollover Contributions and direct asset transfers where such Contributions are made other than in cash or are attributable to Deductible Voluntary Employee Contributions, after-tax Employee Contributions, or amounts accumulated on behalf of an Owner-Employee. No asset transfers shall be accepted which would require the Plan & Trust to provide a Life Annuity or Joint & Survivor Annuity or which would restrict payment to those circumstances permitted for Elective Deferrals in Cash or Deferred arrangements or earnings thereon. 2.41 "EMPLOYER" means the Company and any corporation or corporations or other entities which have adopted this Plan and any other corporation or entity that was, may be, or may become a parent, a subsidiary, an affiliate or an associate of the Company; provided that the inclusion of a corporation or other entity within, or the removal of a corporation or other entity within from the meaning of the word "Employer" shall be effected only by action of its Board of Directors (or other governing body) and the Board of Directors of the Company. Employer shall also include any successor by merger or any business organization that acquires the business of a sponsoring Employer and adopts the Plan (with the concurrence of the Company). The business known as Foster Mortgage Corporation shall be considered an Employer under this Plan for the period from the acquisition of its assets by the Company, November 1, 1990, to the date its employees ceased to participate in this Plan, October 1, 1993; employees of the former Foster Mortgage Corporation shall be considered employees of an Employer during the period set forth above, but shall be given credit for service with Foster Mortgage Corporation prior to the acquisition date for limited enumerated 14 17 purposes under the Plan. Furthermore entities which are Affiliated Employers with the Employer may adopt the Plan by resolution of Board of Directors of the Company and by resolution of the governing body of each of the newly adopting entities. For purposes of determining discrimination in vesting, discrimination in eligibility, the limitations of Article VIII, the Present Value of the Accrued Benefit, and the definitions of the terms Top-Heavy Plan, Defined Benefit Plan Fraction, and Defined Contribution Plan Fraction, Employer shall mean all entities adopting the Plan and all other entities which are Affiliated Employers with an adopting Employer. By authorizing the adoption of this Plan the governing body of any Employer other than the Company delegates to the Company (and its Board, as appropriate) all of the functions which the Company (or its board) may perform pursuant to this Plan. 2.42 "ENTRY DATE" means the Effective Date and the first day of each Plan Year, January 1. 2.43 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended and in effect at the date of the execution of this document. 2.44 "EXCESS AMOUNT" means the excess of the Participant's Annual Additions for the Limitation Year over the Maximum Annual Addition, less loading and other administrative charges allocable to such excess. 2.45 "FAMILY MEMBER" shall mean an individual described in section 414(q)(6) of the Code and Regs. section 1.414(q)-1T, Question and Answer 11 and 12. Specifically, an individual who is a Family Member for purposes of the above provisions shall include, with respect to any Employee or former Employee, such Employee's or former Employee's spouse and lineal ascendants or descendants and the spouses of such lineal ascendants and descendants. In determining whether an individual is a Family Member with respect to an Employee or former Employee, legal adoptions shall be taken into account. If an individual is a Family Member with respect to an Employee or former Employee on any day during the Plan Year, such individual shall be considered a Family Member for the entire Plan Year. 2.46 "FISCAL YEAR" means the Employer's taxable year for Federal income tax purposes. 2.47 "FIVE PERCENT OWNER" of the Employer shall mean (a) If the Employer is a corporation, any person who owns (or is considered as owning within the meaning of section 318 of the Code) more than five (5%) percent of the outstanding 15 18 stock of the corporation or stock possessing more than five (5%)percent of the total combined voting power of all stock of the corporation, or (b) If the Employer is not a corporation, any person who owns more than five (5%) percent of the capital or profits interest in the Employer. For purposes of this section, subparagraph (C) of section 318(a)(2) of the Code shall be applied by substituting "5%" for "50%" therein, and the rules of subsections (b), (c) and (m) of section 414 of the Code shall not apply for purposes of determining ownership. 2.48 "FORFEITURE" shall mean that portion of a Participant's Accrued Benefit which is not vested (i.e., not nonforfeitable) and which is forfeited pursuant to the provisions of Article VII. 2.49 "HIGHLY COMPENSATED EMPLOYEE" shall mean an Employee who, during the Plan Year or the preceding Plan Year (a) Was at any time a Five Percent owner, (b) Received Compensation from the Employer in excess of $75,000, (c) Received Compensation from the Employer in excess of $50,000 and was in the Top-Paid group of Employees for such Plan Year, or (d) Was at any time an officer of the Employer and received Compensation from the Employer in an amount greater than 50% of the Defined Benefit Dollar Limitation for such year. Amounts in (b) and (c) shall be adjusted by the Adjustment Factor each year. Highly Compensated Employee includes any Family Member of a Highly Compensated Employee. Compensation from an Affiliated Employer shall be included. An Employee shall not be included in (b), (c) or (d) above unless he is a member of the group consisting of the 100 Employees paid the greatest Compensation for the Plan Year. For purposes of determining Highly Compensated Employees, the number of officers is limited to fifty (50) (or, if less, the greater of three (3) Employees or ten (10%) percent of Employees). And when no officer has Compensation in excess of fifty (50%) percent of the section 415(b)(1)(A) limit, the highest paid officer is treated as a Highly Compensated Employee. Affiliated Employers aggregated under section 414(b),(c),(m), or (o) shall be treated as the Employer. 16 19 A highly compensated active Employee includes any Employee who performs service for the Employer during the determination year and who, during the look-back year: (a) Received Compensation from the Employer in excess of $75,000 (as adjusted pursuant to section 415(d) of the Code); (b) Received Compensation from the Employer in excess of $50,000 (as adjusted pursuant to section 415(d) of the Code) and was a member of the Top-Paid Group for such year; or (c) Was an officer of the Employer and received Compensation during such year that is greater than fifty (50%) percent of the dollar limitation in effect under section 415(b)(1)(A) of the Code. The term Highly Compensated Employee also includes: (a) Employees who are both described in the preceding sentence if the term "determination year" is substituted for the term "look-back year" and the Employee is one of the 100 Employees who received the most Compensation from the Employer during the Determination Year; and (b) Employees who are Five Percent Owners at any time during the look-back year or Determination Year. If no officer has satisfied the Compensation requirement of (iii) above during either a Determination year or look-back year, the highest paid officer for such year shall be treated as a Highly Compensated Employee. For this purpose, the Determination Year shall be the Plan Year. The look-back year shall be the twelve-month period immediately preceding the Determination Year. A highly compensated former Employee includes any Employee who separated from service (or was deemed to have separated) prior to the Determination Year, performs no service for the Employer during the Determination Year, and was a highly compensated active Employee for either the separation year or any Determination Year ending on or after the Employee's 55th birthday. If an Employee is, during a Determination Year or look-back year, a Family Member of either a Five Percent Owner who is an active or former Employee or a Highly Compensated Employee who is one of the ten most Highly Compensated Employees ranked on the basis of Compensation paid by the Employer during such year, then the Family Member and the Five Percent Owner of top-ten Highly Compensated Employee shall be aggregated. In such case, the Family Member and Five Percent Owner or top-ten Highly 17 20 Compensated Employee shall be treated as a single Employee receiving Compensation and Plan Contributions or benefits equal to the sum of such Compensation and Contributions or benefits of the Family Member and Five Percent Owner or top- ten Highly Compensated Employee. For purposes of this section, Family Member includes the spouse, lineal ascendants and descendants of the Employee or former Employee and the spouse of such lineal ascendants and descendants. The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of Employees in the Top-Paid Group, the top 100 Employees, the number of Employees treated as officers and the Compensation that is considered, will be made in accordance with section 414(q) of the Code and the regulations thereunder. 2.50 "HOURS OF SERVICE" shall be determined on the basis of actual hours for which an Employee is paid or entitled to payment. Such hours include: (a) Each hour for which an Employee is directly or indirectly paid or entitled to payment by the Employer for the performance of duties during the Allocation Limitation Year or other applicable computation period, including hours actually worked on overtime; (b) Each hour an Employee is not working due to a dispute for which back pay has been either awarded or agreed to by the Employer, irrespective of mitigation of damages, but no credit shall be given for the same hours under two of the subsections (a) or (b) or (c) or (d) of this section, and the limitations of subsection (c) shall apply if the back pay is awarded for a period covered by subsection (c); and (c) Each hour for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability) lay-off, jury duty, military duty or leave of absence, except that: (i) No more than 501 Hours of Service are required to be credited under this subsection (c) to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); (ii) Hours of Service are not required to be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee. 18 21 (iii) An hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable workmen's compensation, or unemployment compensation or disability insurance laws; and (iv) An Employee shall not be credited on account of a period during which no duties are performed with a number of Hours of Service which is greater than the number of Hours of Service regularly scheduled for the performance of duties during such period. For purposes of this subsection (c), a payment shall be deemed to be made by or due from an Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the Trust, fund, insurer or other entity are for the benefit of particular employees or are on behalf of a group of employees in the aggregate. (d) In the case of a Participant who is absent from work for any period by reason of the pregnancy of the Participant, the birth of a child of or the adoption of a child by the Participant, or for purposes of caring for such a child for the period beginning immediately after such birth or adoption, the following Hours of Service shall be credited solely for purposes of determining whether a one (1) year Break in Service has occurred: (i) Hours of Service which otherwise would normally have been credited to such individual but for such absence; or (ii) If the Hours cannot be determined under (1), eight (8) Hours of Service shall be credited for each normal workday of absence. No more than five hundred one (501) Hours of Service may be credited on account of such pregnancy or adoption. Such Hours of Service shall be credited only in the Plan Year (for vesting purposes) or Eligibility Computation Period (for participation purposes) in which the absence from work begins, if the Participant would be prevented from incurring a one-year Break in Service in such Plan Year (for vesting purposes) or Eligibility Computation Period (for participation purposes) solely because the period of absence is treated as Hours of Service as provided in this paragraph. Otherwise, such Hours of Service shall be credited in the immediately following Plan Year (for vesting 19 22 purposes) or Eligibility Computation Period (for participation purposes). The Plan Administrator may require, as a condition of the crediting of any such service, that the Participant furnish the Plan Administrator with such timely information as the Plan Administrator may reasonably require (in accordance with Article IX) in order to ensure that such service should be credited. (e) Hours of Service shall be credited to the computation period in which the duties are performed. Hours of Service for the period of time during which no duties are performed shall be credited in accordance with section 2530.200b-2(b) and (c) of the Department of Labor regulations. (f) Hours of Service worked as an employee for an Affiliated Employer, whether or not such Affiliated Employer adopts this Plan, shall be counted as Hours of Service for eligibility and vesting purposes under this Plan, but only during the period of such Common Control or affiliated service, unless provided otherwise in Articles III and VII. Credit shall not be given by the Plan for Compensation earned during such period from any nonparticipating employer for which such service is credited. 2.51 "INACTIVE PARTICIPANT" shall mean any Employee or former Employee who has ceased to be eligible to receive an allocation of Employer Contributions or forfeitures and on whose behalf an account is maintained under the Plan. An Employee who has become a Participant and who ceases to be a member of the Eligible Class of Employees shall be an Inactive Participant during the period in which he is not a member of the Eligible Class of Employees (or with respect to services performed as an Employee who is not a member of the Eligible Class of Employees). 2.52 "KEY EMPLOYEE" for a Plan Year beginning in 1984 or later means an Employee or former employee or Beneficiary of such Employee or former Employee who, at any time during the Plan Year containing the Determination Date for the Plan Year or any one of the four (4) preceding Plan Years, is or was (a) An officer of the Employer (but no more than 50 Employees, or if less, the greater of three Employees or ten (10%) percent of the Employees) having an annual Compensation from the Employer for the Limitation year associated with the Plan Year greater than fifty (50%) percent of the Defined Benefit Dollar Limitation for any such Plan Year, or (b) An owner (including one who is considered an owner under Code section 318) of the Employer (i) Who is one (1) of the ten (10) Employees having an annual Compensation from the Employer for the Limitation Year associated with the Plan Year greater than the Defined Contribution Dollar Limitation for any such Plan Year and 20 23 owning (or considered as owning with the meaning of Code section 318) the largest interest in the Employer, or (ii) Who is a Five (5%) Percent Owner of the Employer, or (iii) Who owns one (1%) percent or more of the Employer and whose Compensation from the Employer exceeds $150,000. For purposes of clause (i) of subsection (b) above, if two (2) Employees have the same interest in the Employer, the Employee having greater annual Compensation for the Plan Year from the Employer shall be treated as having a larger interest, furthermore, an Employee must own (or be considered to own under Code section 318) at least one-half percent of the Employer. For purposes of determining ownership in the Employer under subsection (b) above, the aggregation rules of subsections (b), (c) and (m) of Code section 414 shall not apply. Beneficiaries of an Employee acquire the character of the Employee who performed service for the Employer. Also, inherited benefits will retain the character of the benefits of the Employee who performed service for the Employer. 2.53 "LEASED EMPLOYEE" shall mean a person who is not an employee of an employer (the "recipient") and who provides services to the recipient under the following conditions: (a) Such services are provided pursuant to an agreement between the recipient and any other person (otherwise referred to as a "leasing organization"), (b) Such person has performed such services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least one (1) year (six (6) months in the case of core health benefits), and (c) Such services are of a type historically performed, in the business field of the recipient, by employees. IRC section 414(n)(2). A leased employee is treated as an employee of the recipient for purposes of determining the recipient's compliance with employee benefit rules. IRC section 414(n)(3). Employers who are under common control or affiliated may be considered a single "recipient." A person who is reported as an "independent contractor" performing services for the employer may be a leased employee, even if his independent contractor status is accurate. 21 24 Certain other persons who are "leased managers" or "leased owners" may trigger other aggregation rules. Prop. Treas. Regs. section 1.414(o)-1(b), (c). Certain inside corporate directors may be aggregated with respect to their directors' fees. Prop. Treas. Regs. section 1.414(o)-1(g). 2.54 "LEAVE OF ABSENCE" shall mean a temporary period of absence from the employ of the Employer which is applied for by the Participant and authorized by the Employer. A Leave of Absence may not exceed one (1) year, and such Leave may be granted for reasons of maternity, illness, injury, reduction of work force, educational purposes, required military service during which the Employee's reemployment rights are protected by law, and any other reasonable purpose which the Employer determines under the limits of its Leave policy. A Leave of Absence may be paid or unpaid. 2.55 "LIFE ANNUITY" means an annuity payable for a period of time which is dependent or which may be dependent on the life of the Participant or the joint lives of the Participant and his spouse. 2.56 "LOAN" means any loan to the Trustee made or guaranteed by a disqualified person (within the meaning of section 4975(e)(2) of the Code), including but not limited to, a direct loan of cash, a money-purchase transaction, an assumption of an obligation of the Trustee, an unsecured guarantee of the use of assets of a disqualified person (within the meaning of section 4975(e)(2) of the Code) as collateral for a Loan. 2.57 "MAXIMUM ANNUAL ADDITION" with respect to any Participant for an Allocation Limitation Year shall be the lesser of (a) Defined Contribution Dollar Limitation, or (b) 25% of the Participant's Compensation for the Allocation Limitation Year; but in no event later than last day of the Plan Year beginning on or before July 12, 1989, the dollar limit of subsection (a) as adjusted may be increased under the following conditions: (c) The dollar amount shall not exceed the sum of (a) above and the lesser of (a) above or the amount of Qualifying Employer Securities contributed to the Plan, or purchased with cash contributed to the Plan, for the Allocation Limitation Year; and (d) No more than one-third of the Employer Contributions for the Allocation Limitation Year may be allocated to Participants who are Highly Compensated Employees. 22 25 If the application of the increase in the dollar limit under (c) above would result in an allocation in excess of that provided in (d) above, then such dollar limit shall be reduced for all Participants (but not below the dollar amount of (a) above) to the extent necessary to reach the limitation on the allocation provided under (d) above, for the Allocation Limitation Year. The Maximum Annual Addition may be further reduced in the manner set forth in Article VIII in the event that the Employer or an Affiliated Employer maintains or has maintained a defined benefit pension plan under which the Participant has received or could receive a benefit. 2.58 "NAMED FIDUCIARY" means any person who exercises any discretionary authority or discretionary control representing the management or disposition of Plan assets, who renders any investment advice for a fee or other compensation, or who exercises any discretionary authority or responsibility for Plan Administration. The Trustee, Employer, Plan Administrator, the Appeals Committee or Appeals Officer, if named by the Plan Administrator, and any other party to this Plan and Trust which meets this definition will be considered a Named Fiduciary. 2.59 "NET PROFITS" means taxable income for Federal income tax purposes computed without deductions for contributions to any qualified Employee profit sharing retirement plan. The Employer may estimate the amount of Net Profits by any reasonable method consistently applied in accordance with established accounting principles. 2.60 "NONALLOCATION PERIOD" means the period beginning on the date of the sale of the qualified securities to the Plan which sale is subject to the Code sections 1042 and 2057 and ending on the later of (i) the date which is 10 years after the date of the sale, or (ii) the date of the plan allocation attributable to the final payment of acquisition indebtedness incurred in connection with such sale. 2.61 "NONHIGHLY COMPENSATED EMPLOYEE" shall mean an Employee of the Employer who is neither a Highly Compensated Employee nor a member of the family, as defined in section 414(q)(6)(B) of the Code of a Highly Compensated Employee. 2.62 "NONKEY EMPLOYEE" shall mean an Employee (or Beneficiary of an Employee) who is not a Key Employee and shall include an Employee (or Beneficiary of an Employee) who was previously a Key Employee and who is no longer a Key Employee (i.e., a former Key Employee). 2.63 "NORMAL RETIREMENT DATE" or "NORMAL RETIREMENT AGE" of a Participant means that date when the Participant has 23 26 attained Age 65. In no event may the Normal Retirement Age exceed any mandatory retirement age enforced by the Employer. 2.64 "OWNER EMPLOYEE" means an Employee or former Employee who is or was the sole proprietor, if any Employer or former Employer is or was a sole-proprietorship, or a partner who owns or at one time owned more than 10% of either the capital interest or the profits interest in a partnership if any Employer or Former Employer is or was a partnership. 2.65 "PARTICIPANT" means an Employee in the Eligible Class of Employees, as defined in this Article II, who shall satisfy the requirements set forth in Article III, except that a Participant shall cease to participate in the Plan if he terminates employment with the Employer (and with any Affiliated Employer), and is paid or deemed to be paid his vested Accrued Benefit. 2.66 "PARTICIPATION COMMENCEMENT DATE" shall mean the first day of the first Plan Year in which the Participant commenced participation in the Plan. 2.67 "PLAN" means the stock bonus plan and trust restated and continued by this Act, which shall be known as the United Companies Financial Corporation Employee Stock Ownership Plan and Trust (hereinafter sometimes referred to as "Plan", "Trust", or "Plan and Trust"). 2.68 "PLAN ADMINISTRATOR" means the Named Fiduciary, as such term is defined above and in ERISA, who has the powers and duties as set forth in Article IX. The Plan Administrator shall be appointed by the Employer by Board resolution. In the event of the failure of such appointment, or if all such appointees decline to accept the appointment, or in the event of resignation of the Plan Administrator, the Company shall serve as Plan Administrator. 2.69 "PLAN YEAR" means the twelve (12) month accounting period of the Plan and Trust, which shall end on December 31 of each year. The initial Plan Year shall commence with the Effective Date of the Plan. 2.70 "POST-1986 EMPLOYER SECURITIES" shall mean Qualifying Employer Securities acquired by the Plan and Trust after December 31, 1986. For this purpose, the purchase is considered to take place after December 31, 1986 if the sale is completed after December 31, 1986 and was not made pursuant to a fixed and binding obligation to acquire stock entered into prior to December 31, 1986 and allocable to a Plan Year ending on or before December 31, 1986. An Employer Contribution of Qualifying Employer 24 27 Securities shall be considered to give rise to Employer Securities acquired by the Plan after December 31, 1986 if made after December 31, 1986, for a Plan Year ending after such date. The portion of a Participant's account balance attributable to Employer Securities which were acquired by the Plan after December 31, 1986 shall be determined by separately accounting for such securities acquired under the normal accounting rules of Article VI. If Qualifying Employer securities are purchased after December 31, 1986 with assets of the Trust from the Other Investments Accounts of Participants, then such Qualifying Employer Securities shall be allocated to the Company Stock Accounts in the proportion of the Other Investment Accounts of said Participants (except for Participants whose accounts are segregated for whatever reason). Forfeitures of Qualifying Employer Securities shall retain their character as Post-1986 Employer Securities, or not, in the account of the Participants to whom allocated even though the allocation of the forfeiture may take place after December 31, 1986. If shares of Qualifying Employer Securities are distributed from an Employee's account, they shall be deemed to come from Post-1986 Employer Securities and other Employer Securities in the ratio of such accounts. 2.71 "PRESENT VALUE OF THE ACCRUED BENEFIT" of an Employee or former Employee or Beneficiary as of a Determination Date means, in the case of the Plan and any other plan or plans which are members of the Aggregation Group which are defined contribution plans, the account balance (or sum of the account balances), other than amounts attributable to Deductible Voluntary Employee Contributions and to Rollover Contributions made on or after December 31, 1983, and initiated by the Employee and made from a Plan not maintained by the Employer, held in such plan for the benefit of the Employee, former employee or Beneficiary on the Determination Date, plus any distributions made from the plan or plans to such Employee, former employee or Beneficiary during the Plan Year in which the Determination Date occurs or in the four (4) preceding Plan Years, including any contributions allocated to the account or accounts of the Employee, former employee or Beneficiary on or before the Determination Date, but not including any distributions which were rolled over or recontributed to another plan in the Aggregation Group. If one or more of the plans which are in the Aggregation Group is a defined benefit pension plan, the Present Value of the Accrued Benefit as of the Determination Date of an Employee or former employee who is or was a participant in such plan or plans means the present value of the Accrued Benefit of such Employee or former Employee as of the most recent Valuation Date of such plan occurring within the twelve (12) month period 25 28 ending on the Determination Date, computed as if the Employee who had not already terminated service had terminated employment with the Employer as of the Valuation Date, plus the amount of any distributions made to such employee or former employee during the five (5) year period ending on the Determination Date (except that if a distribution is made to an Employee or former employee after the Valuation Date but before the Determination Date, such distribution shall not be counted to the extent that it is reflected in the Accrued Benefit as of the Valuation Date). If the defined benefit pension plan is in its first Plan Year, then the Plan Administrator of such plan shall elect, in writing, with appropriate notice to the Plan Administrators of the other plan or plans in the Aggregation Group, whether the Accrued Benefit shall be determined (a) as if the individual had terminated service as of the Determination Date, or (b) as if the individual terminated service as of the Valuation Date, but taking into account the estimated Accrued Benefit as of the Determination Date. The assumptions used in determining the Present Value of the Accrued Benefit of any individual shall be the same mortality, interest and cost-of-living assumptions used in determining actuarial equivalence under the defined benefit pension plan, if any; however, the interest rate used may not exceed the applicable rate as used by the Pension Benefit Guaranty Corporation. In the event a Joint and Survivor Annuity is the normal form of benefit, the actual Age of the spouse shall be used. 2.72 "PROJECTED ANNUAL BENEFIT" shall mean a Participant's annual benefit (adjusted to the actuarial equivalent of a Straight Life Annuity if expressed in a form other than a Straight Life or Qualified Joint and Survivor Annuity) under any qualified defined benefit pension plan maintained by the Employer or an Affiliated Employer, assuming that no Participant Contributions or Rollover Contributions are taken into account in determining the benefit that the Participant will continue employment until the later of his current Age or his Normal retirement Age under such plan, and that the Participant's Compensation for the Limitation Year and all other relevant factors used to determine benefits under the Plan will remain constant for all future Limitation Years. 2.73 "PUT OPTION" shall mean the grant by the Employer to a distributee of Qualifying Employer Securities by the Plan & Trust of an option to sell such Qualifying Employer Securities to the Employer at the fair market value of such shares as of the most recent Valuation Date. A Put Option shall further mean the grant of such an option by the Plan & Trust prior to the exercise of such option given by the Employer. Any Put Option given under this Plan shall satisfy the terms of Article XVII with respect to Put Options whether or not the Plan engages in a Loan. The 26 29 Employer may adopt a policy of giving a Put Option even if not required under the terms of the Plan; such a policy may extend to giving an irrevocable Put Option. 2.74 "QUALIFIED DOMESTIC RELATIONS ORDER" is a Domestic Relations Order which creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefit payable to a Participant under the Plan; specifies the name and last known address of the Participant and each alternate payee, the amount or percentage of the Participant's benefits to be paid to any alternate payee, the number of payments to which the order applies, and the Plan to which the order relates; and does not alter the amount or form of Plan benefits. For this purpose, a Domestic Relations Order alters the form of benefit if it requires the Plan to provide any type or form of benefit or any option which is not otherwise provided for in the Plan, requires the Plan to provide increased benefits (i.e., benefits with a greater Actuarial Equivalent than would be required to be provided to the Participant alone), or requires the payment of benefits to a second alternate payee which are already required to be made to a first alternate payee. 2.75 "QUALIFIED ELECTION PERIOD" shall mean the six (6) Plan Year period beginning with the later of (i) the first Plan Year beginning after December 31, 1986; or (ii) the Plan Year in which the Participant first becomes a Qualified Participant. For purposes of the preceding sentence, an Employer may elect to treat an individual first becoming a Qualified Participant in the first Plan Year beginning in 1987 as having become a Participant in the first Plan Year beginning in 1988. In accordance with I. R. Notice 88-56, the initial Qualified Election Period may be extended to September 6, 1988. 2.76 "QUALIFIED PARTICIPANT" shall mean a Participant who has attained Age 55 and who has completed at least ten (10) Years of Participation in the Plan. Such a Participant shall be considered a Qualified Participant during the Qualified Election Period. His status as a Qualified Participant shall apply for the first Plan Year during which he completes the age and participation requirements and for the next five (5) following Plan Years, after which he shall cease to be a Qualified Participant; however, the first Plan Year in which a Participant becomes a Qualified Participant shall not commence earlier than the first Plan Year beginning after December 31, 1986. 2.77 "QUALIFYING EMPLOYER REAL PROPERTY" shall mean parcels of immovable property which are leased to the Employer or an affiliate of the Employer, dispersed geographically, and suitable for more than one use, and which otherwise comply with the requirements of Title I of ERISA (other than sections 406 and 407). 27 30 2.78 "QUALIFYING EMPLOYER SECURITY" means (a) With respect to shares acquired with the proceeds of a Loan, common stock issued by the Employer having a combination of voting power and dividend rights equal to or in excess of that class or classes of common stock of the Employer having the greatest voting power and dividend rights. Noncallable preferred stock shall be treated as a Qualifying Employer Security if such stock is convertible at any time into common stock meeting the definition of Qualifying Employer Security and if such conversion is at a price which (as of the date of the acquisition by the Employee Stock Ownership Plan) is reasonable; (b) With respect to shares acquired by other means than a Loan, any instrument issued by the Employer and meeting the requirements of section 4975(e)(8) of the Code. 2.79 "REGISTRATION TYPE QUALIFYING EMPLOYER SECURITY" is a class of securities which are Qualifying Employer Securities which securities are required to be registered under section 12 of the Securities Exchange Act of 1934 or which would be required to be so registered if it did not qualify for the exemption from registration provided in section 12(g)(2)(H) of said Act. 2.80 "REQUIRED BEGINNING DATE" with respect to a Participant or former Participant means April 1 of the calendar year following the calendar year in which the employee attains age 70 1/2. For taxable years of the Employee beginning before December 31, 1988, Required Beginning Date with respect to a Participant or former Participant who is not a Five Percent Owner and has not been a Five Percent Owner during the five (5)- Plan-Year period ending on the calendar year in which the Employee attains Age 70 1/2, means April 1 of the calendar year following the later of: (a) The calendar year in which the Employee attains Age 70 1/2, or (b) The calendar year in which the Employee retires. Notwithstanding the above, the Required Beginning Date of an employee who makes the election provided under section 242(b) of the Tax Equity & Fiscal Responsibility Act of 1982 ("TEFRA") to defer receipt of distribution shall be the date of deferral pursuant to such election. If such election is revoked, the Required Beginning Date shall be the last day of the year of the revocation, and the amount of the minimum distribution for such year shall be the sum of all amounts which would have been due for past and present years if the election had not been made. 28 31 2.81 "RIGHT OF FIRST REFUSAL" means a right given to the Plan and Trust, thereafter to the Employer, by the distributee to purchase any shares of Qualifying Employer Securities distributed by the Plan and Trust from the distributee prior to any transfer of such shares to a third party. A Right of First Refusal may be required only in the event that a Put Option is given. The terms of the Right of First Refusal must satisfy the requirements of Article XVII. 2.82 "ROLLOVER CONTRIBUTION" shall mean a contribution to the Plan by a Participant or a direct transfer of assets from another Plan in which a Participant formerly participated, which represents all or part of such Participant's interest in a qualified retirement plan in which he previously participated and which was paid out to him in a lump sum or as part of a lump sum distribution, or directed by him as a Rollover Contribution to this Plan, either directly or indirectly, as defined in sections 402(a)(5), 403(A)(4), 409(b)(3)(c) of the Code. A Participant may make a Rollover Contribution if so provided in Article XII and if he meets any reasonable condition set forth for making such contribution by the Plan Administrator. The Plan Administrator may allow Rollover Contributions of all lump sum distributions except that the Plan Administrator may allow a Rollover Contribution of other distributions without allowing the rollover of funds attributable to Deductible Voluntary Employee Contributions. 2.83 "SELF-EMPLOYED INDIVIDUAL" means an individual who had Earned Income for a prior taxable year from the business with respect to which this Plan or a predecessor plan is or was established; or who would have had Earned Income but for the fact that the business had no net profits for the taxable year. 2.84 "SHAREHOLDER EMPLOYEE" means an Employee or officer of an Employer which is an electing small business corporation who owns more than five (5%) percent of the outstanding stock of the Employer, as defined in section 1379(d) of the Code. 2.85 "SUPER TOP-HEAVY PLAN" for any Plan Year beginning after December 31, 1983 means a Plan in which any of the following conditions exists: (a) If the Top-Heavy Ratio for this Plan exceeds ninety (90%) percent and this Plan is not part of any required Aggregation Group or permissive Aggregation Group of Plans. (b) If this Plan is a part of a Required Aggregation Group of plans but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the Required Aggregation Group of plans exceeds ninety (90%) percent. 29 32 (c) If this Plan is a part of a Required Aggregation Group and part of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds ninety (90%) percent. 2.86 "TOP-HEAVY PLAN" for any Plan Year beginning after December 31, 1983, means a Plan in which any of the following conditions exists: (a) If the Top-Heavy Ratio for this Plan exceeds sixty (60%) percent and this Plan is not part of any required Aggregation Group or permissive Aggregation Group of Plans. (b) If this Plan is a part of a Required Aggregation Group of plans but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the Required Aggregation Group of plans exceeds sixty (60%) percent. (c) If this Plan is a part of a Required Aggregation Group and part of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds sixty (60%) percent. 2.87 "TOP-HEAVY RATIO" of a plan or group of plans for any Plan Year means the ratio determined as follows: (a) If the Employer or an Affiliated Employer maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and the Employer or an Affiliated Employer has never maintained any defined benefit plan which has covered or could cover a Participant in this Plan, the Top-Heavy Ratio is a fraction, the numerator of which is the sum of the account balances of all key employees as of the determination date (including any part of any account balance distributed in the five (5) year period ending on the determination date), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the five year period ending on the determination date) of all participants as of the determination date. Both the numerator and denominator of the top-heavy ratio are adjusted to reflect any contribution which is due but unpaid as of the determination date. Accrued Benefits and distributions in any terminated plans formerly maintained by the Employer or an Affiliated Employer shall be included in the computation. (b) If the Employer or an Affiliated Employer maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and the Employer or an Affiliated Employer maintains or has maintained one or more defined benefit plans which have covered or could cover a Participant in this Plan, the Top-Heavy Ratio is a fraction, the numerator of which is the sum of account balances under the 30 33 defined contribution plans for all Key Employees and the Present Value of Accrued Benefits under the defined benefit plans for all Key Employees, and the denominator of which is the sum of the account balances under the defined contribution plans for all Participants and the Present Value of the Accrued Benefit under the defined benefit plans for all participants. Both the numerator and denominator of the Top-Heavy Ratio are adjusted for any distribution of an account balance or an accrued benefit made in the five year period ending on the Determination Date and any contribution due but unpaid as of the Determination Date. Accrued Benefits and distributions in any terminated plans formerly maintained by the Employer or an Affiliated Employer shall be included in the computation. (c) For purposes of (a) and (b) above, the value of account balances and the Present Value of the Accrued Benefit will be determined as of the most recent Valuation Date that falls within or ends with the twelve month period ending on the Determination Date. The account balances and Accrued Benefits of a Participant who is not a Key Employee but who was a Key Employee in a prior Plan Year will be disregarded. If any individual has not performed any service for the Employer or an Affiliated Employer at anytime during the five (5) year period ending on the Determination Date, any Accrued benefit for such individual shall not be taken into account. The calculation of the Top-heavy Ratio, and the extent to which distributions, rollover, and transfers are taken into account will be made in accordance with section 416 of the Code and the regulations thereunder. Deductible Voluntary Employee Contributions will not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans, the value of account balances and Accrued Benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. 2.88 "TOP-PAID GROUP" of Employees for any Plan Year shall mean those Employees who are among the highest paid twenty (20%) percent of Employees when ranked on the basis of compensation paid during such Plan Year. The following Employees shall not be included in determining the Top-Paid Group: (a) Employees who have not completed six (6) months of service; (b) Employees who normally work less than 17 1/2 hours per week; (c) Employees who normally work during not more than six (6) months of any year; (d) Employees who have not attained Age 21; 31 34 (e) Except to the extent provided in regulations, Employees who are included in a unit of Employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between Employee representatives and the Employer; and (f) Employees who are nonresident aliens and who receive no Earned Income (within the meaning of section 911(d)(2)) from the Employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)). 2.89 "TOTAL DISTRIBUTION" shall mean a distribution to a Participant or a Participant's beneficiary, within one taxable year of such recipient, of the entire balance to the credit of the Participant. 2.90 "TRUST" for each participating Employer, means the Trust created or continued by execution of this Plan and Trust document and the contribution of funds thereto. 2.91 "TRUSTEE" means the person or persons or corporation having trust powers named herein and any named successor trustee or trustees. 2.92 "VALUATION DATE" means the date on which the value of the assets of the Trust is determined in accordance with the terms of Article VI. The value of each account and subaccount which is maintained under this Plan and Trust shall be determined on the Valuation Date. In each Plan Year the Valuation Date shall be the last day of the Plan Year. In addition, the Plan Administrator may designate from time to time, so long as the Trustee agrees, that another date or dates shall be Valuation Dates with respect to a specific Plan Year. 2.93 "YEAR OF PARTICIPATION" shall mean a Plan Year during which an Employee met the eligibility requirements of the Plan with respect to Age and service, was a member of the Eligible Class of Employees, and received an allocation of Employer Contributions or Forfeitures or would have received an allocation if there had been Employer Contributions or Forfeitures for the Plan Year. No Participant shall be credited with Years of Participation prior to the Effective Date of the Plan. 2.94 "YEAR OF SERVICE" means a twelve (12) consecutive month period during which the Employee completes 1,000 Hours of Service. (a) For purposes of eligibility, the twelve (12) month period coincides with the Eligibility Computation Period. 32 35 (b) For purposes of vesting, the twelve (12) month period is the Plan Year. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.01 Any Employee who is a member of the Eligible class of Employees shall be eligible to participate on the nearest Entry Date which shall occur closest to or coinciding with the date on which the Employee satisfies the following eligibility requirements: (a) He shall have completed one (1) Year of Service with the Employer and any Affiliated Employer; and (b) He shall have attained twenty-one (21) years of Age. An Employee of the former Foster Mortgage Corporation which has been acquired by the Employer through an asset purchase at November 1, 1990 shall be entitled to credit his service with the predecessor acquired corporation, but shall not meet the eligibility requirements until the date of acquisition; accordingly, an Employee who is in this Eligible Class of Employees and who has met the service requirements solely as a result of his service with Foster Mortgage Corporation shall be entitled to participate on the next following Entry Date, which is January 1, 1991. 3.02 Completion of a Year of Service shall mean that the twelve (12) consecutive month Eligibility Computation Period shall have expired, and the Employee shall have completed the number of Hours of Service during such Eligibility Computation Period required for a Year of Service. 3.03 All annual reports and other documents required to be filed by the Company with the Secretary of the Treasury or Secretary of Labor shall be open to inspection to all Plan Participants during the Company's regular business hours. A summary of each annual report will be furnished to each Participant when such report has become due and filed with the Internal Revenue Service. A statement as to the balance standing in each Participant's account and the Participant's vested percentage therein shall be furnished to such Participant if so requested by the Participant in writing. 3.04 If an Employee who has become a Participant in the Plan terminates employment with the Employer, he shall cease to be an active Participant in the Plan as of the last day of the Plan Year in which he terminates employment with the Employer. He shall no longer be entitled to accrue benefits such as 33 36 Employer Contributions or Forfeitures; however, until his vested account balance is paid to him, his account balance shall continue to share in the earnings and losses of the Trust, and he shall be entitled to exercise the rights of a Participant hereunder as to elections, claims for benefits, receipt of information and any other applicable rights. 3.05 If a Participant terminates employment after he has earned a nonforfeitable right to a portion of his account balance derived from Employer Contributions, he shall participate immediately upon returning to the employ of the Employer (so long as he is a member of the Eligible Class of Employees). If a Participant incurs five (5) consecutive One-Year Breaks in Service before he has earned a nonforfeitable right to a portion of his account balance derived from Employer Contributions, he shall participate immediately upon returning to the employ of the Employer so long as he is a member of the Eligible Class of Employees at that time, but only if the number of consecutive One-Year Breaks in Service is less than the aggregate number of Years of Service. In the case of an Employee who does not have any nonforfeitable right to the account balance derived from Employer Contributions, Years of Service before a period of consecutive One-Year Breaks in Service will not be taken into account in computing eligibility service if the number of consecutive One-Year Breaks in Service in such period equals or exceeds the greater of five (5) or the aggregate number of Years of Service. Such an Employee must again meet the eligibility requirements under section 3.01. Such aggregate number of Years of Service will not include any Years of Service disregarded under the preceding sentence by reason of prior Breaks in Service. An Employee who has terminated employment prior to September 30, 1991 shall become an Inactive Participant upon such termination of employment. An Employee who terminates employment and who completes at least one (1) Hour of Service after September 30, 1991 shall become an Inactive Participant on the first day of the Plan Year following such termination of employment. An Employee who has not terminated employment shall become an Inactive Participant when he incurs such number of consecutive One Year Breaks in Service which exceeds the greater of five (5) or the number of Years of Service. 3.06 As provided above, Employees covered by an agreement which the Secretary of Labor of the United States finds to be a collective bargaining agreement between Employees' representatives and one or more Employers, are not eligible to participate in the Plan if retirement benefits were the subject of good faith bargaining between such Employees' representatives and the Employer or Employers. In the event any Employees become ineligible to participate in this Plan because they are no longer members of the Eligible Class of Employees, such Employees shall cease to participate as of the date they cease to be members of the Eligible Class of Employees. If an Employee who is otherwise 34 37 eligible but who has been ineligible because he is not a member of the Eligible Class of Employees becomes a member of such Eligible Class of Employees, he shall cease to be ineligible under this subsection, and he will automatically become a Participant as of the date that he becomes a member of the Eligible Class of Employees. 3.07 Notwithstanding any other provisions of the Plan, for purposes of the pension requirements of section 414(n)(3) of the Code, the employees of the Employer shall include Leased Employees as defined in Article II. A Leased Employee within the meaning of section 414(n)(2) of the Code shall become a Participant in, or accrue benefits under, the Plan based on service as a Leased Employee only as provided in provisions of the Plan other than this section. Contributions and benefits provided to a Leased Employee by the leasing organization which are attributable to services performed for the recipient Employer shall be treated as provided by the recipient Employer. This section shall be effective for services performed after December 31, 1986. 3.08 In the case of any Participant who has a one-year Break in Service, years of eligibility service before such break will not be taken into account until the Employee has completed a Year of Service after returning to employment. Such Year of Service will be measured by the twelve (12) consecutive month period beginning on an Employee's reemployment commencement date and, if necessary, subsequent twelve (12) consecutive month periods beginning on anniversaries of the reemployment commencement date. ARTICLE IV CONTRIBUTIONS TO THE TRUST 4.01 The Employer shall contribute to the Trust such amounts of cash or of Qualifying Employer Securities as shall be voted from time to time by the Board of the Company; subject to the limitation that Annual Additions to a Participant's account shall not exceed applicable limits under the Code and Article VIII. Such limitation shall be accomplished by reducing Annual Additions in the priority created by Article VIII, to the extent of any Excess Amounts for any individual Participant to whom such limitations may apply. Notwithstanding such limitation, Employer Contributions shall be paid in cash in such amounts as needed to provide the Trust with funds sufficient to make any principal and interest payments under a Loan incurred by the Trustee pursuant 35 38 to Article XVII to finance the acquisition of Qualifying Employer Securities, except to the extent such principal and interest payments have been satisfied by the Trustee from cash dividends paid to it with respect to Qualifying Employer Securities. The Employer Contribution may be made out of the Net Profits of the Employer for its Fiscal Year, except that the Contribution may be made out of the Net Profits of the Employer (reduced to the extent of prior contributions to qualified plans) which have accumulated from prior years. Employer Contributions need not be related to Net Profits, but may be determined by reference to Net Profits. Regardless of current or accumulated Net Profits, Employer Contributions shall be made in order to make principal and interest payments on a Loan. The amount of the contribution to be made for any Plan Year shall not exceed fifteen (15%) percent of the total Compensation of Participants entitled to receive an allocation of Employer Contributions and Forfeitures for the Allocation Limitation Year associated with such Plan Year, except for carryover amounts under section 4.05 and except for amounts used to pay principal and interest payments on a Loan as provided in section 4.07. All Employer Contributions shall be conditioned on their deductibility for the Plan Year for which made, under section 404 of the Code. Foster Mortgage Corporation or the Company on behalf of Foster Mortgage Corporation, shall contribute for eligible Employees of Foster Mortgage Corporation a percentage of compensation of such eligible Employees earned during the period January 1, 1993 to September 30, 1993 and during which they were eligible to participate in the plan. Such percentage shall be as determined by the Board of Directors of Foster Mortgage Corporation, or of the Company, if applicable. 4.02 While the contribution to be made by the Employer is not fixed by any formula, it is intended that the Contribution for each Plan Year shall be recurring and substantial. If the Trustee enters into a Loan, the Employer shall adopt a policy whereby contributions shall be made in amounts necessary to amortize the Loan over a reasonable period of time. 4.03 Employee Contributions to the Plan are not permitted, except for Rollover Contributions (subject to the limitations of Article XII and the discretion of the Plan Administrator and Trustee). An Employee is authorized to make, with the approval of and subject to the discretion of both the Trustee and the Plan Administrator, a Rollover Contribution to the Plan from a qualified retirement plan in which he has participated. Any such rollover shall be limited as provided in Article XII and shall not include funds attributable to Deductible Voluntary Employee Contributions. 36 39 4.04 The Employer Contribution for each Plan Year shall be paid to the Trustee not later than the time prescribed by law for filing the Federal corporate income tax return for the taxable year ending with or within such Plan Year (including extensions thereof). At the time each Contribution is made to the Trust, the Employer or Plan Administrator shall designate the Plan Year for which such Contribution is made, either by amount or by formula. Contributions shall not be made on behalf of a Participant who completes less than 1,000 Hours of Service during the Plan Year. For a Participant who terminates employment on or before September 30, 1991, Employer Contributions shall not be made for a Plan Year on behalf of such Participant if the Participant terminates employment before the last day of the Plan Year, regardless of whether he completes 1,000 Hours of Service during the Plan Year. For a Participant who completes at lest one (1) Hour of Service with the Employer on or after September 30, 1991, Employer Contributions shall be made for the Plan Year on behalf of such Participant, provided that he completes at least 1,000 Hours of Service during the Plan Year. 4.05 If for any Allocation Limitation Year, the Employer shall contribute to the Trust, or to any other qualified trust which it then maintained, an amount less than the maximum which otherwise could have been contributed as specified under the provisions of this Article IV, and Code section 404(a)(2), the amount of such deficiency may be carried forward by the Employer, who may determine to contribute additional amounts for any succeeding Allocation Limitation Year(s), not in excess of such deficiency, without regard to this Article IV, but not to exceed twenty-five (25%) percent of the total Compensation otherwise paid (or accrued, if applicable) during such Allocation Limitation Year associated with such Plan Year to all Participants. If an Employer Contribution includes such carryover amounts, the Employer Contribution shall nonetheless be subject to the limitations on Annual Additions contained in Article VIII. Carryover amounts will not include any excess attributable to Plan Years beginning after December 31, 1986; only carryovers of amounts attributable to 1986 and earlier years may be carried forward under this section and such amounts are considered to have been used for Plan Years beginning after December 31, 1986 as if they had been used to the maximum extent permitted in such Plan Year, in chronological order, in order to determine the carryover which shall be available in future years. 4.06 Forfeitures under the Plan shall be allocated or used to reduce Employer Contributions, as provided in Article VII. If Forfeitures are allocated in addition to Employer Contributions, then such Contributions will be adjusted in order to satisfy the limitations of Article VIII, before the allocation of Forfeitures is affected. If Forfeitures are used to reduce Employer Contributions, shares forfeited shall reduce Employer Contributions to the extent of the fair market value of such 37 40 shares at the date of Forfeiture, regardless of the date of the corresponding reduction and regardless of the fact that such shares will continue to carry the same basis in the hands of the Trust. It is intended by this provision that Forfeitures shall equal reduced contributions under this section, thereby causing Annual Additions to be unaffected by Forfeitures and by changes in the value of the shares subsequent to the date of the Forfeiture. 4.07 Employer Contributions made to the Plan which are used by the Plan to make principal payments on a Loan on or before the due date (with extensions) for the employer's Federal income tax return for the taxable year shall be treated as made for the Plan Year if so designated by the Employer. Such Employer Contributions may not exceed twenty- five (25%) percent of the eligible Compensation of Participants (other than Inactive Participants) for the Plan Year. Notwithstanding the limitations of Article VIII, Forfeitures attributable to Qualifying Employer Securities acquired with the proceeds of the Loan shall not reduce the Employer Contribution hereunder. In addition to the foregoing, Employer Contributions shall be made to the extent of interest payments on the Loan, provided that the payments are made by the Plan & Trust on the Loan by the due date (with extensions) for the Employer's Federal income tax return for the taxable year associated with the Plan Year and are designated as made for such Plan Year. 4.08 The decisions regarding the investment, reinvestment and accounting of Employer Contributions and Forfeitures allocated to each Participant's account shall be governed by the provisions of Articles VI and XII. ARTICLE V ALLOCATION OF EMPLOYER CONTRIBUTIONS 5.01 As of each Valuation Date which is the last day of a Plan Year, the account of each Participant (who has completed 1,000 Hours of Service during the Plan Year and who has either (i) not terminated employment with the Employer prior to the last day of the Plan Year or (ii) completed at least one (1) Hour of Service with the Employer during 1991 if the termination was in 1991 after September 30, 1991), shall be credited with a portion of the Employer Contribution and Forfeitures, if any, for the appropriate Plan Year, allocated as set forth in section 5.02, below. For purposes of this allocation, an Inactive Participant shall not be counted as a Participant. For 1991, a Participant shall not be considered to have terminated employment on or before September 30, 1991 if such Participant completed an Hour of Service with the Employer after September 30, 1991; an Hour of Service must be actually worked or 38 41 directly paid for. An Employee whose pay is computed on a period of time, such as severance pay of a certain period's pay, shall not be considered to have completed an Hour of Service for any particular period unless the pay is designated for such period. Thus, an Employee who terminates employment before October 1, 1991 and does not perform any services after such date shall be considered so terminated even though he may be paid severance pay equal to his pay for a period of time which, if considered to extend from his termination date, would have extended past September 30, 1991. 5.02 Each Participant who has completed 1,000 Hours of Service during the Plan Year for which the Employer Contribution is made and who has either (i) not terminated employment with the Employer or an Affiliated Employer prior to the last day of the Plan Year, or (ii) terminated employment during 1991, but not terminated employment with the Employer prior to October 1, 1991, shall be credited with that portion of the Employer Contribution to the Plan and Forfeitures, if any, equal to the percentage which such Participant's units for such Plan Year bear to the units of all Participants in the Plan for the Allocation Limitation Year ending with or within such Plan Year. Each Participant is credited with one unit for each Year of Service (vesting) and one unit for each $100 of compensation. Employer Contributions which are used to pay a Loan shall be allocated to Participants by prorating the released shares (nonmonetary units) in the same manner as in the preceding paragraph. For this purpose, the number of released shares for any Plan Year shall be as provided in section 17.03 and the terms of the Loan; if the shares purchased with the proceeds of the Loan are not pledged, then they shall be allocated as if pledged and released in accordance with section 17.03. For Plan Years ending before January 1, 1988, Employer Contributions and Forfeitures were allocated to Participants who terminated employment with the Employer before the last day of the Plan Year on account of death, Disability and normal retirement. 5.03 The allocations provided herein are subject to and subordinate to the limitations provided by Article VIII and the Code. If a Participant would be allocated an Excess Amount (as defined in Article VIII) were it not for the limitation of Article VIII, then the allocations to his account shall be reduced as provided in Article VIII. In addition, if this Plan is a Top-heavy Plan in any Plan Year, the allocations made under this Article shall be superseded for such Plan Year to the extent necessary to satisfy the rules regarding Top-heavy Plans set forth in Article XVI. 39 42 ARTICLE VI INVESTMENT OF TRUST ASSETS; ALLOCATIONS TO PARTICIPANT'S ACCOUNTS 6.01 Trust Assets under the Plan will be invested primarily in Qualifying Employer Securities. The Plan Administrator may direct the Trustee to incur debt from time to time to finance the acquisition of Qualifying Employer Securities by the Trust or otherwise. Employer Contributions (and other Trust assets) may be used to acquire shares of Qualifying Employer Securities from Company shareholders (including former Participants) or from the Company. Qualifying Employer Securities purchased with the proceeds of a Loan shall be held in a Suspense Account pending release and reallocation to other Accounts as the Loan is paid. Qualifying Employer Securities purchased with amounts allocated to Participants' Other Investments Accounts shall upon purchase be credited pro rata to the corresponding Participants. 6.02 Separate Company Stock Accounts and Other Investments Accounts will be established to reflect Participants' interests under the Plan. If the Trust has Qualifying Employer Securities which were acquired on or before December 31, 1986 and also has Post-1986 Employer Securities, then a separate subaccount of the Company Stock Account of each Participant shall be maintained for such pre- and Post-1986 Employer Securities. Records shall be kept by the Plan Administrator from which can be determined the portion of each Other Investments Account which at any time is available to meet obligations under a Loan and the portion which is not so available. 6.03 The Company Stock Account maintained for each Participant will be credited with his allocable share of Qualifying Employer Securities (including fractional shares) purchased with cash paid to the Trust, with contributions in kind to the Trust, with Forfeitures of Qualifying Employer Securities and with any stock dividends on Qualifying Employer Securities allocated to his Company Stock Account. Stock dividends shall not be credited to accounts for a Plan Year for Participants who have been paid or forfeited their benefits during the Plan Year. Stock splits shall be credited to the accounts of Participants whose stock has not been distributed to them as of the record date but whose stock is distributed to them at a later date during the Plan Year. Qualifying Employer Securities acquired by the Trust with the proceeds of a Loan shall be allocated to the Company Stock Accounts of Participants as the Qualifying Employer Securities are released from Suspense Accounts as provided for in Article XVII. 6.04 The Other Investments Account maintained for each Participant will be credited (or debited) with its share of the 40 43 net income (or loss) of the Trust, other than that portion of the Trust which is invested in Qualifying Employer Securities (any cash dividends on Qualifying Employer Securities allocated to the Company Stock Account of the Participant for whose benefit the stock is held), and with Employer Contributions in cash and in other than Qualifying Employer Securities. Each will be debited for its share of any cash payments for the acquisition of Qualifying Employer Securities for the benefit of Company Stock Accounts or for any repayment of principal and interest on any Loan or other debt chargeable to Participants' Company Stock Accounts; provided that only the portion of each Other Investments Account which is available to meet obligations under Loans shall be used to pay principal or interest on a Loan. 6.05 Employer Contributions and Forfeitures will be allocated as of the last day of each Plan Year among the accounts of Participants so entitled in accordance with Article V and this Article VI. 6.06 The net income (or loss) of the Trust for each Plan Year (not attributable to Qualifying Employer Securities) will be determined as of the Valuation Date. Each Participant's share of the net income (or loss) will be allocated to his Other Investments Accounts in the ratio which the balance of each such Account on the preceding Valuation Date (reduced by amount of any distribution from such Account and increased by Employer Contributions other than in stock made after such date but accrued as of such date and made on account of the year ending on such date) bears to the sum of such balances for all Participants as of that date. The net income (or loss) of the Trust includes the increase (or decrease) in the fair market value of Trust Assets (other than Qualifying Employer Securities), interest income, dividends and other income (or loss) attributable to Trust Assets (other than allocated Company Stock) since the preceding Valuation Date. For purposes of computing net income (or loss), interest paid on any Loan or other Debt shall be disregarded. 6.07 The Plan Administrator shall adopt accounting procedures for the purpose of making the allocations, valuations and adjustments to Participants' Accounts provided for in this Article. Except as provided in Treasury Regulation section 54.4975-11, Qualifying Employer Securities acquired by the Plan shall be accounted for as provided in Treasury Regulation section 1.402(a)-1(b)(2)(ii). Allocations of Qualifying Employer Securities shall be made separately for each class of stock, and the Plan Administrator shall maintain adequate records of the cost basis of all shares of Qualifying Employer Securities allocated to each Participant's Company Stock Accounts. From time to time the Plan Administrator may modify the accounting procedures for the purpose of achieving equitable and nondiscriminatory allocations among the Accounts of Participants 41 44 in accordance with the general concepts of the Plan and the provisions of this section. Annual valuations of Trust Assets shall be made at fair market value, as described in section 6.06 above. 6.08 If, by reason of the application of Break in Service rules, or by any other rule such as that on partial plan termination, a portion of a Participant's Accrued Benefit attributable to Employer Contributions is subject to a different vesting percentage from another portion of such account balance, then the Plan Administrator shall cause to be maintained a separate account or subaccount for each such portion for each such Participant. 6.09 This paragraph shall apply only if the shares of Company Stock cease to be publicly traded. If a sale of Qualifying Employer Securities is made to the Plan for which nonrecognition of gain is elected under Code section 1042 and if the Plan Administrator is notified by the Employer, in a written statement which conforms to the requirements of Code section 1042(b)(3), that the Employer consents to the application of Code section 4978(a) and 4979A with respect to such transaction and if the Plan Administrator consents to such transaction and its accounting treatment hereunder, then no portion of the assets of the Plan attributable to or allocable in lieu of Employer Securities acquired by the Plan in a sale to which Code section 1042 applies may accrue (or be allocated directly or indirectly) under any Plan of the Employer meeting the requirements of Code section 401(a), to the following persons: (a) During the Nonallocation Period, for the benefit of the taxpayer who sold such Qualifying Employer Securities and elected nonrecognition under Code section 1042; (b) During the Nonallocation Period, for the benefit of any member of the family of the taxpayer described in (a) above (within the meaning of Code section 267(b)); or (c) For the benefit of any other person who owns (after application to Code section 318(a) without regard to paragraph (2)(B)(i) thereof) more than twenty-five (25%) percent of (1) any class of outstanding stock of the Corporation which issued such Employer securities or of any corporation which is a member of the same controlled group of corporations (as defined in Code section 409(l)(4)) as such corporation, or (2) the total value of any class of outstanding stock of any such corporation. The Plan Administrator shall not be permitted to consent to the above sale and allocation in connection with this transaction if the Plan does not own more than thirty (30%) percent of the total value of Qualifying Employer Securities outstanding immediately after the sale or if the Other Investments Accounts 42 45 of the Participants to whom the special allocation is to be made do not have sufficient assets for such purchase. ARTICLE VII DISTRIBUTION OF BENEFITS 7.01 Each Participant who shall retire at his Normal Retirement Date shall be entitled to a Benefit equal to his Accrued Benefit as of the date of his retirement. Upon the termination of a Participant's employment by reason of his retirement, his Accrued Benefit on the date of such termination, shall be distributed, or commence to be distributed, to the Participant as soon thereafter as practicable as provided in this Article VII. Upon reaching Normal Retirement Age while still employed by the Employer, a Participant shall become fully vested in his Accrued Benefit. A Participant who has reached his Early Retirement Date and who has also attained Age 65 shall be allowed to elect, one time after attainment of the above dates, to receive a distribution of all or part of his Accrued Benefit in any form permitted under this Plan, notwithstanding his continued employment with the Employer. 7.02 If a Participant, with the consent of the Employer, shall continue in active employment with the Employer after his Normal Retirement Date, he shall continue to participate as a Participant under this Trust Agreement, and he may take late retirement. Upon such late retirement, a Participant shall be entitled to his Accrued Benefit as of the actual retirement date determined by reference to the most recent Valuation Date, plus his share of any Employer Contributions made or to be made in the year in which his late retirement occurred. His Accrued Benefit, plus his share of the Employer Contribution set forth above, shall be distributed, or commence to be distributed, to him as soon as practicable as provided in this Article VII. In any event, payment shall be made or shall commence on or before the Required Beginning Date. 7.03 If a Participant is determined by the Plan Administrator to be eligible for Disability retirement, he shall be fully vested in, and shall be entitled to, a benefit equal to his Accrued Benefit as of the date of his actual retirement, plus his share of any Employer Contributions and Forfeitures made or to be made in the years in which his retirement occurred. His Accrued Benefit shall be distributed, or commence to be distributed, to him as soon as practicable as provided in this Article VII, or may be held as part of the assets of the Trust and continue to share in the gains and losses of the Trust until the Participant reaches his Normal Retirement Age, the decision as to such payout or such deferral to be made by the Participant. 43 46 An Inactive Participant shall not be eligible for Disability retirement. 7.04 Upon the death of a Participant while still employed by the Employer, his Accrued Benefit on the date of his death, plus his share of any Employer Contributions and Forfeitures made or to be made in the years in which his retirement occurred shall be distributed, or commence to be distributed, following the date of death to the person provided in section 7.12. Upon the death of a Participant, while still employed by the Employer, his Accrued Benefit shall be fully vested. If the Participant dies after distribution of his or her interest has commenced, the remaining portion of such interest will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Participant's death. If the Participant dies before distribution of his or her interest commences, the Participant's entire interest will be distributed no later than five (5) years after the Participant's death except to the extent that an election is made to receive distributions in accordance with (a) or (b) below: (a) if any portion of the Participant's interest is payable to a Designated Beneficiary, distributions may be made in substantially equal installments over the life expectancy of the Designated Beneficiary commencing no later than One (1) year after the Participant's death; (b) if the Designated Beneficiary is the Participant's surviving spouse, the date distributions are required to begin in accordance with (a) above shall not be earlier than the date on which the Participant would have attained Age 70 1/2; and, if the spouse dies before payments begin, subsequent distributions shall be made as if the spouse had been the Participant. For purposes of the above calculation, payments will be calculated by use of the return multiples specified in section 1.72-9 of the Income Tax Regulations. Life expectancy of a surviving spouse may be recalculated annually; however, in the case of any other Designated Beneficiary, such life expectancy will be calculated at the time payment first commences without further recalculation. For purposes of this section, any amount paid to a child of the Participant will be treated as if it had been paid to the surviving spouse if the amount becomes payable to the surviving spouse when the child reaches the age of majority. Notwithstanding the other requirements of this Article, distribution on behalf of any Participant, including a Five Percent Owner, may be made in accordance with all of the 44 47 following requirements (regardless of when such distribution commences): (a) The distribution by the trust is one which would not have disqualified such trust under section 401(a)(9) of the Internal Revenue Code as in effect prior to amendment by the Deficit Reduction Act of 1984. (b) The distribution is in accordance with a method of distribution designated by the Participant whose interest in the trust is being distributed or, if the Participant is deceased, by a Beneficiary of such Participant. (c) Such designation was in writing, was signed by the Participant or the Beneficiary, and was made before January 1, 1984. (d) The Participant had accrued a benefit under the Plan as of December 31, 1983. (e) The method of distribution designated by the Participant or the Beneficiary specifies the time at which distribution will commence, the period over which distributions will be made, and in the case of any distribution upon the Participant's death, the Beneficiaries of the Participant listed in order of priority. A distribution upon death will not be covered by this transitional rule unless the information in the designation contains the required information described above with respect to the distributions to be made upon the death of the Participant. For any distribution which commences before January 1, 1984, but continues after December 31, 1983, the Participant, or the Beneficiary, to whom such distribution is being made, will be presumed to have designated the method of distribution under which the distribution is being made if the method of distribution was specified in writing and the distribution satisfies the requirements in (a) and (e) above. If a designation is revoked any subsequent distribution must satisfy the requirements of section 401(a)(9) as amended. Any changes in the designation will be considered to be a revocation of the designation. However, the mere substitution or addition of another Beneficiary (one not named in the designation) under the designation will not be considered to be a revocation of the designation, so long as such substitution or addition does not alter the period over which distributions are to be made under the designation, directly or indirectly (for example, by altering the relevant measuring life). The surviving spouse who is entitled to receive such benefits, if any, may direct the commencement of benefits within a reasonable time after the death of the Participant, subject to the foregoing limitations. 45 48 7.05 After the termination of employment of a Participant for any reason other than death, Disability or retirement, his vested percentage in his Accrued Benefit shall be distributed to him after his retirement at or after Normal Retirement Age except to the extent of Post-1986 Employer Securities which, at the election of the Participant must not be distributed later than at the time(s) provided in sections 7.17 and 7.18. The distribution of the Accrued Benefit of any Participant shall be made or shall commence on or before the Required Beginning Date. Except in the case of death, Disability or retirement while still employed by the Employer, and in the case of Rollover Contribution, which cause the Participant to be one hundred (100%) percent vested, and except as otherwise provided in Article XVI in a Plan Year in which the Plan is a Top-Heavy Plan, the Participant's vested interest in his Accrued Benefit derived from Employer Contributions shall be determined in accordance with the following vesting schedule:
Years of Service Completed % Vested -------------------------- -------- 0-4 0% 5 25% 6 30% 7 35% 8 40% 9 45% 10 50% 11 60% 12 70% 13 80% 14 90% 15 or more 100%
The above schedule shall apply to all Participants who do not complete an Hour of Service with the Employer or an Affiliated Employer on or after the first day of the Plan Year beginning after December 31, 1988. For Plan Years beginning after December 31, 1988, the following vesting schedule shall apply:
Years of Service Completed % Vested -------------------------- -------- Less than 5 0% 5 or more 100%.
This vesting schedule shall apply only to a Participant who completes at least one (1) Hour of Service during or after the Plan Year beginning after December 31, 1988; otherwise, the vesting schedule in the preceding paragraph shall apply. 46 49 However, if such a Participant has completed three (3) Years of Service or more as of December 31, 1989 and also completes at least one (1) Hour of Service after December 31, 1988, then his vested interest shall be determined under the following vesting schedule:
Years of Service Completed % Vested -------------------------- -------- Less than 3 0% 3 20% 4 40% 5 or more 100%
Years of Service by the Participant with the Employer referred to in determining the Participant's place on the vesting schedule shall exclude service excluded under the rule of parity in section 7.14. Years of Service by the Participant referred to in determining the Participant's place on the vesting schedule shall include: (a) Service with the Employer before the Employer established this Plan or a predecessor plan; (b) Service with any entity or entities which were formerly under Common Control with the Employer, but only during the period in which they were under such Common Control; and (c) Service for the following entities which have been absorbed into the business of the Employer through merger, asset purchase or otherwise: Foster Mortgage Company ("FMC"), during the period of ownership by the Company and prior to the acquisition of the FMC by the Company, but not after the disposition of FMC by the Company effective October 1, 1993; (d) Years of Service with the Employer before the Participant participated in the Plan, including Years of Service with the Employer in non-covered employment, shall be included in Years of Service unless such period of service would have been excluded for some other reason stated herein. 7.06 If a Participant terminates service with the Employer for a reason other than death, Disability or retirement, then the payment of such Accrued Benefit shall commence as soon as practicable following the last day of the Plan Year in which the Participant attains his Normal or Early Retirement Date, except as provided in Sections 7.15 and 7.16 with respect to Post-1986 Employer Securities. 47 50 If, notwithstanding the above, a Participant receives a distribution which is less than the value of the Participant's Accrued Benefit derived from Employer Contributions, and resumes employment covered under this Plan, the Participant's account (including Forfeitures) will be restored to the amount on the date of distribution (adjusted for earnings) if the Participant repays to the Plan the full amount of the distribution on or before the date on which the Participant incurs five (5) consecutive one-year Breaks in Service following the date of distribution, or, if earlier, the date which is five (5) years from the date of distribution. The restoration will be made from other Forfeitures, and if such Forfeitures are insufficient, then from additional Employer Contributions. If distributions are not made or deemed made under this section, section 7.15 or section 7.16, then the Forfeiture shall occur when the Participant or former Participant incurs five (5) consecutive one-year Breaks in Service following his termination of service. 7.07 An authorized Leave of Absence not in excess of one (1) year shall not be construed as a termination of employment, provided that a Participant on such Leave shall return to employment within the time prescribed. If a Participant on an unpaid Leave of Absence does not so return, he shall be deemed to have terminated his employment upon the effective date of his Leave of Absence and the provisions of this Article VII shall be applied. The account of a Participant who is on such Leave of Absence shall share in the allocation of Contributions and Forfeitures as specified under the provisions of Article V and Article VII for the Plan Year to the extent that the Participant receives Compensation from the Employer in any Allocation Limitation Year and actually completes 1,000 Hours of Service during the Plan Year, and such account shall continue to share in allocation of Trust fund income or loss under the provisions of Article VI. 7.08 As soon as practicable after the close of the Plan Year in which the vested Accrued Benefit provided under this Article VII becomes payable, such benefits (except for Post-1986 Employer Securities) shall (or shall commence to) be distributed to a Participant, his spouse, his Beneficiary who is entitled to receive benefits, his children, or his estate, as the case may be, in such manner as the distributee(s) shall elect (by execution of a form provided by the Plan Administrator), in accordance with one or more of the following ways: (a) In a lump sum payable in cash, in the shares of United Companies Financial Corporation, or in a combination of cash and shares; or 48 51 (b) In substantially equal annual installments, over a certain period of not more than fifteen (15) years, payable in cash, in the shares of United Companies Financial Corporation, or in combination of cash and shares which is determined prior to the commencement of benefit payments. Any Participant with vested Accrued Benefit greater than $3,500 shall be provided with a written notice of the material features of, and an explanation of the relative value of, the optional form of benefit available under the Plan. Such notice shall be provided at least 30 days prior and not more than 90 days prior to the distribution of the benefit. The consent of the Participant (and spouse, if applicable) to the immediate distribution of benefits shall be made not earlier than 90 days and not later than 30 days prior to the distribution of the benefit. The distribution shall be made in whole shares of the stock of United Companies Financial Corporation, or its successor; however, in the event that the Trust does not have sufficient shares, then distribution may be made in the form of cash. Notwithstanding this provision, the Participant may require that his Accrued Benefit be distributed solely in the shares of United Companies Financial Corporation, except when the ownership of such shares is restricted, as provided below, and except that the Trustee may, for ease in administration and accounting, distribute cash in lieu of any fractional shares. Otherwise, the Plan Administrator shall determine whether distributions are made in cash, in shares of United Companies Financial Corporation, or in a combination of cash and shares, although the Participant shall have the right to elect payment in any form which is available under the Plan. If the charter or bylaws of United Companies Financial Corporation restrict ownership of substantially all outstanding shares of Qualifying Employer Securities to Employees of United Companies Financial Corporation or to a Trust under a Plan qualified under Code section 401(a) and require any former Employee to resell any Qualifying Employer Securities to United Companies Financial Corporation or to the Trust upon termination of service with the Employer, and if Participants are given the right to receive distributions in cash, then the Participant may not require that his vested Accrued Benefit be distributed in Qualifying Employer Securities. Such restriction shall apply by its terms to any common stock; however, in order to be valid, such provision must apply to all of the shares of stock issued by United Companies Financial Corporation. The method of distribution shall not prevent the Trustee or the Employer from giving any distributee a Put Option as to such distributed shares, payable in a lump sum or in installments at a reasonable rate of interest. Any policy of providing such Put Option shall not discriminate in favor of Highly Compensated 49 52 Employees or against Nonhighly Compensated Employees. Furthermore, the policy of providing such Put Option may be discontinued, at the direction of the Plan Administrator, if it shall become apparent that such Put Option is not required (such as when publicly traded shares are readily tradeable on an established securities market). 7.09 Any distribution made pursuant to this Article VII shall be made, or shall commence, unless the Participant makes a revocable election not to receive such benefits, in writing to the Plan Administrator, not later than the sixtieth day after the close of the Plan Year in which the latest of the following dates occurs: (a) The date the Participant attains Age; (b) The tenth anniversary of the Participant's Participation Commencement Date; or (c) The date the Participant terminated his service with the Employer. If a Participant elects to defer the receipt of any benefit pursuant to this section, such election shall not have the effect of creating a death benefit which is more than incidental. Such election is revocable. Payment after death shall satisfy the requirements of section 7.04. In no event may the date of the distribution or of the commencement of distributions be later than the Required Beginning Date, unless the Participant or his Beneficiary has elected on or before December 31, 1983, to receive benefits at a later date or in a slower manner, in accordance with the terms of the Plan as of such date. Except for payments pursuant to such election, any method of distribution which would be payable over a period of years shall not be payable for any such period longer than the joint and last survivor life expectancies of the Participant and his Designated Beneficiary determined as of the date of the election; however, such life expectancies may be readjusted once each Plan Year (and the life expectancy of a Designated Beneficiary other than the Participant's spouse may not be readjusted), but no more frequently than annually. 7.10 Distributions from the Plan shall be made in accordance with the requirements of Code section 401(a)(9), including the minimum distribution incidental benefit requirements of Proposed IRS Regulations section 1.401(a)(9) 2, Code section 401(a)(9)(G), Proposed IRS Regulations sections 1.401(a)(9)-1, (Q&As A-3 and F-4A), and 1.401(a)(9)-2. The following will also apply: (a) If a Participant's entire Interest is distributed in a form other than a single sum payment over a period in excess of the Participant's life expectancy, the method of distribution 50 53 must provide that at least fifty (50%) percent of the Participant's entire interest will be paid within the life expectancy of the Participant. (b) If a Participant's entire interest is distributed in a form other than a single sum payment, the minimum amount distributed each year must equal or exceed the quotient of (i) the Participant's remaining entire interest, divided by (ii) the Participant's life expectancy or the joint and last survivor life expectancy of the Participant and his or her Beneficiary. Upon the Participant's or surviving spouse's request, the Plan Administrator shall permit the life expectancy of the Participant or the surviving spouse to be redetermined, but not more frequently than annually. (c) If the Participant dies after benefit payments have begun, the remaining entire interest of the Participant's Accounts must be distributed at least as rapidly as under the distribution method that was in effect prior to death. (d) If distributions have not commenced before the Participant's death, the Participant's entire interest must be distributed within five (5) years of the date of death; provided, however, that a distribution in the form of installments is not subject to this five (5) year rule, but such installments must commence within one (1) year of the Participant's death. 7.11 This paragraph applies to Distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Article, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. 7.12 As soon as possible after he becomes eligible to participate, each Participant in the Plan shall receive from the Plan Administrator a Beneficiary designation form. The form shall be in a format as directed by the Plan Administrator in its discretion. If the Participant is married at the time of his death, and if the payment of benefits has not already commenced, then the surviving spouse must consent to the naming and payment of the Beneficiary prior to the date of death. The spousal consent must designate a specific beneficiary and a specific form of benefit which may not be changed without the consent of the spouse. Any spousal consent shall be binding only with respect to the spouse executing the consent. The form shall provide the Participant with the opportunity to select the person or persons (including an individual, trust, partnership, corporation or any combination of the foregoing) to whom he wishes to have his Accrued Benefit paid in the event that he dies before receiving 51 54 the entire amount. The form may provide for contingent Beneficiaries, to receive all or a portion of the Participant's Accrued Benefit in the event that the primary Beneficiary or Beneficiaries die. The form shall be in a form valid to pass the assets held for the benefit of the Participant under both ERISA and Louisiana law, if possible. To be valid, the form shall be executed by the Participant as indicated thereon and filed with the Plan Administrator. If the Participant is married at the time of his death, and if the payment of benefits has not already commenced, then the surviving spouse must consent to the naming and payment of the Beneficiary prior to the date of death. The spousal consent must be in writing, must be witnessed by a representative of the Plan Administrator or a Notary Public, and must acknowledge the effect of such election as well as the specific beneficiary. The designation may be changed at any time by the filing of a new form by the Participant, with the appropriate spousal consent, if applicable, and the most recent designation shall govern. Subject to the provisions of section 7.04, the Trustee shall be obligated to distribute the deceased Participant's Accrued Benefit to the person or persons designated on the Beneficiary designation form. But if no proper designation is on file with the Plan Administrator or if the Beneficiary or Beneficiaries named on the most recent designation form, both primary and contingent, predeceased (or otherwise terminated existence prior to the death of the Participant) the Participant, or if the Beneficiary designation is rendered impossible by reason of applicable State law, then the Participant's spouse shall be considered the designated Beneficiary. If the Participant is not married or if the spouse is deceased or renounces, then the Participant's children will be presumed as the Beneficiary or Beneficiaries as if so designated by the Participant. If no children survive the Participant, then the Participant's estate will be presumed as the Beneficiary or Beneficiaries as if specifically designated by the Participant and will receive said benefits with all rights of a named Beneficiary. The Plan Administrator, after consultation with the Beneficiary or Beneficiaries, including a deemed Beneficiary, shall direct the Trustee as to the form of payment. 7.13 The nonforfeitable interest of a Participant as determined under this Article VII shall not be forfeited for any cause. The value of any forfeitable Accrued Benefit of any Participant shall be forfeited as of the last day of the Plan Year in which he incurs five (5) consecutive one-year Breaks in Service, or on the last day of the Plan Year in which a cash-out as described in section 7.06 occurs, if earlier. In the case of a "cash-out", the Forfeiture will take place at the time of the cash out and restored upon later buyback. The amount of the Forfeiture shall be computed as of the end of the Plan Year in which said Forfeiture occurs and allocated in proportion to the 52 55 Compensation of all Participants entitled to receive allocations for the next succeeding Plan Year. Forfeitures shall be reallocated among all Participants who are Employees of all Affiliated Employers sponsoring the Plan, and shall not be limited to Employees of the Employer of the person whose account is forfeited. The amount of any such Forfeiture shall be first deducted from the terminated Participant's Other Investment Account. If such amount is not sufficient to reduce the fair market value of his Accrued Benefit to the percentage of his Accrued Benefit determined under section 7.05, the remainder of the Forfeiture shall be deducted from his Company Stock Account, but shall come from that portion of his Company Stock Account which does not consist of securities purchased with the proceeds of a Loan. Subject to the proviso that securities acquired with the proceeds of a Loan are forfeited last, if a Participant's Company Stock Account includes more than one class of stock, the Forfeiture will consist of the same proportion of each class of stock. 7.14 Years of Service with the Employer, which shall not be taken into account in computing the nonforfeitable percentage under Article VII, as provided in section 7.05, are as follows: (a) In the case of a Participant who incurs a One-Year Break in Service, the Years of Service before such break shall not be taken into account until such Employee has completed a Year of Service after his return; (b) In the case of a Participant who has five (5) consecutive One-Year Breaks in Service, Years of Service completed after such five (5) year period shall not be taken into account for the purpose of determining the nonforfeitable percentage of the Participant's Accrued Benefit derived from Employer Contributions and which accrued before such break; (c) In the case of a former Employee who did not have any nonforfeitable right to any Accrued Benefit derived from Employer Contributions at the time of his termination, the Years of Service with the Employer completed by the former Participant before any One-Year Break in Service shall not be taken into account if the number of consecutive One-Year Breaks in Service equals or exceeds the greater of (i) five (5) Years; or (ii) the aggregate number of years of Service completed prior to such break. If any Years of Service are not required at one time to be taken into account by reason of this subsection, then such Years of Service shall not be taken into account with respect to this subsection in determining the number of Years of Service after a subsequent Break in Service. 7.15 The Plan Administrator shall set the policy with respect to withholding of Federal income taxes on the payment of benefits hereunder, notice to Participants and Beneficiaries of 53 56 their right to elect not to have withholding apply, and the manner and form of exercising or revoking such election. The Plan Administrator shall be responsible for providing appropriate forms for election purposes and shall direct the Trustee as to the manner of withholding. The Trustee and the Plan Administrator shall coordinate the provision of notice and election forms and the payment of benefits. Effective January 1, 1993, the Trustee shall withhold from Eligible Rollover Distributions which are not directly transferred to an Eligible Retirement Plan pursuant to section 7.11, twenty (20%) percent of the total value of the Eligible Rollover Distribution. No withholding shall be required from a distribution of Company Stock, nor shall withholding be required for a cash distribution where the cash is in lieu of a partial share and does not exceed $200 or for a cash distribution where the total value of the distribution does not exceed a de minimis amount. 7.16 During the minority, interdiction, or limited interdiction of any person entitled to receive benefits hereunder, the Plan Administrator may direct the Trustee to make payments directly to such person, or to his spouse, or to a relative or to any individual or institution having custody of such person. Neither the Plan Administrator nor the Trustee shall be required to see to the application of any payments so made, and the receipt of the payee (including the endorsement of a check or checks) shall be conclusive as to all interested parties. The Plan Administrator shall be entitled to rely on the representations of the legal representative of such person as to the proper means and manner of payment and as to the proper payee. The Plan Administrator may require that any documentation of such status be provided as a condition of payment. 7.17 Each Participant who is or becomes a Qualified Participant shall be entitled to elect, beginning with the first Plan Year in which he is a Qualified Participant, within ninety (90) days following the close of such Plan Year, to have up to twenty-five (25%) percent of the sum of (a) his vested Accrued Benefit attributable to Post-1986 Employer Securities, and (b)any prior distributions of such Post-1986 Employer Securities, paid to him. The Participant shall be entitled to elect during each of the next five (5) following Plan Years of the Qualified Election Period to have up to such twenty-five (25%) percent of the sum of (a) his Accrued Benefit attributable to Post-1986 Employer Securities, and (b) any prior distributions of such Post-1986 Employer Securities, at the time of such election, paid to him, except that in the last Plan Year in which he is a Qualified Participant, the election may be made with respect to fifty (50%) percent of his Accrued Benefit attributable to Post-1986 Employer Securities. In computing the amount to be distributed in the current year, the amount determined to be 54 57 distributable under the formula above shall be reduced by prior distributions of Post-1986 Employer Securities during the Qualified Election Period, if any. Distribution shall be made within ninety (90) days after the close of the Election Period. Distributions and elections which would be required under these provisions prior to September 6, 1988 may be extended to such date, as provided by I.R. Notice 88-56. This section shall not apply if the Qualified Participant's Accrued Benefit attributable to Employer Securities otherwise subject to this section for the Plan Year does not exceed $500. 7.18 Notwithstanding the other provisions of this Article, if the Participant elects, if applicable pursuant to sections 401(a)(11) and 417, with the consent of his spouse, the distribution of the Participant's vested Accrued Benefit attributable to Post-1986 Employer Securities shall be made, or shall commence, not later than one (1) year after the close of the Plan Year: (a) In which the Participant separates from service on account of death, disability or attainment of Normal Retirement Age; or (b) Which is the fifth Plan Year following the Plan Year in which the Participant separates from service with the Employer, provided that the Participant has not become reemployed by the Employer before the date of distribution. The period of distribution may not be greater that the lesser of (i) Ten (10) years, or (ii) The greater of five (5) years, or the number of years which corresponds to the value of the Participant's vested Accrued Benefit (determined as of the date of distribution, based on the most recent valuation of the Qualifying Employer Securities), divided by $100,000, with a full year to be credited for each fraction of $100,000. For purposes of determining the Participant's vested Accrued Benefit, the Accrued Benefit shall not include any Employer securities acquired with the proceeds of a Loan until the close of the Plan Year in which the Loan is repaid in full. The $100,000 and $500,000 figures above shall be adjusted by the Adjustment Factor. If a Participant separates from service for a reason other than those described in paragraph (a) above, and is employed by the Employer as of the last day of the Plan Year following the Plan Year of such separation from service, distribution to the 55 58 Participant, prior to any subsequent separation from service, shall be in accordance with terms of the Plan other than this section. For purposes of this section, Qualifying Employer Securities shall not include any Qualifying Employer Securities acquired with the proceeds of a Loan described in section 404(a)(9) of the Code until the close of the Plan Year in which such Loan is paid in full. 7.19 Notwithstanding any provisions to the contrary, the following provisions are adopted to override existing plan language. Plan provisions which restrict the availability of an alternate form of benefit to a certain select group or classification of participants or beneficiaries which favors the group of Highly Compensated Employees shall be considered null and void, with the result that such alternate form of benefit is now available to all participants. Plan provisions will be considered to favor the group of Highly Compensated Employees if the group of employees to whom the benefit is available does not satisfy either the seventy percent test of section 410(b)(1)(A) or the nondiscriminatory classification test of section 410(b)(1)(A) of the Internal Revenue Code. Provided however, any plan provision that mandates a single sum distribution where the present value of a participant's nonforfeitable accrued benefit is not more than $3,500 will not be considered to favor the group of Highly Compensated Employees. ARTICLE VIII LIMITATIONS ON ALLOCATIONS 8.01 (a) If the Participant does not participate in, and has never participated in another qualified plan maintained by the Employer or a welfare benefit fund, as defined in section 419(e) of the Code maintained by the Employer, or an individual medical account, as defined in section 415(l)(2) of the Code, maintained by the Employer, which provides an Annual Addition as defined in Article II, the amount of Annual Additions which may be credited to the Participant's account for any Limitation Year will not exceed the lesser of the Maximum Annual Addition or any other limitation contained in this Plan. If the Employer Contribution that would otherwise be contributed or allocated to the Participant's account would cause the Annual Additions for the Limitation year to exceed the Maximum Annual Addition, the amount contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the Maximum Annual Addition. (b) Prior to the determination of the Participant's actual compensation for an Allocation Limitation Year, the 56 59 Maximum Annual Addition may be determined on the basis of the Participant's estimated Compensation for such Allocation Limitation Year. Such estimated Compensation shall be determined on a reasonable basis and shall be uniformly determined for all Participants similarly situated. Any Employer Contributions (including allocation of Forfeitures) based on estimated Compensation shall be reduced by any Excess Amounts carried over from prior years. (c) As soon as is administratively feasible after the end of the Allocation Limitation Year, the Maximum Annual Addition for such Allocation Limitation Year shall be determined on the basis of the Participant's actual Compensation for such Allocation Limitation Year. (d) If, pursuant to section 8.01, subsection (c) there is an Excess Amount with respect to a Participant for an Allocation Limitation Year, such Excess Amount shall be disposed of as follows: (i) First, any nondeductible voluntary Participant Contributions, to the extent that the return would reduce the Excess Amount, shall be returned to the Participant. (ii) Excess Amounts will be substracted from the participant's accounts in the order of the last allocation (the reverse of the order of allocation, i.e., Employer Contributions used to pay Loans shall not be reduced until other discretionary Employer Contributions are reduced first) as if never allocated, and shall be reallocated to other Participants in the current Limitation Year to the extent such allocations do not exceed the Maximum Annual Addition. Any Excess Amounts that cannot be allocated will be held in a suspense account. All amounts in the suspense account must be allocated and reallocated to the Participant's accounts (subject to the limitations of section 415) in succeeding Limitation Years before any Employer Contribution or nondeductible Participant Contribution which would constitute an Annual Addition may be made to the Plan. (e) If a suspense account is in existence at any time during the Limitation Year pursuant to this section, it will not participate in the allocation of the Trust's investment gains and losses. 8.02 (a) If, in addition to this Plan, the Employer maintains any other qualified defined contribution plan, the amount of Annual Additions which may be allocated under this Plan on a Participant's behalf for an Allocation Limitation Year, shall not exceed the lesser of: 57 60 (i) The Maximum Annual Addition, reduced by the sum of any Annual Additions allocated to the Participant's accounts for the same Allocation Limitation Year under this Plan and such other defined contribution plans; or (ii) Any other limitation contained in this Plan. (b) Prior to the determination of the Participant's actual Compensation for the Allocation Limitation Year, the amounts referred to in (a)(i), above, may be determined on the basis of the participant's estimated annual Compensation for such Allocation Limitation Year. Such estimated annual Compensation shall be determined on a reasonable basis and shall be uniformly determined for all Participants similarly situated. Any Employer Contribution (including allocation of Forfeitures) based on estimated annual Compensation shall be reduced by any Excess Amounts carried over from prior years. (c) As soon as is administratively feasible after the end of the Allocation Limitation Year, the amounts referred to in (a)(i) shall be determined on the basis of the Participant's actual compensation for such Allocation Limitation Year. (d) If a Participant's Annual Additions under his Plan and all such other plans result in an Excess Amount, such Excess Amount shall be deemed to consist of the Amounts last allocated. In particular, if amounts are allocated as of the same date, Elective Deferrals under the United Companies Financial Corporation Employees' Savings Plan or any other cash or deferred arrangement shall be allocated first; any required Employer Contributions and Qualified Nondeductible Employee Contributions under the United Companies Financial Corporation Employees' Savings Plan or any other cash or deferred arrangement in order to satisfy nondiscrimination tests will be allocated second; Matching Contributions under a Plan which permits such Contributions shall be allocated third; discretionary Employer Contributions under the United Companies Financial Corporation Employees' Savings Plan and Trust shall be considered allocated fourth; Forfeitures of stock acquired with the proceeds of an Employee Stock Ownership Plan Loan shall be allocated fifth and generally not constitute Annual Additions; amounts allocated as a result of payment of an Employee Stock Ownership Plan Loan under this Plan shall be allocated sixth; and Employer Contributions allocated under a Plan which provides for discretionary Employer Contributions, such as this Plan & Trust, shall be considered to have been allocated last. Thus, Elective Deferrals and Matching Contributions which are allocated prior to the last day of the Plan Year, such as on quarterly allocation dates, will be allocated before any of the above which are allocated on the last day of the Plan Year. Notwithstanding the above, Annual Additions attributable to a welfare benefit fund, if any, will be 58 61 deemed to have been allocated first, regardless of the actual allocation date. Furthermore, notwithstanding the above, to the extent provided in the United Companies Financial Corporation Employees' Savings Plan & Trust, Elective Deferrals under said Employees' Savings Plan & Trust, may be returned to Participants to the extent of Excess Amounts of such Participants still present after the adjustments made under this ESOP have been made, with such return of Elective Deferrals to take place prior to other adjustments in the Employees' Savings Plan & Trust. This paragraph shall be effective January 1, 1994. (e) If an Excess Amount was allocated to a Participant on an allocation date of another plan, the Excess Amount attributed to this Plan will be determined by applying the order in (d) above. To the extent that the ordering as between this Plan and the other plan is not specified or is determined to be the same, then the excess amount attributed to this Plan shall be the product of, (i) The total Excess Amount allocated as of such date (including any amount which would have been allocated but for the limitations of section 415 of the Code), times 59 62 (ii) The ratio of (1) the amount allocated to the Participant as of such date under this Plan, divided by (2) the total amount allocated as of such date under all qualified defined contribution plans (determined without regard to the limitations of section 415 of the Code). (f) Any Excess Amounts attributed to this Plan shall be disposed of as provided in section 8.01, subsection (d). 8.03 (a) If the employer maintains one or more defined contribution plans and one or more defined benefit plans, the sum of the Defined Contribution Plan Fraction and the Defined Benefit Plan Fraction, cannot exceed 1.0 for any Limitation Year. (b) For purposes of this section, employee contributions to a qualified defined benefit plan are treated as a separate defined contribution plan. (c) For purposes of this section, all defined contribution plans of an employer are to be treated as one defined contribution plan and all defined benefit plans of an employer are to be treated as one defined benefit plan, whether or not such plans have been terminated. (d) If the sum of the Defined Contribution Plan Fraction and Defined Benefit Plan Fraction exceeds 1.0; the annual addition to the defined contribution plans for the limitation year will be reduced so that the sum of the fractions will not exceed 1.0. 8.04 For purposes of this Article, the following terms shall be defined as follows: (a) Compensation shall be as defined in Article II, except that all Compensation which is includible in income shall be included, including Compensation from all Affiliated Employers, even during a period of nonparticipation. Exclusions of fringe benefits from the definition in Article II shall not be taken into account for purposes of this Article. Aggregation of Family Members of Highly Compensated Employees shall not be taken into account for purposes of this Article. (b) Employer shall mean the Company and each Employer which adopts this Plan and all Affiliated Employers, except that Common Control shall be determined as modified by Code section 415(h), which Employers shall be considered a single Employer for purposes of applying the limitations of this Article. (c) Limitation Year shall mean the Allocation Limitation Year as defined in Article II. 60 63 (d) Average Compensation shall mean the average Compensation during a Participant's high 3 Years of Service, which period is the 3 consecutive calendar years (or, the actual number of consecutive years of employment for those Employees who are employed for less than 3 consecutive years with the Employer) during which the Employee had the greatest aggregate compensation from the Employer. ARTICLE IX PLAN ADMINISTRATOR 9.01 The Board of Directors of the Company shall appoint a Plan Administrator. The Plan Administrator shall consist of not less than one (1) nor more than nine (9) persons, corporations, or other legal entities. The Plan Administrator shall serve at the pleasure of the Company and vacancies in the position of Plan Administrator arising by reason of resignation, death, removal, or otherwise, shall be filled by the Company. Any Plan Administrator may resign of his own accord by delivering his written resignation to the Company. If the Company does not designate a Plan Administrator, or if the position of Plan Administrator is vacant for any reason, then the Company shall serve as the Plan Administrator. 9.02 The Plan Administrator shall administer the Plan and is authorized to make rules and regulations as it may deem necessary to carry out the provisions of the Plan and to employ investment counsel, attorneys, accountants, and such other persons as it shall deem necessary or desirable in the administration of the Plan. The Plan Administrator shall determine any question arising in the administration, interpretation, and application of the Plan, which determination shall be binding and conclusive on all persons. Employment and compensation shall be determined by the Plan Administrator from the records of the Employer. The Plan Administrator shall exercise all voting powers granted to the Trust through ownership of any shares of the Company. All powers granted to the Plan Administrator shall be discharged in a nondiscriminatory manner and for the exclusive benefit of Participants and their beneficiaries or for defraying the reasonable costs of administration. In addition, the Plan Administrator shall discharge its duties and power in conformance with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. Except as provided for hereinafter, the Plan Administrator shall direct the Trustee as to the exercise of all voting powers over any shares of Qualifying Employer Securities. The Participant shall be entitled to direct the Trustee as to the exercise of all voting powers over shares allocated to his 61 64 account that are Registration Type Qualifying Employer Securities. The Participant shall be entitled to direct the Trustee as to the manner in which the voting rights will be exercised over shares allocated to his account that are not Registration Type Qualifying Employer Securities with respect to any corporate matter which involves the voting of such shares allocated to the Participant's account with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business, or such similar transaction as may be prescribed in Treasury regulations. At the time proxy materials are forwarded to company shareholders for each annual or special meeting of company shareholders, the Plan Administrator will send to each Participant who has Qualifying Employer Securities then allocated to his account(s) and who is entitled to vote such securities pursuant to the terms herein set forth the proxy form on which may be set forth the Participant's instructions as to the manner of voting the shares (including fractional shares) of Qualifying Employer Securities. All shares of Qualifying Employer Securities which have not been allocated to the Accounts of Participants shall be voted by the Trustee at such meeting in the same proportion in which allocated shares of Qualifying Employer Securities are voted. 9.03 The Plan Administrator shall maintain accounts showing the fiscal transactions of the Plan. The Plan Administrator shall prepare annually a report showing in reasonable detail the assets and liabilities of the Plan and giving a brief account of the operation of the Plan for the past year. Such report shall be submitted to the Board of Directors of the Employer and the Participants in the Plan and shall be filed in the office of the Plan Administrator. 9.04 The Plan Administrator may appoint a Chairman and a Secretary and such other officers as it shall deem advisable. The Plan Administrator shall act by a majority of its members at the time in office and such action may be taken either by a vote at a meeting or in writing without a meeting. The Plan Administrator may by such majority action authorize any one or more of its members to execute any document or documents on behalf of the Plan Administrator. 9.05 Unless otherwise determined by the Employer, the Plan Administrator shall serve without compensation for services rendered. Expenses of the Plan Administrator related to Plan establishment, design and termination shall be paid by the Employer. Other expenses shall be paid by the Employer or by the Trust. Such expenses shall include any expenses incident to the functioning of the Plan Administrator, including, but not limited to, salaries of employees, fees of investment counsel, attorneys' 62 65 fees, accounting charges, and other costs of administering the Plan. 9.06 The Employer shall indemnify and hold harmless each member of the Plan Administrator from any and all claims, loss, damages, and expenses, arising from any act or omission of such member, except when the same is judicially determined to be due to violations of the Employee Retirement Income Security Act of 1974. No Plan assets may be used for any such indemnification. 9.07 The Plan Administrator shall arrange for such bonding as may be required by the Employee Retirement Income Security Act of 1974, but no bonding in excess of the minimum amount required by law shall be considered as required by the Plan. 9.08 The Plan Administrator may consent to exclude from the allocation of Qualifying Employer Securities acquired by the Plan in a transaction in which the selling taxpayer elected nonrecognition under Code section 1042, the seller and such other persons stated in Article VI for the Nonallocation Period. The Plan Administrator may require a demonstration that the transaction is in fact eligible for such treatment as a condition of such special allocation and shall have complete discretion as to whether to permit such Qualifying Employer Securities to be so allocated. The Plan Administrator shall not be permitted to consent to the above allocation in connection with this transaction if the Plan does not own more than thirty (30%) percent of the total value of Qualifying Employer Securities outstanding immediately after the sale or if the Other Investments Accounts of the Participants to whom the special allocation is to be made do not have sufficient assets for such purchase. The determination of the Plan Administrator to engage in such a purchase shall constitute the exercise of fiduciary responsibility, and shall accordingly only be made when prudent and in the best interests of Plan Participants and their Beneficiaries. 9.09 The Plan Administrator may, as a condition for the crediting of the service of a Participant for periods of pregnancy, birth, adoption or child care after birth or adoption in order to avoid a Break in Service, adopt a policy of requiring such Participant to furnish certain information within a reasonable time. Any such policy shall be communicated to Participants in a manner (including in a summary plan description) reasonably designed to apprise each Participant of such Policy. The Participant may be required to establish that the absence from work is for pregnancy, birth of the Participant's child, adoption of a child by the Participant, or the care of such newborn or adopted child for a period immediately following such birth or adoption. The Participant may also be required to establish the number of days for which 63 66 there was such an absence. The Plan Administrator may require such information as is reasonable to satisfy it as to the accuracy of the such claimed service. 9.10 The Plan Administrator shall establish reasonable procedures to determine the qualified status of Domestic Relations Orders. The Plan Administrator shall be responsible for the interpretation of any Domestic Relations Order, but may request clarification from the Participant, the alternate payee or payees, the Court rendering such Domestic Relations Order, or any other affected persons. In the case of any Domestic Relations Order received by a Plan, the Plan Administrator shall promptly notify the Participant and any alternate payee of the receipt of such order and the Plan's procedures for determining the qualified status of the Domestic Relations Orders. As part of such procedure, the Plan Administrator may request a legal opinion from the Plan's legal counsel, after notification of the affected parties, of the provisions of any such Domestic Relations Order, with the Participant and all alternate payees to bear the expense of such opinion. The Plan Administrator may also request a court of competent jurisdiction for a determination of the status of a Domestic Relations Order. During any period in which the issue of whether a Domestic Relations Order is a Qualified Domestic Relations Order is being determined, the Plan Administrator shall segregate in a separate account in the Plan or in an escrow account the amounts which would have been payable to the alternate payee during such period if the order had been determined to be a Qualified Domestic Relations Order. Within a reasonable period after receipt of a Domestic Relations Order, the Plan Administrator shall determine whether such order is a Qualified Domestic Relations Order and notify the Participant and each alternate payee of such determination. If within eighteen (18) months after the date on which the first payment would be required to be made under the Domestic Relations Order the Plan Administrator determines that the Domestic Relations Order is a Qualified Domestic Relations Order, then payment shall be made to the alternate payee of any amount held in the segregated account of escrow account. If within eighteen (18) months after the date on which the first payment would be required to be made under the Domestic Relations Order either (a) it is determined that the Domestic Relations Order is not a Qualified Domestic Relations Order, or (b) the issue of qualification cannot be resolved, then the Plan Administrator shall cause to be paid the segregated amounts (with interest, if applicable) to the person or persons who would have been entitled to such payment in the absence of the Domestic Relations Order. 64 67 9.11 In the event that a tender offer is made for some or all of the shares of Company Stock, each Participant or Beneficiary shall have the right to direct whether those shares allocated to his account, whether or not vested, shall be tendered. This right shall be exercised in the manner set forth herein. In the absence of a written directive from or election by a Participant or Beneficiary to the Plan Administrator, after having been notified, the Participant or Beneficiary shall be deemed to have chosen not to tender his or her shares, and the Plan Administrator shall direct the Trustee not to tender such shares. Because the choice is to be given to the Participants, the Plan Administrator and the Trustee shall not have fiduciary responsibility with respect to the decision to tender or not or whether to tender all of such shares or only a portion thereof. In order to facilitate the decision of Participants whether to tender their shares in a tender offer (or how many shares to tender), the Plan Administrator shall provide election forms for the Participants, whereby they may elect to tender or not and whereby they may elect to tender all or a portion of such shares. Such election may be made or changed at any time prior to the day before the expiration date of the tender offer (with extensions); any election or change in election must be received by the Plan Administrator, or a designated representative of the Plan Administrator, on or before the day preceding the expiration date of the tender offer (with extensions, if any). The election shall be binding on the Plan Administrator and the Trustee. The Plan Administrator shall make every effort to distribute the notice of the tender, election forms and other communications related to the tender offer to all Participants as soon as practicable following the announcement of the tender offer, including mailing such notice and form to Participants and posting such notice in places designed to be reviewed by Participants. Shares which are not allocated to the account of any Participant shall not be tendered and the proceeds used to repay an exempt loan unless the tender offer may result in Employer Securities no longer being available and the price fixed during the tender offer would produce a financial gain to the Plan Participants as compared with the alternative of not tendering such stock. The Plan Administrator shall make such determination. Subject to this limitation, such shares shall be tendered or not as the majority of shares held by Participants and directed by them is tendered or not. ARTICLE X RESTRICTIONS ON DISPOSITION 10.01 This Trust shall be a spendthrift trust as that term is defined in the Louisiana Trust Code, and the assets herein 65 68 shall be held subject to the maximum restraint on voluntary or involuntary alienation by the Participants and their respective Beneficiaries permitted by the provisions of the Louisiana Trust Code. These restrictions on disposition shall apply to any person for whom an account is maintained hereunder, including Inactive Participants. 10.02 The assets of the Trust shall not be subject to alienation, assignment, Trustee process, garnishment, attachment, execution, or levy of any kind, except as may be necessary to repay advances made by the Trustee for its fee and expenses of the Trust, and no attempt to cause such assets to be so subjected shall be recognized except to such extent as may be required by law. If any Participant shall attempt to alienate or assign his interest provided in the Trust, or if the right to any benefit payable with respect to a participant is created, assigned or recognized in favor of another person, the Trustee shall take such steps as it deems necessary to preserve such interest for the benefit of the Participant or his Beneficiaries. 10.03 Notwithstanding the limitation on alienability contained herein, the Trustee shall not be precluded from complying with a court order of a court of competent jurisdiction, so long as such order is a Qualified Domestic Relations Order. ARTICLE XI NO REVERSION TO EMPLOYER 11.01 At no time shall it be possible for the plan assets to be used for, or diverted to, any purpose other than for the exclusive benefit of the Participants and their Beneficiaries, except that Contributions made by the Employer may be returned to the Employer if: (a) The Contribution was conditioned on the initial qualification of the Plan under the Internal Revenue Code, the Plan does not so qualify and the contribution is returned within one year after the Plan is found to not so qualify; (b) The Contribution was made due to a mistake of fact; and the Contribution is returned within one year of the mistaken payment of the Contribution; or (c) The Contribution was conditioned on its deductibility, the deduction is disallowed, and the Contribution is returned within one year of the disallowance of the deduction. 11.02 In the case of a Contribution made due to a mistake of fact, the amount of the Contribution returned may not exceed the difference between the amount actually contributed and the 66 69 amount which would have been contributed had there been no mistake of fact and may not include the earnings attributable to such Contribution. The amount of the Contribution returned must be reduced by any losses attributable to the Contribution, and no Participant may have his Employer Contribution Account reduced by the return of the Contribution to less than such account would have been had the returned Contribution never been made. 11.03 In the case of a Contribution conditioned on its deductibility, the deduction for all or part of which is disallowed, the amount of the Contribution returned may not exceed the difference between the amount actually contributed and the amount which would have been contributed had there been no error in determining the deduction and may not include the earnings attributable to such Contribution. The amount of the Contribution returned must be reduced by any losses attributable to the Contribution, and no Participant may have his Employer Contribution Account reduced by the return of the Contribution to less than such account would have been had the returned Contribution never been made. ARTICLE XII TRUSTEE POWERS, RIGHTS AND DUTIES 12.01 Subject to the terms and provisions of the Plan, and the directions and rules and regulations of the Plan Administrator issued pursuant thereto, the Trustee shall have all of the powers that may be exercised by a Trustee under Louisiana law, including, but not limited to, those powers that Trustees are permitted to exercise under the provisions of the Louisiana Trust Code, and such additional powers as may hereafter be permitted Trustees by Louisiana law. 12.02 Pursuant to the direction of the Plan Administrator, the Trustee shall invest any cash received for the account of any Participant or credited to the account of any Participant to the extent practicable in Qualifying Employer Securities, in accordance with Article VI. Investment direction by the Plan Administrator shall be binding upon the Trustee and in following the Plan Administrator's written direction, the Trustee shall assume no liability or responsibility for such investments, so long as they are consistent with the terms of the Plan and ERISA. 12.03 Subject to the foregoing limitations, the Trustee may invest in bonds, notes, mortgages, commercial paper, preferred stocks, common stocks, or other securities, rights, obligations of property, real or personal, including shares and certificates of participation issued by investment companies or investment trust whether or not such investments be authorized for Trust funds and including stock, securities and Qualifying Employer Real Property of the Employer and any Affiliated Employer; and 67 70 except as provided for in Article IX may vote personally or by proxy any shares of stock; and may lease, mortgage or pledge any of the property upon such terms as it deems advisable; and may borrow money with or without mortgaging the Trust assets; and may compromise or arbitrate any claim in favor of the Trust. The Trustee may also purchase insurance for the benefit of the Trust on the lives of shareholders of the Employer and on the lives of those employees whose death could result in a reduction of the Employer's profits. The Trustee may retain in cash a portion of the Trust fund either awaiting investment or to meet contemplated payments under this Trust. Funds of the Plan may be invested in deposit accounts or certificates of deposit bearing a reasonable rate of interest in the Hibernia National Bank. 12.04 The Trustee is further authorized and empowered to sell, assign, exchange, or transfer assets held from time to time and to purchase other assets from the proceeds thereof, and to receive, hold, invest and reinvest the income from the increment of the funds. 12.05 The Plan Administrator may direct the Trustee to obtain Loans. Any such Loan will meet all requirements necessary to constitute an "exempt loan" within the meaning of Treasury Regulation section 54.4975-7(b)(1)(iii) and shall be used primarily for the benefit of the Participants and Beneficiaries. The proceeds of any such Loan shall be used, within a reasonable time after the Loan is obtained, only to purchase Qualifying Employer Securities, repay the Loan, or repay any prior Loan. Any such Loan shall further meet the requirements of Article XVII. 12.06 The Trustee shall have the right to borrow or raise money for the purpose of the Trust in such amount and upon such terms and conditions as the Trustee shall deem advisable; and, for any amount so borrowed, to issue his promissory note as Trustee and to secure the repayment thereof by pledging all or any part of the Trust fund; and no person lending money to the Trustee shall be bound to verify the application of the money lent or to inquire into the validity, expediency or propriety of any such borrowing. In the event, however, that the Trustee desires to borrow money upon the security of a pledge of insurance policies outstanding with respect to the lives of Participants under the Plan, the power to borrow heretofore stated is subject to the conditions that such borrowing shall be for the sole purpose of the payment of premiums on such policies. 12.07 The Trustee may act with the same care as would a prudent man, who was familiar with such matters, when acting in a like capacity in a similar enterprise having similar purposes; and, unless it is "prudent" not to do so, the Trustee must diversify the Plan's investments so as to minimize the risk of 68 71 large losses, except with regard to the purchase of Qualifying Employer Securities. 12.08 The Trustee may not: (a) Deal with the assets of the Plan and Trust for his own account; (b) Act, in any capacity in any transaction involving the Plan and Trust, on behalf of a party whose interests are adverse to the Plan and Trust or its Participants; (c) Receive any consideration from any party in connection with any transaction involving fund assets; or (d) Maintain indicia of ownership of any Plan and Trust assets outside of the jurisdiction of the United States District Courts. 12.09 Except as hereinafter provided, the Trustee or other fiduciary may not engage in a transaction which constitutes an acquisition, sale or lease of property between the Trust and a "Party-in-Interest" except that the acquisition, sale or lease of Qualifying Employer Securities between the Trust and a Party-in-Interest shall be permitted, provided the transaction is carried on in an arm's-length basis and for adequate consideration and no commission is charged with respect thereto, and such transaction otherwise meets the requirements of section 408(b) of ERISA and section 4975(d)(3) of the Code. Except as hereinafter provided, the Trustee or other fiduciary may not engage in any transaction which constitutes the direct or indirect lending of money or extension of credit between the Trust and a party-in-interest except that direct or indirect Loans for the acquisition of Qualifying Employer Securities made by a party(s)-in- interest to the Trust shall be permitted if the Loan is primarily for the benefit of Participants, if the Loan bears a reasonable interest rate, and if, when collateral is given for such Loan, it consists only of Qualifying Employer Securities. Except as hereinafter provided, the Trustee or other fiduciary cannot engage in any transaction which constitutes the direct or indirect: (a) Furnishing of goods, services or facilities between the Trust and a party-in-interest; (b) Transfer to, or use by or for, the benefit of a Party-in-interest of any of the Trust's assets; or 69 72 (c) Acquisition by the Plan of any Employer security or Employer real property which is not qualifying or which is in excess of that permitted by the Employee Retirement Income Security Act of 1974, as amended. 12.10 Notwithstanding the above, the Trustee may engage in the transactions otherwise prohibited hereunder in the following circumstances: (a) An exemption from the Secretary of Labor under section 408 of Title I of the Employee Retirement Income Security Act of 1974 ("ERISA") has been received or may reasonably be expected to be received because the terms of such transaction were of an arm's-length nature; (b) The transaction is necessary in order to correct a previous prohibited transaction or transactions, whether entered into before or after the enactment of ERISA; (c) The transaction is made pursuant to a directive or suggested course of action of the U.S. Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Secretary of the Treasury, the Secretary of Labor, or any other Federal or State regulatory agency; (d) The transaction is entered into pursuant to advice or recommendation or opinion of counsel that it may reasonably be undertaken in order to effect a correction or satisfy a directive stated in (b) or (c) above, or that the transaction is not a prohibited transaction as that term is defined in ERISA; or (e) The transaction is the subject of, or probably the subject of, a class exemption issued by the Internal Revenue Service and/or U.S. Department of labor. If, notwithstanding the above, the Trustee engages in a prohibited transaction, he shall immediately notify the Plan Administrator, and together the Trustee and Plan Administrator shall notify the Participants, the U.S. Department of Labor and the Internal Revenue Service of the transaction within the period provided in ERISA for such notification, and shall take action to correct the transaction, to obtain an exemption referred to above or to report and pay taxes thereon. 12.11 If permitted by the Trustee and the Plan Administrator pursuant to a policy of uniform applicability, individual insurance and annuity contracts may be purchased for the Other Investment Accounts of Participants. Insurance coverage is intended to be incidental to the purpose of this Plan. Accordingly, if a portion of Employer Contributions is to be used to pay the premiums of ordinary life insurance contracts 70 73 on the life of an active Participant, and if such payments and contracts are allocated to the account of the insured Participant, then the aggregate premiums paid for such contracts for any Participant shall be less than 50% of the aggregate Employer Contributions made on such Participant's behalf at any particular time; for term type insurance contract, the aggregate premiums for such contracts shall be less than 25% of the aggregate Employer Contributions made on such Participant's behalf at any particular time. If whole life and term insurance are acquired for the benefit of a Participant's account, the sum of one-half of the aggregate premiums for whole life insurance and all of the aggregate premiums for term insurance shall be less than twenty-five (25%) percent of the aggregate Employer Contributions made on such Participant's behalf as of any date. However, Employer Contributions held under the Plan on behalf of the Participant for at least two (2) years shall be available for payment of premiums in addition to the foregoing limits. Furthermore, the Plan may purchase insurance contracts on the lives of Key Employees on whom the value of Company Stock depends. Such contracts shall not be held in the accounts of any Participants and shall not be subject to the foregoing limits. 12.12 The Trustee may accept, but is not required to accept, at the direction of the Plan Administrator, a qualified Rollover Contribution or a rollover amount from another qualified trust from an Employee as permitted under the Code. The Trustee may require such documentation and written representations as he feels necessary to ensure that such contribution is a qualifying Rollover Contribution, rollover amount, or direct transfer. Such a Contribution by an Employee shall be adjusted as hereinafter provided for earnings and asset reevaluations, but shall not in any event enter into the allocation of Forfeitures. Such a Contribution shall not be considered an Annual Addition or Employer Contribution for purposes of determining the maximum amount of Annual Additions which may be made on behalf of a Participant or deductible Employer Contribution which may be made to the Plan. The Trustee may accept funds transferred directly from another corporate employee retirement plan upon the termination or merger of such plan into this Employee Stock Ownership Plan or upon the merger of the corporate employer under such other plan into the Company. If such funds include Employee Contributions, then amounts attributable to Employee Contributions shall be separately accounted for and shall not be used to purchase Qualifying Employer Securities. Such funds will share in the earnings and losses of the fund. All Participants in this Plan, including Participants in the merged Plan and in this Plan prior to merger who are still participating at the time of the Forfeiture allocation, shall share in the allocation of Forfeitures occurring in this Plan subsequent to such merger. 12.13 The Trustee shall not be responsible in any way for the collection of contributions provided for under the Trust. 71 74 The Trustee shall accept and hold under the Trust such Contributions of money, or other property approved by the Employer for acceptance by the Trustee, on behalf of the Employer and Participants as it may receive from time to time from the Employer. All such Contributions shall be accompanied by written instructions from the Employer accounting for the manner in which they are to be credited. 12.14 On a receipt of a written order from the Plan Administrator certifying that a Participant's benefits are payable pursuant to the Trust, the Trustee shall take such action as may be necessary to make distribution in such form and at such time as the order for payment so directs. However, before making any such distribution in the event of a Participant's death, the Trustee shall be furnished with any and all certificates, tax waivers and other documents which may be requested in its discretion. 12.15 The Trustee may retain or consult counsel, including an investment adviser, which may be the counsel to the Employer, to the Trustee or to the Plan Administrator, with respect to the meaning, or construction of terms of the Trust or Plan, or with respect to its obligations or duties thereunder, or with respect to any claim, action, proceeding or question of law. The Trustee may engage agents to assist in its carrying out the provisions of the Trust. The Trustee shall be fully protected in any action taken or not taken by it in good faith pursuant to advice of counsel or agents, and shall in no event be liable for the action or nonaction of such agents, provided the Trustee shall have exercised due care in selection of such agents. 12.16 The Trustee shall not be responsible for the purpose or propriety of any distribution made pursuant to directive of the Plan Administrator or any action or nonaction taken pursuant to the written instructions of the Plan Administrator, including investment directions, as long as these instructions are made in accordance with the terms of this Plan document and are not contrary to Title I of the Employee Retirement Income Security Act of 1974. 12.17 Fees, taxes and expenses of the Trust shall be subject to the provisions of this Article as follows: (a) Fees -- The Trustee in consideration of its services under the Trust shall receive such reasonable compensation as the Employer and the Trustee mutually agree. If the Trustee is in the business of providing trust services, then the Trustee's normal charges shall be considered reasonable and the Employer shall be considered to have agreed thereto. The Trustee may change such compensation at any time upon thirty (30) days' written notice to the Employer, or may agree to waive fees. If a Trustee is an individual Trustee who is also an Employee or 72 75 officer of any Employer hereunder, such person shall not be entitled to such fees and shall not be paid any fees hereunder. Reasonable fees and expenses incurred by the Trustee in connection with the affairs of the Trust may be paid by the Trust or by the Employer. (b) Taxes -- Any income, gift, estate and inheritance taxes and other taxes of any kind whatsoever, including transfer taxes incurred in connection with the investment, reinvestment or distribution of the assets of the Trust, that may be levied or assessed in respect to such assets or interest of specific Participants, shall be charged to such accounts or interests and if not so allocable they shall be charged proportionately to the accounts or interest of all Participants, or to the Employer, as the circumstances shall require. (c) Expenses -- All other administrative expense incurred by the Trustee in the performance of its duties, including fees for legal services rendered to the Trustee, shall be paid from the assets of the Trust, but in the discretion of the Employer such expenses may be paid by the Employer after a statement of such expenses is rendered by the Trustee to the Employer. Expenses of Plan establishment, design and termination must be paid by the Employer. (d) Collection -- All fees of the Trustee and taxes and other administrative expenses charged to the Trust shall, at the Trustee's option, be paid by the Employer to the Trustee with the amount of the first contribution for each Trust Year which is to be credited to the Trust; if no contribution is made thereto in that year, and if the assets of the trust are insufficient to satisfy such charges, the Employer shall pay any deficit therein to the Trustee. (e) Bonding -- An individual Trustee need not furnish security or bond, as otherwise required under Title 9, section 2171 of the Louisiana Revised Statutes, except as may be required under ERISA or other Federal law. The Employer shall bear the expense of any such bond required. 12.18 The Trustee may resign at any time upon thirty (30) days' written notice to the Company, or if so requested in writing by the Company, shall resign with thirty (30) days following receipt of such request. Upon resignation by the Trustee, the Company shall appoint a Successor Trustee. Upon receipt by the Trustee of written acceptance of such appointment of a Successor Trustee, the Trustee shall convey, assign, and deliver to such Successor Trustee the assets of the Trust, together with all records pertaining thereto. The Trustee is authorized, however, to reserve such assets as it may deem advisable for payment of all fees, compensation, costs and expenses, or for payment of any other liabilities and constituting a charge on or against the assets of the Trust or on or against the Trustee, with any balance remaining after the 73 76 payment of all such items to be paid over to the Successor Trustee. The Successor Trustee shall have the right, title and interest in the assets paid over to it, and all powers, rights and duties under the Trustee vested in the Trustee shall vest in such Successor Trustee immediately upon its appointment and acceptance, and thereupon all further duties and liabilities of the Trustee who has been succeeded shall terminate, except for an accounting as may be required. 12.19 If two or more persons are designated as Trustee, any one of the said persons shall have the authority and power to act on behalf of all Trustees with the approval of all Trustees, and to sign and execute any and all such forms, instruments and documents as may be required in the capacity of Trustee. When so signed or executed any such document shall be accepted by any person as conclusive and binding upon all Trustees and upon this Trust, as to any and all matters contained therein, and any person dealing with the said Trustees or with this Trust shall be fully protected in acting in reliance on the provisions of any such form, instrument or document signed by any one of the said Trustees. 12.20 The Employer agrees to indemnify the Trust fund and the Trustee against any liability imposed as a result of a claim asserted by any person or persons under the laws of any state or the federal government where the Trustee has acted under this Plan in good faith in reliance on a written direction of the Plan Administrator or an instrument, certificate or paper it believed genuine. 12.21 Notwithstanding any other provisions of the Plan, the Trustee hereof may cause any part or all of the monies and assets of this Trust to be commingled with monies and assets to be invested as a part of any collective investment trust which then provides for the pooling of assets of plans described in section 401(a) of the Code and exempt from tax under section 501(a) of the Code, provided that such collective investment trust is exempt from tax under the Code or regulations or rulings issued by the Internal Revenue Service and is then maintained by the Trustee. Monies and assets of this trust invested in such a Trust shall be held and administered by the Trustee strictly in accordance with the terms of or under the powers granted in said declarations of trust as they may be amended from time to time, and the document governing any such collective investment trust are hereby made a part of the Plan. Without limiting the generality of the foregoing, the following declarations of trust executed by the Trustee are hereby incorporated by reference: any common trust fund or mutual fund maintained by Hibernia National Bank or its affiliates. 74 77 ARTICLE XIII AMENDMENT, TERMINATION OR DISCONTINUANCE 13.01 While it is the intention of the Company that this Plan shall be permanent, the Company reserves the right at any time to amend any of the provisions of this Trust or to revoke it in its entirety. Any such revocation or amendment to this Trust shall become effective immediately, upon receipt by the Trustee of a written instrument or revocation or amendment signed on behalf of the Employer by its duly authorized representative. Each Employer may continue or withdraw from the Plan in the manner provided herein; otherwise, the Company shall act on behalf of all Employers. 13.02 Notwithstanding the provisions of this Article XIII, or of any other provisions of this Plan, any amendment may be made, retroactively if necessary, which the Company deems necessary or appropriate to conform the Plan to, or to satisfy the conditions of any law, government regulation or ruling, and to permit the Plan to meet the requirements for qualification under section 401 of the Code, and to permit the Trust to meet the requirements for tax- exempt status under section 501 of the Code. Any such amendment shall conform with the provisions of Code section 401(b). No amendment shall reduce the Accrued Benefit of any Participant. 13.03 No amendment to this Trust shall operate to deprive any Participant of his vested interest in his distributive share. In the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each Participant in the Plan would (if the Plan is then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the Plan had then terminated). 13.04 Upon the termination or partial termination of this Trust or upon the discontinuance of contributions by the Company and by each participating Employer without formal termination of this Trust, the Trustee shall revalue and redetermine the Accrued Benefit of each Participant who is affected by said termination or partial termination. The entire Accrued Benefit of each Participant (or each Affected Employee in the case of a partial termination) shall be nonforfeitable. In the case of a complete termination, the Accrued Benefit shall be paid and distributed to such Participant, or in the case of his death before such distribution, to the Beneficiary or Beneficiaries designated by such Participant. A Participant's right to his Accrued Benefit is not conditioned upon a sufficiency of Plan assets in the event of termination. 75 78 13.05 Notwithstanding such termination of this Trust as herein provided, the Trustee shall continue the Trust in force and effect for the sole purpose of liquidating the distributive shares of the respective Participants. 13.06 Upon termination of the Plan or a complete discontinuance of contributions under the Plan, any funds which remain unallocated under the provisions of Article VIII shall be allocated to the Participants in proportion to their compensation for the Plan Year in which the termination takes place, except that the limitations of Article VIII shall apply with respect to each Participant for such Plan Year. Any unallocated portion thus remaining shall be allocated in proportion to compensation. 13.07 If an amendment is made to the Plan which either directly or indirectly affects its vesting schedule, then for any Employee who is a Participant in the Plan on the later of the date the Plan is amended or the effective date of the amendment, his nonforfeitable percentage shall not be reduced by reason of such amendment. Furthermore, if such Participant has completed three (3) or more Years of Service with the Employer (as defined either before or after the amendment), he shall be entitled to elect to have his nonforfeitable interest determined without regard to the amendment, provided that the opportunity for such election shall not be afforded to those Participants whose nonforfeitable percentage under the Plan, as amended, at any time cannot be less than the percentage determined without regard to such amendment. The period of the election shall begin on the date that the amendment is adopted and shall end on the latest of the following dates: (i) 60 days after the adoption date; (ii) 60 days after the effective date of the amendment; or (iii) 60 days after the Participant is issued written notice of the amendment. The Plan Administrator shall prescribe the form of such written notice in the election by the Participant. The election, once made, shall be irrevocable. 13.08 No amendment shall be made which reduces or restricts, directly or indirectly, the accrued benefit of any Participant or which eliminates or reduces early retirement benefit or optional form of benefit; however, this plan as an Employee Stock Ownership Plan shall not be treated as failing to meet this requirement merely because it modifies distribution options in a nondiscriminatory manner. Any plan provision which restricts or would deny a participant through the withholding of consent or the exercise of discretion by some person or persons other than the participant (and where relevant, other than the participant's spouse) of an alternative form of benefit is hereby amended by the deletion of the consent and/or discretion requirement. 76 79 An alternate form of benefit, by definition, encompasses the different forms of benefit payment available under the plan which provides that: (a) Participant's benefits under the plan may be paid in more than one form, or (b) Payment of a particular form of benefit may commence at sometime earlier or later than the normal date for the commencement of such benefit. Notwithstanding the above, the elimination of the distribution in the event of financial hardship shall not be considered the elimination of a form of benefit which shall be covered by this section. This paragraph and such elimination of distribution shall be conditioned on the approval of the Internal Revenue Service. ARTICLE XIV CLAIMS FOR BENEFITS: DENIALS AND APPEALS 14.01 A Participant or Beneficiary shall automatically be paid the benefit due him under the provisions of Article VII. The Plan Administrator shall have the full discretion and authority to interpret the Plan and to determine, in accordance with its reasonable interpretation of the Plan documents, the amount of any benefit due any Participant or Beneficiary and the timing of the payment to any Participant or Beneficiary by the Plan. If, however, a Participant or Beneficiary disagrees with the amount or time of payment of a benefit paid or to be paid him or believes that he is due to be paid a benefit which the Plan Administrator has indicated will not be paid to him, then he shall make a claim for benefits in accordance with the terms of this Article. 14.02 A Participant must make a claim in writing to the Plan Administrator for any benefit pursuant to the provisions of this Article XIV after such time as all Participants have been notified as to the identity of such Plan Administrator. Otherwise, a benefit hereunder may be considered to have been claimed if any employee has in writing informed any executive officer of the employer that he is interested in knowing whether he is entitled to any benefit under this Plan. 14.03 The Plan Administrator shall have full discretion and authority to determine the merits of any claim for benefits, consistent with the Plan Administrator's reasonable interpretation of the Plan documents. The Plan Administrator shall, within ninety (90) days of receipt of such claim, if he denies in whole or in part a claim for the benefit, write a letter to the claimant setting forth the reasons for denial with 77 80 reference to specific provisions of the Plan which are applicable and an explanation of the necessary steps under this Article XIV, below. 14.04 Any claimant for a benefit (or, as applicable, his estate or other representative or beneficiary) may, within sixty (60) days after receipt of the letter referred to in section 14.03 appeal to an Appeals Committee (if more than one person) or Appeals Officer from time to time appointed (if and when required) by the employer as named fiduciary and request a review of the denial of benefit with opportunity to submit his position in writing. The Appeals Committee or Officer not later than sixty (60) days (or one hundred (100) days, if a hearing is held) after the request for review referred to in the foregoing provisions of this Article XIV is received, shall render a written decision and mail same to claimant at the last address known to the Employer specifying by reference to the Plan the reasons for denial of such part or all of the claimed benefit as it or he denies upon review of the appeal. 14.05 If a former Participant cannot be located by the Trustee and the Plan Administrator, after diligent search and the lapse of at least two (2) years, then the account of such former Participant shall be forfeited as of the last day of the Plan Year of such lapse. However, if such former Participant comes forward at a later date, benefits shall be restored to him. ARTICLE XV FUNDING 15.01 The Plan Administrator shall be responsible for the establishment and implementation of a funding policy. Such policy shall take into account the objectives of the Plan and the requirements of ERISA. The Plan Administrator shall determine such a policy within six (6) months of the establishment of the Plan, or the amendment of the Plan, as the case may be, if such a policy has not previously been established. The Plan Administrator shall review the Plan's short-run and long-run needs for liquidity or for investment growth and shall direct the Trustee as to those investments which best satisfy such needs. 15.02 The funding policy established by the Plan Administrator shall be communicated to the Participants in a general manner. Changes in the funding policy shall be communicated as soon as practicable after their adoption by the Plan Administrator. 15.03 The funding policy shall be reviewed annually by the Plan Administrator. Any changes in Plan objectives shall be considered. Any changes in the composition of the Plan 78 81 Participants shall be reviewed and appropriate corrections in funding policy made. 15.04 Should the Trustee make a Loan, the Plan Administrator shall be responsible for obtaining a commitment from the Employer to fund the principal and interest requirements of the Loan through cash contribution to the Plan or by taking other measures to ensure that the Loan will be repaid. The Plan Administrator shall review the Plan's financial requirements with reference to current and future commitments under the Loan. ARTICLE XVI TOP HEAVY PLAN LIMITS 16.01 In any Plan Year in which the Plan is a Top Heavy Plan, each Participant who is not a Key Employee and who is employed on the last day of the Plan Year, including a Participant who completes less than 1,000 Hours of Service during the Plan Year, shall be allocated an amount of Employer Contributions which is the higher of the following: (a) The portion of Employer Contributions which he would have been allocated under Article V had the Plan not been Top Heavy; (b) The lesser of (i) Three (3%) percent of his Compensation, and (ii) The highest percentage of Compensation of a participating Key Employee which is allocated to such Key Employee Participant. This Plan and the United Companies Financial Corporation Employee Savings Plan and Trust shall be considered together for purposes of the minimum Employer Contribution requirement. If a Participant in the Savings Plan would not receive the minimum Employer Contribution between this Plan and the Savings Plan before the application of the Top Heavy rules, then an additional Employer Contribution shall be made to the Savings Plan to ensure that he does receive the minimum Employer Contribution. If a Participant in this Plan is not a Participant in the Savings Plan, then the minimum Employer Contribution shall be satisfied by this Plan. Any amounts which a Key Employee elects to defer under a Code section 401(k) arrangement shall be treated as Employer Contributions for purposes of paragraph (b)(ii) above. Elective deferrals and withholding contributions for a Nonkey Employee 79 82 under a Code section 401(k) arrangement shall not be treated as Employer Contributions for purposes of satisfying the top-heavy minimum Employer Contribution. 16.02 In any Plan Year in which the Plan is a Top-Heavy Plan, the vested percentage of each Participant's Accrued Benefit attributable to Employer Contributions shall be one hundred (100%) percent after three (3) Years of Service with the Employer. If the Plan has been Top Heavy and is no longer Top Heavy in a subsequent Plan Year, then the vested percentage of any Participant shall be the greater of his vested percentage as determined under section 7.06 or his vested percentage as determined under this section for the most recent Plan Year in which the Plan was Top Heavy. The provisions of section 13.07 shall apply to the vesting schedule in the event of a change in the Plan's status from a Top-Heavy Plan to a Plan which is not a Top-Heavy Plan; such status change shall be treated as if it were a plan amendment affecting the vesting schedule for purposes of section 13.07. 16.03 For purposes of this Article, Compensation of a Participant for a Plan Year shall mean Compensation as defined in Article II, except that Compensation shall include all Compensation included in gross income for the Plan Year, notwithstanding any exclusions listed therein; shall be determined with respect to the entire Limitation Year associated with the Plan Year, regardless of the Participant's nonparticipation during a portion of such Plan Year; and shall further include Compensation from all Affiliated Employers. 16.04 In any Plan Year in which the Plan is a Top-Heavy Plan, the figure "1.0" shall be substituted for "1.25" in subsection (a) of the second paragraph of the sections in Article II defining Defined Benefit Plan Fraction and Defined Contribution Plan Fraction. 16.05 For the purposes of this Article XVI, all plans in the Aggregation Group shall be considered together in determining whether the Plan is a Top-Heavy Plan and for purposes of satisfying the requirements of this Article. ARTICLE XVII LOAN PROVISIONS 17.01 The Plan may enter into a Loan, including a Loan with the Trustee or a Loan which is guaranteed by the Employer or a related person. If the Plan Administrator directs the Trustee to enter into a Loan, any such Loan shall be for the benefit of Participants and Beneficiaries, shall conform to the terms of an arm's length transaction and provide for no more than a reasonable rate of interest as determined under Treasury 80 83 Regulation section 54.4975-7(b)(7), and must be without recourse against the Plan. The number of years to maturity under the Loan must be definitely ascertainable at all times. The only assets of the Plan that may be given as collateral on a Loan are shares of Qualifying Employer Securities acquired with the proceeds of the Loan and shares of Qualifying Employer Securities that were used as collateral on a prior Loan repaid with the proceeds of the current Loan. Such Qualifying Employer Securities so pledged shall be placed in a Suspense Account. If Qualifying Employer Securities so acquired are not pledged, they shall be placed in a Suspense Account for allocation purposes and shall be released from the Suspense Account in the same manner as if they had been pledged. 17.02 No person entitled to payment under a Loan shall have recourse against Trust Assets other than such collateral, Employer Contributions (other than contributions of Company Stock) that are available under the Plan to meet obligations under the Loan and earnings attributable to such collateral and the investment of such contributions. All Employer Contributions paid during the Plan Year in which a Loan is made (whether before or after the date the proceeds of the Loan are received), all Employer Contributions paid thereafter until the Loan has been repaid in full, all earnings from investment of such Employer Contributions which earnings have been allocated to Participants' Other Investments Accounts, and dividends on Company Stock acquired with the proceeds of the Loan shall be available to meet obligations under the Loan, unless otherwise provided by the Company at the time any such Employer Contribution is made. Two or more Loans may be considered together as one Loan for purposes of meeting the requirements of this Section. 17.03 This provision shall apply to any Loan which provides for the release of shares from the Suspense Account in proportion to principal payments. The loan must provide for annual payments of principal and interest at a cumulative rate that is not less rapid at any time than level annual payments of such amounts for ten (10) years. Interest included in any payment is disregarded only to the extent that it would be determined to be interest under standard loan amortization tables; the disregard of interest is not applicable from the time that, by reason of a renewal, extension, or refinancing, the sum of the expired duration of the exempt loan, the renewal period, the extension period, and the duration of a new exempt loan exceeds ten years. 17.04 Any pledge of Qualifying Employer Securities must provide for the release of shares so pledged upon the payment of any portion of the Loan. For each Plan Year during the duration of the Loan, the pledge must equal the number of encumbered securities held immediately before release for the current Plan 81 84 Year multiplied by a fraction. The numerator of the fraction is the amount of principal paid for the year. The denominator of the fraction is the sum of the numerator and the principal to be paid for all future years. If the Plan Administrator so directs for any Loan entered into on or after January 1, 1990, the numerator of the fraction shall be the sum of principal and interest paid on such Loan for the year and the denominator shall be the sum of the numerator and the principal and interest to be paid for such Loan for all future years. If the shares held in the Suspense Account include more than one class of Qualifying Employer Securities, the number of shares of each class to be released for a Plan Year must be determined by applying the same fraction to each class. 17.05 Payments of principal and interest on any such Loan during a Plan Year shall be made by the Trustee (as directed by the Plan Administrator) only from (a) Employer Contributions to the Trust made to meet the Plan's obligations under a Loan and from any earnings attributable to Qualifying Employer Securities held as collateral for the Loan (both received during or prior to the Plan Year), less such payment in prior years; and (b) The proceeds of a subsequent Loan made to repay a prior loan. If and only if the Loan is in default, Qualifying Employer Securities held as collateral for the Loan may be sold. In the case of a default, the proceeds of the sale of any Qualifying Employer Securities held as collateral for the Loan may be used to repay the Loan. Except as provided in Section 9.11 in the case of a tender offer, assets transferred in satisfaction of a Loan shall not exceed the amount of the default. In the case of a Loan involving a disqualified person, any assets transferred to satisfy the default may not exceed the value of the amount then due under the Loan payment schedule. Such contributions, earnings and proceeds must be accounted for separately by the Plan until the Loan is repaid. Two or more loans may be considered as one Loan for purposes of this section. 17.06 Qualifying Employer Securities released by reason of the payment of principal or interest on a Loan from amounts allocated to Participants' Other Investments Accounts shall immediately upon payment be credited pro rata to the corresponding Participants' Company Stock Accounts. If Qualifying Employer Securities are not pledged as security, they shall be allocated as if pledged and released in accordance with section 17.03. 82 85 17.07 The Employer shall contribute to the Trust sufficient amounts to enable the Trust to pay principal and interest on any such Loans as they are due; provided, however, that no such Contribution shall exceed the limitations in Article VIII. In the event that such Contributions by reason of the limitations in Article VIII are insufficient to enable the Trust to pay principal and interest on such Loan as it is due, then upon the Trustee's request the Employers shall make a Loan to the Trust, as described in Treasury Regulation section 54.49757(b)(4)(iii), in sufficient amounts to meet all requirements of an "exempt loan" within the meaning of Treasury Regulation section 54.4975-7(b)(1)(iii). Qualifying Employer Securities released from the pledge of the prior Loan shall be pledged as collateral to secure the new Loan. Such Qualifying Employer Securities will be released from this new pledge and allocated to the accounts of the Participants in accordance with applicable provisions of the Plan. If the Loan is in default, then any Qualifying Employer Securities pledged as collateral may be sold in an amount necessary to provide the Trustee with sufficient funds to meet the principal and interest payments due under the Loan. Any such sale by the Plan shall meet the requirements of section 408(e) of ERISA. However, the Employer shall not, pursuant to the provisions of this subsection, do, fail to do or cause to be done any act or thing which would result in a disqualification of the Plan as an employee stock ownership plan under the Code which would result in a prohibited transaction which is not exempt under one of the various statutory or regulatory exceptions, to the knowledge of the Employer. 17.08 Except as provided in sections 17.09 and 17.10 below, and notwithstanding any amendment to or termination of the Plan which causes it to cease to qualify as an employee stock ownership plan within the meaning of section 4975(e)(7) of the Code, no shares of Qualifying Employer Securities acquired with the proceeds of a Loan obtained by the trust to purchase Company Stock may be subject to a put, call or other option, or buy-sell or similar arrangement while such shares are held by and when distributed from the Plan. The Plan and Trust may not be obligated to acquire Employer Securities from a particular security holder at an indefinite time determined by the happening of an event such as the death of the holder. Any transactions involving Employer Securities shall be made in accordance with Article XIX. The limitations of Article XVIII, if applicable, shall be in addition to those of this section. 83 86 17.09 Shares of Qualifying Employer Securities purchased with the proceeds of a Loan and distributed by the Trustee may be subject to a Right of First Refusal. Such a Right of First Refusal shall provide that prior to any subsequent transfer, the shares must first be offered in writing to the Trust and then, if refused by the Trust, to the Company at a price equal to the greater of (a) The then fair market value of such shares of Qualifying Employer Securities as determined in good faith by the Plan Administrator, in accordance with Treasury Regulation section 54.4975-11(d)(5) from time to time, or (b) The purchase price offered by a buyer, other than the Company or Trustee, making a good faith (as determined by the Plan Administrator) offer to purchase such shares of Qualifying Employer Securities. The Trust or the Company, as the case may be, may accept the offer as to part or all of the Qualifying Employer Securities at any time during a period not exceeding fourteen (14) days after receipt of such offer by the Trust, on terms and conditions no less favorable to the shareholder than those offered by the independent third party buyer. Any installment purchase shall be made pursuant to a note secured by the shares purchased and shall bear a reasonable rate of interest as determined by the Administrator. If the offer is not accepted by the Trust, the Company, or both, then the proposed transfer may be completed within a reasonable period following the end of the fourteen (14) day period, but only no less favorable to the Shareholder upon terms and conditions of the third party buyer's prior offer. Shares of Qualifying Employer Securities which are publicly traded within the meaning of Treasury Regulation section 54.4975- 7(b)(1)(iv) at the time such rights may otherwise be exercised shall not be subject to this Right of First Refusal. Any transactions involving Employer Securities shall be made in accordance with Article XIX. The limitations of Article XVIII, if applicable, shall be in addition to those of this section. 17.10 The Plan and Trust may not be obligated to acquire Employer Securities from a particular security holder at an indefinite time determined by the happening of an event such as the death of the holder. Shares of Qualifying Employer Securities acquired with the proceeds of a Loan by the Trust shall be subject to a Put Option at the time of distribution, provided that at such time the shares are not publicly traded within the meaning of Treasury Regulation section 54.4975-7(b)(1)(iv) or are subject to a trading restriction within the meaning of Treasury Regulation section 54.4975-7(b)(10). 84 87 (a) The Put Option shall be exercisable by the Participant or beneficiary, by the donees of either, of by the Trustee of a qualified Plan or Trustee or Custodian of an Individual Retirement Account to which such shares have been transferred in a Rollover transfer, or by a person (including an estate or its distributee) to whom Qualifying Employer Securities pass by reason of the Participant's or Beneficiary's death. (b) The Put Option shall provide that for a period of at least sixty (60) days after such shares are distributed the holder of the option shall have the right to cause the Company, by notifying it in writing, to purchase such shares at their fair market value, as determined by the Plan Administrator, in accordance with Treasury Regulation section 54.4975-11(d)(5). The period during which the Put Option is exercisable shall not include any period during which the holder is unable to exercise such Put Option because the Company is prohibited from honoring it by federal or state law. (c) The Plan Administrator may direct the Trustee to assume the rights and obligations of the Company at the time the Put Option is exercisable, insofar as the repurchase of Qualifying Employer Securities is concerned. (d) If shares of Qualifying Employer Securities are publicly traded without restriction on the date of distribution, but cease to be publicly traded or become subject to a restriction (as described above) within sixty (60) days after such date, the stock distributed shall be subject to the Put Option described herein for the balance of the sixty (60) day period. The Company shall give written notice to each shareholder within ten (10) days of the date the Qualifying Employer Securities cease to be publicly traded that the Qualifying Employer Securities is subject to the Put Option for the remainder of the sixty (60) day period. (e) The terms of payment for the purchase of such shares of the Qualifying Employer Securities shall be as set forth in the Put Option and may be either in a lump-sum or in installments, as determined by the Plan Administrator. An installment payment in connection with such Put Option shall: (i) Be adequately secured, as determined by the Plan Administrator; (ii) Bear a reasonable rate of interest, as determined by the Plan Administrator; (iii) Require equal annual payment; (iv) Have a payment period not longer than the greater of: 85 88 (a) Five (5) years from the date the Put Option is exercised, or (b) The earlier of (a) ten (10) years from the date the Put Option is exercised, or (b) the date any Loan used by the Plan to acquire Qualifying Employer Securities subject to the Put Option has been entirely repaid; (v) Require that any payments pursuant to the installment obligations must begin to be made no later than thirty (30) days after the date the Put Option is exercised; and (vi) In all respects satisfy the requirements of Treasury Regulation section 54.4975-7(b)(12)(iii). (f) With respect to Post-1986 Employer Securities, the Put Option shall provide for payments in a lump sum if the distribution of shares is being received in installments. (g) The Put Option provided for by this section 17.09 shall continue to apply to shares of Qualifying Employer Securities purchased by the Trustee with the proceeds of a Loan as described herein notwithstanding any amendment to or termination of this Plan which causes the Plan to cease to be an employee stock ownership plan within the meaning of section 4975(e)(7) of the Code. (h) After the close of the employer's taxable year in which lapse of a Participant's Put Option occurs, and following a determination of the Fair Market Value of the Qualifying Employer Securities as of the anniversary date, the Employer will notify the Participant (who did not exercise the initial Put Option) of the new Fair Market Value of the Qualifying Employer Securities. Each such Participant will then have an additional sixty (60) days to require that the employer repurchase his stock. If the Participant does not exercise this second put option, then the Qualifying Employer Securities will no longer by subject to a Put Option. The Put Option shall further meet the requirements of Article XVIII with respect to Post-1986 Employer Securities. 17.11 The Plan Administrator shall direct the Trustee, in writing, to apply dividends attributable to Employer Stock acquired with the proceeds of an Exempt Loan (a) to repay such Loan, or (b) to the purchase of additional Employer Stock. If dividends are used to repurchase additional Employer Stock, then the Employer Stock acquired with such dividends shall be allocated to Participant's accounts for whom the dividends are attributable. 86 89 17.12 The protections and rights afforded Participants under this Article shall be nonterminable. Upon the amendment or conversion of this Plan, such provisions shall continue to apply so long as any Qualifying Employer Securities remain in the Plan which were accumulated under the Employee Stock Ownership Plan provisions of the Plan. ARTICLE XVIII RIGHTS AND OPTIONS ON DISTRIBUTED SHARES OF COMPANY STOCK 18.01 Shares of Qualifying Employer Securities distributed by the Trustee shall be subject (if a Put Option is granted), in accordance with Treasury Regulations section 54.4975-7(b)(9), to a Right of First Refusal in favor of the Trust, the Company or both. The terms and conditions of any such Right of First Refusal will be determined by the Plan Administrator. 18.02 A Participant (or Beneficiary) shall be granted, in accordance with Treasury Regulations section 54.4975-7(b)(10) through (12) at the time that shares of Qualifying Employer Securities are distributed to him, a Put Option to sell the shares, or any part of them to the Company. The Trust may not be required to give such a Put Option, but may assume the responsibility of the Employer under a Put Option. The terms and conditions of any such Put Option will be determined by the Plan Administrator. The Put Option shall be a nonterminable right of the Participant, but it shall apply only if the Qualifying Employer Securities are not readily tradeable on an established securities market at the time of the distribution. 18.03 The provisions of sections 18.01 and 18.02 shall apply only to Qualifying Employer Securities not purchased with the proceeds of a Loan. Qualifying Employer Securities purchased with the proceeds of such a Loan are subject to the provisions of Article XVII relating to the Put Option and Right of First Refusal. 18.04 With respect to distributions of Employer Securities from the Plan which are attributable to Post-1986 Employer Securities, if such Employer Securities are not readily tradeable on an established securities market, the Participant or Beneficiary receiving a Total Distribution shall be given a Put Option by the Employer which provides for payments beginning not later than thirty (30) days after the exercise of the Put Option and lasting for not longer than five (5) years and which further provides for adequate security to be given to the recipient and reasonable interest to be paid on the unpaid balance. With respect to distributions of Employer Securities from the Plan which are attributable to Post-1986 Employer Securities, if such Employer Securities are not readily tradeable on an 87 90 established securities market, the Participant or Beneficiary receiving installment distributions shall be given a Put Option by the Employer which provides for payments to be made not later than thirty (30) days after each such installment distribution. The obligations under the Put Options to be given by the Employer under this section may be assumed by the Plan & Trust, at the discretion of the Plan Administrator. If such obligations under the Put Option are assumed by the Plan & Trust, the Employer shall be relieved of its obligations under the Put Option. The restrictions on the Put Option contained in this section shall be a further limitation on the requirements of Article XVII and shall apply to Post-1986 Employer Securities. ARTICLE XIX VALUATION OF EMPLOYER SECURITIES TRANSACTIONS INVOLVING EMPLOYER SECURITIES 19.01 If the securities of the Employer are not readily tradeable on an established securities market as described in section 409(h)(1) of the Code, so that a reasonable valuation may not be obtained from the marketplace, then such Qualifying Employer Securities must be valued at least annually by an independent appraiser who is not associated with the Employer, the Plan Administrator, the Trustee, or any person related to any fiduciary under the Plan. The independent appraiser may be associated with a person who is merely a contract administrator with respect to the Plan, but who exercises no discretionary authority and is not a Plan fiduciary. The independent appraiser shall be qualified to perform such appraisals and shall have engaged to perform appraisals of value of businesses for a significant number of persons, so that the appraiser shall not be dependent on the Employer or the Plan for a substantial proportion of such appraisal work. The independent appraiser must satisfy the conditions imposed under the regulations under Code section 170(a)(1) for independence of the appraiser and the appraisal. The independent appraiser shall be engaged by and answerable to the Plan and its fiduciaries; however, the fees of the independent appraiser may be paid by the Employer. 19.02 If there is a public market for Qualifying Employer Securities of the type held by the Plan, (but such market is such so that the securities are not readily tradeable) then the Plan Administrator may use as the value of the shares the price at which such shares traded in such market, provided that such valuation is representative of the fair market value of such shares in the opinion of the Plan Administrator. 88 91 19.03 For purposes of determining the annual valuation of the Plan & Trust and for reporting to Participants and regulatory authorities, the assets of the Plan shall be valued at least annually on the Valuation Date or Dates of the Plan. The fair market value of Qualifying Employer Securities shall be determined on such a Valuation Date. The value of Employer Securities as of the most recent Valuation Date shall apply for purposes of valuing distributions and other transactions of the Plan & Trust, except: (a) Transactions in which such valuation is clearly inapplicable; (b) Transactions for which a further valuation is obtained or required to be obtained (such as transaction involving a party-in-interest); (c) In the event that the securities shall become publicly held or that a market with recognizable valuations on a more frequent basis develops for the securities; and (d) In the event that circumstances relating to the business of the Employer change in such a manner as to cause a reasonable man to expect a change in value subsequent to the most recent valuation. 19.04 For purposes of determining the value of Qualifying Employer Securities for purposes of a transaction involving a party-in-interest, the fair market value of such securities as of the date of the transaction shall be used. If there has been no substantial change in the business of the corporation and if the transaction is to take place upon the receipt of a valuation by an independent appraiser of the Qualifying Employer Securities as of the most recent Valuation Date, then the value of such securities may be the same as that obtained as the result of such most recent valuation, provided that the independent appraiser certifies that such value has not changed and the current value fair market value of the Qualifying Employer Securities is the same as at the time of such prior valuation. 19.05 If the Employer Securities held by the Plan are not readily tradeable on an established securities market, a Put Option shall be granted by the Employer upon the distribution of Employer Securities to the Participants, regardless of whether the Employer Securities were acquired with the proceeds of the exempt Loan. At the time of the grant of a Put Option hereunder, the value of Qualifying Employer Securities to which such Put Option applies shall be determined as of the most recent Valuation Date (or at a more recent value determined in accordance with this Article) at the time of the grant of such Put Option, regardless of the period for which such Put Option is given. 89 92 19.06 The determination of fair market value of Qualifying Employer Securities for all purposes under the Plan shall be made by the Plan Administrator, who, in order to make such determination, shall retain, at the expense of the Employer or of the Plan if used for Plan purposes, a qualified appraiser who customarily makes such appraisals and who is independent of any party to a transaction involving the Plan and Employer Securities. In making the determination of fair market value, the independent appraiser shall consider the following additional criteria: (a) Any current and historical practices which have been consistently and uniformly utilized to value Qualifying Employer Securities in sales transactions between the Company and the stockholders or among and between stockholders. (b) Any agreements, restrictions or limitations with respect to or imposed upon the sale or transfer of Qualifying Employer Securities which establish or stipulate the price at which the Company or Trust may or must purchase such stock under the provisions of the articles, by-laws or written agreements, provided the same or similar restrictions are applicable to substantially all of the outstanding Qualifying Employer Securities and are uniformly and consistently complied with. (c) The price or prices of the stocks of other similar companies which are publicly traded in an established market where such company or companies are comparable in size, growth, characteristics, product line, market area, profit and financial condition. (d) The capitalization of earnings method of valuation applied to the earning power of the Company as related to the rates of return available in the money market for alternative investments, with consideration given to expected rates of growth and potential risk. (e) Adjusted book value approach which takes into consideration balance sheet items which require a substitution of appraised values to make a determination of fair market value. (f) Such other information concerning the Company and its condition and prospects, financial and otherwise, generally used in the determination of the fair market value of corporation stock of comparable public or private companies engaged in the same or similar industries, by independent investment analysts nationally recognized as having expertise in rendering such evaluations. (g) Such other evaluation techniques, such as use of capitalization ratios, deemed appropriate by the Committee and 90 93 executed by an independent appraiser having expertise in rendering such evaluations. 19.07 All purchases of Qualifying Employer Securities shall be made at a price, or prices, which, in the judgment of the Plan Administrator, do not exceed the fair market value of such Qualifying Employer Securities. 19.08 In the event that the Trustee acquires shares of Qualifying Employer Securities by purchase from a "disqualified person" as defined in Code section 4975(e)(2), in exchange for cash or other assets of the Trust, the terms of such purchase shall contain the provision that in the event that there is a final determination by the Internal Revenue Service or court of competent jurisdiction that the fair market value of such shares of Company Stock as of the date of purchase was less than the purchase price paid by the Trustee, then the seller shall pay or transfer, as the case may be, to the Trustee an amount of cash, shares of Company Stock, or any combination thereof equal in value to the difference between the purchase price and said fair market value for all such shares. In the event that cash and/or shares of Company Stock are paid and/or transferred to the Trustee under this provision, share of Company Stock shall be valued at their fair market value as of the date of said purchase, and interest at a reasonable rate from the date of purchase to the date of payment shall be paid by the seller on the amount of cash paid. 19.09 The Plan Administrator may direct the Trustee to sell, resell or otherwise dispose of Qualifying Employer Securities to any person, including the Employer, provided that any such sales to any disqualified person, including the Employer, will be made at not less than the fair market value and no commission is charged. Any such sales shall be made in conformance with section 408(e) of ERISA. All sales of company stock by the Trustee will be charged pro rata to the Company Stock Accounts of the Participants. 19.10 In the event the Plan Administrator directs the Trustee to dispose of any Qualifying Employer Securities held as Trust Assets under circumstances which require registration and/or qualification of the securities under applicable Federal or State securities laws, then the Employer, at its own expense, will take or cause to be taken any and all such action as may be necessary or appropriate to effect such registration and/or qualification. ARTICLE XX MISCELLANEOUS 20.01 If the Company and each other Employer shall at any time become insolvent or in the event of a dissolution, merger, 91 94 or consolidation without any provision being made for the continuance of this Trust, the Trust hereby created shall terminate and the Trust shall be operated by the person authorized to act for the Company. If it is determined to terminate the Trust, the Trustee shall proceed in the manner herein provided in the event of termination of the Trust. 20.02 This Agreement shall be binding upon the beneficiaries, heirs, executors, administrators, distributees, and assigns of the Participants hereunder and upon the successors and assigns of the Employer and of the Trustee, under this Trust. 20.03 The Employer agrees to furnish the Trustee such information in the Employer's possession as the Trustee shall require from time to time to perform the duties under the Trust. 20.04 In the event of a dissolution, merger or consolidation of the Employer, provisions may be made by the successor for the continuation of this Trust, and said successor shall in such event be substituted in place of the present Employer by an instrument authorizing such substitution executed by the Employer and his successor, a copy of which shall be delivered to the Trustee. 20.05 The Trustee and the Employer may enter into an extra agreement of Trust solely with regard to the provisions of Article XII for the purpose of modifying the powers, duties, or administration of the Trustee or for allocating specific duties among the Trustees (or other fiduciaries) or for allocating specific duties to an investment adviser or an investment manager. Any such agreement, shall be in writing executed with the same formality as the Trust, and shall be deemed a part of the Trust as if the same were herein incorporated. A copy of any such agreement shall be delivered to any insurer. 20.06 This Trust may be executed in any number of counterparts, each of which shall be deemed to be an original, and the counterparts shall constitute one and the same instrument, which shall be sufficiently evidenced by any one thereof. 20.07 The adoption and maintenance of the Plan shall not be deemed to constitute a contract between the Employer and Participant or to be a consideration for an inducement or condition of the employment of any person. Nothing herein contained shall be deemed to give to any employee the right to be retained in the employ of the Employer or to interfere with the right of the Employer to discharge or terminate the employment of any employee at any time, nor shall it be deemed to give to the Employer the right to require an employee to remain in its employ nor shall it interfere with the employee's right to terminate his employment at any time. 92 95 20.08 In any action or proceeding involving the Trust, or any property constituting part or all thereof, or the administration thereof, Employees or former Employees of the Company or an Affiliate or the Beneficiaries or any other person having or claiming to have an interest in the Trust Assets or under the Plan shall not be necessary parties nor entitled to any notice of process. 20.09 Any final judgment which is not appealed or appealable that may be entered in any legal action or proceeding shall be binding and conclusive on the parties hereto, the Plan Administrator, and all persons having or claiming to have an interest in the Trust Assets or under this Plan. 20.10 This agreement shall be construed and interpreted under the laws of Louisiana to the extent not in conflict with applicable Federal laws. The Trustee hereby accepts this amended and restated Plan and Trust. IN WITNESS WHEREOF, the Employer has caused this agreement to be signed by its duly authorized officer, and the Trustee has signed this agreement indicating his acceptance of the Trust, in the presence of the competent undersigned witnesses, on the date indicated above, at Baton Rouge, Louisiana. WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION, EMPLOYER: BY: - --------------------------------- --------------------------------- Authorized Officer - --------------------------------- HIBERNIA NATIONAL BANK, TRUSTEE: BY: - --------------------------------- --------------------------------- Authorized Officer - --------------------------------- 93 96 ACKNOWLEDGMENT BY WITNESS STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BEFORE ME, the undersigned Notary Public, in and for the Parish and State aforementioned, on this day personally appeared ___________________________, to me known to be the person described in the foregoing ____________________________________________ as a witness thereto, who, after being by me first duly sworn, did acknowledge and swear that she executed the same as such witness; that said instrument was executed by the parties thereto in the presence of affiant and of the other subscribing witness, and by all of the parties thereto as their own free act and deed. THUS DONE AND SIGNED on this _____ day of _____________, 1993, in the presence of the undersigned competent witnesses, at Baton Rouge, Louisiana. WITNESSES: - --------------------------------- --------------------------------- - --------------------------------- --------------------------------- NOTARY PUBLIC 94 97 ACKNOWLEDGMENT BY EMPLOYER STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BEFORE ME, the undersigned Notary Public, in and for the Parish and State aforementioned, on this day personally appeared _____________________________, known to me personally, who, being by me first duly sworn, did say that he is the President of United Companies Financial Corporation and that he executed the foregoing instrument on behalf of the corporation as the act of such corporation (or entity) for the purposes and considerations therein expressed and in the capacity therein stated. THUS DONE AND SIGNED on this _____ day of _____________, 1994, in the presence of the undersigned competent witnesses, at Baton Rouge, Louisiana. WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION EMPLOYER: By: - --------------------------------- --------------------------------- Authorized Officer - --------------------------------- --------------------------------- NOTARY PUBLIC 95 98 ACKNOWLEDGMENT BY BANK TRUSTEE STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BEFORE ME, the undersigned Notary Public, in and for the Parish and State aforementioned, on this day personally appeared ______________________, personally known to me who, after being by me first duly sworn, did say that he is the trust officer of Hibernia National Bank whose name is subscribed to the foregoing instrument and that he executed same as an act in his capacity as officer of the Trustee for the purposes and considerations therein stated and that he is authorized to act for the Bank in this capacity. THUS DONE AND SIGNED on this _____ day of _____________, 1994, in the presence of the undersigned competent witnesses, at Baton Rouge, Louisiana. WITNESSES: HIBERNIA NATIONAL BANK TRUSTEE: By: - --------------------------------- --------------------------------- Authorized Officer - --------------------------------- --------------------------------- NOTARY PUBLIC 96 99 FIRST AMENDMENT TO THE 1994 RESTATEMENT OF THE UNITED COMPANIES FINANCIAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST _________________________________________________________ STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BE IT KNOWN, that on the _____ day of February, 1995, at the place hereinafter written, in the presence of the witnesses hereinafter named and undersigned, personally came and appeared: UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under the laws of the State of Louisiana, with its principal place of business at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented herein by Dale E. Redman, its authorized officer, duly authorized to act by virtue of a corporate resolution attached hereto and made a part hereof (hereinafter referred to as "Employer" or "Company") AND HIBERNIA NATIONAL BANK, a national banking association having an office and place of business in Baton Rouge, Louisiana, represented by its undersigned Trust Officer, duly authorized to represent the Bank (hereinafter referred to as "Trustee"). WITNESSETH: WHEREAS, the Employer did establish the United Companies Financial Corporation Profit Sharing Plan and Trust on December 31, 1960, and amended, restated and converted said Profit Sharing Plan and Trust to a stock bonus plan with ESOP features to be known as the United Companies Financial Corporation Employee Stock Ownership Plan and Trust ("Plan & Trust") on September 1, 1975, which Plan & Trust was restated on July 11, 1984, and again restated the Plan and Trust effective January 1, 1987, and most recently amended and restated said Plan and Trust September 1, 1994, and wishes to further amend said Plan & Trust; and WHEREAS, the Employer now desires to amend the Plan to clarify that the Trustee is a directed Trustee as to the acquisition or 100 disposition of Qualifying Employer Securities and as to any Loan made pursuant to Article XVII of the Plan (an "Exempt Loan"); and WHEREAS, Hibernia National Bank is the Trustee of the Plan and Trust, whose consent is necessary to effectuate any amendment to the Trust provisions of the Plan and Trust by the Employer; and WHEREAS, the Trustee does consent to the following amendments to the Plan and Trust; and NOW THEREFORE, the Employer does hereby amend the Plan and Trust, and the Trustee concurs in and accepts such amendment, effective January 1, 1995, except as otherwise provided herein, as follows: Article XVII is hereby amended by adding Section 17.13 to read as follows: "7.13 (a) Purpose. The provisions of this section 17.13 are intended to provide to the Trustee with direction as to the acquisition or disposition of Qualifying Employer Securities hereunder and as to the consummation of an Exempt Loan in connection therewith. (b) Contributions. In no event shall the Trustee have any responsibility or liability for the computation or collection of any Contribution to be made by the Employer under the terms of the Plan, including whether any Contribution is sufficient to pay any principal or interest then due with respect to an outstanding Exempt Loan. The Trustee shall apply any such contribution to the payment of an Exempt Loan solely in accordance with the written instructions of the Plan Administrator. To the extent the amount due under the terms of any such loan exceeds the amount of any contribution, the Trustee shall have no liability for any such short fall and shall act with respect to any such short fall solely in accordance with the instructions of the Plan Administrator. (c) Exempt Loan. The Trustee shall enter into an Exempt Loan and/or any extension of credit pursuant to an agreement providing for an Exempt Loan or one or more Exempt Loans solely in accordance with the written instructions of the Plan Administrator. The Plan Administrator and/or the Employer shall possess the sole power and authority to negotiate the terms and conditions of any such Loan, to determine whether the provisions of any such Loan constitute an Exempt Loan (within the meaning of the Plan and the provisions of the Code and ERISA), and whether any such Loan (and its related 2 101 acquisition of Qualifying Employer Securities) satisfies the fiduciary obligations imposed under ERISA. (d) Purchase of Securities. The Trustee shall purchase, from time to time, Qualifying Employer Securities in accordance with the instructions of the Plan Administrator on the open market or by private purchase, including purchase from the Employer of authorized and unissued shares and shares held as treasury stock. Purchases shall be made at the purchase price(s) directed by the Plan Administrator which shall constitute no more than adequate consideration within the meaning of Code Section 4975. With respect to the acquisition of Qualifying Employer Securities through private purchase, the Employer shall pay the actual expenses of such transaction; no form of commission shall be paid by the Trustee from the Trust fund established hereunder. The Trustee shall not be liable for the acquisition, retention or disposition of Qualifying Employer Securities in accordance with the instructions of the Plan Administrator. The Trustee shall have no obligation to anticipate market conditions or otherwise time the purchase or sale of shares of Qualifying Employer Securities. (e) Default. If a default occurs with respect to an Exempt Loan, the Trustee shall act or refrain from acting solely in accordance with the instructions of the Plan Administrator; the Trustee shall not sell or otherwise dispose of Qualifying Employer Securities, except in accordance with such instructions. (f) Instructions. All communications from the Employer or the Plan Administrator shall be made, in writing, signed by an officer of the Employer or an individual authorized to act on behalf of the Plan Administrator. The Plan Administrator shall provide the Trustee with the names and specimen signatures of all individuals authorized to sign or act on behalf of the Plan Administrator and the Employer. The Trustee shall be fully protected in relying on any such communication, and the Trustee shall not be required to verify the accuracy or validity of any such communication, unless it has reasonable grounds to doubt the authenticity of any signature. If the Employer or Plan Administrator communicates or instructs the Trustee orally, such communication shall be confirmed, in writing, as soon as practicable thereafter, and the Trustee shall be fully protected in 3 102 acting or failing to act in accordance with such oral communication. Instructions hereunder may be given separately or as standing instruction in the discretion of the Employer or the Plan Administrator as the case may be. (g) Indemnity. The Employer agrees to indemnify and hold harmless the Trustee from any claim, liability, fee, expense or other charge (including attorneys' fees) arising from or in connection with the performance of its duties in accordance with the terms of the Plan and this amendment, unless such claim, liability, fee, expense or other charge results from a grossly negligent act or omission, an act or omission performed in bad faith (including a fraudulent act) or an act or omission taken in contravention of the terms of the Plan or the directions of the Employer or the Administrator. Indemnification under this subparagraph (g) shall be made only from the assets of the Employer, and no person entitled to indemnity hereunder shall receive payment, whether directly or indirectly, from the Trust." The amendments made hereunder are intended to clarify that the Trustee is to be a directed trustee with respect to the matters described herein, effective as of January 1, 1995. Furthermore, these amendments are intended to be interpreted and construed in accordance with ERISA, the Code, and regulations promulgated thereunder. Any provision of this Amendment shall be separable from the remaining amendments and shall not cause them to be rendered invalid, so that all the amendments will have as much force and effect as allowed by law. In the case of any ambiguity, the language shall be interpreted to effectuate the stated purposes of those amendments and in such a way as to cause the Plan to continue to be a qualified plan under the statutes. 4 103 IN WITNESS WHEREOF, the Employer has cause this Amendment to be signed by its duly authorized officer, and the Trustee has accepted this amendment, before the undersigned, competent witnesses, on the date indicated above, at Baton Rouge, Louisiana. WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION, as EMPLOYER By: - -------------------------------- -------------------------------- Dale E. Redman Authorized Officer - -------------------------------- WITNESSES: HIBERNIA NATIONAL BANK, as TRUSTEE By: - -------------------------------- -------------------------------- Authorized Officer - -------------------------------- 5 104 ACKNOWLEDGMENT BY EMPLOYER STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BEFORE ME, the undersigned Notary Public, in and for the Parish and State aforementioned, on this day personally appeared Dale E. Redman, known to me personally, who, being by me first duly sworn, did say that he is the Authorized Officer of United Companies Financial Corporation, a Louisiana corporation, and that as such duly authorized officer of the Board of Directors of said Corporation, he signed and executed the foregoing instrument on behalf of the corporation and as the act of such corporation (or entity) for the purposes and consideration therein expresses, and in the capacity therein stated. IN WITNESS WHEREOF, I have hereunto set my hand and official seal and the said appearer and the said witnesses have hereunto affixed their signatures this the _______ day of February, 1995. WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION, as EMPLOYER By: - -------------------------------- -------------------------------- Dale E. Redman Authorized Officer - -------------------------------- -------------------------------- NOTARY PUBLIC 6 105 ACKNOWLEDGMENT BY BANK TRUSTEE STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BEFORE ME, the undersigned Notary Public, in and for the County/Parish and State aforementioned, on this day personally appeared __________________________________, known to me personally, who, after being by me first duly sworn, did say that he is the trust officer of Hibernia National Bank whose name is subscribed to the foregoing instrument and that he executed same as an act in his capacity as officer of the Trustee for the purposes and considerations therein stated. THUS DONE AND SIGNED on this _____ day of February, 1995, and in the presence of the undersigned competent witnesses, at Baton Rouge, Louisiana. WITNESSES: HIBERNIA NATIONAL BANK, as TRUSTEE By: - -------------------------------- -------------------------------- Authorized Officer - -------------------------------- -------------------------------- NOTARY PUBLIC 7 106 SECOND AMENDMENT TO THE 1994 RESTATEMENT OF THE UNITED COMPANIES FINANCIAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST _________________________________________________________ STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BE IT KNOWN, that on the _____ day of ______________, 1995, at the place hereinafter written, in the presence of the witnesses hereinafter named and undersigned, personally came and appeared: UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under the laws of the State of Louisiana, with its principal place of business at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented herein by Dale E. Redman, its authorized officer, duly authorized to act by virtue of a corporate resolution attached hereto and made a part hereof (hereinafter referred to as "Employer" or "Company") AND HIBERNIA NATIONAL BANK, a national banking association having an office and place of business in Baton Rouge, Louisiana, represented by its undersigned Trust Officer, duly authorized to represent the Bank (hereinafter referred to as "Trustee"). WITNESSETH: WHEREAS, the Employer did establish the United Companies Financial Corporation Profit Sharing Plan and Trust on December 31, 1960, and amended, restated and converted said Profit Sharing Plan and Trust to a stock bonus plan with ESOP features to be known as the United Companies Financial Corporation Employee Stock Ownership Plan and Trust ("Plan & Trust") on September 1, 1975, which Plan & Trust was restated on July 11, 1984, and again restated the Plan and Trust effective January 1, 1987, and most recently amended and restated said Plan and Trust September 1, 1994, and wishes to further amend said Plan & Trust; and WHEREAS, the Employer now desires to amend the Plan to provide for clarification under Article VII of the Plan and Trust of 107 procedures relating to a distribution of benefits to a Participant who has terminated employment with the Employer; and WHEREAS, Hibernia National Bank is the Trustee of the Plan and Trust, whose consent is necessary to effectuate any amendment to the Trust provisions of the Plan and Trust by the Employer; and WHEREAS, the Trustee does consent to the following amendments to the Plan and Trust; and NOW THEREFORE, the Employer does hereby amend the Plan and Trust, and the Trustee concurs in and accepts such amendment, effective January 1, 1995, except as otherwise provided herein, as follows: Article VII, section 7.01 is hereby amended by adding a paragraph at the end of said section 7.01 to read as follows: A Participant who has terminated employment with the Employer shall be entitled to elect to receive a distribution of his Accrued Benefit in any form permitted under the Plan, provided that he has satisfied the following requirements as of the close of the Plan Year preceding the date of distribution: (a) he shall have completed at least ten (10 Years of Service with the Employer or with an Affiliated Employer during the period of affiliation; and (b) the sum of the number of years of his Age and the number of his Years of Service is at least sixty (60). The Plan Administrator shall require that such election be made on a form designed to comply with the requirements for an election of distributions under the Plan. A reasonable period of time after the close of the Plan Year shall be allowed for accounting and allocation for the Plan Year, crediting of dividends and earnings for the Plan Year, and time for directing the transfer of stock certificates. The amendments made hereunder are intended to qualify the Plan and Trust for the period beginning January 1, 1995, except as otherwise provided herein, as a qualified Employee Stock Ownership Plan under the Internal Revenue Code and ERISA. Therefore, any 2 108 provisions which cause the Plan not to be in compliance with either statute, or with regulations promulgated thereunder, shall be separable from the remaining amendments and shall not cause them to be rendered invalid, so that all the amendments will have as much force and effect as allowed by law. In the case of any ambiguity, the language shall be interpreted to effectuate the stated purposes of those amendments and in such a wa as to cause the Plan to continue to be a qualified plan under the statutes. IN WITNESS WHEREOF, the Employer has cause this Amendment to be signed by its duly authorized officer, and the Trustee has accepted this amendment, before the undersigned, competent witnesses, on the date indicated above, at Baton Rouge, Louisiana. WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION, as EMPLOYER By: - -------------------------------- -------------------------------- Dale E. Redman Authorized Officer - -------------------------------- WITNESSES: HIBERNIA NATIONAL BANK, as TRUSTEE By: - -------------------------------- -------------------------------- Authorized Officer - -------------------------------- 3 109 ACKNOWLEDGMENT BY EMPLOYER STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BEFORE ME, the undersigned Notary Public, in and for the Parish and State aforementioned, on this day personally appeared Dale E. Redman, known to me personally, who, being by me first duly sworn, did say that he is the Authorized Officer of United Companies Financial Corporation, a Louisiana corporation, and that as such duly authorized officer of the Board of Directors of said Corporation, he signed and executed the foregoing instrument on behalf of the corporation and as the act of such corporation (or entity) for the purposes and consideration therein expresses, and in the capacity therein stated. IN WITNESS WHEREOF, I have hereunto set my hand and official seal and the said appearer and the said witnesses have hereunto affixed their signatures this the _______ day of _______________, 1995. WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION, as EMPLOYER By: - -------------------------------- -------------------------------- Dale E. Redman Authorized Officer - -------------------------------- -------------------------------- NOTARY PUBLIC 4 110 ACKNOWLEDGMENT BY BANK TRUSTEE STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BEFORE ME, the undersigned Notary Public, in and for the County/Parish and State aforementioned, on this day personally appeared __________________________________, known to me personally, who, after being by me first duly sworn, did say that he is the trust officer of Hibernia National Bank whose name is subscribed to the foregoing instrument and that he executed same as an act in his capacity as officer of the Trustee for the purposes and considerations therein stated. THUS DONE AND SIGNED on this ______ day of _____________, 1995, and in the presence of the undersigned competent witnesses, at Baton Rouge, Louisiana. WITNESSES: HIBERNIA NATIONAL BANK, as TRUSTEE By: - -------------------------------- -------------------------------- Authorized Officer - -------------------------------- -------------------------------- NOTARY PUBLIC 5 111 THIRD AMENDMENT TO THE 1994 RESTATEMENT OF THE UNITED COMPANIES FINANCIAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST _________________________________________________________ STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BE IT KNOWN, that on the _____ day of ______________, 1995, at the place hereinafter written, in the presence of the witnesses hereinafter named and undersigned, personally came and appeared: UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under the laws of the State of Louisiana, with its principal place of business at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented herein by Dale E. Redman, its authorized officer, duly authorized to act by virtue of a corporate resolution attached hereto and made a part hereof (hereinafter referred to as "Employer" or "Company") AND HIBERNIA NATIONAL BANK, a national banking association having an office and place of business in Baton Rouge, Louisiana, represented by its undersigned Trust Officer, duly authorized to represent the Bank (hereinafter referred to as "Trustee"). WITNESSETH: WHEREAS, the Employer did establish the United Companies Financial Corporation Profit Sharing Plan and Trust on December 31, 1960, and amended, restated and converted said Profit Sharing Plan and Trust to a stock bonus plan with ESOP features to be known as the United Companies Financial Corporation Employee Stock Ownership Plan and Trust ("Plan & Trust") on September 1, 1975, which Plan & Trust was restated on July 11, 1984, and again restated the Plan and Trust effective January 1, 1987, and most recently amended and restated said Plan and Trust September 1, 1994, and wishes to further amend said Plan & Trust; and 112 WHEREAS, the Employer now desires to amend the Plan to provide for clarification under Article VIII of the Plan and Trust of procedures relating to a distribution of benefits to a Participant who has terminated employment with the Employer; and WHEREAS, Hibernia National Bank is the Trustee of the Plan and Trust, whose consent is necessary to effectuate any amendment to the Trust provisions of the Plan and Trust by the Employer; and WHEREAS, the Trustee does consent to the following amendments to the Plan and Trust; and NOW THEREFORE, the Employer does hereby amend the Plan and Trust, and the Trustee concurs in and accepts such amendment, effective January 1, 1994, except as otherwise provided herein, as follows: Article V is hereby amended by substituting the attached pages 38 and 39 for pages 38 and 39 of the Plan to clarify the provisions of Sections 5.01 and 5.02 thereof. Article VIII is hereby amended by substituting the attached pages 57, 58, and 59 for pages 57 through 59, inclusive, of the Plan to clarify the provisions of Sections 8.01 and 8.02 thereof. The amendments made hereunder are intended to qualify the Plan and Trust for the period beginning January 1, 1994, except as otherwise provided herein, as a qualified Employee Stock Ownership Plan under the Internal Revenue Code and ERISA. Therefore, any provisions which cause the Plan not to be in compliance with either statute, or with regulations promulgated thereunder, shall be separable from the remaining amendments and shall not cause them to be rendered invalid, so that all the amendments will have as much force and effect as allowed by law. In the case of any ambiguity, the language shall be interpreted to effectuate the stated purposes of those amendments and in such a way as to cause the Plan to continue to be a qualified plan under the statutes. 2 113 IN WITNESS WHEREOF, the Employer has cause this Amendment to be signed by its duly authorized officer, and the Trustee has accepted this amendment, before the undersigned, competent witnesses, on the date indicated above, at Baton Rouge, Louisiana. WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION, as EMPLOYER By: - -------------------------------- -------------------------------- Dale E. Redman Authorized Officer - -------------------------------- WITNESSES: HIBERNIA NATIONAL BANK, as TRUSTEE By: - -------------------------------- -------------------------------- Authorized Officer - -------------------------------- 3 114 ACKNOWLEDGMENT BY EMPLOYER STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BEFORE ME, the undersigned Notary Public, in and for the Parish and State aforementioned, on this day personally appeared Dale E. Redman, known to me personally, who, being by me first duly sworn, did say that he is the Authorized Officer of United Companies Financial Corporation, a Louisiana corporation, and that as such duly authorized officer of the Board of Directors of said Corporation, he signed and executed the foregoing instrument on behalf of the corporation and as the act of such corporation (or entity) for the purposes and consideration therein expresses, and in the capacity therein stated. IN WITNESS WHEREOF, I have hereunto set my hand and official seal and the said appearer and the said witnesses have hereunto affixed their signatures this the _______ day of _______________, 1995. WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION, as EMPLOYER By: - -------------------------------- -------------------------------- Dale E. Redman Authorized Officer - -------------------------------- -------------------------------- NOTARY PUBLIC 4 115 ACKNOWLEDGMENT BY BANK TRUSTEE STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BEFORE ME, the undersigned Notary Public, in and for the County/Parish and State aforementioned, on this day personally appeared __________________________________, known to me personally, who, after being by me first duly sworn, did say that he is the trust officer of Hibernia National Bank whose name is subscribed to the foregoing instrument and that he executed same as an act in his capacity as officer of the Trustee for the purposes and considerations therein stated. THUS DONE AND SIGNED on this ______ day of _____________, 1995, and in the presence of the undersigned competent witnesses, at Baton Rouge, Louisiana. WITNESSES: HIBERNIA NATIONAL BANK, as TRUSTEE By: - -------------------------------- -------------------------------- Authorized Officer - -------------------------------- -------------------------------- NOTARY PUBLIC 5 116 REVISED FIFTH AMENDMENT TO THE 1994 RESTATEMENT OF THE UNITED COMPANIES FINANCIAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST _________________________________________________________ STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BE IT KNOWN, that on the dates and at the places hereinafter written, in the presence of the undersigned witnesses, personally came and appeared: UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under the laws of the State of Louisiana, with its principal place of business at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented herein by Dale E. Redman, its authorized officer, duly authorized to act by virtue of a corporate resolution attached hereto and made a part hereof (hereinafter referred to as "Employer" or "Company") AND HIBERNIA NATIONAL BANK, a national banking association having an office and place of business in Baton Rouge, Louisiana, represented by its undersigned Trust Officer, duly authorized to represent the Bank (hereinafter referred to as "Resigning Trustee") AND U. S. TRUST COMPANY OF CALIFORNIA, N.A., a national banking association having an office and place of business 555 South Flower Street, Suite 2700, Los Angeles, California 90007-2429, herein represented by its undersigned Trust Officer, duly authorized to represent the Bank (hereinafter referred to as "Trustee" or "Successor Trustee") W I T N E S S E T H: WHEREAS, the Employer did establish the United Companies Financial Corporation Profit Sharing Plan and Trust on December 31, 1960, and amended, restated and converted said Profit Sharing Plan and Trust to a stock bonus plan with ESOP features to be known as the United Companies Financial Corporation Employee Stock Ownership Plan and Trust ("Plan & Trust") on September 1, 1975, which Plan & Trust was restated on July 11, 1984, and most recently restated 117 September 1, 1994, amended February 6, 1995, March 6, 1995 and August 4, 1995, and wishes to further amend said Plan & Trust; and WHEREAS, the Employer now desires to amend the Plan to designate the Successor Trustee of the Plan as set forth below; and WHEREAS, the Resigning Trustee hereby resigns and the Successor Trustee agrees to serve as the Trustee of the Plan; and WHEREAS, the Successor Trustee is domiciled in the State of California, the Employer desires to amend the Plan and Trust to reflect that the Trust is governed by the laws of the State of California; and WHEREAS, pursuant to the terms of the Plan and Trust, it is necessary for the Trustee of the Plan and Trust to give consent to effectuate any amendment to the Trust provisions of the Plan and Trust by the Employer; and WHEREAS, the Trustee does consent to the following amendments to the Plan and Trust; and NOW THEREFORE, the Fifth Amendment is hereby revised and corrected to read as set forth herein, the Successor Trustee shall be designated as the Trustee of the Plan and Trust, effective September 1, 1995; the Resigning Trustee is hereby removed and/or agrees to resign; the Resigning Trustee is directed to transfer the assets of the Trust to the Successor Trustee as soon as practicable after the effective date hereof; and the following additional amendments are made to the Plan and Trust. The Fourth Amendment to the Plan and Trust does not exist. FURTHER, the Employer does hereby amend the Plan and Trust, and the Trustee concurs in and accepts such amendment, effective September 1, 1995, except as otherwise provided herein, as follows: Article X is hereby amended by deleting the word "Louisiana" in every place it appears in section 10.01 and substituting the word "California" therefor. Article XII is hereby amended by deleting the word "Louisiana" in every place it appears in section 12.01 and substituting the word "California" therefor. Article XII is further amended by adding the following language at the end of section 12.03 thereof: 2 118 Funds of the Plan may be invested in deposit accounts, certificates of deposit or similar accounts with U.S. Trust Fiduciary Service, Ltd., 1300 Eye Street, NW, Suite 1080 E, Washington, D.C. 20005, or its affiliates. Article XII is hereby further amended, effective on the date of execution, by adding the following language at the end of section 12.19 thereof: "During the period of transfer of assets from the Resigning Trustee to the Successor Trustee, both Resigning Trustee and Successor Trustee shall have responsibility for the assets held by each, respectively; however, after the effective date only the Successor Trustee shall have authority and power to make investments." Article XII is hereby further amended by adding the following language at the end of section 12.21 thereof: "Investment may be made in collective investment funds, maintained by U.S. Trust Company of California, N.A., or its affiliates, the terms of which are incorporated herein by reference, or in mutual funds managed by U.S. Trust Company of California, N.A., or its affiliates." Article XX is hereby amended by deleting the word "Louisiana" in section 20.10 and substituting the word "California" therefor. The amendments made hereunder are intended to qualify the Plan and Trust for the period beginning September 1, 1995, except as otherwise provided herein, as a qualified Employee Stock Ownership Plan under the Internal Revenue Code and ERISA. Therefore, any provisions which cause the Plan not to be in compliance with either statute, or with regulations promulgated thereunder, shall be separable from the remaining amendments and shall not cause them to be rendered invalid, so that all the amendments will have as much force and effect as allowed by law. 3 119 In the case of any ambiguity, the language shall be interpreted to effectuate the stated purposes of those amendments and in such a way as to cause the Plan to continue to be a qualified plan under the statutes. IN WITNESS WHEREOF, the Employer has cause this Amendment to be signed by its duly authorized officer, the Resigning Trustee has evidenced its resignation through its duly authorized Trust Officer, and the Trustee has accepted its designation as Successor Trustee and has further accepted this amendment, before the undersigned, competent witnesses, on the date indicated above. WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION, as EMPLOYER By: - -------------------------------- -------------------------------- Authorized Officer - -------------------------------- At Baton Rouge, Louisiana, this _____ day of _____________, 1995. WITNESSES: HIBERNIA NATIONAL BANK, as RESIGNING TRUSTEE By: - -------------------------------- -------------------------------- Authorized Officer - -------------------------------- At Baton Rouge, Louisiana, this _____ day of _____________, 1995. WITNESSES: U.S. TRUST COMPANY OF CALIFORNIA, N.A., as TRUSTEE By: - -------------------------------- -------------------------------- Authorized Officer - -------------------------------- At Los Angeles, California, this _____ day of _____________, 1995. 4 120 ACKNOWLEDGMENT BY EMPLOYER STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BEFORE ME, the undersigned Notary Public, in and for the Parish and State aforementioned, on this day personally appeared Dale E. Redman, known to me personally, who, being by me first duly sworn, did say that he is the Authorized Officer of United Companies Financial Corporation, a Louisiana corporation, and that as such duly authorized officer of the Board of Directors of said Corporation, he signed and executed the foregoing instrument on behalf of the corporation and as the act of such corporation (or entity) for the purposes and consideration therein expresses, and in the capacity therein stated. IN WITNESS WHEREOF, I have hereunto set my hand and official seal and the said appearer and the said witnesses have hereunto affixed their signatures this the _______ day of _______________, 1995. WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION, as EMPLOYER By: - -------------------------------- -------------------------------- Dale E. Redman Authorized Officer - -------------------------------- -------------------------------- NOTARY PUBLIC 5 121 ACKNOWLEDGMENT BY RESIGNING TRUSTEE STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BEFORE ME, the undersigned Notary Public, in and for the County/Parish and State aforementioned, on this day personally appeared __________________________________, known to me personally, who, after being by me first duly sworn, did say that he is the trust officer of Hibernia National Bank whose name is subscribed to the foregoing instrument and that he executed same as an act in his capacity as officer of the Resigning Trustee for the purposes and considerations therein stated. THUS DONE AND SIGNED on this ______ day of _____________, 1995, and in the presence of the undersigned competent witnesses, at Baton Rouge, Louisiana. WITNESSES: HIBERNIA NATIONAL BANK, as RESIGNING TRUSTEE By: - -------------------------------- -------------------------------- Authorized Officer - -------------------------------- -------------------------------- NOTARY PUBLIC 122 ACKNOWLEDGMENT BY SUCCESSOR TRUSTEE STATE OF CALIFORNIA COUNTY/PARISH OF __________________ BEFORE ME, the undersigned Notary Public, in and for the County and State aforementioned, on this day personally appeared ______________________________________, known to me personally, who, after being by me first duly sworn, did say that he is the trust officer of U.S. TRUST COMPANY OF CALIFORNIA, N.A., whose name is subscribed to the foregoing instrument and that he executed same as an act in his capacity as officer for the purposes and considerations therein stated. THUS DONE AND SIGNED on this _____ day of _____________, 1995 in the presence of the undersigned competent witnesses, at Los Angeles, California. WITNESSES: U.S. TRUST COMPANY OF CALIFORNIA, N.A., AS SUCCESSOR TRUSTEE BY: - -------------------------------- -------------------------------- Authorized Officer -------------------------------- NOTARY PUBLIC My Commission Expires: _______________ EX-10.3 3 EMPLOYEES' SAVINGS PLAN 1 EXHIBIT 10.3 UNITED COMPANIES FINANCIAL CORPORATION EMPLOYEES' SAVINGS PLAN Defined Contribution Plan 7.6 Restated January 1, 1994 2 TABLE OF CONTENTS INTRODUCTION ARTICLE I FORMAT AND DEFINITIONS Section 1.01 -----Format Section 1.02 -----Definitions ARTICLE II PARTICIPATION Section 2.01 -----Active Participant Section 2.02 -----Inactive Participant Section 2.03 -----Cessation of Participation Section 2.04 -----Adopting Employers-Single Plan ARTICLE III CONTRIBUTIONS Section 3.01 -----Employer Contributions Section 3.01A -----Rollover Contributions Section 3.02 -----Forfeitures Section 3.03 -----Allocation Section 3.04 -----Contribution Limitation Section 3.05 -----Excess Amounts ARTICLE IV INVESTMENT OF CONTRIBUTIONS Section 4.01 -----Investment of Contributions Section 4.02 -----Company Stock Section 4.03 -----Transactions Involving Employer Securities ARTICLE V BENEFITS Section 5.01 -----Retirement Benefits Section 5.02 -----Death Benefits Section 5.03 -----Vested Benefits Section 5.04 -----When Benefits Start Section 5.05 -----Loans to Participants ARTICLE VI DISTRIBUTION OF BENEFITS Section 6.01 -----Automatic Forms of Distribution Section 6.02 -----Optional Forms of Distribution and Distribution Requirements Section 6.03 -----Election Procedures Section 6.04 -----Notice Requirements
TABLE OF CONTENTS 2 3 ARTICLE VII TERMINATION OF PLAN ARTICLE VIII ADMINISTRATION OF PLAN Section 8.01 -----Administration Section 8.02 -----Records Section 8.03 -----Information Available Section 8.04 -----Claim and Appeal Procedures Section 8.05 -----Unclaimed Vested Account Procedure Section 8.06 -----Delegation of Authority ARTICLE IX GENERAL PROVISIONS Section 9.01 -----Amendments Section 9.02 -----Direct Rollovers Section 9.03 -----Mergers and Direct Transfers Section 9.04 -----Provisions Relating to the Insurer and Other Parties Section 9.05 -----Employment Status Section 9.06 -----Rights to Plan Assets Section 9.07 -----Beneficiary Section 9.08 -----Nonalienation of Benefits Section 9.09 -----Construction Section 9.10 -----Legal Actions Section 9.11 -----Small Amounts Section 9.12 -----Word Usage Section 9.13 -----Transfers Between Plans ARTICLE X TOP-HEAVY PLAN REQUIREMENTS Section 10.01 -----Application Section 10.02 -----Definitions Section 10.03 -----Modification of Vesting Requirements Section 10.04 -----Modification of Contributions Section 10.05 -----Modification of Contribution Limitation PLAN EXECUTION
TABLE OF CONTENTS 3 4 INTRODUCTION The Primary Employer previously established a savings plan on July 1, 1987. The Primary Employer is of the opinion that the plan should be changed. It believes that the best means to accomplish these changes is to completely restate the plan's terms, provisions and conditions. The restatement, effective January 1, 1994, is set forth in this document and is substituted in lieu of the prior document. The restated plan continues to be for the exclusive benefit of employees of the Employer. All persons covered under the plan on December 31, 1993, shall continue to be covered under the restated plan with no loss of benefits. It is intended that the plan, as restated, shall qualify as a profit sharing plan under the Internal Revenue Code of 1986, including any later amendments to the Code. INTRODUCTION 4 5 ARTICLE I FORMAT AND DEFINITIONS SECTION 1.01--FORMAT. Words and phrases defined in the DEFINITIONS SECTION of Article I shall have that defined meaning when used in this Plan, unless the context clearly indicates otherwise. These words and phrases have an initial capital letter to aid in identifying them as defined terms. SECTION 1.02--DEFINITIONS. ACCOUNT means, for a Participant, his share of the Investment Fund. Separate accounting records are kept for those parts of his Account that result from: (a) Elective Deferral Contributions (b) Matching Contributions (c) Other Employer Contributions If the Employer elects to include any of these Contributions in computing the percentages in the EXCESS AMOUNTS SECTION of Article III, a separate accounting record shall be kept for any part of his Account resulting from such Employer Contributions. (d) Rollover Contributions A Participant's Account shall be reduced by any distribution of his Vested Account and by any Forfeitures. A Participant's Account will participate in the earnings credited, expenses charged and any appreciation or depreciation of the Investment Fund. His Account is subject to any minimum guarantees applicable under the Group Contract or other investment arrangement. ACTIVE PARTICIPANT means an Eligible Employee who is actively participating in the Plan according to the provisions in the ACTIVE PARTICIPANT SECTION of Article II. ADOPTING EMPLOYER means an employer controlled by or affiliated with the Employer and listed in the ADOPTING EMPLOYERS - SINGLE PLAN SECTION of Article II. AFFILIATED SERVICE GROUP means any group of corporations, partnerships or other organizations of which the Employer is a part and which is affiliated within the meaning of Code Section 414(m) and regulations thereunder. Such a group includes at least two organizations one of which is either a service organization (that is, an organization the principal business of which is performing services), or an organization the principal business of which is performing management functions on a regular and continuing basis. Such service is of a type historically performed by employees. In the case of a management organization, the Affiliated Service Group shall include organizations related, within the ARTICLE I 5 6 meaning of Code Section 144(a)(3), to either the management organization or the organization for which it performs management functions. The term Controlled Group, as it is used in this Plan, shall include the term Affiliated Service Group. ANNUITY STARTING DATE means, for a Participant, the first day of the first period for which an amount is paid as an annuity or any other form. BENEFICIARY means the person or persons named by a Participant to receive any benefits under this Plan upon the Participant's death. See the BENEFICIARY SECTION of Article IX. CLAIMANT means any person who has made a claim for benefits under this Plan. See the CLAIM AND APPEAL PROCEDURES SECTION of Article VIII. CODE means the Internal Revenue Code of 1986, as amended. COMPANY STOCK means the single class of common stock of the Employer which is publicly traded. COMPENSATION means, except as modified in this definition, the total earnings paid or made available to an Employee by the Employer during any specified period. "Earnings" in this definition means all wages, salaries, fees for professional services and other amounts received (whether or not paid in cash) for personal services actually rendered in the course of employment with the Employer maintaining the plan, but only to the extent includable in gross income. Earnings include, but are not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits and reimbursements or other expense allowances under a nonaccountable plan (as described in section 1.62-2(c) of the regulations). Earnings do not include: (a) Contributions made by the Employer to a plan of deferred compensation to the extent contributions are not included in the gross income of the Employee for the taxable year in which contributed, or on behalf of the Employee to a simplified employee pension plan to the extent such contributions are deductible by the Employee, and any distributions from a plan of deferred compensation whether or not includable in the gross income of the Employee when distributed. (b) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by an Employee becomes freely transferable or is no longer subject to a substantial risk of forfeiture. (c) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option. (d) Other amounts which receive special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in Code Section 403(b) (whether or not the contributions are actually excludable from the gross income of the Employee). Compensation shall exclude reimbursements or other expense allowances, fringe benefits (cash or noncash), moving expenses, deferred compensation and welfare benefits. Compensation shall also include elective contributions. Elective contributions are amounts excludable from the Employee's gross income under Code Sections 125, 402(e)(3), 402(h) or 403(b), and contributed by the Employer, at the Employee's election, to a Code Section 401(k) arrangement, a simplified employee ARTICLE I 6 7 pension, cafeteria plan or tax-sheltered annuity. Elective contributions also include Compensation deferred under a Code Section 457 plan maintained by the Employer and Employee contributions "picked up" by a governmental entity and, pursuant to Code Section 414(h)(2), treated as Employer contributions. For purposes of the EXCESS AMOUNTS SECTION of Article III, the Employer may elect to use an alternative nondiscriminatory definition of Compensation in accordance with the regulations under Code Section 414(s). For Plan Years beginning after December 31, 1988, and before January 1, 1994, the annual Compensation of each Participant taken into account for determining all benefits provided under the Plan for any year shall not exceed $200,000. For Plan Years beginning on or after January 1, 1994, the annual Compensation of each Participant taken into account for determining all benefits provided under the Plan for any year shall not exceed $150,000. The $200,000 limit shall be adjusted by the Secretary at the same time and in the same manner as under Code Section 415(d). The $150,000 limit shall be adjusted by the Commissioner for increases in the cost of living in accordance with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which pay is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For purposes of determining the Compensation of a Participant for the annual compensation limit, all Participants who are Family Members of a Highly Compensated Employee who is a five percent owner or who is one of the ten (10) highest paid Participants will be considered as being one(1) Employee and the annual compensation limit will be allocated among such individuals by reducing the salary of any Family Member who is limited by Code Section 415 to the lowest amount which permits this limit to be reached, thereafter by reducing the salary of the highest paid Family Member(s) until the aggregate dollar limit is met or until the next highest Family Member's Compensation is reached in which case such next highest Family Member's Compensation shall be reduced at the same rate. This process shall be repeated until the annual limit is reached. A Family Member, for purposes of this Section, shall include only the spouse of a Highly Compensated Employee and any lineal descendants of the Highly Compensated Employee who have not attained age 19 before the last day of the Plan Year. If Compensation for any prior determination period is taken into account in determining a Participant's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Years beginning on or after January 1, 1989, which are used to determine benefits in Plan Year beginning after December 31, 1988 and before January 1, 1994, the annual compensation limit is $200,000. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, which are used to determine benefits in Plan Years beginning on or after January 1, 1994, the annual compensation limit is $150,000. COMPENSATION YEAR means each one-year period ending on the last day of the Plan Year, including corresponding periods before July 1, 1987. CONTINGENT ANNUITANT means an individual named by the Participant to receive a lifetime benefit after the Participant's death in accordance with a survivorship life annuity. CONTRIBUTIONS means ARTICLE I 7 8 Elective Deferral Contributions Matching Contributions Qualified Nonelective Contributions Discretionary Contributions Rollover Contributions as set out in Article III, unless the context clearly indicates otherwise. CONTROLLED GROUP means any group of corporations, trades or businesses of which the Employer is a part that are under common control. A Controlled Group includes any group of corporations, trades or businesses, whether or not incorporated, which is either a parent-subsidiary group, a brother-sister group, or a combined group within the meaning of Code Section 414(b), Code Section 414(c) and regulations thereunder and, for purposes of determining contribution limitations under the CONTRIBUTION LIMITATION SECTION of Article III, as modified by Code Section 415(h) and, for the purpose of identifying Leased Employees, as modified by Code Section 144(a)(3). The term Controlled Group, as it is used in this Plan, shall include the term Affiliated Service Group and any other employer required to be aggregated with the Employer under Code Section 414(o) and the regulations thereunder. DIRECT ROLLOVER means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. DISCRETIONARY CONTRIBUTIONS means discretionary contributions made by the Employer to fund this Plan. See the EMPLOYER CONTRIBUTIONS SECTION of Article III. DISTRIBUTEE means an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are Distributees with regard to the interest of the spouse or former spouse. ELECTIVE DEFERRAL CONTRIBUTIONS means Contributions made by the Employer to fund this Plan in accordance with a qualified cash or deferred arrangement as described in Code Section 401(k). See the EMPLOYER CONTRIBUTIONS SECTION of Article III. ELIGIBILITY BREAK IN SERVICE means an Eligibility Computation Period in which an Employee is credited with 500 or fewer Hours-of-Service. An Employee incurs an Eligibility Break in Service on the last day of an Eligibility Computation Period in which he has an Eligibility Break in Service. ELIGIBILITY COMPUTATION PERIOD means a 12-consecutive month period. The first Eligibility Computation Period begins on an Employee's Employment Commencement Date. Later Eligibility Computation Periods shall be 12-consecutive month periods ending on the last day of each Plan Year that begins after his Employment Commencement Date. To determine an Eligibility Computation Period after an Eligibility Break in Service, the Plan shall use the 12-consecutive month period beginning on an Employee's Reemployment Commencement Date as if his Reemployment Commencement Date were his Employment Commencement Date. ELIGIBILITY SERVICE means one year of service for each Eligibility Computation Period that has ended and in which an Employee is credited with at least 1,000 Hours-of-Service. However, Eligibility Service is modified as follows: ARTICLE I 8 9 Predecessor Employer service included: An Employee's service with a Predecessor Employer shall be included as service with the Employer. This service includes service performed while a proprietor or partner. Period of Military Duty included: A Period of Military Duty shall be included as service with the Employer to the extent it has not already been credited. For purposes of crediting Hours-of-Service during the Period of Military Duty, an Hour-of-Service shall be credited (without regard to the 501 Hour-of-Service limitation) for each hour an Employee would normally have been scheduled to work for the Employer during such period. Controlled Group service included: An Employee's service with a member firm of a Controlled Group while both that firm and the Employer were members of the Controlled Group shall be included as service with the Employer. ELIGIBLE EMPLOYEE means any Employee of the Employer who meets the following requirements. He is not employed as a leased Employee; he is not a non-resident alien deriving no income from the Employer from sources within the United States; he is not an owner-employee or a share-holder employee of the Employer or of an Adopting Employer; and, his employment classification with the Employer is the following: Nonbargaining class (not represented for collective bargaining purposes by a bargaining unit which has bargained in good faith with the Employer on the subject of retirement benefits). An otherwise Eligible Employee must be an Employee of the Primary Employer or an Adopting Employer to be eligible under this Plan. ELIGIBLE RETIREMENT PLAN means an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a) or a qualified trust described in Code Section 401(a), that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. ELIGIBLE ROLLOVER DISTRIBUTION means any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: (a) Any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more. (b) Any distribution to the extent such distribution is required under Code Section 401(a)(9). ARTICLE I 9 10 (c) The portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). EMPLOYEE means an individual who is employed by the Employer or any other employer required to be aggregated with the Employer under Code Sections 414(b), (c), (m) or (o). A Controlled Group member is required to be aggregated with the Employer. EMPLOYER means the Primary Employer. This will also include any successor corporation or firm of the Employer which shall, by written agreement, assume the obligations of this Plan or any predecessor corporation or firm of the Employer (absorbed by the Employer, or of which the Employer was once a part) which became a predecessor because of a change of name, merger, purchase of stock or purchase of assets and which maintained this Plan. EMPLOYER CONTRIBUTIONS means Elective Deferral Contributions Matching Contributions Qualified Nonelective Contributions Discretionary Contributions as set out in Article III, unless the context clearly indicates otherwise. EMPLOYMENT COMMENCEMENT DATE means the date an Employee first performs an Hour-of-Service. ENTRY DATE means the date an Employee first enters the Plan as an Active Participant. See the ACTIVE PARTICIPANT SECTION of Article II. FAIR MARKET VALUE means the valuation of Company Stock for purposes of transactions with the Plan, as that valuation is determined under the adequate consideration rules of proposed labor regulations Section 2510.3- 18(b). FAMILY MEMBER means an individual described in Code Section 414(q)(6)(B). FISCAL YEAR means the Primary Employer's taxable year. The last day of the Fiscal Year is December 31. FORFEITURE means the part, if any, of a Participant's Account that is forfeited. See the FORFEITURES SECTION of Article III. FORFEITURE DATE means, as to a Participant, the date the Participant incurs five consecutive Vesting Breaks in Service. A Participant incurs a Vesting Break in Service on the last day of the period used to determine the Vesting Break in Service. This is the date on which the Participant's Nonvested Account will be forfeited unless an earlier forfeiture occurs as provided in the FORFEITURES SECTION of Article III. ARTICLE I 10 11 GROUP CONTRACT means the group annuity contract or contracts into which the Primary Employer enters with the Insurer for the investment of Contributions and the payment of benefits under this Plan. The term Group Contract as it is used in this Plan is deemed to include the plural unless the context clearly indicates otherwise. HIGHLY COMPENSATED EMPLOYEE means a highly compensated active Employee or a highly compensated former Employee. A highly compensated active Employee means any Employee who performs service for the Employer during the determination year and who, during the look-back year: (a) received compensation from the Employer in excess of $75,000 (as adjusted pursuant to Code Section 415(d)); (b) received compensation from the Employer in excess of $50,000 (as adjusted pursuant to Code Section 415(d)) and was a member of the top-paid group for such year; or (c) was an officer of the Employer and received compensation during such year that is greater than 50 percent of the dollar limitation in effect under Code Section 415(b)(1)(A). The term Highly Compensated Employee also means: (d) Employees who are both described in the preceding sentence if the term "determination year" is substituted for the term "look-back year" and the Employee is one of the 100 Employees who received the most compensation from the Employer during the determination year; and (e) Employees who are 5 percent owners at any time during the look-back year or determination year. If no officer has satisfied the compensation requirement of (c) above during either a determination year or look-back year, the highest paid officer for such year shall be treated as a Highly Compensated Employee. For this purpose, the determination year shall be the Plan Year. The look-back year shall be the twelve-month period immediately preceding the determination year. A highly compensated former Employee means any Employee who separated from service (or was deemed to have separated) prior to the determination year, performs no service for the Employer during the determination year, and was a highly compensated active Employee for either the separation year or any determination year ending on or after the Employee's 55th birthday. If an Employee is, during a determination year or look-back year, a family member of either a 5 percent owner who is an active or former Employee or a Highly Compensated Employee who is one of the 10 most highly compensated Employees ranked on the basis of compensation paid by the Employer during such year, then the family member and the 5 percent owner or top-ten highly compensated Employee shall be aggregated. In such case, the family member and 5 percent owner or top-ten highly compensated Employee shall be treated as a single Employee receiving compensation and Plan contributions or benefits equal to the sum of such compensation and contributions or benefits of the family member and 5 percent ARTICLE I 11 12 owner or top-ten highly compensated Employee. For purposes of this definition, family member includes the spouse, lineal ascendants and descendants of the Employee or former Employee and the spouses of such lineal ascendants and descendants. The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of Employees in the top-paid group, the top 100 Employees, the number of Employees treated as officers and the compensation that is considered, will be made in accordance with Code Section 414(q) and the regulations thereunder. HOUR-OF-SERVICE means the following: (a) Each hour for which an Employee is paid, or entitled to payment, for performing duties for the Employer during the applicable computation period. (b) Each hour for which an Employee is paid, or entitled to payment, by the Employer because of a period of time in which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. Notwithstanding the preceding provisions of this subparagraph (b), no credit will be given to the Employee (1) for more than 501 Hours-of-Service under this subparagraph (b) because of any single continuous period in which the Employee performs no duties (whether or not such period occurs in a single computation period); or (2) for an Hour-of-Service for which the Employee is directly or indirectly paid, or entitled to payment, because of a period in which no duties are performed if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's or workmen's compensation, or unemployment compensation or disability insurance laws; or (3) for an Hour-of-Service for a payment which solely reimburses the Employee for medical or medically related expenses incurred by him. For purposes of this subparagraph (b), a payment shall be deemed to be made by, or due from the Employer, regardless of whether such payment is made by, or due from the Employer, directly or indirectly through, among others, a trust fund or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer or other entity are for the benefit of particular employees or are on behalf of a group of employees in the aggregate. (c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same Hours-of-Service shall not be credited both under subparagraph (a) or subparagraph (b) above (as the case may be) and under this subparagraph (c). Crediting of Hours-of-Service for back pay awarded or agreed to with respect to periods described in subparagraph (b) above will be subject to the limitations set forth in that subparagraph. The crediting of Hours-of-Service above shall be applied under the rules of paragraphs (b) and (c) of the Department of Labor Regulation 2530.200b-2 (including any interpretations or opinions implementing said ARTICLE I 12 13 rules); which rules, by this reference, are specifically incorporated in full within this Plan. The reference to paragraph (b) applies to the special rule for determining hours of service for reasons other than the performance of duties such as payments calculated (or not calculated) on the basis of units of time and the rule against double credit. The reference to paragraph (c) applies to the crediting of hours of service to computation periods. Hours-of-Service shall be credited for employment with any other employer required to be aggregated with the Employer under Code Sections 414(b), (c), (m) or (o) and the regulations thereunder for purposes of eligibility and vesting. Hours-of-Service shall also be credited for any individual who is considered an employee for purposes of this Plan pursuant to Code Section 414(n) or Code Section 414(o) and the regulations thereunder. Solely for purposes of determining whether a one-year break in service has occurred for eligibility or vesting purposes, during a Parental Absence an Employee shall be credited with the Hours-of-Service which otherwise would normally have been credited to the Employee but for such absence, or in any case in which such hours cannot be determined, eight Hours-of-Service per day of such absence. The Hours-of-Service credited under this paragraph shall be credited in the computation period in which the absence begins if the crediting is necessary to prevent a break in service in that period; or in all other cases, in the following computation period. INACTIVE PARTICIPANT means a former Active Participant who has an Account. See the INACTIVE PARTICIPANT SECTION of Article II. INSURER means Principal Mutual Life Insurance Company and any other insurance company or companies named by the Trustee or Primary Employer. INVESTMENT FUND means the total assets held for the purpose of providing benefits for Participants. These funds result from Contributions made under the Plan. INVESTMENT MANAGER means any fiduciary (other than a trustee or Named Fiduciary) (a) who has the power to manage, acquire, or dispose of any assets of the Plan; and (b) who (1) is registered as an investment adviser under the Investment Advisers Act of 1940, or (2) is a bank, as defined in the Investment Advisers Act of 1940, or (3) is an insurance company qualified to perform services described in subparagraph (a) above under the laws of more than one state; and (c) who has acknowledged in writing being a fiduciary with respect to the Plan. LATE RETIREMENT DATE means the first day of any month which is after a Participant's Normal Retirement Date and on which retirement benefits begin. If a Participant continues to work for the Employer after his Normal Retirement Date, his Late Retirement Date shall be the earliest first day of the month on or after he ceases to be an Employee. An earlier or a later Retirement Date may apply if the Participant so elects. An earlier Retirement Date may apply if the Participant is age 70 1/2. See the WHEN BENEFITS START SECTION of Article V. ARTICLE I 13 14 LOAN ADMINISTRATOR means the person or positions authorized to administer the Participant loan program. The Loan Administrator is the head of the Human Resources Department. MATCHING CONTRIBUTIONS means matching contributions made by the Employer to fund this Plan. See the EMPLOYER CONTRIBUTIONS SECTION of Article III. NAMED FIDUCIARY means the person or persons who have authority to control and manage the operation and administration of the Plan. The Named Fiduciary is the Employer. NONHIGHLY COMPENSATED EMPLOYEE means an Employee of the Employer who is neither a Highly Compensated Employee nor a Family Member. NONVESTED ACCOUNT means the part, if any, of a Participant's Account that is in excess of his Vested Account. NORMAL FORM means a single life annuity with installment refund. NORMAL RETIREMENT AGE means the age at which the Participant's normal retirement benefit becomes nonforfeitable. A Participant's Normal Retirement Age is 65. NORMAL RETIREMENT DATE means the date the Participant reaches his Normal Retirement Age. Unless otherwise provided in this Plan, a Participant's retirement benefits shall begin on a Participant's Normal Retirement Date if he has ceased to be an Employee on such date and has a Vested Account. Even if the Participant is an Employee on his Normal Retirement Date, he may choose to have his retirement benefit begin on such date. See the WHEN BENEFITS START SECTION of Article V. PARENTAL ABSENCE means an Employee's absence from work which begins on or after the first Yearly Date after December 31, 1984, (a) by reason of pregnancy of the Employee, (b) by reason of birth of a child of the Employee, (c) by reason of the placement of a child with the Employee in connection with adoption of such child by such Employee, or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. PARTICIPANT means either an Active Participant or an Inactive Participant. PERIOD OF MILITARY DUTY means, for an Employee ARTICLE I 14 15 (a) who served as a member of the armed forces of the United States, and (b) who was reemployed by the Employer at a time when the Employee had a right to reemployment in accordance with seniority rights as protected under Section 2021 through 2026 of Title 38 of the U. S. Code, the period of time from the date the Employee was first absent from active work for the Employer because of such military duty to the date the Employee was reemployed. PLAN means the savings plan of the Employer set forth in this document, including any later amendments to it. PLAN ADMINISTRATOR means the person or persons who administer the Plan. The Plan Administrator is the Employer. PLAN YEAR means a period beginning on a Yearly Date and ending on the day before the next Yearly Date. PREDECESSOR EMPLOYER means a firm absorbed by the Employer by change of name, merger, acquisition or a change of corporate status, or a firm of which the Employer was once a part. PRIMARY EMPLOYER means United Companies Financial Corporation. QUALIFIED JOINT AND SURVIVOR FORM means, for a Participant who has a spouse, an immediate survivorship life annuity with installment refund, where the survivorship percentage is 50% and the Contingent Annuitant is the Participant's spouse. A former spouse will be treated as the spouse to the extent provided under a qualified domestic relations order as described in Code Section 414(p). If a Participant does not have a spouse, the Qualified Joint and Survivor Form means the Normal Form. The amount of benefit payable under the Qualified Joint and Survivor Form shall be the amount of benefit which may be provided by the Participant's Vested Account. QUALIFIED NONELECTIVE CONTRIBUTIONS means contributions (other than Employer Contributions made to the Plan on behalf of a Participant on account of Elective Deferral Contributions or on account of contributions made by the Participant) made by the Employer to fund this Plan which an Employee may not elect to have paid to him in cash instead of being contributed to the Plan and which are subject to the distribution and nonforfeitability requirements under Code Section 401(k). See the EMPLOYER CONTRIBUTIONS SECTION of Article III. QUALIFIED PRERETIREMENT SURVIVOR ANNUITY means a single life annuity with installment refund payable to the surviving spouse of a Participant who dies before his Annuity Starting Date. A former spouse will be treated as the surviving spouse to the extent provided under a qualified domestic relations order as described in Code Section 414(p). QUALIFYING EMPLOYER SECURITY means any instrument issued by the Employer and meeting the requirements of Section 4975(e)(8) of the Code. ARTICLE I 15 16 QUARTERLY DATE means each Yearly Date and the third, sixth and ninth Monthly Date after each Yearly Date which is within the same Plan Year. REEMPLOYMENT COMMENCEMENT DATE means the date an Employee first performs an Hour-of-Service following an Eligibility Break in Service. REENTRY DATE means the date a former Active Participant reenters the Plan. See the ACTIVE PARTICIPANT SECTION of Article II. REGISTRATION TYPE QUALIFYING EMPLOYER SECURITY is a class of securities which is required to be registered under Section 12 of the Securities Exchange Act of 1934 or which would be required to be so registered if it did not qualify for the exemption from registration provided in Section 12(g)(2)(H) of said Act. RETIREMENT DATE means the date a retirement benefit will begin and is a Participant's Normal or Late Retirement Date, as the case may be. ROLLOVER CONTRIBUTIONS means the Rollover Contributions which are made by or for a Participant according to the provisions of the ROLLOVER CONTRIBUTIONS SECTION of Article III. TEFRA means the Tax Equity and Fiscal Responsibility Act of 1982. TEFRA COMPLIANCE DATE means the date a plan is to comply with the provisions of TEFRA. The TEFRA Compliance Date as used in this Plan is, (a) for purposes of contribution limitations, Code Section 415, (1) if the plan was in effect on July 1, 1982, the first day of the first limitation year which begins after December 31, 1982, or (2) if the plan was not in effect on July 1, 1982, the first day of the first limitation year which ends after July 1, 1982. (b) for all other purposes, the first Yearly Date after December 31, 1983. TOTALLY AND PERMANENTLY DISABLED means that a Participant who has completed at least two years of Vesting Service is disabled, as a result of sickness or injury, to the extent that he is prevented from engaging in any substantial gainful activity, and is eligible for and receives a disability benefit under Title II of the Federal Social Security Act. TRUST means an agreement of trust between the Primary Employer and Trustee established for the purpose of holding and distributing the Trust Fund under the provisions of the Plan. The Trust may provide for the investment of all or any portion of the Trust Fund in the Group Contract. TRUST FUND means the total funds held under the Trust for the purpose of providing benefits for Participants. These funds result from Contributions made under the Plan which are forwarded to the Trustee to be deposited in the Trust Fund. ARTICLE I 16 17 TRUSTEE means the trustee or trustees under the Trust. The term Trustee as it is used in this Plan is deemed to include the plural unless the context clearly indicates otherwise. VALUATION DATE means for purposes of Section 9.14--Transactions Involving Employer Securities, the date on which the value of the assets of the Trust is determined. The value of each Account which is maintained under this Plan shall be determined on the Valuation Date. In each Plan Year the Valuation Date shall be the last day of each calendar quarter. In addition, the Plan Administrator may designate from time to time, so long as the Trustee agrees, that another date or dates shall be Valuation Dates with respect to a specific Plan Year. VESTED ACCOUNT means the vested part of a Participant's Account. The Participant's Vested Account is equal to that part of his Account which results from Contributions which were 100% vested when made before his Vesting Percentage is 100% and is equal to his Account when his Vesting Percentage is 100%. The Participant's Vested Account is nonforfeitable. VESTING BREAK IN SERVICE means a Vesting Computation Period in which an Employee is credited with 500 or fewer Hours-of-Service. An Employee incurs a Vesting Break in Service on the last day of a Vesting Computation Period in which he has a Vesting Break in Service. VESTING COMPUTATION PERIOD means a 12-consecutive month period ending on the last day of each Plan Year, including corresponding 12-consecutive month periods before July 1, 1987. VESTING PERCENTAGE means the percentage used to determine the nonforfeitable portion of a Participant's Account attributable to Employer Contributions which were not 100% vested when made. A Participant's Vesting Percentage is shown in the following schedule opposite the number of whole years of his Vesting Service.
VESTING SERVICE VESTING (whole years) PERCENTAGE Less than 5 0 5 or more 100
However, the Vesting Percentage for a Participant who is an Employee on or after the earliest of (i) the date he reaches his Normal Retirement Age, (ii) the date of his death, or (iii) the date he becomes Totally and Permanently Disabled, shall be 100% on such date. If the schedule used to determine a Participant's Vesting Percentage is changed, the new schedule shall not apply to a Participant unless he is credited with an Hour-of-Service on or after the date of the change and the Participant's nonforfeitable percentage on the day before the date of the change is not reduced under this Plan. The amendment provisions of the AMENDMENT SECTION of Article IX regarding changes in the computation of the Vesting Percentage shall apply. VESTING SERVICE means one year of service for each Vesting Computation Period in which an Employee is credited with at least 1,000 Hours-of-Service. ARTICLE I 17 18 However, Vesting Service is modified as follows: Rule of parity service excluded: An Employee's Vesting Service, accumulated before a Vesting Break in Service, shall be excluded if (a) his Vesting Percentage is zero, and (b) his latest period of consecutive Vesting Breaks in Service equals or exceeds the greater of (i) five years, or (ii) his prior Vesting Service (disregarding any Vesting Service that was excluded because of a previous period of Vesting Breaks in Service). Predecessor Employer service included: An Employee's service with a Predecessor Employer shall be included as service with the Employer. This service includes service performed while a proprietor or partner. Period of Military Duty included: A Period of Military Duty shall be included as service with the Employer to the extent it has not already been credited. For purposes of crediting Hours-of-Service during the Period of Military Duty, an Hour-of-Service shall be credited (without regard to the 501 Hour-of-Service limitation) for each hour an Employee would normally have been scheduled to work for the Employer during such period. Controlled Group service included: An Employee's service with a member firm of a Controlled Group while both that firm and the Employer were members of the Controlled Group shall be included as service with the Employer. YEARLY DATE means July 1, 1987, and each following January 1. YEARS OF SERVICE means an Employee's Vesting Service disregarding any modifications which exclude service. ARTICLE I 18 19 ARTICLE II PARTICIPATION SECTION 2.01--ACTIVE PARTICIPANT. (a) An Employee shall first become an Active Participant (begin active participation in the Plan) on the earliest Quarterly Date on or after January 1, 1994, on which he is an Eligible Employee and has met both of the eligibility requirements set forth below. This date is his Entry Date. (1) He has completed one year of Eligibility Service before his Entry Date. (2) He is age 21 or older. Each Employee who was an Active Participant under the Plan on December 31, 1993, shall continue to be an Active Participant if he is still an Eligible Employee on January 1, 1994, and his Entry Date shall not change. If a person has been an Eligible Employee who has met all the eligibility requirements above, but is not an Eligible Employee on the date which would have been his Entry Date, he shall become an Active Participant on the date he again becomes an Eligible Employee. This date is his Entry Date. (b) An Inactive Participant shall again become an Active Participant (resume active participation in the Plan) on the date he again performs an Hour-of-Service as an Eligible Employee. This date is his Reentry Date. Upon again becoming an Active Participant, he shall cease to be an Inactive Participant. (c) A former Participant shall again become an Active Participant (resume active participation in the Plan) on the date he again performs an Hour-of-Service as an Eligible Employee. This date is his Reentry Date. There shall be no duplication of benefits for a Participant under this Plan because of more than one period as an Active Participant. SECTION 2.02--INACTIVE PARTICIPANT. An Active Participant shall become an Inactive Participant (stop accruing benefits under the Plan) on the earlier of the following: (a) The date on which he ceases to be an Eligible Employee (on his Retirement Date if the date he ceases to be an Eligible Employee occurs within one month of his Retirement Date). (b) The effective date of complete termination of the Plan. ARTICLE II 19 20 An Employee or former Employee who was an Inactive Participant under the Plan on December 31, 1993, shall continue to be an Inactive Participant on January 1, 1994. Eligibility for any benefits payable to him or on his behalf and the amount of the benefits shall be determined according to the provisions of the prior document, unless otherwise stated in this document. SECTION 2.03--CESSATION OF PARTICIPATION. A Participant shall cease to be a Participant on the date he is no longer an Eligible Employee and his Account is zero. SECTION 2.04--ADOPTING EMPLOYERS - SINGLE PLAN. Each of the employers controlled by or affiliated with the Employer and listed below is an Adopting Employer. Each Adopting Employer listed below participates with the Employer in this Plan. An Adopting Employer's agreement to participate in this Plan shall be in writing. If the Adopting Employer did not maintain its plan before its date of adoption specified below, its date of adoption shall be the Entry Date for any of its employees who have met the requirements in the ACTIVE PARTICIPANT SECTION of Article II as of that date. Service with and earnings from an Adopting Employer shall be included as service with and earnings from the Employer. Transfer of employment, without interruption, between an Adopting Employer and another Adopting Employer or the Employer shall not be considered an interruption of service. Contributions made by an Adopting Employer shall be treated as Contributions made by the Employer. Forfeitures arising from those Contributions shall be used for the benefit of all Participants. An employer shall not be an Adopting Employer if it ceases to be controlled by or affiliated with the Employer. Such an employer may continue a retirement plan for its employees in the form of a separate document. This Plan shall be amended to delete a former Adopting Employer from the list below. If an employer ceases to be an Adopting Employer and does not continue a retirement plan for the benefit of its employees, partial termination may result and the provisions of Article VII apply. ADOPTING EMPLOYERS
NAME FISCAL YEAR END DATE OF ADOPTION United Companies Life Insurance Company December 31 January 1, 1994 United Companies Variable Services, Inc. December 31 February 23, 1995 United Companies Lending Corporation December 31 January 1, 1994 Unicor Mortgage, Inc. December 31 January 1, 1994 Ginger Mae, Inc. December 31 January 1, 1994 Pelican Mortgage Company, Inc. December 31 January 1, 1994 Southern Mortgage Acquisition, Inc. December 31 January 1, 1994 Adobe, Inc. December 31 January 1, 1994 United Companies Management Company, Inc. December 31 January 1, 1994 UCFC Acceptance Corporation December 31 January 1, 1994 United Companies Mortgage of Tennessee, Inc. December 31 January 1, 1994 United Companies Realty & Development, Inc. December 31 January 1, 1994
ARTICLE II 20 21
NAME FISCAL YEAR END DATE OF ADOPTION United Communications Corporation of Louisiana, Inc. December 31 January 1, 1994 United General Title Insurance Company, Inc. December 31 January 1, 1994 United Plan Insurance Agency, Inc. December 31 January 1, 1994 United Companies Credit Life Insurance of Nevada Incorporated December 31 March 14, 1995 United Companies Lending Group, Inc. December 31 January 17, 1995 United Companies Funding, Inc. December 31 June 19, 1995 United Companies Second Mortgage Corporation of Minnesota December 31 May 23, 1995
ARTICLE II 21 22 ARTICLE III CONTRIBUTIONS SECTION 3.01--EMPLOYER CONTRIBUTIONS. Employer Contributions for Plan Years which end on or after January 1, 1994, will be determined as follows. Such Contributions shall be made from current or accumulated net income, earnings or profits of the Employer. Notwithstanding the foregoing, the Plan shall continue to be designed to qualify as a profit sharing plan for purposes of Code Sections 401(a), 402, 412, and 417. Such Contributions will be equal to the Employer Contributions as described below: (a) The amount of each Elective Deferral Contribution for a Participant shall be equal to any percentage (not less than 1% nor more than 15%) of his Compensation for the pay period as elected in his elective deferral agreement. An Employee who is eligible to participate in the Plan may file an elective deferral agreement with the Employer. The elective deferral agreement to start Elective Deferral Contributions may be effective on a Participant's Entry Date (Reentry Date, if applicable) or any following Quarterly Date. The Participant shall make any change or terminate the elective deferral agreement by filing a new elective deferral agreement. A Participant's elective deferral agreement making a change may be effective on any date an elective deferral agreement to start Elective Deferral Contributions could be effective. A Participant's elective deferral agreement to stop Elective Deferral Contributions may be effective on any date. The elective deferral agreement must be in writing and effective before the beginning of the pay period in which Elective Deferral Contributions are to start, change or stop. Elective Deferral Contributions are fully (100%) vested and nonforfeitable. (b) The amount of each Matching Contribution for a Participant shall be equal to a percentage (up to 100%) as determined by the Employer, of the Elective Deferral Contributions made for him for the pay period, disregarding any Elective Deferral Contributions in excess of 5% of his Compensation for the pay period. Matching Contributions are subject to the Vesting Percentage. Matching Contributions will be invested in Company Stock and the Contribution may be made in Qualifying Employer Securities. (c) The amount of each Qualified Nonelective Contribution shall be determined by the Employer. A Qualified Nonelective Contribution shall be made for a Participant only if he is a Nonhighly Compensated Employee. Qualified Nonelective Contributions are fully (100%) vested and nonforfeitable. (d) The amount of each Discretionary Contribution shall be determined by the Employer. In addition, the Employer may contribute to the Trustee such amounts of cash or of Qualifying Employer Securities as shall be voted from time to time by the Board of Directors. Discretionary Contributions are subject to the Vesting Percentage. ARTICLE III 22 23 No Participant shall be permitted to have Elective Deferral Contributions, as defined in the EXCESS AMOUNTS SECTION of Article III, made under this Plan, or any other qualified plan maintained by the Employer, during any taxable year, in excess of the dollar limitation contained in Code Section 402(g) in effect at the beginning of such taxable year. The Employer shall pay to the Insurer its Contributions used to determine the Actual Deferral Percentage, as defined in the EXCESS AMOUNTS SECTION of Article III, to the Plan for each Plan Year not later than the end of the twelve-month period immediately following the Plan Year for which they are deemed to be paid. Any such Contributions accumulated through payroll deductions shall be paid within 90 days of the date withheld or the date it is first reasonably practical for the Employer to do so, if earlier. A portion of the Plan assets resulting from Employer Contributions (but not more than the original amount of those Contributions) may be returned if the Employer Contributions are made because of a mistake of fact or are more than the amount deductible under Code Section 404 (excluding any amount which is not deductible because the Plan is disqualified). The amount involved must be returned to the Employer within one year after the date the Employer Contributions are made by mistake of fact or the date the deduction is disallowed, whichever applies. Except as provided under this paragraph and Article VII, the assets of the Plan shall never be used for the benefit of the Employer and are held for the exclusive purpose of providing benefits to Participants and their Beneficiaries and for defraying reasonable expenses of administering the Plan. SECTION 3.01B--ROLLOVER CONTRIBUTIONS. A Rollover Contribution may be made by or for an Eligible Employee if the following conditions are met: (a) The Contribution is a rollover contribution which the Code permits to be transferred to a plan that meets the requirements of Code Section 401(a). (b) If the Contribution is made by the Eligible Employee, it is made within sixty days after he receives the distribution. (c) The Eligible Employee furnishes evidence satisfactory to the Plan Administrator that the proposed transfer is in fact a rollover contribution that meets conditions (a) and (b) above. The Rollover Contribution may be made by the Eligible Employee or the Eligible Employee may direct the trustee or named fiduciary of another plan to transfer the funds which would otherwise be a Rollover Contribution directly to this Plan. Such transferred funds shall be called a Rollover Contribution. The Contribution shall be made according to procedures set up by the Plan Administrator. If the Eligible Employee is not an Active Participant at the time the Rollover Contribution is made, he shall be deemed to be a Participant only for the purposes of investment and distribution of the Rollover Contribution. He shall not share in the allocation of Employer Contributions until the time he meets all the requirements to become an Active Participant. Rollover Contributions made by or for an Eligible Employee shall be credited to his Account. The part of the Participant's Account resulting from Rollover Contributions is fully (100%) vested and nonforfeitable at all times. A separate accounting record shall be maintained for that part of his Rollover Contribution which consists ARTICLE III 23 24 of voluntary contributions that were deducted from the Participant's gross income for Federal income tax purposes. SECTION 3.02--FORFEITURES. The Nonvested Account of a Participant shall be forfeited as of the earlier of the following: the date of the Participant's death, if prior to such date he had ceased to be an Employee; or his Forfeiture Date. All or a part of a Participant's Nonvested Account will be forfeited if, after he ceases to be an Employee, he receives a distribution of his entire Vested Account or a distribution of his Vested Account derived from Employer Contributions which were not 100% vested when made according to the provisions of the VESTED BENEFITS SECTION of Article V or the SMALL AMOUNTS SECTION of Article IX. If a Participant's Vested Account is zero on the date he ceases to be an Employee, he shall be deemed to have received a distribution of his entire Vested Account on such date. The forfeiture will occur as of the date he receives the distribution or on the date such provision became effective, if later. If he receives a distribution of his entire Vested Account, his entire Nonvested Account will be forfeited. If he receives a distribution of his Vested Account from Employer Contributions which were not 100% vested when made, but less than his entire Vested Account, the amount to be forfeited will be determined by multiplying his Nonvested Account by a fraction. The numerator of the fraction is the amount of the distribution derived from Employer Contributions which were not 100% vested when made and the denominator of the fraction is his entire Vested Account derived from such Employer Contributions on the date of distribution. A Forfeiture shall also occur as described in the EXCESS AMOUNTS SECTION of Article III. Forfeitures may first be applied to pay expenses under the Plan which would otherwise be paid by the Employer. Forfeitures not used to pay expenses shall be applied to reduce the earliest Employer Contributions made after the Forfeitures are determined. Forfeitures shall be determined at least once during each taxable year of the Employer. Upon their application, such Forfeitures shall be deemed to be Employer Contributions. Forfeitures of Matching Contributions which relate to excess amounts shall be applied as provided in the EXCESS AMOUNTS SECTION of Article III. If a Participant again becomes an Eligible Employee after receiving a distribution which caused his Nonvested Account to be forfeited, he shall have the right to repay to the Plan the entire amount of the distribution he received (excluding any amount of such distribution resulting from Contributions which were 100% vested when made). The repayment must be made before the earlier of the date five years after the date he again becomes an Eligible Employee or the end of the first period of five consecutive Vesting Breaks in Service which begin after the date of the distribution. If the Participant makes the repayment provided above, the Plan Administrator shall restore to his Account an amount equal to his Nonvested Account which was forfeited on the date of distribution, unadjusted for any investment gains or losses. If the amount of the repayment is zero dollars because the Participant was deemed to have received a distribution because his Vested Account was zero or the plan did not have repayment provisions in effect on the date the distribution was made and he again performs an Hour-of-Service as an Eligible Employee within the repayment period, the Plan Administrator shall restore the Participant's Account as if he had made a required repayment on the date he performed such Hour-of-Service. Restoration of the Participant's Account shall include restoration of all Code Section 411(d)(6) protected benefits with respect to that restored ARTICLE III 24 25 Account, according to applicable Treasury regulations. Provided, however, the Plan Administrator shall not restore the Nonvested Account if a Forfeiture Date has occurred after the date of the distribution and on or before the date of repayment and that Forfeiture Date would result in a complete forfeiture of the amount the Plan Administrator would otherwise restore. The Plan Administrator shall restore the Participant's Account by the close of the Plan Year following the Plan Year in which repayment is made. Permissible sources for restoration are Forfeitures or Employer Contributions. The Employer shall contribute, without regard to any requirement or condition of the EMPLOYER CONTRIBUTIONS SECTION of Article III, such additional amount needed to make the required restoration. The repaid and restored amounts are not included in the Participant's Annual Addition, as defined in the CONTRIBUTION LIMITATION SECTION of Article III. SECTION 3.03--ALLOCATION. The following Contributions for the Plan Year shall be allocated among all eligible persons: Qualified Nonelective Contributions Discretionary Contributions The eligible persons are all Participants and former Participants who were Active Participants at any time in the Plan Year. The amount allocated to such a person shall be determined below and under Article X. The following Contributions for each Plan Year shall be allocated to each Participant for whom such Contributions were made under the EMPLOYER CONTRIBUTIONS SECTION of Article III: Elective Deferral Contributions Matching Contributions These Contributions shall be allocated when made and credited to the Participant's Account. Discretionary Contributions are allocated as of the last day of each Plan Year. The amount allocated to each eligible person for the Plan Year shall be equal to the Discretionary Contributions for the Plan Year, multiplied by the ratio of (a) his Annual Compensation as of the last day of the Plan Year to (b) the total of such compensation for all eligible persons. This amount is credited to his Account. SECTION 3.04--CONTRIBUTION LIMITATION. (a) For the purpose of determining the contribution limitation set forth in this section, the following terms are defined: Aggregate Annual Addition means, for a Participant with respect to any Limitation Year, the sum of his Annual Additions under all defined contribution plans of the Employer, as defined in this section, for such Limitation Year. The nondeductible participant contributions which the Participant makes to a defined benefit plan shall be treated as Annual Additions to a defined contribution plan. The Contributions the Employer, as defined in this section, made for the Participant for a Plan Year beginning on or after March 31, 1984, to an individual medical benefit account, as defined in Code Section 415(l)(2), under a pension or annuity plan of the Employer, as defined in this section, shall be treated as Annual Additions to a defined contribution plan. Also, amounts derived from ARTICLE III 25 26 contributions paid or accrued after December 31, 1985, in Fiscal Years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a key employee, as defined in Code Section 419A(d)(3), under a welfare benefit fund, as defined in Code Section 419(e), maintained by the Employer, as defined in this section, are treated as Annual Additions to a defined contribution plan. The 25% of Compensation limit under Maximum Permissible Amount does not apply to Annual Additions resulting from contributions made to an individual medical account, as defined in Code Section 415(l)(2), or to Annual Additions resulting from contributions for medical benefits, within the meaning of Code Section 419A, after separation from service. Annual Addition means the amount added to a Participant's account for any Limitation Year which may not exceed the Maximum Permissible Amount. The Annual Addition under any plan for a Participant with respect to any Limitation Year, shall be equal to the sum of (1) and (2) below: (1) Employer contributions and forfeitures credited to his account for the Limitation Year. (2) Participant contributions made by him for the Limitation Year. Before the first Limitation Year beginning after December 31, 1986, the amount under (2) above is the lesser of (i) 1/2 of his nondeductible participant contributions made for the Limitation Year, or (ii) the amount, if any, of his nondeductible participant contributions made for the Limitation Year which is in excess of six percent of his Compensation, as defined in this section, for such Limitation Year. Compensation means all wages, salaries, fees for professional services and other amounts received (whether or not paid in cash) for personal services actually rendered in the course of employment with the Employer, as defined in this section, who is maintaining the plan, but only to the extent includable in gross income. Compensation includes, but is not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits and reimbursements or other expense allowances under a nonaccountable plan (as described in section 1.62-2(c) of the regulations). Compensation does not include: (1) Contributions made by the Employer, as defined in this section, to a plan of deferred compensation to the extent contributions are not included in the gross income of the Employee for the taxable year in which contributed, or on behalf of the Employee to a simplified employee pension plan to the extent such contributions are deductible by the Employee, and any distributions from a plan of deferred compensation whether or not includable in the gross income of the Employee when distributed. (2) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by an Employee becomes freely transferable or is no longer subject to a substantial risk of forfeiture. (3) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option. ARTICLE III 26 27 (4) Other amounts which receive special tax benefits, or contributions made by the Employer, as defined in this section, (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in Code Section 403(b) (whether or not the contributions are actually excludable from the gross income of the Employee). For any self-employed individual Compensation will mean earned income. For purposes of applying the limitations of this section, Compensation for a Limitation Year is the Compensation actually paid or made available during such Limitation Year. Defined Benefit Plan Fraction means, with respect to a Limitation Year for a Participant who is or has been a participant in a defined benefit plan ever maintained by the Employer, as defined in this section, the quotient, expressed as a decimal, of (1) the Participant's Projected Annual Benefit under all such plans as of the close of such Limitation Year, divided by (2) on and after the TEFRA Compliance Date, the lesser of (i) or (ii) below: (i) 1.25 multiplied by the maximum dollar limitation which applies to defined benefit plans determined for the Limitation Year under Code Sections 415(b) or (d) or (ii) 1.4 multiplied by the Participant's highest average compensation as defined in the defined benefit plan(s), including any adjustments under Code Section 415(b). Before the TEFRA Compliance Date, this denominator is the Participant's Projected Annual Benefit as of the close of the Limitation Year if the plan(s) provided the maximum benefit allowable. The Defined Benefit Plan Fraction shall be modified as follows: If the Participant was a participant as of the first day of the first Limitation Year beginning after December 31, 1986, in one or more defined benefit plans maintained by the Employer, as defined in this section, which were in existence on May 6, 1986, the denominator of this fraction will not be less than 125 percent of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last Limitation Year beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plan after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Code Section 415 for all Limitation Years beginning before January 1, 1987. Defined Contribution Plan Fraction means, for a Participant with respect to a Limitation Year, the quotient, expressed as a decimal, of (1) the Participant's Aggregate Annual Additions for such Limitation Year and all prior Limitation Years, under all defined contribution plans (including the Aggregate Annual Additions ARTICLE III 27 28 attributable to nondeductible accounts under defined benefit plans and attributable to all welfare benefit funds, as defined in Code Section 419(e) and attributable to individual medical accounts, as defined in Code Section 415(l)(2)) ever maintained by the Employer, as defined in this section, divided by (2) on and after the TEFRA Compliance Date, the sum of the amount determined for the Limitation Year under (i) or (ii) below, whichever is less, and the amounts determined in the same manner for all prior Limitation Years during which he has been an Employee or an employee of a predecessor employer: (i) 1.25 multiplied by the maximum permissible dollar amount for each such Limitation Year, or (ii) 1.4 multiplied by the maximum permissible percentage of the Participant's Compensation, as defined in this section, for each such Limitation Year. Before the TEFRA Compliance Date, this denominator is the sum of the maximum allowable amount of Annual Addition to his account(s) under all the plan(s) of the Employer, as defined in this section, for each such Limitation Year. The Defined Contribution Plan Fraction shall be modified as follows: If the Participant was a participant as of the first day of the first Limitation Year beginning after December 31, 1986, in one or more defined contribution plans maintained by the Employer, as defined in this section, which were in existence on May 6, 1986, the numerator of this fraction shall be adjusted if the sum of the Defined Contribution Plan Fraction and Defined Benefit Plan Fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, the dollar amount determined below shall be permanently subtracted from the numerator of this fraction. The dollar amount is equal to the excess of the sum of the two fractions, before adjustment, over 1.0 multiplied by the denominator of his Defined Contribution Plan Fraction. The adjustment is calculated using his Defined Contribution Plan Fraction and Defined Benefit Plan Fraction as they would be computed as of the end of the last Limitation Year beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the plan made after May 5, 1986, but using the Code Section 415 limitations applicable to the first Limitation Year beginning on or after January 1, 1987. The Annual Addition for any Limitation Year beginning before January 1, 1987, shall not be recomputed to treat all employee contributions as Annual Additions. For a plan that was in existence on July 1, 1982, for purposes of determining the Defined Contribution Plan Fraction for any Limitation Year ending after December 31, 1982, the Plan Administrator may elect, in accordance with the provisions of Code Section 415, that the denominator for each Participant for all Limitation Years ending before January 1, 1983, will be equal to (1) the Defined Contribution Plan Fraction denominator which would apply for the last Limitation Year ending in 1982 if an election under this paragraph were not made, multiplied by. ARTICLE III 28 29 (2) a fraction, equal to (i) over (ii) below: (i) the lesser of (A) $51,875, or (B) 1.4, multiplied by 25% of the Participant's Compensation, as defined in this section, for the Limitation Year ending in 1981; (ii) the lesser of (A) $41,500, or (B) 25% of the Participant's Compensation, as defined in this section, for the Limitation Year ending in 1981. The election described above is applicable only if the plan administrators under all defined contribution plans of the Employer, as defined in this section, also elect to use the modified fraction. Employer means any employer that adopts this Plan and all Controlled Group members and any other entity required to be aggregated with the employer pursuant to regulations under Code Section 414(o). Limitation Year means the 12-consecutive month period within which it is determined whether or not the limitations of Code Section 415 are exceeded. Limitation Year means each 12-consecutive month period ending on the last day of each Plan Year, including corresponding 12-consecutive month periods before July 1, 1987. If the Limitation Year is other than the calendar year, execution of this Plan (or any amendment to this Plan changing the Limitation Year) constitutes the Employer's adoption of a written resolution electing the Limitation Year. If the Limitation Year is changed, the new Limitation Year shall begin within the current Limitation Year, creating a short Limitation Year. Maximum Permissible Amount means, for a Participant with respect to any Limitation Year, the lesser of (1) or (2) below: (1) The greater of $30,000 or one-fourth of the maximum dollar limitation which applies to defined benefit plans set forth in Code Section 415(b)(1) as in effect for the Limitation Year. (Before the TEFRA Compliance Date, $25,000 multiplied by the cost of living adjustment factor permitted by Federal regulations.) (2) 25% of his Compensation, as defined in this section, for such Limitation Year. The compensation limitation referred to in (2) shall not apply to any contribution for medical benefits (within the meaning of Code Section 401(h) or Code Section 419A(f)(2)) which is otherwise treated as an annual addition under Code Section 415(l)(1) or Code Section 419A(d)(2). If there is a short Limitation Year because of a change in Limitation Year, the Maximum Permissible Amount will not exceed the maximum dollar limitation which would otherwise apply multiplied by the following fraction: Number of months in the short Limitation Year 12 Projected Annual Benefit means a Participant's expected annual benefit under all defined benefit plan(s) ever maintained by the Employer, as defined in this section. The Projected Annual Benefit shall be determined assuming that the Participant will continue employment until the later of current ARTICLE III 29 30 age or normal retirement age under such plan(s), and that the Participant's compensation for the current Limitation Year and all other relevant factors used to determine benefits under such plan(s) will remain constant for all future Limitation Years. Such expected annual benefit shall be adjusted to the actuarial equivalent of a straight life annuity if expressed in a form other than a straight life or qualified joint and survivor annuity. (b) The Annual Addition under this Plan for a Participant during a Limitation Year shall not be more than the Maximum Permissible Amount. (c) Contributions which would otherwise be credited to the Participant's Account shall be limited or reallocated to the extent necessary to meet the restrictions of subparagraph (b) above for any Limitation Year in the following order. Discretionary Contributions shall be reallocated in the same manner as described in the ALLOCATION SECTION of Article III to the remaining Participants to whom the limitations do not apply for the Limitation Year. The Discretionary Contributions shall be limited if there are no such remaining Participants. Qualified Nonelective Contributions shall be limited. Elective Deferral Contributions shall be limited. Elective Deferral Contributions that are not the basis for Matching Contributions shall be limited. Matching Contributions shall be limited to the extent necessary to limit the Participant's Annual Addition under this Plan to his maximum amount. If Matching Contributions are limited because of this limit, Elective Deferral Contributions that are the basis for Matching Contributions shall be reduced in proportion. If a Participant's Annual Additions under this Plan and all such other plans result in an Excess Annual Amount, such Excess Annual Amount shall be deemed to consist of the amounts last allocated. In particular, if amounts are allocated as of the same date, Elective Deferrals shall be allocated first; any required Employer Contributions under this Plan or any other cash or deferred arrangement in order to satisfy nondiscrimination tests will be allocated second; amounts allocated as a result of payment of an Employee Stock Ownership Plan Loan under the United Companies Financial Corporation Employee Stock Ownership Plan shall be allocated third; Matching Contributions under this Plan shall be allocated fourth; Discretionary Contributions under this Plan shall be considered allocated fifth; and discretionary Employer Contributions allocated under the United Companies Financial Corporation Employee Stock Ownership Plan for purposes other than ESOP loan repayment, shall be considered to have been allocated last. Thus, Elective Deferrals and Matching Contributions which are allocated prior to the last day of the Plan Year, such as on quarterly allocation dates, will be allocated before any of the above which are allocated on the last day of the Plan Year. Notwithstanding the above, Annual Additions attributable to a welfare benefit fund, if any, will be deemed to have been allocated first, regardless of the actual allocation date. (d) A Participant's Aggregate Annual Addition for a Limitation Year shall not exceed the Maximum Permissible Amount. If, for the Limitation Year, the Participant has an Annual Addition under more than one defined contribution plan or a welfare benefit fund, as defined in Code Section 419(e), or an individual medical account, as defined in Code Section 415(l)(2), maintained by the Employer, as defined in this section, and such plans and welfare benefit funds and individual medical accounts do not otherwise limit the Aggregate Annual Addition to the Maximum Permissible Amount, any reduction necessary shall be made first to the profit sharing plans, then to all other such plans and welfare benefit funds and individual medical accounts and, if necessary, by reducing first those that were ARTICLE III 30 31 most recently allocated. Welfare benefit funds and individual medical accounts shall be deemed to be allocated first. However, elective deferral contributions shall be the last contributions reduced before the welfare benefit fund or individual medical account is reduced. If some of the Employer's defined contribution plans were not in existence on July 1, 1982, and some were in existence on that date, the Maximum Permissible Amount which is based on a dollar amount may differ for a Limitation Year. The Aggregate Annual Addition for the Limitation Year in which the dollar limit differs shall not exceed the lesser of (1) 25% of Compensation as defined in this section, (2) $45,475, or (3) the greater of $30,000 or the sum of the Annual Additions for such Limitation Year under all the plan(s) to which the $45,475 amount applies. (e) If a Participant is or has been a participant in both defined benefit and defined contribution plans (including a welfare benefit fund or individual medical account) ever maintained by the Employer, as defined in this section, the sum of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction for any Limitation Year shall not exceed 1.0 (1.4 before the TEFRA Compliance Date). After all other limitations set out in the plans and funds have been applied, the following limitations shall apply so that the sum of the Participant's Defined Benefit Plan Fraction and Defined Contribution Plan Fraction shall not exceed 1.0 (1.4 before the TEFRA Compliance Date). The Projected Annual Benefit shall be limited first. If the Participant's annual benefit(s) equal his Projected Annual Benefit, as limited, then Annual Additions to the defined contribution plan(s) shall be limited to the extent needed to reduce the sum to 1.0 (1.4). First, the voluntary contributions the Participant may make for the Limitation Year shall be limited. Next, in the case of a profit sharing plan, any forfeitures allocated to the Participant shall be reallocated to remaining participants to the extent necessary to reduce the decimal to 1.0 (1.4). Last, to the extent necessary, employer contributions for the Limitation Year shall be reallocated or limited, and any required and optional employee contributions to which such employer contributions were geared shall be reduced in proportion. If, for the Limitation Year, the Participant has an Annual Addition under more than one defined contribution plan or welfare benefit fund or individual medical account maintained by the Employer, as defined in this section, any reduction above shall be made first to the profit sharing plans, then to all other such plans and welfare benefit plans and individual medical accounts and, if necessary, by reducing first those that were most recently allocated. However, elective deferral contributions shall be the last contributions reduced before the welfare benefit fund or individual medical account is reduced. The annual addition to the welfare benefit fund and individual medical account shall be limited last. SECTION 3.05--EXCESS AMOUNTS. (a) For the purposes of this section, the following terms are defined: Actual Deferral Percentage means the ratio (expressed as a percentage) of Elective Deferral Contributions under this Plan on behalf of the Eligible Participant for the Plan Year to the Eligible Participant's Compensation for the Plan Year. In modification of the foregoing, Compensation shall be limited to the Compensation received while an Active Participant. The Elective Deferral Contributions used to determine the Actual Deferral Percentage shall include Excess Elective ARTICLE III 31 32 Deferrals (other than Excess Elective Deferrals of Nonhighly Compensated Employees that arise solely from Elective Deferral Contributions made under this Plan or any other plans of the Employer or a Controlled Group member), but shall exclude Elective Deferral Contributions that are used in computing the Contribution Percentage (provided the Average Actual Deferral Percentage test is satisfied both with and without exclusion of these Elective Deferral Contributions). Under such rules as the Secretary of the Treasury shall prescribe, the Employer may elect to include Qualified Nonelective Contributions and Qualified Matching Contributions under this Plan in computing the Actual Deferral Percentage. For an Eligible Participant for whom such Contributions on his behalf for the Plan Year are zero, the percentage is zero. Aggregate Limit means the greater of (1) or (2) below: (1) The sum of (i) 125 percent of the greater of the Average Actual Deferral Percentage of the Nonhighly Compensated Employees for the Plan Year or the Average Contribution Percentage of Nonhighly Compensated Employees under the Plan subject to Code Section 401(m) for the Plan Year beginning with or within the Plan Year of the cash or deferred arrangement and. (ii) the lesser of 200% or two plus the lesser of such Average Actual Deferral Percentage or Average Contribution Percentage. (2) The sum of (i) 125 percent of the lesser of the Average Actual Deferral Percentage of the Nonhighly Compensated Employees for the Plan Year or the Average Contribution Percentage of Nonhighly Compensated Employees under the Plan subject to Code Section 401(m) for the Plan Year beginning with or within the Plan Year of the cash or deferred arrangement and (ii) the lesser of 200% or two plus the greater of such Average Actual Deferral Percentage or Average Contribution Percentage. Average Actual Deferral Percentage means the average (expressed as a percentage) of the Actual Deferral Percentages of the Eligible Participants in a group. Average Contribution Percentage means the average (expressed as a percentage) of the Contribution Percentages of the Eligible Participants in a group. Contribution Percentage means the ratio (expressed as a percentage) of the Eligible Participant's Contribution Percentage Amounts to the Eligible Participant's Compensation for the Plan Year. In modification of the foregoing, Compensation shall be limited to the Compensation received while an Active Participant. For an Eligible Participant for whom such Contribution Percentage Amounts for the Plan Year are zero, the percentage is zero. ARTICLE III 32 33 Contribution Percentage Amounts means the sum of the Participant Contributions and Matching Contributions (that are not Qualified Matching Contributions) under this Plan on behalf of the Eligible Participant for the Plan Year. Such Contribution Percentage Amounts shall not include Matching Contributions that are forfeited either to correct Excess Aggregate Contributions or because the Contributions to which they relate are Excess Elective Deferrals, Excess Contributions or Excess Aggregate Contributions. Under such rules as the Secretary of the Treasury shall prescribe, the Employer may elect to include Qualified Nonelective Contributions and Qualified Matching Contributions under this Plan which were not used in computing the Actual Deferral Percentage in computing the Contribution Percentage. The Employer may also elect to use Elective Deferral Contributions in computing the Contribution Percentage so long as the Average Actual Deferral Percentage test is met before the Elective Deferral Contributions are used in the Average Contribution Percentage test and continues to be met following the exclusion of those Elective Deferral Contributions that are used to meet the Average Contribution Percentage test. Elective Deferral Contributions means employer contributions made on behalf of a participant pursuant to an election to defer under any qualified cash or deferred arrangement as described in Code Section 401(k), any simplified employee pension cash or deferred arrangement as described in Code Section 402(h)(1)(B), any eligible deferred compensation plan under Code Section 457, any plan as described under Code Section 501(c)(18), and any employer contributions made on behalf of a participant for the purchase of an annuity contract under Code Section 403(b) pursuant to a salary reduction agreement. Elective Deferral Contributions shall not include any deferrals properly distributed as excess Annual Additions. Eligible Participant means, for purposes of determining the Actual Deferral Percentage, any Employee who is otherwise authorized under the terms of the Plan to have Elective Deferral Contributions made on his behalf for the Plan Year. Eligible Participant means, for purposes of determining the Average Contribution Percentage, any Employee who is otherwise authorized under the terms of the Plan to have Participant Contributions or Matching Contributions made on his behalf for the Plan Year. Excess Aggregate Contributions means, with respect to any Plan Year, the excess of: (1) The aggregate Contributions taken into account in computing the numerator of the Contribution Percentage actually made on behalf of Highly Compensated Employees for such Plan Year, over (2) The maximum amount of such Contributions permitted by the Average Contribution Percentage test (determined by reducing Contributions made on behalf of Highly Compensated Employees in order of their Contribution Percentages beginning with the highest of such percentages). Such determination shall be made after first determining Excess Elective Deferrals and then determining Excess Contributions. Excess Contributions means, with respect to any Plan Year, the excess of: ARTICLE III 33 34 (1) The aggregate amount of Contributions actually taken into account in computing the Actual Deferral Percentage of Highly Compensated Employees for such Plan Year, over (2) The maximum amount of such Contributions permitted by the Actual Deferral Percentage test (determined by reducing Contributions made on behalf of Highly Compensated Employees in order of the Actual Deferral Percentages, beginning with the highest of such percentages). A Participant's Excess Contributions for a Plan Year will be reduced by the amount of Excess Elective Deferrals, if any, previously distributed to the Participant for the taxable year ending in that Plan Year. Excess Elective Deferrals means those Elective Deferral Contributions that are includible in a Participant's gross income under Code Section 402(g) to the extent such Participant's Elective Deferral Contributions for a taxable year exceed the dollar limitation under such Code section. Excess Elective Deferrals shall be treated as Annual Additions, as defined in the CONTRIBUTION LIMITATION SECTION of Article III, under the Plan, unless such amounts are distributed no later than the first April 15 following the close of the Participant's taxable year. Participant Contributions means contributions made to any plan by or on behalf of a participant that are included in the participant's gross income in the year in which made and that are maintained under a separate account to which earnings and losses are allocated. Matching Contributions means employer contributions made to this or any other defined contribution plan, or to a contract described in Code Section 403(b), on behalf of a participant on account of a Participant Contribution made by such participant, or on account of a participant's Elective Deferral Contributions, under a plan maintained by the employer. Qualified Matching Contributions means Matching Contributions which are subject to the distribution and nonforfeitability requirements under Code Section 401(k) when made. Qualified Nonelective Contributions means any employer contributions (other than Matching Contributions) which an employee may not elect to have paid to him in cash instead of being contributed to the plan and which are subject to the distribution and nonforfeitability requirements under Code Section 401(k). (b) A Participant may assign to this Plan any Excess Elective Deferrals made during a taxable year by notifying the Plan Administrator in writing on or before the first following March 1 of the amount of the Excess Elective Deferrals to be assigned to the Plan. A Participant is deemed to notify the Plan Administrator of any Excess Elective Deferrals that arise by taking into account only those Elective Deferral Contributions made to this Plan and any other plans of the Employer or a Controlled Group member and reducing such Excess Elective Deferrals by the amount of Excess Contributions, if any, previously distributed for the Plan Year beginning in that taxable year. The Participant's claim for Excess Elective Deferrals shall be accompanied by the Participant's written statement that if such amounts are not distributed, such Excess Elective Deferrals, when added to amounts deferred under other plans or arrangements described in Code Sections 401(k), 408(k) or 403(b), will exceed the limit imposed on the Participant by Code Section 402(g) for the year in ARTICLE III 34 35 which the deferral occurred. The Excess Elective Deferrals assigned to this Plan can not exceed the Elective Deferral Contributions allocated under this Plan for such taxable year. Notwithstanding any other provisions of the Plan, Elective Deferral Contributions in an amount equal to the Excess Elective Deferrals assigned to this Plan, plus any income and minus any loss allocable thereto, shall be distributed no later than April 15 to any Participant to whose Account Excess Elective Deferrals were assigned for the preceding year and who claims Excess Elective Deferrals for such taxable year. The income or loss allocable to such Excess Elective Deferrals shall be equal to the income or loss allocable to the Participant's Elective Deferral Contributions for the taxable year in which the excess occurred multiplied by a fraction. The numerator of the fraction is the Excess Elective Deferrals. The denominator of the fraction is the closing balance without regard to any income or loss occurring during such taxable year (as of the end of such taxable year) of the Participant's Account resulting from Elective Deferral Contributions. Any Matching Contributions which were based on the Elective Deferral Contributions which are distributed as Excess Elective Deferrals, plus any income and minus any loss allocable thereto, shall be forfeited, if forfeitable. These Forfeitures shall be used to offset the earliest Employer Contribution due after the Forfeiture arises. (c) As of the end of each Plan Year after Excess Elective Deferrals have been determined, one of the following tests must be met: (1) The Average Actual Deferral Percentage for Eligible Participants who are Highly Compensated Employees for the Plan Year is not more than the Average Actual Deferral Percentage for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 1.25. (2) The Average Actual Deferral Percentage for Eligible Participants who are Highly Compensated Employees for the Plan Year is not more than the Average Actual Deferral Percentage for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 2 and the difference between the Average Actual Deferral Percentages is not more than 2. The Actual Deferral Percentage for any Eligible Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Deferral Contributions (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if used in computing the Actual Deferral Percentage) allocated to his account under two or more plans or arrangements described in Code Section 401(k) that are maintained by the Employer or a Controlled Group member shall be determined as if all such Elective Deferral Contributions (and, if applicable, such Qualified Nonelective Contributions or Qualified Matching Contributions, or both) were made under a single arrangement. If a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different Plan Years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under the regulations under Code Section 401(k). ARTICLE III 35 36 In the event that this Plan satisfies the requirements of Code Sections 401(k), 401(a)(4), or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Code sections only if aggregated with this Plan, then this section shall be applied by determining the Actual Deferral Percentage of employees as if all such plans were a single plan. Plans may be aggregated in order to satisfy Code Section 401(k) only if they have the same Plan Year. For purposes of determining the Actual Deferral Percentage of an Eligible Participant who is a five-percent owner or one of the ten most highly-paid Highly Compensated Employees, the Elective Deferral Contributions (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if used in computing the Actual Deferral Percentage) and Compensation of such Eligible Participant include the Elective Deferral Contributions (and, if applicable, Qualified Nonelective Contributions or Qualified Matching Contributions, or both) and Compensation for the Plan Year of Family Members. Family Members, with respect to such Highly Compensated Employees, shall be disregarded as separate employees in determining the Actual Deferral Percentage both for Participants who are Nonhighly Compensated Employees and for Participants who are Highly Compensated Employees. For purposes of determining the Actual Deferral Percentage, Elective Deferral Contributions, Qualified Nonelective Contributions and Qualified Matching Contributions must be made before the last day of the 12-month period immediately following the Plan Year to which contributions relate. The Employer shall maintain records sufficient to demonstrate satisfaction of the Average Actual Deferral Percentage test and the amount of Qualified Nonelective Contributions or Qualified Matching Contributions, or both, used in such test. The determination and treatment of the Contributions used in computing the Actual Deferral Percentage shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. If the Plan Administrator should determine during the Plan Year that neither of the above tests is being met, the Plan Administrator may adjust the amount of future Elective Deferral Contributions of the Highly Compensated Employees. Notwithstanding any other provisions of this Plan, Excess Contributions, plus any income and minus any loss allocable thereto, shall be distributed no later than the last day of each Plan Year to Participants to whose Accounts such Excess Contributions were allocated for the preceding Plan Year. If such excess amounts are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arose, a ten (10) percent excise tax will be imposed on the employer maintaining the plan with respect to such amounts. Such distributions shall be made to Highly Compensated Employees on the basis of the respective portions of the Excess Contributions attributable to each of such employees. Excess Contributions of Participants who are subject to the family member aggregation rules shall be allocated among the Family Members in proportion to the Elective Deferral Contributions (and amounts treated as Elective Deferral Contributions) of each Family Member that is combined to determine the combined Actual Deferral Percentage. ARTICLE III 36 37 Excess Contributions shall be treated as Annual Additions, as defined in the CONTRIBUTION LIMITATION SECTION of Article III, under the Plan. The Excess Contributions shall be adjusted for income or loss. The income or loss allocable to such Excess Contributions shall be equal to the income or loss allocable to the Participant's Elective Deferral Contributions (and, if applicable, Qualified Nonelective Contributions or Qualified Matching Contributions, or both) for the Plan Year in which the excess occurred multiplied by a fraction. The numerator of the fraction is the Excess Contributions. The denominator of the fraction is the closing balance without regard to any income or loss occurring during such Plan Year (as of the end of such Plan Year) of the Participant's Account resulting from Elective Deferral Contributions (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if used in computing the Actual Deferral Percentage). Excess Contributions shall be distributed from the Participant's Account resulting from Elective Deferral Contributions. If such Excess Contributions exceed the balance in the Participant's Account resulting from Elective Deferral Contributions, the balance shall be distributed from the Participant's Account resulting from Qualified Matching Contributions (if applicable) and Qualified Nonelective Contributions, respectively. Any Matching Contributions which were based on the Elective Deferral Contributions which are distributed as Excess Contributions, plus any income and minus any loss allocable thereto, shall be forfeited, if forfeitable. These Forfeitures shall be used to offset the earliest Employer Contribution due after the Forfeiture arises. (d) As of the end of each Plan Year, one of the following tests must be met: (1) The Average Contribution Percentage for Eligible Participants who are Highly Compensated Employees for the Plan Year is not more than the Average Contribution Percentage for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 1.25. (2) The Average Contribution Percentage for Eligible Participants who are Highly Compensated Employees for the Plan Year is not more than the Average Contribution Percentage for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 2 and the difference between the Average Contribution Percentages is not more than 2. If one or more Highly Compensated Employees participate in both a cash or deferred arrangement and a plan subject to the Average Contribution Percentage test maintained by the Employer or a Controlled Group member and the sum of the Average Actual Deferral Percentage and Average Contribution Percentage of those Highly Compensated Employees subject to either or both tests exceeds the Aggregate Limit, then the Contribution Percentage of those Highly Compensated Employees who also participate in a cash or deferred arrangement will be reduced (beginning with such Highly Compensated Employees whose Contribution Percentage is the highest) so that the limit is not exceeded. The amount by which each Highly Compensated Employee's Contribution Percentage is reduced shall be treated as an Excess Aggregate Contribution. The Average Actual Deferral Percentage and ARTICLE III 37 38 Average Contribution Percentage of the Highly Compensated Employees are determined after any corrections required to meet the Average Actual Deferral Percentage and Average Contribution Percentage tests. Multiple use does not occur if both the Average Actual Deferral Percentage and Average Contribution Percentage of the Highly Compensated Employees does not exceed 1.25 multiplied by the Average Actual Deferral Percentage and Average Contribution Percentage of the Nonhighly Compensated Employees. The Contribution Percentage for any Eligible Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Contribution Percentage Amounts allocated to his account under two or more plans described in Code Section 401(a) or arrangements described in Code Section 401(k) that are maintained by the Employer or a Controlled Group member shall be determined as if the total of such Contribution Percentage Amounts was made under each plan. If a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different Plan Years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under the regulations under Code Section 401(m). In the event that this Plan satisfies the requirements of Code Sections 401(m), 401(a)(4), or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of Code sections only if aggregated with this Plan, then this section shall be applied by determining the Contribution Percentages of Eligible Participants as if all such plans were a single plan. Plans may be aggregated in order to satisfy Code Section 401(m) only if they have the same Plan Year. For purposes of determining the Contribution Percentage of an Eligible Participant who is a five-percent owner or one of the ten most highly-paid Highly Compensated Employees, the Contribution Percentage Amounts and Compensation of such Participant shall include Contribution Percentage Amounts and Compensation for the Plan Year of Family Members. Family Members, with respect to Highly Compensated Employees, shall be disregarded as separate employees in determining the Contribution Percentage both for employees who are Nonhighly Compensated Employees and for employees who are Highly Compensated Employees. For purposes of determining the Contribution Percentage, Participant Contributions are considered to have been made in the Plan Year in which contributed to the Plan. Matching Contributions and Qualified Nonelective Contributions will be considered made for a Plan Year if made no later than the end of the 12-month period beginning on the day after the close of the Plan Year. The Employer shall maintain records sufficient to demonstrate satisfaction of the Average Contribution Percentage test and the amount of Qualified Nonelective Contributions or Qualified Matching Contributions, or both, used in such test. The determination and treatment of the Contribution Percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. Notwithstanding any other provisions of this Plan, Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be forfeited, if not vested, or distributed, if vested, no later than the last day of each Plan Year to Participants to whose Accounts such Excess Aggregate Contributions were allocated for the preceding Plan Year. Excess Aggregate Contributions of ARTICLE III 38 39 Participants who are subject to the family member aggregation rules shall be allocated among the Family Members in proportion to the Employee and Matching Contributions (or amounts treated as Matching Contributions) of each Family Member that is combined to determine the combined Contribution Percentage. If such Excess Aggregate Contributions are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arose, a ten (10) percent excise tax will be imposed on the employer maintaining the plan with respect to those amounts. Excess Aggregate Contributions shall be treated as Annual Additions, as defined in the CONTRIBUTION LIMITATION SECTION of Article III, under the Plan. The Excess Aggregate Contributions shall be adjusted for income or loss. The income or loss allocable to such Excess Aggregate Contributions shall be equal to the income or loss allocable to the Participant's Contribution Percentage Amounts for the Plan Year in which the excess occurred multiplied by a fraction. The numerator of the fraction is the Excess Aggregate Contributions. The denominator of the fraction is the closing balance without regard to any income or loss occurring during such Plan Year (as of the end of such Plan Year) of the Participant's Account resulting from Contribution Percentage Amounts. Excess Aggregate Contributions shall be distributed from the Participant's Account resulting from Participant Contributions that are not required as a condition of employment or participation or for obtaining additional benefits from Employer Contributions. If such Excess Aggregate Contributions exceed the balance in the Participant's Account resulting from such Participant Contributions, the balance shall be forfeited, if not vested, or distributed, if vested, on a pro-rata basis from the Participant's Account resulting from Contribution Percentage Amounts. These Forfeitures shall be used to offset the earliest Employer Contribution due after the Forfeiture arises. ARTICLE III 39 40 ARTICLE IV INVESTMENT OF CONTRIBUTIONS SECTION 4.01--INVESTMENT OF CONTRIBUTIONS. All Contributions are forwarded by the Employer to the Insurer to be deposited under the Group Contract or forwarded to the Trustee to be deposited in the Trust Fund. Investment of Contributions is governed by the provisions of the Trust, the Group Contract and any other funding arrangement in which the Trust Fund is or may be invested. To the extent permitted by the Trust, Group Contract or other funding arrangement and subject to the limitations of Section 4.02 of this Article, the parties named below shall direct the Contributions to any of the accounts available under the Trust or Group Contract and may request the transfer of assets resulting from those Contributions between such accounts. A Participant may not direct the Trustee to invest the Participant's Account in collectibles. Collectibles means any work of art, rug or antique, metal or gem, stamp or coin, alcoholic beverage or other tangible personal property specified by the Secretary of Treasury. To the extent that a Participant does not direct the investment of his Account, such Account shall be invested ratably in the accounts available under the Trust or Group Contract in the same manner as the undirected Accounts of all other Participants. The Vested Accounts of all Inactive Participants may be segregated and invested separately from the Accounts of all other Participants. The Trust Fund shall be valued at current fair market value as of the last day of the last calendar month ending in the Plan Year and, at the discretion of the Trustee, may be valued more frequently. The valuation shall take into consideration investment earnings credited, expenses charged, payments made and changes in the value of the assets held in the Trust Fund. The Account of a Participant shall be credited with its share of the gains and losses of the Trust Fund. That part of a Participant's Account invested in a funding arrangement which establishes an account or accounts for such Participant thereunder shall be credited with the gain or loss from such account or accounts. That part of a Participant's Account which is invested in other funding arrangements shall be credited with a proportionate share of the gain or loss of such investments. The share shall be determined by multiplying the gain or loss of the investment by the ratio of the part of the Participant's Account invested in such funding arrangement to the total of the Trust Fund invested in such funding arrangement. At least annually, the Named Fiduciary shall review all pertinent Employee information and Plan data in order to establish the funding policy of the Plan and to determine appropriate methods of carrying out the Plan's objectives. The Named Fiduciary shall inform the Trustee and any Investment Manager of the Plan's short-term and long-term financial needs so the investment policy can be coordinated with the Plan's financial requirements. (a) Employer Contributions other than Elective Deferral Contributions: The Participant shall direct the investment of such Employer Contributions and transfer of assets resulting from those Contributions. (b) Elective Deferral Contributions: The Participant shall direct the investment of Elective Deferral Contributions and transfer of assets resulting from those Contributions. ARTICLE IV 40 41 (c) Rollover Contributions: The Participant shall direct the investment of Rollover Contributions and transfer of assets resulting from those Contributions. Investment direction may be made in 5% increments, and investment direction may be changed once during a calendar quarter. However, the Named Fiduciary may delegate to the Investment Manager investment discretion for Contributions and Plan assets which are not subject to Participant direction. SECTION 4.02--COMPANY STOCK ACCOUNT. A Company Stock Account will be established for each Participant to hold the Matching Contributions made for him, any Elective Deferral Contributions directed to Company Stock, and any Discretionary Contributions made in Qualifying Employer Securities. Notwithstanding any other provision of this Plan, the Trustee may not acquire or hold any Employer security which is not a "qualifying employer security" (within the meaning of section 407(d)(5) of ERISA) provided, however, that the Investment Fund may not acquire any Employer security if immediately after such acquisition, the Fair Market Value of Employer securities held by the Investment Fund exceeds 50% of the fund. If Qualifying Employer Securities are purchased for, or contributed to a Participant's Account, the Participant's Account will be credited with the number of shares purchased or contributed. Dividends paid will also be credited to the Participant's Account. The value of the shares held will be the price at which the shares were last traded on a registered stock exchange preceding the close of business on the valuation date. No change in the investment directed by the executive officers and directors of the Employer who are Participants in the Plan to or from Company Stock shall be effective unless such change is made during the "window period" specified herein. The window period shall be the period which commences three (3) business days after the public release of quarterly financial data by the Employer and which lasts through the twelfth business day following such release. This limitation shall not apply to a change in investment incidental to distribution at termination of employment or other distributable event. This limitation shall not apply to a decision upon initial eligibility to make Elective Deferrals and to direct their investment in Company Stock. Except as provided for hereinafter, the Plan Administrator shall direct the Trustee as to the exercise of all voting powers over any shares of Qualifying Employer Securities. Each Participant shall be entitled to direct the Trustee as to the exercise of all voting powers over shares allocated to his Account that are Registration Type Qualifying Employer Securities. The Participant shall be entitled to direct the Trustee as to the manner in which the voting rights will be exercised over shares allocated to his Account that are not Registration Type Qualifying Employer Securities with respect to any corporate manner which involves the voting of such shares allocated to the Participant's Account with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business, or such similar transaction as may be prescribed in Treasury Regulations. In the event that a tender offer is made for some or all of the shares of the Employer, each Participant shall have the right to direct whether those shares allocated to his Account, whether or not vested, shall be tendered. This right shall be exercised in the manner set forth herein. In the absence of a written directive from or election by a Participant to the Plan Administrator, the Plan Administrator shall direct the Trustee not to tender such ARTICLE IV 41 42 shares. Because the choice is to be given to the Participants, the Plan Administrator and the Trustee shall not have fiduciary responsibility with respect to the decision to tender or not or whether to tender all of such shares or only a portion thereof. In order to facilitate the decision of Participants whether to tender their shares in a tender offer (or how many shares to tender), the Plan Administrator shall provide election forms for the Participants, whereby they may elect to tender or not and whereby they may elect to tender all or a portion of such shares. Unless otherwise limited by Federal securities law, such election may be made or changed at any time prior to the day before the expiration date of the tender offer (with extensions); any election or change in election must be received by the Plan Administrator, or a designated representative of the Plan Administrator, on or before the day preceding the expiration date of the tender offer (with extensions, if any). The Plan Administrator may develop procedures to facilitate Participants' choices, such as the use of facsimile transmissions for Employees located in areas physically remote from the Plan Administrator. The election shall be binding on the Plan Administrator and the Trustee. The Plan Administrator shall make every effort to distribute the notice of the tender, election forms and other communications related to the tender offer to all Participants as soon as practicable following the announcement of the tender offer, including mailing such notice and form to Participants and posting such notice in places designed to be reviewed by Participants. As to shares which are not allocated to the Account of any Participant, all such shares (in the aggregate) shall be tendered or not as the majority of the shares held by Participants and directed by Participants are tendered or not. The Plan Administrator shall direct the Trustee to tender all such unallocated shares or not, in accordance with the elections of the Participants having an allocation of a majority of the shares under the Plan. SECTION 4.03--TRANSACTIONS INVOLVING EMPLOYER SECURITIES. Participants in the Plan shall be entitled to invest up to 100% of Employer Contributions in Qualifying Employer Securities. Once investment in Qualifying Employer Securities is made available to Eligible Employees, then it shall continue to be available unless the Plan and Trust is amended to disallow such available investment. Participants shall be entitled to elect to have their Elective Deferral Contributions and other portions of their Accounts invested in Qualifying Employer Securities. In the absence of such election, such Eligible Employees shall be deemed to have elected to have their Accounts invested wholly in the Investment Funds. Once an election is made, it shall be considered to continue until a new election is made. An Eligible Employee may elect to have any portion of his Elective Deferral Contributions which corresponds to an integral percentage of his Compensation to be invested in Qualifying Employer Securities. If an Eligible Employee elects to have his Elective Deferral Contributions withheld in Qualifying Employer Securities, then the Matching Contribution associated with such Elective Deferral Contributions will be invested in Qualifying Employer Securities. If the securities of the Employer are not publicly traded and if no market or an extremely thin market exists for the Qualifying Employer Securities, so that a reasonable valuation may not be obtained from the marketplace, then such Qualifying Employer Securities must be valued at least annually by an independent appraiser who is not associated with the Employer, the Plan Administrator, the Trustee, or any person related to any fiduciary under the Plan. The independent appraiser may be associated with a person who is merely a contract administrator with respect to the Plan, but who exercises no discretionary authority and is not a Plan fiduciary. ARTICLE IV 42 43 If there is a public market for Qualifying Employer Securities of the type held by the Plan, then the Plan Administrator may use as the value of the shares the price at which such shares traded in such market, or an average of the bid and asked prices for such shares in such market, provided that such value is representative of the fair market value of such shares in the opinion of the Plan Administrator. If the Qualifying Employer Securities do not trade on the annual valuation date or if the market is very thin on such date, then the Plan Administrator may use the average of trade prices for a period of time ending on such date, provided that such value is representative of the Fair Market Value of such shares in the opinion of the Plan Administrator. For purposes of determining the annual valuation of the Plan and for reporting to Participants and regulatory authorities, the assets of the Plan shall be valued at least annually on the Valuation Date which corresponds to the last day of the Plan Year. The Fair Market Value of Qualifying Employer Securities shall be determined on such a Valuation Date. The average of the bid and asked prices of Qualifying Employer Securities as of the date of the transaction shall apply for purposes of valuing distributions and other transactions of the Plan to the extent such value is representative of the Fair Market Value of such shares in the opinion of the Plan Administrator. All purchases of Qualifying Employer Securities shall be made at a price, or prices, which, in the judgment of the Plan Administrator, do not exceed the fair market value of such Qualifying Employer Securities. In the event that the Trustee acquires shares of Qualifying Employer Securities by purchase from a "disqualified person" as defined in Code Section 4975(e)(2), in exchange for cash or other assets of the Trust, the terms of such purchase shall contain the provision that in the event that there is a final determination by the Internal Revenue Service or court of competent jurisdiction that the Fair Market Value of such shares of Company Stock as of the date of purchase was less than the purchase price paid by the Trustee, then the seller shall pay or transfer, as the case may be, to the Trustee an amount of cash, shares of Company Stock, or any combination thereof equal in value to the difference between the purchase price and said Fair Market Value for all such shares. In the event that cash and/or shares of Company Stock are paid and/or transferred to the Trustee under this provision, shares of Company Stock shall be valued at their Fair Market Value as of the date of said purchase, and interest at a reasonable rate from the date of purchase to the date of payment shall be paid by the seller on the amount of cash paid. The Plan Administrator may direct the Trustee to sell, resell or otherwise dispose of Qualifying Employer Securities to any person, including the Employer, provided that any such sales to any disqualified person, including the Employer, will be made at not less than the Fair Market Value and no commission is charged. Any such sale shall be made in conformance with Section 408(e) of ERISA. In the event the Plan Administrator directs the Trustee to dispose of any Qualifying Employer Securities held as Trust Assets under circumstances which require registration and/or qualification of the securities under applicable Federal or state securities laws, then the Employer, at its own expense, will take or cause to be taken any and all such action as may be necessary or appropriate to effect such registration and/or qualification. In the event that a formal tender offer (under the securities laws) is made for some or all of the shares of Company Stock, each Participant shall have the right to direct whether those shares allocated to his Account, whether or not vested, shall be tendered. If the opportunity to tender such shares does not correspond to the time for directing investment under the Plan, then an extra opportunity shall be provided to Participants to make an investment direction decision which does correspond to the period for responding to the tender offer. That is, notwithstanding any direction made or to be made for the calendar quarter, the Participant direction of ARTICLE IV 43 44 investment in response to a tender offer shall be permitted as an additional opportunity to direct investment, the exercise of which will not adversely affect the Participant's ability to make other investment direction in accordance with this section. The right to respond to a tender offer shall be exercised in the manner set forth herein. The Plan Administrator shall establish the terms and conditions of the response to the tender offer. In the absence of a written directive from or election by a Participant to the Plan Administrator, after having been notified, the Participant shall be deemed to have chosen not to tender his or her shares (that being the most recent investment decision made for directed account shares), and the Plan Administrator shall direct the Trustee not to tender such shares. Because the choice is to be given to the Participants, the Plan Administrator and the Trustee shall not have fiduciary responsibility with respect to the decision to tender or not or whether to tender all of such shares or only a portion thereof. In order to facilitate the decision of Participants whether to tender their shares in a tender offer (or how many shares to tender), the Plan Administrator shall provide election forms for the Participants, whereby they may elect to tender or not and whereby they may elect to tender all or a portion of such shares. Such election may be made or changed at any time prior to the day before the expiration date of the tender offer (with extensions); any election or change in election must be received by the Plan Administrator, or a designated representative of the Plan Administrator, on or before the day preceding the expiration date of the tender offer (with extensions, if any). The election shall be binding on the Plan Administrator and the Trustee. The Plan Administrator shall make every effort to distribute the notice of the tender, election forms and other communications related to the tender offer to all Participants as soon as practicable following the announcement of the tender offer, including mailing such notice and form to Participants and posting such notice in places designed to be reviewed by Participants. Shares allocated to the portion of a Participant's Account resulting from Matching Contributions shall also be subject to Participant direction in the case of a tender offer. In the absence of direction, the Plan Administrator shall have discretion to direct the tender if, in its opinion, the tender offer may result in Employer Securities no longer being available and the price fixed during the tender offer would produce a financial gain to the Plan Participants as compared with the financial gain to the Plan Participants as compared with the alternative of not tendering such stock. ARTICLE IV 44 45 ARTICLE V BENEFITS SECTION 5.01--RETIREMENT BENEFITS. On a Participant's Retirement Date, his Vested Account shall be distributed to him according to the distribution of benefits provisions of Article VI and the provisions of the SMALL AMOUNTS SECTION of Article IX. SECTION 5.02--DEATH BENEFITS. If a Participant dies before his Annuity Starting Date, his Vested Account shall be distributed according to the distribution of benefits provisions of Article VI and the provisions of the SMALL AMOUNTS SECTION of Article IX. SECTION 5.03--VESTED BENEFITS. A Participant may receive a distribution of his Vested Account at any time after he ceases to be an Employee, provided he has not again become an Employee. If such amount is not payable under the provisions of the SMALL AMOUNTS SECTION of Article IX, it will be distributed only if the Participant so elects. The Participant's election shall be subject to the requirements in the ELECTION PROCEDURES SECTION of Article VI for a qualified election of a retirement benefit. If a Participant does not receive an earlier distribution according to the provisions of this section or the SMALL AMOUNTS SECTION of Article IX, upon his Retirement Date or death, his Vested Account shall be applied according to the provisions of the RETIREMENT BENEFITS SECTION or the DEATH BENEFITS SECTION of Article V. The Nonvested Account of a Participant who has ceased to be an Employee shall remain a part of his Account until it becomes a Forfeiture; provided, however, if the Participant again becomes an Employee so that his Vesting Percentage can increase, the Nonvested Account may become a part of his Vested Account. SECTION 5.04--WHEN BENEFITS START. Benefits under the Plan begin when a Participant retires, dies or ceases to be an Employee, whichever applies, as provided in the preceding sections of this article. Benefits which begin before Normal Retirement Date for a Participant who became Totally and Permanently Disabled when he was an Employee shall be deemed to begin because he is Totally and Permanently Disabled. The start of benefits is subject to the qualified election procedures of Article VI. Unless otherwise elected, benefits shall begin before the sixtieth day following the close of the Plan Year in which the latest date below occurs: (a) The date the Participant attains age 65 (Normal Retirement Age, if earlier). ARTICLE V 45 46 (b) The tenth anniversary of the Participant's Entry Date. (c) The date the Participant ceases to be an Employee. Notwithstanding the foregoing, the failure of a Participant and spouse to consent to a distribution while a benefit is immediately distributable, within the meaning of the ELECTION PROCEDURES SECTION of Article VI, shall be deemed to be an election to defer commencement of payment of any benefit sufficient to satisfy this section. The Participant may elect to have his benefits begin after the latest date for beginning benefits described above, subject to the provisions of this section. The Participant shall make the election in writing and deliver the signed statement of election to the Plan Administrator before Normal Retirement Date or the date he ceases to be an Employee, if later. The election must describe the form of distribution and the date the benefits will begin. The Participant shall not elect a date for beginning benefits or a form of distribution that would result in a benefit payable when he dies which would be more than incidental within the meaning of governmental regulations. Benefits shall begin by the Participant's Required Beginning Date, as defined in the OPTIONAL FORMS OF DISTRIBUTION AND DISTRIBUTION REQUIREMENTS SECTION of Article VI. Contributions which are used to compute the Actual Deferral Percentage, as defined in the EXCESS AMOUNTS SECTION of Article III, may be distributed upon disposition by the Employer of substantially all of the assets (within the meaning of Code Section 409(d)(2)) used by the Employer in a trade or business or disposition by the Employer of the Employer's interest in a subsidiary (within the meaning of Code Section 409(d)(3)) if the transferee corporation is not a Controlled Group member, the Employee continues employment with the transferee corporation and the transferor corporation continues to maintain the Plan. Such distributions made after March 31, 1988, must be made in a single sum. SECTION 5.05--LOANS TO PARTICIPANTS. Loans shall be made available to all Participants on a reasonably equivalent basis. For purposes of this section, Participant means any Participant or Beneficiary who is a party-in-interest, within the meaning of Section 3(14) of the Employee Retirement Income Security Act of 1974 (ERISA). Loans shall not be made to highly compensated employees, as defined in Code Section 414(q), in an amount greater than the amount made available to other Participants. No loans will be made to any shareholder-employee or owner-employee. For purposes of this requirement, a shareholder-employee means an employee or officer of an electing small business (Subchapter S) corporation who owns (or is considered as owning within the meaning of Code Section 318(a)(1)), on any day during the taxable year of such corporation, more than 5% of the outstanding stock of the corporation. A loan to a Participant shall be a Participant-directed investment of his Account. No Account other than the borrowing Participant's Account shall share in the interest paid on the loan or bear any expense or loss incurred because of the loan. The number of outstanding loans shall be limited to one. No more than one loan will be approved for any Participant in any 12-month period. The minimum amount of any loan shall be $1,000. ARTICLE V 46 47 Loans must be adequately secured and bear a reasonable rate of interest. The amount of the loan shall not exceed the maximum amount that may be treated as a loan under Code Section 72(p) (rather than a distribution) to the Participant and shall be equal to the lesser of (a) or (b) below: (a) $50,000 reduced by the highest outstanding loan balance of loans during the one-year period ending on the day before the new loan is made. (b) The greater of (1) or (2), reduced by (3) below: (1) One-half of the Participant's Vested Account. (2) $10,000. (3) Any outstanding loan balance on the date the new loan is made. For purposes of this maximum, a Participant's Vested Account does not include any accumulated deductible employee contributions, as defined in Code Section 72(o)(5)(B). Loans made to a Participant from all qualified employer plans, as defined in Code Section 72(p)(4), of the Employer and any Controlled Group member, shall be treated as one loan. The foregoing notwithstanding, the amount of such loan shall not exceed 50% of the amount of the Participant's Vested Account. No collateral other than a portion of the Participant's Vested Account (as limited above) shall be accepted. The Loan Administrator shall determine if the collateral is adequate for the amount of the loan requested. A Participant must obtain the consent of the Participant's spouse, if any, to the use of the Vested Account as security for the loan. Spousal consent shall be obtained no earlier than the beginning of the 90-day period that ends on the date on which the loan to be so secured is made. The consent must be in writing, must acknowledge the effect of the loan, and must be witnessed by a plan representative or a notary public. Such consent shall thereafter be binding with respect to the consenting spouse or any subsequent spouse with respect to that loan. A new consent shall be required if the Vested Account is used for collateral upon renegotiation, extension, renewal, or other revision of the loan. If a valid spousal consent has been obtained in accordance with the above, then, notwithstanding any other provision of this Plan, the portion of the Participant's Vested Account used as a security interest held by the Plan by reason of a loan outstanding to the Participant shall be taken into account for purposes of determining the amount of the Vested Account payable at the time of death or distribution, but only if the reduction is used as repayment of the loan. If less than 100% of the Participant's Vested Account (determined without regard to the preceding sentence) is payable to the surviving spouse, then the Vested Account shall be adjusted by first reducing the Vested Account by the amount of the security used as repayment of the loan, and then determining the benefit payable to the surviving spouse. Each loan shall bear a reasonable fixed rate of interest to be determined by the Loan Administrator. In determining the interest rate, the Loan Administrator shall take into consideration fixed interest rates currently being charged by commercial lenders for loans of comparable risk on similar terms and for similar durations, so that the interest will provide for a return commensurate with rates currently charged by commercial lenders for ARTICLE V 47 48 loans made under similar circumstances. The Loan Administrator shall not discriminate among Participants in the matter of interest rates; but loans granted at different times may bear different interest rates in accordance with the current appropriate standards. The loan shall by its terms require that repayment (principal and interest) be amortized in level payments, not less frequently than quarterly, over a period not extending beyond five years from the date of the loan. The period of repayment for any loan shall be arrived at by mutual agreement between the Loan Administrator and the Participant. The Participant shall make a written application for a loan from the Plan on forms provided by the Loan Administrator. The application must specify the amount and duration requested. No loan will be approved unless the Participant is creditworthy. The Participant must grant authority to the Loan Administrator to investigate the Participant's creditworthiness so that the loan application may be properly considered. Information contained in the application for the loan concerning the income, liabilities, and assets of the Participant will be evaluated to determine whether there is a reasonable expectation that the Participant will be able to satisfy payments on the loan as due. Additionally, the Loan Administrator will pursue any appropriate further investigations concerning the creditworthiness and/or credit history of the Participant to determine whether a loan should be approved. Each loan shall be fully documented in the form of a promissory note signed by the Participant for the face amount of the loan, together with interest determined as specified above. There will be an assignment of collateral to the Plan executed at the time the loan is made. In those cases where repayment through payroll deduction by the Employer is available, installments are so payable, and a payroll deduction agreement will be executed by the Participant at the time of making the loan. Where payroll deduction is not available, payments are to be timely made. Any payment that is not by payroll deduction shall be made payable to the Employer or Trustee, as specified in the promissory note, and delivered to the Loan Administrator, including prepayments, service fees and penalties, if any, and other amounts due under the note. The promissory note may provide for reasonable late payment penalties and/or service fees. Any penalties or service fees shall be applied to all Participants in a nondiscriminatory manner. If the promissory note so provides, such amounts may be assessed and collected from the Account of the Participant as part of the loan balance. Each loan may be paid prior to maturity, in part or in full, without penalty or service fee, except as may be set out in the promissory note. If any amount remains unpaid for more than 31 days after due, a default is deemed to occur. Upon default, the Plan has the right to pursue any remedy available by law to satisfy the amount due, along with accrued interest, including the right to enforce its claim against the security pledged and execute upon the collateral as allowed by law. ARTICLE V 48 49 If any payment of principal or interest or any other amount due under the promissory note, or any portion thereof, is not made for a period of 90 days after due, the entire principal balance whether or not otherwise then due, shall become immediately due and payable without demand or notice, and subject to collection or satisfaction by any lawful means, including specifically but not limited to the right to enforce the claim against the security pledged and to execute upon the collateral as allowed by law. In the event of default, foreclosure on the note and attachment of security or use of amounts pledged to satisfy the amount then due, will not occur until a distributable event occurs in accordance with the Plan, and will not occur to an extent greater than the amount then available upon any distributable event which has occurred under the Plan. All reasonable costs and expenses, including but not limited to attorney's fees, incurred by the Plan in connection with any default or in any proceeding to enforce any provision of a promissory note or instrument by which a promissory note for a Participant loan is secured, shall be assessed and collected from the Account of the Participant as part of the loan balance. If payroll deduction is being utilized, in the event that a Participant's available payroll deduction amounts in any given month are insufficient to satisfy the total amount due, there will be an increase in the amount taken subsequently, sufficient to make up the amount that is then due. If the subsequent deduction is also insufficient to satisfy the amount due within 31 days, a default is deemed to occur as above. If any amount remains past due more than 90 days, the entire principal amount, whether or not otherwise then due, along with interest then accrued and any other amount then due under the promissory note, shall become due and payable, as above. If the Participant ceases to be a party-in-interest, within the meaning of Section 3(14) of ERISA, the balance of the outstanding loan becomes due and payable, and the Participant's Vested Account will be used as available for distribution(s) to pay the outstanding loan. The Participant's Vested Account will not be used to pay any amount due under the outstanding loan before the date which is 31 days after the date he ceased to be a party-in-interest, and the Participant may elect to repay the outstanding loan with interest on the day of repayment. If no distributable event has occurred under the Plan at the time that the Participant's Vested Account would otherwise be used under this provision to pay any amount due under the outstanding loan, this will not occur until the time, or in excess of the extent to which, a distributable event occurs under the Plan ARTICLE V 49 50 ARTICLE VI DISTRIBUTION OF BENEFITS SECTION 6.01--AUTOMATIC FORMS OF DISTRIBUTION. Unless a qualified election of an optional form of benefit has been made within the election period (see the ELECTION PROCEDURES SECTION of Article VI), the automatic form of benefit payable to or on behalf of a Participant is determined as follows: (a) The automatic form of retirement benefit for a Participant who does not die before his Annuity Starting Date shall be the Qualified Joint and Survivor Form. (b) The automatic form of death benefit for a Participant who dies before his Annuity Starting Date shall be: (1) A Qualified Preretirement Survivor Annuity for a Participant who has a spouse on the date of his death. The spouse may elect to start receiving the death benefit on any first day of the month on or after the Participant dies and before the date the Participant would have been age 70 1/2. If the spouse dies before benefits start, the Participant's Vested Account, determined as of the date of the spouse's death, shall be paid to the spouse's Beneficiary. (2) A single-sum payment to the Participant's Beneficiary for a Participant who does not have a spouse who is entitled to a Qualified Preretirement Survivor Annuity. Before a death benefit will be paid on account of the death of a Participant who does not have a spouse who is entitled to a Qualified Preretirement Survivor Annuity, it must be established to the satisfaction of a plan representative that the Participant does not have such a spouse. SECTION 6.02--OPTIONAL FORMS OF DISTRIBUTION AND DISTRIBUTION REQUIREMENTS. (a) For purposes of this section, the following terms are defined: Applicable Life Expectancy means Life Expectancy (or Joint and Last Survivor Expectancy) calculated using the attained age of the Participant (or Designated Beneficiary) as of the Participant's (or Designated Beneficiary's) birthday in the applicable calendar year reduced by one for each calendar year which has elapsed since the date Life Expectancy was first calculated. If Life Expectancy is being recalculated, the Applicable Life Expectancy shall be the Life Expectancy so recalculated. The applicable calendar year shall be the first Distribution Calendar Year, and if Life Expectancy is being recalculated such succeeding calendar year. Designated Beneficiary means the individual who is designated as the beneficiary under the Plan in accordance with Code Section 401(a)(9) and the regulations thereunder. ARTICLE VI 50 51 Distribution Calendar Year means a calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant's Required Beginning Date. For distributions beginning after the Participant's death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin pursuant to (e) below. Joint and Last Survivor Expectancy means joint and last survivor expectancy computed by use of the expected return multiples in Table VI of section 1.72-9 of the Income Tax Regulations. Unless otherwise elected by the Participant (or spouse, in the case of distributions described in (e)(2)(ii) below) by the time distributions are required to begin, life expectancies shall be recalculated annually. Such election shall be irrevocable as to the Participant (or spouse) and shall apply to all subsequent years. The life expectancy of a nonspouse Beneficiary may not be recalculated. Life Expectancy means life expectancy computed by use of the expected return multiples in Table V of section 1.72-9 of the Income Tax Regulations. Unless otherwise elected by the Participant (or spouse, in the case of distributions described in (e)(2)(ii) below) by the time distributions are required to begin, life expectancies shall be recalculated annually. Such election shall be irrevocable as to the Participant (or spouse) and shall apply to all subsequent years. The life expectancy of a nonspouse Beneficiary may not be recalculated. Participant's Benefit means (1) The Account balance as of the last valuation date in the calendar year immediately preceding the Distribution Calendar Year (valuation calendar year) increased by the amount of any contributions or forfeitures allocated to the Account balance as of the dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. (2) For purposes of (1) above, if any portion of the minimum distribution for the first Distribution Calendar Year is made in the second Distribution Calendar Year on or before the Required Beginning Date, the amount of the minimum distribution made in the second Distribution Calendar Year shall be treated as if it had been made in the immediately preceding Distribution Calendar Year. Required Beginning Date means, for a Participant, the first day of April of the calendar year following the calendar year in which the Participant attains age 70 1/2, unless otherwise provided in (1), (2) or (3) below: (1) The Required Beginning Date for a Participant who attains age 70 1/2 before January 1, 1988, and who is not a 5-percent owner is the first day of April of the calendar year following the calendar year in which the later of retirement or attainment of age 70 1/2 occurs. ARTICLE VI 51 52 (2) The Required Beginning Date for a Participant who attains age 70 1/2 before January 1, 1988, and who is a 5-percent owner is the first day of April of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1/2, or (ii) the earlier of the calendar year with or within which ends the Plan Year in which the Participant becomes a 5-percent owner, or the calendar year in which the Participant retires. (3) The Required Beginning Date of a Participant who is not a 5-percent owner and who attains age 70 1/2 during 1988 and who has not retired as of January 1, 1989, is April 1, 1990. A Participant is treated as a 5-percent owner for purposes of this section if such Participant is a 5-percent owner as defined in Code Section 416(i) (determined in accordance with Code Section 416 but without regard to whether the Plan is top-heavy) at any time during the Plan Year ending with or within the calendar year in which such owner attains age 66 1/2 or any subsequent Plan Year. Once distributions have begun to a 5-percent owner under this section, they must continue to be distributed, even if the Participant ceases to be a 5-percent owner in a subsequent year. (b) The optional forms of retirement benefit shall be the following: a straight life annuity; single life annuities with certain periods of five, ten or fifteen years; a single life annuity with installment refund; survivorship life annuities with installment refund and survivorship percentages of 50, 66 2/3 or 100; fixed period annuities for any period of whole months which is not less than 60 and does not exceed the Life Expectancy of the Participant and the named Beneficiary as provided in (d) below where the Life Expectancy is not recalculated; and a series of installments chosen by the Participant with a minimum payment each year beginning with the year the Participant turns age 70 1/2. The payment for the first year in which a minimum payment is required will be made by April 1 of the following calendar year. The payment for the second year and each successive year will be made by December 31 of that year. The minimum payment will be based on a period equal to the Joint and Last Survivor Expectancy of the Participant and the Participant's spouse, if any, as provided in (d) below where the Joint and Last Survivor Expectancy is recalculated. The balance of the Participant's Vested Account, if any, will be payable on the Participant's death to his Beneficiary in a single sum. The Participant may also elect to receive his Vested Account in a single-sum payment; or, in the form of Qualifying Employer Securities to the extent that his Vested Account was held in Qualifying Employer Securities; or, in any combination thereof. Fractional shares shall be paid in cash, valued as of the most recent Valuation Date; the distribution shall include any dividends (cash or stock) on such whole shares or any additional shares received as a result of a stock split or any other adjustment to such whole shares since the Valuation Date preceding the date of distribution. Election of an optional form is subject to the qualified election provisions of Article VI. ARTICLE VI 52 53 Any annuity contract distributed shall be nontransferable. The terms of any annuity contract purchased and distributed by the Plan to a Participant or spouse shall comply with the requirements of this Plan. (c) The optional forms of death benefit are a single-sum payment and any annuity that is an optional form of retirement benefit. However, a series of installments shall not be available if the Beneficiary is not the spouse of the deceased Participant. (d) Subject to the AUTOMATIC FORMS OF DISTRIBUTION SECTION of Article VI, joint and survivor annuity requirements, the requirements of this section shall apply to any distribution of a Participant's interest and will take precedence over any inconsistent provisions of this Plan. Unless otherwise specified, the provisions of this section apply to calendar years beginning after December 31, 1984. All distributions required under this section shall be determined and made in accordance with the proposed regulations under Code Section 401(a)(9), including the minimum distribution incidental benefit requirement of section 1.401(a)(9)-2 of the proposed regulations. The entire interest of a Participant must be distributed or begin to be distributed no later than the Participant's Required Beginning Date. As of the first Distribution Calendar Year, distributions, if not made in a single sum, may only be made over one of the following periods (or combination thereof): (1) the life of the Participant, (2) the life of the Participant and a Designated Beneficiary, (3) a period certain not extending beyond the Life Expectancy of the Participant, or (4) a period certain not extending beyond the Joint and Last Survivor Expectancy of the Participant and a Designated Beneficiary. If the Participant's interest is to be distributed in other than a single sum, the following minimum distribution rules shall apply on or after the Required Beginning Date: (5) Individual account: (i) If a Participant's Benefit is to be distributed over (a) a period not extending beyond the Life Expectancy of the Participant or the Joint Life and Last Survivor Expectancy of the Participant and the Participant's Designated Beneficiary or (b) a period not extending beyond the Life Expectancy of the Designated Beneficiary, ARTICLE VI 53 54 the amount required to be distributed for each calendar year beginning with the distributions for the first Distribution Calendar Year, must be at least equal to the quotient obtained by dividing the Participant's Benefit by the Applicable Life Expectancy. (ii) For calendar years beginning before January 1, 1989, if the Participant's spouse is not the Designated Beneficiary, the method of distribution selected must assure that at least 50% of the present value of the amount available for distribution is paid within the Life Expectancy of the Participant. (iii) For calendar years beginning after December 31, 1988, the amount to be distributed each year, beginning with distributions for the first Distribution Calendar Year shall not be less than the quotient obtained by dividing the Participant's Benefit by the lesser of (a) the Applicable Life Expectancy or (b) if the Participant's spouse is not the Designated Beneficiary, the applicable divisor determined from the table set forth in Q&A-4 of section 1.401(a)(9)-2 of the proposed regulations. Distributions after the death of the Participant shall be distributed using the Applicable Life Expectancy in (5)(i) above as the relevant divisor without regard to Proposed Regulations section 1.401(a)(9)-2. (iv) The minimum distribution required for the Participant's first Distribution Calendar Year must be made on or before the Participant's Required Beginning Date. The minimum distribution for the Distribution Calendar Year for other calendar years, including the minimum distribution for the Distribution Calendar Year in which the Participant's Required Beginning Date occurs, must be made on or before December 31 of that Distribution Calendar Year. (6) Other forms: (i) If the Participant's Benefit is distributed in the form of an annuity purchased from an insurance company, distributions thereunder shall be made in accordance with the requirements of Code Section 401(a)(9) and the proposed regulations thereunder. (e) Death distribution provisions: (1) Distribution beginning before death. If the Participant dies after distribution of his interest has begun, the remaining portion of such interest will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Participant's death. (2) Distribution beginning after death. If the Participant dies before distribution of his interest begins, distribution of the Participant's entire interest shall be completed by December 31 ARTICLE VI 54 55 of the calendar year containing the fifth anniversary of the Participant's death except to the extent that an election is made to receive distributions in accordance with (i) or (ii) below: (i) if any portion of the Participant's interest is payable to a Designated Beneficiary, distributions may be made over the life or over a period certain not greater than the Life Expectancy of the Designated Beneficiary commencing on or before December 31 of the calendar year immediately following the calendar year in which the Participant died; (ii) if the Designated Beneficiary is the Participant's surviving spouse, the date distributions are required to begin in accordance with (i) above shall not be earlier than the later of (a) December 31 of the calendar year immediately following the calendar year in which the Participant died and (b) December 31 of the calendar year in which the Participant would have attained age 70 1/2. If the Participant has not made an election pursuant to this (e)(2) by the time of his death, the Participant's Designated Beneficiary must elect the method of distribution no later than the earlier of (iii) December 31 of the calendar year in which distributions would be required to begin under this subparagraph, or (iv) December 31 of the calendar year which contains the fifth anniversary of the date of death of the Participant. If the Participant has no Designated Beneficiary, or if the Designated Beneficiary does not elect a method of distribution, distribution of the Participant's entire interest must be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. (3) For purposes of (e)(2) above, if the surviving spouse dies after the Participant, but before payments to such spouse begin, the provisions of (e)(2) above, with the exception of (e)(2)(ii) therein, shall be applied as if the surviving spouse were the Participant. (4) For purposes of this (e), any amount paid to a child of the Participant will be treated as if it had been paid to the surviving spouse if the amount becomes payable to the surviving spouse when the child reaches the age of majority. (5) For purposes of this (e), distribution of a Participant's interest is considered to begin on the Participant's Required Beginning Date (or if (e)(3) above is applicable, the date distribution is required to begin to the surviving spouse pursuant to (e)(2) above). If distribution in the form of an annuity irrevocably commences to the Participant before the ARTICLE VI 55 56 Required Beginning Date, the date distribution is considered to begin is the date distribution actually commences. SECTION 6.03--ELECTION PROCEDURES. The Participant, Beneficiary, or spouse shall make any election under this section in writing. The Plan Administrator may require such individual to complete and sign any necessary documents as to the provisions to be made. Any election permitted under (a) and (b) below shall be subject to the qualified election provisions of (c) below. (a) Retirement Benefits. A Participant may elect his Beneficiary or Contingent Annuitant and may elect to have retirement benefits distributed under any of the optional forms of retirement benefit described in the OPTIONAL FORMS OF DISTRIBUTION AND DISTRIBUTION REQUIREMENTS SECTION of Article VI. (b) Death Benefits. A Participant may elect his Beneficiary and may elect to have death benefits distributed under any of the optional forms of death benefit described in the OPTIONAL FORMS OF DISTRIBUTION AND DISTRIBUTION REQUIREMENTS SECTION of Article VI. If the Participant has not elected an optional form of distribution for the death benefit payable to his Beneficiary, the Beneficiary may, for his own benefit, elect the form of distribution, in like manner as a Participant. The Participant may waive the Qualified Preretirement Survivor Annuity by naming someone other than his spouse as Beneficiary. In lieu of the Qualified Preretirement Survivor Annuity described in the AUTOMATIC FORMS OF DISTRIBUTION SECTION of Article VI, the spouse may, for his own benefit, waive the Qualified Preretirement Survivor Annuity by electing to have the benefit distributed under any of the optional forms of death benefit described in the OPTIONAL FORMS OF DISTRIBUTION AND DISTRIBUTION REQUIREMENTS SECTION of Article VI. (c) Qualified Election. The Participant, Beneficiary or spouse may make an election at any time during the election period. The Participant, Beneficiary, or spouse may revoke the election made (or make a new election) at any time and any number of times during the election period. An election is effective only if it meets the consent requirements below. The election period as to retirement benefits is the 90-day period ending on the Annuity Starting Date. An election to waive the Qualified Joint and Survivor Form may not be made before the date he is provided with the notice of the ability to waive the Qualified Joint and Survivor Form. If the Participant elects the series of installments, he may elect on any later date to have the balance of his Vested Account paid under any of the optional forms of retirement benefit available under the Plan. His election period for this election is the 90-day period ending on the Annuity Starting Date for the optional form of retirement benefit elected. A Participant may make an election as to death benefits at any time before he dies. The spouse's election period begins on the date the Participant dies and ends on the date benefits ARTICLE VI 56 57 begin. The Beneficiary's election period begins on the date the Participant dies and ends on the date benefits begin. An election to waive the Qualified Preretirement Survivor Annuity may not be made by the Participant before the date he is provided with the notice of the ability to waive the Qualified Preretirement Survivor Annuity. A Participant's election to waive the Qualified Preretirement Survivor Annuity which is made before the first day of the Plan Year in which he reaches age 35 shall become invalid on such date. An election made by a Participant after he ceases to be an Employee will not become invalid on the first day of the Plan Year in which he reaches age 35 with respect to death benefits from that part of his Account resulting from Contributions made before he ceased to be an Employee. If the Participant's Vested Account has at any time exceeded $3,500, any benefit which is (1) immediately distributable or (2) payable in a form other than a Qualified Joint and Survivor Form or a Qualified Preretirement Survivor Annuity requires the consent of the Participant and the Participant's spouse (or where either the Participant or the spouse has died, the survivor). The consent of the Participant or spouse to a benefit which is immediately distributable must not be made before the date the Participant or spouse is provided with the notice of the ability to defer the distribution. Such consent shall be made in writing. The consent shall not be made more than 90 days before the Annuity Starting Date. Spousal consent is not required for a benefit which is immediately distributable in a Qualified Joint and Survivor Form. Furthermore, if spousal consent is not required because the Participant is electing an optional form of retirement benefit that is not a life annuity pursuant to (d) below, only the Participant need consent to the distribution of a benefit payable in a form that is not a life annuity and which is immediately distributable. Neither the consent of the Participant nor the Participant's spouse shall be required to the extent that a distribution is required to satisfy Code Section 401(a)(9) or Code Section 415. In addition, upon termination of this Plan if the Plan does not offer an annuity option (purchased from a commercial provider), the Participant's Account balance may, without the Participant's consent, be distributed to the Participant or transferred to another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)) within the same Controlled Group. A benefit is immediately distributable if any part of the benefit could be distributed to the Participant (or surviving spouse) before the Participant attains (or would have attained if not deceased) the older of Normal Retirement Age or age 62. If the Qualified Joint and Survivor Form is waived, the spouse has the right to limit consent only to a specific Beneficiary or a specific form of benefit. The spouse can relinquish one or both such rights. Such consent shall be made in writing. The consent shall not be made more than 90 days before the Annuity Starting Date. If the Qualified Preretirement Survivor Annuity is waived, the spouse has the right to limit consent only to a specific Beneficiary. Such consent shall be in writing. The spouse's consent shall be witnessed by a plan representative or notary public. The spouse's consent must acknowledge the effect of the election, including that the spouse had the right to limit consent only to a specific Beneficiary or a specific form of benefit, if applicable, and that the relinquishment of one or both such rights was voluntary. Unless the consent of the spouse expressly permits designations by the Participant without a requirement of further consent by the spouse, the spouse's consent must be limited to the form of benefit, if applicable, and the Beneficiary (including any Contingent Annuitant), class of Beneficiaries, or contingent Beneficiary named in the election. Spousal consent is not required, however, if the Participant establishes to the satisfaction of the plan representative that the consent of the spouse cannot be obtained because there is no spouse or the spouse cannot be located. A spouse's consent under this paragraph shall not be valid with respect to any other spouse. A ARTICLE VI 57 58 Participant may revoke a prior election without the consent of the spouse. Any new election will require a new spousal consent, unless the consent of the spouse expressly permits such election by the Participant without further consent by the spouse. A spouse's consent may be revoked at any time within the Participant's election period. (d) Special Rule for Profit Sharing Plan. As provided in the preceding provisions of the Plan, if a Participant has a spouse on the date of his death, the Participant's Vested Account shall be paid to such spouse. However, if there is no such spouse or if the surviving spouse has already consented in a manner conforming to the qualified election requirements in (c) above, the Vested Account shall be payable to the Participant's Beneficiary in the event of the Participant's death. The Participant may waive the spousal death benefit described above at any time provided that no such waiver shall be effective unless it satisfies the conditions of (c) above (other than the notification requirement referred to therein) that would apply to the Participant's waiver of the Qualified Preretirement Survivor Annuity. Because this is a profit sharing plan which pays death benefits as described above, this subsection (d) applies if the following condition is met: with respect to the Participant, this Plan is not a direct or indirect transferee after December 31, 1984, of a defined benefit plan, money purchase plan (including a target plan), stock bonus plan or profit sharing plan which is subject to the survivor annuity requirements of Code Section 401(a)(11) and Code Section 417. If the above condition is met, spousal consent is not required for electing a benefit payable in a form that is not a life annuity. If the above condition is not met, the consent requirements of this article shall be operative. SECTION 6.04--NOTICE REQUIREMENTS. (a) Optional forms of retirement benefit. The Plan Administrator shall furnish to the Participant and the Participant's spouse a written explanation of the optional forms of retirement benefit in the OPTIONAL FORMS OF DISTRIBUTION AND DISTRIBUTION REQUIREMENTS SECTION of Article VI, including the material features and relative values of these options, in a manner that would satisfy the notice requirements of Code Section 417(a)(3) and the right of the Participant and the Participant's spouse to defer distribution until the benefit is no longer immediately distributable. The Plan Administrator shall furnish the written explanation by a method reasonably calculated to reach the attention of the Participant and the Participant's spouse no less than 30 days and no more than 90 days before the Annuity Starting Date. (b) Qualified Joint and Survivor Form. The Plan Administrator shall furnish to the Participant a written explanation of the following: the terms and conditions of the Qualified Joint and Survivor Form; the Participant's right to make, and the effect of, an election to waive the Qualified Joint and Survivor Form; the rights of the Participant's spouse; and the right to revoke an election and the effect of such a revocation. The Plan Administrator shall furnish the written explanation by a method reasonably calculated to reach the attention of the Participant no less than 30 days and no more than 90 days before the Annuity Starting Date. ARTICLE VI 58 59 After the written explanation is given, a Participant or spouse may make written request for additional information. The written explanation must be personally delivered or mailed (first class mail, postage prepaid) to the Participant or spouse within 30 days from the date of the written request. The Plan Administrator does not need to comply with more than one such request by a Participant or spouse. The Plan Administrator's explanation shall be written in nontechnical language and will explain the terms and conditions of the Qualified Joint and Survivor Form and the financial effect upon the Participant's benefit (in terms of dollars per benefit payment) of electing not to have benefits distributed in accordance with the Qualified Joint and Survivor Form. (c) Qualified Preretirement Survivor Annuity. As required by the Code and Federal regulation, the Plan Administrator shall furnish to the Participant a written explanation of the following: the terms and conditions of the Qualified Preretirement Survivor Annuity; the Participant's right to make, and the effect of, an election to waive the Qualified Preretirement Survivor Annuity; the rights of the Participant's spouse; and the right to revoke an election and the effect of such a revocation. The Plan Administrator shall furnish the written explanation by a method reasonably calculated to reach the attention of the Participant within the applicable period. The applicable period for a Participant is whichever of the following periods ends last: (1) the period beginning one year before the date the individual becomes a Participant and ending one year after such date; or (2) the period beginning one year before the date the Participant's spouse is first entitled to a Qualified Preretirement Survivor Annuity and ending one year after such date. If such notice is given before the period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35, an additional notice shall be given within such period. If a Participant ceases to be an Employee before attaining age 35, an additional notice shall be given within the period beginning one year before the date he ceases to be an Employee and ending one year after such date. After the written explanation is given, a Participant or spouse may make written request for additional information. The written explanation must be personally delivered or mailed (first class mail, postage prepaid) to the Participant or spouse within 30 days from the date of the written request. The Plan Administrator does not need to comply with more than one such request by a Participant or spouse. The Plan Administrator's explanation shall be written in nontechnical language and will explain the terms and conditions of the Qualified Preretirement Survivor Annuity and the financial effect upon the spouse's benefit (in terms of dollars per benefit payment) of electing not to have benefits distributed in accordance with the Qualified Preretirement Survivor Annuity. ARTICLE VI 59 60 ARTICLE VII TERMINATION OF PLAN The Employer expects to continue the Plan indefinitely but reserves the right to terminate the Plan in whole or in part at any time upon giving written notice to all parties concerned. Complete discontinuance of Contributions under the Plan constitutes complete termination of Plan. The Account of each Participant shall be fully (100%) vested and nonforfeitable as of the effective date of complete termination of Plan. The Account of each Participant who is included in the group of Participants deemed to be affected by the partial termination of the Plan shall be fully (100%) vested and nonforfeitable as of the effective date of the partial Plan termination. The Participant's Account shall continue to participate in the earnings credited, expenses charged and any appreciation or depreciation of the Investment Fund until the Vested Account is distributed. A distribution under this article will be a retirement benefit and shall be distributed to the Participant according to the provisions of Article VI. A Participant's Account which does not result from Contributions which are used to compute the Actual Deferral Percentage, as defined in the EXCESS AMOUNTS SECTION of Article III, may be distributed to the Participant after the effective date of the complete or partial Plan termination. A Participant's Account resulting from Contributions which are used to compute such percentage may be distributed upon termination of the Plan without the establishment or maintenance of another defined contribution plan, other than an employee stock ownership plan (as defined in Code Section 4975(e) or Code Section 409) or a simplified employee pension plan (as defined in Code Section 408(k)). Such a distribution made after March 31, 1988, must be in a single sum. Upon complete termination of Plan, no more Employees shall become Participants and no more Contributions shall be made. The assets of this Plan shall not be paid to the Employer at any time, except that, after the satisfaction of all liabilities under the Plan, any assets remaining may be paid to the Employer. The payment may not be made if it would contravene any provision of law. ARTICLE VII 60 61 ARTICLE VIII ADMINISTRATION OF PLAN SECTION 8.01--ADMINISTRATION. Subject to the provisions of this article, the Plan Administrator has complete control of the administration of the Plan. The Plan Administrator has all the powers necessary for it to properly carry out its administrative duties. Not in limitation, but in amplification of the foregoing, the Plan Administrator has the power to construe the Plan, including ambiguous provisions, and to determine all questions that may arise under the Plan, including all questions relating to the eligibility of Employees to participate in the Plan and the amount of benefit to which any Participant, Beneficiary, spouse or Contingent Annuitant may become entitled. The Plan Administrator's decisions upon all matters within the scope of its authority shall be final. Unless otherwise set out in the Plan or Group Contract, the Plan Administrator may delegate recordkeeping and other duties which are necessary for the administration of the Plan to any person or firm which agrees to accept such duties. The Plan Administrator shall be entitled to rely upon all tables, valuations, certificates and reports furnished by the consultant or actuary appointed by the Plan Administrator and upon all opinions given by any counsel selected or approved by the Plan Administrator. The Plan Administrator shall receive all claims for benefits by Participants, former Participants, Beneficiaries, spouses, and Contingent Annuitants. The Plan Administrator shall determine all facts necessary to establish the right of any Claimant to benefits and the amount of those benefits under the provisions of the Plan. The Plan Administrator may establish rules and procedures to be followed by Claimants in filing claims for benefits, in furnishing and verifying proofs necessary to determine age, and in any other matters required to administer the Plan. It is the intention that all reasonable expenses that can be paid from the Trust Fund be paid by the Trustee. SECTION 8.02--RECORDS. All acts and determinations of the Plan Administrator shall be duly recorded. All these records, together with other documents necessary for the administration of the Plan, shall be preserved in the Plan Administrator's custody. Writing (handwriting, typing, printing), photostating, photographing, microfilming, magnetic impulse, mechanical or electrical recording or other forms of data compilation shall be acceptable means of keeping records. SECTION 8.03--INFORMATION AVAILABLE. Any Participant in the Plan or any Beneficiary may examine copies of the Plan description, latest annual report, any bargaining agreement, this Plan, the Group Contract or any other instrument under which the Plan was established or is operated. The Plan Administrator shall maintain all of the items listed in this ARTICLE VIII 61 62 section in its office, or in such other place or places as it may designate in order to comply with governmental regulations. These items may be examined during reasonable business hours. Upon the written request of a Participant or Beneficiary receiving benefits under the Plan, the Plan Administrator will furnish him with a copy of any of these items. The Plan Administrator may make a reasonable charge to the requesting person for the copy. SECTION 8.04--CLAIM AND APPEAL PROCEDURES. A Claimant must submit any required forms and pertinent information when making a claim for benefits under the Plan. If a claim for benefits under the Plan is denied, the Plan Administrator shall provide adequate written notice to the Claimant whose claim for benefits under the Plan has been denied. The notice must be furnished within 90 days of the date that the claim is received by the Plan Administrator. The Claimant shall be notified in writing within this initial 90-day period if special circumstances require an extension of time needed to process the claim and the date by which the Plan Administrator's decision is expected to be rendered. The written notice shall be furnished no later than 180 days after the date the claim was received by the Plan Administrator. The Plan Administrator's notice to the Claimant shall specify the reason for the denial; specify references to pertinent Plan provisions on which denial is based; describe any additional material and information needed for the Claimant to perfect his claim for benefits; explain why the material and information is needed; inform the Claimant that any appeal he wishes to make must be in writing to the Plan Administrator within 60 days after receipt of the Plan Administrator's notice of denial of benefits and that failure to make the written appeal within such 60-day period shall render the Plan Administrator's determination of such denial final, binding and conclusive. If the Claimant appeals to the Plan Administrator, the Claimant, or his authorized representative, may submit in writing whatever issues and comments the Claimant, or his representative, feels are pertinent. The Claimant, or his authorized representative may review pertinent Plan documents. The Plan Administrator shall reexamine all facts related to the appeal and make a final determination as to whether the denial of benefits is justified under the circumstances. The Plan Administrator shall advise the Claimant of its decision within 60 days of his written request for review, unless special circumstances (such as a hearing) would make rendering a decision within the 60-day limit unfeasible. The Claimant must be notified within the 60-day limit if an extension is necessary. The Plan Administrator shall render a decision on a claim for benefits no later than 120 days after the request for review is received. SECTION 8.05--UNCLAIMED VESTED ACCOUNT PROCEDURE. At the time the Participant's Vested Account is distributable to the Participant, spouse or Beneficiary without his consent according to the provisions of Article VI or Article IX, the Plan Administrator, by certified or registered mail addressed to his last known address and in accordance with the notice requirements of Article VI, will notify him of his entitlement to a benefit. If the Participant, spouse or Beneficiary fails to claim the Vested Account or make his whereabouts known in writing within six months from the date of mailing the notice, the Plan Administrator may treat such unclaimed Vested Account as a forfeiture and apply it according to the forfeiture provisions of Article III. If Article III contains no forfeiture provisions, such amount will be applied to reduce the earliest Employer Contributions due after the forfeiture arises. ARTICLE VIII 62 63 If a Participant's Vested Account is forfeited according to the provisions of the above paragraph and the Participant, his spouse or his Beneficiary at any time make a claim for benefits, the forfeited Vested Account shall be reinstated, unadjusted for any gains or losses occurring after the date it was forfeited. The reinstated Vested Account shall then be distributed to the Participant, spouse or Beneficiary according to the preceding provisions of the Plan. SECTION 8.06--DELEGATION OF AUTHORITY. All or any part of the administrative duties and responsibilities under this article may be delegated by the Plan Administrator to a retirement committee. The duties and responsibilities of the retirement committee shall be set out in a separate written agreement. the Plan Administrator may establish a subcommittee to facilitate the processing of administrative functions and to relieve the Plan Administrator from the burden of day-to-day maintenance and administrative duties required by the Plan. Such subcommittee's responsibilities will include the following: (a) making recommendations to the Plan Administrator relative to Plan amendments; (b) reporting to the Plan Administrator relative to Plan investment performance and activity; (c) approving and processing enrollment requests; (d) approving and processing distributions requests; (e) approving and processing all government required forms, to include the annual reporting Form 5500; and (f) providing disclosure and other information to Participants. ARTICLE VIII 63 64 ARTICLE IX GENERAL PROVISIONS SECTION 9.01--AMENDMENTS. The Employer may amend this Plan at any time, including any remedial retroactive changes (within the specified period of time as may be determined by Internal Revenue Service regulations) to comply with the requirements of any law or regulation issued by any governmental agency to which the Employer is subject. An amendment may not diminish or adversely affect any accrued interest or benefit of Participants or their Beneficiaries or eliminate an optional form of distribution with respect to benefits attributable to service before the amendment nor allow reversion or diversion of Plan assets to the Employer at any time, except as may be necessary to comply with the requirements of any law or regulation issued by any governmental agency to which the Employer is subject. No amendment to this Plan shall be effective to the extent that it has the effect of decreasing a Participant's accrued benefit. However, a Participant's Account may be reduced to the extent permitted under Code Section 412(c)(8). For purposes of this paragraph, a Plan amendment which has the effect of decreasing a Participant's Account or eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment shall be treated as reducing an accrued benefit. Furthermore, if the vesting schedule of the Plan is amended, in the case of an Employee who is a Participant as of the later of the date such amendment is adopted or the date it becomes effective, the nonforfeitable percentage (determined as of such date) of such Employee's employer-derived accrued benefit will not be less than his percentage computed under the Plan without regard to such amendment. An amendment shall not decrease a Participant's vested interest in the Plan. If an amendment to the Plan, or a deemed amendment in the case of a change in top-heavy status of the Plan as provided in the MODIFICATION OF VESTING REQUIREMENTS SECTION of Article X, changes the computation of the percentage used to determine that portion of a Participant's Account attributable to Employer Contributions which is nonforfeitable (whether directly or indirectly), each Participant or former Participant (a) who has completed at least three Years of Service on the date the election period described below ends (five Years of Service if the Participant does not have at least one Hour-of-Service in a Plan Year beginning after December 31, 1988) and (b) whose nonforfeitable percentage will be determined on any date after the date of the change may elect, during the election period, to have the nonforfeitable percentage of his Account that results from Employer Contributions determined without regard to the amendment. This election may not be revoked. An election does not need to be provided for any Participant or former Participant whose nonforfeitable percentage, determined according to the Plan provisions as changed, cannot at any time be less than the percentage determined without regard to such change. The election period shall begin no later than the date the Plan amendment is adopted, or deemed adopted in the case of a change in the top-heavy status of the Plan, and end no earlier than the sixtieth day after the latest of the date the amendment is adopted (deemed adopted) or becomes effective, or the date the Participant is issued written notice of the amendment (deemed amendment) by the Employer or the Plan Administrator. ARTICLE IX 64 65 SECTION 9.02--DIRECT ROLLOVERS. This section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this section, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan, specified by the Distributee, in a Direct Rollover. SECTION 9.03--MERGERS AND DIRECT TRANSFERS. The Plan may not be merged or consolidated with, nor have its assets or liabilities transferred to, any other retirement plan, unless each Participant in the plan would (if the plan then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit the Participant would have been entitled to receive immediately before the merger, consolidation or transfer (if this Plan had then terminated). The Employer may enter into merger agreements or direct transfer of assets agreements with the employers under other retirement plans which are qualifiable under Code Section 401(a), including an elective transfer, and may accept the direct transfer of plan assets, or may transfer plan assets, as a party to any such agreement. The Employer shall not consent to, or be a party to a merger, consolidation or transfer of assets with a defined benefit plan if such action would result in a defined benefit feature being maintained under this Plan. The Plan may accept a direct transfer of plan assets on behalf of an Eligible Employee. If the Eligible Employee is not an Active Participant when the transfer is made, the Eligible Employee shall be deemed to be an Active Participant only for the purpose of investment and distribution of the transferred assets. Employer Contributions shall not be made for or allocated to the Eligible Employee, until the time he meets all of the requirements to become an Active Participant. The Plan shall hold, administer and distribute the transferred assets as a part of the Plan. The Plan shall maintain a separate account for the benefit of the Employee on whose behalf the Plan accepted the transfer in order to reflect the value of the transferred assets. Unless a transfer of assets to the Plan is an elective transfer, the Plan shall apply the optional forms of benefit protections described in the AMENDMENTS SECTION of Article IX to all transferred assets. A transfer is elective if: (1) the transfer is voluntary, under a fully informed election by the Participant; (2) the Participant has an alternative that retains his Code Section 411(d)(6) protected benefits (including an option to leave his benefit in the transferor plan, if that plan is not terminating); (3) if the transferor plan is subject to Code Sections 401(a)(11) and 417, the transfer satisfies the applicable spousal consent requirements of the Code; (4) the notice requirements under Code Section 417, requiring a written explanation with respect to an election not to receive benefits in the form of a qualified joint and survivor annuity, are met with respect to the Participant and spousal transfer election; (5) the Participant has a right to immediate distribution from the transferor plan under provisions in the plan not inconsistent with Code Section 401(a); (6) the transferred benefit is equal to the Participant's entire nonforfeitable accrued benefit under the transferor plan, calculated to be at least the greater of the single sum distribution provided by the transferor plan (if any) or the present value of the Participant's accrued benefit under the transferor plan payable at the plan's normal retirement age and calculated using an interest rate subject to the restrictions of Code Section 417(e) and subject to the overall limitations of Code Section 415; (7) the Participant has a 100% nonforfeitable interest in the transferred benefit; and (8) the transfer otherwise satisfies applicable Treasury regulations. ARTICLE IX 65 66 SECTION 9.04--PROVISIONS RELATING TO THE INSURER AND OTHER PARTIES. The obligations of an Insurer shall be governed solely by the provisions of the Group Contract. The Insurer shall not be required to perform any act not provided in or contrary to the provisions of the Group Contract. See the CONSTRUCTION SECTION of this article. Any issuer or distributor of investment contracts or securities is governed solely by the terms of its policies, written investment contract, prospectuses, security instruments, and any other written agreements entered into with the Trustee. Such Insurer, issuer or distributor is not a party to the Plan, nor bound in any way by the Plan provisions. Such parties shall not be required to look to the terms of this Plan, nor to determine whether the Employer, the Plan Administrator, the Trustee, or the Named Fiduciary have the authority to act in any particular manner or to make any contract or agreement. Until notice of any amendment or termination of this Plan or a change in Trustee has been received by the Insurer at its home office or an issuer or distributor at their principal address, they are and shall be fully protected in assuming that the Plan has not been amended or terminated and in dealing with any party acting as Trustee according to the latest information which they have received at their home office or principal address. SECTION 9.05--EMPLOYMENT STATUS. Nothing contained in this Plan gives an Employee the right to be retained in the Employer's employ or to interfere with the Employer's right to discharge any Employee. SECTION 9.06--RIGHTS TO PLAN ASSETS. No Employee shall have any right to or interest in any assets of the Plan upon termination of his employment or otherwise except as specifically provided under this Plan, and then only to the extent of the benefits payable to such Employee in accordance with Plan provisions. Any final payment or distribution to a Participant or his legal representative or to any Beneficiaries, spouse or Contingent Annuitant of such Participant under the Plan provisions shall be in full satisfaction of all claims against the Plan, the Named Fiduciary, the Plan Administrator, the Trustee, the Insurer, and the Employer arising under or by virtue of the Plan. SECTION 9.07--BENEFICIARY. Each Participant may name a Beneficiary to receive any death benefit (other than any income payable to a Contingent Annuitant) that may arise out of his participation in the Plan. The Participant may change his Beneficiary from time to time. Unless a qualified election has been made, for purposes of distributing any death benefits before Retirement Date, the Beneficiary of a Participant who has a spouse who is entitled to a Qualified Preretirement Survivor Annuity shall be the Participant's spouse. The Participant's Beneficiary designation and any change of Beneficiary shall be subject to the provisions of the ELECTION PROCEDURES ARTICLE IX 66 67 SECTION of Article VI. It is the responsibility of the Participant to give written notice to the Insurer of the name of the Beneficiary on a form furnished for that purpose. With the Employer's consent, the Plan Administrator may maintain records of Beneficiary designations for Participants before their Retirement Dates. In that event, the written designations made by Participants shall be filed with the Plan Administrator. If a Participant dies before his Retirement Date, the Plan Administrator shall certify to the Insurer the Beneficiary designation on its records for the Participant. If the Participant is not married at the date of death, and if no valid Beneficiary has been designated, then the Participant's children, if any, shall be deemed equal Beneficiaries under the Plan. If the Participant has no children who survive him, then the Participant's heirs at law shall be deemed Beneficiaries under the Plan. SECTION 9.08--NONALIENATION OF BENEFITS. Benefits payable under the Plan are not subject to the claims of any creditor of any Participant, Beneficiary, spouse or Contingent Annuitant. A Participant, Beneficiary, spouse or Contingent Annuitant does not have any rights to alienate, anticipate, commute, pledge, encumber or assign any of such benefits, except in the case of a loan as provided in the LOANS TO PARTICIPANTS SECTION of Article V. The preceding sentences shall also apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a Participant according to a domestic relations order, unless such order is determined by the Plan Administrator to be a qualified domestic relations order, as defined in Code Section 414(p), or any domestic relations order entered before January 1, 1985. SECTION 9.09--CONSTRUCTION. The validity of the Plan or any of its provisions is determined under and construed according to Federal law and, to the extent permissible, according to the laws of the state in which the Employer has its principal office. In case any provision of this Plan is held illegal or invalid for any reason, such determination shall not affect the remaining provisions of this Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had never been included. In the event of any conflict between the provisions of the Plan and the terms of any contract or policy issued hereunder, the provisions of the Plan control the operation and administration of the Plan. SECTION 9.10--LEGAL ACTIONS. The Plan, the Plan Administrator, the Trustee and the Named Fiduciary are the necessary parties to any action or proceeding involving the assets held with respect to the Plan or administration of the Plan or Trust. No person employed by the Employer, no Participant, former Participant or their Beneficiaries or any other person having or claiming to have an interest in the Plan is entitled to any notice of process. A final judgment entered in any such action or proceeding shall be binding and conclusive on all persons having or claiming to have an interest in the Plan. SECTION 9.11--SMALL AMOUNTS. ARTICLE IX 67 68 If the Vested Account of a Participant has never exceeded $3,500, the entire Vested Account shall be payable in a single sum as of the earliest of his Retirement Date, the date he dies, or the date he ceases to be an Employee for any other reason. This is a small amounts payment. If a small amount is payable as of the date the Participant dies, the small amounts payment shall be made to the Participant's Beneficiary (spouse if the death benefit is payable to the spouse). If a small amount is payable while the Participant is living, the small amounts payment shall be made to the Participant. The small amounts payment is in full settlement of all benefits otherwise payable. The service credited to a Participant who is reemployed by the Employer is not diminished as a result of receiving a small amounts payment. No other small amounts payments shall be made. SECTION 9.12--WORD USAGE. The masculine gender, where used in this Plan, shall include the feminine gender and the singular words as used in this Plan may include the plural, unless the context indicates otherwise. SECTION 9.13--TRANSFERS BETWEEN PLANS. If an Employee previously participated in another plan of the Employer which credited service under the elapsed time method for any purpose which under this Plan is determined using the hours method, then the Employee's service shall be equal to the sum of (a), (b) and (c) below: (a) The number of whole years of service credited to him under the other plan as of the date he became an Eligible Employee under this Plan. (b) One year or a part of a year of service for the applicable service period in which he became an Eligible Employee if he is credited with the required number of Hours-of-Service. If the Employer does not have sufficient records to determine the Employee's actual Hours-of-Service in that part of the service period before the date he became an Eligible Employee, the Hours-of-Service shall be determined using an equivalency. For any month in which he would be required to be credited with one Hour-of-Service, the Employee shall be deemed for purposes of this section to be credited with 190 Hours-of-Service. (c) The Employee's service determined under this Plan using the hours method after the end of the applicable service period in which he became an Eligible Employee. If an Employee previously participated in another plan of the Employer which credited service under the hours method for any purpose which under this Plan is determined using the elapsed time method, then the Employee's service shall be equal to the sum of (d), (e) and (f) below: (d) The number of whole years of service credited to him under the other plan as of the beginning of the applicable service period under that plan in which he became an Eligible Employee under this Plan. (e) The greater of (1) the service that would be credited to him for that entire service period using the elapsed time method or (2) the service credited to him under the other plan as of the date he became an Eligible Employee under this Plan. ARTICLE IX 68 69 (f) The Employee's service determined under this Plan using the elapsed time method after the end of the applicable service period under the other plan in which he became an Eligible Employee. Any modification of service contained in this Plan shall be applicable to the service determined pursuant to this section. If the Employee previously participated in the plan of a Controlled Group member which credited service under a different method than is used in this Plan, for purposes of determining eligibility and vesting the provisions above shall apply as though the plan of the Controlled Group member were a plan of the Employer. ARTICLE IX 69 70 ARTICLE X TOP-HEAVY PLAN REQUIREMENTS SECTION 10.01--APPLICATION. The provisions of this article shall supersede all other provisions in the Plan to the contrary. For the purpose of applying the Top-heavy Plan requirements of this article, all members of the Controlled Group shall be treated as one Employer. The term Employer as used in this article shall be deemed to include all members of the Controlled Group unless the term as used clearly indicates only the Employer is meant. The accrued benefit or account of a participant which results from deductible voluntary contributions shall not be included for any purpose under this article. The minimum vesting and contribution provisions of the MODIFICATION OF VESTING REQUIREMENTS and MODIFICATION OF CONTRIBUTIONS SECTIONS of Article X shall not apply to any Employee who is included in a group of Employees covered by a collective bargaining agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, including the Employer, if there is evidence that retirement benefits were the subject of good faith bargaining between such representatives. For this purpose, the term "employee representatives" does not include any organization more than half of whose members are employees who are owners, officers, or executives. SECTION 10.02--DEFINITIONS. The following terms are defined for purposes of this article. Aggregation Group means (a) each of the Employer's retirement plans in which a Key Employee is a participant during the Year containing the Determination Date or one of the four preceding Years, (b) each of the Employer's other retirement plans which allows the plan(s) described in (a) above to meet the nondiscrimination requirement of Code Section 401(a)(4) or the minimum coverage requirement of Code Section 410, and (c) any of the Employer's other retirement plans not included in (a) or (b) above which the Employer desires to include as part of the Aggregation Group. Such a retirement plan shall be included only if the Aggregation Group would continue to satisfy the requirements of Code Section 401(a)(4) and Code Section 410. The plans in (a) and (b) above constitute the "required" Aggregation Group. The plans in (a), (b) and (c) above constitute the "permissive" Aggregation Group. ARTICLE X 70 71 Compensation means, as to an Employee for any period, compensation as defined in the CONTRIBUTION LIMITATION SECTION of Article III. For purposes of determining who is a Key Employee, Compensation shall include, in addition to compensation as defined in the CONTRIBUTION LIMITATION SECTION of Article III, elective contributions. Elective contributions are amounts excludable from the Employee's gross income under Code Sections 125, 402(e)(3), 402(h) or 403(b), and contributed by the Employer, at the Employee's election, to a Code Section 401(k) arrangement, a simplified employee pension, cafeteria plan or tax-sheltered annuity. For purposes of Compensation as defined in this section, Compensation shall be limited to the maximum dollar amount, as adjusted, in the same manner and in the same time as the Compensation defined in the DEFINITIONS SECTION of Article I. Determination Date means as to this Plan for any Year, the last day of the preceding Year. However, if there is no preceding Year, the Determination Date is the last day of such Year. Key Employee means any Employee or former Employee (including Beneficiaries of deceased Employees) who at any time during the determination period was (a) one of the Employer's officers (subject to the maximum below) whose Compensation (as defined in this section) for the Year exceeds 50 percent of the dollar limitation under Code Section 415(b)(1)(A), (b) one of the ten Employees who owns (or is considered to own, under Code Section 318) more than a half percent ownership interest and one of the largest interests in the Employer during any Year of the determination period if such person's Compensation (as defined in this section) for the Year exceeds the dollar limitation under Code Section 415(c)(1)(A), (c) a five-percent owner of the Employer, or (d) a one-percent owner of the Employer whose Compensation (as defined in this section) for the Year is more than $150,000. Each member of the Controlled Group shall be treated as a separate employer for purposes of determining ownership in the Employer. The determination period is the Year containing the Determination Date and the four preceding Years. If the Employer has fewer than 30 Employees, no more than three Employees shall be treated as Key Employees because they are officers. If the Employer has between 30 and 500 Employees, no more than ten percent of the Employer's Employees (if not an integer, increased to the next integer) shall be treated as Key Employees because they are officers. In no event will more than 50 Employees be treated as Key Employees because they are officers if the Employer has 500 or more Employees. The number of Employees for any Plan Year is the greatest number of Employees during the determination period. Officers who are employees described in Code Section 414(q)(8) shall be excluded. If the Employer has more than the maximum number of officers to be treated as Key Employees, the officers shall be ranked by amount of annual Compensation (as defined in this section), and those with the greater amount of annual Compensation during the determination period shall be treated as Key Employees. To determine the ten Employees owning the largest interests in the Employer, if more than one Employee has the same ownership interest, the Employee(s) having the greater annual ARTICLE X 71 72 Compensation shall be treated as owning the larger interest(s). The determination of who is a Key Employee shall be made according to Code Section 416(i)(1) and the regulations thereunder. Non-key Employee means a person who is a non-key employee within the meaning of Code Section 416 and regulations thereunder. Present Value means the present value of a participant's accrued benefit under a defined benefit plan as of his normal retirement age (attained age if later) or, if the plan provides non-proportional subsidies, the age at which the benefit is most valuable. The accrued benefit of any Employee (other than a Key Employee) shall be determined under the method which is used for accrual purposes for all plans of the Employer or if there is no one method which is used for accrual purposes for all plans of the Employer, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under Code Section 411(b)(1)(C). For purposes of establishing Present Value, any benefit shall be discounted only for 7.5% interest and mortality according to the 1971 Group Annuity Table (Male) without the 7% margin but with projection by Scale E from 1971 to the later of (a) 1974, or (b) the year determined by adding the age to 1920, and wherein for females the male age six years younger is used. If the Present Value of accrued benefits is determined for a participant under more than one defined benefit plan included in the Aggregation Group, all such plans shall use the same actuarial assumptions to determine the Present Value. Top-heavy Plan means a plan which is a top-heavy plan for any plan year beginning after December 31, 1983. This Plan shall be a Top-heavy Plan if (a) the Top-heavy Ratio for this Plan alone exceeds 60 percent and this Plan is not part of any required Aggregation Group or permissive Aggregation Group. (b) this Plan is a part of a required Aggregation Group, but not part of a permissive Aggregation Group, and the Top-heavy Ratio for the required Aggregation Group exceeds 60 percent. (c) this Plan is a part of a required Aggregation Group and part of a permissive Aggregation Group and the Top-heavy Ratio for the permissive Aggregation Group exceeds 60 percent. Top-heavy Ratio means the ratio calculated below for this Plan or for the Aggregation Group. (a) If the Employer maintains one or more defined contribution plans (including any simplified employee pension plan) and the Employer has not maintained any defined benefit plan which during the five-year period ending on the determination date has or has had accrued benefits, the Top-heavy Ratio for this Plan alone or for the required or permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the determination date and the denominator of which is the sum of all account balances of all employees as of the determination date. Both the numerator and denominator of the Top-heavy Ratio are adjusted for any distribution of an account balance (including those made from terminated plan(s) of the Employer which would have been part of the required Aggregation Group had such plan(s) not been terminated) made in the five-year period ending on the determination date. Both the numerator and denominator of the Top-heavy Ratio are increased to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under Code Section 416 and the regulations thereunder. ARTICLE X 72 73 (b) If the Employer maintains one or more defined contribution plans (including any simplified employee pension plan) and the Employer maintains or has maintained one or more defined benefit plans which during the five-year period ending on the determination date has or has had accrued benefits, the Top-heavy Ratio for any required or permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the account balances under the defined contribution plan(s) of all Key Employees and the Present Value of accrued benefits under the defined benefit plan(s) for all Key Employees, and the denominator of which is the sum of the account balances under the defined contribution plan(s) for all employees and the Present Value of accrued benefits under the defined benefit plans for all employees. Both the numerator and denominator of the Top-heavy Ratio are adjusted for any distribution of an account balance or an accrued benefit (including those made from terminated plan(s) of the Employer which would have been part of the required Aggregation Group had such plan(s) not been terminated) made in the five-year period ending on the determination date. (c) For purposes of (a) and (b) above, the value of account balances and the Present Value of accrued benefits will be determined as of the most recent valuation date that falls within or ends with the 12-month period ending on the determination date, except as provided in Code Section 416 and the regulations thereunder for the first and second plan years of a defined benefit plan. The account balances and accrued benefits of an employee who is not a Key Employee but who was a Key Employee in a prior year will be disregarded. The calculation of the Top-heavy Ratio and the extent to which distributions, rollovers and transfers during the five-year period ending on the determination date are to be taken into account, shall be determined according to the provisions of Code Section 416 and regulations thereunder. The account balances and accrued benefits of an individual who has performed no service for the Employer during the five-year period ending on the determination date shall be excluded from the Top-heavy Ratio until the time the individual again performs service for the Employer. Deductible employee contributions will not be taken into account for purposes of computing the Top-heavy Ratio. When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the determination dates that fall within the same calendar year. Account, as used in this definition, means the value of an employee's account under one of the Employer's retirement plans on the latest valuation date. In the case of a money purchase plan or target benefit plan, such value shall be adjusted to include any contributions made for or by the employee after the valuation date and on or before such determination date or due to be made as of such determination date but not yet forwarded to the insurer or trustee. In the case of a profit sharing plan, such value shall be adjusted to include any contributions made for or by the employee after the valuation date and on or before such determination date. During the first Year of any profit sharing plan such adjustment in value shall include contributions made after such determination date that are allocated as of a date in such Year. The nondeductible employee contributions which an employee makes under a defined benefit plan of the Employer shall be treated as if they were contributions under a separate defined contribution plan. Valuation Date means, as to this Plan, the last day of the last calendar month ending in a Year. Year means the Plan Year unless another year is specified by the Employer in a separate written resolution in accordance with regulations issued by the Secretary of the Treasury or his delegate. ARTICLE X 73 74 SECTION 10.03--MODIFICATION OF VESTING REQUIREMENTS. If a Participant's Vesting Percentage determined under Article I is not at least as great as his Vesting Percentage would be if it were determined under a schedule permitted in Code Section 416, the following shall apply. During any Year in which the Plan is a Top-heavy Plan, the Participant's Vesting Percentage shall be the greater of the Vesting Percentage determined under Article I or the schedule below.
VESTING SERVICE NONFORFEITABLE (whole years) PERCENTAGE. Less than 3 0 3 or more 100
The schedule above shall not apply to Participants who are not credited with an Hour-of-Service after the Plan first becomes a Top-heavy Plan. The Vesting Percentage determined above applies to all of the Participant's Account resulting from Employer Contributions, including Contributions the Employer makes before the TEFRA Compliance Date or when the Plan is not a Top-heavy Plan. If, in a later Year, this Plan is not a Top-heavy Plan, a Participant's Vesting Percentage shall be determined under Article I. A Participant's Vesting Percentage determined under either Article I or the schedule above shall never be reduced and the election procedures of the AMENDMENTS SECTION of Article IX shall apply when changing to or from the schedule as though the automatic change were the result of an amendment. The part of the Participant's Vested Account resulting from the minimum contributions required pursuant to the MODIFICATION OF CONTRIBUTIONS SECTION of Article X shall not be forfeited because of a period of reemployment after benefit payments have begun. SECTION 10.04--MODIFICATION OF CONTRIBUTIONS. During any Year in which this Plan is a Top-heavy Plan, the Employer shall make a minimum contribution or allocation on the last day of the Year for each person who is a Non-key Employee on that day and who either was or could have been an Active Participant during the Year. A Non-key Employee is not required to have a minimum number of hours-of-service or minimum amount of Compensation, or to have had any Elective Deferral Contributions made for him in order to be entitled to this minimum. The minimum contribution or allocation for such person shall be equal to the lesser of (a) or (b) below: (a) Three percent of such person's Compensation (as defined in this article). (b) The "highest percentage" of Compensation (as defined in this article) for such Year at which the Employer's contributions are made for or allocated to any Key Employee. The highest percentage shall be determined by dividing the Employer Contributions made for or allocated to each Key Employee during such Year by the amount of his Compensation (as defined in this article), which is not more than the maximum set out above, and selecting the greatest quotient (expressed as a percentage). To determine the highest percentage, all of the Employer's defined contribution plans within the Aggregation Group shall be treated as one plan. The provisions of this paragraph shall not apply if this Plan and a defined benefit plan of the Employer are required ARTICLE X 74 75 to be included in the Aggregation Group and this Plan enables the defined benefit plan to meet the requirements of Code Section 401(a)(4) or Code Section 410. Any required Contribution shall be satisfied first by any Employer Contribution and Forfeiture in the United Companies Financial Corporation Employee Stock Ownership Plan. If the Employer's contributions and allocations otherwise required under the defined contribution plan(s) are at least equal to the minimum above, no additional contribution or reallocation shall be required. If the Employer's contributions and allocations are less than the minimum above and Employer Contributions under this Plan are allocated to Participants, any Employer Contributions (other than those which are allocated on the basis of the amount made for such person) shall be reallocated to provide the minimum. The remaining Contributions shall be allocated as provided in the preceding articles of this Plan taking into account any amount which was reallocated to provide the minimum. If the Employer's total contributions and allocations are less than the minimum above after any reallocation provided above, the Employer shall contribute the difference for the Year. The minimum contribution or allocation applies to all of the Employer's defined contribution plans in the aggregate which are Top-heavy Plans. If an additional contribution or allocation is required to meet the minimum above, it shall be provided in this Plan. A minimum allocation under a profit sharing plan shall be made without regard to whether or not the Employer has profits. If a person who is otherwise entitled to a minimum contribution or allocation above is also covered under a defined benefit plan of the Employer's which is a Top-heavy Plan during that same Year, the minimum benefits for him shall not be duplicated. The defined benefit plan shall provide an annual benefit for him on, or adjusted to, a straight life basis of the lesser of (c) two percent of his average pay multiplied by his years of service or (d) twenty percent of his average pay. Average pay and years of service shall have the meaning set forth in such defined benefit plan for this purpose. For purposes of this section, any employer contribution made according to a salary reduction or similar arrangement shall not apply before the first Yearly Date in 1985. On and after the first Yearly Date in 1989, any such employer contributions and employer contributions which are matching contributions, as defined in Code Section 401(m), shall not apply in determining if the minimum contribution requirement has been met, but shall apply in determining the minimum contribution required. Forfeitures credited to a Participant's Account are treated as employer contributions. The requirements of this section shall be met without regard to contributions under Chapter 2 of the Code (relating to tax on self-employment), Chapter 21 of the Code (relating to Federal Insurance Contributions Act), Title II of the Social Security Act or any other Federal or state law. ARTICLE X 75 76 SECTION 10.05--MODIFICATION OF CONTRIBUTION LIMITATION. If the provisions of subsection (e) of the CONTRIBUTION LIMITATION SECTION of Article III are applicable for any Limitation Year during which this Plan is a Top-heavy Plan, the benefit limitations shall be modified. The definitions of Defined Benefit Plan Fraction and Defined Contribution Plan Fraction in the CONTRIBUTION LIMITATION SECTION of Article III shall be modified by substituting "1.0" in lieu of "1.25." The optional denominator for determining the Defined Contribution Plan Fraction shall be modified by substituting "$41,500" in lieu of "$51,875." In addition, an adjustment shall be made to the numerator of the Defined Contribution Plan Fraction. The adjustment is a reduction of that numerator similar to the modification of the Defined Contribution Plan Fraction described in the CONTRIBUTION LIMITATION SECTION of Article III, and shall be made with respect to the last Plan Year beginning before January 1, 1984. The modifications in the paragraph above shall not apply with respect to a Participant so long as employer contributions, forfeitures or nondeductible employee contributions are not credited to his account under this or any of the Employer's other defined contribution plans and benefits do not accrue for such Participant under the Employer's defined benefit plan(s), until the sum of his Defined Contribution and Defined Benefit Plan Fractions is less than 1.0. ARTICLE X 76 77 By executing this Plan, the Primary Employer acknowledges having counseled to the extent necessary with selected legal and tax advisors regarding the Plan's legal and tax implications. Executed this __________ day of_______________________________________, 19______. UNITED COMPANIES FINANCIAL CORPORATION By: ------------------------------------ ------------------------------------ Title PLAN EXECUTION 77 78 FOURTH AMENDMENT TO THE 1994 RESTATEMENT OF THE UNITED COMPANIES FINANCIAL CORPORATION EMPLOYEES' SAVINGS PLAN ___________________________________ STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BE IT KNOWN, that on the 30th day of December, 1996, at the place hereinafter written, in the presence of the witnesses hereinafter named and undersigned, personally came and appeared: UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under the laws of the State of Louisiana, with its principal place of business at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented herein by Dale E. Redman, its authorized officer, duly authorized to act by virtue of a corporate resolution attached hereto and made a part hereof (hereinafter referred to as "Employer" or "Company") W I T N E S S E T H: WHEREAS, the Employer did establish the United Companies Financial Corporation Employees' Savings,Plan and Trust ("Plan & Trust" or "Employees' Savings Plan and Trust") on November 13, 1987, effective July 1, 1987; amended and restated effective January 1, 1989; amended and restated in separate Plan document and Trust document, effective January 1, 1994, and wishes to further amend said Plan; and WHEREAS, the Employer desires to amend the Plan effective September 1, 1996, in order to permit the Trustee to acquire Employer Securities for the benefit of the Investment Fund, if the Fair Market Value does not exceed 100% of the Investment Fund, subsequent to such acquisition; NOW THEREFORE, the Employer does hereby amend the Plan, effective September 1, 1996, except as otherwise provided herein, as follows: Article IV of the Plan is hereby amended, effective September 1, 1996, by substituting the following paragraph in lieu of the second paragraph of Section 4.02 thereof: Notwithstanding any other provision of this Plan, the Trustee may not acquire or hold any Employer Security which is not a "qualifying employer security" (within the meaning of section 407(d)(5) of ERISA) provided, however, that the Investment Fund may not acquire any Employer Security if immediately after such acquisition, the Fair Market Value of Employer Securities held by the Investment Fund exceeds 100% of the Fund. The amendments made hereunder are intended to qualify the Plan for the period beginning September 1, 1996, except as otherwise provided herein, as a qualified Profit Sharing Plan and Trust under the Internal Revenue Code and ERISA. Therefore, any provisions which cause the Plan not-to be in compliance with either statute, or with regulations promulgated thereunder, shall be separable from the remaining amendments and shall not cause them to be rendered invalid, so that all the amendments will have as much force and effect as allowed 79 by law. In the case of any ambiguity, the language shall be interpreted to effectuate the stated purposes of those amendments and in such a way as to cause the Plan to continue to be a qualified plan under the statutes. IN WITNESS WHEREOF, the Employer has caused this Amendment to be signed by its duly authorized officer, before the undersigned competent witnesses on the date indicated above, at Baton Rouge, Louisiana WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION, EMPLOYER: By: - ------------------------------------ ------------------------------------ Authorized Officer - ------------------------------------ 80 THIRD AMENDMENT TO THE 1994 RESTATEMENT OF THE UNITED COMPANIES FINANCIAL CORPORATION EMPLOYEES' SAVINGS PLAN ___________________________________ STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BE IT KNOWN, that on the 3Oth day of December, 1996, at the place hereinafter written, in the presence of the witnesses hereinafter named and undersigned, personally came and appeared: UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under the laws of the State of Louisiana, with its principal place of business at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented herein by Dale E. Redman, its authorized officer, duly authorized to act by virtue of a corporate resolution attached hereto and made a part hereof (hereinafter referred to as "Employer" or "Company") W I T N E S S E T H: WHEREAS, the Employer did establish the United Companies Financial Corporation Employees' Savings Plan and Trust ("Plan & Trust" or "Employees' Savings Plan and Trust") on November 13, 1987, effective July 1, 1987; amended and restated effective January 1, 1989; amended and restated in separate Plan document and Trust document, effective January 1, 1994, and wishes to further amend said Plan; and WHEREAS, the Employer desires to amend the Plan effective September 1, 1996, in order to permit Participants to elect to make Elective Deferrals up to the highest percentage limit for the entire Plan Year during which they are eligible; and WHEREAS, the Employer desires to restrict Insiders with respect to investment in Employer Securities; NOW THEREFORE, the Employer does hereby amend the Plan, effective September 1, 1996, except as otherwise provided herein, as follows: Article II of the Plan is hereby amended, effective November 1, 1996, by adding the following definition at the end thereof: "INSIDER" shall mean an individual who is a Participant in the Plan and who is either President, Chief Executive Officer, Executive Vice President or Controller of United Companies Financial Corporation. Such status as an Insider shall be determined by the position of the individual as of the date of any transaction referred to herein. Status as an Insider or not under this definition shall not be determinative for any other purpose besides the Internal Revenue Code and the Employee Retirement Income Security Act of 1974, as amended. Status as an Insider under this definition shall not be determinative for purposes of securities laws. Article III of the Plan is hereby amended by substituting the following for the first sentence of subsection (a) of section 3.01 thereof: 81 (a) The amount of each Elective Deferral Contribution for a Participant shall be equal to that percentage of his Compensation which he has elected in his elective deferral agreement. The percentage of Compensation chosen as an Elective Deferral may not exceed ten (10%) percent of the total Compensation for the Plan Year; however, the Participant may elect a percentage of each payment which is greater than ten (10%) percent in order to make up for a lesser election during an earlier election period in the Plan Year. A one-time election may be made on the Effective Date of this Amendment. Article IV of the Plan is hereby amended, effective November 1, 1996, by adding the following language at the end of section 4.03 thereof: Effective November 1, 1996, the following limitations shall apply to Insiders who are Participants in the Plan. An Insider may not elect a change of investment of his or her Elective Deferral Account under the following circumstances: (a) if the Participant has made an election to invest all or a portion of his Elective Deferral Account in Employer Securities, including a quarterly election of salary reduction amounts, within the preceding six (6) months, then he or she may not elect to sell or transfer any such Employer Securities from his Elective Deferral Account; (b) if the Participant has made an election to sell or transfer all or any portion of the Employer Securities held in his Elective Deferral Account within the preceding six (6) months, then the Participant may not elect to have any portion of his or her Elective Deferral Account invested in Employer Securities, including a quarterly election of salary reduction amounts. A distribution from the Plan to a Participant shall not be considered a sale or transfer or investment for the foregoing purposes unless the Plan causes a sale, transfer or new investment prior to the physical distribution to the Participant. An election by the Participant to change the amount of his Elective Deferral shall not be considered an election to sell, transfer or invest Employer Securities so long as any prior investment election continues to apply to the changed amount. An election to make a Participant loan, which choice required the sale or transfer of Employer Securities from the Participant's account, shall be considered an election to sell or transfer Employer Securities for purposes of the foregoing. The amendments made hereunder are intended to qualify the Plan for the period beginning September 1, 1996, except as otherwise provided herein, as a qualified Profit Sharing Plan and Trust under the Internal Revenue Code and ERISA. Therefore, any provisions which cause the Plan not to be in compliance with either statute, or with regulations promulgated thereunder, shall be separable from the remaining amendments and shall not cause them to be rendered invalid, so that all the amendments will have as much force and effect as allowed by law. In the case of any ambiguity, the language shall be interpreted to effectuate the stated purposes of those amendments and in such a way as to cause the Plan to continue to be a qualified plan under the statutes. 82 IN WITNESS WHEREOF, the Employer has caused this Amendment to be signed by its duly authorized officer, before the undersigned competent witnesses on the date indicated above, at Baton Rouge, Louisiana. WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION, EMPLOYER: By: - ------------------------------------ ------------------------------------ Authorized Officer - ------------------------------------ 83 SECOND AMENDMENT TO THE 1994 RESTATEMENT OF THE UNITED COMPANIES FINANCIAL CORPORATION EMPLOYEES' SAVINGS PLAN _________________________________ STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BE IT KNOWN, that on the 24th day of July, 1996, at the place hereinafter written, in the presence of the witnesses hereinafter named and undersigned, personally came and appeared: UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under the laws of the State of Louisiana, with its principal place of business at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented herein by J. Terrell Brown, its authorized officer, duly authorized to act by virtue of a corporate resolution attached hereto and made a part hereof (hereinafter referred to as "Employer" or "Company") and UNITED COMPANIES LIFE INSURANCE COMPANY, a corporation organized under the laws of the State of Louisiana, with its principal place of business at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented herein by J. Terrell Brown, its authorized officer, duly authorized to act by virtue of a corporate resolution attached hereto and made a part hereof (hereinafter referred to as "Resigning Employer") W I T N E S S E T H: WHEREAS, the Employer did establish the United Companies Financial Corporation Employees' Savings Plan and Trust ("Plan & Trust" or Employees' Savings Plan and Trust") on November 13, 1987, effective July 1, 1987; amended and restated effective January 1, 1989; amended and restated in separate Plan document and Trust document December 30, 1994, and wishes to further amend said Plan and WHEREAS, the Resigning Employer is being sold by the Company and will no longer be a member of a controlled group of corporations with the Company; and WHEREAS, the Company and the Resigning Employer want to cease the Resigning Employer's maintenance of the Plan and to specify the terms and conditions under which the Resigning Employer ceases to maintain the Plan; NOW THEREFORE, the Company does hereby amend the Plan, effective on the date of sale of the Resigning Employer, except as otherwise provided herein, the Resigning Employer hereby ceases to maintain the Plan and the Plan is amended to specify the allocation to Employees of the Resigning Employer, as follows: Article II is hereby amended by deleting UNITED COMPANIES LIFE INSURANCE COMPANY from the list of adopting employers in the fifth paragraph of Section 2.04 thereof, at the bottom of page 21, with such deletion to be effective on the date of sale of the Resigning Employer for all purposes except the limited 84 purpose of the deferral and transmittal of Elective Deferrals of employees through the last day of the pay period in which the sale occurs. Article III is hereby amended by adding the following at the end of subsection (a) of Section 3.01 thereof: Participating Employees of UNITED COMPANIES LIFE INSURANCE COMPANY shall be permitted to continue in effect their Elective Deferrals to the Plan for the period from the date of sale to the end of the pay period in which the sale falls; provided, however, that such Participants shall have the opportunity to redirect their Elective Deferrals and have them included in compensation for such period by notifying the Plan Administrator prior to the date of the contribution to the Plan. Such Elective Deferrals will be made for such period unless the Participant affirmatively elects not to have such deferrals, notwithstanding that no Matching Contributions will be made which are attributable thereto. Article III is further amended by adding the following at the end of the Subsection (b) of Section 3.01 thereof: No Matching Contributions shall be made based on the compensation of participants who are employees of UNITED COMPANIES LIFE INSURANCE COMPANY, for the period from the date of sale of UNITED COMPANIES LIFE INSURANCE COMPANY to the last day of the pay period in which the sale occurs, notwithstanding that Elective Deferrals may be accepted by the Plan from such Participants for such period. The amendments made hereunder are intended to qualify the Plan as of the date of sale of the Resigning Employer as a qualified Profit Sharing Plan and Trust under the Internal Revenue Code and ERISA. Therefore, any provisions which cause the Plan not to be in compliance with either statute or with regulations promulgated thereunder, shall be separable from the remaining amendments and shall not cause them to be rendered invalid, so that all the amendments will have as much force and effect as allowed by law. In the case of any ambiguity, the language shall be interpreted to effectuate the stated purposes of those amendments and in such a way as to cause the Plan to continue to be a qualified plan under the statutes. 85 IN WITNESS WHEREOF, the Employer has caused this Amendment to be signed by its duly authorized officer, before the undersigned competent witnesses on the date indicated above, at Baton Rouge, Louisiana. WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION, EMPLOYER: By: - ------------------------------------ ------------------------------------ - ------------------------------------ UNITED COMPANIES LIFE INSURANCE CORPORATION, RESIGNING EMPLOYER By: - ------------------------------------ ------------------------------------ Authorized Officer - ------------------------------------ 86 FIRST AMENDMENT TO THE 1994 RESTATEMENT OF THE UNITED COMPANIES FINANCIAL CORPORATION EMPLOYEES' SAVINGS PLAN ________________________________ STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BE IT KNOWN, that on the ______ day of ______________, 1995, at the place hereinafter written, in the presence of the witnesses hereinafter named and undersigned, personally came and appeared: UNITED COMPANIES FINANCIAL CORPORATION, a corporation organized under the laws of the State of Louisiana, with its principal place of business at 4041 Essen Lane, Baton Rouge, Louisiana 70809, represented herein by ________________________, its authorized officer, duly authorized to act by virtue of a corporate resolution attached hereto and made a part hereof (hereinafter referred to as "Employer" or "Company") W I T N E S S E T H: WHEREAS, the Employer did establish the United Companies Financial Corporation Employees' Savings Plan and Trust ("Plan & Trust" or "Employees' Savings Plan and Trust") on November 13, 1987, effective July 1, 1987; amended and restated effective January 1, 1989; amended and restated in separate Plan document and Trust document, and wishes to further amend said Plan; and WHEREAS, the Employer desires to amend the Plan to limit deferrals of Participants to ten (10%) percent of total Compensation; and WHEREAS, the Employer desires to clarify the means by which the IRC Section 415 limits are met and to coordinate the provisions of the ESOP and the Savings Plan; NOW THEREFORE, the Employer does hereby amend the Plan, effective January 1, 1994, except as otherwise provided herein, as follows: Article III of the Plan is hereby amended, effective on the date of execution, by substituting "10%" for "15%" in the first sentence of subsection (a) of section 3.01 thereof. 87 Article III of the Plan is hereby further amended by substituting for the second paragraph of subsection (c) of section 3.04 thereof the following: "If a Participant's Annual Additions under this Plan and all such other plans result in an Excess Annual Amount, such Excess Annual Amount shall be deemed to consist of the amounts last allocated. In particular, if amounts are allocated as of the same date, Elective Deferrals shall be allocated first; any required Employer Contributions under this Plan or any other cash or deferred arrangement in order to satisfy nondiscrimination tests will be allocated second; Marching Contributions under this Plan shall be allocated third; Discretionary Contributions under this Plan shall be considered allocated fourth; amounts allocated as a result of payment of an Employee Stock Ownership Plan Loan under the United Companies Financial Corporation Employee Stock Ownership Plan shall be allocated fifth; and discretionary Employer Contributions allocated under the United Companies Financial Corporation Employee Stock Ownership Plan for purposes other than ESOP loan repayment, shall be considered to have been allocated last. Thus, Elective Deferrals and Matching Contributions which are allocated prior to the last day of the Plan Year, such as on quarterly allocation dates, will be allocated before any of the above which are allocated ont he last day of the Plan Year. Notwithstanding the above, Annual Additions attributable to a welfare benefit fund, if any, will be deemed to have been allocated first, regardless of the actual allocation date." The amendments made hereunder are intended to qualify the Plan for the period beginning January 1, 1994, except as otherwise provided herein, as a qualified Profit Sharing Plan and Trust under the Internal Revenue Code and ERISA. Therefore, any provisions which cause the Plan not to be in compliance with either statute, or with regulations promulgated thereunder, shall be separable from the remaining amendments and shall not cause them to be rendered invalid, so that all the amendments will have as much force and effect as allowed by law. In the case of any ambiguity, the language shall be interpreted to effectuate the stated purposes of those amendments and in such a way as to cause the Plan to continue to be a qualified plan under the statutes. 88 IN WITNESS WHEREOF, the Employer has caused this Amendment to be signed by its duly authorized officer, before the undersigned competent witnesses on the date indicated above, at Baton Rouge, Louisiana. WITNESSES: UNITED COMPANIES FINANCIAL CORPORATION, EMPLOYER: By: - ------------------------------------ ------------------------------------ Authorized Officer EX-11.1 4 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED DECEMBER 31, ----------------------------------------- 1996 1995 1994 ---------- ---------- ------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Primary Earnings Per Share Income available to common shareholders: Income from continuing operations . . . . . . . . . . . . . . . $ 86,192 $ 64,925 $ 48,696 Less: Income (loss) from discontinued operations . . . . . . . . (4,532) 4,543 838 ---------- ---------- ------------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,660 $ 69,468 $ 49,534 ========== ========== ============= Weighted average number of common and common equivalent shares: Average common shares outstanding . . . . . . . . . . . . . . . 27,929 27,854 27,298 Add: Dilutive effect of stock options after application of treasury stock method . . . . . . . . . 835 895 1,192 Dilutive effect of preferred stock after application of "if converted" method . . . . . . . . . . . 3,230 1,752 -- ---------- ---------- ------------- 31,994 30,501 28,490 ========== ========== ============= Earnings (loss) per share: Income from continuing operations . . . . . . . . . . . . . . . $ 2.69 $ 2.13 $ 1.71 Income (loss) from discontinued operations . . . . . . . . . . . (.14) .15 .03 ---------- ---------- ------------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.55 $ 2.28 $ 1.74 ========== ========== ============= Fully Diluted Earnings Per Share Income available to common shareholders: Income from continuing operations . . . . . . . . . . . . . . . $ 86,192 $ 64,925 $ 48,696 Less: Income (loss) from discontinued operations . . . . . . . . (4,532) 4,543 838 ---------- ---------- ------------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,660 $ 69,468 $ 49,534 ========== ========== ============= Weighted average number of common and all dilutive contingent shares: Average common shares outstanding . . . . . . . . . . . . . . . 27,929 27,854 27,298 Add: Dilutive effect of stock options after application of treasury stock method . . . . . . . . . 838 928 1,192 Dilutive effect of preferred stock after application of "if converted" method . . . . . . . . . . . 3,910 2,121 -- ---------- ---------- ------------- 32,677 30,903 28,490 ========== ========== ============= Earnings (loss) per share: Income from continuing operations . . . . . . . . . . . . . . . $ 2.64 $ 2.10 $ 1.71 Income (loss) from discontinued operations . . . . . . . . . . . (.14) .15 .03 ---------- ---------- ------------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.50 $ 2.25 $ 1.74 ========== ========== =============
EX-21.1 5 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 UNITED COMPANIES FINANCIAL CORPORATION LIST OF SUBSIDIARIES DECEMBER 31, 1996
STATE OF NAME INCORPORATION - ---- ------------- United Companies Lending Group, Inc. . . . . . . . . . . . . . Louisiana United Companies Lending Corporation(R)(1) . . . . . . . . . . Louisiana Pelican Mortgage Company, Inc.(2) . . . . . . . . . . . . . . . Delaware Adobe, Inc.(3) . . . . . . . . . . . . . . . . . . . . . . . . Nevada UCFC Acceptance Corporation(2) . . . . . . . . . . . . . . . . Louisiana United Companies Mortgage of Tennessee, Inc.(2) . . . . . . . . Tennessee UNICOR MORTGAGE(R), Inc. (1) . . . . . . . . . . . . . . . . . Louisiana GINGER MAE(R), Inc.(1) . . . . . . . . . . . . . . . . . . . . Louisiana Southern Mortgage Acquisition, Inc (.1) . . . . . . . . . . . . Louisiana United Communications Corporation of Louisiana, Inc . . . . . . Louisiana United Companies Management Company, Inc . . . . . . . . . . . Louisiana United Companies Realty and Development Company, Inc . . . . . Louisiana United Plan Insurance Agency, Inc . . . . . . . . . . . . . . . Louisiana United Companies Funding, Inc. . . . . . . . . . . . . . . . Louisiana United Credit Card, Inc . . . . . . . . . . . . . . . . . . . . Louisiana UCFC Funding Corporation(5) . . . . . . . . . . . . . . . . . . Louisiana Gopher Funding, Inc.(5) . . . . . . . . . . . . . . . . . . . . Nevada Adobe Financial, Inc. I(4) . . . . . . . . . . . . . . . . . . Nevada
__________ (1) Wholly owned by United Companies Lending Group (2) Wholly owned by United Companies Lending Corporation(R) (3) Wholly owned by Pelican Mortgage Company, Inc. (4) Wholly owned by Adobe, Inc. (5) Wholly owned by United Companies Funding, Inc. EX-23.1 6 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference of our opinion dated February 28, 1997 appearing in this Annual Report on Form 10-K of United Companies Financial Corporation for the year ended December 31, 1996 in the following: Registration Statement No. 33-15326 on Form S-8 pertaining to the United Companies Financial Corporation 1986 Employee Incentive Stock Option Plan, Registration Statement No. 33-17366 on Form S-8 pertaining to the United Companies Financial Corporation Employees' Savings Plan and Trust, Registration Statement No. 33-29994 on Form S-8 pertaining to the 1989 Stock Incentive Plan and the 1989 Non-Employee Director Stock Option Plan, Registration Statement No. 33-54955 on Form S-8 pertaining to the 1993 Stock Incentive Plan and the 1993 Non-Employee Director Stock Option Plan, Registration Statement No. 33-68626 on Form S-3 pertaining to the registration of 1,951,204 shares of United Companies Financial Corporation Common Stock, Registration Statement No. 33-60367 on Form S-3 pertaining to the registration of $200 million of United Companies Financial Corporation Debt Securities and Preferred Stock, and Registration Statement No. 33-52739 on Form S-3 pertaining to the registration of 200,000 shares of United Companies Financial Corporation Common Stock and Registration Statement No. 33-63069 on Form S-8 pertaining to the United Companies Financial Corporation Management Incentive Plan. DELOITTE & TOUCHE LLP Baton Rouge, Louisiana March 21, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 14,064 34,928 122,891 0 0 0 57,153 (10,830) 1,002,516 0 425,671 0 3,910 59,255 357,112 1,002,516 0 356,874 0 0 170,342 14,049 38,626 133,857 47,665 86,192 (4,532) 0 0 81,660 2.55 2.50
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