10-K
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[ X ]Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
December 31, 1994.
Commission file number 1-9583
MBIA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Connecticut 06-1185706
(State of Incorporation) (I.R.S. Employer Identification No.)
113 King Street, Armonk, New York 10504
(Address of principal executive offices) (Zip Code)
(914) 273-4545
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchanqe on which reqistered
Common Stock, par value $1 per share New York Stock 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 .
The aggregate market value of the voting stock held by non-
affiliates of the Registrant as of March 20, 1995 was $
2,280,588,976.
As of March 20, 1995, 41,645,624 shares of Common Stock, par
value $1 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE. Portions of Registrant's
Annual Report to Shareholders for the fiscal year ended December
31, 1994 are incorporated by reference into Parts I and II.
Portions of the Definitive Proxy Statement of the Registrant,
dated March 27, 1995 are incorporated by reference into Parts I
and III.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (SS 229.405 of
this chapter) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
PART I
ITEM 1. BUSINESS
MBIA Inc. (the "Company") is a financial guarantee insurer
of municipal bonds, asset-backed securities and other non-
municipal obligations through its wholly-owned subsidiary,
Municipal Bond Investors Assurance Corporation ("MBIA Corp.").
(It is expected that MBIA Corp. will change its name to MBIA
Insurance Corporation in April of 1995.) MBIA Corp. is the
successor to the business of the Municipal Bond Insurance
Association (the "Association"), a consortium of five multi-line
insurers, which began writing municipal bond insurance in 1974.
Four of the five members of the Association, together with
certain of their affiliates, participated in the formation of
the Company in December 1986. (See "Certain Relationships and
Related Transactions-Organization of the Company" in the
Company's Proxy Statement dated March 27, 1995 which is
incorporated herein by reference.)
Effective as of December 31, 1989, the Company purchased
Bond Investors Guaranty Insurance Company ("BIG Ins."), another
municipal bond insurance company, through the acquisition of all
of the common stock of its parent company, Bond Investors Group,
Inc. ("BIG"). Subsequently, MBIA Corp. reinsured the net
exposure on the municipal bond insurance policies previously
issued by BIG Ins. and the Company contributed the common stock
of BIG to MBIA Corp. (See "Business-Reinsurance" below). On
August 21, 1990, the Company changed the name of BIG Ins. to
MBIA Insurance Corp. of Illinois ("MBIA Illinois").
Subsequently, BIG was merged into MBIA Illinois.
In 1990, the Company formed a French company, MBIA
Assurance S.A. ("MBIA Assurance"), to write financial guarantee
insurance in the countries of the European community. MBIA
Assurance, which is a subsidiary of MBIA Corp., writes policies
insuring public infrastructure financings, asset-backed
transactions and certain obligations of financial institutions.
By the end of 1994, MBIA Assurance had insured sixteen
transactions.
Generally, throughout the text references to MBIA Corp.
include the activities of its subsidiaries, MBIA Illinois and
MBIA Assurance.
Municipal bond insurance provides an unconditional and
irrevocable guarantee of the payment of the principal of and
interest on municipal bonds when due. Municipal bonds are
comprised of bonds, notes and other evidences of indebtedness
issued by states, municipalities and other governmental
authorities, instrumentalities and agencies. Municipal bonds are
secured by the issuer's taxing power in the case of general
obligation or special tax supported bonds, or by the issuer's
ability to impose and collect fees and charges for public
services or specific projects in the case of most revenue bonds.
The insurance on asset-backed and other non-municipal
obligations provides substantially the same guarantee.
MBIA Corp.'s substantial capital base permits it to support
a large portfolio of insured bond issues and to write new
business. MBIA Corp. primarily insures municipal bonds which are
sold in the new issue and secondary markets, or which are held
in unit investment trusts ("UIT") and by mutual funds. It also
provides surety bonds for debt service reserve funds. MBIA Corp.
also insures other types of obligations, such as asset-backed
securities, debt of investor-owned utilities and municipal
deposits in approved financial institutions.
The Association was the first issuer of municipal bond
guarantees to receive both the AAA claims-paying rating from
Standard and Poor's Corporation ("S&P"), which it received in
1974, and the Aaa claims-paying rating from Moody's Investors
Service, Inc. ("Moody's"), which it received in 1984. Both
rating agencies have continuously issued Triple-A claims-paying
ratings for MBIA Corp. and Triple-A ratings to bonds guaranteed
by MBIA Corp. Both rating agencies have also continued the
Triple-A rating on MBIA Illinois guaranteed bond issues which
have been reinsured by MBIA Corp.
The principal economic value of financial guarantee
insurance to the governmental unit or entity offering the
obligations is the saving in interest costs resulting from the
difference in the market yield between an insured obligation and
the same obligation on an uninsured basis. In addition, for
complex financings and for obligations of issuers that are not
well-known by investors, insured obligations receive greater
market acceptance than uninsured obligations.
MBIA CORP. INSURED PORTFOLIO
At December 31, 1994, the net par amount outstanding on
MBIA Corp.'s insured obligations (including insured obligations
of MBIA Illinois and MBIA Assurance but excluding the guarantee
of $1.5 billion of obligations of MBIA Investment Management
Corp. ("IMC") (see "Operations-Miscellaneous")) was $164.3
billion, comprised of $143.1 billion in new issues and $21.2
billion in secondary market issues. Net insurance in force was
$304.5 billion.
MBIA Corp. guarantees to the holder of the underlying
obligation the timely payment of the principal of and interest
on such obligation in accordance with its original payment
schedule. Accordingly, in the case of a default on an insured
obligation, payments under the insurance policy cannot be
accelerated by the holder. MBIA Corp. will be required to pay
principal and interest only as originally scheduled payments
come due.
MBIA Corp. seeks to maintain a diversified insured
portfolio designed to spread risk based on a variety of criteria
including revenue source, issue size, type of bond and
geographic area. As of December 31, 1994, MBIA Corp. had 29,697
policies outstanding. These policies are diversified among 6,850
"credits," which MBIA Corp. defines as any group of issues
supported by the same revenue source.
The table below sets forth information with respect to the
original par amount written per issue in MBIA Corp.'s portfolio
as of December 31, 1994:
MBIA CORP. ORIGINAL PAR AMOUNT PER ISSUE
AS OF DECEMBER 31, 1994
% OF TOTAL
NUMBER OF NUMBER OF NET PAR % OF NET
ORIGINAL PAR AMOUNT ISSUES ISSUES AMOUNT PAR AMOUNT
WRITTEN PER ISSUE OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING
(IN BILLIONS)
Less than $10 million 25,662 86.4% $33.9 20.6%
$10-25 million 2,041 6.9 25.2 15.3
$25-50 million 1,019 3.4 26.7 16.3
Greater than $50 million 975 3.3 78.5 47.8
------ ---- ----- ----
Total 29,697 100.0% $164.3 100.0%
====== ====== ====== ======
MBIA Corp. underwrites financial guarantee insurance on the
assumption that the insurance will remain in force until
maturity of the insured obligations. MBIA Corp. estimates that
the average life (as opposed to the stated maturity) of its
insurance policies in force at December 31, 1994 was 11.9 years.
The average life was determined by applying a weighted average
calculation, using the remaining years to maturity of each
insured obligation, and weighting them on the basis of the
remaining debt service insured. No assumptions were made for any
future refundings of insured issues. Average annual debt service
on the portfolio at December 31, 1994 was $15.3 billion.
The table below shows the diversification of MBIA Corp.'s
insured portfolio by bond type:
MBIA CORP. INSURED PORTFOLIO BY BOND TYPE
AS OF DECEMBER 31, 1994 (1)
NUMBER OF NET PAR % OF NET
ISSUES AMOUNT PAR AMOUNT
BOND TYPE OUTSTANDING OUTSTANDING OUTSTANDING
(IN BILLIONS)
Municipal
General obligation 11,029 $ 49.8 30.3%
Utilities 5,087 28.9 17.6
Health care 2,670 25.9 15.8
Special revenue 1,291 12.2 7.4
Transportation 1,486 11.1 6.7
Higher education 1,208 7.6 4.6
Housing 2,663 5.7 3.5
Industrial development
and pollution
control revenue 1,016 5.4 3.3
Other 124 1.8 1.1
----- ----- -----
Total Municipal 26,574 148.4 90.3
------ ----- ----
Non-Municipal
Asset/mortgage-backed 151 9.9 6.0
Investor-owned utilities 2,918 1.9 1.2
International 18 1.9 1.2
Other 36 2.2 1.3
----- --- ---
Total Non-Municipal 3,123 15.9 9.7
----- ---- ---
29,697 $164.3 100.0%
====== ====== ======
------------
(1) Excludes IMC's $1.5 billion municipal investment agreement
liability guaranteed by MBIA Corp.
As illustrated by the table above, approximately 48% of the
net par amount outstanding of the MBIA Corp. insured portfolio
consists of general obligation bonds, which are supported by the
full faith and credit and taxing power of state and local
governmental issuers, and water, sewer and electric revenue
bonds, which are secured by a pledge of revenues imposed and
collected by state and local public entities for the provision
of essential services. MBIA Corp. seeks to avoid bond issues
which entail excessive single project risk, over-capacity or
customer contract disputes.
To date, MBIA Corp. has engaged primarily in insuring
municipal bonds. As of December 31, 1994, of the $164.3 billion
outstanding net par amount of obligations insured, $148.4
billion, or 90%, consisted of municipal bonds and $15.9 billion,
or approximately 10%, consisted primarily of asset/mortgage-
backed transactions, investor-owned utility obligations and
transactions done in the European market.
The table below shows the diversification by type of
insurance written by MBIA Corp. in each of the last five years:
MBIA CORP. NET PAR AMOUNT INSURED BY BOND TYPE (1)
BOND TYPE 1990 1991 1992 1993 1994
(In millions)
MUNICIPAL
General obligation $ 5,169 $ 6,629 $ 8,951 $11,952 $11,086
Utilities 2,357 2,903 5,975 9,293 4,858
Health care 2,157 3,715 4,401 6,342 3,655
Special Revenue 1,426 1,475 2,776 3,246 1,888
Transportation 851 1,202 2,283 3,419 1,747
Higher Education 605 1,052 1,532 2,126 1,346
Housing 868 744 592 469 876
Other 612 839 966 1,532 2,061
______ ______ ______ ______ ______
TOTAL MUNICIPAL 14,045 18,559 27,476 38,379 27,517
------ ------ ------ ------
NON-MUNICIPAL
Asset/mortgage-backed 198 443 2,842 3,581 4,832
International --- --- --- 190 1,948
Investor-owned utilities 244 418 476 642 643
Other --- --- 693 907 712
______ ______ ______ ______ ______
TOTAL NON-MUNICIPAL 442 861 4,011 5,320 8,135
_______ _______ _______ _______ _______
$14,487 $19,420 $31,487 $43,699 $35,652
======= ======= ======= ======= ========
___________________________
(1) Par amount insured each year, net of reinsurance.
MBIA Corp. is licensed to write business in all 50 states,
the District of Columbia, France, Guam, the Northern Mariana
Islands, the U.S. Virgin Islands and Puerto Rico. MBIA Illinois
is licensed to write business in 48 states, the District of
Columbia and Puerto Rico. MBIA Assurance is licensed to write
business in France. The following table sets forth by state
those states in which MBIA Corp. has at least 2% of its total
net par amount outstanding:
MBIA CORP. INSURED PORTFOLIO BY STATE
AS OF DECEMBER 31, 1994 (1)
NUMBER OF NET PAR % OF NET
ISSUES AMOUNT PAR AMOUNT
OUTSTANDING OUTSTANDING OUTSTANDING
(IN BILLIONS)
STATE
California 2,832 $ 22.0 13.4%
Florida 1,805 13.8 8.4
New York 4,360 12.4 7.5
Pennsylvania 2,108 10.4 6.3
Texas 2,102 9.6 5.8
New Jersey 1,590 8.0 4.9
Illinois 1,139 7.7 4.7
Ohio 996 4.6 2.8
Massachusetts 1,064 4.6 2.8
Georgia 978 3.7 2.3
All other states 10,705 65.6 39.9
------ ------ -----
Total United States 29,679 $162.4 98.8%
====== ====== =====
International 18 1.9 1.2
______ ______ ______
Total 29,697 $164.3 100.0%
====== ====== ======
__________________
(1) Excludes IMC's $1.5 billion municipal investment agreement
liability guaranteed by MBIA Corp.
MBIA Corp. has underwriting guidelines that limit the net
insurance in force for any one insured credit. MBIA Corp. has
not exceeded any applicable regulatory single-risk limit with
respect to any bond issue insured by it. As of December 31,
1994, MBIA Corp.'s net par amount outstanding for its ten
largest insured credits totalled $8.3 billion, representing 5.0%
of MBIA Corp.'s total net par amount outstanding, and was as
follows:
MBIA CORP.'S TEN LARGEST INSURED CREDITS
AS OF DECEMBER 31, 1994
NET PAR
AMOUNT
OUTSTANDING
(IN MILLIONS)
District of Columbia Unlimited General Obligations $952
New Jersey Single Family Mortgage Revenue Obligations 942
Louisiana State Unlimited General Obligations 914
Los Angeles City Waste Water 880
City of New York Unlimited General Obligations 865
Sacramento Municipal Utilities District Electric Revenue 781
Puerto Rico Unlimited General Obligations 780
New York Municipal Water Finance Authority 759
Cook County Unlimited General Obligation 744
Ohio Public Building Authority Lease 665
MBIA CORP. INSURANCE PROGRAMS
MBIA Corp. offers financial guarantee insurance in both the
new issue and secondary markets. At present, no new financial
guarantee insurance is being offered by MBIA Illinois, but it is
possible that MBIA Illinois will insure transactions in the
future. MBIA Corp. and MBIA Assurance offer financial guarantee
insurance in Europe and other areas outside the United States.
Set forth below are the different types of programs through
which insurance presently is offered.
NEW ISSUE PROGRAMS:
DIRECT PURCHASE PROGRAM. Under the Direct Purchase
Program, an issuer or underwriter purchases a policy directly
from MBIA Corp. and pays the premium itself. Substantially all
MBIA Corp. insured issues that are sold through a negotiated
offering utilize this program. Of those issues which sell
through competitive bidding, some use this program but the
majority use the Optional Bidding Program described below. The
critical elements in the Direct Purchase Program are that the
issuer or underwriter determines to use insurance well before
the sale date and then works closely with MBIA Corp. in
developing documentation and legal structure.
OPTIONAL BIDDING PROGRAM. Under the Optional Bidding
Program, MBIA Corp. offers insurance as an option to the
underwriters bidding on an issue. It is used only for issues
sold through competitive bidding. Under this program, the MBIA
Corp. policy is purchased and the premium paid by the successful
underwriter who chooses to use MBIA Corp. insurance. The
flexibility of this program, where insurance may be chosen or
rejected until sale time, makes adjustment to current market
conditions easy for underwriters. In addition, this program
eliminates any need for the issuer to budget for or allocate
bond proceeds to pay the premium.
SECONDARY MARKET PROGRAMS:
UNIT INVESTMENT TRUSTS. MBIA Corp. offers insurance to
the UIT market through ongoing arrangements with investment
banking and financial service companies which are UIT sponsors.
MBIA Corp. insurance covers all of the bond issues in each of
the insured unit trusts through one of two programs. Under one
program, each issue in a trust is insured until maturity and,
under the other program, each issue is insured only while it is
held in the UIT.
MUTUAL FUNDS. MBIA Corp. offers insurance in the mutual
fund sector through ongoing arrangements with fund sponsors,
which are investment advisers to individual mutual funds or
families of mutual funds. All premiums for insuring bond issues
in mutual funds are paid on the "while-in-trust" basis and
consist of monthly charges. Under certain of these policies,
MBIA Corp. is committed to offer insurance to maturity to the
sponsor on issues sold out of the fund for an additional premium
payable at the time of sale.
OTHER SECONDARY MARKET ISURANCE. MBIA Corp. provides
insurance on whole and partial maturities for bond issues which
are being traded in the secondary market in response to requests
from bond traders and institutions. MBIA Corp. charges the
purchaser of this insurance a single premium payable upon
issuance of the policy for insuring the designated bonds to
maturity.
The following table indicates the percentage of net par
outstanding with respect to each type of insured program:
MBIA CORP. TYPES OF INSURED PROGRAMS
AS OF DECEMBER 31, 1994
NET PAR % OF NET
AMOUNT PAR AMOUNT
TYPE OF PROGRAM OUTSTANDING OUTSTANDING
(IN BILLIONS)
New issue $143.1 87.1%
Secondary market issues
Unit investment trusts 6.3 3.8
Mutual funds 0.2 0.1
Other secondary market issues 14.7 9.0
______ ______
Total $164.3 100.0%
====== ======
OPERATIONS
The operations of MBIA Corp. are conducted primarily
through two divisions: the Underwriting, Policy and Review
Division and the Insurance Operations Division. The Insurance
Operations Division includes the Public Finance and the
Secondary Market Groups, the Structured Finance and the
International Departments, and the Insured Portfolio Management
Group. The functions of each are more fully described below.
The Public Finance Group, the Secondary Market Group and
the Structured Finance Department each have underwriting
authority with respect to certain categories of business and
with respect to credits up to a certain par amount per category.
As a result, they are responsible for analyzing and approving
approximately 80% of the number of issues insured (or 45% of the
par value insured), although their underwriting decisions are
monitored by the Underwriting Policy and Review Division which
is responsible for ascertaining that MBIA Corp.'s underwriting
guidelines and procedures are being followed.
With respect to larger, complex or unique credits, as well
as all asset/mortgage-backed transactions and international
transactions, MBIA Corp.'s review and approval procedure has two
stages. The first stage consists of transaction screening and in-
depth credit review and structuring by the appropriate
department within the Insurance Operations Division. The second
stage, final review and approval of credit and structure, is
performed by the Underwriting, Policy and Review Division.
Pricing, in all cases, is carried out by the Market Research
Group in the Insurance Operations Division, and the continuing
review of insured issues is administered by the Insured
Portfolio Management Group.
MARKETING AND CREDIT REVIEW:
MBIA Corp.'s marketing activities and initial credit
review functions for municipal transactions are carried out
primarily by the Public Finance Group and the Secondary Market
Group. They are also involved in structuring credits on
negotiated new issue business and in insuring secondary market
issues. These groups employ municipal research analysts who have
extensive experience in the municipal bond industry and who
develop business within established credit analysis criteria.
Market intelligence and client contact related to identifying,
screening and developing candidates for insurance are handled by
the individual departments within the Insurance Operations
Division. The primary factors in issue screening are credit
quality, legal security and transaction structure, as well as
evaluation of the potential for interest cost savings through
the use of insurance. In the area of asset/mortgage-backed
transactions, functions similar to these are performed by the
Structured Finance Department. The International Department
performs similar tasks with respect to financings done outside
the United States.
Premium rates are determined by the Market Research
Group, MBIA Corp.'s pricing and syndicate unit, which focuses on
the type of business and credit strength of the bond issue, the
maturity and structure of the issue, and other credit and market
factors. Premium rates are based upon established premium
ranges, which take into account capital charges, rating agency
models and degrees of perceived risk. The Market Research Group
also conducts extensive consultation with analysts on the issue
and considers updated market intelligence developed from daily
contact with syndicate managers and traders to help form the
most accurate view of the value of MBIA Corp.'s guarantee on
each issue. Minimum pricing standards are established at levels
that management believes should generate an appropriate level of
return on capital.
The Company recognizes that adherence to its pricing and
quality standards may result in the loss of business to other
insurers offering insurance at rates or on terms that the
Company does not believe to be appropriate. The Company gives
primary emphasis to maintaining its pricing and quality
standards and secondary emphasis to market share.
UNDERWRITING REVIEW:
The Underwriting, Policy and Review Division is
responsible for adherence to MBIA Corp.'s underwriting
guidelines and procedures, which are designed to maintain an
insured portfolio with low risk characteristics. MBIA Corp.
maintains underwriting guidelines based on those aspects of
credit quality that it deems important for each category of
obligation considered for insurance. These include economic and
social trends, debt management, financial management, adequacy
of anticipated cash flow, satisfactory legal structure and other
security provisions, viable tax and economic bases, adequacy of
loss coverage and project feasibility, including a satisfactory
consulting engineer's report, if applicable. Such guidelines are
subject to periodic review. An inter-Divisional committee, the
Credit Policy Committee, is responsible for establishing and
maintaining underwriting standards and criteria for all
insurance products.
In order to ensure that the existing guidelines are
followed, the Underwriting, Policy and Review Division monitors
and periodically reviews underwriting decisions made by the
Insurance Operations Division. In addition, on large, unique or
complex transactions and on all asset/mortgage-backed
transactions and international transactions (estimated to be
about 20% of the number of issues or 55% of the par value
insured by MBIA Corp.), the final underwriting decisions are
made by the Underwriting Policy and Review Division.
The Financial Institution Analysis Department of the
Underwriting, Policy and Review Division underwrites and
monitors MBIA Corp.'s direct and indirect exposure to financial
institutions with respect to investment contracts, letters of
credit and liquidity facilities supporting MBIA-insured issues,
and recommends limits on such exposures. The department provides
in-depth financial analyses of financial institutions for which
there is existing or proposed exposure and gives advice on
related contract terms, transfers of these instruments to new
institutions and renewal dates and procedures.
INSURED PORTFOLIO MANAGEMENT:
The Insured Portfolio Management Group is responsible
for monitoring outstanding issues insured by MBIA Corp. This
group's first function is to detect any deterioration in credit
quality or changes in the economic or political environment
which could interrupt the timely payment of debt service on an
insured issue. Once a problem is detected, it then works with
the issuer, trustee, bond counsel, underwriters and other
interested parties to deal with the concern before it develops
into a default.
Although MBIA Corp. has to date had only three insured
issues requiring claim payments for which it has not been fully
reimbursed, there are ten additional insured issues for which
case loss reserves have been established (see "Losses and
Reserves" below). Other potential losses have been avoided
through the early detection of problems and subsequent
negotiations with the issuer and other parties involved. In a
limited number of instances, the solution involved the
restructuring of insured issues or underlying security
arrangements. More often, MBIA Corp. utilizes a variety of other
techniques to resolve problems, such as enforcement of
covenants, assistance in resolving management problems and
working with the issuer to develop potential political
solutions. Issuers are under no obligation to restructure
insured issues or underlying security arrangements in order to
prevent losses. Moreover, MBIA Corp. is obligated to pay amounts
equal to defaulted interest and principal payments on insured
bonds on their respective due dates even if the issuer or other
parties involved refuse to restructure or renegotiate the terms
of the insured bonds or related security arrangements. The
Company believes that early detection and continued involvement
by the Insured Portfolio Management Group are crucial in
avoiding or minimizing claims on insurance policies.
Once an obligation is insured, the issuer and the
trustee are asked, or in some cases required, to furnish
financial information, including audited financial statements,
annually to the Insured Portfolio Management Group for review.
Potential problems uncovered through this review, such as low
operating fund balances, covenant violations, trustee or
servicer problems, tax certiorari proceedings or excessive
litigation, would result in an immediate surveillance review and
an evaluation of possible remedial actions. The Insured
Portfolio Management Group also monitors state finances and
budget developments and evaluates their impact on local issuers.
The Company's computerized credit surveillance system
records situations where follow-up is needed, such as letter of
credit renewal, construction status and the receipt of
additional data after the closing of a transaction. Further,
issues that experience financial difficulties, deteriorating
economic conditions, excessive litigation or covenant violations
are placed on the appropriate review list and are subject to
surveillance reviews at intervals commensurate to the problem
which has been detected.
There are two departments within the Insured Portfolio
Management Group: the Public Finance Portfolio Management
Department handles the more traditional types of issues such as
general obligation, utility, special revenue and health care
bonds; and the Structured Finance Portfolio Management
Department is responsible for housing and asset-backed issues.
The Public Finance Portfolio Management Department
reviews and reports on the major credit quality factors of risks
insured by the Company, evaluates the impact of new developments
on insured weaker credits and carries out remedial activity. In
addition, it performs analysis of financial statements and key
operating data on a large scale basis and maintains various
databases for research purposes. It responds to consent and
waiver requests and monitors pool programs. This department is
responsible for preparing special reports which include analyses
of regional economic trends, proposed tax limitations, the
impact of employment trends on local economies or legal
developments affecting bond security.
The Structured Finance Portfolio Management Department
monitors insured structured finance programs, focusing on the
adequacy of reserve balances and investment of earnings, the
status of mortgage or loan delinquencies and underlying
insurance coverage and the performance of the trustee for
insured issues. Monitoring of issues typically involves review
of records and statements, review of transaction documents with
regard to compliance, analysis of cash flow adequacy and
communication with trustees. Review of servicer performance is
also conducted through review of servicer financial statements,
review of servicer reports where available and contacts with
program administrators and trustees. The department also carries
out remedial activity on weaker credits.
INVESTMENT MANAGEMENT SERVICES
Over the last three years, the Company has undertaken the
development of investment management services which capitalize
on its capabilities, reputation and markeplace relationships.
The Company is delivering these services through a group of
subsidiary companies. In 1994, in the aggregate, these new
ventures contributed $15.5 million to revenues.
MBIA Municipal Investors Service Corporation
("MBIA/MISC"), was formed as a subsidiary of the Company to
provide cash management services for local governments, school
districts and similar authorities. As of December 31, 1994,
MBIA/MISC, a registered investment advisor operating under the
name of "CLASS", had 950 clients and over $1.7 billion of client
assets under management. MBIA/MISC is operating in eight states
and plans to continue its expansion into additional states in
the near term.
In 1993, the Company formed a wholly-owned subsidiary,
MBIA Investment Management Corp. ("IMC"), to provide an
investment vehicle in the form of investment agreements
guaranteed as to principal and interest, for states,
municipalities and municipal authorities. IMC's agreements are
structured with individual terms and draw schedules and the
length of the agreements ranges from three years to twenty-one
years. At year-end, IMC had outstanding investment agreements of
$1.5 billion.
In 1994, the Company formed a wholly-owned subsidiary,
MBIA Securities Corp. ("SECO"), to perform investment management
services for the Company, MBIA/MISC and IMC. SECO will perform
internal fixed-income trading and portfolio management offering
the Company greater control over its investment management
activities. At year-end, SECO was managing more than $3 billion
of assets for IMC and MBIA/MISC.
TOPSTAR, (TM) a program to provide synthetic short-term tax-
exempt securities to institutional investors, was introduced in
October 1992. The Company and its partner, Caisse des Depots et
Consignations, established a jointly-owned company called MBIA
Investors Capital Corp. ("MICC") to offer the program. MICC
purchases long-term, high quality municipal bonds, attaches a
tender option and resells the securities as synthetic short-term
instruments. During 1994, the Company sold its share of MICC to
its partner and the Company realized $1.8 million of net
proceeds from this sale.
COMPETITION
The financial guarantee insurance business is highly
competitive. According to "The Bond Buyer", in 1994 MBIA Corp. was
the largest insurer of new issue long-term municipal bonds,
accounting for 40% of the par amount of such insured bonds. The
other principal insurers in 1994 were AMBAC Indemnity
Corporation, Financial Guaranty Insurance Company, Financial
Security Assurance Inc. and Capital Guaranty Insurance Co., all
of which, like MBIA Corp., have Aaa and AAA claims-paying
ratings from Moody's and S&P, respectively. According to "Asset
Sales Report", in 1994 MBIA Corp. was the leading insurer of new
issue asset/mortgage-backed securities. The three principal
competitors in this area in 1994 were Capital Markets Assurance
Corp., Financial Security Assurance and Financial Guaranty
Insurance Company.
Financial guarantee insurance also competes with other
forms of credit enhancement, including over-collateralization,
letters of credit and guarantees (for example, mortgage
guarantees where pools of mortgages secure debt service
payments) provided by banks and other financial institutions,
some of which are governmental agencies or have been assigned
the highest credit ratings awarded by one or more of the major
rating agencies. Letters of credit are most often issued for
periods of less than 10 years, although there is no legal
restriction on the issuance of letters of credit having longer
terms. Thus, financial institutions and banks issuing letters of
credit compete directly with MBIA Corp. to guarantee short-term
notes and bonds with a maturity of less than 10 years. To the
extent that banks providing credit enhancement may begin to
issue letters of credit with commitments longer than 10 years,
the competitive position of financial guarantee insurers, such
as MBIA Corp., could be adversely affected. Letters of credit
also are frequently used to assure the liquidity of a short-term
put option for a long-term bond issue. This assurance of
liquidity effectively confers on such issues, for the short
term, the credit standing of the financial institution providing
the facility, thereby competing with MBIA Corp. and other
financial guarantee insurers in providing interest cost savings
on such issues. Financial guarantee insurance and other forms
of credit enhancement also compete in nearly all instances with
the issuer's alternative of foregoing credit enhancement and
paying a higher interest rate. If the interest savings from
insurance or another form of credit enhancement are not greater
than the cost of such credit enhancement, the issuer will
generally choose to issue bonds without enhancement. MBIA
Assurance also competes in the international market with
composite (multi-line) insurers.
There are minimum capital requirements imposed on a
financial guarantee insurer by Moody's and S&P to obtain Triple-
A claims-paying ratings. Also, under a New York law, multiline
insurers are prohibited from writing financial guarantee
insurance in New York State, except during a transitional period
which, subject to certain specific conditions, will expire in
May 1997. See "Business_Regulation." However, there can be no
assurance that major multiline insurers or other financial
institutions will not participate in financial guarantee
insurance in the future, either directly or through monoline
subsidiaries.
REINSURANCE
State insurance laws and regulations, as well as Moody's
and S&P, impose minimum capital requirements on financial
guarantee companies, limiting the aggregate amount of insurance
which may be written and the maximum size of any single risk
exposure which may be assumed. MBIA Corp. increases its capacity
to write new business by using treaty and facultative
reinsurance to reduce its gross liabilities on an aggregate and
single risk basis.
From its reorganization in December 1986 through December
1987, MBIA Corp. reinsured a portion of each policy through
quota and surplus share reinsurance treaties. Each treaty
provides reinsurance protection with respect to policies written
by MBIA Corp. during the term of the treaty, for the full term
of the policy. Under its quota share treaty MBIA Corp. ceded a
fixed percentage of each policy insured. Since 1988, MBIA Corp.
has entered into only surplus share treaties under which a
variable percentage of risk over a minimum size is ceded,
subject to a maximum percentage specified in the treaty.
Reinsurance ceded under the treaties is for the full term of the
underlying policy.
MBIA Corp. also enters into facultative reinsurance
arrangements from time to time primarily in connection with
issues which, because of their size, require additional capacity
beyond MBIA Corp.'s retention and treaty limits. Under these
facultative arrangements, portions of MBIA Corp.'s liabilities
are ceded on an issue-by-issue basis. MBIA Corp. utilizes
facultative arrangements as a means of managing its exposure to
single issuers to comply with regulatory and rating agency
requirements, as well as internal underwriting and portfolio
management criteria.
As a primary insurer, MBIA Corp. is required to honor its
obligations to its policyholders whether or not its reinsurers
perform their obligations to MBIA Corp. The financial position
of all reinsurers is monitored by MBIA Corp. on a regular basis.
As of December 31, 1994, MBIA Corp. retained approximately
88% of the gross debt service outstanding of all municipal bonds
insured by it and MBIA Illinois, and ceded approximately 12% to
treaty and facultative reinsurers. MBIA Corp.'s and MBIA
Illinois' principal reinsurers are Enhance Reinsurance Company,
Capital Re Management Corporation, Connie Lee Insurance Company
and Asset Guaranty Reinsurance Co. The first three of these
reinsurers, whose claims paying ability is rated Triple-A by S&P
and Moody's, reinsured approximately 75% of the total ceded
insurance in force at December 31, 1994. The other principal
reinsurer is rated AA by S&P. All other reinsurers reinsured
less than 5% of the total ceded insurance in force at December
31, 1994 and are diversified geographically and by lines of
insurance written. MBIA Corp.'s net retention on the policies
it writes varies from time to time depending on its own business
needs and the capacity available in the reinsurance market. The
amounts of reinsurance ceded at December 31, 1994 and 1993 by
bond type and by state are set forth in Note 12 to the
Consolidated Financial Statements of MBIA Inc. and Subsidiaries.
In connection with the BIG acquisition, MBIA Corp. and MBIA
Illinois entered into a reinsurance agreement under which MBIA
Corp. agreed to reinsure 100% of all business written by MBIA
Illinois, net of cessions by MBIA Illinois to third party
reinsurers, in exchange for MBIA Illinois' transfer of the
assets underlying the related unearned premium and contingency
reserves. Pursuant to such reinsurance agreement with MBIA
Illinois, MBIA Corp. reinsured all of the net exposure of $30.9
billion, or approximately 68% of the gross debt service
outstanding, of the municipal bond insurance portfolio of MBIA
Illinois, the remaining 32% having been previously ceded to
treaty and facultative reinsurers of MBIA Illinois (see
preceding paragraph). MBIA Corp. retroceded 3% and 1% of this
portfolio to its treaty and facultative reinsurers in 1990 and
1991, respectively; additionally, in 1990, 10% of this portfolio
was ceded back to MBIA Illinois to comply with regulatory
requirements.
MBIA Corp. and MBIA Assurance have both a reinsurance
agreement and a net worth maintenance agreement.
INVESTMENTS AND INVESTMENT POLICY
The Finance Committee of the Board of Directors of the
Company approves the general investment objectives and policies
of the Company, and also reviews more specific investment
guidelines. Subject to such investment objectives, policies and
guidelines, investments of the Company including those of its
insurance subsidiaries, but excluding those related to the
Company's municipal investment agreement business (see below),
are managed by Aeltus Investment Management Inc., an affiliate
of Aetna, subject to investment management agreements with MBIA
Corp., MBIA Illinois and MBIA Inc. Certain investments of the
Company and MBIA Assurance related to non-U.S. insurance
operations are managed by independent managers in France.
To continue to provide strong capital resources and claims-
paying capabilities for its insurance operations, the investment
objectives and policies for insurance operations set quality and
preservation of capital as the primary objective subject to an
appropriate degree of liquidity. Maximization of after-tax
investment income and investment returns are an important but
secondary objective.
Investment objectives, polices and guidelines related to
the Company's municipal investment agreement business are also
subject to review and approval by the Finance Committee of the
Board of Directors. The primary investment objectives are to
preserve capital, to achieve an investment duration that closely
approximates the expected duration of related liabilities, and
to maintain appropriate liquidity. The investment agreement
assets are managed by SECO subject to an investment management
agreement between IMC and SECO.
For 1994, approximately 67% of the Company's net income was
derived from after-tax earnings on its investment portfolio
(excluding the amounts earned on investment agreement assets
which are recorded as a component of investment management
services revenues). The following table sets forth investment
income and related data for the years ended December 31, 1992,
1993 and 1994:
INVESTMENT INCOME OF THE COMPANY (1)
YEARS ENDED DECEMBER 31,
1992 1993 1994
(IN THOUSANDS)
Investment income before expenses (2) $152,760 $181,598 $196,662
Investment expenses 2,282 2,714 2,809
________ ________ ________
Net investment income before income taxes 150,478 178,884 193,853
Net realized gains 9,834 9,727 10,335
________ ________ ________
Total investment income before taxes $160,312 $188,611 204,188
======== ======== ======
Total investment income after income taxes $135,765 $159,844 $175,007
------------------
(l) Excludes investment income and realized gains and losses
from investment management services subsidiaries.
(2) Includes taxable and tax-exempt interest income.
The tables below set forth the composition of the consolidated
investment portfolio of the Company. The weighted
average yields in the tables reflect the nominal yield on book
value as of December 31, 1994, 1993 and 1992.
INVESTMENT PORTFOLIO BY SECURITY TYPE
AS OF DECEMBER 31, 1994
INVESTMENT
INSURANCE MANAGEMENT SERVICES
INVESTMENT CATEGORY MARKET WEIGHTED MARKET WEIGHTED
VALUE AVERAGE VALUE AVERAGE
(IN YIELD (1) (IN YIELD (1)
THOUSANDS) THOUSANDS)
(1) Prospective market yields as of December 31, 1994.
Yield on tax-exempt bonds is presented on a taxable
equivalent basis using a 35% federal income tax rate.
(2) Includes direct obligations of foreign governments and
foreign corporations.
(3) Taxable and tax-exempt investments, including bonds with a
remaining maturity of less than one year.
(4) Consists of marketable equity securities and interests in
limited partnerships; yield information not meaningful.
INVESTMENT PORTFOLIO BY SECURITY TYPE
AS OF DECEMBER 31, 1993
INVESTMENT
INSURANCE MANAGEMENT SERVICES
INVESTMENT CATEGORY MARKET WEIGHTED MARKET WEIGHTED
VALUE AVERAGE VALUE AVERAGE
(IN YIELD (1) (IN YIELD (1)
THOUSANDS) THOUSANDS)
Fixed Income investments:
Long-term Bonds:
Taxable bonds:
U.S. Treasury &
Agency Obligations $ 256,388 7.74% $107,358 5.10 %
GNMAs 73,880 8.18 --
Other Mortgage & Asset
Backed Securities 49,862 6.68 274,423 4.57
Corporate Obligations 227,495 7.31 19,191 6.68
Foreign Obligations (2) 135,489 7.31 15,420 6.94
_______ _______
Total 743,114 7.51 416,392 4.89
Tax-exempt bonds:
State & Municipal 2,053,585 9.46 0 --
_________ _______
Total long-term
investments 2,796,669 8.94 416,392 4.89
Short-term
investments (3) 104,205 4.69 122,359 3.26
_________ _______
Total fixed income
investments 2,900,904 8.79% 538,751 4.52%
Other investments (4) 104,681 -- -- --
__________ ________ --
Total investments $3,005,585 -- $538,751 --
========== ========
(1) Prospective yields at amortized cost as of December 31,
1993. Yield on tax-exempt bonds is presented on a taxable
equivalent basis using a 35% federal income tax rate.
(2) Includes direct obligations of foreign governments and foreign
corporations.
(3) Taxable and tax-exempt investments, including bonds with a
remaining maturity of less than one year.
(4) Consists of marketable equity securities and interests in
limited partnerships; yield information not meaningful.
INVESTMENT PORTFOLIO BY SECURITY TYPE
AS OF DECEMBER 31, 1992
BOOK VALUE WEIGHTED AVERAGE
INVESTMENT CATEGORY (IN THOUSANDS) YIELD (1)
Fixed income invesements:
Long-term investments
Taxable bonds:
U.S. Treasury & Agency Obligations $ 264,691 8.26%
GNMAs 59,383 9.06
Other Mortgage and Asset Backed Securities 34,744 8.49
Corporate Obligations 147,272 8.41
Foreign Obligations (2) 51,545 8.68
_______
Total 557,605 8.44
Tax-empt bonds:
State & Municipal 1,788,557 9.61
_________
Total long-term investments 2,346,162 9.34
Short-term investments (3) 121,733 3.37
_________
Total fixed income investments 2,467,895 9.04%
Other investments (4) 60,783 -- ______
Total investments $2,528,678 -
==========
(1) Prospective yield at amortized cost as of December 31, 1992. Yield on
tax-exempt bonds is presented on a taxable equivalent basis whereby the
tax-exempt yield is grossed up using a 34% federal income tax rate.
(2) Includes direct obligations of foreign governments and foreign corporations
(3) Taxable and tax exempt investments, including bonds with a remaining
maturity of less than one year.
(4) Primarily equity oriented investments; yield information not meaningful.
The average maturity of the fixed income portfolio
excluding short-term investments as of December 31, 1994 was 9.1
years. After allowing for estimated principal pre-payments on
mortgage pass-through securities, the duration of the portfolio
was 6.2 years.
The table below sets forth the distribution by maturity of
the Company's consolidated fixed income investments:
DISTRIBUTION OF FIXED INCOME INVESTMENTS OF THE COMPANY
BY MATURITY
AS OF DECEMBER 31, 1994
INVESTMENT
INSURANCE MANAGEMENT SERVICES
MATURITY MARKET VALUE % OF TOTAL MAKET VALUE %OF SERVICES
(IN THOUSANDS FIXED INCOME (IN THOUSANDS FIXED INCOME
INVESTMENTS INVESTMENTS
Within 1 year $ 121,384 3.8 $152,685 9.1%
Beyond 1 year
but within 5 years 526,119 16.6 555,165 33.1
Beyond 5 years
but within 10 years 1,351,090 42.6 261,157 15.6
Beyond 10 years
but within 15 years 762,187 24.0 287,091 17.1
Beyond 15 years
but within 20 years 377,225 11.9 85,216 5.1
Beyond 20 years 35,285 1.1 334,621 20.0
--------- ---- -------- ----
Total fixed
income investments $3,173,290 100.0% $1,675,935 100.0%
========== ===== ========== =====
The quality distribution of the Company's fixed income
investments based on ratings of S&P was as shown in the table
below:
FIXED INCOME INVESTMENTS BY QUALITY RATING (1)
AS OF DECEMBER 31, 1994
INVESTMENT
INSURANCE MANAGEMENT SERVICES
QUALITY RATING MARKET %OF TOTAL MARKET % OF
VALUE FIXED INCOME VALUE FIXED
(IN THOUSANDS) INVESTMENTS (IN INCOME
THOUSANDS) INVESTMENT
AAA $1,148,536 36.9% $1,292,358 81.6%
AA 1,180,180 37.9 75,492 4.8
A 704,259 22.6 150,181 9.4
BBB 82,848 2.6 59,551 3.8
BB -- -- 5,581 0.4
---------- ---- -------- ---
Total $3,115,823 100.0% $1,583,163 100.0%
========== ====== ========== =====
[FN]
(1) Excludes short-term investments with an original maturity of less than one
year, but includes bonds having a remaining maturity of less than one year.
REGULATION
MBIA Corp. is licensed to do insurance business in, and is
subject to insurance regulation and supervision by, the State of
New York (its state of incorporation), the 49 other states, the
District of Columbia, France, Guam, the Northern Mariana
Islands, the U.S. Virgin Islands and Puerto Rico. MBIA Illinois
is licensed in, and is subject to insurance regulation and
supervision by, the State of Illinois (its state of
incorporation), 47 other states, the District of Columbia and
Puerto Rico. The extent of state insurance regulation and
supervision varies by jurisdiction, but New York, Illinois and
most other jurisdictions have laws and regulations prescribing
minimum standards of solvency, including minimum capital
requirements, and business conduct which must be maintained by
insurance companies. These laws prescribe permitted classes and
concentrations of investments. In addition, some state laws and
regulations require the approval or filing of policy forms and
rates. MBIA Corp. is required to file detailed annual financial
statements with the New York Insurance Department and similar
supervisory agencies in each of the other jurisdictions in which
it is licensed. MBIA Illinois is required to file detailed
annual financial statements with the Illinois Department of
Insurance and similar supervisory agencies in each of the other
jurisdictions in which it is licensed. The operations and
accounts of both MBIA Corp. and MBIA Illinois are subject to
examination by these regulatory agencies at regular intervals.
MBIA Corp. is licensed to provide financial guarantee
insurance under Article 69 of the New York Insurance Law.
Article 69 defines financial guarantee insurance to include any
guarantee under which loss is payable upon proof of occurrence
of financial loss to an insured as a result of certain events.
These events include the failure of any obligor on any debt
instrument or other monetary obligation to pay principal,
interest, premium, dividend or purchase price of or on such
instrument or obligation, when due. Under Article 69, MBIA Corp.
is licensed to transact financial guarantee insurance, residual
value insurance, surety insurance and credit insurance and such
other kinds of business to the extent necessarily or properly
incidental to the kinds of insurance which MBIA Corp. is
authorized to transact. In addition, MBIA Corp. is empowered to
assume or reinsure the kinds of insurance described above.
MBIA Illinois is licensed to provide fidelity and surety
and other miscellaneous lines of insurance under Section 4 of
the Illinois Insurance Code. Section 4 defines fidelity and
surety insurance to include becoming surety or guarantor for any
person, co-partnership or corporation in any position or place
of trust or as custodian of money or property, public or
private; or becoming a surety or guarantor for the performance
of any person, co-partnership or corporation of any lawful
obligation, undertaking, agreement or contract of any kind,
except contracts or policies of insurance; and underwriting
blanket bonds. Under Section 9, MBIA Illinois is licensed to
transact any business activity reasonably complementary or
supplementary to its insurance business. In addition, MBIA
Illinois is empowered to assume or reinsure the kinds of
insurance described above.
As financial guarantee insurers, MBIA Corp. and MBIA
Illinois are required by the laws of New York, California,
Connecticut, Florida, Illinois, lowa, New Jersey and Wisconsin
to maintain contingency reserves on their municipal bond
liabilities. Under New Jersey, Illinois and Wisconsin
regulations, contributions by such an insurer to its contingency
reserves are required to equal 50% of earned premiums on its
municipal bond business. Under New York law, such an insurer is
required to contribute to contingency reserves 50% of premiums
as they are earned on policies written prior to July 1, 1989
and, with respect to policies written on and after July 1, 1989,
must make contributions over a period of 15 or 20 years (based
on issue type), or until the contingency reserve for such
insured issues equals the greater of 50% of premiums written for
the relevant category of insurance or a percentage of the
principal guaranteed, varying from 0.55% to 2.5%, depending upon
the type of obligation guaranteed. California, Connecticut, Iowa
and Florida law impose a generally similar requirement. In each
of these states, MBIA Corp. and MBIA Illinois may apply for
release of portions of the contingency reserves in certain
circumstances.
The laws and regulations of these states also limit both
the aggregate and individual municipal bond risks that MBIA
Corp. and MBIA Illinois may insure on a net basis. California,
Connecticut, Florida, Illinois and New York, among other things,
limit insured average annual debt service on insured municipal
bonds with respect to a single entity and backed by a single
revenue source (net of qualifying collateral and reinsurance) to
10% of policyholders' surplus and contingency reserves. In New
Jersey, Virginia and Wisconsin, the average annual debt service
on any single issue of municipal bonds (net of reinsurance) is
limited to 10% of policyholders' surplus. Other states that do
not explicitly regulate financial guarantee or municipal bond
insurance do impose single risk limits which are similar in
effect to the foregoing. California, Connecticut, Florida,
Illinois and New York also limit the net insured unpaid
principal issued by a single entity and backed by a single
revenue source to 75% of policyholders' surplus and contingency
reserves.
Under New York, California, Connecticut, Florida, Illinois,
New Jersey and Wisconsin law, aggregate insured unpaid principal
and interest under policies insuring municipal bonds (in the
case of New York, California, Connecticut, Florida and Illinois,
net of reinsurance) are limited to certain multiples of
policyholders' surplus and contingency reserves. New York,
California, Connecticut, Florida, Illinois and other states
impose a 300:1 limit for insured municipal bonds, although more
restrictive limits on bonds of other types do exist. For
example, New York, California and Florida impose a 100:1 limit
for certain types of non-municipal bonds.
The Company, MBIA Corp. and MBIA Illinois are also subject
to regulation under insurance holding company statutes of New
York, Illinois and other jurisdictions in which MBIA Corp. and
MBIA Illinois are licensed to write insurance. The requirements
of holding company statutes vary from jurisdiction to
jurisdiction but generally require insurance holding companies,
such as the Company, and their insurance subsidiaries, to
register and file certain reports describing, among other
information, their capital structure, ownership and financial
condition. The holding company statutes also require prior
approval of changes in control, of certain dividends and other
intercorporate transfers of assets, and of transactions between
insurance companies, their parents and affiliates. The holding
company statutes impose standards on certain transactions with
related companies, which include, among other requirements, that
all transactions be fair and reasonable and that those exceeding
specified limits receive prior regulatory approval.
Prior approval by the New York Insurance Department is
required for any entity seeking to acquire "control" of the
Company or MBIA Corp. Prior approval by the Illinois Department
of Insurance is required for any entity seeking to acquire
"control" of the Company, MBIA Corp. or MBIA Illinois. In many
states, including New York and Illinois, "control" is presumed
to exist if 10% or more of the voting securities of the insurer
are owned or controlled by an entity, although the supervisory
agency may find that "control" in fact does or does not exist
when an entity owns or controls either a lesser or greater
amount of securities. In 1986, the New York Superintendent of
Insurance determined that none of the shareholders of the
Company "controlled" the Company since, among other factors,
pursuant to the Shareholders' Agreement, none of them could
individually control the Board of Directors of the Company. This
determination was conditioned upon the Company's giving notice
to the New York Superintendent of Insurance of any changes in
the Founding Shareholders' ownership of the Company's stock or
in the Shareholders' Agreement. The Company has given notice of
such stock ownership changes, and in late 1991, the Company
notified the New York Superintendent of the termination of the
Shareholders' Agreement, other than its registration rights
provisions. In connection with the acquisition of MBIA Illinois,
the shareholders received a similar determination regarding
control from the Illinois Department of Insurance.
The laws of New York and Illinois regulate the payment of
dividends by MBIA Corp. and MBIA Illinois, respectively, and
provide that a New York domestic stock property/casualty
insurance company (such as MBIA Corp.) or an Illinois domestic
stock insurance company (such as MBIA Illinois) may not declare
or distribute dividends except out of statutory earned surplus.
In the case of MBIA Corp., New York law provides that the sum of
(i) the amount of dividends declared or distributed during the
preceding 12-month period and (ii) the dividend to be declared
may not exceed the lesser of (a) 10% of policyholders' surplus,
as shown by the most recent statutory financial statement on
file with the New York Insurance Department, and (b) 100% of
adjusted net investment income for such 12-month period (the net
investment income for such 12-month period plus the excess, if
any, of net investment income over dividends declared or
distributed during the two-year period preceding such 12-month
period), unless the New York Superintendent of Insurance
approves a greater dividend distribution based upon a finding
that the insurer will retain sufficient surplus to support its
obligations and writings. See Note 8 to the Consolidated
Financial Statements of MBIA Inc. and Subsidiaries. In the case
of MBIA Illinois, Illinois law provides that the fair market
value of the dividend to be declared, together with other
dividends declared or distributed during the preceding 12-month
period, may not exceed the greater of (a) 10% of policyholders'
surplus as of the previous December 31, and (b) net income
during the previous calendar year (which includes net realized
capital gains in an amount not to exceed 20% of net unrealized
capital gains) without the approval of the Illinois Director of
Insurance. The foregoing restrictions are currently the most
restrictive limitations on the ability of MBIA Corp. and MBIA
Illinois to declare and pay dividends.
The foregoing dividend limitations are determined in
accordance with Statutory Accounting Practices ("SAP"), which
generally produce statutory earnings in amounts less than
earnings computed in accordance with Generally Accepted
Accounting Principles ("GAAP"). Similarly, policyholders'
surplus, computed on a SAP basis, will normally be less than net
worth computed on a GAAP basis. See Note 3 to the Consolidated
Financial Statements of MBIA Inc. and Subsidiaries.
MBIA Corp. and MBIA Illinois are exempt from assessments by
the insurance guarantee funds in the majority of the states in
which they do business. Guarantee fund laws in most states
require insurers transacting business in the state to
participate in guarantee associations which pay claims of
policyholders and third-party claimants against impaired or
insolvent insurance companies doing business in the state. In
most states, insurers licensed to write only municipal bond
insurance, financial guarantee insurance and other forms of
surety insurance are exempt from assessment by these funds and
their policyholders are prohibited from making claims on these
funds. MBIA Assurance is licensed to do insurance business in
France and is subject to regulation under the corporation and
insurance laws of France.
LOSSES AND RESERVES
The Company's policy is to provide for loss reserves to
cover losses that may be reasonably estimated on its insured
obligations over the lives of such obligations. The loss
reserve, at any financial statement date, is the Company's
estimate of the identified and unidentified losses on the
obligations it has insured, including expected costs of
settlement.
To the extent that specific insured issues are identified
as currently or likely to be in default, the present value of
the expected payments, including costs of settlement, net of
expected recoveries, is allocated within the total loss reserve
as a case basis reserve. At December 31, 1994, $22.0 million of
the $40.1 million loss and loss adjustment expense reserve
represents case basis reserves, of which $12.4 is attributable
to a health care financing in Pennsylvania, $6.6 is attributable
to various housing financings in Texas and $3.0 is attributable
to a revenue bond secured by a guaranteed investment contract.
The Company believes that the reserve for losses and loss
expenses are adequate to cover the ultimate net cost of claims.
Such reserves are based on estimates, and there can be no
assurance that the ultimate liability will not exceed such
estimates. To the extent that actual case losses for any period
are less than the unallocated portion of total loss reserve,
there will be no impact on the Company's earnings for that
period other than an addition to the reserve which results from
applying the loss rate factor to new debt service insurance. To
the extent that case losses, for any period, exceed the
unallocated portion of the total loss reserve, the excess will
be charged against the Company's earnings for that period. The
Company will periodically evaluate the appropriateness of the
loss rate factor based on actual case loss experience.
SAP RATIOS
The financial statements in this Form 10-K are prepared on
the basis of GAAP. For reporting to state regulatory
authorities, SAP is used. See Note 3 to the Consolidated
Financial Statements of MBIA Inc. and Subsidiaries.
The SAP combined ratio is a traditional measure of
underwriting profitability for insurance companies. The SAP loss
ratio (which is losses incurred divided by premiums earned), SAP
expense ratio (which is underwriting expenses divided by net
premiums written) and SAP combined ratio (which is the sum of
the loss and expense ratios) for the Company and for the
financial guarantee industry, which includes the monoline
primary insurers (including MBIA Corp.) and monoline reinsurers,
are shown in the table below:
YEARS ENDED DECEMBER 31,
1991 1992 1993 1994
The Company
Loss ratio 12.7% 2.4% (3.5)% 9.8%
Expense ratio 20.4 18.3 17.6 22.9
Combined ratio 33.1 20.7 14.1 32.7
Financial guarantee industry (1)
Loss ratio 11.2% 13.8% 0.7% *
Expense ratio 31.5 24.8 23.8 *
Combined ratio 42.7 38.6 24.5 *
[FN]
(1) Industry statistics were taken from the 1993 Annual Report of
the Association of Financial Guaranty Insurors.
* Not Available.
The SAP loss ratio differs from the GAAP loss ratio because
the GAAP ratio recognizes a provision for unidentified losses.
The SAP expense ratio varies from the GAAP expense ratio because
the GAAP ratio recognizes the deferral of policy acquisition
costs and includes the expenses of the Company and subsidiaries
and the amortization of purchase accounting adjustments,
principally goodwill.
Net insurance in force, qualified statutory capital (which
is comprised of policyholders' surplus and the contingency
reserve), and policyholders' leverage ratios for MBIA Corp.
(including MBIA Illinois) and for the financial guarantee
industry are shown in the table below:
AS OF DECEMBER 31,
1991 1992 1993 1994
(DOLLARS IN MILLIONS)
The Company
Net insurance in force $184,604 $223,056 $266,784 $304,502
Qualified statutory capital $963 $1,300 $1,517 $1,731
Policyholders' leverage
ratio 192:1 172:1 176:1 176:1
Financial guarantee
industry (1)
Net insurance in force $500,204 $586,579 $704,569 *
Qualified statutory
capital $3,671 $4,392 5,195 *
Policyholders' leverage ratio 136:1 134:1 136:1 *
[FN]
(1) Industry statistics were taken from the 1993 Annual Report of
the Association of Financial Guaranty Insurors.
* Not Available.
The policyholders' leverage ratio is the ratio of net
insurance in force to qualified statutory capital. This test is
sometimes focused on as a measure of a company's claims-paying
capacity. The Company believes that the leverage ratio has
significant limitations since it compares the total debt service
(undiscounted) coming due over the next 30 years or so to a
company's current capital base. It thereby fails to recognize
future capital that will be generated during the period of risk
being measured, arising from unearned premium reserve and future
installment premium commitments. Further, the leverage ratio
does not consider the underlying quality of the issuers whose
debt service is insured and thereby does not differentiate among
the risk characteristics of a financial quarantor's insured
portfolio, nor does it give any benefit for third-party
commitments such as standby lines of credit.
To assist state insurance departments in overseeing the
financial condition of the insurance companies in their
respective states, the National Association of Insurance
Commissioners (the "NAIC") has developed a system intended to
provide an early warning of impending financial trouble, the
Insurance Regulatory Information System ("IRIS"). IRIS
identifies eleven financial ratios and specifies "usual values"
for each ratio. These are derived from financial statements
prepared on a SAP basis. For each of the years 1987 to 1992,
MBIA Corp. had financial ratio values within the usual values
established by the NAIC for all of the applicable financial
ratio tests with the exception of the test that measures the
change in net premiums written. For the year ended December 31,
1992 the growth in net premiums written exceeded NAIC test range
values of -33% to +33% due to an extremely favorable business
environment marked by a surge in municipal financings and strong
demand for insurance. MBIA Corp. also had values outside of the
normal range for premiums written for the years ended December
31, 1987, 1990 and 1991. These were due to the assumption by
MBIA Corp. of most of the book of net insured obligations of its
predecessor, the Association, in 1986, and upon the assumption
of the entire book of net insured obligations of MBIA Illinois
in 1990 following its acquisition by the Company.
In 1993, MBIA Corp. had financial ratio values within the
NAIC test ranges for all ratios except loss-related ratios.
MBIA Corp. fell below the NAIC test range values of 0% to +25%
for the three loss reserve development ratios due to the
reduction in expected losses related to the Aurora salvage. In
1994, MBIA Corp. had financial ratio values within the NAIC test
ranges for all ratios.
MBIA CORP. INSURANCE POLICIES
The insurance policies issued by MBIA Corp. provide an
unconditional and irrevocable guarantee of the payment to a
designated paying agent for the bondholders of an amount equal
to the principal of and interest on insured bonds not paid when
due. In the event of a default in payment of principal or
interest by an issuer, MBIA Corp. promises to make funds
available in the amount of the default on the next business day
following notification. MBIA Corp. has a Fiscal Agency Agreement
with State Street Bank and Trust Company, N.A. to provide for
this payment upon receipt of proof of ownership of the bonds, as
well as upon receipt of instruments appointing MBIA Corp. as
agent for the bondholders and evidencing the assignment of
bondholder rights with respect to the debt service payments made
by MBIA Corp. Even if bondholders are permitted by the indenture
securing the bonds to have the full amount of principal of the
bonds, together with accrued interest, declared due and payable
immediately in the event of a default, MBIA Corp. is required to
pay only the principal and interest scheduled to be paid, but
not in fact paid, on each original principal and interest
payment date.
The MBIA Illinois insurance policies provide for payments
on default in substantially the same manner as the MBIA Corp.
policies. The paying agent on MBIA Illinois policies is Bankers
Trust Company. MBIA Assurance writes policies that are
substantially similar in coverage and manner of payment to the
MBIA Corp. policies.
RATING AGENCIES
Moody's and S&P perform periodic reviews of MBIA Corp. and
other companies providing financial guarantee insurance. Their
reviews focus on the insurer's underwriting policies and
procedures and on the issues insured. Additionally, each rating
agency has certain criteria as to exposure limits and capital
requirements for financial guarantors.
Both rating agencies have reaffirmed their Triple-A claims-
paying ratings assigned to MBIA Corp., MBIA Illinois and to MBIA
Assurance. The rating for MBIA Illinois is based in significant
part on the reinsurance agreement between MBIA Corp. and MBIA
Illinois. The rating of MBIA Assurance is based in significant
part on the reinsurance agreement between MBIA Corp.and MBIA
Assurance and the net worth maintenance agreement between the
two parties. See "Business_Reinsurance."
Although MBIA Corp. intends to comply with the requirements
of the rating agencies, no assurance can be given that these
requirements will not change or that, even if MBIA Corp.
complies with these requirements, one or both rating agencies
will not reduce or withdraw their rating. MBIA Corp.'s ability
to attract new business and to compete with other financial
guarantors, and its results of operations and financial
condition would be materially adversely affected by any
reduction in its ratings.
CREDIT AGREEMENT
MBIA Corp. entered into a Credit Agreement, dated as of
December 29, 1989, which has been amended from time to time (the
"Credit Agreement") with Credit Suisse, New York Branch ("Credit
Suisse") to provide MBIA Corp. with an unconditional,
irrevocable line of credit. The Credit Agreement was amended and
restated by the First Restated Credit Agreement, dated as of
October 1, 1993 as amended by the First Amendment, dated as of
September 23, 1994 among MBIA Corp., Credit Suisse, as Agent and
a consortium of Triple-A rated banks, including Credit Suisse.
The line of credit is available to be drawn upon by MBIA Corp.,
in an amount up to $600 million, after MBIA Corp. has incurred,
during the period commencing October 1, 1994 and ending
September 30, 2001, cumulative losses (net of any recoveries) in
excess of the greater of $500 million or 6.25% of average annual
debt service. The obligation to repay loans made under the
Credit Agreement is a limited recourse obligation of MBIA Corp.
payable solely from, and secured by a pledge of, recoveries
realized on defaulted insured obligations, from certain pledged
installment premiums and other collateral. Borrowings under the
Credit Agreement are repayable on the expiration date of the
Credit Agreement. The current expiration date of the Credit
Agreement is September 30, 2001, subject to annual extensions
under certain circumstances. The Credit Agreement contains
covenants that, among other things, restrict MBIA Corp.'s
ability to encumber assets or merge or consolidate with another
entity.
EMPLOYEES
As of March 20, 1995, the Company had 356 employees. No
employee is covered by a collective bargaining agreement. The
Company considers its employee relations to be satisfactory.
EXECUTIVE OWNERS
The executive officers of the Company and their present
ages and positions with the Company are set forth below.
NAME AGE POSITION AND TERM OF OFFICE
David H. Elliott 53 Chairman and Chief Executive
Officer (officer since 1986)
Richard L. Weill 52 President (officer since 1989)
Robert R. Godfrey 47 Executive Vice President
(officer since 1986)
James E. Malling 53 Executive Vice President
(officer since 1991)
Hilda H. Boas 63 Senior Vice President (officer
since 1992)
Janis S. Christensen 45 Senior Vice President (officer
since 1992)
Louis G. Lenzi 46 General Counsel and Secretary
(officer since 1986)
Julliette S. Tehrani 48 Senior Vice President and
Controller (officer since 1987)
Christopher W. Tilley 39 Treasurer (officer since 1994)
Arthur M. Warren 60 Senior Vice President and Chief
Financial Officer (officer since 1987)
David H. Elliott is the Chairman and Chief Executive
Officer of the Company and of MBIA Corp. From 1986 to 1991, he
served as the President and Chief Operating Officer of the
Company and MBIA Corp He is a director of MBIA Corp. and was
the President of the Association from 1976 to 1980 and from 1982
through 1986.
Richard L. Weill is President of the Company and of MBIA
Corp., in charge of the Insurance Operations, Division of MBIA
Corp., and a director of MBIA Corp. From 1989 through 1991, Mr.
Weill was General Counsel and Corporate Secretary of the
Company. Mr. Weill was previously a partner with the law firm of
Kutak Rock, with which he had been associated from 1969 to 1989.
Robert R. Godfrey is an Executive Vice President of the
Company and is in charge of the Marketing Services Division of
MBIA Corp. Mr. Godfrey has been with the Company (and Municipal
Issuers Service Corporation ("MISC") which acted as the managing
general agency for the Association) since January 1986 and
serves as a director of MBIA Corp.
James E. Malling is an Executive Vice President of the
Company and the head of the Corporate Development, Corporate
Marketing, Human Resources and Emerging Business Division, as
well as a director of MBIA Corp. Mr. Malling was the President
of the International Finance Division of CIGNA Corporation from
1984 to 1990 and also served as a director of the Company from
December of 1986 to December 31, 1990.
Hilda H. Boas is Senior Vice President of the Company and
MBIA Corp. and a director of MBIA Corp. She has been in charge
of the Human Resources and Corporate Administration Division of
MBIA Corp. since joining the Company in 1987.
Janis S. Christensen is Senior Vice President of the
Company and MBIA Corp., head of the Underwriting Policy and
Review Division and a director of MBIA Corp. Ms. Christensen has
been responsible for the underwriting function at MBIA Corp.
since joining the Company in 1987.
Louis G. Lenzi is General Counsel of the Company and MBIA
Corp. He is also a director of MBIA Corp. Mr. Lenzi has held
various legal positions within MBIA Corp. (and MISC) since July
of 1984.
Julliette S. Tehrani is Senior Vice President and
Controller of the Company and a director of MBIA Corp. Ms.
Tehrani has held various positions in the Company's and MlSC's
financial and management information systems areas since 1978,
including the offices of Vice President and Treasurer of MISC
from 1982 through 1985. Ms. Tehrani was named Senior Vice
President of MISC in 1985.
Christopher W. Tilley is Treasurer of the Company and a
director of MBIA Corp. He has held various positions in the
finance department of the Company since 1989.
Arthur M. Warren is Senior Vice President and Chief
Financial Officer of the Company and is head of the Finance
Division of MBIA Corp. He has been a director of MBIA Corp.
since May 1987.
ITEM 2. PROPERTIES
MBIA Corp. owns the 157,500 square foot office building on
approximately 15.5 acres of property in Armonk, New York, in
which the Company and MBIA Corp. have their offices. The Company
believes that this office building is adequate and suitable for
its current needs.
ITEM 3. LEGAL PROCEEDINGS
There are no material lawsuits pending or, to the knowledge
of the Company, threatened to which the Company or any of its
subsidiaries is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information concerning the market for the Company's
Common Stock and certain information concerning dividends
appears under the heading "Shareholder Information" on the
inside back cover of the Company's 1994 Annual Report to
Shareholders and is incorporated herein by reference. As of
March 20, 1995, there were 519 shareholders of record of the
Company's Common Stock. The information concerning dividends on
the Company's Common Stock is under "Business_Regulation" in
this report.
ITEM 6. SELECTED FINANCIAL DATA
The information under the heading "Selected Financial and
Statistical Data" as set forth on page 23 of the Company's 1994
Annual Report to Shareholders is incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations"
as set forth on page 18 of the Company's 1994 Annual Report to
Shareholders is incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, the
Report of Independent Accountants thereon by Coopers & Lybrand
L.L.P. and the unaudited "Quarterly Financial Inforrnation" are
set forth on pages 24-43 of the Company's 1994 Annual Report to
Shareholders and are incorporated by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is set forth under
"Election of Directors" in the Company's Proxy Statement, dated
March 27, 1995, which is incorporated by reference.
Information regarding executive officers is set forth under
Item 1, "Business_Executive Officers," in this report.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of the Company's
executive officers is set forth under "Compensation of Executive
Officers" in the Company's Proxy Statement, dated March 27,
1995, which is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership of certain
beneficial owners and management is set forth under "Election of
Directors" and "Security Ownership of Certain Beneficial Owners"
in the Company's Proxy Statement, dated March 27, 1995, which is
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding relationships and related
transactions is set forth under "Certain Relationships and
Related Transactions" in the Company's Proxy Statement. dated
March 27, 1995, which is incorporated by reference.
PART IV
ITEM 14.
(a) Financial Statements and Financial Statement
Schedules and Exhibits.
1. FINANCIAL STATEMENTS
MBIA Inc. has incorporated by reference from the 1994
Annual Report to Shareholders the following consolidated
financial statements of the Company:
Annual Report to Shareholders
Page(s)
MBIA INC. AND SUBSIDIARIES
Report of independent accountants. 24
Consolidated statements of income for the years ended 25
December 31, 1994, 1993 and 1992.
Consolidated balance sheets at December 31, 1994 and 26
1993.
Consolidated statements of changes in shareholders' 27
equity for the years ended December 31, 1994, 1993
and 1992.
Consolidated statements of cash flows for the years 28
ended December 31, 1994, 1993 and 1992.
Notes to consolidated financial statements 29-43
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are filed
as part of this report.
SCHEDULE TITLE
I Summary of investments, other than investments
in related parties, at December 31, 1994.
III Condensed financial information of Registrant
for December 31, 1994, 1993 and 1992.
VI Reinsurance for the years ended December 31,
1994, 1993 and 1992.
The report of the Registrant's independent accountants
with respect to the above listed financial statement schedules
is set forth on page 37 of this Form 10-K.
All other schedules are omitted because they are not
applicable or the required information is shown in the
consolidated financial statements or notes thereto.
3. EXHIBITS
(An exhibit index immediately preceding the Exhibits
indicates the page number where each exhibit filed as part of
this report can be found.)
3. ARTICLES OF INCORPORATION AND BY-LAWS.
3.1. Restated Certificate of Incorporation, dated
August 17, 1990, incorporated by reference to Exhibit 3.1 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990 (Comm. File 1-9583) (the "1990 10-K").
3.2. By-Laws as Amended as of May 7, 1992,
incorporated by reference to Exhibit 3.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992
(Comm. File 1-9583) (the "1992 10-K").
10. MATERIAL CONTRACTS
10.02. Reinsurance Agreements, each dated as of
December 30, 1986, between the Company and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company,
Aetna Insurance Company and The Continental Insurance Company,
incorporated by reference to Exhibit 10.09 to the 1987 S-1.
10.03. Reinsurance Assumption Agreements, each dated
as of December 30, 1986, among the Company, Municipal Bond
Investors Assurance Corporation ("MBIA Corp.") and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance
Company, Aetna Insurance Company and The Continental Insurance
Company, incorporated by reference to Exhibit 10.10 to the 1987
S- 1.
10.04. Endorsement No. 1 to the December 30, 1986
Reinsurance Agreements, dated as of July 1, 1987, between MBIA
Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, Aetna Insurance Company and
The Continental Insurance Company, incorporated by reference to
Exhibit 10.34 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987 (Comm. File No. 1-9583)
(the "1987 10-K").
10.05. Endorsement No. 2 to the December 30, 1986
Reinsurance Agreements, dated as of October 1, 1987, between
MBIA Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, Aetna Insurance Company and
The Continental Insurance Company, incorporated by reference to
Exhibit 10.35 to the 1987 10-K.
10.06. Endorsement No. 3 to the December 30, 1986
Reinsurance Agreements, dated as of December 31, 1987, between
MBIA Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Company (formerly Aetna Insurance Company) and The Continental
Insurance Company, incorporated by reference to Exhibit 10.06 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989 (Comm. File No. 1-9583) (the "1989 10K")
10.07. Endorsement No. 4 to the December 30, 1986
Reinsurance Agreements, dated as of January 1, 1988, between
MBIA Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Company (formerly Aetna Insurance Company) and The Continental
Insurance Company, incorporated by reference to Exhibit 10.07 to
the 1989 10-K.
10.08. Endorsement No. 5 to the December 30, 1986
Reinsurance Agreements, dated as of January 1, 1988, between
MBIA Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Company (formerly Aetna Insurance Company) and The Continental
Insurance Company, incorporated by reference to Exhibit 10.08 to
the 1989 10-K.
10.09. Endorsement No. 6 to the December 30, 1986
Reinsurance Agreements, dated as of January 1, 1988, between
MBIA Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Company (formerly Aetna Insurance Company) and The Continental
Insurance Company, incorporated by reference to Exhibit 10.09 to
the 1989 10-K.
10.10. Endorsement No. 7 to the December 30, 1986
Reinsurance Agreements, effective September 30, 1989, between
MBIA Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Company (formerly Aetna Insurance Company) and The Continental
Insurance Company, incorporated by reference to Exhibit 10.10 to
the 1989 10-K.
10.11. First Amended and Restated Investment
Management Agreement, dated as of December 30, 1986, between
Aetna Financial Services, Inc. and MBIA Corp., incorporated by
reference to Exhibit 10.11 to the 1989 10-K, as amended by
Amendment No. 2 to the First Amended and Restated Investment
Management Agreement, dated as of October 1, 1994, as modified
by a Consent, effective February 28, 1994.
10.12. Restated Management Agreement, dated as of
January 5, 1987, between MISC and Municipal Bond Insurance
Association (the "Association"), as further amended by
Supplement to the Restated Management Agreement, dated September
30, 1989, incorporated by reference to Exhibit 10.16 to the 1989
10-K. as amended by Second Amendment and Restatement of
Management Agreement, dated as of August 31, 1993, incorporated
by reference to Exhibit 10.12 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 (Comm.
File No. 1-9583) (the "1993 10-K").
10.13. License Agreement, dated as of December 30,
1986, between the Company and the Association, incorporated by
reference to Exhibit 10.15 to the 1987 S-l.
10.14. MBIA Inc. 1987 Stock Option Plan,
incorporated by reference to Exhibit 10.13 to the 1987 S-1.
10.15. MBIA Inc. Deferred Compensation and Excess
Benefit Plan, incorporated by reference to Exhibit 10.16 to the
1988 10-K, as amended as of July 22, 1992, incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992 (Comm.
File No. 1-9583) (the "1992 10-K").
10.16. MBIA Inc. Employees Pension Plan, amended
and restated effective January 1, 1987, incorporated by
reference to Exhibit 10.28 of the Company's Amendment No. 1 to
the 1987 S-1, as further amended and restated as of December 12,
1991, incorporated by reference to Exhibit 10.18 to the 1991 10-
K, as further amended and restated effective January 1, 1994.
10.17. MBIA Inc. Employees Profit Sharing Plan, as
amended and restated effective January 1, 1987, incorporated by
reference to Exhibit 10.29 to Amendment No. 1 to the 1987 S-1,
as further amended by Amendment dated December 8, 1988,
incorporated by reference to Exhibit 10.21 to the 1989 10-K, as
further amended and restated as of December 12, 1991,
incorporated by reference to Exhibit 10.19 to the 1991 10-K, as
further amended and restated as of May 7, 1992, incorporated by
reference to Exhibit 10.17 to the 1992 10K, as further amended
and restated effective January 1, 1994.
10.18. MBIA Corp. Split Dollar Life Insurance Plan,
dated as of February 9, 1988, issued by Aetna Life Insurance and
Annuity Company, incorporated by reference to Exhibit 10.23 to
the 1989 10-K.
10.19. Stock Option Agreement, dated as of January1, 1987,
between the Company and William O. Bailey, incorporated
by reference to Exhibit 10.31 to Amendment No. 1 to the 1987
S-1.
10.20. Stock Option Agreement, dated as of March
27, 1987, between the Company and David H. Elliott, incorporated
by reference to Exhibit 10.32 to Amendment No. 1 to the 1987
S-1.
10.21 Indemnification Agreement, dated as of January
5, 1987, among MISC, The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, The Travelers Indemnity
Company, Aetna Insurance Company, The Continental Insurance
Company and the Company, incorporated by reference to Exhibit
10.33 to Amendment No. 1 to the 1987 S-l.
10.22. Amended and Restated Shareholders'
Agreement, dated as of May 21, 1987, among the Company, Aetna
Life and Casualty Company, The Aetna Casualty and Surety
Company, Fireman's Fund Insurance Company, CIGNA Guaranty
Holdings, Inc., Aetna Insurance Company, The Continental
Insurance Company and The Fidelity and Casualty Company of New
York, incorporated by reference to Exhibit 10.30 to Amendment
No. I to the 1987 S-1, as amended by Amendment No. 1 to the
Amended and Restated Shareholders' Agreement, dated as of April
1, 1989, as amended by Amendment No. 2 to the Amended and
Restated Sharebolders' Agreement, dated November 21, 1989,
incorporated by reference to Exhibit 10.41 to the 1989 10-K, as
amended by Amendment No. 3 to the Amended and Restated
Shareholders' Agreement, dated as of November 30, 1990,
incorporated by reference to Exhibit 10.28 to the 1990 10-K and
as amended by Amendment No. 4 to the Amended and Restated
Shareholders' Agreement, dated as of September 30, 1991,
incorporated by reference to Exhibit 10.28 to the 1991 10-K.
10.23. Assignment of Warranties, dated April 7,
1989, from Trafalgar House Real Estate, Inc. to MBIA Corp.,
incorporated by reference to Exhibit 10.48 to the 1989 10-K.
10.24. Well Indemnification Agreement, dated as of
April 7, 1989, between Trafalgar House Real Estate, Inc., and
MBIA Corp., incorporated by reference to Exhibit 10.49 to the
1989 10-K.
10.25. Stock Purchase Agreement, dated as of October 27,
1989, among Government Employees Insurance Company, Bankers Trust
New York Corporation, Xerox Credit Corporation, American
International Group, Inc., Salomon Inc and the Company, as
amended by Letter Agreement dated as of January 5, 1990,
incorporated by reference to Exhibit 10.53 to the 1989 10-K.
10.26. Trust Agreement, effective as of December 31,
1989, among BIG Ins., MBIA Corp. and Morgan Guaranty Trust
Company of New York, incorporated by reference to Exhibit 10.55
to the 1989 10-K.
10.27. Investment Management Agreement, dated as of
January 5, 1990, between Aetna Financial Services, Inc. and BIG
Ins., incorporated by reference to Exhibit 10.57 to the 1989 10-
K, as modified by a Consent, effective February 28, 1994.
10.28. Surety Bond, dated December 28, 1989, issued
by MBIA Corp. to Citibank, N.A. with regard to the payment
obligations of Continental Insurance Company (the "Continental
Surety Bond"), incorporated by reference to Exhibit 10.62 to the
1989 10-K.
10.29. The Fiscal Agency Agreement, dated December
27, 1989, between MBIA Corp. and Citibank, N.A., with regard to
the Continental Surety Bond, incorporated by reference to
Exhibit 10.63 to the 1989 10-K.
10.30. Surety Bond, dated December 28, 1989, issued
by MBIA Corp. to Citibank, N.A. with regard to the payment
obligations of CIGNA Property and Casualty Insurance Company
(the "CIGNA Surety Bond"), incorporated by reference to Exhibit
10.64 to the 1989 10-K.
10.31. Fiscal Agency Agreement, dated December 27,
1989, between MBIA Corp. and Citibank, N.A., with regard to the
CIGNA Surety Bond, incorporated by reference to Exhibit 10.65 to
the 1989 10-K.
10.32. Amended and Restated Tax Allocation
Agreement, dated as of January 1, 1990, between the Company and
MBIA Corp., incorporated by reference to Exhibit 10.66 to the
1989 10-K.
10.33. Endorsement No. 8 to the December 30, 1986
Reinsurance Agreements, effective June 30, 1988, between MBIA
Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to
Exhibit 10.51 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990 (Comm. File No. 1-9583) (the
"1990 10 K")
10.34. Endorsement No. 9 to the December 30, 1986
Reinsurance Agreements, effective December 31, 1988, between
MBIA Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to
Exhibit 10.52 to the 1990 10-K.
10.35. Endorsement No. 10 to the December 30, 1986
Reinsurance Agreements, effective January 1, 1990, between MBIA
Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to
Exhibit 10.53 to the 1990 10-K.
10.36. Reinsurance Agreement, dated as of December 31, 1990,
between MBIA Corp. and Bond Investors Guaranty
Insurance Company, incorporated by reference to Exhibit 10.54 to
the 1990 10-K.
10.37. Credit Agreement, dated as of December 31, 1991,
between MBIA Corp. and The Bank of Nova Scotia,
incorporated by reference to Exhibit 10.57 to the 1991 10-K, as
amended by agreement dated September 30, 1992, incorporated by
reference to Exhibit 10.46 to the 1992 10-K, as amended by the
Second Amendment to the Credit Agreement, dated September 29,
1993, incorporated by reference to Exhibit 10.46 to the 1993
10-K.
10.38. Credit Agreement, dated as of December 31,
1990, between MBIA Corp. and Citibank, N.A., incorporated by
reference to Exhibit 10.58 to the 1990 10-K, as amended by an
agreement, dated December 31, 1991, incorporated by reference to
Exhibit 10.58 to the 1991 10-K, as amended by an agreement, dated
December 31, 1992, incorporated by reference to Exhibit 10.47 to
the 1992 10-K, as amended by an agreement, dated December 31,
1993, incorporated by reference to Exhibit 10.47 to the 1993 10-
K.
10.39. Surety Bond, dated August 24, 1990, issued by
MBIA Corp. to Citibank, N.A. with regard to the payment
obligations of The Travelers Indemnity Company (the "Travelers
Surety Bond"), incorporated by reference to Exhibit 10.59 to the
1990 10-K.
10.40. Insurer Fiscal Agency Agreement, dated August
24, 1990, between MBIA Corp. and Citibank, N.A. with regard to
the Travelers Surety Bond, incorporated by reference to Exhibit
10.60 to the 1990 10-K.
10.41. Custody Agreement, dated as of December 30, 1986,
between MBIA Corp. and Morgan Guaranty Trust Company of New
York, as amended by the First Amendment to Custody Agreement,
dated as of December 1, 1989, incorporated by reference to
Exhibit 10.62 to the 1990 10-K.
10.42. Closing Agreement, dated September 28, 1990,
between Trafalgar House Property, Inc. and MBIA Corp.,
incorporated by reference to Exhibit 10.64 to the 1990 10-K.
10.43. Guaranty of Trafalgar House Holdings, Inc.,
dated as of September 28, 1990, between Trafalgar House Holdings,
Inc. and MBIA Corp., incorporated by reference to Exhibit 10.67
to the 1990 10-K.
10.44. Land-Banked Parking Agreement, dated
September 28, 1990, between MBIA Corp. and the Town of North
Castle, incorporated by reference to Exhibit 10.69 to the 1990 10-
K.
10.45. Surety Bond, dated April 5, 1991, issued by
MBIA Corp. to Citibank, N.A. with regard to the payment
obligations of The Aetna Casualty and Surety Company (the "Aetna
Surety Bond"), incorporated by reference to Exhibit 10.73 to the
1991 10-K.
10.46. The Fiscal Agency Agreement, dated April 5,
1991, between MBIA Corp. and Citibank, N.A. with regard to the
Aetna Surety Bond, incorporated by reference to Exhibit 10.74 to
the 1991 10-K.
10.47. Credit Agreement, dated as of October 16,
1991, between MBIA Corp. and NBD Bank, N.A., incorporated by
reference to Exhibit 10.75 to the 1991 10-K, as amended by the
First Amendment to Credit Agreement, dated as of October 16,
1992, incorporated by reference to Exhibit 10.60 to the 1992 10-
K, as amended by a letter agreement, dated October 16, 1993, and
as further amended by the Second Amendment to Credit Agreement,
dated as of December 31, 1993, incorporated by reference to
Exhibit 10.60 to the 1993 10-K.
10.48. Revolving Credit Agreement, dated as of
February 15, 1991, between the Company and Credit Suisse, New
York Branch, incorporated by reference to Exhibit 10.76 to the
1991 10-K, as amended by the First Amendment to Revolving Credit
Agreement, dated as of September 30, 1992, incorporated by
reference to Exhibit 10.61 to the 1992 10-K, as further amended
by the Second Amendment to Revolving Credit Agreement, dated as
of September 30, 1994.
10.49. Rights Agreement, dated as of December 12, 1991,
between the Company and Mellon Bank, N.A., incorporated by
reference to the Company's Current Report on Form 8-K, filed on
December 31, 1991, incorporated by reference to Exhibit 10.62 to
the 1993 10-K, as amended by Amendment to Rights Agreement, dated
as of October 24, 1994.
10.50. Owner/Contractor Agreement, dated as of June 1, 1991,
between MBIA Corp. and Trafalgar House Construction
Management, Inc., incorporated by reference to Exhibit 10.77 to
the 1991 10-K.
10.51. Trust Agreement, dated as of December 31, 1991,
between MBIA Corp. and Fidelity Management Trust Company,
incorporated by reference to Exhibit 10.64 to the 1992 10-K, as
amended by the Amendment to Trust Agreement, dated as of April 1,
1993, incorporated by reference to Exhibit 10.64 to the 1993 10-
K.
10.52. MBIA Inc. Employees Change of Control Benefits
Plan, effective as of January 1, 1992, incorporated by reference
to Exhibit 10.65 to the 1992 10-K.
10.53. Investment Management Agreement, dated as of
October 8, 1992, between Aetna Financial Services, Inc. and the
Company, incorporated by reference to Exhibit 10.66 to the 1992
10-K, as modified by a Consent, effective February 28, 1994.
10.54. Endorsements to the December 30, 1986
Reinsurance Agreements (i) Nos. 11 and 12, both effective June
30, 1992; (ii) No. 14, effective November 30, 1990; and (iii) No.
16, effective September 30, 1992, each, between the Company
(except with respect to No. 14 which was subsequently assumed by
MBIA Corp.) and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Insurance Company (formerly Aetna Insurance Company), the
Continental Insurance Company, incorporated by reference to
Exhibit 10.69 to the 1992 10-K.
10.55. Surety Bond, dated October 15, 1992, issued
by MBIA Corp. to Citibank, N.A. with regard to the payment
obligations of Fireman's Fund Insurance Company (the "Fireman's
Surety Bond"), incorporated by reference to Exhibit 10.70 to the
1992 10-K.
10.56. Fiscal Agency Agreement, dated October 15,
1992, between MBIA Corp. and Citibank, N.A. with regard to the
Fireman's Surety Bond, incorporated by reference to Exhibit 10.71
to the 1992 10-K.
10.57. Indenture, dated as of August 1, 1990,
between MBIA Inc. and The First National Bank of Chicago,
Trustee, incorporated by reference to Exhibit 10.72 to the 1992
10-K.
10.58. Reinsurance Agreement. dated as of August 31,
1993, between The Travelers Indemnity Company and MBIA Corp.,
incorporated by reference to Exhibit 10.73 to the 1993 10-K.
10.59. Endorsement No. 15 to the December 30, 1986
Reinsurance Agreements, effective January 1, 1992, between MBIA
Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to
Exhibit 10.74 to the 1993 10-K.
10.60. Endorsement No. 17 to the December 30, 1986
Reinsurance Agreements, effective January 1, 1993, between MBIA
Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to
Exhibit 10.75 to the 1993 10-K.
10.61. Endorsement No. 18 to the December 30, 1986
Reinsurance Agreements, effective April 1, 1993, between MBIA
Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to
Exhibit 10.76 to the 1993 10-K.
10.62. Credit Agreement, dated as of November 30, 1993,
among the Company, MBIA Corp. and Wachovia Bank of Georgia,
N.A., incorporated by reference to Exhibit 10.77 to the 1993
10-K.
10.63. First Restated Credit Agreement, dated as of
October 1, 1993, among MBIA Corp., Credit Suisse, New York
Branch, as Agent, Credit Suisse, New York Branch, Caisse Des
Depots Et Consignations, Deutsche Bank AG, Bayerische Landesbank
Girozentrale and Landesbank Hessen-Thuringen Girozentrale, as
amended by an Assignment and Assumption Agreement, dated as of
December 31, 1993, among MBIA Corp., Credit Suisse, New York
Branch, as Agent and Assignor and Deutsche Bank AG, New York
Branch, as further amended by a Modification Agreement, dated as
of January 1, 1994, among Deutsche Bank, AG, New York Branch,
MBIA Corp. and Credit Suisse, New York Branch, as Agent, as
amended by a Joinder Agreement, dated December 31, 1993, among
Credit Suisse, New York Branch, as Agent, Sudwestdeutsche
Landesbank Girozentrale and MBIA Corp., incorporated by reference
to Exhibit 10.78 to the 1993 10-K, as amended by the First
Amendment to First Restated Credit Agreement, dated as of
September 23, 1994.
10.64. Net Worth Maintenance Agreement, dated as of
November 1, 1991, between MBIA Corp. and MBIA Assurance S.A., as
amended by Amendment to Net Worth Agreement, dated as of November
1, 1991, incorporated by reference to Exhibit 10.79 to the 1993
10-K.
10.65. Reinsurance Agreement, dated as of
January 1, 1993, between MBIA Assurance S.A. and MBIA Corp.,
incorporated by reference to Exhibit 10.80 to the 1993 10-K.
10.66. Credit Agreement, dated as of August 31, 1994,
among Municipal Bond Investors Assurance Corporation, the
Company, Wachovia Bank of Georgia, N.A., Banco Santander, The
Sumitomo Bank, Ltd., New York Branch, The Chase Manhattan Bank,
N.A., Commerzbank Aktiengesellschaft, The Industrial Bank of
Japan, Limited New York Branch and NBD Bank, N.A., and as further
amended by the First Amendment to Credit Agreement, dated as of
October 14, 1994.
10.67. Endorsement No. 13 to the December 30, 1986
Reinsurance Agreements, effective December 1, 1990, between MBIA
Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, dated as of March, 1993.
10.68. Endorsement No. 16 to the December 30, 1986
Reinsurance Agreements, effective September 30, 1992, between
MBIA Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, dated as of February 28, 1993.
10.69. Endorsement No. 19 to the December 30, 1986
Reinsurance Agreements, effective October 1, 1993, between MBIA
Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, dated as of June 30, 1994.
*EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following Exhibits identify all existing executive
compensation plans and arrangements:
10.14. MBIA Inc. 1987 Stock Option Plan, incorporated
by reference to Exhibit 10.13 to the 1987 S-1.
10.15. MBIA Inc. Deferred Compensation and Excess
Benefit Plan, incorporated by reference to Exhibit
10.16 to the 1988 10-K, as amended as of July 22, 1992,
incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 (Comm. File No. 1-9583)
(the " 1992 10-K").
10.16. MBIA Inc. Employees Pension Plan, amended and
restated effective January 1, 1987, incorporated by
reference to Exhibit 10.28 of the Company's Amendment
No. 1 to the 1987 S-1, as further amended and restated
as of December 12, 1991, incorporated by reference to
Exhibit 10.18 to the 1991 10-K.
10.17. MBIA Inc. Employees Profit Sharing Plan, as
amended and restated effective January 1, 1987,
incorporated by reference to Exhibit 10.29 to Amendment
No. 1 to the 1987 S-1, as further amended by Amendment
dated December 8, 1988, incorporated by reference to
Exhibit 10.21 to the 1989 10-K, as further amended and
restated as of December 12, 1991, incorporated by
reference to Exhibit 10.19 to the 1991 10-K, as further
amended and restated as of May 7, 1992, incorporated by
reference to Exhibit 10.17 to the 1992 10-K.
10.19. MBIA Corp. Split Dollar Life Insurance Plan,
dated as of February 9, 1988, issued by Aetna Life
Insurance and Annuity Company, incorporated by
reference to Exhibit 10.23 to the 1989 10-K.
10.22. Stock Option Agreement, dated as of January 1, 1987,
between the Company and William O. Bailey,
incorporated by reference to Exhibit 10.31 to Amendment
No. 1 to the 1987 S-1.
10.23. Stock Option Agreement, dated as of March 27, 1987,
between the Company and David H. Elliott,
incorporated by reference to Exhibit 10.32 to Amendment
No. 1 to the 1987 S-1.
10.65. MBIA Inc. Employees Change of Control Benefits
Plan, effective as of January 1, 1992, incorporated by
reference to Exhibit 10.65 to the 1992 10-K.
11. Statement Re Computation of Per Share Earnings.
13. Annual Report to Shareholders of MBIA Inc. for
fiscal year ended December 31, 1994. Such report is
furnished for the information of the Commission only
and, except for those portions thereof which are
expressly incorporated by reference in this Annual
Report on Form 10-K, is not to be deemed filed as part
of this report.
21. List of Subsidiaries
23. Consent of Coopers & Lybrand
24. Power of Attorney
27. Financial Data Schedule
99. Additional Exhibits - MBIA Corp. GAAP Financial
Statements
(b) Reports on Form 8-K: There were no reports on Form
8-K filed by the Company during the year ended December
31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has caused this
Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MBIA Inc.
(Registrant)
Dated: March 27, 1995 By /s/
Name: David H. Elliott
Title: Chairman
Pursuant to the requirements of Instruction D to Forrn 10-K
under the Securities Exchange Act of 1934, this Report has been
signed below by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
/s/David H. Elliott
--------------------- Chairman and Director March 27, 1995
David H. Elliott
/s/ Arthur M. Warren
----------------------- Senior Vice President March 27, 1995
Arthur M. Warren and Chief Financial Officer
/s/Julliette S. Tehrani
---------------------- Senior Vice President and March 27, 1995
Julliette S. Tehrani Controller
/s/ William O. Bailey *
------------------------ Director March 27, 1995
William O. Bailey
/s/Joseph W. Brown, Jr. * Director March 27, 1995
-------------------------
Joseph W. Brown, Jr.
-------------------------- Director March 27, 1995
David C. Clapp
---------------------------- Director March 27, 1995
Claire L. Gaudiani
/s/ William H. Gray, III *
---------------------------- Director March 27, 1995
William H. Gray, III
/s/ Freda S. Johnson *
------------------------- Director March 27, 1995
Freda S. Johnson
__________________________ Director March 27, 1995
Daniel P. Kearney
/s/ James A. Lebenthal * Director March 27, 1995
---------------------------
James A. Lebenthal
/s/ Robert B. Nicholas *
------------------------- Director March 27, 1995
Robert B. Nicholas
___________________________ Director March 27, 1995
Pierre-Henri Richard
/s/ Paul A. Vocker *
-------------------------- Director March 27, 1995
Paul A. Volcker
By/s/Louis G. Lenzi
---------------------------
Louis G. Lenzi
Attorney-in Fact
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of MBIA
Inc.:
Our report on the consolidated financial statements of
MBIA Inc. and Subsidiaries has been incorporated by
reference in this Form 10-K from page 24 of the 1994
Annual Report to Shareholders of MBIA Inc. and
Subsidiaries. In connection with our audits of such
financial statements, we have also audited the related
financial statement schedules listed in the index on
Page 25 of this Form 10-K.
In our opinion, the financial statement schedules
referred to above, when considered in relation to the
basic financial statements taken as a whole, present
fairly, in all material respects, the information
required to be included therein.
New York, New York /s/Coopers & Lybrand
February 1, 1995
SCHEDULE I
MBIA INC. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS, OTHER THAN INVESTMENTS
IN RELATED PARTIES
DECEMBER 31, 1994
(In thousands)
COLUMN A COLUMN B COLUMN C COLUMN D
AMOUNT AT
WHICH
SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
FIXED MATURITIES
Bonds:
United States Treasury
and Government
agency obligations $851,817 $831,314 $831,314
State and municipal
obligations 2,396,384 2,355,017 2,355,017
Corporate and other
obligations 1,521,241 1,448,739 1,448,739
----------- --------- ----------
Total fixed maturities 4,769,442 4,635,070 4,635,070
SHORT-TERM INVESTMENTS 214,155 XXXXXXX 214,155
Other investments 15,883 XXXXXXX 17,550
--------- --------- ---------
Total investments $4,999,480 XXXXXXX $4,866,775
========== ========== ==========
SCHEDULE III
MBIA INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
DECEMBER 31, 1994 DECEMBER 31, 1993
ASSETS
Investments:
Fixed maturity securities,
at amortized cost
(market value $44,158) $ --- $42,725
Other investments 5,580 6,466
-------- ----------
Total investments 5,580 49,191
Cash and cash equivalents 4,991 1,545
Investment in and amounts due from
wholly-owned subsidiaries 2,052,540 1,871,483
Other assets 3,209 5,507
Total assets $2,066,320 $1,927,726
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Dividends payable $ 12,901 $ $10,907
Long-term debt 298,790 298,680
Deferred income taxes 896 1,235
Amounts due to wholly-owned subsidiaries 21,934 9,054
Other liabilities 27,083 11,492
-------- -----------
Total liabilities 361,604 331,368
------- -------
Shareholders' Equity:
Preferred stock, par value $1 per
share; authorized shares -
10,000,000; issued and
outstanding shares - none --- ---
Common stock, par value
$1 per share; authorized
shares - 100,000,000;
issued shares - 42,077,387
and 42,074,387 42,077 42,074
Additional paid-in capital 719,750 719,281
Retained earnings 1,057,092 844,916
Cumulative translation adjustment 503 (1,218)
Unrealized (depreciation)
appreciation of
investments, net of deferred
income tax benefit)
provision of $(46,292) and $3,813 (86,560) 7,080
Treasury stock, at cost - 461,763
shares in 1994 and 260,243
shares in 1993 (28,146) (15,775)
--------- ----------
Total shareholders' equity 1,704,716 1,596,358
--------- ----------
Total liabilities and
shareholders' equity $2,066,320 $1,927,726
========== ==========
[FN]
The condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto and the
accompanying notes
SCHEDULE III
MBIA INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
(In thousands)
YEARS ENDED DECEMBER 31
1994 1993 1992
Revenues:
Net investment income $ 786 $ 3,555 $ 1,119
Net realized gains (losses) --- 786 (1,585)
Other income 1,801 401 ---
--------- --------- -----------
Total revenues 2,587 4,742 (466)
----------- --------- -----------
Expenses:
Interest expense 27,036 26,900 20,520
Operating expenses 2,202 1,273 1,945
Total expenses 29,238 28,173 22,465
Loss before income taxes, equity
in earnings of subsidiaries
and cumulative effect of
accounting changes (26,651) (23,431) (22,931)
(Benefit) provision for
income taxes (9,240) (8,963) 10,292
---------- ------- ---------
Loss before equity in earnings
of subsidiaries and
cumulative effect of
accounting changes (17,411) (14,468) (33,223)
Equity in earnings of
subsidiaries 277,620 260,578 221,930
----------- -------- --------
Net income before cumulative
effect of accounting
changes 260,209 246,110 188,707
Cumulative effect of
accounting changes --- 12,923 ---
---------- -------- ---------
Net income $260,209 $259,033 $188,707
========== ======== =========
[FN]
The condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto and
the accompanying notes.
SCHEDULE III
MBIA INC. (PARENT COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
YEARS ENDED DECEMBER 31
1994 1993 1992
Cash flows from operating
activities:
Net income $ 260,209 $ 259,033 $ 188,707
Adjustments to reconcile
net to net cash provided by
operating activities:
Equity in undistributed
earnings of subsidiaries 239,620) (223,501) (199,930)
Net realized (gains) losses on
sales of investments --- (786) 1,585
(Benefit) provision for deferred
income taxes (28) 28 10,048
Other, net 18,088 (1,512) 4,684
-------- -------- ---------
Total adjustments to
net income (221,560) (225,771) (183,613)
======== ========= =========
Net cash provided by
operating activities 38,649 33,262 5,094
--------- --------- --------
Cash flows from investing activities:
Purchase of fixed
maturity securities --- (30,041) (48,302)
Sale of fixed maturity securities 42,728 36,369 ---
Purchase of short-term
investments, net --- --- (1,585)
Contributions to subsidiaries (23,010) (5,010) 167,968)
Advances from (to) subsidiaries,
net 3,017 2,119 (8,656)
Net cash provided (used) by
investing activities 22,735 3,437 (226,511)
Cash flows from financing activities:
Net proceeds from issuance
of common stock --- --- 144,656
Net proceeds from issuance
of long-term debt --- --- 98,900
Dividends paid (45,513) (37,342) (28,673)
Purchase of treasury stock (14,411) (15,255) ---
Exercise of stock options 1,986 7,109 13,304
Net cash (used) provided by
financing activities (57,938) (45,488) 28,187
------------ ----------- ------
Net increase (decrease) in cash and
cash equivalents 3,446 (8,789) 6,770
Cash and cash equivalents
- beginning of year 1,545 10,334 3,564
------- ------- -----
Cash and cash equivalents
- end of year $ 4,991 $ 1,545 $10,334
Supplemental cash flow disclosures:
Income taxes paid $ 39 392 $ 244
---------- ---------- -------
Interest paid 26,575 26,416 18,382
========== ========== ======
[FN]
The condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto and
the accompanying notes.
SCHEDULE III
MBIA INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. CONDENSED FINANCIAL STATEMENTS
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principals
have been condensed or omitted. It is suggested that these condensed
financial statements be read in conjunction with the Company's consolidated
financial statements and the notes thereto.
2. SIGNIFICANT ACCOUNTING POLICIES
The Parent company carries its investments in subsidiaries under the
equity method.
3. DIVIDENDS FROM SUBSIDIARY
Cash dividends paid to MBIA Inc. from the Company's consolidated
subsidiary, MBIA Corp., were $38,000,000, $50,000,000 and $22,000,000 in 1994,
1993 and 1992, respectively.
SCHEDULE VI
MBIA INC. AND SUBSIDIARIES
for the Years Ended December 31, 1994, 1993 and 1992
(In thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
PERCENTAGE
INSURANCE GROSS CEDED TO ASSUMED FROM OF AMOUNT
PREMIUMS AMOUNT OTHER VALUE OTHER COMPANIES NET ASSUMED TO
WRITTEN AMOUNT NET
--------------------------------------------------------------------------
1994 $354,534 $49,281 $ 6,302 $311,555 2.0%
---- -------- ------ ------ ------ ----
1993 $458,979 $47,552 $20,368 $431,795 4.7%
---- -------- ------- ------- ------- ------
1992 $358,586 32,588 $10,146 $336,144 3.0%
---- -------- ------- ------- -------- ----
Securities and Exchange Commission
Washington, D.C. 20549
____________________
Exhibits
to
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1994
Commission File No. 1-9583
___________________
MBIA Inc.
(Exact name of registrant as specified in charter)
Exhibit Index
10. Material Contracts.
10.11. First Amended and Restated Investment
Management Agreement, dated as of December 30, 1986, between
Aetna Financial Services, Inc. and MBIA Corp., incorporated by
reference to Exhibit 10.11 to the 1989 10-K, as amended by
Amendment No. 2 to the First Amended and Restated Investment
Management Agreement, dated as of October 1, 1994, as modified
by a Consent, effective February 28, 1994.
10.16. MBIA Inc. Employees Pension Plan, amended
and restated effective January 1, 1987, incorporated by
reference to Exhibit 10.28 of the Company's Amendment No. 1 to
the 1987 S-1, as further amended and restated as of December 12,
1991, incorporated by reference to Exhibit 10.18 to the 1991 10-
K, as further amended and restated effective January 1, 1994.
10.17. MBIA Inc. Employees Profit Sharing Plan, as
amended and restated effective January 1, 1987, incorporated by
reference to Exhibit 10.29 to Amendment No. 1 to the 1987 S-1,
as further amended by Amendment dated December 8, 1988,
incorporated by reference to Exhibit 10.21 to the 1989 10-K, as
further amended and restated as of December 12, 1991,
incorporated by reference to Exhibit 10.19 to the 1991 10-K, as
further amended and restated as of May 7, 1992, incorporated by
reference to Exhibit 10.17 to the 1992 10K, as further amended
and restated effective January 1, 1994.
10.27. Investment Management Agreement, dated as of
January 5, 1990, between Aetna Financial Services, Inc. and BIG
Ins., incorporated by reference to Exhibit 10.57 to the 1989 10-
K, as modified by a Consent, effective February 28, 1994.
10.48. Revolving Credit Agreement, dated as of
February 15, 1991, between the Company and Credit Suisse, New
York Branch, incorporated by reference to Exhibit 10.76 to the
1991 10-K, as amended by the First Amendment to Revolving Credit
Agreement, dated as of September 30, 1992, incorporated by
reference to Exhibit 10.61 to the 1992 10-K, as further amended
by the Second Amendment to Revolving Credit Agreement, dated as
of September 30, 1994.
10.49. Rights Agreement, dated as of December 12,
1991, between the Company and Mellon Bank, N.A., incorporated by
reference to the Company's Current Report on Form 8-K, filed on
December 31, 1991, incorporated by reference to Exhibit 10.62 to
the 1993 10-K, as amended by Amendment to Rights Agreement, dated
as of October 24, 1994.
10.53. Investment Management Agreement, dated as of
October 8, 1992, between Aetna Financial Services, Inc. and the
Company, incorporated by reference to Exhibit 10.66 to the 1992
10-K, as modified by a Consent, effective February 28, 1994.
10.63. First Restated Credit Agreement, dated as of
October 1, 1993, among MBIA Corp., Credit Suisse, New York
Branch, as Agent, Credit Suisse, New York Branch, Caisse Des
Depots Et Consignations, Deutsche Bank AG, Bayerische Landesbank
Girozentrale and Landesbank Hessen-Thuringen Girozentrale, as
amended by an Assignment and Assumption Agreement, dated as of
December 31, 1993, among MBIA Corp., Credit Suisse, New York
Branch, as Agent and Assignor and Deutsche Bank AG, New York
Branch, as further amended by a Modification Agreement, dated as
of January 1, 1994, among Deutsche Bank, AG, New York Branch,
MBIA Corp. and Credit Suisse, New York Branch, as Agent, as
amended by a Joinder Agreement, dated December 31, 1993, among
Credit Suisse, New York Branch, as Agent, Sudwestdeutsche
Landesbank Girozentrale and MBIA Corp., incorporated by reference
to Exhibit 10.78 to the 1993 10-K, as amended by the First
Amendment to First Restated Credit Agreement, dated as of
September 23, 1994.
10.66. Credit Agreement, dated as of August 31, 1994,
among Municipal Bond Investors Assurance Corporation, the
Company, Wachovia Bank of Georgia, N.A., Banco Santander, The
Sumitomo Bank, Ltd., New York Branch, The Chase Manhattan Bank,
N.A., Commerzbank Aktiengesellschaft, The Industrial Bank of
Japan, Limited New York Branch and NBD Bank, N.A., and as further
amended by the First Amendment to Credit Agreement, dated as of
October 14, 1994.
10.67. Endorsement No. 13 to the December 30, 1986
Reinsurance Agreements, effective December 1, 1990, between MBIA
Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, dated as of march, 1993.
10.68. Endorsement No. 16 to the December 30, 1986
Reinsurance Agreements, effective September 30, 1992, between
MBIA Corp. and each of The Aetna Casualty and Surety Company,
Fireman's Fund Insurance Company, CIGNA Property and Casualty
Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, dated as of February 28, 1993.
10.69. Endorsement No. 19 to the December 30, 1986
Reinsurance Agreements, effective October 1, 1993, between MBIA Corp.
and each of The AetnaCasualty and Surety Company, Fireman's Fund
Insurance Company,CIGNA Property and Casualty Insurance Company
(formerly AetnaInsurance Company) and The Continental Insurance Company,
dated as of June 30, 1994.
11. Statement Re Computation of Per Share Earnings.
13. Annual Report to Shareholders of MBIA Inc. for fiscal
year ended December 31, 1994. Such report is furnished
for the information of the Commission only and, except
for those portions thereof which are expressly
incorporated by reference in this Annual Report on Form
10-K, is not to be deemed filed as part of this report.
21. List of Subsidiaries
23. Consent of Coopers & Lybrand
24. Power of Attorney
27. Financial Data Schedule
99. Additional Exhibits - MBIA Corp. GAAP Financial
Statements
EX-10
2
EXHIBIT 10.11
Amendment No. 2
to the
First Amended and Restated
Investment Management Agreement
Amendment No. 2, dated as of October 1, 1994 ("Effective Date") ("Amendment No.
2") to the First Amended and Restated Investment Management Agreement dated as
of December 30, 1986, as amended, between Aetna Financial Services, Inc. ("Aetna
Financial"), a Connecticut corporation, and Municipal Bond Investors Assurance
Corporation (the "Company"), a New York stock insurance corporation (the
"Investment Management Agreement"). The Investment Management Agreement was
assigned by Aetna Financial to Aeltus Investment Management, Inc. ("Aeltus")
(formerly known as Aetna Capital Management, Inc.) pursuant to an agreement
dated as of March 1, 1994 between Aeltus and Aetna Financial.
WHEREAS, Aeltus and the Company are parties to the Investment Management
Agreement which sets forth the terms governing the investment advisory services
and securities management services being provided by Aeltus to the Company and
the compensation payable to Aeltus for such services; and
WHEREAS, the parties wish to amend the Fee Schedule to the Investment Management
Agreement to clarify the method of calculating the compensation paid to Aeltus
for the securities management services and investment advisory services rendered
under the Investment Management Agreement;
NOW, THEREFORE, the parties agree as follows:
1. Defined Terms.
-------------
All capitalized terms used in this Amendment No. 2 and not defined herein
shall have the meanings set forth in the Investment Management Agreement.
2. Fees.
----
The text of Schedule 2, Management Fee Schedule, to the Investment
---------- -----------------------
Management Agreement is deleted and the following is substituted in lieu
thereof:
"1. The compensation payable to Aeltus for the Investment Advisory
Services and for the Securities Management Services rendered
hereunder shall be calculated on a calendar quarterly basis in
advance from and after the Effective Date in accordance with the
following formula:
Quarterly Fee = A x Proration Fraction x l/4.
For purposes of the foregoing formula:
"A" = Applicable Basis Points x Market Value of Total
Managed Assets as of the Determination Date.
"Applicable Basis Points" shall be determined in accordance with the
-----------------------
following schedule:
Market Value of
Total Managed Assets Basis Points
-------------------- ------------
1st $500 Million 16.0 bp
Next $500 Million 8.5
Next $2000 Million 5.5
Additional 4.5
"Market Value" shall be determined in accordance with Section 15 of
------------
this Investment Management Agreement.
"Total Managed Assets" shall mean the sum of the (i) assets managed
--------------------
under this Investment Management Agreement (the "MBIAC Managed
Assets") and (ii) assets managed under the Investment Management
Agreement dated as of January 5, 1990 between Aeltus and MBIA
Insurance Corp. of Illinois (the "MBIA Illinois Managed Assets").
"Determination Date" for each quarterly period shall mean the last
------------------
business day of the first month of such calendar quarter. In the
event that this Investment Management Agreement is terminated prior
to the last business day of the first month of the calendar quarter,
then Determination Date shall mean the date of termination, if it is
a business day, or otherwise the business day immediately preceding
the date of termination.
"Proration Fraction" shall mean a fraction (i) the numerator of
------------------
which is equal to the Market Value as of the Determination Date of
the MBIAC Managed Assets and (ii) the denominator of which is equal
to the Market Value of the Total Managed Assets as of the
Determination Date.
2. Aeltus agrees to provide to the Company a bill for each calendar
quarter no later than the fifth (5th) business day of the last month
of such quarterly period. The Quarterly Fee for each calendar
quarter shall be due and payable not later than the last business
day of the last month of such quarterly period."
3. Other Provisions.
----------------
Except as expressly set forth in this Amendment No. 2, all of the terms and
provisions of the Investment Management Agreement remain unamended and in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment No. 2
as of the date first above written.
AELTUS INVESTMENT MANAGEMENT, INC.
By: /s/ Richard L. Seg
--------------------------
Its: Managing Director
-------------------------
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION
By: /s/ Arthur M. Warren
---------------------------
Its: CFO, Senior Vice President
--------------------------
MBIA Inc. hereby consents to the assignment, effective February 28, 1994 at the
close of business, by Aetna Financial Services, Inc. ("AFSI") to Aetna Capital
Management, Inc. of all of its rights, duties and obligations under the
investment management agreement between MBIA Corp. and AFSI, dated January 5,
1990.
MBIA Corp.
By: /s/ Arthur M. Warren
----------------------------
Name: Arthur M. Warren
--------------------------
Its: Senior Vice President, CFO
--------------------------
EX-10
3
EXHIBIT 10.16
MBIA INC. EMPLOYEES PENSION PLAN
As in effect as of July 1, 1994
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS 14
2.2 DETERMINATION OF TOP HEAVY STATUS 14
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER 18
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY 19
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES 19
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR 19
2.7 RECORDS AND REPORTS 21
2.8 APPOINTMENT OF ADVISERS 21
2.9 INFORMATION FROM EMPLOYER 21
2.10 PAYMENT OF EXPENSES 22
2.11 MAJORITY ACTIONS 22
2.12 CLAIMS PROCEDURE 22
2.13 CLAIMS REVIEW PROCEDURE 22
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY 23
3.2 APPLICATION FOR PARTICIPATION 24
3.3 EFFECTIVE DATE OF PARTICIPATION 24
3.4 DETERMINATION OF ELIGIBILITY 24
i
3.5 TERMINATION OF ELIGIBILITY 24
3.6 OMISSION OF ELIGIBLE EMPLOYEE 25
3.7 INCLUSION OF INELIGIBLE EMPLOYEE 25
3.8 ELECTION NOT TO PARTICIPATE 25
3.9 OWNER-EMPLOYEE LIMITATION 26
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S
CONTRIBUTION 27
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION 27
4.3 ACCOUNTING AND ALLOCATIONS 27
4.4 MAXIMUM ANNUAL ADDITIONS 30
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS 34
4.6 TRANSFERS FROM QUALIFIED PLANS 35
4.7 VOLUNTARY CONTRIBUTIONS 37
4.8 DIRECTED INVESTMENT ACCOUNT 38
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND 38
5.2 METHOD OF VALUATION 38
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT 39
6.2 DETERMINATION OF BENEFITS UPON DEATH 39
6.3 DETERMINATION OF BENEFITS IN EVENT OF
DISABILITY 41
6.4 DETERMINATION OF BENEFITS UPON TERMINATION 41
6.5 DISTRIBUTION OF BENEFITS 45
ii
6.6 DISTRIBUTION OF BENEFITS UPON DEATH 51
6.7 TIME OF SEGREGATION OR DISTRIBUTION 55
6.8 DISTRIBUTION FOR MINOR BENEFICIARY 55
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN 55
6.10 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS 56
ARTICLE VII
AMENDMENT, TERMINATION, MERGERS AND LOANS
7.1 AMENDMENT 56
7.2 TERMINATION 57
7.3 MERGER OR CONSOLIDATION 57
7.4 LOANS TO PARTICIPANTS 57
ARTICLE VIII
MISCELLANEOUS
8.1 PARTICIPANT'S RIGHTS 60
8.2 ALIENATION 60
8.3 DIRECT ROLLOVERS AND ROLLOVER NOTICES 61
8.4 CONSTRUCTION OF PLAN 62
8.5 GENDER AND NUMBER 62
8.6 LEGAL ACTION 62
8.7 PROHIBITION AGAINST DIVERSION OF FUNDS 62
8.8 BONDING 63
8.9 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE 63
8.10 INSURER'S PROTECTIVE CLAUSE 64
8.11 RECEIPT AND RELEASE FOR PAYMENTS 64
8.12 ACTION BY THE EMPLOYER 64
8.13 NAMED FIDUCIARIES AND ALLOCATION OF
RESPONSIBILITY 64
iii
8.14 HEADINGS 65
8.15 APPROVAL BY INTERNAL REVENUE SERVICE 65
8.16 UNIFORMITY 66
8.17 WAIVER OF FUNDING 66
8.18 LIMITATION ON EMPLOYER STOCK TRANSACTIONS 67
ARTICLE IX
PARTICIPATING EMPLOYERS
9.1 ADOPTION BY OTHER EMPLOYERS 68
9.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS 68
9.3 DESIGNATION OF AGENT 69
9.4 EMPLOYEE TRANSFERS 69
9.5 PARTICIPATING EMPLOYER'S CONTRIBUTION 69
9.6 AMENDMENT 70
9.7 DISCONTINUANCE OF PARTICIPATION 70
9.8 ADMINISTRATOR'S AUTHORITY 71
iv
MBIA INC. EMPLOYEES PENSION PLAN
THIS PLAN, hereby adopted this 30th day of June, 1994 by MBIA INC. (herein
---- ----------
referred to as the "Employer" ).
W I T N E S S E T H:
WHEREAS, the Employer heretofore established a Money Purchase Pension Plan
effective JANUARY 1, 1975, (hereinafter called the "Effective Date") known as
MBIA INC. EMPLOYEES PENSION PLAN (herein referred to as the "Plan") in
recognition of the contribution made to its successful operation by its
employees and for the exclusive benefit of its eligible employees;
WHEREAS, under the terms of the Plan, the Employer has the ability to amend
the Plan, provided the Trustee joins in such amendment if the provisions of the
Plan affecting the Trustee are amended; and
WHEREAS, effective January 1, 1984, January 1, 1987, January 1, 1989 and
------------------------------------------------------------------------
January 1, 1994, the Plan was amended and restated in its entirety;
---------------
NOW, THEREFORE, effective January 1, 1994, except as otherwise provided,
---------------
the Employer in accordance with the provisions of the Plan pertaining to
amendments thereof, hereby amends the Plan in its entirety and restates the Plan
to provide as follows:
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it
may be amended from time to time.
1.2 "Administrator" means the person designated by the Employer pursuant to
Section 2.4 to administer the Plan on behalf of the Employer.
1.3 Affiliated a Employer" means the Employer and any corporation which is
a member of a controlled group of corporations (as defined in Code Section
414(b)) which includes the Employer; any trade or business (whether or not
incorporated) which is under common control (as defined in Code Section 414(c))
with the Employer; any organization (whether or not incorporated) which is a
member of an affiliated service group (as defined in Code Section 414(m)) which
includes the Employer; and any other entity required to be aggregated with the
Employer pursuant to Regulations under Code Section 414(o).
-1-
1.4 "Aggregate Account" means, with respect to each Participant, the value
of all accounts maintained on behalf of a Participant, whether attributable to
Employer or Employee contributions, subject to the provisions of Section 2.2.
1.5 "Anniversary Date" means DECEMBER 31ST.
1.6 "Beneficiary" means the person to whom the share of a deceased
Participant's total account is payable, subject to the restrictions of Sections
6.2 and 6.6.
1.7 "Code" means the Internal Revenue Code of 1986, as amended or replaced
from time to time.
1.8 "Compensation" with respect to any Participant means total compensation
paid by the Employer for a Calendar Year. Amounts contributed by the Employer
under the within Plan and any nontaxable fringe benefits provided by the
Employer shall not be considered as Compensation. Compensation for any Self-
Employed Individual shall be equal to his Earned Income.
For purposes of this Section, the determination of Compensation shall be
made by including salary reduction contributions made on behalf of an Employee
to a plan maintained under Code Sections 125 and 401(k)(2).
Compensation shall be recognized as of an Employee's effective date of
participation pursuant to Section 3.3.
Compensation of any Participant taken into account under the Plan for any
------------------------------------------------------------------------------
Plan Year beginning after December 31, 1993 shall not exceed $150,000 (as
-------------------------------------------------------------------------
adjusted from time to time by the Secretary of the Treasury as permitted under
------------------------------------------------------------------------------
Code Section 401 (a) (17)). In applying this limitation, the family group of a
--------------------------
Highly Compensated Participant who is subject to the Family Member aggregation
rules of Code Section 414(q)(6) because such Participant is either a "five
percent owner" of the Employer or one of the ten (10) Highly Compensated
Employees paid the greatest "415 Compensation" during the year, shall be treated
as a single Participant, except that for this purpose Family Members shall
include only the affected Participant's spouse and any lineal descendants who
have not attained age nineteen (19) before the close of the year. If, as a
result of the application of such rules the adjusted $150,000 limitation is
-----------------
exceeded, then the limitation shall be prorated among the affected Family
Members in proportion to each such Family Member's Compensation prior to the
application of this limitation.
-2-
1.9 "Contract" or "Policy" means a life insurance policy or annuity
contract (group or individual) issued by the insurer as elected.
1.10 "Early Retirement Date". This Plan does not provide for a retirement
date prior to Normal Retirement Date.
1.11 "Earned Income" means with respect to a Self-Employed Individual, the
net earnings from self-employment in the trade or business with respect to which
the Plan is established, for which the 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 Code Section 404. Additionally, for taxable
years beginning after December 31, 1989, net earnings shall be determined with
regard to the deduction allowed to the Employer by Code Section 164(f).
1.12 Eligible Employee means any employee other than Employees who are
temporary employees or interns.
1.13 "Employee" means any person who is employed by the Employer or
Affiliated Employer, but excludes any person who is an independent contractor.
Employee shall include Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and such Leased Employees do not constitute
more than 20% of the recipient's non-highly compensated work force.
1.14 "Employer" means MBIA INC. and any Participating Employer (as defined
in Section 9.1) which shall adopt this Plan; any successor which shall maintain
this Plan; and any predecessor which has maintained this Plan. The Employer is a
corporation, with principal offices in the State of New York.
1.15 "Family Member" means, with respect to an affected Participant, such
Participant's spouse, such Participant's lineal descendants and ascendants and
their spouses, all as described in Code Section 414(q)(6)(B).
1.16 "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of the Plan or has any
authority or responsibility to
-3-
do so, or (c) has any discretionary authority or discretionary responsibility in
the administration of the Plan, including, but not limited to, the Trustee, the
Employer and its representative body, and the Administrator.
1.17 "Fiscal Year" means the Employer's accounting year of 12 months
commencing on January 1st of each year and ending the following December 31st.
1.18 "Forfeiture" means that portion of a Participant's Account that is not
Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a Participant's
Account, or
(b) the last day of the Plan Year in which the Participant incurs five
(5) consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of a
Terminated Participant whose Vested benefit is zero, such Terminated Participant
shall be deemed to have received a distribution of his Vested benefit upon his
termination of employment. Restoration of such amounts shall occur pursuant to
Section 6.4. In addition, the term Forfeiture shall also include amounts deemed
to be Forfeitures pursuant to any other provision of this Plan.
1.19 "Former Participant" means a person who has been a Participant, but
who has ceased to be a Participant for any reason.
1.20 "415 Compensation" means compensation as defined in Section 4.4(d).
1.21 "Highly Compensated Employee" means an Employee described in Code
Section 414(q) and the Regulations thereunder, and generally means an Employee
who performed services for the Employer during the "determination year" and is
in one or more of the following groups:
(a) Employees who at any time during the "determination year" or look-
back year" were "five percent owners" as defined in Section 1.26(c).
(b) Employees who received "415 Compensation" during the "look-back
year" from the Employer in excess of S75,000.
-4-
(c) Employees who received "415 Compensation" during the "look-back
year" from the Employer in excess of $50,000 and were in the Top Paid Group
of Employees for the Plan Year.
(d) Employees who during the "look-back year" were officers of the
Employer (as that term is defined within the meaning of the Regulations
under Code Section 416) and received "415 Compensation" during the "look-
back year" from the Employer greater than 50 percent of the limit in effect
under Code Section 415(b)(1)(A) for any such Plan Year. The number of
officers shall be limited to the lesser of (i) 50 employees; or (ii) the
greater of 3 employees or 10 percent of all employees. For the purpose of
determining the number of officers, Employees described in Section 1.47(a),
(b), (c) and (d) shall be excluded, but such Employees shall still be
considered for the purpose of identifying the particular Employees who are
officers. If the Employer does not have at least one officer whose annual
"415 Compensation" is in excess of 50 percent of the Code Section
415(b)(1)(A) limit, then the highest paid officer of the Employer will be
treated as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100 Employees paid
the greatest "415 Compensation" during the "determination year" and are also
described in (b), (c) or (d) above when these paragraphs are modified to
substitute "determination years for "look-back year".
The "look-back year" shall be the calendar year ending with or within the
Plan Year for which testing is being performed, and the "determination year" (if
applicable) shall be the period of time, if any, which extends beyond the "look-
back year" and ends on the last day of the Plan Year for which testing is being
performed (the "lag period"). If the "lag period" is less than twelve months
long, the dollar threshold amounts specified in (b), (c) and (d) above shall be
prorated based upon the number of months in the "lag period".
For purposes of this Section, the determination of "415 Compensation" shall
be made by including amounts that would otherwise be excluded from a
Participant's gross income by reason of the application of Code Sections 125,
402(a)(8), 402(h)(1)(B) and, in the case of Employer contributions made pursuant
to a salary reduction agreement, by including amounts that would otherwise be
excluded from a Participant's gross income by reason of the application of Code
Section 403(b). Additionally, the dollar threshold amounts specified in (b) and
(c) above shall be adjusted at such time and in
-5-
such manner as is provided in Regulations. In the case of such an adjustment,
the dollar limits which shall be applied are those for the calendar year in
which the "determination year" or "look-back year" begins.
In determining who is a Highly Compensated Employee, Employees who are non-
resident aliens and who received no earned income (within the meaning of Code
Section 911(d)(2)) from the Employer constituting United States source income
within the meaning of Code Section 861(a)(3) shall not be treated as Employees.
Additionally, all Affiliated Employers shall be taken into account as a single
employer and Leased Employees within the meaning of Code Sections 414(n)(2) and
414(o)(2) shall be considered Employees unless such Leased Employees are covered
by a plan described in Code Section 414(n)(5) and are not covered in any
qualified plan maintained by the Employer. The exclusion of Leased Employees for
this purpose shall be applied on a uniform and consistent basis for all of the
Employer's retirement plans. Highly Compensated Former Employees shall be
treated as Highly Compensated Employees without regard to whether they performed
services during the "determination year".
1.22 "Highly Compensated Former Employee" means a former Employee who had a
separation year prior to the "determination year" and was a Highly Compensated
Employee in the year of separation from service or in any "determination year"
after attaining age 55. Notwithstanding the foregoing, an Employee who separated
from service prior to 1987 will be treated as a Highly Compensated Former
Employee only if during the separation year (or year preceding the separation
year) or any year after the Employee attains age 55 (or the last year ending
before the Employee's 55th birthday), the Employee either received "415
Compensation" in excess of $50,000 or was a "five percent owner". For purposes
of this Section, "determination year", "415 Compensation" and "five percent
owner" shall be determined in accordance with Section 1.21. Highly Compensated
Former Employees shall be treated as Highly Compensated Employees. The method
set forth in this Section for determining who is a "Highly Compensated Former
Employee" shall be applied on a uniform and consistent basis for all purposes
for which the Code Section 414(q) definition is applicable.
1.23 "Highly Compensated Participant" means any Highly Compensated Employee
who is eligible to participate in the Plan.
1.24 "Hour of Service" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
for the performance of duties during the applicable computation period (2) each
hour for which an Employee is directly
-6-
or indirectly compensated or entitled to compensation by the Employer
(irrespective of whether the employment relationship has terminated) for reasons
other than performance of duties (such as vacation, holidays, sickness, jury
duty, disability, lay-off, military duty or leave of absence) during the
applicable computation period; (3) each hour for which back pay is awarded or
agreed to by the Employer without regard to mitigation of damages. These hours
will be credited to the Employee for the computation period or periods to which
the award or agreement pertains rather than the computation period in which the
award, agreement or payment is made. The same Hours of Service shall not be
credited both under (1) or (2), as the case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited 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) 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 worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) 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.
For purposes of this Section, 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.
An Hour of Service must be counted for the purpose of determining a Year of
Service, a year of participation for purposes of accrued benefits, a 1-Year
Break in Service, and employment commencement date (or reemployment commencement
date). In addition, Hours of Service will be credited for employment with other
Affiliated Employers. The provisions of Department of Labor regulations
2530.200b-2(b) and (c) are incorporated herein by reference.
1.25 "Investment Manager" means an entity that (a) has the power to manage,
acquire, or dispose of Plan assets and (b) acknowledges fiduciary
-7-
responsibility to the Plan in writing. Such entity must be a person, firm, or
corporation registered as an investment adviser under the Investment Advisers
Act of 1940, a bank, or an insurance company.
1.26 "Key Employee" means an Employee as defined in Code Section 416(i)
and the Regulations thereunder. Generally, any Employee or former Employee (as
well as each of his Beneficiaries) is considered a Key Employee if he, at any
time during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is defined within the
meaning of the Regulations under Code Section 416) having annual "415
Compensation" greater than 50 percent of the amount in effect under Code
Section 415(b)(1)(A) for any such Plan Year.
(b) one of the ten employees having annual "415 Compensation" from the
Employer for a Plan Year greater than the dollar limitation in effect under
Code Section 415(c)(1)(A) for the calendar year in which such Plan Year ends
and owning (or considered as owning within the meaning of Code Section 318)
both more than one-half percent interest and the largest interests in the
Employer.
(c) a "five percent owner" of the Employer. "Five percent owner" means
any person who owns (or is considered as owning within the meaning of Code
Section 318) more than five percent (5%) of the outstanding stock of the
Employer or stock possessing more than five percent (5%) of the total
combined voting power of all stock of the Employer or, in the case of an
unincorporated business, any person who owns more than five percent (5%) of
the capital or profits interest in the Employer. In determining percentage
ownership hereunder, employers that would otherwise be aggregated under Code
Sections 414(b), (c), (m) and (o) Shall be treated as separate employers.
(d) a "one percent owner" of the Employer having an annual "415
Compensation" from the Employer of more than $150,000. "One percent owner"
means any person who owns (or is considered as owning within the meaning of
Code Section 318) more than one percent (1%) of the outstanding stock of the
Employer or stock possessing more than one percent (1%) of the total
combined voting power of all stock of the Employer or, in the case of an
unincorporated business, any person who owns more than one percent (1%) of
the capital or
-8-
profits interest in the Employer. In determining percentage ownership
hereunder, employers that would otherwise be aggregated under Code Sections
414(b), (c), (m) and (o) shall be treated as separate employers. However, in
determining whether an individual has "415 Compensation" of more than
$150,000, "415 Compensation" from each employer required to be aggregated
under Code Sections 414(b), (c), (m) and (o) shall be taken into account.
For purposes of this Section, the determination of "415 Compensation" shall
be made by including amounts that would otherwise be excluded from a
Participant's gross income by reason of the application of Code Sections 125,
402(a)(8), 402(h)(1)(B) and, in the case of Employer contributions made pursuant
to a salary reduction agreement, by including amounts that would otherwise be
excluded from a Participant's gross income by reason of the application of Code
Section 403(b).
1.27 "Late Retirement Date" means the first day of the month coinciding
with or next following a Participant's actual Retirement Date after having
reached his Normal Retirement Date.
1.28 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided 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. 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:
(1) a non-integrated employer contribution rate of at least 10% of
compensation, as defined in Code Section 415(c)(3), but including
amounts contributed pursuant to a salary reduction agreement which are
excludable from the employee's gross income under Code Sections 125,
402(a)(8), 402(h) or 403(b);
-9-
(2) immediate participation; and
(3) full and immediate vesting.
(b) Leased Employees do not constitute more than 20% of the recipient's
non-highly compensated work force.
1.29 "Non-Highly Compensated Participant" means any Participant who is
neither a Highly Compensated Employee nor a Family Member.
1.30 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.31 "Normal Retirement Date" means the first day of the month coinciding
with or next following the Participant's Normal Retirement Age (65TH birthday).
A Participant shall become fully Vested in his Account upon attaining his Normal
Retirement Age.
1.32 "1-Year Break in Service" means the applicable computation period
during which an Employee has not completed more than 500 Hours of Service with
the Employer. Further, solely for the purpose of determining whether a
Participant has incurred a 1-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity and paternity
leaves of absence." Years of Service and 1-Year Breaks in Service shall be
measured on the same computation period.
"Authorized leave of absence" means an unpaid, temporary cessation from
active employment with the Employer pursuant to an established nondiscriminatory
policy, whether occasioned by illness, military service, or any other reason.
A "maternity or paternity leave of absence" means, for Plan Years beginning
after December 31, 1984, an absence from work for any period by reason of the
Employee's pregnancy, birth of the Employee's child, placement of a child with
the Employee in connection with the adoption of such child, or any absence for
the purpose of caring for such child for a period immediately following such
birth or placement. For this purpose, Hours of Service shall be credited for the
computation period in which the absence from work begins, only if credit
therefore is necessary to prevent the Employee from incurring a 1-Year Break in
Service, or, in any other case, in the immediately following computation period.
The Hours of Service credited for a "maternity or paternity leave of absence"
shall be those which would normally have been credited but for such absence, or,
in any case in which the Administrator is unable to determine such hours
-10-
normally credited, eight (8) Hours of Service per day. The total Hours of
Service required to be credited for a "maternity or paternity leave of absence"
shall not exceed 501.
1.33 "Owner-Employee" means a sole proprietor who owns the entire interest
in the Employer or a partner who owns more than 10% of either the capital
interest or the proof its interest in the Employer and who receives income for
personal services from the Employer.
1.34 "Participant" means any Eligible Employee who participates in the Plan
as provided in Sections 3.2 and 3.3, and has not for any reason become
ineligible to participate further in the Plan.
1.35 "Participant's Account" means the account established and maintained
by the Administrator for each Participant with respect to his total interest in
the Plan resulting from the Employer's contributions.
1.36 "Plan" means this instrument, including all amendments thereto.
1.37 "Plan Year" means the Plan's accounting year of twelve (12) months
commencing on January 1st of each year and ending the following December 31st.
1.38 "Pre-Retirement Survivor Annuity" is an immediate annuity for the life
of the Participant's spouse the payments under which must be equal to the amount
of benefit which can be purchased with the accounts of a Participant used to
provide the death benefit under the Plan.
1.39 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
1.40 "Retired Participant" means a person who has been a Participant, but
who has become entitled to retirement benefits under the Plan.
1.41 "Retirement Date" means the date as of which a Participant retires for
reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date or Late Retirement Date (see
Section 6.1).
1.42 "Self-Employed Individual" means an individual who has earned income
for the taxable year from the trade or business for which the Plan is
established, and, also, an individual who would have had earned income but for
the fact that the trade or business had no net profits for the taxable year. A
-11-
Self-Employed Individual shall be treated as an Employee.
1.43 "Super Top Heavy Plan" means a plan described in Section 2.2(b).
1.44 "Terminated Participant" means a person who has been a Participant,
but whose employment has been terminated other than by death, Total and
Permanent Disability or retirement.
1.45 "Top Heavy Plan" means a plan described in Section 2.2(a).
1.46 "Top Heavy Plan Year" means a Plan Year commencing after December 31,
1983 during which the Plan is a Top Heavy Plan.
1.47 "Top Paid Group" means the top 20 percent of Employees who performed
services for the Employer during the applicable year, ranked according to the
amount of "415 Compensation" (determined for this purpose in accordance with
Section 1.21) received from the Employer during such year. All Affiliated
Employers shall be taken into account as a single employer, and Leased Employees
within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered
Employees unless such Leased Employees are covered by a plan described in Code
Section 414(n)(5) and are not covered in any qualified plan maintained by the
Employer. Employees who are non-resident aliens and who received no earned
income (within the meaning of Code Section 911(d)(2)) from the Employer
constituting United States source income within the meaning of Code Section
861(a)(3) shall not be treated as Employees. Additionally, for the purpose of
determining the number of active Employees in any year, the following additional
Employees shall also be excluded; however, such Employees shall still be
considered for the purpose of identifying the particular Employees in the Top
Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17-1/2 hours per week;
(c) Employees who normally work less than six (6) months during a year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer are
covered under agreements the Secretary of Labor finds to be collective
-12-
bargaining agreements between Employee representatives and the Employer, and the
Plan covers only Employees who are not covered under such agreements, then
Employees covered by such agreements shall be excluded from both the total
number of active Employees as well as from the identification of particular
Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be applied on a
uniform and consistent basis for all purposes for which the Code Section 414 (q)
definition is applicable.
1.48 "Total and Permanent Disability" means a physical or mental condition
of a Participant resulting from bodily injury, disease, or mental disorder which
renders him incapable of continuing his usual and customary employment with the
Employer. The disability of a Participant shall be determined by a licensed
physician chosen by the Administrator. The determination shall be applied
uniformly to all Participants.
1.49 "Trustee" means the person or entity named as trustee herein or in any
separate trust forming a part of this Plan, and any successors.
1.50 "Trust Fund" means the assets of the Plan and Trust as the same shall
exist from time to time.
1.51 "Vested" means the nonforfeitable portion of any account maintained on
behalf of a Participant .
1.52 "Voluntary Contribution Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan resulting from the Participant's nondeductible voluntary
contributions made pursuant to Section 4.7.
1.53 "Year of Service" means the computation period of twelve (12)
consecutive months, herein set forth, during which an Employee has at least 1000
Hours of Service.
For purposes of eligibility for participation, the initial computation
period shall begin with the date on which the Employee first performs an Hour of
Service. The participation computation period beginning after a 1-Year Break in
Service shall be measured from the date on which an Employee again performs an
Hour of Service. The participation computation period shall shift to the Plan
Year which includes the anniversary of the date on which the Employee first
performed an Hour of Service. An Employee who is credited with the required
Hours of Service in both the initial computation period (or the computation
period beginning after a 1-Year Break in
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Service) and the Plan Year which includes the anniversary of the date on which
the Employee first performed an Hour of Service, shall be credited with two (2)
Years of Service for purposes of eligibility to participate.
For vesting purposes, the computation period shall be the Plan Year,
including periods prior to the Effective Date of the Plan.
For all other purposes, the computation period shall be the Plan Year.
Years of Service with any Affiliated Employer shall be recognized.
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special vesting
requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the
special minimum allocation requirements of Code Section 416(c) pursuant to
Section 4.3 of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year commencing after
December 31, 1983 in which, as of the Determination Date, (1) the Present Value
of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts
of Key Employees under this Plan and all plans of an Aggregation Group, exceeds
sixty percent (60%) of the Present Value of Accrued Benefits and the Aggregate
Accounts of all Key and Non-Key Employees under this Plan and all plans of an
Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year, but such
Participant was a Key Employee for any prior Plan Year, such Participant's
Present Value of Accrued Benefit and/or Aggregate Account balance shall not be
taken into account for purposes of determining whether this Plan is a Top Heavy
or Super Top Heavy Plan (or whether any Aggregation Group which includes this
-----
Plan is a Top Heavy Group). In addition, for Plan Years beginning after December
31, 1984, if a Participant or Former Participant has not performed any services
for any Employer maintaining the Plan at any time during the five year period
ending on the Determination Date, any accrued benefit for such Participant or
Former
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Participant shall not be taken into account for the purposes of determining
whether this Plan is a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan Year commencing
after December 31, 1983 in which, as of the Determination Date, (1) the Present
Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate
Accounts of Key Employees under this Plan and all plans of an Aggregation Group,
exceeds ninety percent (90%) of the Present Value of Accrued Benefits and the
Aggregate Accounts of all Key and Non-Key Employees under this Plan and all
plans of an Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate Account as of the
Determination Date is the sum of:
(1) his Participant's Account balance as of the most recent valuation
occurring within a twelve (12) month period ending on the Determination
Date;
(2) contributions that would be allocated as of a date not later than
the Determination Date, even though those amounts are not yet made or
required to be made.
(3) any Plan distributions made within the Plan Year that includes the
Determination Date or within the four (4) preceding Plan Years. However, in
the case of distributions made after the valuation date and prior to the
Determination Date, such distributions are not included as distributions for
top heavy purposes to the extent that such distributions are already
included in the Participant's Aggregate Account balance as of the valuation
date. Notwithstanding anything herein to the contrary, all distributions,
including distributions made prior to January 1, 1984, and distributions
under a terminated plan which if it had not been terminated would have been
required to be included in an Aggregation Group, will be counted. Further,
distributions from the Plan (including the cash value of life insurance
policies) of a Participant's account balance because of death shall be
treated as a distribution for the purposes of this paragraph.
(4) any Employee contributions, whether voluntary or mandatory.
However, amounts attributable to tax deductible qualified
-15-
voluntary employee contributions shall not be considered to be a part of the
Participant's Aggregate Account balance.
(5) with respect to unrelated rollovers and plan-to-plan transfers
(ones which are both initiated by the Employee and made from a plan
maintained by one employer to a plan maintained by another employer), if
this Plan provides the rollovers or plan-to-plan transfers, it shall always
consider such rollovers or plan-to-plan transfers as a distribution for the
purposes of this Section. If this Plan is the plan accepting such rollovers
or plan-to-plan transfers, it shall not consider such rollovers or plan-to-
plan transfers accepted after December 31, 1983 as part of the Participant's
Aggregate Account balance. However, rollovers or plan-to-plan transfers
accepted prior to January 1, 1984 shall be considered as part of the
Participant's Aggregate Account balance.
(6) with respect to related rollovers and plan-to-plan transfers (ones
either not initiated by the Employee or made to a plan maintained by the
same employer), if this Plan provides the rollover or plan-to-plan transfer,
it shall not be counted as a distribution for purposes of this Section. If
this Plan is the plan accepting such rollover or plan-to-plan transfer, it
shall consider such rollover or plan-to-plan transfer as part of the
Participant's Aggregate Account balance, irrespective of the date on which
such rollover or plan-to plan transfer is accepted.
(7) For the purposes of determining whether two employers are to be
treated as the same employer in (5) and (6) above, all employers aggregated
under Code Section 414(b), (c), (m) and (o) are treated as the same
employer.
(d) "Aggregation Group" means either a Required Aggregation Group or a
Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required Aggregation
Group hereunder, each plan of the Employer in which a Key Employee is a
participant in the Plan Year containing the Determination Date or any of the
four preceding Plan Years, and each other plan of the Employer which enables
any
-16-
plan in which a Key Employee participates to meet the requirements of Code
Sections 401(a)(4) or 410, will be required to be aggregated. Such group
shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the group will be
considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy
Group. No plan in the Required Aggregation Group will be considered a Top
Heavy Plan if the Required Aggregation Group is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also include any
other plan not required to be included in the Required Aggregation Group,
provided the resulting group, taken as a whole, would continue to satisfy
the provisions of Code Sections 401(a)(4) and 410. Such group shall be known
as a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a plan that is part of
the Required Aggregation Group will be considered a Top Heavy Plan if the
Permissive Aggregation Group is a Top Heavy Group. No plan in the Permissive
Aggregation Group will be considered a Top Heavy Plan if the Permissive
Aggregation Group is not a Top Heavy Group.
(3) Only those plans of the Employer in which the Determination Dates
fall within the same calendar year shall be aggregated in order to determine
whether such plans are Top Heavy Plans.
(4) An Aggregation Group shall include any terminated plan of the
Employer if it was maintained within the last five (5) years ending on the
Determination Date.
(e) "Determination Date" means (a) the last day of the preceding Plan Year,
or (b) in the case of the first Plan Year, the last day of such Plan Year.
(f) Present Value of Accrued Benefit: In the case of a defined benefit
plan, the Present Value of Accrued Benefit for a Participant other than a Key
Employee, shall be as determined using the single accrual method used for all
plans of the Employer and Affiliated Employers, or if no such single method
exists, using a method which results in benefits accruing not more rapidly than
the
-17-
slowest accrual rate permitted under Code Section 411(b)(1)(C). The
determination of the Present Value of Accrued Benefit shall 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.
(g) "Top Heavy Group" means an Aggregation Group in which, as of the
Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees under all
defined benefit plans included in the group, and
(2) the Aggregate Accounts of key Employees under all defined
contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum determined for all
Participants.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove the Trustee and
the Administrator from time to time as it deems necessary for the proper
administration of the Plan to assure that the Plan is being operated for the
exclusive benefit of the Participants and their Beneficiaries in accordance with
the terms of the Plan, the Code, and the Act.
(b) The Employer shall establish a "funding policy and method", i.e., it
shall determine whether the Plan has a short run need for liquidity (e.g., to
pay benefits) or whether liquidity is a long run goal and investment growth (and
stability of same) is a more current need, or shall appoint a qualified person
to do so. The Employer or its delegate shall communicate such needs and goals to
the Trustee, who shall coordinate such Plan needs with its investment policy.
The communication of such a "funding policy and method" shall not, however,
constitute a directive to the Trustee as to investment of the Trust Funds. Such
"funding policy and method" shall be consistent with the objectives of this Plan
and with the requirements of Title I of the Act.
(c) The Employer shall periodically review the performance of any Fiduciary
or other person to whom duties have been delegated or allocated by
-18-
it under the provisions of this Plan or pursuant to procedures established
hereunder. This requirement may be satisfied by formal periodic review by the
Employer or by a qualified person specifically designated by the Employer,
through day-to-day conduct and evaluation, or through other appropriate ways.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any person,
including, but not limited to, the Employees of the Employer, shall be eligible
to serve as an Administrator. Any person 80 appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator may
resign by delivering his written resignation to the Employer or be removed by
the Employer by delivery of written notice of removal, to take effect at a date
specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an Administrator, shall
promptly designate in writing a successor to this position. If the Employer does
not appoint an Administrator, the Employer will function as the Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the responsibilities
of each Administrator may be specified by the Employer and accepted in writing
by each Administrator. In the event that no such delegation is made by the
Employer, the Administrators may allocate the responsibilities among themselves,
in which event the Administrators shall notify the Employer and the Trustee in
writing of such action and specify the responsibilities of each Administrator.
The Trustee thereafter shall accept and rely upon any documents executed by the
appropriate Administrator until such time as the Employer or the Administrators
file with the Trustee a written revocation of such designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer the Plan
for the exclusive benefit of the Participants and their Beneficiaries, subject
to the specific terms of the Plan. The Administrator shall administer the Plan
in accordance with its terms and shall have the power and discretion to construe
the terms of the Plan and to determine all questions arising in connection with
the administration, interpretation, and application of the Plan. Any such
determination by the Administrator shall be conclusive
-19-
and binding upon all persons. The Administrator may establish procedures,
correct any defect, supply any information, or reconcile any inconsistency in
such manner and to such extent as shall be deemed necessary or advisable to
carry out the purpose of the Plan; provided, however, that any procedure,
discretionary act, interpretation or construction shall be done in a
nondiscriminatory manner based upon uniform principles consistently applied and
shall be consistent with the intent that the Plan shall continue to be deemed a
qualified plan under the terms of Code Section 401(a), and shall comply with the
terms of the Act and all regulations issued pursuant thereto. The Administrator
shall have all powers necessary or appropriate to accomplish his duties under
this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to the
eligibility of Employees to participate or remain a Participant hereunder
and to receive benefits under the Plan;
(b) to compute, certify, and direct the Trustee with respect to the
amount and the kind of benefits to which any Participant shall be entitled
hereunder;
(c) to authorize and direct the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the Trust;
(d) to maintain all necessary records for the administration of the
Plan
(e) to interpret the provisions of the Plan and to make and publish
such rules for regulation of the Plan as are consistent with the terms
hereof;
(f) to determine the size and type of any Contract to be purchased from
any insurer, and to designate the insurer from which such Contract shall be
purchased;
(g) to compute and certify to the Employer and to the Trustee from time
to time the sums of money necessary or desirable to be contributed to the
Plan;
(h) to consult with the Employer and the Trustee regarding the short
and long-term liquidity needs of the Plan in order that the Trustee can
exercise any investment discretion in
-20-
a manner designed to accomplish specific objectives;
(i) to prepare and distribute to Employees a procedure for notifying
Participants and Beneficiaries of their rights to elect joint and survivor
annuities and Pre-Retirement Survivor Annuities as required by the Act and
Regulations thereunder;
(j) to assist any Participant regarding his rights, benefits, or
elections available under the Plan.
Any determination made by the Administrator shall be given deference in the
event it is subject to judicial review and shall be overturned only if it is
arbitrary and capricious.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall keep
all other books of account, records, and other data that may be necessary for
proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the Administrator,
may appoint counsel, specialists, advisers, and other persons as the
Administrator or the Trustee deems necessary or desirable in connection with the
administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer shall
supply full and timely information to the Administrator on all matters relating
to the Compensation of all Participants, their Hours of Service, their Years of
Service, their retirement, death, disability, or termination of employment, and
such other pertinent facts as the Administrator may require; and the
Administrator shall advise the Trustee of such of the foregoing facts as may be
pertinent to the Trustee's duties under the Plan. The Administrator may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
-21-
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund unless
paid by the Employer. Such expenses shall include any expenses incident to the
functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs of
administering the Plan. Until paid, the expenses shall constitute a liability of
the Trust Fund. However, the Employer may reimburse the Trust Fund for any
administration expense incurred. Any administration expense paid to the Trust
Fund as a reimbursement shall not be considered an Employer contribution.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of administrative
authority pursuant to Section 2.5, if there shall be more than one
Administrator, they shall act by a majority of their number, but may authorize
one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed with the Administrator on
forms supplied by the Employer. Written notice of the disposition of a claim
shall be furnished to the claimant within 90 days after the application is
filed. In the event the claim is denied, the reasons for the denial shall be
specifically set forth in the notice in language calculated to be understood by
the claimant, pertinent provisions of the Plan shall be cited, and, where
appropriate, an explanation as to how the claimant can perfect the claim will be
provided. In addition, the claimant shall be furnished with an explanation of
the Plan's claims review procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been
denied a benefit by a decision of the Administrator pursuant to Section 2.12
shall be entitled to request the Administrator to give further consideration to
his claim by filing with the Administrator (on a form which may be obtained from
the Administrator) a request for a hearing. Such request, together with a
written statement of the reasons why the claimant believes his claim should be
allowed, shall be filed with the Administrator no later than 60 days after
receipt of the written notification provided for in Section 2.12. The
Administrator shall then conduct a hearing within the next 60 days, at which the
-22-
claimant may be represented by an attorney or any other representative of his
choosing and at which the claimant shall have an opportunity to submit written
and oral evidence and arguments in support of his claim. At the hearing (or
prior thereto upon 5 business days written notice to the Administrator) the
claimant or his representative shall have an opportunity to review all documents
in the possession of the Administrator which are pertinent to the claim at issue
and its disallowance. Either the claimant or the Administrator may cause a court
reporter to attend the hearing and record the proceedings. In such event, a
complete written transcript of the proceedings shall be furnished to both
parties by the court reporter. The full expense of any such court reporter and
such transcripts shall be borne by the party causing the court reporter to
attend the hearing. A final decision as to the allowance of the claim shall be
made by the Administrator within 60 days of receipt of the appeal (unless there
has been an extension of 60 days due to special circumstances, provided the
delay and the special circumstances occasioning it are communicated to the
claimant within the 60 day period). Such communication shall be written in a
manner calculated to be understood by the claimant and shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
3.1. CONDITIONS OF ELIGIBILITY
Any Eligible Employee who has completed six (6) Months of Service and has
attained age 21 shall be eligible to participate hereunder as of the date he has
satisfied such requirements. However, any Employee who was a Participant in the
Plan prior to the effective date of this amendment and restatement shall
continue to participate in the Plan. The Employer shall give each prospective
Eligible Employee written notice of his eligibility to participate in the Plan
prior to the close of the Plan Year in which he first becomes an Eligible
Employee.
For purposes of this Section, an Eligible Employee will be deemed to have
completed six ( 6) Months of Service if he is in the employ of the Employer at
any time six (6) months after his employment commencement date. Employment
commencement date shall be the first day that he is entitled to be credited with
an Hour of Service for the performance of duty.
-23-
3.2. APPLICATION FOR PARTICIPATION
In order to become a Participant hereunder, each Eligible Employee shall
make application to the Employer for participation in the Plan and agree to the
terms hereof. Upon the acceptance of any benefits under this Plan, such Employee
shall automatically be deemed to have made application and shall be bound by the
terms and conditions of the Plan and all amendments hereto.
3.3. EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant effective as of the earlier
of the first day of the Plan Year or the first day of the seventh month of such
Plan Year coinciding with or next following the date such Employee met the
eligibility requirements of Section 3.1, provided said Employee was still
employed as of such date (or if not employed on such date, as of the date of
rehire if a 1-Year Break in Service has not occurred).
3.4. DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the Employer. Such
determination shall be conclusive and binding upon all persons, as long as the
same is made pursuant to the Plan and the Act. Such determination shall be
subject to review per Section 2.13.
3.5. TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a classification of an
Eligible Employee to an ineligible Employee, such Former Participant shall
continue to vest in his interest in the Plan for each Year of Service
completed while a noneligible Employee, until such time as his Participant's
Account shall be forfeited or distributed pursuant to the terms of the Plan.
Additionally, his interest in the Plan shall continue to share in the
earnings of the Trust Fund.
-24-
(b) In the event a Participant is no longer a member of an eligible
class of Employees and becomes ineligible to participate but has not
incurred a 1-Year Break in Service, such Employee will participate
immediately upon returning to an eligible class of Employees. If such
Participant incurs a 1-Year Break in Service, eligibility will be determined
under the break in service rules of the Plan.
(c) In the event an Employee who is not a member of an eligible class
of Employees becomes a member of an eligible class, such Employee will
participate immediately if such Employee has satisfied the minimum age and
service requirements and would have otherwise previously become a
Participant.
3.6. OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a Participant
in the Plan is erroneously omitted and discovery of such omission is not made
until after a contribution by his Employer for the year has been made, the
Employer shall make a subsequent contribution with respect to the omitted
Employee in the amount which the said Employer would have contributed with
respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any taxable
year under applicable provisions of the Code.
3.7. INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a contribution for the year has been made, the
Employer shall not be entitled to recover the contribution made with respect to
the ineligible person regardless of whether or not a deduction is allowable with
respect to such contribution. In such event, the amount contributed with respect
to the ineligible person shall constitute a Forfeiture for the Plan Year in
which the discovery is made.
3.8. ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect voluntarily
not to participate in the Plan. The election not to participate must be
communicated to the Employer, in writing, at least thirty (30) days before the
beginning of a Plan Year. Furthermore, the foregoing election not to participate
-25-
shall not be available with respect to partners in a partnership.
3.9. OWNER-EMPLOYEE LIMITATION
(a) If this Plan provides contributions or benefits for one or more Owner-
Employees who control both the business for which this Plan is established and
one or more other trades or businesses, this Plan and the plan established for
other trades or businesses must, when looked at as a single plan, satisfy Code
Sections 401(a) and (d) for the employees of this and all other trades or
businesses.
(b) If the Plan provides contributions or benefits for one or more Owner-
Employees who control one or more other trades or businesses, the employees of
the other trades or businesses must be included in a plan which satisfies Code
Sections 401(a) and (d) and which provides contributions and benefits not less
favorable than provided for Owner-Employees under this Plan.
(c) If an individual is covered as an Owner-Employee under the plans of two or
more trades or businesses which are not controlled and the individual controls a
trade or business, then the contributions or benefits of the employees under the
plan of the trades or businesses which are controlled must be as favorable as
those provided for him under the most favorable plan of the trade or business
which is not controlled.
(d) For purposes of the preceding paragraphs, an Owner-Employee, or two or more
Owner-Employees, will be considered to control a trade or business if the Owner-
Employee, or two or more Owner-Employees together: .
(1) own the entire interest in an unincorporated trade or business, or
(2) in the case of a partnership, own more than 50 percent of either the capital
interest or the profits interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more Owner-
Employees, shall be treated as owning any interest in a partnership which is
owned, directly or indirectly, by a partnership which such Owner-Employee, or
such two or more Owner-Employees, are considered to control within the meaning
of the preceding sentence.
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ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1. FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
(a) The Employer shall make contributions over such period of years as
the Employer may determine on the following basis. On behalf of each
Participant eligible to share in allocations, for each year of his
participation in this Plan, the Employer shall contribute 10% of his annual
Compensation.
(b) Should the Employer, for any reason, fail to make a contribution
for any year or should the Employer fail to make a contribution as provided
for herein, then such deficiency shall be made up in subsequent years
pursuant to Section 8.16.
(c) Notwithstanding the foregoing, the Employer's contribution for any
Plan Year shall not exceed the maximum amount allowable as a deduction to
the Employer under the provisions of Code Section 404. However, to the
extent necessary to provide the top heavy minimum allocations, the Employer
shall make a contribution even if it exceeds the amount which is deductible
under Code Section 404.
(d) The Employer shall not contribute on behalf of any Participant who
is not entitled to share in the allocation of the Employer's contribution as
provided in Section 4.3(d) unless otherwise required pursuant to Section
4.3(g).
4.2. TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall pay to the Trustee its contribution to the Plan for each
Plan Year within the time prescribed by law, including extensions of time, for
the filing of the Employer's federal income tax return for the Fiscal Year.
4.3. ACCOUNTING AND ALLOCATIONS
(a) The Administrator shall establish and maintain an account in the
name of each Participant to which the Administrator shall credit as of each
Anniversary Date all amounts allocated to each such Participant as set forth
herein.
(b) The Employer shall provide the Administrator with all information
required by the
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Administrator to make a proper allocation of the Employer's contribution for
each Plan Year. Within a reasonable period of time after the date of receipt by
the Administrator of such information, the Administrator shall allocate such
contribution to each Participant's Account in accordance with Section 4.1.
(c) As of each Anniversary Date any amounts which became Forfeitures
since the last Anniversary Date shall first be made available to reinstate
previously forfeited account balances of Former Participants, if any, in
accordance with Section 6.4(g). The remaining Forfeitures, if any, shall be
used to reduce the contribution of the Employer hereunder for the Plan Year
in which such Forfeitures occur.
(d) Participants shall be eligible to share in the allocation of
contributions for a Plan Year in accordance with the following:
(1) Only Participants who have completed a Year of Service during
the Plan Year and are actively employed on the last day of the Plan
Year shall be eligible to share in the allocation of contributions for
that Plan Year.
(2) Notwithstanding the foregoing, Participants who are not
actively employed on the last day of the Plan Year due to Retirement
(Normal or Late), Total and Permanent Disability or death shall be
eligible to share in the allocation of contributions for that Plan
Year.
(3) For any Top Heavy Plan Year, Non-Key Employees not otherwise
eligible to share in the allocation of contributions as provided above,
shall receive the minimum allocation provided for in Section 4.3(f) if
eligible pursuant to the provisions of Section 4.3(g).
(e) As of each Anniversary Date or other valuation date, before
allocation of Employer contributions, any earnings or losses (net
appreciation or net depreciation) of the Trust Fund shall be allocated in
the same proportion that each Participant's and Former Participant's
nonsegregated accounts bear to the total of all Participants' and Former
Participants' nonsegregated accounts as of such date.
Participants' transfers from other qualified plans deposited in the general
Trust Fund after a valuation
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date shall not share in any earnings and losses (net appreciation or net
depreciation) of the Trust Fund for such period. Each segregated account
maintained on behalf of a Participant shall be credited or charged with its
separate earnings and losses.
(f) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the
Employer's contributions allocated to the Participant's Account of each Non-
Key Employee shall be equal to at least three percent (3%) of such Non-Key
Employee's "415 Compensation" (reduced by contributions and forfeitures, if
any, allocated to each Non-Key Employee in any defined contribution plan
included with this plan in a Required Aggregation Group). However, if (i)
the sum of the Employer's contributions allocated to the Participant's
Account of each Key Employee for such Top Heavy Plan Year is less than three
percent (3%) of each Key Employee's "415 Compensation" and (ii) this Plan is
not required to be included in an Aggregation Group to enable a defined
benefit plan to meet the requirements of Code Section 401(a)(4) or 410, the
sum of the Employer's contributions allocated to the Participant's Account
of each Non-Key Employee shall be equal to the largest percentage allocated
to the Participant's Account of any Key Employee.
(g) For any Top Heavy Plan Year, the minimum allocations set forth
above shall be allocated to the Participant's Account of all Non-Key
Employees who are Participants and who are employed by the Employer on the
last day of the Plan Year, including Non-Key Employees who have (1) failed
to complete a Year of Service, and (2) declined to make mandatory
contributions (if required) to the Plan.
(h) For the purposes of this Section, "415 Compensation" shall be
limited to $150,000 (unless adjusted in such manner as permitted under Code
--------
Section 401(a)(17)).
----------
(i) If a Former Participant is reemployed after five consecutive 1-Year
Breaks in Service, then separate accounts shall be maintained as follows:
(1) one account for nonforfeitable benefits attributable to pre-
break service; and
(2) one account representing his status in the Plan attributable
to post-break service.
(j) Notwithstanding anything to the contrary, for Plan Years beginning
after December 31, 1989, if this
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is a Plan that would otherwise fail to meet the requirements of Code Sections
401(a)(26), 410(b)(1) or 410(b)(2)(A)(i) and the Regulations thereunder because
Employer contributions have not been allocated to a sufficient number or
percentage of Participants for a Plan Year, then the following rules shall
apply:
(1) The group of Participants eligible to share in the Employer's
contribution for the Plan Year shall be expanded to include the minimum
number of Participants who would not otherwise be eligible as are necessary
to satisfy the applicable test specified above. The specific Participants
who shall become eligible under the terms of this paragraph shall be those
who are actively employed on the last day of the Plan Year and, when
compared to similarly situated Participants, have completed the greatest
number of Hours of Service in the Plan Year.
(2) If after application of paragraph (1) above, the applicable test is
still not satisfied, then the group of Participants eligible to share in the
Employer's contribution for the Plan Year shall be further expanded to
include the minimum number of Participants who are not actively employed on
the last day of the Plan Year as are necessary to satisfy the applicable
test. The specific Participants who shall become eligible to share shall be
those Participants, when compared to similarly situated Participants, who
have completed the greatest number of Hours of Service in the Plan Year
before terminating employment.
(3) Nothing in this Section shall permit the reduction of a
Participant's accrued benefit. Therefore any amounts that have previously
been allocated to Participants may not be reallocated to satisfy these
requirements. In such event, the Employer shall make an additional
contribution equal to the amount such affected Participants would have
received had they been included in the allocations, even if it exceeds the
amount which would be deductible under Code Section 404. Any adjustment to
the allocations pursuant to this paragraph shall be considered a retroactive
amendment adopted by the last day of the Plan Year.
4.4 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum "annual additions" credited
to a Participant's accounts for any "limitation year" shall equal the lesser of:
(1) $30,000 (or, if greater, one-fourth of the dollar limitation in effect under
Code Section 415(b)(1)(A))
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or (2) 25% of the Participant's "415 Compensation" for such "limitation year".
(b) For purposes of applying the limitations of Code Section 415, "annual
additions" means the sum credited to a Participant's accounts for any
"limitation year" of (1) Employer contributions, (2) Employee contributions for
"limitation years" beginning after December 31, 1986, (3) forfeitures, (4)
amounts allocated, after March 31, 1984, to an individual medical account, as
defined in Code Section 415(i)(2) which is part of a pension or annuity plan
maintained by the Employer and (5) amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after such date, which
are attributable to post-retirement medical benefits allocated to the separate
account of a key employee (as defined in Code Section 419A(d)(3)) under a
welfare benefit plan (as defined in Code Section 419(e)) maintained by the
Employer. Except, however, the "415 Compensation" percentage limitation referred
to in paragraph (a)(2) above shall not apply to: (1) any contribution for
medical benefits (within the meaning of Code Section 419A(f)(2)) after
separation from service which is otherwise treated as an "annual addition", or
(2) any amount otherwise treated as an "annual addition" under Code Section
415(1)(1).
(c) For purposes of applying the limitations of Code Section 415, the
transfer of funds from one qualified plan to another is not an Annual addition".
In addition, the following are not Employee contributions for the purposes of
Section 4.4(b)(2): (1) rollover contributions (as defined in Code Sections
402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments of loans made to
a Participant from the Plan; (3) repayments of distributions received by an
Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (4) repayments of
distributions received by an Employee pursuant to Code Section 411(a)(3)(D)
(mandatory contributions); and (5) Employee contributions to a simplified
employee pension excludable from gross income under Code Section 408(k)(6).
(d) For purposes of applying the limitations of Code Section 415, "415
Compensation" shall mean compensation as defined in Regulation Section
1.415-2(d) (1) and (2).
(e) For purposes of applying the limitations of Code Section 415, the
"limitation year" shall be the Calendar Year.
(f) The dollar limitation under Code Section 415(b)(1)(A) stated in
paragraph (a)(1) above shall be adjusted annually as provided in Code Section
415(d)
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pursuant to the Regulations. The adjusted limitation is effective as of January
1st of each calendar year and is applicable to "limitation years" ending with or
within that calendar year.
(g) For the purpose of this Section, all qualified defined benefit plans
(whether terminated or not) ever maintained by the Employer shall be treated as
one defined benefit plan, and all qualified defined contribution plans (whether
terminated or not) ever maintained by the Employer shall be treated as one
defined contribution plan.
(h) For the purpose of this Section, if the Employer is a member of a
controlled group of corporations, trades or businesses under common control (as
defined by Code Section 1563(a) or Code Section 414(b) and (c) as modified by
Code Section 415(h)), is a member of an affiliated service group (as defined by
Code Section 414(m)), or is a member of a group of entities required to be
aggregated pursuant to Regulations under Code Section 414(o), all Employees of
such Employers shall be considered to be employed by a single Employer.
(i) For the purpose of this Section, if this Plan is a Code Section 413(c)
plan, all Employers of a Participant who maintain this Plan will be considered
to be a single Employer.
(j)(1) If a Participant participates in more than one defined contribution
plan maintained by the Employer which have different Anniversary Dates, the
maximum "annual additions n under this Plan shall equal the maximum "annual
additions" for the "limitation year" minus any "annual additions" previously
credited to such Participant's accounts during the "limitation year".
(2) If a Participant participates in both a defined contribution plan
subject to Code Section 412 and a defined contribution plan not subject to Code
Section 412 maintained by the Employer which have the same Anniversary Date,
"annual additions" will be credited to the Participant's accounts under the
defined contribution plan subject to Code Section 412 prior to crediting "annual
additions" to the Participant's accounts under the defined contribution plan
not subject to Code Section 412.
(3) If a Participant participates in more than one defined contribution
plan subject to Code Section 412 maintained by the Employer which has the same
Anniversary Date, the maximum Annual additions under this Plan shall equal the
product of (A) the maximum "annual additions" for the Limitation years minus any
"annual additions" previously credited under
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subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the numerator
of which is the "annual additions" which would be credited to such
Participant's accounts under this Plan without regard to the limitations of Code
Section 415 and (ii) the denominator of which is such "annual additions" for
all plans described in this subparagraph.
(k) If an Employee is (or has been) a Participant in one or more defined
benefit plans and one or more defined contribution plans maintained by the
Employers the sum of the defined benefit plan fraction and the defined
contribution plan fraction for any "limitation year" may not exceed 1.0.
(l) The defined benefit plan fraction for any "limitation year" is a
fraction, the numerator of which is the sum of the Participant's projected
annual benefits under all the defined benefit plans (whether or not terminated)
maintained by the Employer, and the denominator of which is the lesser of 125
percent of the dollar limitation determined for the "limitation year" under Code
Sections 415(b) and (d) or 140% of the highest average compensation, including
any adjustments under Code Section 415(b).
Notwithstanding the above, if the Participant was a Participant as of the
first day of the first "limitation year" beginning after December 31, 1986, in
one or more defined benefit plans maintained by the Employer which were in
existence on May 6, 1986, the denominator of this fraction will not be less than
125% 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.
(m) The defined contribution plan fraction for any "limitation year" is a
fraction, the numerator of which is the sum of the annual additions to the
Participant's Account under all the defined contribution plans (whether or not
terminated) maintained by the Employer for the current and all prior "limitation
years" (including the annual additions attributable to the Participant's
nondeductible Employee contributions to all defined benefit plans, whether or
not terminated, maintained by the Employer, and the annual additions
attributable to all welfare benefit funds, as defined in Code Section 419(e),
and individual medical accounts, as defined in Code Section 415(1)(2),
maintained by the Employer), and the denominator of which is the sum of the
maximum
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aggregate amounts for the current and all prior "limitation years" of service
with the Employer (regardless of whether a defined contribution plan was
maintained by the Employer). The maximum aggregate amount in any "limitation
year" is the lesser of 125% of the dollar limitation determined under Code
Sections 415(b) and (d) in effect under Code Section 415(c)(1)(A) or 35 percent
of the Participant's Compensation for such year.
If the Employee was a Participant as of the end of the first day of the
first "limitation year" beginning after December 31, 1986, in one or more
defined contribution plans maintained by the Employer which were in existence on
May 6, 1986, the numerator of this fraction will be adjusted if the sum of this
fraction and the defined benefit fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal to the product of (1)
the excess of the sum of the fractions over 1.0 times (2) the denominator of
this fraction, will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they would be
computed as of the end of the last "limitation year" beginning before January 1,
1987, and disregarding any changes in the terms and conditions of the Plan made
after May 6, 1986, but using the Code Section 415 limitation applicable to the
first "limitation year" beginning on or after January 1, 1987. The annual
addition for any "limitation year" beginning before January 1, 1987 shall not be
recomputed to treat all Employee contributions as annual additions.
(n) Notwithstanding the foregoing, for any "limitation year" in which the
Plan is a Top Heavy Plan, 100% shall be substituted for 125% in Sections 4.4(1)
and 4.4(m) unless the extra minimum allocation is being provided pursuant to
Section 4.3. However, for any "limitation year" in which the Plan is a Super Top
Heavy Plan, 100% shall be substituted for 125% in any event.
(o) Notwithstanding anything contained in this Section to the contrary, the
limitations, adjustments and other requirements prescribed in this Section shall
at all times comply with the provisions of Code Section 415 and the Regulations
thereunder, the tens of which are specifically incorporated herein by reference.
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of a reasonable error in estimating a Participant's
Compensation or other facts and circumstances to which Regulation 1.415-6(b)(6)
shall be applicable, the "annual additions" under this Plan would cause the
maximum "annual additions" to be
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exceeded for any Participant, the Administrator shall (1) return any voluntary
Employee contributions credited for the "limitation year" to the extent that the
return would reduce the "excess amount" in the Participant's accounts, (2)
hold any "excess amount" remaining after the return of any voluntary Employee
contributions in a "Section 415 suspense account," (3) allocate and reallocate
the "Section 415 suspense account" in the next "limitation year" (and
succeeding "limitation years" if necessary) to all Participants in the Plan
before any Employer or Employee contributions which would constitute "annual
additions" are made to the Plan for such "limitation year" and (4) reduce
Employer contributions to the Plan for such "limitation year" by the amount of
the "Section 415 suspense account" allocated and reallocated during such
"limitation year".
(b) For purposes of this Article, "excess amount" for any Participant for a
"limitation year" shall mean the excess, if any, of (1) the "annual additions"
which would be credited to his account under the terms of the Plan without
regard to the limitations of Code Section 415 over and (2) the maximum "annual
additions" determined pursuant to Section 4.4.
(c) For purposes of this Section, "Section 415 suspense account" shall
mean an unallocated account equal to the sum of "excess amounts" for all
Participants in the Plan during the "limitation year". The "Section 415 suspense
account" shall not share in any earnings or losses of the Trust Fund.
(d) The Plan may not distribute "excess amounts", other than voluntary
Employee contributions, to Participants or Former Participants.
4.6 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may be transferred from
other qualified plans by Employees, provided that the trust from which such
funds are transferred permits the transfer to be made and the transfer will not
jeopardize the tax exempt status of the Plan or Trust or create adverse tax
consequences for the Employer. The amounts transferred shall be set up in a
separate account herein referred to as a "Participant's Rollover Account".
Such account shall be fully Vested at all times and shall not be subject to
Forfeiture for any reason.
(b) Amounts in a Participant's Rollover Account shall be held by the
Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or
distributed to the Participant, in whole or in part, except as provided in
Paragraphs (c) and (d) of this Section.
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(c) Except as permitted by Regulations (including Regulation 1.411(d)-4),
amounts attributable to elective contributions (as defined in Regulation
1.401(k)-l(g)(4)), including amounts treated as elective contributions, which
are transferred from another qualified plan in a plan-to-plan transfer shall be
subject to the distribution limitations provided for in Regulation
1.401(k)-l(d). However, the foregoing shall not otherwise permit any
distributions from this Plan by reason of a Participant's hardship.
(d) At Normal Retirement Date, or such other date when the Participant or
his Beneficiary shall be entitled to receive benefits, the fair market value of
the Participant's Rollover Account shall be used to provide additional benefits
to the Participant or his Beneficiary. Any distributions of amounts held in a
Participant's Rollover Account shall be made in a manner which is consistent
with and satisfies the provisions of Section 6.5, including, but not limited to,
all notice and consent requirements of Code Sections 417 and 411(a)(11) and the
Regulations thereunder. Furthermore, such amounts shall be considered as part of
a Participant's benefit in determining whether an involuntary cash-out of
benefits without Participant consent may be made.
(e) The Administrator may direct that employee transfers made after a
valuation date be segregated into a separate account for each Participant in a
federally insured savings account, certificate of deposit in a bank or savings
and loan association, money market certificate, or other short term debt
security acceptable to the Trustee until such time as the allocations pursuant
to this Plan have been made, at which time they may remain segregated or be
invested as part of the general Trust Fund, to be determined by the
Administrator.
(f) All amounts allocated to a Participant's Rollover Account may be
treated as a Directed Investment Account pursuant to Section 4.8.
(g) For purposes of this Section, the term "qualified plan" shall mean any
tax qualified plan under Code Section 401(a). The term "amounts transferred from
other qualified plans" shall mean: (i) amounts transferred to this Plan directly
from another qualified plan; (ii) lump-sum distributions received by an Employee
from another qualified plan which are eligible for tax free rollover to a
qualified plan and which are transferred by the Employee to this Plan within 60
days following his receipt thereof; (iii) amounts transferred to this Plan from
a conduit individual retirement account provided that the conduit individual
retirement account has no assets other than
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assets which (A) were previously distributed to the Employee by another
qualified plan as a lump-sum distribution, (B) were eligible for tax-free
rollover to a qualified plan and (C) were deposited in such conduit individual
retirement account within 60 days of receipt thereof and other than earnings on
said assets; and (iv) amounts distributed to the Employee from a conduit
individual retirement account meeting the requirements of clause (iii) above,
and transferred by the Employee to this Plan within 60 days of his receipt
thereof from such conduit individual retirement account.
(h) Prior to accepting any transfers to which this Section applies, the
Administrator may require the Employee to establish that the amounts to be
transferred to this Plan meet the requirements of this Section and may also
require the Employee to provide an opinion of counsel satisfactory to the
Employer that the amounts to be transferred meet the requirements of this
Section.
(i) Notwithstanding anything herein to the contrary, a transfer directly to
this Plan from another qualified plan (or a transaction having the effect of
such a transfer) shall only be permitted if it will not result in the
elimination or reduction of any "Section 411(d)(6) protected benefit" as
described in Section 7.1.
4.7 VOLUNTARY CONTRIBUTIONS
(a) Any voluntary Employee contributions prior to the first day of the Plan
Year beginning in 1987 shall be maintained in each Participant's Voluntary
Contribution Account. The balance in each Participant's Voluntary Contribution
Account shall be fully Vested at all times and shall not be subject to
Forfeiture for any reason.
(b) A Participant may elect to withdraw his voluntary contributions from
his Voluntary Contribution Account and the actual earnings thereon in a manner
which is consistent with and satisfies the provisions of Section 6.5, including,
but not limited to, all notice and consent requirements of Code Sections 417 and
411(a)(11) and the Regulations thereunder. If the Administrator maintains
subaccounts with respect to voluntary contributions (and earnings thereon) which
were made on or before a specified date, a Participant shall be permitted to
designate which subaccount shall be the source for his withdrawal.
(c) At Normal Retirement Date, or such other date when the Participant or
his Beneficiary shall be entitled to receive benefits, the fair market value of
the Voluntary Contribution Account shall be used to
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provide additional benefits to the Participant or his Beneficiary.
(d) All amounts allocated to a Voluntary Contribution Account may be
treated as a Directed Investment Account pursuant to Section 4.8.
4.8 DIRECTED INVESTMENT ACCOUNT
(a) The Administrator, in his sole discretion, may determine that all
Participants be permitted to direct the Trustee as to the investment of all or a
portion of the interest in any one or more of their individual account balances.
If such authorization is given by the Administrator, Participants may, subject
to a procedure established and applied in a uniform nondiscriminatory manner,
direct the Trustee in writing to invest any portion of their account in specific
assets or other investments permitted under the Plan. That portion of the
account of any Participant so directing will thereupon be considered a Directed
Investment Account, which shall not share in Trust Fund earnings.
(b) A separate Directed Investment Account shall be established for each
Participant who has directed an investment. Transfers between the Participant's
regular account and his Directed Investment Account shall be charged and
credited as the case may be to each account. The Directed Investment Account
shall not share in Trust Fund earnings, but it shall be charged or credited as
appropriate with the net earnings, gains, losses and expenses as well as any
appreciation or depreciation in market value during each Plan Year attributable
to such account.
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Anniversary Date,
and at such other date or dates deemed necessary by the Administrator, herein
called "valuation date", to determine the net worth of the assets comprising the
Trust Fund as it exists on the "valuation date" prior to taking into
consideration any contribution to be allocated for that Plan Year. In
determining such net worth, the Trustee shall value the assets comprising the
Trust Fund at their fair market value as of the "valuation date" and shall
deduct all expenses for which the Trustee has not yet obtained reimbursement
from the Employer or the Trust Fund.
5.2 METHOD OF VALUATION
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In determining the fair market value of securities held in the Trust Fund
which are listed on a registered stock exchange, the Administrator shall direct
the Trustee to value the same at the prices they were last traded on such
exchange preceding the close of business on the "valuation date". If such
securities were not traded on the "valuation date", or if the exchange on which
they are traded was not open for business on the "valuation date," then the
securities shall be valued at the prices at which they were last traded prior to
the "valuation date". Any unlisted security held in the Trust Fund shall be
valued at its bid price next preceding the close of business on the "valuation
date", which bid price shall be obtained from a registered broker or an
investment banker. In determining the fair market value of assets other than
securities for which trading or bid prices can be obtained, the Trustee may
appraise such assets itself, or in its discretion, employ one or more appraisers
for that purpose and rely on the values established by such appraiser or
appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and retire
for the purposes hereof on his Normal Retirement Date. Upon such Normal
Retirement Date, all amounts credited to such Participant's Account shall become
distributable. However, a Participant may postpone the termination of his
employment with the Employer to a later date, in which event the participation
of such Participant in the Plan, including the right to receive allocations
pursuant to Section 4.3, shall continue until his Late Retirement Date. Upon a
Participant's Retirement Date, or as soon thereafter as is practicable, the
Trustee shall distribute all amounts credited to such Participant's Account in
accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date or other
termination of his employment, all amounts credited to such Participant's
Account shall become fully Vested. The Administrator shall direct the Trustee,
in accordance with the provisions of Sections 6.6 and 6.7, to distribute the
value of the deceased Participant's accounts to the Participant's Beneficiary.
(b) Upon the death of a Former Participant, the Administrator shall
direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7,
to
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distribute any remaining amounts credited to the accounts of a deceased Former
Participant to such Former Participant's Beneficiary.
(c) Any security interest held by the Plan by reason of an outstanding loan
to the Participant or Former Participant shall be taken into account in
determining the amount of the Pre-Retirement Survivor Annuity.
(d) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive payment of the value of the
account of a deceased Participant or Former Participant as the Administrator may
deem desirable. The Administrator's determination of death and of the right of
any person to receive payment shall be conclusive.
(e) Unless otherwise elected in the manner prescribed in Section 6.6, the
Beneficiary of the death benefit shall be the Participant's spouse, who shall
receive such benefit in the form of a Pre-Retirement Survivor Annuity pursuant
to Section 6.6. Except, however, the Participant may designate a Beneficiary
other than his spouse if:
(1) the Participant and his spouse have validly waived the Pre-
Retirement Survivor Annuity in the manner prescribed in Section 6.6, and the
spouse has waived his or her right to be the Participant's Beneficiary, or
(2) the Participant is legally separated or has been abandoned (within
the meaning of local law) and the Participant has a court order to such
effect (and there is no "qualified domestic relations order" as defined in
Code Section 414(p) which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be made on a form
satisfactory to the Administrator. A Participant may at any time revoke his
designation of a Beneficiary or change his Beneficiary by filing written notice
of such revocation or change with the Administrator. However, the Participant's
spouse must again consent in writing to any change in Beneficiary unless the
original consent acknowledged that the spouse had the right to limit consent
only to a specific Beneficiary and that the spouse voluntarily elected to
relinquish such right. In the event no valid designation of Beneficiary exists
at the time of the Participant's death, the death benefit shall be payable to
his estate.
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6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior to his
Retirement Date or other termination of his employment, all amounts credited to
such Participant's Account shall become fully Vested. In the event of a
Participant's Total and Permanent Disability, the Trustee, in accordance with
the provisions of Sections 6.5 and 6.7, shall distribute to such Participant all
amounts credited to such Participant's Account as though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with or subsequent to the
termination of a Participant's employment for any reason other than death, Total
and Permanent Disability or retirement, the Administrator may direct the Trustee
to segregate the amount of the Vested portion of such Terminated Participant's
Account and invest the aggregate amount thereof in a separate, federally insured
savings account, certificate of deposit, common or collective trust fund of a
bank or a deferred annuity. In the event the Vested portion of a Participant's
Account is not segregated, the amount shall remain in a separate account for the
Terminated Participant and share in allocations pursuant to Section 4.3 until
such time as a distribution is made to the Terminated Participant.
Distribution of the funds due to a Terminated Participant shall be made on
the occurrence of an event which would result in the distribution had the
Terminated Participant remained in the employ of the Employer (upon the
Participant's death, Total and Permanent Disability or Normal Retirement).
However, at the election of the Participant, the Administrator shall direct the
Trustee to cause the entire Vested portion of the Terminated Participant's
Account to be payable to such Terminated Participant. Any distribution under
this paragraph shall be made in a manner which is consistent with and satisfies
the provisions of Section 6.5, including, but not limited to, all notice and
consent requirements of Code Sections 417 and 411(a)(11) and the Regulations
thereunder.
If the value of a Terminated Participant's Vested benefit derived from
Employer and Employee contributions does not exceed $3,500 and has never
exceeded $3,500 at the time of any prior distribution, the Administrator shall
direct the Trustee to cause the entire Vested benefit to be paid to such
Participant in a single lump sum.
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For purposes of this Section 6.4, if the value of a Terminated
Participant's Vested benefit is zero, the Terminated Participant shall be deemed
to have received a distribution of such Vested benefit.
(b) The Vested portion of any Participant's Account shall be a percentage
of the total amount credited to his Participant's Account determined on the
basis of the Participant's number of Years of Service according to the following
schedule:
Vesting Schedule
Years of Service Percentage
---------------- ----------
3 60%
4 80%
5 100%
(c) Notwithstanding the vesting provided for in paragraph (b) above, for
any Top Heavy Plan Year, the Vested portion of the Participant's Account of any
Participant who has an Hour of Service after the Plan becomes top heavy shall be
a percentage of the total amount credited to his Participant's Account
determined on the basis of the Participant's number of Years of Service
according to the following schedule:
Vesting Schedule
Years of Service Percentaqe
---------------- ----------
1 - 2 0%
3 100%
If in any subsequent Plan Year, the Plan ceases to be a Top Heavy Plan, the
Administrator shall revert to the vesting schedule in-effect before this Plan
became a Top Heavy Plan. Any such reversion shall be treated as a Plan amendment
pursuant to the terms of the Plan.
(d) Notwithstanding the vesting schedule above, the Vested percentage shall
be 100% upon a "Change of Control" (as defined below). A "Change of Control"
shall mean the happening of any of the following:
(i) Upon the acquisition by any person, entity or "group", within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934 (the "Exchange Act"), other than the Employer, its majority owned
subsidiaries or any employee benefit plan of the Employer or its
subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of either the then
outstanding shares of stock or the combined voting power of the Employer's
then outstanding voting
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securities entitled to vote generally in the election of directors;
(ii) If individuals who constitute the Board as of the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board, provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by the Employer's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of
an individual whose initial assumption of office is in connection with the
actual or threatened election contest relating to the election of the
Directors of the Employer, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
this Agreement, considered as though such person were a member of the
Incumbent Board; or
(iii) Upon approval of the stockholders of the Employer of (A) a
reorganization, merger or consolidation, in each case, with respect to which
persons who were shareholders of the Employer immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own
more than 50% of the combined voting power entitled to vote generally in the
election of directors of the reorganized, merged or consolidated company,
(B) a liquidation or dissolution of the Employer or (C) the sale of all or
substantially all of the assets of the Employer.
(e) Notwithstanding the vesting schedule above, the Vested percentage of a
Participant's Account shall not be less than the Vested percentage attained as
of the later of the effective date or adoption date of this amendment and
restatement.
(f) Notwithstanding the vesting schedule above, upon any full or partial
termination of the Plan, all amounts credited to the account of any affected
Participant shall become 100% Vested and shall not thereafter be subject to
Forfeiture.
(g) The computation of a Participant's nonforfeitable percentage of his
interest in the Plan shall not be reduced as the result of any direct or
indirect amendment to this Plan. For this purpose, the Plan shall be treated as
having been amended if the Plan provides for an automatic change in vesting due
to a change in top heavy status. In the event that the Plan is amended to change
or modify any vesting schedule, a Participant with at least three Years of
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Service as of the expiration date of the election period may elect to have his
nonforfeitable percentage computed under the Plan without regard to such
amendment. If a Participant fails to make such election, then such Participant
shall be subject to the new vesting schedule. The Participant's election period
shall commence on the adoption date of the amendment and shall end 60 days after
the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the amendment from
the Employer or Administrator.
(g)(1) If any Former Participant shall be reemployed by the Employer before
a 1-Year Break in Service occurs, he shall continue to participate in the Plan
in the same manner as if such termination had not occurred.
(2) If any Former Participant shall be reemployed by the Employer before
five consecutive 1-Year Breaks in Service, and such Former Participant had
received, or was deemed to have received, a distribution of his entire Vested
interest prior to his reemployment, his forfeited account shall be reinstated
only if he repays the full amount distributed to him before the earlier of five
years after the first date on which the Participant is subsequently reemployed
by the Employer or the close of the first period of five consecutive l-Year
Breaks in Service commencing after the distribution, or in the event of a deemed
distribution, upon the reemployment of such Former Participant. If a
distribution occurs for any reason other than a separation from service, the
time for repayment may not end earlier than five years after the date of
distribution. In the event the Former Participant does repay the full amount
distributed to him, or in the event of a deemed distribution, the undistributed
portion of the Participant's Account must be restored in full, unadjusted by any
gains or losses occurring subsequent to the Anniversary Date or other valuation
date coinciding with or preceding his termination. The source for such
reinstatement shall first be any Forfeitures occurring during the year. If such
source is insufficient, then the Employer shall contribute an amount which is
sufficient to restore any such forfeited Accounts.
(3) If any Former Participant is reemployed after a 1-Year Break in Service
has occurred, Years of Service shall include Years of Service prior to his 1-
Year Break in Service subject to the following rules:
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(i) If a Former Participant has a 1-Year Break in Service, his pre-
break and post-break service shall be used for computing Years of Service
for eligibility and for vesting purposes only after he has been employed for
one (1) Year of Service following the date of his reemployment with the
Employer;
(ii) Any Former Participant who under the Plan does not have a
nonforfeitable right to any interest in the Plan resulting from Employer
contributions shall lose credits otherwise allowable under (i) above if his
consecutive 1-Year Breaks in Service equal or exceed the greater of (A) five
or (B) the aggregate number of his pre-break Years of Service;
(iii) After five consecutive 1-Year Breaks in Service, a Former
Participant's Vested Account balance attributable to pre-break service shall
not be increased as a result of post-break service;
(iv) If a Former Participant who has not had his Years of Service
before a l-Year Break in Service disregarded pursuant to (ii) above
completes one (1) Year of Service for eligibility purposes following his
reemployment with the Employer, he shall participate in the Plan
retroactively from his date of reemployment;
(v) If a Former Participant who has not had his Years of Service before
a l-Year Break in Service disregarded pursuant to (ii) above completes a
Year of Service (a l-Year Break in Service previously occurred, but
employment had not terminated), he shall participate in the Plan
retroactively from the first day of the Plan Year during which he completes
one (1) Year of Service.
6.5 DISTRIBUTION OF BENEFITS
(a)(1) Unless otherwise elected as provided below, a Participant who is
married on the "annuity starting date" and who does not die before the "annuity
starting date" shall receive the value of all of his benefits in the form of a
joint and survivor Annuity. The joint and survivor annuity is an annuity that
commences immediately and shall be equal in value to a single life annuity. Such
joint and survivor benefits following the Participant's death shall continue to
the spouse during the spouse's lifetime at a rate equal to 50% of the rate at
which such benefits were payable to the Participant. This joint and 50% survivor
annuity shall be considered the designated qualified joint and survivor annuity
and automatic form of payment for the purposes of this Plan. However, the
Participant may
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elect to receive a smaller annuity benefit with continuation of payments to the
spouse at a rate of 75% or 100% of the rate payable to a Participant during his
lifetime, which alternative joint and survivor annuity shall be equal in value
to the automatic joint and 50 survivor annuity. An unmarried Participant shall
receive the value of his benefit in the form of a life annuity. Such unmarried
Participant, however, may elect in writing to waive the life annuity. The
election must comply with the provisions of this Section as if it were an
election to waive the joint and survivor annuity by a married Participant, but
without the spousal consent requirement. The Participant may elect to have any
annuity provided for in this Section distributed upon the attainment of the
"earliest retirement age" under the Plan. The "earliest retirement age" is the
earliest date on which, under the Plan, the Participant could elect to receive
retirement benefits.
(2) Any election to waive the joint and survivor annuity must be made by
the Participant in writing during the election period and be consented to by the
Participant's spouse. If the spouse is legally incompetent to give consent, the
spouse's legal guardian, even if such guardian is the Participant, may give
consent. Such election shall designate a Beneficiary (or a form of benefits)
that may not be changed without spousal consent (unless the consent of the
spouse expressly permits designations by the Participant without the requirement
of further consent by the spouse). Such spouse's consent shall be irrevocable
and must acknowledge the effect of such election and be witnessed by a Plan
representative or a notary public. Such consent shall not be required if it is
established to the satisfaction of the Administrator that the required consent
cannot be obtained because there is no spouse, the spouse cannot be located, or
other circumstances that may be prescribed by Regulations. The election made by
the Participant and consented to by his spouse may be revoked by the Participant
in writing without the consent of the spouse at any time during the election
period. The number of revocations shall not be limited. Any new election must
comply with the requirements of this paragraph. A former spouse's waiver shall
not be binding on a new spouse.
(3) The election period to waive the joint and survivor annuity shall be
the 90 day period ending on the "annuity starting date."
(4) For purposes of this Section, the "annuity starting date" means the
first day of the first period for which an amount is paid as an annuity, or, in
the case of a benefit not payable in the form of an
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annuity, the first day on which all events have occurred which entitle the
Participant to such benefit.
(5) With regard to the election, the Administrator shall provide to the
Participant no less than 30 days and no more than 90 days before the "annuity
starting date" a written explanation of:
(i) the terms and conditions of the joint and survivor annuity, and
(ii) the Participant's right to make, and the effect of, an election to
waive the joint and survivor annuity, and
(iii) the right of the Participant's spouse to consent to any election
to waive the joint and survivor annuity, and
(iv) the right of the Participant to revoke such election, and the
effect of such revocation.
(b) In the event a married Participant duly elects pursuant to paragraph
(a)(2) above not to receive his benefit in the form of a joint and survivor
annuity, or if such Participant is not married, in the form of a life annuity,
the Administrator, pursuant to the election of the Participant, shall direct the
Trustee to distribute to a Participant or his Beneficiary any amount to which he
is entitled under the Plan in one or more of the following methods:
(1) One lump-sum payment in cash;
(2) Payments over a period certain in monthly, quarterly, semiannual,
or annual cash installments. In order to provide such installment payments,
the Administrator may (A) segregate the aggregate amount thereof in a
separate, federally insured savings account, certificate of deposit in a
bank or savings and loan association, money market certificate or other
liquid short-term security or (B) purchase a nontransferable annuity
contract for a term certain (with no life contingencies) providing for such
payment. The period over which such payment is to be made shall not extend
beyond the Participant's life expectancy (or the life expectancy of the
Participant and his designated Beneficiary).
(3) Purchase of or providing an annuity. However, such annuity may not
be in any form that will provide for payments over a period extending beyond
either the life of the Participant (or the lives of the Participant and his
designated Beneficiary) or the life expectancy of the
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Participant (or the life expectancy of the Participant and his designated
Beneficiary).
(c) The present value of a Participant's joint and survivor annuity derived
from Employer and Employee contributions may not be paid without his written
consent if the value exceeds, or has ever exceeded, $3,500 at the time of any
prior distribution. Further, the spouse of a Participant must consent in writing
to any immediate distribution. If the value of the Participant's benefit derived
from Employer and Employee contributions does not exceed $3,500 and has never
exceeded $3,500 at the time of any prior distribution, the Administrator may
immediately distribute such benefit without such Participant's consent. No
distribution may be made under the preceding sentence after the "annuity
starting date" unless the Participant and his spouse consent in writing to such
distribution. Any written consent required under this paragraph must be obtained
not more than 90 days before commencement of the distribution and shall be made
in a manner consistent with Section 6.5(a)2.
(d) Any distribution to a Participant who has a benefit which exceeds, or
has ever exceeded, $3,500 at the time of any prior distribution shall require
such Participant's consent if such distribution commences prior to the later of
his Normal Retirement Age or age 62. With regard to this required consent:
(1) No consent shall be valid unless the Participant has received a
general description of the material features and an explanation of the
relative values of the optional forms of benefit available under the Plan
that would satisfy the notice requirements of Code Section 417.
(2) The Participant must be informed of his right to defer receipt of
the distribution. If a Participant fails to consent, it shall be deemed an
election to defer the commencement of payment of any benefit. However, any
election to defer the receipt of benefits shall not apply with respect to
distributions which are required under Section 6.5(e).
(3) Notice of the rights specified under this paragraph shall be
provided no less than 30 days and no more than 90 days before the "annuity
starting date".
(4) Written consent of the Participant to the distribution must not be
made before the Participant receives the notice and must not be made more
than 90 days before the "annuity starting date".
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(5) No consent shall be valid if a significant detriment is imposed
under the Plan on any Participant who does not consent to the distribution.
(e) Notwithstanding any provision in the Plan to the contrary, the
distribution of a Participant's benefits made on or after January 1, 1985,
whether under the Plan or through the purchase of an annuity contract, shall be
made in accordance with the following requirements and shall otherwise comply
with Code Section 401(a)(9) and the Regulations thereunder (including Regulation
1.401(a)(9)-2), the provisions of which are incorporated herein by reference:
(1) A Participant's benefits shall be distributed to him not later than
April 1st of the calendar year following the later of (i) the calendar year
in which the Participant attains age 70-1/2 or (ii) the calendar year in
which the Participant retires, provided, however, that this clause (ii)
shall not apply in the case of a Participant who is a "five (5) percent
owner" at any time during the five (5) Plan Year period ending in the
calendar year in which he attains age 70 1/2 or, in the case of a
Participant who becomes a "five (5) percent owner" during any subsequent
Plan Year, clause (ii) shall no longer apply and the required beginning date
shall be the April 1st of the calendar year following the calendar year in
which such subsequent Plan Year ends. Alternatively, distributions to a
Participant must begin no later than the applicable April 1st as determined
under the preceding sentence and must be made over the life of the
Participant (or the lives of the Participant and the Participant's
designated Beneficiary) or the life expectancy of the Participant (or the
life expectancies of the Participant and his designated Beneficiary) in
accordance with Regulations. Notwithstanding the foregoing, clause (ii)
above shall not apply to any Participant unless the Participant had attained
age 70 1/2 before January 1, 1988 and was not a "five (5) percent owner" at
any time during the Plan Year ending with or within the calendar year in
which the Participant attained age 66 1/2 or any subsequent Plan Year.
(2) Distributions to a Participant and his Beneficiaries shall only be
made in accordance with the incidental death benefit requirements of Code
Section 401(a)(9)(G) and the Regulations thereunder.
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Additionally, for calendar years beginning before 1989, distributions
may also be made under an alternative method which provides that the then
present value of the payments to be made over the period of the
Participant's life expectancy exceeds fifty percent (50%) of the then
present value of the total payments to be made to the Participant and his
Beneficiaries.
(f) For purposes of this Section, the life expectancy of a Participant and
a Participant's spouse (other than in the case of a life annuity) may, at the
election of the Participant or the Participant's spouse, be redetermined in
accordance with Regulations. The election, once made, shall be irrevocable. If
no election is made by the time distributions must commence, then the life
expectancy of the Participant and the Participant's spouse shall not be subject
to recalculation. Life expectancy and joint and last survivor expectancy shall
be computed using the return multiples in Tables V and VI of Regulation 1.72-9.
(g) Subject to the spouse's right of consent afforded under the Plan, the
restrictions imposed by this Section shall not apply if a Participant has, prior
to January 1, 1984, made a written designation to have his retirement benefit
paid in an alternative method acceptable under Code Section 401(a) as in effect
prior to the enactment of the Tax Equity and Fiscal Responsibility Act of 1982.
(h) All annuity Contracts under this Plan shall be non-transferable when
distributed. Furthermore, the terms of any annuity Contract purchased and
distributed to a Participant or spouse shall comply with all of the requirements
of the Plan.
(i) If a distribution is made at a time when a Participant in not fully
Vested in his Participant's Account and the Participant may increase the Vested
percentage in such account:
(1) a separate account shall be established for the Participant's
interest in the Plan as of the time of the distribution; and
(2) at any relevant time, the Participant's Vested portion of the
separate account shall be equal to an amount ("X") determined by the
formula:
X equals P(AB plus (R x D)) - (R x D)
For purposes of applying the formula: P is the Vested percentage at the
relevant time, AB is the account balance at the relevant time, D is the
amount of distribution, and R is the ratio of the
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account balance at the relevant time to the account balance after distribution.
6.6. DISTRIBUTION OF BENEFITS UPON DEATH
(a) Unless otherwise elected as provided below, a Vested Participant who
dies before the annuity starting date and who has a surviving spouse shall have
his death benefit paid to his surviving spouse in the form of a Pre-Retirement
Survivor Annuity. The Participant's spouse may direct that payment of the Pre-
Retirement Survivor Annuity commence within a reasonable period after the
Participant's death. If the spouse does not so direct, payment of such benefit
will commence at the time the Participant would have attained the later of his
Normal Retirement Age or age 62. However, the spouse may elect a later
commencement date. Any distribution to the Participant's spouse shall be subject
to the rules specified in Section 6.6(g).
(b) Any election to waive the Pre-Retirement Survivor Annuity before the
Participant's death must be made by the Participant in writing during the
election period and shall require the spouse's irrevocable consent in the same
manner provided for in Section 6.5(a)(2). Further, the spouse's consent must
acknowledge the specific nonspouse Beneficiary. Notwithstanding the foregoing,
the nonspouse Beneficiary need not be acknowledged, provided the consent of the
spouse acknowledges that the spouse has the right to limit consent only to a
specific Beneficiary and that the spouse voluntarily elects to relinquish such
right.
(c) The election period to waive the Pre-Retirement Survivor Annuity shall
begin on the first day of the Plan Year in which the Participant attains age 35
and end on the date of the Participant's death. An earlier waiver (with spousal
consent) may be made provided a written explanation of the Pre-Retirement
Survivor Annuity is given to the Participant and such waiver becomes invalid at
the beginning of the Plan Year in which the Participant turns age 35. In the
event a Vested Participant separates from service prior to the beginning of the
election period, the election period shall begin on the date of such separation
from service.
(d) With regard to the election, the Administrator shall provide each
Participant within the applicable period, with respect to such Participant (and
consistent with Regulations), a written explanation of the Pre-Retirement
Survivor Annuity containing comparable information to that required pursuant to
Section 6.5(a)(5). For the purposes of this paragraph, the term "applicable
period" means,
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with respect to a Participant, whichever of the following periods ends last:
(1) 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;
(2) A reasonable period after the individual becomes a Participant. For
this purpose, in the case of an individual who becomes a Participant after
age 32, the explanation must be provided by the end of the three-year period
beginning with the first day of the first Plan Year for which the individual
is a Participant;
(3) A reasonable period ending after the Plan no longer fully
subsidizes the cost of the Pre-Retirement Survivor Annuity with respect to
the Participant;
(4) A reasonable period ending after Code Section 401(a)(11) applies to
the Participant; or
(5) A reasonable period after separation from service in the case of a
Participant who separates before attaining age 35. For this purpose, the
Administrator must provide the explanation beginning one year before the
separation from service and ending one year after such separation.
(e) If the value of the Pre-Retirement Survivor Annuity derived from
Employer and Employee contributions does not exceed $3,500 and has never
exceeded $3,500 at the time of any prior distribution, the Administrator shall
direct the immediate distribution of such amount to the Participant's spouse. No
distribution may be made under the preceding sentence after the annuity starting
date unless the spouse consents in writing. If the value exceeds, or has ever
exceeded, $3,500 at the time of any prior distribution, an immediate
distribution of the entire amount may be made to the surviving spouse, provided
such surviving spouse consents in writing to such distribution. Any written
consent required under this paragraph must be obtained not more than 90 days
before commencement of the distribution and shall be made in a manner consistent
with Section 6.5(a)(2).
(f)(1) In the event the death benefit is not paid in the form of a Pre-
Retirement Survivor Annuity, it shall be paid to the Participant's Beneficiary
by either of the following methods, as elected by the Participant (or if no
election has been made prior to the Participant's death, by his
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Beneficiary), subject to the rules specified in Section 6.6(g):
(i) One lump-sum payment in cash:
(ii) Payment in monthly, quarterly, semiannual, or annual cash
installments over a period to be determined by the Participant or his
Beneficiary. After periodic installments commence, the Beneficiary shall
have the right to direct the Trustee to reduce the period over which such
periodic installments shall be made, and the Trustee shall adjust the cash
amount of such periodic installments accordingly.
(2) In the event the death benefit payable pursuant to Section 6.2 is
payable in installments, then, upon the death of the Participant, the
Administrator may direct the Trustee to segregate the death benefit into a
separate account, and the Trustee shall invest such segregated account
separately, and the funds accumulated in such account shall be used for the
payment of the installments.
(g) Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant made on or after January 1, 1985
shall be made in accordance with the following requirements and shall otherwise
comply with Code Section 401(a)(9) and the Regulations thereunder. If the death
benefit is paid in the form of a Pre-Retirement Survivor Annuity, then
distributions to the Participant's surviving spouse must commence on or before
the later of: (1) December 31st of the calendar year immediately following the
calendar year in which the Participant died; or (2) December 31st of the
calendar year in which the Participant would have attained age 70 1/2. If it is
determined pursuant to Regulations that the distribution of a Participant's
interest has begun and the Participant dies before his entire interest has been
distributed to him, the remaining portion of such interest shall be distributed
at least as rapidly as under the method of distribution selected pursuant to
Section 6.5 as of his date of death. If a Participant dies before he has begun
to receive any distributions of his interest under the Plan or before
distributions are deemed to have begun pursuant to Regulations (and
distributions are not to be made in the form of a Pre-Retirement Survivor
Annuity), then his death benefit shall be distributed to his Beneficiaries by
December 31st of the calendar year in which the fifth anniversary of his date of
death occurs.
However, the 5-year distribution requirement of the preceding paragraph
shall not apply to any portion
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of the deceased Participant's interest which is payable to or for the benefit of
a designated Beneficiary. In such event, such portion may, at the election of
the Participant (or the Participant's designated Beneficiary), be distributed
over the life of such designated Beneficiary (or over a period not extending
beyond the life expectancy of such designated Beneficiary) provided such
distribution begins not later than December 31st of the calendar year
immediately following the calendar year in which the Participant died. However,
in the event the Participant's spouse (determined as of the date of the
Participant's death) is his Beneficiary, the requirement that distributions
commence within one year of a Participant's death shall not apply. In lieu
thereof, distributions must commence on or before the later of: (1) December
31st of the calendar year immediately following the calendar year in which the
Participant died; or (2) December 31st of the calendar year in which the
Participant would have attained age 70 1/2. If the surviving spouse dies before
distributions to such spouse begin, then the 5-year distribution requirement of
this Section shall apply as if the spouse was the Participant.
(h) For purposes of Section 6.6(g), the election by a designated
Beneficiary to be excepted from the 5-year distribution requirement must be made
no later than December 31st of the calendar year following the calendar year of
the Participant's death. Except, however, with respect to a designated
Beneficiary who is the Participant's surviving spouse, the election must be made
by the earlier of: (1) December 31st of the calendar year immediately following
the calendar year in which the Participant died or, if later, the calendar year
in which the Participant would have attained age 70 1/2; or (2) December 31st of
the calendar year which contains the fifth anniversary of the date of the
Participant's death. An election by a designated Beneficiary must be in writing
and shall be irrevocable as of the last day of the election period stated
herein. In the absence of an election by the Participant or a designated
Beneficiary, the 5-year distribution requirement shall apply.
(i) For purposes of this Section, the life expectancy of a Participant and
a Participant's spouse (other than in the case of a life annuity) may, at the
election of the Participant or the Participant's spouse, be redetermined in
accordance with Regulations. The election, once made, shall be irrevocable. If
no election is made by the time distributions must commence, then the life
expectancy of the Participant and the Participant's spouse shall not be subject
to recalculation. Life expectancy and joint and last survivor expectancy shall
be computed using the return multiples in Tables V and VI of Regulation 1.72-9.
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(j) Subject to the spouse's right of consent afforded under the Plan, the
restrictions imposed by this Section shall not apply if a Participant has, prior
to January 1, 1984 made a written designation to have his death benefits paid in
an alternative method acceptable under Code Section 401(a) as in effect prior to
the enactment of the Tax Equity and Fiscal Responsibility Act of 1982.
6.7. TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever the Trustee is to make
a distribution or to commence a series of payments on or as of an Anniversary
Date, the distribution or series of payments may be made or begun on such date
or as soon thereafter as is practicable, but in no event later than 180 days
after the Anniversary Date. However, unless a Former Participant elects in
writing to defer the receipt of benefits (such election may not result in a
death benefit that is more than incidental), the payment of benefits shall begin
not later than the 60th day after the close of the Plan Year in which the latest
of the following events occurs: (a) the date on which the Participant attains
the earlier of age 65 or the Normal Retirement Age specified herein; (b) the
10th anniversary of the year in which the Participant commenced participation in
the Plan; or (c) the date the Participant terminates his service with the
Employer.
6.8. DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian for such Beneficiary
under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted
by the laws of the state in which said Beneficiary resides. Such a payment to
the legal guardian, custodian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further liability on account
thereof.
6.9. LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a
Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort,
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to ascertain the whereabouts of such Participant or his Beneficiary, the amount
so distributable shall be treated as a Forfeiture pursuant to the Plan. In the
event a Participant or Beneficiary is located subsequent to his benefit being
reallocated, such benefit shall be restored.
6.10. LIMITATIONS ON BENEFITS AND DISTRIBUTIONS
All rights and benefits, including elections, provided to a Participant in
this Plan shall be subject to the rights afforded to any "alternate payee" under
a qualified domestic relations order." Furthermore, a distribution to an
"alternate payee" shall be permitted if such distribution is authorized by a
"qualified domestic relations order," even if the affected Participant has not
reached the "earliest retirement age" under the Plan. For the purposes of this
Section, "alternate payee," "qualified domestic relations order" and "earliest
retirement age" shall have the meaning set forth under Code Section 414(p).
ARTICLE VII
AMENDMENT, TERMINATION, MERGERS AND LOANS
7.1. AMENDMENT
(a) The Employer shall have the right at any time to amend the Plan,
subject to the limitations of this Section. However, any amendment which affects
the rights, duties or responsibilities of the Trustee and Administrator may only
be made with the Trustee's and Administrator's written consent. Any such
amendment shall become effective as provided therein upon its execution. The
Trustee shall not be required to execute any such amendment unless the Trust
provisions contained herein are a part of the Plan and the amendment affects the
duties of the Trustee hereunder.
(b) No amendment to the Plan shall be effective if it authorizes or permits
any part of the Trust Fund (other than such part as is required to pay taxes and
administration expenses) to be used for or diverted to any purpose other than
for the exclusive benefit of the Participants or their Beneficiaries or estates;
or causes any reduction in the amount credited to the account of any
Participant; or causes or permits any portion of the Trust Fund to revert to or
become property of the Employer.
(c) Except as permitted by Regulations, no Plan amendment or transaction
having the effect of a Plan amendment (such as a merger, plan transfer or
similar transaction) shall be effective if it eliminates or reduces any "Section
411(d)(6) protected benefit" or adds or modifies conditions relating to "Section
411(d)(6) protected benefits" the result of which is a
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further restriction on such benefit unless such protected benefits are preserved
with respect to benefits accrued as of the later of the adoption date or
effective date of the amendment. "Section 411(d)(6) protected benefits" are
benefits described in Code Section 411(d)(6)(A), early retirement benefits and
retirement-type subsidies, and optional forms of benefit.
7.2. TERMINATION
(a) The Employer shall have the right at any time to terminate the Plan by
delivering to the Trustee and Administrator written notice of such termination.
Upon any full or partial termination, all amounts credited to the affected
Participants' Accounts shall become 100% Vested as provided in Section 6.4 and
shall not thereafter be subject to forfeiture, and all unallocated amounts shall
be allocated to the accounts of all Participants in accordance with the
provisions hereof.
(b) Upon the full termination of the Plan, the Employer shall direct the
distribution of the assets of the Trust Fund to Participants in a manner which
is consistent with and satisfies the provisions of Section 6.5. Distributions to
a Participant shall be made in cash or through the purchase of irrevocable
nontransferable deferred commitments from an insurer. Except as permitted by
Regulations, the termination of the Plan shall not result in the reduction of
"Section 411(d)(6) protected benefits" in accordance with Section 7.1(c).
7.3. MERGER OR CONSOLIDATION
This Plan may be merged or consolidated with, or its assets and/or
liabilities may be transferred to any other plan and trust only if the benefits
which would be received by a Participant of this Plan, in the event of a
termination of the plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise
result in the elimination or reduction of any "Section 411(d)(6) protected
benefits" in accordance with Section 7.1(c).
7.4. LOANS TO PARTICIPANTS
(a) The Trustee may, in the Trustee's discretion, make loans to
Participants and Beneficiaries under the following circumstances: (1) loans
shall be made available to all Participants and Beneficiaries on a reasonably
equivalent basis; (2) loans shall not be made available to Highly Compensated
Employees in an
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amount greater than the amount made available to other Participants and
Beneficiaries; (3) loans shall bear a reasonable rate of interest; (4) loans
shall be adequately secured; and (5) shall provide for repayment over a
reasonable period of time.
(b) Loans shall not be made to any Owner-Employee unless an exemption for
such loan is obtained pursuant to Act Section 408 and further provided that such
loan would not be subject to tax pursuant to Code Section 4975.
(c) Loans shall not be granted to any Participant or his Beneficiary that
provide for a repayment period extending beyond such Participant's Normal
Retirement Date.
(d) Loans made pursuant to this Section (when added to the outstanding
balance of all other loans made by the Plan to the Participant) shall be limited
to the lesser of:
(1) $50,000 reduced by the excess (if any) of the highest outstanding
balance of loans from the Plan to the Participant during the one year period
ending on the day before the date on which such loan is made, over the
outstanding balance of loans from the Plan to the Participant on the date on
which such loan was made, or
2) one-half (1/2) of the present value of the non-forfeitable accrued
benefit of the Participant under the Plan.
For purposes of this limit, all plans of the Employer shall be considered
one plan. Additionally, with respect to any loan made prior to January 1, 1987,
the $50,000 limit specified in (1) above shall be unreduced.
(e) Loans shall provide for level amortization with payments to be made not
less frequently than quarterly over a period not to exceed five (5) years.
However, loans used to acquire any dwelling unit which, within a reasonable
time, is to be used (determined at the time the loan is made) as a principal
residence of the Participant shall provide for periodic repayment over a
reasonable period of time that may exceed five (5) years. Notwithstanding the
foregoing, loans made prior to January 1, 1987 which are used to acquire,
construct, reconstruct or substantially rehabilitate any dwelling unit which,
within a reasonable period of time is to be used (determined at the time the
loan is made) as a principal residence of the Participant or a member of his
family (within the meaning of Code Section 267(c)(4)) may provide for periodic
repayment over a reasonable period of time that may exceed five
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(5) years. Additionally, loans made prior to January 1, 1987, may provide for
periodic payments which are made less frequently than quarterly and which do not
necessarily result in level amortization.
(f) Any loan made pursuant to this Section after August 18, 1985 where the
Vested interest of the Participant is used to secure such loan shall require the
written consent of the Participant's spouse in a manner consistent with Section
6.5(a). Such written consent must be obtained within the 90-day period prior to
the date the loan is made. However, no spousal consent shall be required under
this paragraph if the total accrued benefit subject to the security is not in
excess of $3,500.
(g) Any loans granted or renewed on or after the last day of the first Plan
Year beginning after December 31, 1988 shall be made pursuant to a Participant
loan program. Such loan program shall be established in writing and must
include, but need not be limited to, the following:
(1) the identity of the person or positions authorized to administer
the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or denied;
(4) limitations, if any, on the types and amounts of loans offered;
(5) the procedure under the program for determining a reasonable rate
of interest;
(6) the types of collateral which may secure a Participant loan; and
(7) the events constituting default and the steps that will be taken to
preserve Plan assets.
Such Participant loan program shall be contained in a separate written
document which, when properly executed, is hereby incorporated by reference
and made a part of the Plan. Furthermore, such Participant loan program may
be modified or amended in writing from time to time without the necessity of
amending this Section.
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ARTICLE VIII
MISCELLANEOUS
8.1. PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the Employer
and any Participant or to be a consideration or an inducement for the employment
of any Participant or Employee. Nothing contained in this Plan shall be deemed
to give any Participant or Employee the right to be retained in the service of
the Employer or to interfere with the right of the Employer to discharge any
Participant or Employee at any time regardless of the effect which such
discharge shall have upon him as a Participant of this Plan.
8.2. ALIENATION
(a) Subject to the exceptions provided below, no benefit which shall be
payable out of the Trust Fund to any person (including a Participant or his
Beneficiary) shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the
same shall be void; and no such benefit shall in any manner be liable for, or
subject to, the debts, contracts, liabilities, engagements, or torts of any such
person, nor shall it be subject to attachment or legal process for or against
such person, and the same shall not be recognized by the Trustee, except to such
extent as may be required by law.
(b) This provision shall not apply to the extent a Participant or
Beneficiary is indebted to the Plan, as a result of a loan from the Plan. At the
time a distribution is to be made to or for a Participant's or Beneficiary's
benefit, such proportion of the amount distributed as shall equal such loan
indebtedness shall be paid by the Trustee to the Trustee or the Administrator,
at the direction of the Administrator, to apply against or discharge such loan
indebtedness. Prior to making a payment, however, the Participant or Beneficiary
must be given written notice by the Administrator that such loan indebtedness is
to be so paid in whole or part from his Participant's Account. -If the
Participant or Beneficiary does not agree that the loan indebtedness is a valid
claim against his Vested Participant's Account, he shall be entitled to a review
of the validity of the claim in accordance with procedures provided in Sections
2.12 and 2.13.
(c) This provision shall not apply to a "qualified domestic relations
order" defined in Code Section 414(p), and those other domestic relations orders
permitted to be 80 treated by the Administrator
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under the provisions of the Retirement Equity Act of 1984. The Administrator
shall establish a written procedure to determine the qualified status of
domestic relations orders and to administer distributions under such qualified
orders. Further, to the extent provided under a "qualified domestic relations
order", a former spouse of a Participant shall be treated as the spouse or
surviving spouse for all purposes under the Plan.
8.3 DIRECT ROLLOVERS AND ROLLOVER NOTICES
-----------------------------------------
This Section applies to distributions made on or after January 1, 1993.
Notwithstanding any provision in any other Section of the Plan to the contrary
that would otherwise limit a distributee's election under this Section,
Participant or other distributee under the Plan may elect to have any portion of
an eligible rollover distribution paid directly to an eligible retirement plan
specified by the distributee in a direct rollover.
Any such election shall be made at the time and in the manner prescribed by
the Administrator and shall be subject to any uniform restrictions or
limitations (permissible under Code Section 401(a)(31) and other applicable Code
provisions) that the Administrator may impose under rules adopted by it.
To the extent and in the manner required by Code Section 402(f), each
distributee who is to receive an eligible rollover distribution from the Plan
shall be notified of the special Federal income tax provisions applicable to
such distribution.
For purposes of this Section, the following definitions shall apply:
(a) An "eligible rollover distribution" is any lump sum payment or
other distribution of all or any portion of the balance to the credit of the
distributee, except than an eligible rollover distribution does not include:
(i) any life annuity or other 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 10 years or more; (ii)
any distribution to the extent such distribution is required under Code
Section 401(a)(9); and (iii) 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).
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(b) An "eligible retirement plan" is an individual retirement account
described in Code Section 408(a), an individual retirement annuity described
in Code Section 408(b), an annuity plan described in Code Section 403(a), or
a qualified trust described in Code Section 401(a), that accepts the
distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or individual retirement
annuity.
(c) A "distributee" includes Participant (whether or not he has
terminated employment). In addition, the Participant's surviving spouse and
the Participant's spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Code Section 414(p), are
distributee with regard to the interest of the spouse or former spouse.
(d) A "direct rollover" is a payment by the Plan to the eligible
retirement plan specified by the distributee.
8.4. CONSTRUCTION OF PLAN
This Plan shall be construed and enforced according to the Act and the laws
of the State of New York, other than its laws respecting choice of law, to the
extent not preempted by the Act.
8.5. GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply, and whenever any words are used herein
in the singular or plural form, they shall be construed as though they were also
used in the other form in all cases where they would so apply.
8.6. LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the Trust
and/or Plan established hereunder to which the Trustee or the Administrator may
be a party, and such claim, suit, or proceeding is resolved in favor of the
Trustee or Administrator, they shall be entitled to be reimbursed from the Trust
Fund for any and all costs, attorney's fees, and other expenses pertaining
thereto incurred by them for which they shall have become liable.
8.7. PROHIBITION AGAINST DIVERSION OF FUNDS
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(a) Except as provided below and otherwise specifically permitted by law,
it shall be impossible by operation of the Plan or of the Trust, by termination
of either, by power of revocation or amendment, by the happening of any
contingency, by collateral arrangement or by any other means, for any part of
the corpus or income of any trust fund maintained pursuant to the Plan or any
funds contributed thereto to be used for, or diverted to, purposes other than
the exclusive benefit of Participants, Retired Participants, or their
Beneficiaries.
(b) In the event the Employer shall make an excessive contribution under a
mistake of fact pursuant to Act Section 403(c)(2)(A), the Employer may demand
repayment of such excessive contribution at any time within one (1) year
following the time of payment and the Trustees shall return such amount to the
Employer within the one (1) year period. Earnings of the Plan attributable to
the excess contributions may not be returned to the Employer but any losses
attributable thereto must reduce the amount so returned.
8.8. BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted by
the Act and regulations thereunder, shall be bonded in an amount not less than
10% of the amount of the funds such Fiduciary handles; provided, however, that
the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of
funds handled shall be determined at the beginning of each Plan Year by the
amount of funds handled by such person, group, or class to be covered and their
predecessors, if any, during the preceding Plan Year, or if there is no
preceding Plan Year, then by the amount of the funds to be handled during the
then current year. The bond shall provide protection to the Plan against any
loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in
connivance with others. The surety shall be a corporate surety company (as such
term is used in Act Section 412(a)(2)), and the bond shall be in a form approved
by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary,
the cost of such bonds shall be an expense of and may, at the election of the
Administrator, be paid from the Trust Fund or by the Employer.
8.9. EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors, shall be
responsible for the validity of any Contract issued hereunder or for the failure
on the part of the insurer to make payments provided by any such Contract, or
for the action of any person which
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may delay payment or render a Contract null and void or unenforceable in whole
or in part.
8.10. INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.
8.11. RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary, or
to any guardian or committee appointed for such Participant or Beneficiary in
accordance with the provisions of the Plan, shall, to the extent thereof, be in
full satisfaction of all claims hereunder against the Trustee and the Employer,
either of whom may require such Participant, legal representative, Beneficiary,
guardian or committee, as a condition precedent to such payment, to execute a
receipt and release thereof in such form as shall be determined by the Trustee
or Employer.
8.12. ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or required
to do or perform any act or matter or thing, it shall be done and performed by a
person duly authorized by its legally constituted authority.
8.13. NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator and (3) the Trustee. The named Fiduciaries shall have only those
specific powers, duties, responsibilities, and obligations as are specifically
given them under the Plan. In general, the Employer shall have the sole
responsibility for making the contributions provided for under Section 4.1; and
shall have the sole authority to appoint and remove the Trustee and the
Administrator; to formulate the Plan's "funding policy and method"; and to amend
or terminate, in whole or in part, the Plan. The Administrator shall have the
sole responsibility for the administration of the Plan, which responsibility is
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specifically described in the Plan. The Trustee shall have the sole
responsibility of management of the assets held under the Trust, except those
assets, the management of which has been assigned to an Investment Manager, who
shall be solely responsible for the management of the assets assigned to it, all
as specifically provided in the Plan. Each named Fiduciary warrants that any
directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or providing for such
direction, information or action. Furthermore, each named Fiduciary may rely
upon any such direction, information or action of another named Fiduciary as
being proper under the Plan, and is not required under the Plan to inquire into
the propriety of any such direction, information or action. It is intended under
the Plan that each named Fiduciary shall be responsible for the proper exercise
of its own powers, duties, responsibilities and obligations under the Plan. No
named Fiduciary shall guarantee the Trust Fund in any manner against investment
loss or depreciation in asset value. Any person or group may serve in more than
one Fiduciary capacity. In the furtherance of their responsibilities hereunder,
the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and
to resolve ambiguities, inconsistencies and omissions, which findings shall be
binding, final and conclusive.
8.14. HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
8.15. APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary, contributions to this
Plan are conditioned upon the initial qualification of the Plan under Code
Section 401. If the Plan receives an adverse determination with respect to its
initial qualification, then the Plan may return such contributions to the
Employer within one year after such determination, provided the application for
the determination is made by the time prescribed by law for filing the
Employer's return for the taxable year in which the Plan was adopted, or such
later date as the Secretary of the Treasury may prescribe.
(b) Notwithstanding any provisions to the contrary, except Sections 3.6 and
3.7, any contribution by the Employer to the Trust Fund is conditioned upon the
deductibility of the contribution by the Employer under the Code and, to the
extent any such deduction is disallowed, the Employer may, within one (1) year
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following the disallowance of the deduction, demand repayment of such disallowed
contribution and the Trustee shall return such contribution within one (1) year
following the disallowance. Earnings of the Plan attributable to the excess
contribution may not be returned to the Employer, but any losses attributable
thereto must reduce the amount so returned.
8.16. UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a uniform,
nondiscriminatory manner. In the event of any conflict between the terms of this
Plan and any Contract purchased hereunder, the Plan provisions shall control.
8.17. WAIVER OF FUNDING
(a) In the event that the minimum funding requirement for a particular Plan
Year has been waived in whole or in part, then, an Adjusted Account Balance
shall be established for each Participant which shall reflect the Account
balance the Participant would have had, had the waived amount been contributed.
The Adjusted Account Balance shall remain in effect until such time as the value
of the Participant's Account equals the value of the Participant's Adjusted
Account Balance:
(1) The excess of the value of each Participant's Adjusted Account
Balance over the value of the Participant's Account balance will be credited
with earnings equal to 150 percent of the Federal mid-term rate (as in
effect under Code Section 1274 for the first month of such Plan Year).
(2) The waiver payment to be made by the Employer in the year after the
waiver is granted shall at least equal the amount necessary to amortize over
5 years, at the appropriate interest rate, the excess of the sum of the
Adjusted Account Balances over the total value of the Trust Fund
attributable to Employer contributions. In the next year, the excess for
such subsequent year, if any, is amortized over 4 years. In each succeeding
year the amortization period is reduced by one year. The Employer may,
however, make such larger payments at any time as the Employer shall deem
appropriate.
(3) An unallocated Waiver Suspense Account shall be created, to which
shall be made all payments designed to reduce the waived deficiency. If at
the time of a distribution, the nonforfeitable portion of a Participant's
Adjusted Account Balance exceeds that Participant's actual
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Account balance, that Participant will receive the larger amount to the
extent that there are then funds in the unallocated Waiver Suspense Account
to cover the excess. If at any time, a Participant may not be able to
receive a total distribution of the entire nonforfeitable portion of his
Adjusted Account Balance, such Participant would receive subsequent
distributions derived from future waiver payments.
(b) When the total value of the Trust Fund equals the sum of the Adjusted
Account Balances, the Waiver Suspense Account shall be allocated to the affected
Participants so that each Participant's actual Account balance equals that
Participant's Adjusted Account Balance.
8.18 LIMITATION ON EMPLOYER STOCK TRANSACTIONS
The Administrator may require that:
(a) any Participant who is an officer or director (an "Insider") of the
Employer subject to Section 16 ("Section 16") of the Securities and Exchange
Act of 1934, as amended (the "Exchange Act"), who receives a distribution of
Employer Stock under the Plan must cease receiving any further contributions of,
or make any further investment in, Employer Stock under the Plan for a period of
six months from the date of such distribution; provided, however, that
extraordinary distributions of all of the Employer Stock in the Plan and
distributions of Employer Stock in connection with such Participant's death,
retirement, disability or termination of employment or in connection with a
qualified domestic relations order (as defined in Section 414(p) of the Code)
are not subject to this requirement;
(b) a Participant who is an Insider and ceases participation in the Plan
(within the meaning of Rule 16b-3 of the Exchange Act) may not again participate
in the Plan for at least six months after the date of such cessation (in
accordance with the requirements of Rule 16b-3); and
(c) with respect to transfers between the Employer Stock Fund and any of
the other funds of assets credited to the account of a Participant who is an
Insider, (1) the election to make such transfer must be made during the period
beginning on the third business day following the date of release of quarterly
or annual summary statements of sales and earnings of the Employer and ending
with the twelfth business day following such date and (2) the actual transfer
must occur as of a "valuation date" (as defined in Section 5.1 above) which is
at least six months after the last valuation date as of which any assets
credited to such
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Participant's account were transferred between such funds.
ARTICLE IX
PARTICIPATING EMPLOYERS
9.1. ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with the consent of the
Employer and Trustee, any other corporation or entity, whether an affiliate or
subsidiary or not, may adopt this Plan and all of the provisions hereof, and
participate herein and be known as a Participating Employer, by a properly
executed document evidencing said intent and will of such Participating
Employer.
9.2. REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each such Participating Employer shall be required to use the same
Trustee as provided in this Plan.
(b) The Trustee may, but shall not be required to, commingle, hold and
invest as one Trust Fund all contributions made by Participating Employers, as
well as all increments thereof. However, the assets of the Plan shall, on an
ongoing basis, be available to pay benefits to all Participants and
Beneficiaries under the Plan without regard to the Employer or Participating
Employer who contributed such assets.
(c) The transfer of any Participant from or to an Employer participating in
this Plan, whether he be an Employee of the Employer or a Participating
Employer, shall not affect such Participant's rights under the Plan, and all
amounts credited to such Participant's Account as well as his accumulated
service time with the transferor or predecessor, and his length of participation
in the Plan, shall continue to his credit.
(d) All rights and values forfeited by termination of employment shall
inure only to the benefit of the Employer or Participating Employer by which the
forfeiting Participant was employed, except if the Forfeiture is for an Employee
whose Employer is an Affiliated Employer, then said Forfeiture shall be
apportioned to the Employer and Participating Employers who are Affiliated
Employers and be used to reduce contributions to the Plan. Should an Employee of
one ("First") Employer be transferred to an associated ("Second") Employer which
is an Affiliated Employer, such transfer shall not cause his Account balance
(generated while an Employee of "First" Employer) in any manner, or by any
amount to be forfeited. Such Employee's Participant Account balance for all
purposes
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of the Plan, including length of service, shall be considered as though he had
always been employed by the "Second" Employer and as such had received
contributions, forfeitures, earnings or losses, and appreciation or depreciation
in value of assets totaling amount so transferred.
(e) Any expenses of the Trust which are to be paid by the Employer or borne
by the Trust Fund shall be paid by each Participating Employer in the same
proportion that the total amount standing to the credit of all Participants
employed by such Employer bears to the total standing to the credit of all
Participants.
9.3. DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a part of this Plan;
provided, however, that with respect to all of its relations with the Trustee
and Administrator for the purpose of this Plan, each Participating Employer
shall be deemed to have designated irrevocably the Employer as its agent. Unless
the context of the Plan clearly indicates the contrary, the word "Employer"
shall be deemed to include each Participating Employer as related to its
adoption of the Plan.
9.4. EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between Participating
Employers, and in the event of any such transfer, the Employee involved shall
carry with him his accumulated service and eligibility. No such transfer shall
effect a termination of employment hereunder, and the Participating Employer to
which the Employee is transferred shall thereupon become obligated hereunder
with respect to such Employee in the same manner as was the Participating
Employer from whom the Employee was transferred.
9.5. PARTICIPATING EMPLOYER'S CONTRIBUTION
Any contribution subject to allocation during each Plan Year shall be
allocated only among those Participants of the Employer or Participating
Employer making the contribution, except if the contribution is made by an
Affiliated Employer, in which event such contribution shall be allocated among
all Participants of all Participating Employers who are Affiliated Employers in
accordance with the provisions of this Plan. On the basis of the information
furnished by the Administrator, the Trustee shall keep separate books and
records concerning the affairs of each Participating Employer hereunder and as
to the accounts and credits of the Employees of each Participating Employer. The
Trustee may, but need not, register
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Contracts so as to evidence that a particular Participating Employer is the
interested Employer hereunder, but in the event of an Employee transfer from one
Participating Employer to another, the employing Employer shall immediately
notify the Trustee thereof.
9.6. AMENDMENT
Amendment of this Plan by the Employer at any time when there shall be a
Participating Employer hereunder shall only be by the written action of each and
every Participating Employer and with the consent of the Trustee where such
consent is necessary in accordance with the terms of this Plan.
9.7. DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to discontinue or revoke its
participation in the Plan. At the time of any such discontinuance or revocation,
satisfactory evidence thereof and of any applicable conditions imposed shall be
delivered to the Trustee. The Trustee shall thereafter transfer, deliver and
assign Contracts and other Trust Fund assets allocable to the Participants of
such Participating Employer to such new Trustee as shall have been designated by
such Participating Employer, in the event that it has established a separate
pension plan for its Employees provided, however, that no such transfer shall be
made if the result is the elimination or reduction of any "Section 411(3)(6)
protected benefits" in accordance with Section 7.1(c). If no successor is
designated, the Trustee shall retain such assets for the Employees of said
Participating Employer pursuant to the provisions of Article VII hereof. In no
such event shall any part of the corpus or income of the Trust as it relates to
such Participating Employer be used for or diverted for purposes other than for
the exclusive benefit of the Employees of such Participating Employer.
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9.8. ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary rules
or regulations, binding upon all Participating Employers and all Participants,
to effectuate the purpose of this Article.
IN WITNESS WHEREOF, this Plan has been executed the day and year first
above written.
MBIA INC.
By:
--------------------------
EMPLOYER
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EX-10
4
EXHIBIT 10.17
MBIA INC. EMPLOYEES PROFIT SHARING AND
401(K) SALARY DEFERRAL PLAN
As in effect as of July 1, 1994
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS 17
2.2 DETERMINATION OF TOP HEAVY STATUS 17
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER 21
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY 21
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES 22
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR 22
2.7 RECORDS AND REPORTS 23
2.8 APPOINTMENT OF ADVISERS 24
2.9 INFORMATION FROM EMPLOYER 24
2.10 PAYMENT OF EXPENSES 24
2.11 MAJORITY ACTIONS 24
2.12 CLAIMS PROCEDURE 24
2.13 CLAIMS REVIEW PROCEDURE 25
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY 26
3.2 APPLICATION FOR PARTICIPATION 26
3.3 EFFECTIVE DATE OF PARTICIPATION 26
3.4 DETERMINATION OF ELIGIBILITY 26
3.5 TERMINATION OF ELIGIBILITY 27
3.6 OMISSION OF ELIGIBLE EMPLOYEE 27
3.7 INCLUSION OF INELIGIBLE EMPLOYEE 27
3.8 ELECTION NOT TO PARTICIPATE 28
3.9 OWNER-EMPLOYEE LIMITATION 28
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S
CONTRIBUTION 29
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION 29
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION 33
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND
EARNINGS 34
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS 38
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS 41
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS 42
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION
PERCENTAGE TESTS 45
4.9 MAXIMUM ANNUAL ADDITIONS 47
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS 51
4.11 TRANSFERS FROM QUALIFIED PLANS 52
4.12 VOLUNTARY CONTRIBUTIONS 53
4.13 DIRECTED INVESTMENT ACCOUNT 54
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND 55
5.2 METHOD OF VALUATION 56
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT 56
6.2 DETERMINATION OF BENEFITS UPON DEATH 56
6.3 DETERMINATION OF BENEFITS IN EVENT OF
DISABILITY 58
6.4 DETERMINATION OF BENEFITS UPON TERMINATION 58
6.5 DISTRIBUTION OF BENEFITS 62
6.6 DISTRIBUTION OF BENEFITS UPON DEATH 68
6.7 TIME OF SEGREGATION OR DISTRIBUTION 72
6.8 DISTRIBUTION FOR MINOR BENEFICIARY 72
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN 72
6.10 ADVANCE DISTRIBUTION FOR HARDSHIP 73
6.11 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS 74
6.12 DISTRIBUTION IN KIND OF STOCK IN EMPLOYER
STOCK FUND 74
ARTICLE VII
AMENDMENT, TERMINATION, MERGERS AND LOANS
7.1 AMENDMENT 75
7.2 TERMINATION 75
7.3 MERGER OR CONSOLIDATION 76
7.4 LOANS TO PARTICIPANTS 76
ARTICLE VIII
MISCELLANEOUS
8.1 PARTICIPANT'S RIGHTS 78
8.2 ALIENATION 78
8.3 DIRECT ROLLOVERS AND ROLLOVER NOTICES 79
8.4 CONSTRUCTION OF PLAN 81
8.5 GENDER AND NUMBER 81
8.6 LEGAL ACTION 81
8.7 PROHIBITION AGAINST DIVERSION OF FUNDS 81
8.8 BONDING 82
8.9 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE 82
8.10 INSURER'S PROTECTIVE CLAUSE 82
8.11 RECEIPT AND RELEASE FOR PAYMENTS 83
8.12 ACTION BY THE EMPLOYER 83
8.13 NAMED FIDUCIARIES AND ALLOCATION OF
RESPONSIBILITY 83
8.14 HEADINGS 84
8.15 APPROVAL BY INTERNAL REVENUE SERVICE 84
8.16 UNIFORMITY 84
8.17 LIMITATION ON EMPLOYER STOCK TRANSACTIONS 85
ARTICLE IX
PARTICIPATING EMPLOYERS
9.1 ADOPTION BY OTHER EMPLOYERS 85
9.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS 86
9.3 DESIGNATION OF AGENT 87
9.4 EMPLOYEE TRANSFERS 87
9.5 PARTICIPATING EMPLOYER'S CONTRIBUTION 87
9.6 AMENDMENT 88
9.7 DISCONTINUANCE OF PARTICIPATION 88
9.8 ADMINISTRATOR'S AUTHORITY 88
MBIA INC. EMPLOYEES PROFIT SHARING AND
401(K) SALARY DEFERRAL PLAN
THIS PLAN, hereby adopted this 30th day of June,
----------------
1994, by MBIA INC. (herein referred to as the "Employer").
W I T N E S S E T H:
WHEREAS, the Employer heretofore established a Profit
Sharing Plan effective JANUARY 1, 1975, (hereinafter called
the "Effective Date") known as MBIA INC. EMPLOYEES PROFIT
SHARING AND 401(K) SALARY DEFERRAL PLAN (herein referred to
as the "Plan") in recognition of the contribution made to
its successful operation by its employees and for the
exclusive benefit of its eligible employees; and
WHEREAS, under the terms of the Plan, the Employer has
the ability to amend the Plan, provided the Trustee joins
in such amendment if the provisions of the Plan affecting
the Trustee are amended; and
WHEREAS, effective January 1, 1984, January 1, 1987,
------------------------------------------
January 1, 1989 and January 1, 1994 the Plan was amended
and restated in its entirety;
NOW, THEREFORE, effective January 1, 1994, except as
otherwise provided, the Employer in accordance with the
provisions of the Plan pertaining to amendments thereof,
hereby amends the Plan in its entirety and restates the
Plan to provide as follows:
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income
Security Act of 1974, as it may be amended from time to
time.
1.2 "Administrator" means the person designated by
the Employer pursuant to Section 2.4 to administer the Plan
on behalf of the Employer.
1.3 "Affiliated Employer" means the Employer and any
corporation which is a member of a controlled group of
corporations (as defined in Code Section 414(b)) which
includes the Employer; any trade or business (whether or
not incorporated) which is under common control (as defined
in Code Section 414(c)) with the Employer; any organization
(whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section
414(m)) which includes the Employer; and any other entity
required to be aggregated with the Employer pursuant to
Regulations under Code Section 414(o).
-1-
1.4 "Aggregate Account" means, with respect to each
Participant, the value of all accounts maintained on behalf
of a Participant, whether attributable to Employer or
Employee contributions, subject to the provisions of
Section 2.2.
1.5 "Anniversary Date" means DECEMBER 31st.
1.6 "Beneficiary" means the person to whom the share
of a deceased Participant's total account is payable,
subject to the restrictions of Sections 6.2 and 6.6.
1.7 "Code" means the Internal Revenue Code of 1986, as
amended or replaced from time to time.
1.8 "Compensation" with respect to any Participant
means total compensation paid by the Employer for a Plan
Year. Amounts contributed by the Employer under the within
Plan, except for an Employee's Compensation that is
deferred pursuant to Section 4.2, and any nontaxable fringe
benefits provided by the Employer shall not be considered
as Compensation. Compensation for any Self-Employed
Individual shall be equal to his Earned Income.
For purposes of this Section, the determination of
Compensation shall be made by including salary reduction
contributions made on behalf of an Employee to a plan
maintained under Code Section 125.
Compensation shall be recognized as of an Employee's
effective date of participation pursuant to Section 3.3.
Compensation of any Participant taken into account
--------------------------------------------------
under the Plan for any Plan Year beginning after December
---------------------------------------------------------
31, 1993 shall not exceed $150,000 (as adjusted from time
---------------------------------------------------------
to time by the Secretary of the Treasury in such a manner
---------------------------------------------------------
as permitted under Code Section 401(a)(17)). In applying
------------------------------------------
this limitation, the family group of a Highly Compensated
Participant who is subject to the Family Member aggregation
rules of Code Section 414(q)(6) because such Participant is
either a "five percent owner" of the Employer or one of the
10 Highly Compensated Employees paid the greatest "415
Compensation" during the year, shall be treated as a single
Participant, except that for this purpose Family Members
shall include only the affected Participant's spouse and
any lineal descendants who have not attained age 19 before
the close of the year. If, as a result of the application
of such rules the adjusted $150,000 limitation is exceeded,
then the limitation shall be prorated among the affected
Family Members in proportion to each such Family Member's
Compensation prior to the application of this limitation.
1.9 "Contract" or "Policy" means a life insurance
policy or annuity contract (group or individual) issued by
the insurer as elected.
-2-
1.10 "Deferred Compensation" with respect to any
Participant means that portion of the Participant's total
Compensation which has been contributed to the Plan in
accordance with the Participant's deferral election
pursuant to Section 4.2.
1.11 "Early Retirement Date." This Plan does not
provide for a retirement date prior to Normal Retirement
Date.
1.12 "Earned Income" means, with respect to a Self-
Employed Individual, the net earnings from self-employment
in the trade or business with respect to which the Plan is
established, for which the 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 Code Section 404. Additionally, for taxable years
beginning after December 31, 1989, net earnings shall be
determined with regard to the deduction allowed to the
Employer by Code Section 164(f).
1.13 "Elective Contribution" means the Employer's
contributions to the Plan that are made pursuant to the
Participant's deferral election provided in Section 4.2.
In addition, any Employer Qualified Non-Elective
Contribution made pursuant to Section 4.1(c) and Section
4.6 shall be considered an Elective Contribution for
purposes of the Plan. Any such contributions deemed to be
Elective Contributions shall be subject to the requirements
of Sections 4.2(b) and 4.2(c) and shall further be required
to satisfy the discrimination requirements of Regulation
1.401(k)-l(b)(3), the provisions of which are specifically
incorporated herein by reference.
1.14 "Eligible Employee" means any Employee other than
Employees who are temporary Employees or interns.
1.15 "Employee" means any person who is employed by
the Employer or Affiliated Employer, but excludes any
person who is an independent contractor. Employee shall
include Leased Employees within the meaning of Code
Sections 414(n)(2) and 414(o)(2) unless such Leased
Employees are covered by a plan described in Code Section
414(n)(5) and such Leased Employees do not constitute more
than 20% of the recipient's non-highly compensated work
force.
1.16 "Employer" means MBIA INC. and any Participating
Employer (as defined in Section 9.1) which shall adopt this
Plan, any successor which shall maintain this Plan and any
predecessor which has maintained this Plan. The Employer
-3-
is a corporation, with principal offices in the State of
New York.
1.17 "Excess Aggregate Contributions" means, with
respect to any Plan Year, the excess of the aggregate
amount of the Employer matching contributions made pursuant
to Section 4.1(b) and any qualified nonelective
contributions or elective deferrals taken into account
pursuant to Section 4.7(c) on behalf of Highly Compensated
Participants for such Plan Year, over the maximum amount of
such contributions permitted under the limitations of
Section 4.7(a).
1.18 "Excess Contributions" means, with respect to a
Plan Year, the excess of Elective Contributions made on
behalf of Highly Compensated Participants for the Plan Year
over the maximum amount of such contributions permitted
under Section 4.5(a). Excess Contributions shall be treated
as an "annual addition" pursuant to Section 4.9(b).
1.19 "Excess Deferred Compensation" means, with
respect to any taxable year of a Participant, the excess of
the aggregate amount of such Participant's Deferred
Compensation and the elective deferrals pursuant to Section
4.2(f) actually made on behalf of such Participant for such
taxable year, over the dollar limitation provided for in
Code Section 402(g), which is incorporated herein by
reference. Excess Deferred Compensation shall be treated
as an "annual addition" pursuant to Section 4.9(b).
1.20 "Family Member" means, with respect to an
affected Participant, such Participant's spouse, such
Participant's lineal descendants and ascendants and their
spouses, all as described in Code Section 414(q)(6)(B).
1.21 "Fiduciary" means any person who (a) exercises
any discretionary authority or discretionary control
respecting management of the Plan or exercises any
authority or control respecting management or disposition
of its assets, (b) renders investment advice for a fee or
other compensation, direct or indirect, with respect to any
monies or other property of the Plan or has any authority
or responsibility to do so, or (c) has any discretionary
authority or discretionary responsibility in the
administration of the Plan, including, but not limited to,
the Trustee, the Employer and its representative body, and
the Administrator.
1.22 "Fiscal Year" means the Employer's accounting
year of 12 months commencing on January 1st of each year
and ending the following December 31st.
1.23 "Forfeiture" means that portion of a
Participant's Account that is not Vested, and occurs on the
earlier of:
-4-
(a) the distribution of the entire Vested portion
of a Participant's Account, or
(b) the last day of the Plan Year in which the
Participant incurs five (5) consecutive 1-Year Breaks
in Service.
Furthermore, for purposes of paragraph (a) above, in
the case of a Terminated Participant whose Vested benefit
is zero, such Terminated Participant shall be deemed to
have received a distribution of his Vested benefit upon his
termination of employment. Restoration of such amounts
shall occur pursuant to Section 6.4. In addition, the term
Forfeiture shall also include amounts deemed to be
Forfeitures pursuant to any other provision of this Plan.
1.24 "Former Participant" means a person who has been
a Participant, but who has ceased to be a Participant for
any reason.
1.25 "415 Compensation" means compensation as defined
in Section 4.9(d).
1.26 "414(s) Compensation" with respect to any
Employee means his Deferred Compensation plus "415
Compensation" paid during a Plan Year. The amount of
"414(s) Compensation" with respect to any Employee shall
include "414(s) Compensation" during the entire 12-month
period ending on the last day of such Plan Year, except
that for Plan Years beginning prior to the later of
January 1, 1992 or the date that is 60 days after the date
final Regulations are issued, "414(s) Compensation" shall
only be recognized as of an Employee's effective date of
participation.
For purposes of this Section, the determination of
"414(s) Compensation" shall be made by including salary
reduction contributions made on behalf of an Employee to a
plan maintained under Code Section 125.
"414(s) Compensation" in excess of $150,000 shall be
--------
disregarded. Such amount shall be adjusted at the same time
and in such manner as permitted under Code Section
401 (a) (17).
------------
1.27 "Highly Compensated Employee" means an Employee
described in Code Section 414(q) and the Regulations
thereunder, and generally means an Employee who performed
services for the Employer during the "determination year"
and is in one or more of the following groups:
(a) Employees who at any time during the
"determination year" or "look-back year" were "five
percent owners" as defined in Section 1.33(c).
-5-
(b) Employees who received "415 Compensation"
during the "look-back year" from the Employer in excess
of $75,000.
(c) Employees who received "415 Compensation"
during the "look-back year" from the Employer in excess
of $50,000 and were in the Top Paid Group of Employees
for the Plan Year.
(d) Employees who during the "look-back year" were
officers of the Employer (as that term is defined
within the meaning of the Regulations under Code
Section 416) and received "415 Compensation" during the
"look-back year" from the Employer greater than 50% of
the limit in effect under Code Section 415(b)(1)(A) for
any such Plan Year. The number of officers shall be
limited to the lesser of (i) 50 employees; or (ii) the
greater of 3 employees or 10% of all employees. For
the purpose of determining the number of officers,
Employees described in Section 1.58(a), (b), (c) and
(d) shall be excluded, but such Employees shall still
be considered for the purpose of identifying the
particular Employees who are officers. If the Employer
does not have at least one officer whose annual "415
Compensation" is in excess of 50% of the Code Section
415(b)(1)(A) limit, then the highest paid officer of
the Employer will be treated as a Highly Compensated
Employee.
(e) Employees who are in the group consisting of
the 100 Employees paid the greatest "415 Compensation"
during the "determination year" and are also described
in (b), (c) or (d) above when these paragraphs are
modified to substitute "determination year" for "look-
back year."
The "look-back year" shall be the calendar year ending
with or within the Plan Year for which testing is being
performed, and the "determination year" (if applicable)
shall be the period of time, if any, which extends beyond
the "look-back year" and ends on the last day of the Plan
Year for which testing is being performed (the "lag
period"). If the "lag period" is less than twelve months
long, the dollar threshold amounts specified in (b), (c)
and (d) above shall be prorated based upon the number of
months in the "lag period."
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts that would
otherwise be excluded from a Participant's gross income by
reason of the application of Code Sections 125, 402(a)(8),
402(h)(1)(B) and, in the case of Employer contributions
made pursuant to a salary reduction agreement, by including
amounts that would otherwise be excluded from a
-6-
participant's gross income by reason of the application of
Code Section 403(b). Additionally, the dollar threshold
amounts specified in (b) and (c) above shall be adjusted at
such time and in such manner as is provided in Regulations.
In the case of such an adjustment, the dollar limits which
shall be applied are those for the calendar year in which
the "determination year" or "look-back year" begins.
In determining who is Highly Compensated Employees who
are nonresident aliens and who received no earned income
(within the meaning of Code Section 911(d)(2)) from the
Employer constituting United States source income within
the meaning of Code Section 861(a)(3) shall not be treated
as Employees. Additionally, all Affiliated Employers shall
be taken into account as a single employer and Leased
Employees within the meaning of Code Sections 414(n)(2) and
414(o)(2) shall be considered Employees unless such Leased
Employees are covered by a plan described in Code Section
414(n)(5) and are not covered in any qualified plan
maintained by the Employer. The exclusion of Leased
Employees for this purpose shall be applied on a uniform
and consistent basis for all of the Employer's retirement
plans. Highly Compensated Former Employees shall be treated
as Highly Compensated Employees without regard to whether
they performed services during the "determination year."
1.28 "Highly Compensated Former Employee" means a
former Employee who had a separation year prior to the
"determination year" and was a Highly Compensated Employee
in the year of separation from service or in any
"determination year" after attaining age 55.
Notwithstanding the foregoing, an Employee who separated
from service prior to 1987 will be treated as a Highly
Compensated Former Employee only if during the separation
year (or year preceding the separation year) or any year
after the Employee attains age 55 (or the last year ending
before the Employee's 55th birthday), the Employee either
received "415 Compensation" in excess of $50,000 or was a
"five percent owner." For purposes of this Section,
"determination year," "415 Compensation" and "five percent
owner" shall be determined in accordance with Section 1.27.
Highly Compensated Former Employees shall be treated as
Highly Compensated Employees. The method set forth in this
Section for determining who is a "Highly Compensated Former
Employee" shall be applied on a uniform and consistent
basis for all purposes for which the Code Section 414(q)
definition is applicable.
1.29 "Highly Compensated Participant" means any Highly
Compensated Employee who is eligible to participate in the
Plan.
-7-
1.30 "Hour of Service" means (1) each hour for which
an Employee is directly or indirectly compensated or
entitled to compensation by the Employer for the
performance of duties during the applicable computation
period; (2) each hour for which an Employee is directly or
indirectly compensated or entitled to compensation by the
Employer (irrespective of whether the employment
relationship has terminated) for reasons other than
performance of duties (such as vacation, holidays,
sickness, jury duty, disability, lay-off, military duty or
leave of absence) during the applicable computation period;
(3) each hour for which back pay is awarded or agreed to by
the Employer without regard to mitigation of damages.
These hours will be credited to the Employee for the
computation period or periods to which the award or
agreement pertains rather than the computation period in
which the award, agreement or payment is made. The same
Hours of Service shall not be credited both under (1) or
(2), as the case may be, and under (3).
Notwithstanding the above, (i) no more than 501
Hours of Service are required to be credited 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) 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 worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) 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.
For purposes of this Section, 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.
An Hour of Service must be counted for the purpose of
determining a Year of Service, a year of participation for
purposes of accrued benefits, a 1-Year Break in Service,
and employment commencement date (or reemployment
commencement date). In addition, Hours of Service will be
credited for employment with other Affiliated Employers.
The provisions of Department of Labor regulations
-8-
2530.200b-2(b) and (c) are incorporated herein by
reference.
1.31 "Income" means the income allocable to "excess
amounts" which shall equal the sum of the allocable gain or
loss for the "applicable computation period" and the
allocable gain or loss for the period between the end of
the "applicable computation period" and the date of
distribution ("gap period"). The income allocable to
"excess amounts" for the "applicable computation period"
and the "gap period" is calculated separately and is
determined by multiplying the income for the "applicable
computation period" or the "gap period" by a fraction. The
numerator of the fraction is the "excess amount" for the
"applicable computation period." The denominator of the
fraction is the total "account balance" attributable to
"Employer contributions" as of the end of the "applicable
computation period" or the "gap period," reduced by the
gain allocable to such total amount for the "applicable
computation period" or the "gap period" and increased by
the loss allocable to such total amount for the "applicable
computation period" or the "gap period." The provisions of
this Section shall be applied:
(a) For purposes of Section 4.2(f), by
substituting:
(1) "Excess Deferred Compensation" for "excess
amounts";
(2) "taxable year of the Participant" for
"applicable computation period";
(3) "Deferred Compensation" for "Employer
contributions"; and
(4) "Participant's Elective Account" for
"account balance."
(b) For purposes of Section 4.6(a), by
substituting:
(1) "Excess Contributions" for "excess amount";
(2) "Plan Year" for "applicable computation
period";
(3) "Elective Contributions" for "Employer
contributions"; and
(4) "Participant's Elective Account" for
"account balance."
(c) For purposes of Section 4.8(a), by
substituting:
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(1) "Excess Aggregate Contributions" for
"excess amounts";
(2) "Plan Year" for "applicable computation
period";
(3) "Employer matching contributions made
pursuant to Section 4.1 (b) and any qualified
nonelective contributions or elective deferrals
taken into account pursuant to Section 4.7(c)" for
"Employer contributions"; and
(4) "Participant's Account" for "account
balance." In lieu of the "fractional method" described
above, a "safe harbor method" may be used to calculate the
allocable Income for the "gap period." Under such "safe
harbor method," allocable Income for the "gap period" shall
be deemed to equal 10% of the Income allocable to "excess
amounts" for the "applicable computation period" multiplied
by the number of calendar months in the "gap period." For
purposes of determining the number of calendar months in
the "gap period," a distribution occurring on or before the
fifteenth day of the month shall be treated as having been
made on the last day of the preceding month and a
distribution occurring after such fifteenth day shall be
treated as having been made on the first day of the next
subsequent month.
Income allocable to any distribution of Excess Deferred
Compensation on or before the last day of the taxable year
of the Participant shall be calculated from the first day
of the taxable year of the Participant to the date on which
the distribution is made pursuant to either the "fractional
method" or the "safe harbor method."
Notwithstanding the above, for "applicable computation
periods" which began in 1987, Income during the "gap
period" shall not be taken into account.
1.32 "Investment Manager" means an entity that (a) has
the power to manage, acquire or dispose of Plan assets and
(b) acknowledges fiduciary responsibility to the Plan in
writing. Such entity must be a person, firm or corporation
registered as an investment adviser under the Investment
Advisers Act of 1940, a bank or an insurance company.
1.33 "Key Employee" means an Employee as defined in
Code Section 416(i) and the Regulations thereunder.
Generally, any Employee or former Employee (as well as each
of his Beneficiaries) is considered a Key Employee if he,
at any time during the Plan Year that contains the
"Determination Date" or any of the preceding four Plan
Years, has been included in one of the following
categories:
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(a) an officer of the Employer (as that term is
defined within the meaning of the Regulations under
Code Section 416) having annual "415 Compensation"
greater than 50% of the amount in effect under Code
Section 415(b)(1)(A) for any such Plan Year.
(b) one of the ten employees having annual "415
Compensation" from the Employer for a Plan Year greater
than the dollar limitation in effect under Code Section
415(c)(1)(A) for the calendar year in which such Plan
Year ends and owning (or considered as owning within
the meaning of Code Section 318) both more than one-
half percent interest and the largest interests in the
Employer.
(c) a "five percent owner" of the Employer. "Five
percent owner" means any person who owns (or is
considered as owning within the meaning of Code Section
318) more than 5% of the outstanding stock of the
Employer or stock possessing more than 5% of the total
combined voting power of all stock of the Employer or,
in the case of an unincorporated business, any person
who owns more than 5% of the capital or profits
interest in the Employer. In determining percentage
ownership hereunder, employers that would otherwise be
aggregated under Code Sections 414(b), (c), (m) and (o)
shall be treated as separate employers.
(d) a "one percent owner" of the Employer having an
annual "415 Compensation" from the Employer of more
than $150,000. "One percent owner" means any person
who owns (or is considered as owning within the meaning
of Code Section 318) more than 1% of the outstanding
stock of the Employer or stock possessing more than 1%
of the total combined voting power of all stock of the
Employer or, in the case of an unincorporated business,
any person who owns more than 1% of the capital or
profits interest in the Employer. In determining
percentage ownership hereunder, employers that would
otherwise be aggregated under Code Sections 414(b),
(c), (m) and (o) shall be treated as separate
employers. However, in determining whether an
individual has "415 Compensation" of more than
$150,000, "415 Compensation" from each employer
required to be aggregated under Code Sections 414(b),
(c), (m) and (o) shall be taken into account.
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts that would
otherwise be excluded from a Participant's gross income by
reason of the application of Code Sections 125, 402(a)(8),
402(h)(1)(B) and, in the case of Employer contributions
made pursuant to a salary reduction agreement, by including
amounts that would otherwise be excluded from a
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Participant's gross income by reason of the application of
Code Section 403(b).
1.34 "Late Retirement Date" means the first day of the
month coinciding with or next following a Participant's
actual Retirement Date after having reached his Normal
Retirement Date.
1.35 "Leased Employee" means any person (other than an
Employee of the recipient) who pursuant to an agreement
between the recipient and any other person ("leasing
organization") has performed services for the recipient (or
for the recipient and related persons determined in
accordance with Code Section 414(n)(6)) on a substantially
full-time basis for a period of at least one year, and such
services are of a type historically performed by employees
in the business field of the recipient employer.
Contributions or benefits provided 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. 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:
(1) a nonintegrated employer contribution rate
of at least 10% of compensation, as defined in Code
Section 415(c)(3), but including amounts
contributed pursuant to a salary reduction
agreement which are excludable from the employee's
gross income under Code Sections 125, 402(a)(8),
402(h) or 403(b);
(2) immediate participation; and
(3) full and immediate vesting.
(b) Leased Employees do not constitute more than
20% of the recipient's nonhighly compensated work
force.
1.36 "Non-Elective Contribution" means the Employer's
contributions to the Plan excluding, however, contributions
made pursuant to the Participant's deferral election
provided for in Section 4.2 and any Qualified Non-Elective
Contribution.
1.37 "Non-Highly Compensated Participant" means any
Participant who is neither a Highly Compensated Employee
nor a Family Member.
1.38 "Non-Key Employee" means any Employee or former
Employee (and his Beneficiaries) who is not a Key Employee.
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1.39 "Normal Retirement Date" means the first day of
the month coinciding with or next following the
Participant's Normal Retirement Age (65th birthday). A
Participant shall become fully Vested in his Account upon
attaining his Normal Retirement Age.
1.40 "1-Year Break in Service" means the applicable
computation period during which an Employee has not
completed more than 500 Hours of Service with the Employer.
Further, solely for the purpose of determining whether a
Participant has incurred a 1-Year Break in Service, Hours
of Service shall be recognized for "authorized leaves of
absence" and "maternity and paternity leaves of absence."
Years of Service and 1-Year Breaks in Service shall be
measured on the same computation period.
"Authorized leave of absence" means an unpaid,
temporary cessation from active employment with the
Employer pursuant to an established nondiscriminatory
policy, whether occasioned by illness, military service or
any other reason.
A "maternity or paternity leave of absence" means, for
Plan Years beginning after December 31, 1984, an absence
from work for any period by reason of the Employee's
pregnancy, birth of the Employee's child, placement of a
child with the Employee in connection with the adoption of
such child, or any absence for the purpose of caring for
such child for a period immediately following such birth or
placement. For this purpose, Hours of Service shall be
credited for the computation period in which the absence
from work begins, only if credit therefore is necessary to
prevent the Employee from incurring a 1-Year Break in
Service, or, in any other case, in the immediately
following computation period. The Hours of Service
credited for a "maternity or paternity leave of absence"
shall be those which would normally have been credited but
for such absence, or, in any case in which the
Administrator is unable to determine such hours normally
credited, eight Hours of Service per day. The total Hours
of Service required to be credited for a "maternity or
paternity leave of absence" shall not exceed 501.
1.41 "Owner-Employee" means a sole proprietor who owns
the entire interest in the Employer or a partner who owns
more than 10% of either the capital interest or the profits
interest in the Employer and who receives income for
personal services from the Employer.
1.42 "Participant" means any Eligible Employee who
participates in the Plan as provided in Sections 3.2 and
3.3 and has not for any reason become ineligible to
participate further in the Plan.
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1.43 "Participant's Account" means the account
established and maintained by the Administrator for each
Participant with respect to his total interest in the Plan
and Trust resulting from the Employer's Non-Elective
Contributions.
A separate accounting shall be maintained with respect
to that portion of the Participant's Account attributable
to Employer matching contributions made pursuant to Section
4.1(b) and Employer discretionary contributions made
pursuant to Section 4.1(d).
1.44 "Participant's Combined Account" means the total
aggregate amount of each Participant's Elective Account and
Participant's Account.
1.45 "Participant's Elective Account" means the
account established and maintained by the Administrator for
each Participant with respect to his total interest in the
Plan and Trust resulting from the Employer's Elective
Contributions. A separate accounting shall be maintained
with respect to that portion of the Participant's Elective
Account attributable to Elective Contributions pursuant to
Section 4.2 and any Employer Qualified Non-Elective
Contributions.
1.46 "Plan" means this instrument, including all
amendments thereto.
1.47 "Plan Year" means the Plan's accounting year of
12 months commencing on January 1st of each year and ending
the following December 31st.
1.48 "Pre-Retirement Survivor Annuity" is an immediate
annuity for the life of the Participant's spouse the
payments under which must be equal to the amount of benefit
which can be purchased with the accounts of a Participant
used to provide the death benefit under the Plan.
1.49 "Qualified Non-Elective Contribution" means the
Employer's contributions to the Plan that are made pursuant
to Section 4.1(c) and Section 4.6. Such contributions
shall be considered an Elective Contribution for the
purposes of the Plan and used to satisfy the "Actual
Deferral Percentage" tests.
In addition, the Employer's contributions to the Plan
that are made pursuant to Section 4.8(g) which are used to
satisfy the "Actual Contribution Percentage" tests shall be
considered Qualified Non-Elective Contributions and be
subject to the provisions of Sections 4.2(b) and 4.2(c).
1.50 "Regulation" means the Income Tax Regulations as
promulgated by the Secretary of the Treasury or his
delegate, and as amended from time to time.
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1.51 "Retired Participant" means a person who has been
a Participant, but who has become entitled to retirement
benefits under the Plan.
1.52 "Retirement Date" means the date as of which a
Participant retires for reasons other than Total and
Permanent Disability, whether such retirement occurs on a
Participant's Normal Retirement Date or Late Retirement
Date (see Section 6.1).
1.53 "Self-Employed Individual" means an individual
who has earned income for the taxable year from the trade
or business for which the Plan is established and, also, an
individual who would have had earned income but for the
fact that the trade or business had no net profits for the
taxable year. A Self-Employed Individual shall be treated
as an Employee.
1.54 "Super Top Heavy Plan" means a plan described in
Section 2.2(b).
1.55 "Terminated Participant" means a person who has
been a Participant, but whose employment has been
terminated other than by death, Total and Permanent
Disability or retirement.
1.56 "Top Heavy Plan" means a plan described in
Section 2.2(a).
1.57 "Top Heavy Plan Year" means a Plan Year
commencing after December 31, 1983 during which the Plan is
a Top Heavy Plan.
1.58 "Top Paid Group" means the top 20% of the
Employees who performed services for the Employer during
the applicable year, ranked according to the amount of "415
Compensation" (determined for this purpose in accordance
with Section 1.27) received from the Employer during such
year. All Affiliated Employers shall be taken into account
as a single employer, and Leased Employees within the
meaning of Code Sections 414(n)(2) and 414(o)(2) shall be
considered Employees unless such Leased Employees are
covered by a plan described in Code Section 414(n)(5) and
are not covered in any qualified plan maintained by the
Employer. Employees are are nonresident aliens and who
received no earned income (within the meaning of Code
Section 911(d)(2) from the Employee constituting United
States source income within the meaning of Code Section
861(a)(3) shall not be treated as Employees. Additionally,
for the purpose of determining the number of active
Employees in any year, the following additional Employees
shall also be excluded; however, such Employees shall still
be considered for the purpose of identifying the particular
Employees in the Top Paid Group:
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(a) Employees with less than six months of service;
(b) Employees who normally work less than 17 1/2
hours per week;
(c) Employees who normally work less than six
months during a year; and
(d) Employees who have not yet attained age 21.
In addition, if 90% or more of the Employees of the
Employer are covered under agreements the Secretary of
Labor finds to be collective bargaining agreements between
Employee representatives and the Employer, and the Plan
covers only Employees who are not covered under such
agreements, then Employees covered by such agreements shall
be excluded from both the total number of active Employees
as well as from the identification of particular Employees
in the Top Paid Group.
The foregoing exclusions set forth in this Section
shall be applied on a uniform and consistent basis for all
purposes for which the Code Section 414(q) definition is
applicable.
1.59 "Total and Permanent Disability" means a physical
or mental condition of a Participant resulting from bodily
injury, disease or mental disorder which renders him
incapable of continuing his usual and customary employment
with the Employer. The disability of a Participant shall
be determined by a licensed physician chosen by the
Administrator. The determination shall be applied
uniformly to all Participants.
1.60 "Trustee" means the person or entity named as
trustee herein or in any separate trust forcing a part of
this Plan, and any successors.
1.61 "Trust Fund" means the assets of the Plan and
Trust as the same shall exist from time to time.
1.62 "Vested" means the nonforfeitable portion of any
account maintained on behalf of a Participant.
1.63 "Voluntary Contribution Account" means the
account established and maintained by the Administrator for
each Participant with respect to his total interest in the
Plan resulting from the Participant's nondeductible
voluntary contributions made pursuant to Section 4.12.
1.64 "Year of Service" means the computation period of
12 consecutive months, herein set forth, during which an
Employee has at least 1,000 Hours of Service.
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For purposes of eligibility for participation, the
initial computation period shall begin with the date on
which the Employee first performs an Hour of Service. The
participation computation period beginning after a 1-Year
Break in Service shall be measured from the date on which
an Employee again performs an Hour of Service. The
participation computation period shall shift to the Plan
Year which includes the anniversary of the date on which
the Employee first performed an Hour of Service. An
Employee who is credited with the required Hours of Service
in both the initial computation period (or the computation
period beginning after a 1-Year Break in Service) and the
Plan Year which includes the anniversary of the date on
which the Employee first performed an Hour of Service,
shall be credited with two Years of Service for purposes of
eligibility to participate.
For vesting purposes, the computation period shall be
the Plan Year, including periods prior to the Effective
Date of the Plan.
For all other purposes, the computation period shall be
the Plan Year. Years of Service with any Affiliated
Employer shall be recognized.
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the
special vesting requirements of Code Section 416(b)
pursuant to Section 6.4 of the Plan and the special minimum
allocation requirements of Code Section 416(c) pursuant to
Section 4.4 of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan
Year commencing after December 31, 1983 in which, as of the
Determination Date, (1) the Present Value of Accrued
Benefits of Key Employees and (2) the sum of the Aggregate
Accounts of Key Employees under this Plan and all plans of
an Aggregation Group exceeds 60% of the Present Value of
Accrued Benefits and the Aggregate Accounts of all Key and
Non-Key Employees under this Plan and all plans of an
Aggregation Group.
If any Participant is a Non-Key Employee for any Plan
Year, but such Participant was a Key Employee for any prior
Plan Year, such Participant's Present Value of Accrued
Benefit and/or Aggregate Account balance shall not be taken
into account for purposes of determining whether this Plan
is a Top Heavy or Super Top Heavy Plan (or whether any
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Aggregation Group which includes this Plan is a Top Heavy
Group). In addition, for Plan Years beginning after
December 31, 1984, if a Participant or Former Participant
has not performed any services for any Employer maintaining
the Plan at any time during the five-year period ending on
the Determination Date, any accrued benefit for such
Participant or Former Participant shall not be taken into
account for the purposes of determining whether this Plan
is a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any
Plan Year commencing after December 1, 1983 in which, as of
the Determination Date, (1) the Present Value of Accrued
Benefits of Key Employees and (2) the sum of the Aggregate
Accounts of Key Employees under this Plan and all plans of
an Aggregation Group exceeds 90% of the Present Value of
Accrued Benefits and the Aggregate Accounts of all Key and
Non-Key Employees under this Plan and all plans of an
Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate
Account as of the Determination Date is the sum of:
(1) his Participant's Combined Account balance as
of the most recent valuation occurring within a 12-
month period ending on the Determination Date.
(2) an adjustment for any contributions due as of
the Determination Date. Such adjustment shall be the
amount of any contributions actually made after the
valuation date but due on or before the Determination
Date, except for the first Plan Year, when such
adjustment shall also reflect the amount of any
contributions made after the Determination Date that
are allocated as of a date in that first Plan Year.
(3) any Plan distributions made within the Plan
Year, which includes the Determination Date or within
the four preceding Plan Years. However, in the case of
distributions made after the valuation date and prior
to the Determination Date, such distributions are not
included as distributions for top heavy purposes to the
extent that such distributions are already included in
the Participant's Aggregate Account balance as of the
valuation date. Notwithstanding anything herein to the
contrary, all distributions, including distributions
made prior to January 1, 1984 and distributions under a
terminated plan, which if it had not been terminated
would have been required to be included in an
Aggregation Group, will be counted. Further,
distributions from the Plan (including the cash value
of life insurance policies) of a Participant's account
balance because of death shall be treated as a
distribution for the purposes of this paragraph.
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(4) any Employee contributions, whether voluntary
or mandatory. However, amounts attributable to tax
deductible qualified voluntary employee contributions
shall not be considered to be a part of the
Participant's Aggregate Account balance.
(5) with respect to unrelated rollovers and plan-
to-plan transfers (ones which are both initiated by the
Employee and made from a plan maintained by one
employer to a plan maintained by another employer), if
this Plan provides the rollovers or plan-to-plan
transfers, it shall always consider such rollovers or
plan-to-plan transfers as a distribution for the
purposes of this Section. If this Plan is the plan
accepting such rollovers or plan-to-plan transfers, it
shall not consider such rollovers or plan-to-plan
transfers accepted after December 31, 1983 as part of
the Participant's Aggregate Account balance. However,
rollovers or plan-to-plan transfers accepted prior to
January 1, 1984 shall be considered as part of the
Participant's Aggregate Account balance.
(6) with respect to related rollovers and plan-to-
plan transfers (ones either not initiated by the
Employee or made to a plan maintained by the same
employer), if this Plan provides the rollover or plan-
to-plan transfer, it shall not be counted as a
distribution for purposes of this Section. If this
Plan is the plan accepting such rollover or plan-to-
plan transfer, it shall consider such rollover or plan-
to-plan transfer as part of the Participant's Aggregate
Account balance, irrespective of the date on which such
rollover or plan-to-plan transfer is accepted.
(7) For the purposes of determining whether two
employers are to be treated as the same employer in (5)
and (6) above, all employers aggregated under Code
Section 414(b), (c), (m) and (o) are treated as the
same employer.
(d) "Aggregation Group" means either a Required Aggregation
Group or a Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a
Required Aggregation Group hereunder, each plan of the
Employer in which a Key Employee is a participant in
the Plan Year containing the Determination Date or any
of the four preceding Plan Years, and each other plan
of the Employer which enables any plan in which a Key
Employee participates to meet the requirements of Code
Sections 401(a)(4) or 410, will be required to be
aggregated. Such group shall be known as a Required
Aggregation Group.
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In the case of a Required Aggregation Group, each
plan in the group will be considered a Top Heavy Plan
if the Required Aggregation Group is a Top Heavy Group.
No plan in the Required Aggregation Group will be
considered a Top Heavy Plan if the Required Aggregation
Group is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may
also include any other plan not required to be included
in the Required Aggregation Group, provided the
resulting group, taken as a whole, would continue to
satisfy the provisions of Code Sections 401(a)(4) and
410. Such group shall be known as a Permissive
Aggregation Group.
In the case of a Permissive Aggregation Group, only
a plan that is part of the Required Aggregation Group
will be considered a Top Heavy Plan if the Permissive
Aggregation Group is a Top Heavy Group. No plan in the
Permissive Aggregation Group will be considered a Top
Heavy Plan if the Permissive Aggregation Group is not a
Top Heavy Group.
(3) Only those plans of the Employer in which the
Determination Dates fall within the same calendar year
shall be aggregated in order to determine whether such
plans are Top Heavy Plans.
(4) An Aggregation Group shall include any
terminated plan of the Employer if it was maintained
within the last five years ending on the Determination
Date.
(e) "Determination Date" means (a) the last day of the
preceding Plan Year, or (b) in the case of the first Plan
Year, the last day of such Plan Year.
(f) Present Value of Accrued Benefit: In the case of a
defined benefit plan, the Present Value of Accrued Benefit
for a Participant other than a Key Employee, shall be as
determined using the single accrual method used for all
plans of the Employer and Affiliated Employers, or if no
such single method exists, using a method which results in
benefits accruing not more rapidly than the slowest accrual
rate permitted under Code Section 411(b)(1)(C). The
determination of the Present Value of Accrued Benefit shall
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.
(g) "Top Heavy Group" means an Aggregation Group in
which, as of the Determination Date, the sum of:
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(1) the Present Value of Accrued Benefits of Key
Employees under all defined benefit plans included in
the group, and
(2) the Aggregate Accounts of Key Employees under
all defined contribution plans included in the group,
exceeds 60% of a similar sum determined for all Participants.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and
remove the Trustee and the Administrator from time to time
as it deems necessary for the proper administration of the
Plan to assure that the Plan is being operated for the
exclusive benefit of the Participants and their
Beneficiaries in accordance with the terms of the Plan, the
Code and the Act.
(b) The Employer shall establish a "funding policy and
method," i.e., it shall determine whether the Plan has a
short-run need for liquidity (e.g., to pay benefits) or
whether liquidity is a long-run goal and investment growth
(and stability of same) is a more current need, or shall
appoint a qualified person to do so. The Employer or its
delegate shall communicate such needs and goals to the
Trustee, who shall coordinate such Plan needs with its
investment policy. The communication of such a "funding
policy and method" shall not, however, constitute a
directive to the Trustee as to investment of the Trust
Funds. Such "funding policy and method" shall be
consistent with the objectives of this Plan and with the
requirements of Title I of the Act.
(c) The Employer shall periodically review the
performance of any Fiduciary or other person to whom duties
have been delegated or allocated by it under the provisions
of this Plan or pursuant to procedures established
hereunder. This requirement may be satisfied by formal
periodic review by the Employer or by a qualified person
specifically designated by the Employer, through day-to-day
conduct and evaluation, or through other appropriate ways.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators.
Any person, including, but not limited to, the Employees of
the Employer, shall be eligible to serve as an
Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer.
An Administrator may resign by delivering his written
resignation.
The Employer, upon the resignation or removal of an
Administrator, shall promptly designate in writing a
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successor to this position. If the Employer does not
appoint an Administrator, the Employer will function as the
Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator,
the responsibilities of each Administrator may be specified
by the Employer and accepted in writing by each
Administrator. In the event that no such delegation is
made by the Employer, the Administrators may allocate the
responsibilities among themselves, in which event the
Administrators shall notify the Employer and the Trustee in
writing of such action and specify the responsibilities of
each Administrator. The Trustee thereafter shall accept
and rely upon any documents executed by the appropriate
Administrator until such time as the Employer or the
Administrators file with the Trustee a written revocation
of such designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to
administer the Plan for the exclusive benefit of the
Participants and their Beneficiaries, subject to the
specific terms of the Plan. The Administrator shall
administer the Plan in accordance with its terms and shall
have the power and discretion to construe the terms of the
Plan and to determine all questions arising in connection
with the administration, interpretation and application of
the Plan. Any such determination by the Administrator
shall be conclusive and binding upon all persons. The
Administrator may establish procedures, correct any defect,
supply any information or reconcile any inconsistency in
such manner and to such extent as shall be deemed necessary
or advisable to carry out the purpose of the Plan;
provided, however, that any procedure, discretionary act,
interpretation or construction shall be done in a
nondiscriminatory manner based upon uniform principles
consistently applied and shall be consistent with the
intent that the Plan shall continue to be deemed a
qualified plan under the terms of Code Section 4401(a), and
shall comply with the terms of the Act and all regulations
issued pursuant thereto. The Administrator shall have all
powers necessary or appropriate to accomplish his duties
under this Plan.
The Administrator shall be charged with the duties of
the general administration of the Plan, including, but not
limited to, the following:
(a) the discretion to determine all questions
relating to the eligibility of Employees to participate
or remain a Participant hereunder and to receive
benefits under the Plan;
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(b) to compute, certify and direct the Trustee with
respect to the amount and the kind of benefits to which
any Participant shall be entitled hereunder;
(c) to authorize and direct the Trustee with
respect to all nondiscretionary or otherwise directed
disbursements from the Trust;
(d) to maintain all necessary records for the
administration of the Plan;
(e) to interpret the provisions of the Plan and to
make and publish such rules for regulation of the Plan
as are consistent with the terms hereof;
(f) to determine the size and type of any Contract
to be purchased from any insurer, and to designate the
insurer from which such Contract shall be purchased;
(g) to compute and certify to the Employer and to
the Trustee from time to time the sums of money
necessary or desirable to be contributed to the Plan;
(h) to consult with the Employer and the Trustee
regarding the short and long-term liquidity needs of
the Plan in order that the Trustee can exercise any
investment discretion in a manner designed to
accomplish specific objectives;
(i) to prepare and distribute to Employees a
procedure for notifying Participants and Beneficiaries
of their rights to elect joint and survivor annuities
and Pre-Retirement Survivor Annuities as required by
the Act and Regulations thereunder;
(j) to prepare and implement a procedure to notify
Eligible Employees that they may elect to have a
portion of their Compensation deferred or paid to them
in cash; and
(k) to assist any Participant regarding his rights,
benefits or elections available under the Plan.
Any determination made by the Administrator shall be
given deference in the event it is subject to judicial
review and shall be overturned only if it is arbitrary and
capricious.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions
taken and shall keep all other books of account, records
and other data that may be necessary for proper
administration of the Plan and shall be responsible for
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supplying all information and reports to the Internal
Revenue Service, Department of Labor, Participants,
Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of
the Administrator, may appoint counsel, specialists,
advisers and other persons as the Administrator or the
Trustee deems necessary or desirable in connection with the
administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions,
the Employer shall supply full and timely information to
the Administrator on all matters relating to the
Compensation of all Participants, their Hours of Service,
their Years of Service, their retirement, death, disability
or termination of employment and such other pertinent facts
as the Administrator may require, and the Administrator
shall advise the Trustee of such of the foregoing facts as
may be pertinent to the Trustee's duties under the Plan.
The Administrator may rely upon such information as is
supplied by the Employer and shall have no duty or
responsibility to verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the
Trust Fund unless paid by the Employer. Such expenses
shall include any expenses incident to the functioning of
the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their
agents, and other costs of administering the Plan. Until
paid, the expenses shall constitute a liability of the
Trust Fund. However, the Employer may reimburse the Trust
Fund for any administration expense incurred. Any
administration expense paid to the Trust Fund as a
reimbursement shall not be considered an Employer
contribution.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and
delegation of administrative authority pursuant to Section
2.5, if there shall be more than one Administrator, they
shall act by a majority of their number, but may authorize
one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed with
the Administrator on forms supplied by the Employer.
Written notice of the disposition of a claim shall be
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furnished to the claimant within 90 days after the
application is filed. In the event the claim is denied,
the reasons for the denial shall be specifically set forth
in the notice in language calculated to be understood by
the claimant, pertinent provisions of the Plan shall be
cited, and, where appropriate, an explanation as to how the
claimant can perfect the claim will be provided. In
addition, the claimant shall be furnished with an
explanation of the Plan's claims review procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee or Beneficiary of either
who has been denied a benefit by a decision of the
Administrator pursuant to Section 2.12 shall be entitled to
request the Administrator to give further consideration to
his claim by filing with the Administrator (on a form which
may be obtained from the Administrator) a request for a
hearing. Such request, together with a written statement
of the reasons why the claimant believes his claim should
be allowed, shall be filed with the Administrator no later
than 60 days after receipt of the written notification
provided for in Section 2.12. The Administrator shall then
conduct a hearing within the next 60 days, at which the
claimant may be represented by an attorney or any other
representative of his choosing and at which the claimant
shall have an opportunity to submit written and oral
evidence and arguments in support of his claim. At the
hearing (or prior thereto upon five business days' written
notices to the Administrator) the claimant or his
representative shall have the opportunity to review all
documents in the possession of the Administrator which are
pertinent to the claim at issue and its disallowance.
Either the claimant or the Administrator may cause a court
reporter to attend the hearing and record the proceedings.
In such event, a complete written transcript of the
proceedings shall be furnished to both parties by the court
reporter. The full expense of any such court reporter and
such transcripts shall be borne by the party causing the
court reporter to attend the hearing. A final decision as
to the allowance of the claim shall be made by the
Administrator within 60 days of receipt of the appeal
(unless there has been an extension of 60 days due to
special circumstances, provided the delay and the special
circumstances occasioning it are communicated to the
claimant within the 60-day period). Such communication
shall be written in a manner calculated to be understood by
the claimant and shall include specific reasons for the
decision and specific references to the pertinent Plan
provisions on which the decision is based.
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ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee who has completed six Months of
Service and has attained age 21 shall be eligible to
participate hereunder as of the date he has satisfied such
requirements. However, any Employee who was a Participant
in the Plan prior to the effective date of this amendment
and restatement shall continue to participate in the Plan.
The Employer shall give each prospective Eligible Employee
written notice of his eligibility to participate in the
Plan prior to the close of the Plan Year in which he first
becomes an Eligible Employee.
For purposes of this Section, an Eligible Employee will
be deemed to have completed six Months of Service if he is
in the employ of the Employer at any time six months after
his employment commencement date. Employment commencement
date shall be the first day that he is entitled to be
credited with an Hour of Service for the performance of
duty.
3.2 APPLICATION FOR PARTICIPATION
In order to become a Participant hereunder, each
Eligible Employee shall make application to the Employer
for participation in the Plan and agree to the terms
hereof. Upon the acceptance of any benefits under this
Plan, such Employee shall automatically be deemed to have
made application and shall be bound by the terms and
conditions of the Plan and all amendments hereto.
3.3 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant
effective as of the first day of the calendar quarter
coinciding with or next following the date on which such
Employee met the eligibility requirements of Section 3.1,
provided said Employee was still employed as of such date
(or if not employed on such date, as of the date of rehire
if a 1-Year Break in Service has not occurred).
3.4 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of
each Employee for participation in the Plan based upon
information furnished by the Employer. Such determination
shall be conclusive and binding upon all persons, as long
as the same is made pursuant to the Plan and the Act. Such
determination shall be subject to review per Section 2.13.
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3.5 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a
classification of an Eligible Employee to an ineligible
Employee, such Former Participant shall continue to vest in
his interest in the Plan for each Year of Service completed
while a noneligible Employee, until such time as his
Participant's Account shall be forfeited or distributed
pursuant to the terms of one Plan. Additionally, his
interest in the Plan shall continue to share in the
earnings of the Trust Fund.
(b) In the event a Participant is no longer a member of
an eligible class of Employees and becomes ineligible to
participate but has not incurred a 1-Year Break in Service,
such Employee will participate immediately upon returning
to an eligible class of Employees. If such Participant
incurs a 1-Year Break in Service, eligibility will be
determined under the break in service rules of the Plan.
(c) In the event an Employee who is not a member of an
eligible class of Employees becomes a member of an eligible
class, such Employee will participate immediately if such
Employee has satisfied the minimum age and service
requirements and would have otherwise previously become a
Participant.
3.6 OMMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be
included as a Participant in the Plan is erroneously
omitted and discovery of such omission is not made until
after a contribution by his Employer for the year has been
made, the Employer shall make a subsequent contribution
with respect to the omitted Employee in the amount which
the said Employer would have contributed with respect to
him had he not been omitted. Such contribution shall be
made regardless of whether or not it is deductible in whole
or in part in any taxable year under applicable provisions
of the Code.
3.7 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have
been included as a Participant in the Plan is erroneously
included and discovery of such incorrect inclusion is not
made until after a contribution for the year has been made,
the Employer shall not be entitled to recover the
contribution made with respect to the ineligible person
regardless of whether or not a deduction is allowable with
respect to such contribution. In such event, the amount
contributed with respect to the ineligible person shall
constitute a Forfeiture (except for Deferred Compensation
which shall be distributed to the ineligible person) for
the Plan Year in which the discovery is made.
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3.8 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the
Employer, elect voluntarily not to participate in the Plan.
The election not to participate must be communicated to the
Employer, in writing, at least 30 days before the beginning
of a Plan Year. Furthermore, the foregoing election not to
participate shall not be available with respect to partners
in a partnership.
3.9 OWNER-EMPLOYEE LIMITATION
(a) If this Plan provides contributions or benefits for
one or more Owner-Employees who control both the business
for which this Plan is established and one or more other
trades or businesses, this Plan and the plan established
for other trades or businesses must, when looked at as a
single plan, satisfy Code Sections 401(a) and (d) for the
employees of this and all other trades or businesses.
(b) If the Plan provides contributions or benefits for
one or more Owner-Employees who control one or more other
trades or businesses, the employees of the other trades or
businesses must be included in a plan which satisfies Code
Section 401(a) and (d) and which provides contributions and
benefits not less favorable than provided for Owner-
Employees under this Plan.
(c) If an individual is covered as an Owner-Employee
under the plans of two or more trades or businesses which
are not controlled and the individual controls a trade or
business, then the contributions or benefits of the
employees under the plan of the trades or businesses which
are controlled must be as favorable as those provided for
him under the most favorable plan of the trade or business
which is not controlled.
(d) For purposes of the preceding paragraphs, an Owner-
Employee, or two or more Owner-Employees, will be
considered to control a trade or business if the Owner-
Employee, or two or more Owner-Employees together:
(1) own the entire interest in an unincorporated
trade or business, or
(2) in the case of a partnership, own more than 50%
of either the capital interest or the profits interest
in the partnership.
For purposes of the preceding sentence, an Owner-
Employee, or two or more Owner-Employees, shall be treated
as owning any interest in a partnership which is owned,
directly or indirectly, by a partnership which such Owner-
Employee, or such two or more Owner-Employees, are
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considered to control within the meaning of the preceding
sentence.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer shall contribute to
the Plan:
(a) The amount of the total salary reduction
elections of all Participants made pursuant to Section
4.2(a), which amount shall be deemed an Employer's
Elective Contribution.
(b) On behalf of each Participant who is eligible
to share in matching contributions for the Plan Year, a
matching contribution equal to 100% of each such
Participant's Deferred Compensation, which amount shall
be deemed an Employer's Non-Elective Contribution.
Except, however, in applying the matching
percentage specified above, only salary reductions up
to 5% of Compensation shall be considered.
(c) On behalf of each Non-Highly Compensated
Participant who is eligible to share in the Qualified
Non-Elective Contribution for the Plan Year, a
discretionary Qualified Non-Elective Contribution equal
to a percentage of each eligible individual's
Compensation, the exact percentage to be determined
each year by the Employer. The Employer's Qualified
Non-Elective Contribution shall be deemed an Employer's
Elective Contribution.
(d) A discretionary amount, which amount shall be
deemed an Employer's Non-Elective Contribution.
(e) Notwithstanding the foregoing, however, the
Employer's contributions for any Plan Year shall not
exceed the maximum amount allowable as a deduction to
the Employer under the provisions of Code Section 404.
All contributions by the Employer shall be made in cash
or in such property as is acceptable to the Trustee.
(f) Except, however, to the extent necessary to
provide the top heavy minimum allocations, the Employer
shall make a contribution even if it exceeds the amount
which is deductible under Code Section 404.
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION
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(a) Each Participant may elect to defer his
Compensation which would have been received in the Plan
Year, but for the deferral election, by up to 10%. A
deferral election (or modification of an earlier election)
may not be made with respect to Compensation which is
currently available on or before the date the Participant
executed such election.
The amount by which Compensation is reduced shall be
that Participant's Deferred Compensation and be treated as
an Employer Elective Contribution and allocated to that
Participant's Elective Account.
(b) The balance in each Participant's Elective Account
shall be fully Vested at all times and shall not be subject
to Forfeiture for any reason.
(c) Amounts held in the Participant's Elective Account
may not be distributable earlier than:
(1) a Participant's termination of employment,
Total and Permanent Disability or death;
(2) a Participant's attainment of age 59-1/2;
(3) the termination of the Plan without the
existence at the time of Plan termination of another
defined contribution plan (other than an employee stock
ownership plan as defined in Code Section 4975(e)(7))
or the establishment of a successor defined
contribution plan (other than an employee stock
ownership plan as defined in Code Section 4975(e)(7))
by the Employer or an Affiliated Employer within the
period ending 12 months after distribution of all
assets from the Plan maintained by the Employer;
(4) the date of disposition by the Employer to an
entity that is not an Affiliated Employer of
substantially all of the assets (within the meaning of
Code Section 409(d)(2)) used in a trade or business of
such corporation if such corporation continues to
maintain this Plan after the disposition with respect
to a Participant who continues employment with the
corporation acquiring such assets;
(5) the date of disposition by the Employer or an
Affiliated Employer who maintains the Plan of its
interest in a subsidiary (within the meaning of Code
Section 409(d)(3)) to an entity which is not an
Affiliated Employer but only with respect to a
Participant who continues employment with such
subsidiary; or
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(6) the proven financial hardship of a Participant,
subject to the limitations of Section 6.10.
(d) In any Plan Year beginning after December 31, 1987,
a Participant's Deferred Compensation made under this Plan
and all other plans, contracts or arrangements of the
Employer maintaining this Plan shall not exceed, during any
taxable year, the limitation imposed by Code Section
402(g), as in effect at the beginning of such taxable year.
This dollar limitation shall be adjusted annually pursuant to the
method provided in Code Section 415(d) in accordance with
Regulations.
(e) In the event a Participant has received a hardship
distribution pursuant to Regulation 1.401(k)-
l(d)(2)(iii)(B) from any other plan maintained by the
Employer, then such Participant shall not be permitted to
elect to have Deferred Compensation contributed to the Plan
on his behalf for a period of 12 months following the
receipt of the distribution. Furthermore, the dollar
limitation under Code Section 402(g) shall be reduced, with
respect to the Participant's taxable year following the
taxable year in which the hardship distribution was made,
by the amount of such Participant's Deferred Compensation,
if any, pursuant to this Plan (and any other plan
maintained by the Employer) for the taxable year of the
hardship distribution.
(f) If a Participant's Deferred Compensation under this
Plan together with any elective deferrals (as defined in
Regulation 1.402(g)-l(b)) under another qualified cash or
deferred arrangement (as defined in Code Section 401(k)), a
simplified employee pension (as defined in Code Section
408(k)), a salary reduction arrangement (within the meaning
of Code Section 3121(a)(5)(D)), a deferred compensation
plan under Code Section 457 or a trust described in Code
Section 501(c)(18) cumulatively exceeds the limitation
imposed by Code Section 402(g) (as adjusted annually in
accordance with the method provided in Code Section 415(d)
pursuant to Regulations) for such Participant's taxable
year, the Participant may, not later than March 1 following
the close of his taxable year, notify the Administrator in
writing of such excess and request that his Deferred
Compensation under this Plan be reduced by an amount
specified by the Participant. In such event, the
Administrator may direct the Trustee to distribute such
excess amount (and any Income allocable to such excess
amount) to the Participant not later than the first
April 15 following the close of the Participant's taxable
year. Distributions in accordance with this paragraph may
be made for any taxable year of the Participant which
begins after December 31, 1986. Any distribution of less
than the entire amount of Excess Deferred Compensation and
Income shall be treated as a pro rata distribution of
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Excess Deferred Compensation and Income. The amount
distributed shall not exceed the Participant's Deferred
Compensation under the Plan for the taxable year. Any
distribution on or before the last day of the Participant's
taxable year must satisfy each of the following conditions:
(1) the Participant shall designate the
distribution as Excess Deferred Compensation;
(2) the distribution must be made after the date on
which the Plan received the Excess Deferred
Compensation; and
(3) the Plan must designate the distribution as a
distribution of Excess Deferred Compensation.
(g) Notwithstanding Section 4.2(f) above, a
Participant's Excess Deferred Compensation shall be
reduced, but not below zero, by any distribution of Excess
Contributions pursuant to Section 4.6(a) for the Plan Year
beginning with or within the taxable year of the
Participant.
(h) At Normal Retirement Date, or such other date when
the Participant shall be entitled to receive benefits, the
fair market value of the Participant's Elective Account
shall be used to provide additional benefits to the
Participant or his Beneficiary.
(i) All amounts allocated to a Participant's Elective
Account may be treated as a Directed Investment Account
pursuant to Section 4.13.
(j) Employer Elective Contributions made pursuant to
this Section may be segregated into a separate account for
each Participant in a federally insured savings account,
certificate of deposit in a bank or savings and loan
association, money market certificate or other short-term
debt security acceptable to the Trustee until such time as
the allocations pursuant to Section 4.4 have been made.
(k) The Employer and the Administrator shall implement
the salary reduction elections provided for herein in
accordance with the following:
(1) A Participant may commence making elective
deferrals to the Plan only after first satisfying the
eligibility and participation requirements specified in
Article III. However, the Participant must make his
initial salary deferral election within a reasonable
time, not to exceed 30 days, after entering the Plan
pursuant to Section 3.3. If the Participant fails to
make an initial salary deferral election within such
time, then such Participant may thereafter make an
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election in accordance with the rules governing
modifications. The Participant shall make such an
election by entering into a written salary reduction
agreement with the Employer and filing such agreement
with the Administrator. Such election shall initially
be effective beginning with the pay period following
the acceptance of the salary reduction agreement by the
Administrator, shall not have retroactive effect and
shall remain in force until revoked.
(2) A Participant may modify a prior election
during the Plan Year and concurrently make a new
election by filing a written notice with the
Administrator within a reasonable time before the pay
period for which such modification is to be effective.
However, modifications to a salary deferral election
shall only be permitted quarterly, during election
periods established by the Administrator prior to the
first day of each Plan Year quarter. Any modification
shall not have retroactive effect and shall remain in
force until revoked.
(3) A Participant may elect to prospectively revoke
his salary reduction agreement in its entirety at any
time during the Plan Year by providing the
Administrator with 30 days written notice of such
revocation (or upon such shorter notice period as may
be acceptable to the Administrator). Such revocation
shall become effective as of the beginning of the first
pay period coincident with or next following the
expiration of the notice period. Furthermore, the
termination of the Participant's employment, or the
cessation of participation for any reason, shall be
deemed to revoke any salary reduction agreement then in
effect, effective immediately following the close of
the pay period within which such termination or
cessation occurs.
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall generally pay to the Trustee its
contribution to the Plan for each Plan Year within the time
prescribed by law, including extensions of time, for the
filing of the Employer's federal income tax return for the
Fiscal Year.
However, Employer Elective Contributions accumulated
through payroll deductions shall be paid to the Trustee as
of the earliest date on which such contributions can
reasonably be segregated from the Employer's general
assets, but in any event within 90 days from the date on
which such amounts would otherwise have been payable to the
Participant in cash. The provisions of Department of Labor
regulations 2510.3-102 are incorporated herein by
reference. Furthermore, any additional Employer
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contributions which are allocable to the Participant's
Elective Account for a Plan Year shall be paid to the Plan
no later than the 12-month period immediately following the
close of such Plan Year.
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an
account in the name of each Participant to which the
Administrator shall credit as of each Anniversary Date all
amounts allocated to each such Participant as set forth
herein.
(b) The Employer shall provide the Administrator with
all information required by the Administrator to make a
proper allocation of the Employer's contributions for each
Plan Year. Within a reasonable period of time after the
date of receipt by the Administrator of such information
the Administrator shall allocate such contribution as
follows:
(l) With respect to the Employer's Elective
Contribution made pursuant to Section 4.1(a), to each
Participant's Elective Account in an amount equal to
each such Participant's Deferred Compensation for the
year.
(2) With respect to the Employer's Non-Elective
Contribution made pursuant to Section 4.1(b), to each
Participant's Account in accordance with Section
4.1(b).
Any Participant actively employed during the Plan
Year shall be eligible to share in the matching
contribution for the Plan Year.
(3) With respect to the Employer Qualified Non-
Elective Contribution made pursuant to Section 4.1(c),
to each Participant's Elective Account in accordance
with Section 4.1(c).
Only Non-Highly Compensated Participants who have
completed a Year of Service during the Plan Year and
are actively employed on the last day of the Plan Year
shall be eligible to share in the Qualified Non-
Elective Contribution for the year.
(4) With respect to the Employer's Non-Elective
Contribution made pursuant to Section 4.1(d), to each
Participant's Account in the same proportion that each
such Participant's Compensation for the year bears to
the total Compensation of all Participants for such
year.
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Only Participants who have completed a Year of
Service during the Plan Year and are actively employed
on the last day of the Plan Year shall be eligible to
share in the discretionary contribution for the year.
(c) As of each Anniversary Date any amounts which
became Forfeitures since the last Anniversary Date shall
first be made available to reinstate previously forfeited
account balances of Former Participants, if any, in
accordance with Section 6.4(g). The remaining Forfeitures,
if any, shall be used to reduce the contribution of the
Employer hereunder for the Plan Year in which such
Forfeitures occur in the following manner:
(1) Forfeitures attributable to Employer matching
contributions made pursuant to Section 4.1(b) shall be
used to reduce the Employer's contribution for the Plan
Year in which such Forfeitures occur.
(2) Forfeitures attributable to Employer
discretionary contributions made pursuant to Section
4.1(d) shall be used to reduce the Employer's
contribution for the Plan Year in which such
Forfeitures occur.
(d) For any Top Heavy Plan Year, Non-Key Employees not
otherwise eligible to share in the allocation of
contributions, as provided above, shall receive the minimum
allocation provided for in Section 4.4(g) if eligible
pursuant to the provisions of Section 4.4(i).
(e) Notwithstanding the foregoing, Participants who are
not actively employed on the last day of the Plan Year due
to Retirement (Normal or Late), Total and Permanent
Disability or death shall share in the allocation of
contributions for that Plan Year.
(f) As of each Anniversary Date or other valuation
date, before allocation of Employer contributions, any
earnings or losses (net appreciation or net depreciation)
of the Trust Fund shall be allocated in the same proportion
that each Participant's and Former Participant's
nonsegregated accounts bear to the total of all
Participants' and Former Participants' nonsegregated
accounts as of such date.
Participants' transfers from other qualified plans
deposited in the general Trust Fund after a valuation date
shall not share in any earnings and losses (net
appreciation or net depreciation of the Trust Fund for such
period. Each segregated account maintained on behalf of a
Participant shall be credited or charged with its separate
earnings and losses.
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(g) Minimum Allocations Required for Top Heavy Plan
Years: Notwithstanding the foregoing, for any Top Heavy
Plan Year, the sum of the Employer's contributions
allocated to the Participant's Combined Account of each
Non-Key Employee shall be equal to at least 3% of such Non-
Key Employee's "415 Compensation" (reduced by contributions
and forfeitures, if any, allocated to each Non-Key Employee
in any defined contribution plan included with this plan in
a Required Aggregation Group). However, if (i) the sum of
the Employer's contributions allocated to the Participant's
Combined Account of each Key Employee for such Top Heavy
Plan Year is less than 3% of each Key Employee's "415
Compensation" and (ii) this Plan is not required to be
included in an Aggregation Group to enable a defined
benefit plan to meet the requirements of Code Section
401(a)(4) or 410, the sum of the Employer's contributions
allocated to the Participant's Combined Account of each
Non-Key Employee shall be equal to the largest percentage
allocated to the Participant's Combined Account of any Key
Employee. However, in determining whether a Non-Key
Employee has received the required minimum allocation, such
Non-Key Employee's Deferred Compensation and matching
contributions needed to satisfy the "Actual Contribution
Percentage" tests pursuant to Section 4.7(a) shall not be
taken into account.
However, no such minimum allocation shall be required
in this Plan for any Non-Key Employee who participates in
another defined contribution plan subject to Code Section
412 providing such benefits included with this Plan in a
Required Aggregation Group.
(h) For purposes of the minimum allocations set forth
above, the percentage allocated to the Participant's
Combined Account of any Key Employee shall be equal to the
ratio of the sum of the Employer's contributions allocated
on behalf of such Key Employee divided by the "415
Compensation" for such Key Employee.
(i) For any Top Heavy Plan Year, the minimum
allocations set forth above shall be allocated to the
Participant's Combined Account of all Non-Key Employees who
are Participants and who are employed by the Employer on
the last day of the Plan Year, including Non-Key Employees
who have (1) failed to complete a Year of Service; and (2)
declined to make mandatory contributions (if required) or,
in the case of a cash or deferred arrangement, elective
contributions to the Plan.
(j) For the purposes of this Section, "415
Compensation" shall be limited to $150,000 (unless adjusted
in such manner as permitted under Code Section 401(a)(17)).
(k) Notwithstanding anything herein to the contrary,
Participants who terminated employment for any reason
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during the Plan Year shall share in the salary reduction
contributions made by the Employer for the year of
termination without regard to the Hours of Service
credited.
(l) If a Former Participant is reemployed after five
consecutive One-Year Breaks in Service, then separate
accounts shall be maintained as follows:
(1) one account for nonforfeitable benefits
attributable to pre-break service; and
(2) one account representing his status in the Plan
attributable to post-break service.
(m) Notwithstanding anything to the contrary, for Plan
Years beginning after December 31, 1989, if this is a Plan
that would otherwise fail to meet the requirements of Code
Sections 401(a) (26), 410(b)(1) or 410(b)(2)(A)(i) and the
Regulations thereunder because Employer contributions have
not been allocated to a sufficient number or percentage of
Participants for a Plan Year, then the following rules
shall apply:
(1) The group of Participants eligible to share
in the Employer's contribution for the Plan Year shall
be expanded to include the minimum number of
Participants who would not otherwise be eligible as are
necessary to satisfy the applicable test specified
above. The specific Participants who shall become
eligible under the terms of this paragraph shall be
those who are actively employed on the last day of the
Plan Year and, when compared to similarly situated
Participants, have completed the greatest number of
Hours of Service in the Plan Year.
(2) If, after application of paragraph (1) above,
the applicable test is still not satisfied, then the
group of Participants eligible to share in the
Employer's contribution for the Plan Year shall be
further expanded to include the minimum number of
Participants who are not actively employed on the last
day of the Plan Year as are necessary to satisfy the
applicable test. The specific Participants who shall
become eligible to share shall be those Participants,
when compared to similarly situated Participants, who
have completed the greatest number of Hours of Service
in the Plan Year before terminating employment.
(3) Nothing in this Section shall permit the
reduction of a Participant's accrued benefit.
Therefore, any amounts that have previously been
allocated to Participants may not be reallocated to
satisfy these requirements. In such event, the
Employer shall make an additional contribution equal to
-37-
the amount such affected Participants would have
received had they been included in the allocations,
even if it exceeds the amount which would be deductible
under Code Section 404. Any adjustment to the
allocations pursuant to this paragraph shall be
considered a retroactive amendment adopted by the last
day of the Plan Year.
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year
beginning after December 31, 1986, the annual allocation
derived from Employer Elective Contributions to a
Participant's Elective Account shall satisfy one of the
following tests:
(1) The "Actual Deferral Percentage" for the Highly
Compensated Participant group shall not be more than
the "Actual Deferral Percentage" of the Non-Highly
Compensated Participant group multiplied by 1.25, or
(2) The excess of the "Actual Deferral Percentage"
for the Highly Compensated Participant group over the
"Actual Deferral Percentage" for the Non-Highly
Compensated Participant group shall not be more than
two percentage points. Additionally, the "Actual
Deferral Percentage" for the Highly Compensated
Participant group shall not exceed the "Actual Deferral
Percentage" for the Non-Highly Compensated Participant
group multiplied by 2. The provisions of Code Section
401(k)(3) and Regulation 1.401(k)-l(b) are incorporated
herein by reference.
However, for Plan Years beginning after
December 31, 1988, in order to prevent the multiple use
of the alternative method described in (2) above and in
Code Section 401(m)(9)(A), any Highly Compensated
Participant eligible to make elective deferrals
pursuant to Section 4.2 and to make Employee
contributions or to receive matching contributions
under this Plan or under any other plan maintained by
the Employer or an Affiliated Employer shall have his
actual contribution ratio reduced pursuant to
Regulation 1.401(m)-2, the provisions of which are
incorporated herein by reference.
(b) For the purposes of this Section, "Actual Deferral
Percentage" means, with respect to the Highly Compensated
Participant group and Non-Highly Compensated Participant
group for a Plan Year, the average of the ratios,
calculated separately for each Participant in such group,
of the amount of Employer Elective Contributions allocated
to each Participant's Elective Account for such Plan Year
to such Participant's "414(s) Compensation" for such Plan
Year. The actual deferral ratio for each Participant and
-38-
the "Actual Deferral Percentage" for each group shall be
calculated to the nearest 1/100 of 1% for Plan Years
beginning after December 31, 1988. Employer Elective
Contributions allocated to each Non-Highly Compensated
Participant's Elective Account shall be reduced by Excess
Deferred Compensation to the extent such excess amounts are
made under this Plan or any other plan maintained by the
Employer.
(c) For the purpose of determining the actual deferral
ratio of a Highly Compensated Employee who is subject to
the Family Member aggregation rules of Code Section
414(q)(6) because such Participant is either a "five
percent owner" of the Employer or one of the 10 Highly
Compensated Employees paid the greatest "415 Compensation"
during the year, the following shall apply:
(1) The combined actual deferral ratio for the
family group (which shall be treated as one Highly
Compensated Participant) shall be determined by
aggregating Employer Elective Contributions and "414(s)
Compensation" of all eligible Family Members (including
Highly Compensated Participants). However, in applying
the $150,000 limit to "414(s) Compensation," for Plan
--------
Years beginning after December 31, 1988, Family Members
shall include only the affected Employee's spouse and
any lineal descendants who have not attained age 19
before the close of the Plan Year. Notwithstanding the
foregoing, with respect to Plan Years beginning prior
to January 1, 1990, compliance with the Regulations then
in effect shall be deemed to be compliance with this
paragraph.
(2) The Employer Elective Contributions and "414(s)
Compensation" of all Family Members shall be
disregarded for purposes of determining the "Actual
Deferral Percentage" of the Non-Highly Compensated
Participant group except to the extent taken into
account in paragraph (1) above.
(3) If a Participant is required to be aggregated
as a member of more than one family group in a plan,
all Participants who are members of those family groups
that include the Participant are aggregated as one
family group in accordance with paragraphs (1) and (2)
above.
(d) For the purposes of Sections 4.5(a) and 4.6, a
Highly Compensated Participant and a Non-Highly Compensated
Participant shall include any Employee eligible to make a
deferral election pursuant to Section 4.2, whether or not
such deferral election was made or suspended pursuant to
Section 4.2.
-39-
(e) For the purposes of this Section and Code Sections
401(a)(4), 410(b) and 401(k), if two or more plans which
include cash or deferred arrangements are considered one
plan for the purposes of Code Section 401(a)(4) or 410(b)
(other than Code Section 410(b)(2)(A)(ii) as in effect for
Plan Years beginning after December 31, 1988), the cash or
deferred arrangements included in such plans shall be
treated as one arrangement. In addition, two or more cash
or deferred arrangements may be considered as a single
arrangement for purposes of determining whether or not such
arrangements satisfy Code Sections 401(a)(4), 410(b) and
401(k). In such a case, the cash or deferred arrangements
included in such plans and the plans including such
arrangements shall be treated as one arrangement and as one
plan for purposes of this Section and Code Sections
401(a)(4), 410(b) and 401(k). For Plan Years beginning
after December 31, 1989, plans may be aggregated under this
paragraph (e) only if they have the same plan year.
Notwithstanding the above, for Plan Years beginning
after December 31, 1988, an employee stock ownership plan
described in Code Section 4975(e)(7) may not be combined
with this Plan for purposes of determining whether the
employee stock ownership plan or this Plan satisfies this
Section and Code Sections 401(a)(4), 410(b) and 401(k).
(f) For the purposes of the Section, if a Highly
Compensated Participant is a Participant under two or more
cash or deferred arrangements (other than a cash or
deferred arrangement which is part of an employee stock
ownership plan as defined in Code Section 4975(e)(7) for
Plan Years beginning after December 31, 1988) of the
Employer or an Affiliated Employer, all such cash or
deferred arrangements shall be treated as one cash or
deferred arrangement for the purpose of determining the
actual deferral ratio with respect to such Highly
Compensated Participant. However, for Plan Years beginning
after December 31, 1988 if the cash or deferred
arrangements have different Plan Years, this paragraph
shall be applied by treating all cash or deferred
arrangements ending with or within the same calendar year as
a single arrangement.
-40-
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the the event that the initial allocations of the
Employer's Elective Contributions made pursuant to Section
4.4 do not satisfy one of the tests set forth in Section
4.5(a) for Plan Years beginning after December 31, 1986,
the Administrator shall adjust Excess Contributions
pursuant to the options set forth below:
(a) On or before the fifteenth day of the third
month following the end of each Plan Year, the Highly
Compensated Participant having the highest actual
deferral ratio shall have his portion of Excess
Contributions distributed to him until one of the tests
set forth in Section 4.5(a) is satisfied, or until his
actual deferral ratio equals the actual deferral ratio
of the Highly Compensated Participant having the second
highest actual deferral ratio. This process shall
continue until one of the tests set forth in Section
4.5(a) is satisfied. For each Highly Compensated
Participant, the amount of Excess Contributions is
equal to the Elective Contributions on behalf of such
Highly Compensated Participant (determined prior to the
application of this paragraph) minus the amount
determined by multiplying the Highly Compensated
Participant's actual deferral ratio (determined after
application of this paragraph) by his "414(s)
Compensation." However, in determining the amount of
Excess Contributions to be distributed with respect to
an affected Highly Compensated Participant as
determined herein, such amount shall be reduced by any
Excess Deferred Compensation previously distributed to
such affected Highly Compensated Participant for his
taxable year ending with or within such Plan Year.
(1) With respect to the distribution of Excess
Contributions pursuant to (a) above, such
distribution:
(i) may be postponed but not later than the
close of the Plan Year following the Plan Year
to which they are allocable;
(ii) shall be made first from unmatched
Deferred Compensation and, thereafter,
simultaneously from Deferred Compensation
which is matched and matching contributions
which relate to such Deferred Compensation.
However, any such matching contributions which
are not Vested shall be forfeited in lieu of
being distributed;
(iii) shall be adjusted for Income; and
-41-
(iv) shall be designated by the
Employer as a distribution of Excess
Contributions (and Income).
(2) Any distribution of less than the entire
amount of Excess Contributions shall be treated as
a pro rata contribution of Excess Contributions and
Income.
(3) If the determination and correction of
Excess Contributions of a Highly Compensated
Participant whose actual deferral ratio is
determined under the family aggregation rules, then
the actual deferral ratio shall be reduced as
required herein, and the Excess Contributions for
the family unit shall be allocated among the Family
Members in proportion to the Elective Contributions
of each Family Member that were combined to
determine the group actual deferral ratio.
Notwithstanding the foregoing, with respect to Plan
Years beginning prior to January 1, 1990,
compliance with the Regulations then in effect
shall be deemed to be compliance with this
paragraph.
(b) Within 12 months after the end of the Plan
Year, the Employer may make a special Qualified Non-
Elective Contribution on behalf of Non-Highly
Compensated Participants in an amount sufficient to
satisfy one of the tests set forth in Section 4.5(a).
Such contribution shall be allocated to the
Participant's Elective Account of each Non-Highly
Compensated Participant in the same proportion that
each Non-Highly Compensated Participant's Compensation
for the year bears to the total Compensation of all
Non-Highly Compensated Participants.
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage" for Plan Years
beginning after December 31, 1986 for the Highly
Compensated Participant group shall not exceed the greater
of:
(1) 125% of such percentage for the Non-Highly
Compensated Participant group; or
(2) the lesser of 200% of such percentage for the
Non-Highly Compensated Participant group, or such
percentage for the Non-Highly Compensated Participant
group plus 2%. However, for Plan Years beginning after
December 31, 1988, to prevent the multiple use of the
alternative method described in this paragraph and Code
Section 401(m)(9)(A), any Highly Compensated
Participant eligible to make elective deferrals
-42-
pursuant to Section 4.2 or any other cash or deferred
arrangement maintained by the Employer or an Affiliated
Employer and to make Employee contributions or to
receive matching contributions under this Plan or under
any other plan maintained by the Employer or an
Affiliated Employer shall have his actual contribution
ratio reduced pursuant to Regulation 1.401(m)-2. The
provisions of Code Section 401(m) and Regulations
1.401(m)-l(b) and 1.401(m)-2 are incorporated herein by
reference.
(b) For the purposes of this Section and Section
4.8, "Actual Contribution Percentage" for a Plan Year
means, with respect to the Highly Compensated
Participant group and Non-Highly Compensated
Participant group, the average of the ratios
(calculated separately for each Participant in each
group) of:
(1) the sum of Employer matching contributions
made pursuant to Section 4.1(b) on behalf of each
such Participant for such Plan Year; or
(2) the Participant's "414(s) Compensation" for
such Plan Year.
(c) For purposes of determining the "Actual
Contribution Percentage" and the amount of Excess
Aggregate Contributions pursuant to Section 4.8(d),
only Employer matching contributions contributed to the
Plan prior to the end of the succeeding Plan Year shall
be considered. In addition, the Administrator may
elect to take into account, with respect to Employees
eligible to have Employer matching contributions
pursuant to Section 4.1(b) allocated to their accounts,
elective deferrals (as defined in Regulation 1.402(g)-
l(b)) and qualified nonelective contributions (as
defined in Code Section 401(m)(4)(C)) contributed to
any plan maintained by the Employer. Such elective
deferrals and qualified nonelective contributions shall
be treated as Employer matching contributions subject
to Regulation 1.401(m)-l(b)(2), which is incorporated
herein by reference. However, for Plan Years beginning
after December 31, 1988, the Plan Year must be the same
as the plan year of the plan to which the elective
deferrals and the qualified nonelective contributions
are made.
(d) For the purpose of determining the actual
contribution ratio of a Highly Compensated Employee who
is subject to the Family Member aggregation rules of
Code Section 414(q)(6) because such Employee is either
a "five percent owner" of the Employer or one of the 10
Highly Compensated Employees paid the greatest "415
-43-
Compensation" during the year, the following shall
apply:
(1) The combined actual contribution ratio for
the family group (which shall be treated as one
Highly Compensated Participant) shall be determined
by aggregating Employer matching contributions made
pursuant to Section 4.1(b) and "414(s)
Compensation" of all eligible Family Members
(including Highly Compensated Participants).
However, in applying the $150,000 limit to "414(s)
--------
Compensation" for Plan Years beginning after
December 31, 1988, Family Members shall include
only the affected Employee's spouse and any lineal
descendants who have not attained age 19 before the
close of the Plan Year. Notwithstanding the
foregoing, with respect to Plan Years beginning
prior to January 1, 1990, compliance with the
Regulations then in effect shall be deemed to be
compliance with this paragraph.
(2) The Employer matching contributions made
pursuant to Section 4.1(b) and "414(s)
Compensation" of all Family Members shall be
disregarded for purposes of determining the "Actual
Contribution Percentage" of the Non-Highly
Compensated Participant group except to the extent
taken into account in paragraph (1) above.
(3) If a Participant is required to be
aggregated as a member of more than one family
group in a plan, all Participants who are members
of those family groups that include the Participant
are aggregated as one family group in accordance
with paragraphs (1) and (2) above.
(e) For purposes of this Section and Code Sections
401(a)(4), 410(b) and 401(m), if two or more plans of
the Employer to which matching contributions, Employee
contributions or both are made are treated as one plan
for purposes of Code Sections 401(a)(4) or 410(b)
(other than the average benefits test under Code
Section 410(b)(2)(A)(ii) as in effect for Plan Years
beginning after December 31, 1988), such plans shall be
treated as one plan. In addition, two or more plans of
the Employer to which matching contributions, Employee
contributions or both are made may be considered as a
single plan for purposes of determining whether or not
such plans satisfy Code Sections 401(a)(4), 410(b) and
401(m). In such a case, the aggregated plans must
satisfy this Section and Code Sections 401(a)(4),
410(b) and 401(m) as though such aggregated plans were
a single plan. For Plan Years beginning after
December 31, 1989, plans may be aggregated under this
paragraph (e) only if they have the same plan year.
-44-
Notwithstanding the above, for Plan Years beginning
after December 31, 1988, an employee stock ownership
plan described in Code Section 4975(e)(7) may not be
aggregated with this Plan for purposes of determining
whether the employee stock ownership plan or this Plan
satisfies this Section and Code Sections 401(a)(4),
410(b) and 401(m).
(f) If a Highly Compensated Participant is a
Participant under two or more plans (other than an employee
stock ownership plan as defined in Code Section 4975(e)(7)
for Plan Years beginning after December 31, 1988) which are
maintained by the Employer or an Affiliated Employer to
which matching contributions, Employee contributions or
both are made, all such contributions on behalf of such
Highly Compensated Participant shall be aggregated for
purposes of determining such Highly Compensated
Participant's actual contribution ratio. However, for Plan
Years beginning after December 31, 1988, if the plans have
different plan years, this paragraph shall be applied by
treating all plans ending with our within the same calendar
year as a single plan.
(g) For purposes of Sections 4.7(a) and 4.8, a Highly
Compensated Participant and Non-Highly Compensated
Participant shall include any Employee eligible to have
Employer matching contributions pursuant to Section 4.1(b)
(whether or not a deferral election was made or suspended
pursuant to Section 4.2(e)) allocated to his account for
the Plan Year.
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that, for Plan Years beginning after
December 31, 1986, the "Actual Contribution Percentage" for
the Highly Compensated Participant group exceeds the
"Actual Contribution Percentage" for the Non-Highly
Compensated Participant group pursuant to Section 4.7(a),
the Administrator (on or before the fifteenth day of the
third month following the end of the Plan Year, but in no
event later than the close of the following Plan Year)
shall direct the Trustee to distribute to the Highly
Compensated Participant having the highest actual
contribution ratio, his Vested portion of Excess Aggregate
Contributions (and Income allocable to such contributions)
or, if forfeitable, forfeit such non-Vested Excess
Aggregate Contributions (and Income allocable to such
Forfeitures) until either one of the tests set forth in
Section 4.7(a) is satisfied, or until his actual
contribution ratio equals the actual contribution ratio of
the Highly Compensated Participant having the second
highest actual contribution ratio. This process shall
continue until one of the tests set forth in Section 4.7(a)
is satisfied. The distribution and/or Forfeiture of Excess
-45-
Aggregate Contributions shall be made in the following
order:
(1) Employer matching contributions distributed
and/or forfeited pursuant to Section 4.6(a)(1); and
(2) Remaining Employer matching contributions.
(b) Any distribution and/or Forfeiture of less than the
entire amount of Excess Aggregate Contributions (and
Income) shall be treated as a pro rata distribution and/or
Forfeiture of Excess Aggregate Contributions and Income.
Distribution of Excess Aggregate Contributions shall be
designated by the Employer as a distribution of Excess
Aggregate Contributions (and Income). Forfeitures of
Excess Aggregate Contributions shall be treated in
accordance with Section 4.4.
(c) Excess Aggregate Contributions, including forfeited
matching contributions, shall be treated as Employer
contributions for purposes of Code Sections 404 and 415
even if distributed from the Plan.
(d) For each Highly Compensated Participant, the amount
of Excess Aggregate Contributions is equal to the total
Employer matching contributions made pursuant to Section
4.1(b) and any qualified nonelective contributions or
elective deferrals taken into account pursuant to Section
4.7(c) on behalf of the Highly Compensated Participant
(determined prior to the application of this paragraph)
minus the amount determined by multiplying the Highly
Compensated Participant's actual contribution ratio
(determined after application of this paragraph) by his
"414(s) Compensation." The actual contribution ratio must
be rounded to the nearest 1/100 of 1% for Plan Years
beginning after December 31, 1988. In no case shall the
amount of Excess Aggregate Contribution with respect to any
Highly Compensated Participant exceed the amount of
Employer matching contributions made pursuant to Section
4.1(b) and any qualified nonelective contributions or
elective deferrals taken into account pursuant to Section
4.7(c) on behalf of such Highly Compensated Participant for
such Plan Year.
(e) The determination of the amount of Excess Aggregate
Contributions with respect to any Plan Year shall be made
after first determining the Excess Contributions, if any,
to be treated as voluntary Employee contributions due to
recharacterization for the plan year of any other qualified
cash or deferred arrangement (as defined in Code Section
401(k)) maintained by the Employer that ends with or within
the Plan Year.
(f) If the determination and correction of Excess
Aggregate Contributions of a Highly Compensated Participant
-46-
whose actual contribution ratio is determined under the
family aggregation rules, then the actual contribution
ratio shall be reduced and the Excess Aggregate
Contributions for the family unit shall be allocated among
the Family Members in proportion to the sum of Employer
matching contributions made pursuant to Section 4.1(b) and
any qualified nonelective contributions or elective
deferrals taken into account pursuant to Section 4.7(c) of
each Family Member that were combined to determine the
group actual contribution ratio. Notwithstanding the
foregoing, with respect to Plan Years beginning prior to
January 1, 1990, compliance with the Regulations then in
effect shall be deemed to be compliance with this
paragraph.
(g) Notwithstanding the above, within 12 months after
the end of the Plan Year, the Employer may make a special
Qualified Non-Elective Contribution on behalf of Non-Highly
Compensated Participants in an amount sufficient to satisfy
one of the tests set forth in Section 4.7(a). Such
contribution shall be allocated to the Participant's
Elective Account of each Non-Highly Compensated Participant
in the same proportion that each Non-Highly Compensated
Participant's Compensation for the year bears to the total
Compensation of all Non-Highly Compensated Participants. A
separate accounting shall be maintained for the purpose of
excluding such contributions from the "Actual Deferral
Percentage" tests pursuant to Section 4.5(a).
4.9 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum "annual
additions" credited to a Participant's accounts for any
"limitation year" shall equal the lesser of: (1) $30,000
(or, if greater, one-fourth of the dollar limitation in
effect under Code Section 415(b)(1)(A)) or (2) 25% of the
Participant's "415 Compensation" for such "limitation
year."
(b) For purposes of applying the limitations of Code
Section 415, "annual additions" means the sum credited to a
Participant's accounts for any "limitation year" of (1)
Employer contributions, (2) Employee contributions for
"limitation years" beginning after December 31, 1986, (3)
forfeitures, (4) amounts allocated, after March 31, 1984,
to an individual medical account, as defined in Code
Section 415(1)(2), which is part of a pension or annuity
plan maintained by the Employer and (5) amounts derived
from contributions paid or accrued after December 31, 1985,
in taxable years ending after such date, which are
attributable to post-retirement medical benefits allocated
to the separate account of a key employee (as defined in
Code Section 419A(d)(3)) under a welfare benefit plan (as
defined in Code Section 419(e)) maintained by the Employer,
except, however, the "415 Compensation" percentage
-47-
limitation referred to in paragraph (a)(2) above shall not
apply to: (1) any contribution for medical benefits (within
the meaning of Code Section 419A(f)(2)) after separation
from service which is otherwise treated as an "annual
addition" or (2) any amount otherwise treated as an "annual
addition" under Code Section 415(1)(1).
(c) For purposes of applying the limitations of Code
Section 415, the transfer of funds from one qualified plan
to another is not an "annual addition." In addition, the
following are not Employee contributions for the purposes
of Section 4.9(b)(2): (1) rollover contributions (as
defined in Code Sections 402(a)(5), 403(a)(4), 403(b)(8)
and 408(d)(3)); (2) repayments of loans made to a
Participant from the Plan; (3) repayments of distributions
received by an Employee pursuant to Code Section
411(a)(7)(B) (cash-outs); (4) repayments of distributions
received by an Employee pursuant to Code Section
411(a)(3)(D) (mandatory contributions); and
(5) employee contributions to a simplified employee pension
excludable from gross income under Code Section 408(k)(6).
(d) For purposes of applying the limitations of Code
Section 415, "415 Compensation" shall mean compensation as
-----
defined in Regulation Section 1.415-2(d)(1) and (2).
------------------
(e) For purposes of applying the limitations of Code
Section 415, the "limitation year" shall be the Plan Year.
(f) The dollar limitation under Code Section
415(b)(1)(A) stated in paragraph (a)(l) above shall be
adjusted annually as provided in Code Section 415(d)
pursuant to the Regulations. The adjusted limitation is
effective as of January 1st of each calendar year and is
applicable to "limitation years" ending with or within that
calendar year.
(g) For the purpose of this Section, all qualified
defined benefit plans (whether terminated or not) ever
maintained by the Employer shall be treated as one defined
benefit plan, and all qualified defined contribution plans
(whether terminated or not) ever maintained by the Employer
shall be treated as one defined contribution plan.
(h) For the purpose of this Section, if the Employer is
a member of a controlled group of corporations, trades or
businesses under common control (as defined by Code Section
1563(a) or Code Section 414(b) and (c) as modified by Code
Section 415(h)), is a member of an affiliated service group
(as defined by Code Section 414(m)), or is a member of a
group of entities required to be aggregated pursuant to
Regulations under Code Section 414(o), all Employees of
such Employers shall be considered to be employed by a
single Employer.
-48-
(i) For the purpose of this Section, if this Plan is a
Code Section 413(c) plan, all Employers of a Participant
who maintain this Plan will be considered to be a single
Employer.
(j)(1) If a Participant participates in more than one
defined contribution plan maintained by the Employer, each
of which has different Anniversary Dates, the maximum
"annual additions" under this Plan shall equal the maximum
"annual additions" for the "limitation year" minus any
"annual additions" previously credited to such
Participant's accounts during the "limitation year."
(2) If a Participant participates in both a defined
contribution plan subject to Code Section 412 and a defined
contribution plan not subject to Code Section 412
maintained by the Employer, each of which has the same
Anniversary Date, "annual additions" will be credited to
the Participant's accounts under the defined contribution
plan subject to Code Section 412 prior to crediting "annual
additions" to the Participant's accounts under the defined
contribution plan not subject to Code Section 412.
(3) If a Participant participates in more than one
defined contribution plan not subject to Code Section 412
maintained by the Employer, each of which has the same
Anniversary Date, the maximum "annual additions" under this
Plan shall equal the product of (A) the maximum "annual
additions" for the "limitation year" minus any "annual
additions" previously credited under subparagraphs (1) or
(2) above, multiplied by (B) a fraction (i) the numerator
of which is the "annual additions" which would be credited
to such Participant's accounts under this Plan without
regard to the limitations of Code Section 415 and (ii) the
denominator of which is such "annual additions" for all
plans described in this subparagraph.
(k) If an Employee is (or has been) a Participant in
one or more defined benefit plans and one or more defined
contribution plans maintained by the Employer, the sum of
the defined benefit plan fraction and the defined
contribution plan fraction for any "limitation year" may
not exceed 1.0.
(l) The defined benefit plan fraction for any
"limitation year" is a fraction the numerator of which is
the sum of the Participant's projected annual benefits
under all the defined benefit plans (whether or not
terminated) maintained by the Employer, and the denominator
of which is the lesser of 125% of the dollar limitation
determined for the "limitation year" under Code Sections
415(b) and (d) or 140% of the highest average compensation,
including any adjustments under Code Section 415(b).
-49-
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first "limitation
year" beginning after December 31, 1986 in one or more
defined benefit plans maintained by the Employer which were
in existence on May 6, 1986, the denominator of this
fraction will not be less than 125% 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.
(m) The defined contribution plan fraction for any
"limitation year" is a fraction the numerator of which is
the sum of the annual additions to the Participant's
Account under all the defined contribution plans (whether
or not terminated) maintained by the Employer for the
current and all prior "limitation years" (including the
annual additions attributable to the Participant's
nondeductible Employee contributions to all defined benefit
plans, whether or not terminated, maintained by the
Employer, and the annual additions attributable to all
welfare benefit funds, as defined in Code Section 419(e),
and individual medical accounts, as defined in Code Section
415(1)(2), maintained by the Employer), and the denominator
of which is the sum of the maximum aggregate amounts for
the current and all prior "limitation years" of service
with the Employer (regardless of whether a defined
contribution plan was maintained by the Employer). The
maximum aggregate amount in any "limitation year" is the
lesser of 125% of the dollar limitation determined under
Code Sections 415(b) and (d) in effect under Code Section
415(c)(1)(A) or 35% of the Participant's Compensation for
such year.
If the Employee was a Participant as of the end of the
first day of the first "limitation year" beginning after
December 31, 1986 in one or more defined contribution plans
maintained by the Employer which were in existence on
May 6, 1986, the numerator of this fraction will be
adjusted if the sum of this fraction and the defined
benefit fraction would otherwise exceed 1.0 under the terms
of this Plan. Under the adjustment, an amount equal to the
product of (1) the excess of the sum of the fractions over
1.0 times (2) the denominator of this fraction will be permanently
subtracted from the numerator of this fraction. The adjustment is
calculated using the fractions as they would be computed as
of the end of the last "limitation year" beginning before
January 1, 1987, and disregarding any changes in the terms
and conditions of the Plan made after May 6, 1986, but
using the Code Section 415 limitation applicable to the
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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.
(n) Notwithstanding the foregoing, for any "limitation
year" in which the Plan is a Top Heavy Plan, 100% shall be
substituted for 125% in Sections 4.9(1) and 4.9(m) unless
the extra minimum allocation is being provided pursuant to
Section 4.4. However, for any "limitation year" in which
the Plan is a Super Top Heavy Plan, 100% shall be
substituted for 125% in any event.
(o) Notwithstanding anything contained in this Section
to the contrary, the limitations, adjustments and other
requirements prescribed in this Section shall at all times
comply with the provisions of Code Section 415 and the
Regulations thereunder, the terms of which are specifically
incorporated herein by reference.
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of a reasonable error in estimating
a Participant's Compensation or other facts and
circumstances to which Regulation 1.415-6(b)(6) shall be
applicable, the "annual additions" under this Plan would
cause the maximum "annual additions" to be exceeded for any
Participant, the Administrator shall (1) return any
voluntary Employee contributions credit for the "limitation
year" to the extent that the return would reduce the
"excess amount" in the Participant's accounts, (2) hold any
"excess amount" remaining after the return of any voluntary
Employee contributions in a "Section 415 suspense account,"
(3) use the "Section 415 suspense account" in the next
limitation year" (and succeeding "limitation years" if
necessary) to reduce Employer contributions for that
Participant if that Participant is covered by the Plan as
of the end of the "limitation year" of, if the Participant
is not so covered, allocate and reallocate the "Section 415
suspense account" in the next "limitation year" (and
succeeding "limitation years" if necessary) to all
Participants in the Plan before any Employer or Employee
contributions would constitute 6 "annual additions" are
made to the Plan for such "limitation year" and (4) reduce
Employer contributions to the Plan for such "limitation
year" by the amount of the "Section 415 suspense account"
allocated and reallocated during such "limitation year."
(b) For purposes of this Article, "excess amount" for
any Participant for a "limitation year" shall mean the
excess, if any, of (1) the "annual additions" which would
be credited to his account under the terms of the Plan
without regard to the limitations of Code Section 415 over
(2) the maximum "annual additions" determined pursuant to
Section 4.9.
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(c) For purposes of this Section, "Section 415 suspense
account" shall mean an unallocated account equal to the sum
of "excess amounts" for all Participants in the Plan during
the "limitation year." The "Section 415 suspense account"
shall not share in any earnings or losses of the Trust
Fund.
(d) The Plan may not distribute "excess amounts," other
than voluntary Employee contributions, to Participants or
Former Participants.
4.11 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may
be transferred from other qualified plans by Employees,
provided that the trust from which such funds are
transferred permits the transfer to be made and the
transfer will not jeopardize the tax-exempt status of the
Plan or Trust or create adverse tax consequences for the
Employer. The amounts transferred shall be set up in a
separate account herein referred to as a "Participant's
Rollover Account." Such account shall be fully Vested at
all times and shall not be subject to Forfeiture for any
reason.
(b) Amounts in a Participant's Rollover Account shall
be held by the Trustee pursuant to the provisions of this
Plan and may not be withdrawn by, or distributed to the
Participant, in whole or in part, except as provided in
Paragraphs (c) and (d) of this Section.
(c) Except as permitted by Regulations (including
Regulation 1.411(d)-4), amounts attributable to elective
contributions (as defined in Regulation 1.401(k)-l(g)(4)),
including amounts treated as elective contributions, which
are transferred from another qualified plan in a plan-to-
plan transfer shall be subject to the distribution
limitations provided for in Regulation 1.401(k)-l(d).
(d) At Normal Retirement Date, or such other date when
the Participant or his Beneficiary shall be entitled to
receive benefits, the fair market value of the
Participant's Rollover Account shall be used to provide
additional benefits to the Participant or his Beneficiary.
Any distributions of amounts held in a Participant's
Rollover Account shall be made in a manner which is
consistent with and satisfies the provisions of Section
6.5, including, but not limited to, all notice and consent
requirements of Code Sections 417 and 411(a)(11) and the
Regulations thereunder. Furthermore, such amounts shall be
considered as part of a Participant's benefit in
determining whether an involuntary cash-out of benefits
without Participant consent may be made.
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(e) The Administrator may direct that Employee
transfers made after a valuation date be segregated into a
separate account for each Participant in a federally
insured savings account, certificate of deposit in a bank
or savings and loan association, money market certificate
or other short-term debt security acceptable to the Trustee
until such time as the allocations pursuant to this Plan
have been made, at which time they may remain segregated or
be invested as part of the general Trust Fund, to be
determined by the Administrator.
(f) All amounts allocated to a Participant's Rollover
Account may be treated as a Directed Investment Account
pursuant to Section 4.13.
(g) For purposes of this Section, the term "qualified
plan" shall mean any tax qualified plan under Code Section
401(a). The term "amounts transferred from other qualified
plans" shall mean: (i) amounts transferred to this Plan
directly from another qualified plan; (ii) lump-sum
distributions received by an Employee from another
qualified plan which are eligible for tax-free rollover to
a qualified plan and which are transferred by the Employee
to this Plan within 60 days following his receipt thereof;
(iii) amounts transferred to this Plan from a conduit
individual retirement account, provided that the conduit
individual retirement account has no assets other than
assets which (A) were previously distributed to the
Employee by another qualified plan as a lump-sum
distribution, (B) were eligible for tax-free rollover to a
qualified plan and (C) were deposited in such conduit
individual retirement account within 60 days of receipt
thereof and other than earnings on said assets; and (iv)
amounts distributed to the Employee from a conduit
individual retirement account meeting the requirements of
clause (iii) above, and transferred by the Employee to this
Plan within 60 days of his receipt thereof from such
conduit individual retirement account.
(h) Prior to accepting any transfers to which this
Section applies, the Administrator may require the Employee
to establish that the amounts to be transferred to this
Plan meet the requirements of this Section and may also
require the Employee to provide an opinion of counsel
satisfactory to the Employer that the amounts to be
transferred meet the requirements of this Section.
(i) Notwithstanding anything herein to the contrary, a
transfer directly to this Plan from another qualified plan
(or a transaction having the effect of such a transfer)
shall only be permitted if it will not result in the
elimination or reduction of any "Section 411(d)(6)
protected benefit" as described in Section 7.1.
4.12 VOLUNTARY CONTRIBUTIONS
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(a) Any voluntary Employee contributions prior to the
first day of the Plan Year beginning in 1987 shall be
maintained in each Participant's Voluntary Contribution
Account. The balance in each Participant's Voluntary
Contribution Account shall be fully Vested at all times and
shall not be subject to Forfeiture for any reason.
(b) A Participant may elect to withdraw his voluntary
contributions from his Voluntary Contribution Account and
the actual earnings thereon in a manner which is consistent
with and satisfies the provisions of Section 6.5,
including, but not limited to, all notice and consent
requirements of Code Sections 417 and 411(a)(11) and the
Regulations thereunder. If the Administrator maintains
subaccounts with respect to voluntary contributions (and
earnings thereon) which were made on or before a specified
date, a Participant shall be permitted to designate which
subaccount shall be the source for his withdrawal.
(c) At Normal Retirement Date, or such other date when
the Participant or his Beneficiary shall be entitled to
receive benefits, the fair market value of the Voluntary
Contribution Account shall be used to provide additional
benefits to the Participant or his Beneficiary.
(d) All amounts allocated to a Voluntary Contribution
Account may be treated as a Directed Investment Account
pursuant to Section 4.13.
4.13 DIRECTED INVESTMENT ACCOUNT
(a) The Administrator, in his sole discretion, may
determine that all Participants be permitted to direct the
Trustee as to the investment of all or a portion of the
interest in any one or more of their individual account
balances. If such authorization is given by the
Administrator, Participants may, subject to a procedure
established and applied in a uniform nondiscriminatory
manner, direct the Trustee in writing to invest any portion
of their accounts in specific assets or other investments
permitted under the Plan. That portion of the account of
any Participant so directing will thereupon be considered a
Directed Investment Account, which shall not share in Trust
Fund earnings. Notwithstanding the foregoing, for plan
years beginning on or after January 1, 1987, Participants
shall not be permitted to direct the investment of their
Participant's Accounts derived from Employer matching
contributions pursuant to Section 4.1(b) or Employer
discretionary contributions pursuant to Section 4.1(d).
Such contributions shall be invested in a fund (the
"Employer Stock Fund") which is invested primarily in a
publicly traded class of stock of the employer ("Employer
Stock").
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(b) A separate Directed Investment Account shall be
established for each Participant who has directed an
investment. Transfers between the Participant's regular
account and his Directed Investment Account shall be
charged and credited, as the case may be, to each account.
The Directed Investment Account shall not share in Trust
Fund earnings, but it shall be charged or credited as
appropriate with the net earnings, gains, losses and
expenses as well as any appreciation or depreciation in
market value during each Plan Year attributable to such
account.
(c) Trust Fund. The Employer shall enter into one or
----------
more trust agreements (the "Trust Agreement") providing for
administration of the trust (the "Trust") in such form and
containing such provisions as the Employer by action of the
Board of Directors of the Employer may deem appropriate
including, but not limited to, provisions with respect to
the powers and authority of the Trustee, the authority of
the Employer to amend the Trust Agreement, to terminate the
Trust and to settle the accounts of the Trustee on behalf
of all persons having an interest in the Trust. When
entered into, each Trust Agreement shall be taken to form a
part of this Plan, and any and all rights and benefits
which may accrue to any persons under this Plan shall be
subject to all the terms and provisions of such Trust
Agreement. The principal and income of the Trust shall not
be used for any purpose whatsoever other than for the
exclusive benefit of Participants and their Beneficiaries.
(d) Optional Investment in Employer Stock Fund. As of
------------------------------------------
January 1, 1992, Participants shall be able to allocate
some or all of the amounts in their Participant's Elective
Account, Voluntary Contribution Account, Participant's
Rollover Account and Participant's Account (see Section
1.43) attributable to Employer discretionary contributions
to the Employer Stock Fund. A Participant's investment
directions hereunder shall be made in accordance with
procedures prescribed by the Employer.
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each
Anniversary Date, and at such other date or dates deemed
necessary by the Administrator, herein called "valuation
date," to determine the net worth of the assets comprising
the Trust Fund as it exists on the "valuation date" prior
to taking into consideration any contribution to be
allocated for that Plan Year. In determining such net
worth, the Trustee shall value the assets comprising the
Trust Fund at their fair market value as of the "valuation
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date" and shall deduct all expenses for which the Trustee
has not yet obtained reimbursement from the Employer or the
Trust Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held
in the Trust Fund which are listed on a registered stock
exchange, the Administrator shall direct the Trustee to
value the same at the prices they were last traded on such
exchange preceding the close of business on the "valuation
date." If such securities were not traded on the
"valuation date" or if the exchange on which they are
traded was not open for business on the "valuation date,"
then the securities shall be valued at the prices at which
they were last traded prior to the "valuation date." Any
unlisted security held in the Trust Fund shall be valued at
its bid price next preceding the close of business on the
"valuation date," which bid price shall be obtained from a
registered broker or an investment banker. In determining
the fair market value of assets other than securities for
which trading or bid prices can be obtained, the Trustee
may appraise such assets itself or, in its discretion,
employ one or more appraisers for that purpose and rely on
the values established by such appraiser or appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the
Employer and retire for the purposes hereof on his Normal
Retirement Date. Upon such Normal Retirement Date, all
amounts credited to such Participant's Combined Account
shall become distributable. However, a Participant may
postpone the termination of his employment with the
Employer to a later date, in which event the participation
of such Participant in the Plan, including the right to
receive allocations pursuant to Section 4.4, shall continue
until his Late Retirement Date. Upon a Participant's
Retirement Date, or as soon thereafter as is practicable,
the Trustee shall distribute all amounts credited to such
Participant's Combined Account in accordance with Section
6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his
Retirement Date or other termination of his employment, all
amounts credited to such Participant's Combined Account
shall become fully Vested. The Administrator shall direct
the Trustee, in accordance with the provisions of Sections
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6.6 and 6.7, to distribute the value of the deceased
Participant's accounts to the Participant's Beneficiary.
(b) Upon the death of a Former Participant, the
Administrator shall direct the Trustee, in accordance with
the provisions of Sections 6.6 and 6.7, to distribute any
remaining amounts credited to the accounts of a deceased
Former Participant to such Former Participant's
Beneficiary.
(c) Any security interest held by the Plan by reason of
an outstanding loan to the Participant or Former
Participant shall be taken into account in determining the
amount of the Pre-Retirement Survivor Annuity.
(d) The Administrator may require such proper proof of
death and such evidence of the right of any person to
receive payment of the value of the account of a deceased
Participant or Former Participant as the Administrator may
deem desirable. The Administrator's determination of death
and of the right of any person to receive payment shall be
conclusive.
(e) Unless otherwise elected in the manner prescribed
in Section 6.6, the Beneficiary of the death benefit shall
be the Participant's spouse, who shall receive such benefit
in the form of a Pre-Retirement Survivor Annuity pursuant
to Section 6.6, except, however, the Participant may
designate a Beneficiary other than his spouse if:
(1) the Participant and his spouse have validly
waived the Pre-Retirement Survivor Annuity in the
manner prescribed in Section 6.6, and the spouse has
waived his or her right to be the Participant's
Beneficiary, or
(2) the Participant is legally separated or has
been abandoned (within the meaning of local law) and
the Participant has a court order to such effect (and
there is no "qualified domestic relations order" as
defined in Code Section 414(p) which provides
otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall
be made on a form satisfactory to the Administrator. A
Participant may at any time revoke his designation of a
beneficiary or change his beneficiary by filing written
notice of such revocation or change with the Administrator.
However, the Participant's spouse must again consent in
writing to any change in Beneficiary unless the original
consent acknowledged that the spouse had the right to limit
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consent only to a specific Beneficiary and that the spouse
voluntarily elected to relinquish such right. In the event
no valid designation of Beneficiary exists at the time of
the Participant's death, the death benefit shall be payable
to his estate.
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent
Disability prior to his Retirement Date or other
termination of his employment, all amounts credited to such
Participant's Combined Account shall become fully Vested.
In the event of a Participant's Total and Permanent
Disability, the Trustee, in accordance with the provisions
of Sections 6.5 and 6.7, shall distribute to such
Participant all amounts credited to such Participant's
Combined Account as though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with
or subsequent to the termination of a Participant's
employment for any reason other than death, Total and
Permanent Disability or retirement, the Administrator may
direct the Trustee to segregate the amount of the Vested
portion of such Terminated Participant's Combined Account
and invest the aggregate amount thereof in a separate,
federally insured savings account, certificate of deposit,
common or collective trust fund of a bank or a deferred
annuity. In the event the Vested portion of a
Participant's Combined Account is not segregated, the
amount shall remain in a separate account for the
Terminated Participant and share in allocations pursuant to
Section 4.4 until such time as a distribution is made to
the Terminated Participant.
Distribution of the funds due to a Terminated
Participant shall be made on the occurrence of an event
which would result in the distribution had the Terminated
Participant remained in the employ of the Employer (upon
the Participant's death, Total and Permanent Disability or
Normal Retirement). However, at the election of the
Participant, the Administrator shall direct the Trustee to
cause the entire Vested portion of the Terminated
Participant's Combined Account to be payable to such
Terminated Participant. Any distribution under this
paragraph shall be made in a manner which is consistent
with and satisfies the provisions of Section 6.5,
including, but not limited to, all notice and consent
requirements of Code Sections 417 and 411(a)(11) and the
Regulations thereunder.
If the value of a Terminated Participant's Vested
benefit derived from Employer and Employee contributions
does not exceed $3,500 and has never exceeded $3,500 at the
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time of any prior distribution, the Administrator shall
direct the Trustee to cause the entire Vested benefit to be
paid to such Participant in a single lump sum.
For purposes of this Section 6.4, if the value of a
Terminated Participant's Vested benefit is zero, the
Terminated Participant shall be deemed to have received a
distribution of such Vested benefit.
(b) The Vested portion of any Participant's Account
shall be a percentage of the total amount credited to his
Participant's Account determined on the basis of the
Participant's number of Years of Service according to the
following schedule:
Vesting Schedule
Years of Service Percentage
---------------- ----------
3 60 %
4 80 %
5 100 %
(c) Notwithstanding the vesting provided for in
paragraph (b) above, for any Top Heavy Plan Year, the Vested
portion of the Participant's Account of any Participant who
has an Hour of Service after the Plan becomes top heavy shall
be a percentage of the total amount credited to his
Participant's Account determined on the basis of the
Participant's number of Years of Service according to the
following schedule:
Vesting Schedule
Years of Service Percentage
---------------- ----------
1 - 2 0 %
3 100 %
64
If in any subsequent Plan Year the Plan ceases to be a
Top Heavy Plan, the Administrator shall revert to the
vesting schedule in effect before this Plan became a Top
Heavy Plan. Any such reversion shall be treated as a Plan
amendment pursuant to the terms of the Plan.
(d) Notwithstanding the vesting schedule above, the
Vested percentage shall be 100% upon a "Change of Control"
(as defined below). A "Change of Control" shall mean the
happening of any of the following:
(i) Upon the acquisition by any person, entity or
"group", within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934 (the
"Exchange Act"), other than the Employer, its majority
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owned subsidiaries or any employee benefit plan of the
Employer or its subsidiaries, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 25% or more of either the then
outstanding shares of stock or the combined voting
power of the Employer's then outstanding voting
securities entitled to vote generally in the election
of directors;
(ii) If individuals who constitute the Board as
of the date hereof (the "Incumbent Board") cease for
any reason to constitute at least a majority of the
Board, provided that any person becoming a director
subsequent to the date hereof whose election, or
nomination for election by the Employer's
shareholders, was approved by a vote of at least a
majority of the directors then comprising the
Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is
in connection with the actual or threatened election
contest relating to the election of the Directors of
the Employer, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act)
shall be, for purposes of this Agreement, considered
as though such person were a member of the Incumbent
Board; or
(iii) Upon approval of the stockholders of the
Employer of (A) a reorganization, merger or
consolidation, in each case, with respect to which
persons who were shareholders of the Employer
immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more
than 50% of the combined voting power entitled to vote
generally in the election of directors of the
reorganized, merged or consolidated company, (B) a
liquidation or dissolution of the Employer or (C) the
sale of all or substantially all of the assets of the
Employer.
(e) Notwithstanding the vesting schedule above, the
Vested percentage of a Participant's Account shall not be less
than the Vested percentage attained as of the later of the
effective date or adoption date of this amendment and
restatement.
(f) Notwithstanding the vesting schedule above, upon
the complete discontinuance of the Employer's contributions
to the Plan or upon any full or partial termination of the
Plan, all amounts credited to the account of any affected
Participant shall become 100% Vested and shall not
thereafter be subject to Forfeiture.
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(g) The computation of a Participant's nonforfeitable
percentage of his interest in the Plan shall not be reduced
as the result of any direct or indirect amendment to this
Plan. For this purpose, the Plan shall be treated as
having been amended if the Plan provides for an automatic
change in vesting due to a change in top heavy status. In
the event that the Plan is amended to change or modify any
vesting schedule, a Participant with at least three Years
of Service as of the expiration date of the election period
may elect to have his nonforfeitable percentage computed
under the Plan without regard to such amendment. If a
Participant fails to make such election, then such
Participant shall be subject to the new vesting schedule.
The Participant's election period shall commence on the
adoption date of the amendment and shall end 60 days after
the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written
notice of the amendment from the Employer or
Administrator.
(h)(1) If any Former Participant shall be reemployed
by the Employer before a l-Year Break in Service occurs, he
shall continue to participate in the Plan in the same
manner as if such termination had not occurred.
(2) If any Former Participant shall be reemployed by
the Employer before five consecutive l-year Breaks in
Service, and such Former Participant had received, or was
deemed to have received, a distribution of his entire
Vested interest prior to his reemployment, his forfeited
account shall be reinstated only if he repays the full
amount distributed to him before the earlier of five years
after the first date on which the Participant is
subsequently reemployed by the Employer or the close of the
first period of five consecutive l-Year Breaks in Service
commencing after the distribution or, in the event of a
deemed distribution, upon the reemployment of such Former
Participant; if a distribution occurs for any reason other
than a separation from service, the time for repayment may
not end earlier than five years after the date of
distribution. In the event the Former Participant does
repay the full amount distributed to him, or in the event
of a deemed distribution, the undistributed portion of the
Participant's Account must be restored in full, unadjusted
by any gains or losses occurring subsequent to the
Anniversary Date or other valuation date coinciding with or
preceding his termination. The source for such
reinstatement shall first by any Forfeitures occurring
during the year. If such source is insufficient, then the
Employer shall contribute an amount which is sufficient to
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restore any such forfeited Accounts; provided, however,
that if a discretionary contribution is made for such year
pursuant to Section 4.1(d), such contribution shall first
be applied to restore any such Amounts and the remainder
shall be allocated in accordance with Section 4.4.
(3) If any Former Participant is reemployed after a l-
Year Break in Service has occurred, Years of Service shall
include Years of Service prior to his l-Year Break in
Service subject to the following rules:
(i) If a Former Participant has a l-Year Break in
Service, his pre-break and post-break service shall be
used for computing Years of Service for eligibility and
for vesting purposes only after he has been employed
for one Year of Service following the date of his
reemployment with the Employer;
(ii) Any Former Participant who under the Plan
does not have a nonforfeitable right to any interest in
the Plan resulting from Employer contributions shall
lose credits otherwise allowable under (i) above if his
consecutive l-Year Breaks in Service equal or exceed
the greater of (A) five or (B) the aggregate number of
his pre-break Years of Service;
(iii) After five consecutive l-Year Breaks in
Service, a Former Participant's Vested Account balance
attributable to pre-break service shall not be
increased as a result of post-break service;
(iv) If a Former Participant who has not had his
Years of Service before a l-Year Break in Service
disregarded pursuant to (ii) above completes one Year
of Service for eligibility purposes following his
reemployment with the Employer, he shall participate in
the Plan retroactively from his date of reemployment;
and
(v) If a Former Participant who has not had his
Years of Service before a l-Year Break in Service
disregarded pursuant to (ii) above completes a Year of
Service (a l-Year Break in Service previously occurred,
but employment had not terminated), he shall
participate in the Plan retroactively from the first
day of the Plan Year during which he completes one Year
of Service.
6.5 DISTRIBUTION OF BENEFITS
(a)(l) Unless otherwise elected as provided below, a
Participant who is married on the "annuity starting date"
and who does not die before the "annuity starting date"
shall receive the value of all of his benefits in the form
of a joint and survivor annuity. The joint and survivor
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annuity is an annuity that commences immediately and shall
be equal in value to a single life annuity. Such joint and
survivor benefits following the Participant's death shall
continue to the spouse during the spouse's lifetime at a
rate equal to 50% of the rate at which such benefits were
payable to the Participant. This joint and 50% survivor
annuity shall be considered the designated qualified joint
and survivor annuity and automatic form of payment for the
purposes of this Plan. However, the Participant may elect
to receive a smaller annuity benefit with continuation of
payments to the spouse at a rate of 75% or 100% of the rate
payable to a Participant during his lifetime, which
alternative joint and survivor annuity shall be equal in
value to the automatic joint and 50% survivor annuity. An
unmarried Participant shall receive the value of his
benefit in the form of a life annuity. Such unmarried
Participant, however, may elect in writing to waive the
life annuity. The election must comply with the provisions
of this Section as if it were an election to waive the
joint and survivor annuity by a married Participant, but
without the spousal consent requirement. The Participant
may elect to have any annuity provided for in this Section
distributed upon the attainment of the "earliest retirement
age" under the Plan. The "earliest retirement age" is the
earliest date on which, under the Plan, the Participant
could elect to receive retirement benefits.
(2) Any election to waive the joint and survivor
annuity must be made by the Participant in writing during
the election period and be consented to by the
Participant's spouse. If the spouse is legally incompetent
to give consent, the spouse's legal guardian, even if such
guardian is the Participant, may give consent. Such
election shall designate a Beneficiary (or a form of
benefits) that may not be changed without spousal consent
(unless the consent of the spouse expressly permits
designations by the Participant without the requirement of
further consent by the spouse). Such spouse's consent
shall be irrevocable and must acknowledge the effect of
such election and be witnessed by a Plan representative or
a notary public. Such consent shall not be required if it
is established to the satisfaction of the Administrator
that the required consent cannot be obtained because there
is no spouse or the spouse cannot be located, or other
circumstances that may be prescribed by Regulations. The
election made by the Participant and consented to by his
spouse may be revoked by the Participant in writing without
the consent of the spouse at any time during the election
period. The number of revocations shall not be limited.
Any new election must comply with the requirements of this
paragraph. A former spouse's waiver shall not be binding
on a new spouse.
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(3) The election period to waive the joint and survivor
annuity shall be the 90-day period ending on the "annuity
starting date."
(4) For purposes of this Section, the "annuity starting
date" means the first day of the first period for which an
amount is paid as an annuity, or, in the case of a benefit
not payable in the form of an annuity, the first day on
which all events have occurred which entitle the
Participant to such benefit.
(5) With regard to the election, the Administrator
shall provide to the Participant no less than 30 days and
no more than 90 days before the "annuity starting date" a
written explanation of:
(i) the terms and conditions of the joint and
survivor annuity;
(ii) the Participant's right to make, and the
effect of, an election to waive the joint and survivor
annuity;
(iii) the right of the Participant's spouse to
consent to any election to waive the joint and survivor
annuity; and
(iv) the right of the Participant to revoke such
election, and the effect of such revocation.
(b) In the event a married Participant duly elects
pursuant to paragraph (a)(2) above not to receive his
benefit in the form of a joint and survivor annuity or, if
such Participant is not married, in the form of a life
annuity, the Administrator, pursuant to the election of the
Participant, shall direct the Trustee to distribute to a
Participant or his Beneficiary any amount to which he is
entitled under the Plan in one or more of the following
methods:
(1) One lump-sum payment in cash.
(2) Payments over a period certain in monthly,
quarterly, semiannual or annual cash
installments. In order to provide such
installment payments, the Administrator may (A)
segregate the aggregate amount thereof in a
separate, federally insured savings account,
certificate of deposit in a bank or savings and
loan association, money market certificate or
other liquid short-term security or (B)
purchase a nontransferable annuity contract for
a term certain (with no life contingencies)
providing for such payment. The period over
which such payment is to be made shall not
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extend beyond the Participant's life expectancy
(or the life expectancy of the Participant and
his designated Beneficiary).
(3) Purchase of or provision of an annuity.
However, such annuity may not be in any form
that will provide for payments over a period
extending beyond either the life of the
Participant (or the lives of the Participant
and his designated Beneficiary) or the life
expectancy of the Participant (or the life
expectancy of the Participant and his
designated Beneficiary).
(c) The present value of a Participant's joint and
survivor annuity derived from Employer and Employee
contributions may not be paid without his written consent
if the value exceeds, or has ever exceeded, $3,500 at the
time of any prior distribution. Further, the spouse of a
Participant must consent in writing to any immediate
distribution. If the value of the Participant's benefit
derived from Employer and Employee contributions does not
exceed $3,500 and has never exceeded $3,500 at the time of
any prior distribution, the Administrator may immediately
distribute such benefit without such Participant's consent.
No distribution may be made under the preceding sentence
after the "annuity starting date" unless the Participant
and his spouse consent in writing to such distribution.
Any written consent required under this paragraph must be
obtained not more than 90 days before commencement of the
distribution and shall be made in a manner consistent with
Section 6.5(a)(2).
(d) Any distribution to a Participant who has a benefit
which exceeds, or has ever exceeded, $3,500 at the time of
any prior distribution shall require such Participant's
consent if such distribution commences prior to the later
of his Normal Retirement Age or age 62. With regard to
this required consent:
(1) No consent shall be valid unless the
Participant has received a general description of the
material features and an explanation of the relative
values of the optional forms of benefit available under
the Plan that would satisfy the notice requirements of
Code Section 417.
(2) The Participant must be informed of his right
to defer receipt of the distribution. If a Participant
fails to consent, it shall be deemed an election to
defer the commencement of payment of any benefit.
However, any election to defer the receipt of benefits
shall not apply with respect to distributions which are
required under Section 6.5(e).
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(3) Notice of the rights specified under this
paragraph shall be provided no less than 30 days and no
more than 90 days before the "annuity starting date."
(4) Written consent of the Participant to the
distribution must not be made before the Participant
receives the notice and must not be made more than 90
days before the "annuity starting date."
(5) No consent shall be valid if a significant
detriment is imposed under the Plan on any Participant
who does not consent to the distribution.
(e) Notwithstanding any provision in the Plan to the
contrary, the distribution of a Participant's benefits made
on or after January 1, 1985, whether under the Plan or
through the purchase of an annuity contract, shall be made
in accordance with the following requirements and shall
otherwise comply with Code Section 401(a)(9) and the
Regulations thereunder (including Regulation 1.401(a)(9)-
2), the provisions of which are incorporated herein by
reference:
(1) A Participant's benefits shall be distributed
to him not later than April 1 of the calendar year
following the later of (i) the calendar year in which
the Participant attains age 70-1/2 or (ii) the calendar
year in which the Participant retires; provided,
however, that this clause (ii) shall not apply in the
case of a Participant who is a "five percent owner" at
any time during the five Plan Year period ending in the
calendar year in which he attains age 70-1/2 or, in the
case of a Participant who becomes a "five percent
owner" during any subsequent Plan Year, clause (ii)
shall no longer apply and the required beginning date
shall be the April 1 of the calendar year following the
calendar year in which such subsequent Plan Year ends.
Alternatively, distributions to a Participant must
begin no later than the applicable April 1 as
determined under the preceding sentence and must be
made over the life of the Participant (or the lives of
the Participant and the Participant's designated
Beneficiary) or the life expectancy of the Participant
(or the life expectancies of the Participant and his
designated Beneficiary) in accordance with Regulations.
Notwithstanding the foregoing, clause (ii) above shall
not apply to any Participant unless the Participant had
attained age 70-1/2 before January 1, 1988 and was not
a "five percent owner" at any time during the Plan Year
ending with or within the calendar year in which the
Participant attained age 66-1/2 or any subsequent Plan
Year.
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(2) Distributions to a Participant and his
Beneficiaries shall only be made in accordance with the
incidental death benefit requirements of Code Section
401(a)(9)(G) and the Regulations thereunder.
Additionally, for calendar years beginning before
1989, distributions may also be made under an
alternative method which provides that the then present
value of the payments to be made over the period of the
Participant's life expectancy exceeds 50% of the then
present value of the total payments to be made to the
Participant and his Beneficiaries.
(f) For purposes of this Section, the life expectancy
of a Participant and a Participant's spouse (other than in
the case of a life annuity) may, at the election of the
Participant or the Participant's spouse, be redetermined in
accordance with Regulations. The election, once made,
shall be irrevocable. If no election is made by the time
distributions must commence, then the life expectancy of
the Participant and the Participant's spouse shall not be
subject to recalculation. Life expectancy and joint and
last survivor expectancy shall be computed using the return
multiples in Tables V and VI of Regulation 1.72-9.
(g) Subject to the spouse's right of consent afforded
under the Plan, the restrictions imposed by this Section
shall not apply if a Participant has, prior to January 1,
1984, made a written designation to have his retirement
benefit paid in an alternative method acceptable under Code
Section 401(a) as in effect prior to the enactment of the
Tax Equity and Fiscal Responsibility Act of 1982.
(h) All annuity Contracts under this Plan shall be
nontransferable when distributed. Furthermore, the terms
of any annuity Contract purchased and distributed to a
Participant or spouse shall comply with all of the
requirements of the Plan.
(i) If a distribution is made at a time when a
Participant is not fully Vested in his Participant's
Account and the Participant may increase the Vested
percentage in such account:
(1) a separate account shall be established for the
Participant's interest in the Plan as of the time of
the distribution; and
(2) at any relevant time, the Participant's Vested
portion of the separate account shall be equal to an
amount ("X") determined by the formula:
X equals P(AB plus (R x D)) - (R x D)
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X equals P(AB plus (R x D)) - (R x D)
For purposes of applying the formula: P is the
Vested percentage at the relevant time, AB is the
account balance at the relevant time, D is the amount
of distribution and R is the ratio of the account
balance at the relevant time to the account balance
after distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) Unless otherwise elected as provided below, a
Vested Participant who dies before the annuity starting
date and who has a surviving spouse shall have his death
benefit paid to his surviving spouse in the form of a Pre-
Retirement Survivor Annuity. The Participant's spouse may
direct that payment of the Pre-Retirement Survivor Annuity
commence within a reasonable period after the Participant's
death. If the spouse does not so direct, payment of such
benefit will commence at the time the Participant would
have attained the later of his Normal Retirement Age or age
62. However, the spouse may elect a later commencement
date. Any distribution to the Participant's spouse shall
be subject to the rules specified in Section 6.6(g).
(b) Any election to waive the Pre-Retirement Survivor
Annuity before the Participant's death must be made by the
Participant in writing during the election period and shall
require the spouse's irrevocable consent in the same manner
provided for in Section 6.5(a)(2). Further, the spouse's
consent must acknowledge the specific nonspouse
Beneficiary. Notwithstanding the foregoing, the nonspouse
Beneficiary need not be acknowledged, provided the consent
of the spouse acknowledges that the spouse has the right to
limit consent only to a specific Beneficiary and that the
spouse voluntarily elects to relinquish such right.
(c) The election period to waive the Pre-Retirement
Survivor Annuity shall begin on the first day of the Plan
Year in which the Participant attains age 35 and end on the
date of the Participant's death. An earlier waiver (with
spousal consent) may be made provided a written explanation
of the Pre-Retirement Survivor Annuity is given to the
Participant and such waiver becomes invalid at the
beginning of the Plan Year in which the Participant turns
age 35. In the event a Vested Participant separates from
service prior to the beginning of the election period, the
election period shall begin on the date of such separation
from service.
(d) With regard to the election, the Administrator
shall provide each Participant within the applicable
period, with respect to such Participant (and consistent
with Regulations), a written explanation of the Pre-
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Retirement Survivor Annuity containing comparable
information to that required pursuant to Section 6.5(a)(5).
For the purposes of this paragraph, the term "applicable
period" means, with respect to a Participant, whichever of
the following periods ends last:
(1) 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;
(2) A reasonable period after the individual
becomes a Participant. For this purpose, in the case
of an individual who becomes a Participant after age
32, the explanation must be provided by the end of the
three-year period beginning with the first day of the
first Plan Year for which the individual is a
Participant;
(3) A reasonable period ending after the Plan no
longer fully subsidizes the cost of the Pre-Retirement
Survivor Annuity with respect to the Participant;
(4) A reasonable period ending after Code Section
401(a)(11) applies to the Participant; or
(5) A reasonable period after separation from
service in the case of a Participant who separates
before attaining age 35. For this purpose, the
Administrator must provide the explanation beginning
one year before the separation from service and ending
one year after such separation.
(e) If the value of the Pre-Retirement Survivor Annuity
derived from Employer and Employee contributions does not
exceed $3,500 and has never exceeded $3,500 at the time of
any prior distribution, the Administrator shall direct the
immediate distribution of such amount to the Participant's
spouse. No distribution may be made under the preceding
sentence after the annuity starting date unless the spouse
consents in writing. If the value exceeds, or has ever
exceeded, $3,500 at the time of any prior distribution, an
immediate distribution of the entire amount may be made to
the surviving spouse, provided such surviving spouse
consents in writing to such distribution. Any written
consent required under this paragraph must be obtained not
more than 90 days before commencement of the distribution
and shall be made in a manner consistent with Section
6.5(a)(2).
(f)(1) In the event the death benefit is not paid in
the form of a Pre-Retirement Survivor Annuity, it shall be
paid to the Participant's Beneficiary by either of the
following methods, as elected by the Participant (or if no
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election has been made prior to the Participant's death, by
his Beneficiary), subject to the rules specified in Section
6.6(g):
(i) One lump-sum payment in cash;
(ii) Payment in monthly, quarterly, semiannual
or annual cash installments over a period to be
determined by the Participant or his Beneficiary.
After periodic installments commence, the Beneficiary
shall have the right to direct the Trustee to reduce
the period over which such periodic installments shall
be made, and the Trustee shall adjust the cash amount
of such periodic installments accordingly.
(2) In the event the death benefit payable pursuant to
Section 6.2 is payable in installments, then, upon the
death of the Participant, the Administrator may direct the
Trustee to segregate the death benefit into a separate
account, and the Trustee shall invest such segregated
account separately, and the funds accumulated in such
account shall be used for the payment of the installments.
(g) Notwithstanding any provision in the Plan to the
contrary, distributions upon the death of a Participant
made on or after January 1, 1985 shall be made in
accordance with the following requirements and shall
otherwise comply with Code Section 401(a)(9) and the
Regulations thereunder. If the death benefit is paid in
the form of a Pre-Retirement Survivor Annuity, then
distributions to the Participant's surviving spouse must
commence on or before the later of: (1) December 31 of the
calendar year immediately following the calendar year in
which the Participant died; or (2) December 31 of the
calendar year in which the Participant would have attained
age 70-1/2. If it is determined pursuant to Regulations
that the distribution of a Participant's interest has begun
and the Participant dies before his entire interest has
been distributed to him, the remaining portion of such
interest shall be distributed at least as rapidly as under
the method of distribution selected pursuant to Section 6.5
as of his date of death. If a Participant dies before he
has begun to receive any distributions of his interest
under the Plan or before distributions are deemed to have
begun pursuant to Regulations (and distributions are not to
be made in the form of a Pre-Retirement Survivor Annuity),
then his death benefit shall be distributed to his
Beneficiaries by December 31 of the calendar year in which
the fifth anniversary of his date of death occurs.
However, the five-year distribution requirement of the
preceding paragraph shall not apply to any portion of the
deceased Participant's interest which is payable to or for
the benefit of a designated Beneficiary. In such event,
such portion may, at the election of the Participant (or
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the Participant's designated Beneficiary), be distributed
over the life of such designated Beneficiary (or over a
period not extending beyond the life expectancy of such
designated Beneficiary) provided such distribution begins
not later than December 31 of the calendar year immediately
following the calendar year in which the Participant died.
However, in the event the Participant's spouse (determined as
of the date of the Participant's death) is his Beneficiary, the
requirement that distributions commence within one year of
a Participant's death shall not apply. In lieu thereof,
distributions must commence on or before the later of: (1)
December 31 of the calendar year immediately following the
calendar year in which the Participant died; or (2)
December 31 of the calendar year in which the Participant
would have attained age 70-1/2. If the surviving spouse
dies before distributions to such spouse begin, then the
five-year distribution requirement of this Section shall
apply as if the spouse was the Participant.
(h) For purposes of Section 6.6(g), the election by a
designated Beneficiary to be excepted from the five-year
distribution requirement must be made no later than
December 31 of the calendar year following the calendar
year of the Participant's death. Except, however, with
respect to a designated Beneficiary who is the
Participant's surviving spouse, the election must be made
by the earlier of: (1) December 31 of the calendar year
immediately following the calendar year in which the
Participant died or, if later, the calendar year in which
the Participant would have attained age 70-1/2; or (2)
December 31 of the calendar year which contains the fifth
anniversary of the date of the Participant's death. An
election by a designated Beneficiary must be in writing and
shall be irrevocable as of the last day of the election
period stated herein. In the absence of an election by the
Participant or a designated Beneficiary, the five-year
distribution requirement shall apply.
(i) For purposes of this Section, the life expectancy
of a Participant and a Participant's spouse (other than in
the case of a life annuity) may, at the election of the
Participant or the Participant's spouse, be redetermined in
accordance with Regulations. The election, once made,
shall be irrevocable. If no election is made by the time
distributions must commence, then the life expectancy of
the Participant and the Participant's spouse shall not be
subject to recalculation. Life expectancy and joint and
last survivor expectancy shall be computed using the return
multiples in Tables V and VI of Regulation 1.72-9.
(j) Subject to the spouse's right of consent afforded
under the Plan, the restrictions imposed by this Section
shall not apply if a Participant has, prior to January 1,
1984, made a written designation to have his death benefits
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paid in an alternative method acceptable under Code Section
401(a) as in effect prior to the enactment of the Tax
Equity and Fiscal Responsibility Act of 1982.
6.7. TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever the
Trustee is to make a distribution or to commence a series
of payments on or as of an Anniversary Date, the
distribution may be made or begun on such date or as soon
thereafter as is practicable, but in no event later than
180 days after the Anniversary Date. However, unless a
Former Participant elects in writing to defer the receipt
of benefits (such election may not result in a death
benefit that is more than incidental), the payment of
benefits shall begin not later than the 60th day after the
close of the Plan Year in which the latest of the following
events occurs: (a) the date on which the Participant
attains the earlier of age 65 or the Normal Retirement Age
specified herein; (b) the 10th anniversary of the year in
which the Participant commenced participation in the Plan;
or (c) the date the Participant terminates his service with
the Employer.
6.8. DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor,
then the Administrator may direct that such distribution be
paid to the legal guardian, or if none, to a parent of such
Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian
for such Beneficiary under the Uniform Gift to Minors Act
or Gift to Minors Act, if such is permitted by the laws of
the state in which said Beneficiary resides. Such a
payment to the legal guardian, custodian or parent of a
minor Beneficiary shall fully discharge the Trustee,
Employer and Plan from further liability on account
thereof.
6.9. LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the
distribution payable to a Participant or his Beneficiary
hereunder shall, at the later of the Participant's
attainment of age 62 or his Normal Retirement Age, remain
unpaid solely by reason of the inability of the
Administrator, after sending a registered letter, return
receipt requested, to the last known address, and after
further diligent effort, to ascertain the whereabouts of
such Participant or his Beneficiary, the amount so
distributable shall be treated as a Forfeiture pursuant to
the Plan. In the event a Participant or Beneficiary is
located subsequent to his benefit being reallocated, such
benefit shall be restored.
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6.10. ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of the
Participant, shall direct the Trustee to distribute to any
Participant in any one Plan Year up to the lesser of 100%
of his Participant's Elective Account valued as of the last
Anniversary Date or other valuation date or the amount
necessary to satisfy the immediate and heavy financial need
of the Participant. Any distribution made pursuant to his
Section shall be deemed to be made as of the first day of
the Plan Year or, if later, the valuation date immediately
preceding the date of distribution, and the Participant's
Elective Account shall be reduced accordingly. The
determination of whether an immediate and heavy financial
need exists shall be based on all relevant facts and
circumstances. A need shall not be disqualified because it
was reasonably foreseeable or voluntarily incurred.
Withdrawal under this Section shall be authorized if the
distribution is on account of:
(1) Medical expenses described in Code Section
213(d) incurred by the Participant, his spouse or any
of his dependents (as defined in Code Section 152);
(2) The purchase (excluding mortgage payments) of a
principal residence for the Participant;
(3) Funeral expenses for a member of the
Participant's family;
(4) Payment of tuition for the next semester or
quarter of postsecondary education for the Participant,
his spouse, children or dependents; or
(5) The need to prevent the eviction of the
Participant from his principal residence or foreclosure
on the mortgage of the Participant's principal
residence.
(b) No distribution shall be made pursuant to this
Section unless the Administrator determines, based upon all
relevant facts and circumstances, that the amount to be
distributed is not in excess of the amount required to
relieve the financial need and that such need cannot be
satisfied from other resources reasonably available to the
Participant. For this purpose, the Participant's resources
shall be deemed to include those assets of his spouse and
minor children that are reasonably available to the
Participant. A distribution may be treated as necessary to
satisfy a financial need if the Administrator relies upon
the Participant's representation that the need cannot be
relieved:
(1) Through reimbursement or compensation by
insurance or otherwise;
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(2) By reasonable liquidation of the Participant's
assets, to the extent such liquidation would not itself
cause an immediate and heavy financial need;
(3) By cessation of elective deferrals under the
Plan; or
(4) By other distributions or loans from the Plan
or any other qualified retirement plan, or by borrowing
from commercial sources on reasonable commercial terms.
(c) Notwithstanding the above, for Plan Years beginning
after December 31, 1988, distributions from the
Participant's Elective Account pursuant to this Section
shall be limited solely to the Participant's Deferred
Compensation and any income allocable thereto credited to
the Participant's Elective Account as of December 31, 1988.
(d) Any distribution made pursuant to this Section
shall be made in a manner which is consistent with and
satisfies the provisions of Section 6.5, including, but not
limited to, all notice and consent requirements of Code
Sections 417 and 411(a)(11) and the Regulations thereunder.
6.11. LIMITATIONS ON BENEFITS AND DISTRIBUTIONS
All rights and benefits, including elections, provided
to a Participant in this Plan shall be subject to the
rights afforded to any "alternate payee" under a "qualified
domestic relations order." Furthermore, a distribution to
an "alternate payee" shall be permitted if such
distribution is authorized by a "qualified domestic
relations order," even if the affected Participant has not
reached the "earliest retirement age" under the Plan. For
the purposes of this Section, "alternate payee," "qualified
domestic relations order" and "earliest retirement age"
shall have the meanings set forth under Code Section
414(p).
6.12. DISTRIBUTION IN KIND OF STOCK IN EMPLOYER STOCK FUND
Notwithstanding anything in the Plan to the contrary,
in the event that a Participant's benefit is distributed in
cash pursuant to Sections 6.4(a), 6.5(b)(1), 6.5(c), 6.6(e)
or 6.6(f)(1) above, the Participant may elect to receive
the Employer Stock in the Employer Stock Fund in the form
of Employer Stock in lieu of cash.
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ARTICLE VII
AMENDMENT, TERMINATION, MERGERS AND LOANS
7.1. AMENDMENT
(a) The Employer shall have the right at any time to
amend the Plan, subject to the limitations of this Section.
However, any amendment which affects the rights, duties or
responsibilities of the Trustee and Administrator may only
be made with the Trustee's and Administrator's written
consent. Any such amendment shall become effective as
provided therein upon its execution. The Trustee shall not
be required to execute any such amendment unless the Trust
provisions contained herein are a part of the Plan and the
amendment affects the duties of the Trustee hereunder.
(b) No amendment to the Plan shall be effective if it
authorizes or permits any part of the Trust Fund (other
than such part as is required to pay taxes and
administration expenses) to be used for or diverted to any
purpose other than for the exclusive benefit of the
Participants or their Beneficiaries or estates, or causes
any reduction in the amount credited to the account of any
Participant, or causes or permits any portion of the Trust
Fund to revert to or become property of the Employer.
(c) Except as permitted by Regulations, no Plan
amendment or transaction having the effect of a Plan
amendment (such as a merger, plan transfer or similar
transaction) shall be effective if it eliminates or reduces
any "Section 411(d)(6) protected benefit" or adds or
modifies conditions relating to "Section 411(d)(6) protected
benefits" the result of which is a further restriction on
such benefits unless such protected benefits are preserved
with respect to benefits accrued as of the later of the
adoption date or effective date of the amendment. "Section
411(d)(6) protected benefits" are benefits described in Code
Section 411(d)(6)(A), early retirement benefits and
retirement-type subsidies, and optional forms of benefit.
7.2. TERMINATION
(a) The Employer shall have the right at any time to
terminate the Plan by delivering to the Trustee and
Administrator written notice of such termination. Upon any
full or partial termination, all amounts credited to the
affected Participants' Combined Accounts shall become 100%
Vested as provided in Section 6.4 and shall not thereafter
be subject to forfeiture, and all unallocated amounts shall
be
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allocated to the accounts of all Participants in accordance
with the provisions hereof.
(b) Upon the full termination of the Plan, the Employer
shall direct the distribution of the assets of the Trust
Fund to Participants in a manner which is consistent with
and satisfies the provisions of Section 6.5. Distributions
to a Participant shall be made in cash or through the
purchase of irrevocable nontransferable deferred
commitments from an insurer. Except as permitted by
Regulations, the termination of the Plan shall not result
in the reduction of "Section 411(d)(6) protected benefits"
in accordance with Section 7.1(c).
7.3. MERGER OR CONSOLIDATION
This Plan may be merged or consolidated with, or its
assets and/or liabilities may be transferred to, any other
plan and trust only if the benefits which would be received
by a Participant of this Plan, in the event of a
termination of the plan immediately after such transfer,
merger or consolidation, are at least equal to the benefits
the Participant would have received if the Plan had
terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation
does not otherwise result in the elimination or reduction
of any "Section 411(d)(6) protected benefits" in accordance
with Section 7.1(c).
7.4. LOANS TO PARTICIPANTS
(a) The Trustee may, in the Trustee's discretion, make
loans to Participants and Beneficiaries under the following
circumstances: (1) loans shall be made available to all
Participants and Beneficiaries on a reasonably equivalent
basis; (2) loans shall not be made available to Highly
Compensated Employees in an amount greater than the amount
made available to other Participants and Beneficiaries;
(3) loans shall bear a reasonable rate of interest;
(4) loans shall be adequately secured and (5) shall provide
for repayment over a reasonable period of time.
(b) Loans shall not be made to any Owner-Employee
unless an exemption for such loan is obtained pursuant to
Act Section 408 and further provided that such loan would
not be subject to tax pursuant to Code Section 4975.
(c) Loans shall not be granted to any Participant or
his Beneficiary that provide for a repayment period
extending beyond such Participant's Normal Retirement Date.
(d) Loans made pursuant to this Section (when added to
the outstanding balance of all other loans made by the Plan
to the Participant) shall be limited to the lesser of:
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(1) $50,000 reduced by the excess (if any) of the
highest outstanding balance of loans from the Plan to
the Participant during the one-year period ending on
the day before the date on which such loan is made,over
the outstanding balance of loans from the Plan to the
Participant on the date on which such loan was made, or
(2) one-half of the present value of the
nonforfeitable accrued benefit of the Participant under
the Plan.
For purposes of this limit, all plans of the Employer
shall be considered one plan. Additionally, with respect
to any loan made prior to January 1, 1987, the $50,000
limit specified in (1) above shall be unreduced.
(e) Loans shall provide for level amortization with
payments to be made not less frequently than quarterly over
a period not to exceed five years. However, loans used to
acquire any dwelling unit which, within a reasonable time,
is to be used (determined at the time the loan is made) as
a principal residence of the Participant shall provide for
periodic repayment over a reasonable period of time that
may exceed five years. Notwithstanding the foregoing,
loans made prior to January 1, 1987 which are used to
acquire, construct, reconstruct or substantially
rehabilitate any dwelling unit which, within a reasonable
period of time, is to be used (determined at the time the
loan is made) as a principal residence of the Participant
or a member of his family (within the meaning of Code
Section 267(c)(4)) may provide for periodic repayment over
a reasonable period of time that may exceed five years.
Additionally, loans made prior to January 1, 1987, may
provide for periodic payments which are made less
frequently than quarterly and which do not necessarily
result in level amortization.
(f) Any loan made pursuant to this Section after August
18, 1985 where the Vested interest of the Participant is
used to secure such loan shall require the written consent
of the Participant's spouse in a manner consistent with
Section 6.5(a). Such written consent must be obtained
within the 90-day period prior to the date the loan is
made. However, no spousal consent shall be required under
this paragraph if the total accrued benefit subject to the
security is not in excess of $3,500.
(g) Any loans granted or renewed on or after the last
day of the first Plan Year beginning after December 31,
1988 shall be made pursuant to a Participant loan program.
Such loan program shall be established in writing and must
include, but need not be limited to, the following:
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(1) the identity of the person or positions
authorized to administer the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or
denied;
(4) limitations, if any, on the types and amounts
of loans offered;
(5) the procedure under the program for determining
a reasonable rate of interest;
(6) the types of collateral which may secure a
Participant loan; and
(7) the events constituting default and the steps
that will be taken to preserve Plan assets.
Such Participant loan program shall be contained in a
separate written document which, when properly executed, is
hereby incorporated by reference and made a part of the
Plan. Furthermore, such Participant loan program may be
modified or amended in writing from time to time without
the necessity of amending this Section.
ARTICLE VIII
MISCELLANEOUS
8.1. PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract
between the Employer and any Participant or to be a
consideration or an inducement for the employment of any
Participant or Employee. Nothing contained in this Plan
shall be deemed to give any Participant or Employee the
right to be retained in the service of the Employer or to
interfere with the right of the Employer to discharge any
Participant or Employee at any time regardless of the
effect which such discharge shall have upon him as a
Participant of this Plan.
8.2. ALIENATION
(a) Subject to the exceptions provided below, no
benefit which shall be payable out of the Trust Fund to any
person (including a Participant or his Beneficiary) shall
be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, and
any attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge the same shall be void;
and no such benefit shall in any manner be liable for, or
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subject to, the debts, contracts, liabilities, engagements
or torts of any such person, nor shall it be subject to
attachment or legal process for or against such person, and
the same shall not be recognized by the Trustee, except to
such extent as may be required by law.
(b) This provision shall not apply to the extent a
Participant or Beneficiary is indebted to the Plan, as a
result of a loan from the Plan. At the time a distribution
is to be made to or for a Participant's or Beneficiary's
benefit, such proportion of the amount distributed as shall
equal such loan indebtedness shall be paid by the Trustee
to the Trustee or the Administrator, at the direction of
the Administrator, to apply against or discharge such loan
indebtedness. Prior to making a payment, however, the
Participant or Beneficiary must be given written notice by
the Administrator that such loan indebtedness is to be so
paid in whole or part from his Participant's Combined
Account. If the Participant or Beneficiary does not agree
that the loan indebtedness is a valid claim against his
Vested Participant's Combined Account, he shall be entitled
to a review of the validity of the claim in accordance with
procedures provided in Sections 2.12 and 2.13.
(c) This provision shall not apply to a "qualified
domestic relations order" defined in Code Section 414(p)
and those other domestic relations orders permitted to be
so treated by the Administrator under the provisions of the
Retirement Equity Act of 1984. The Administrator shall
establish a written procedure to determine the qualified
status of domestic relations orders and to administer
distributions under such qualified orders. Further, to the
extent provided under a "qualified domestic relations
order," a former spouse of a Participant shall be treated
as the spouse or surviving spouse for all purposes under
the Plan.
8.3 DIRECT ROLLOVERS AND ROLLOVER NOTICES
-----------------------------------------
This Section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision in any
other Section of the Plan to the contrary that would
otherwise limit a distributee's election under this
Section, Participant or other distributee under the Plan
may elect to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan
specified by the distributee in a direct rollover.
Any such election shall be made at the time and in the
manner prescribed by the Administrator and shall be subject
to any uniform restrictions or limitations (permissible
under Code Section 401(a)(31) and other applicable Code
provisions) that the Administrator may impose under rules
adopted by it.
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To the extent and in the manner required by Code
Section 402(f), each distributee who is to receive an
eligible rollover distribution from the Plan shall be
notified of the special Federal income tax provisions
applicable to such distribution.
For purposes of this Section, the following definitions
shall apply:
(a) An "eligible rollover distribution is any lump
sum payment or other distribution of all of any
portion of the balance to the credit of the
distributee, except that an eligible rollover
distribution does not include: (i) any life
annuity or other 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 10 years
or more; (ii) any distribution to the extent such
distribution is required under Code Section
401(a)(9); and (iii) 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).
(b) An "eligible retirement plan" is an individual
retirement account described in Code Section
408(a), an individual retirement annuity described
in Code Section 408(b), an annuity plan described
in Code Section 403(a), or a qualified trust
described in Code Section 401(a), that accepts the
distributee's eligible rollover distribution.
However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account
or individual retirement annuity.
(c) A "distributee" includes Participant (whether or
not he has terminated employment). In addition,
the Participant's surviving spouse and the
Participant's spouse or former spouse who is the
alternate payee under a qualified domestic
relations order, as defined in Code Section 414(p),
are distributes with regard to the interest of the
spouse or former spouse.
(d) A "direct rollover" is a payment by the Plan to
the eligible retirement plan specified by the
distributee.
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8.4. CONSTRUCTION OF PLAN
This Plan shall be construed and enforced according to
the Act and the laws of the State of New York, other than
its laws respecting choice of law, to the extent not
preempted by the Act.
8.5. GENDER AND NUMBER
Wherever any words are used herein in the masculine,
feminine or neuter gender, they shall be construed as
though they were also used in another gender in all cases
where they would so apply, and whenever any words are used
herein in the singular or plural form, they shall be
construed as though they were also used in the other form
in all cases where they would so apply.
8.6. LEGAL ACTION
In the event any claim, suit or proceeding is brought
regarding the Trust and/or Plan established hereunder to
which the Trustee or the Administrator may be a party, and
such claim, suit or proceeding is resolved in favor of the
Trustee or Administrator, they shall be entitled to be
reimbursed from the Trust Fund for any and all costs,
attorney's fees and other expenses pertaining thereto
incurred by them for which they shall have become liable.
8.7. PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically
permitted by law, it shall be impossible by operation of
the Plan or of the Trust, by termination of either, by
power of revocation or amendment, by the happening of any
contingency, by collateral arrangement or by any other
means, for any part of the corpus or income of any trust
fund maintained pursuant to the Plan or any funds
contributed thereto to be used for, or diverted to,
purposes other than the exclusive benefit of Participants,
Retired Participants or their Beneficiaries.
(b) In the event the Employer shall make an excessive
contribution under a mistake of fact pursuant to Act
Section 403(c)(2)(A), the Employer may demand repayment of
such excessive contribution at any time within one year
following the time of payment, and the Trustees shall
return such amount to the Employer within the one-year
period. Earnings of the Plan attributable to the excess
contributions may not be returned to the Employer, but any
losses attributable thereto must reduce the amount so
returned.
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8.8. BONDING
Every Fiduciary, except a bank or an insurance company,
unless exempted by the Act and regulations thereunder,
shall be bonded in an amount not less than 10% of the
amount of the funds such Fiduciary handles, provided,
however, that the minimum bond shall be $1,000 and the
maximum bond, $500,000. The amount of funds handled shall
be determined at the beginning of each Plan Year by the
amount of funds handled by such person, group or class to
be covered and their predecessors, if any, during the
preceding Plan Year, or if there is no preceding Plan Year,
then by the amount of the funds to be handled during the
then current year. The bond shall provide protection to
the Plan against any loss by reason of acts of fraud or
dishonesty by the Fiduciary alone or in connivance with
others. The surety shall be a corporate surety company (as
such term is used in Act Section 412(a)(2)), and the bond
shall be in a form approved by the Secretary of Labor.
Notwithstanding anything in the Plan to the contrary, the
cost of such bonds shall be an expense of and may, at the
election of the Administrator, be paid from the Trust Fund
or by the Employer.
8.9. EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their
successors, shall be responsible for the validity of any
Contract issued hereunder or for the failure on the part of
the insurer to make payments provided by any such Contract,
or for the action of any person which may delay payment or
render a Contract null and void or unenforceable in whole
or in part.
8.10. INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall
not have any responsibility for the validity of this Plan
or for the tax or legal aspects of this Plan. The insurer
shall be protected and held harmless in acting in
accordance with any written direction of the Trustee and
shall have no duty to see to the application of any funds
paid to the Trustee, nor be required to question any
actions directed by the Trustee. Regardless of any
provision of this Plan, the insurer shall not be required
to take or permit any action or allow any benefit or
privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.
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8.11. RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal
representative, Beneficiary, or to any guardian or
committee appointed for such Participant or Beneficiary in
accordance with the provisions of the Plan, shall, to the
extent thereof, be in full satisfaction of all claims
hereunder against the Trustee and the Employer, either of
whom may require such Participant, legal representative,
Beneficiary, guardian or committee, as a condition
precedent to such payment, to execute a receipt and release
thereof in such form as shall be determined by the Trustee
or Employer.
8.12. ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is
permitted or required to do or perform any act or matter or
thing, it shall be done and performed by a person duly
authorized by its legally constituted authority.
8.13. NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer,
(2) the Administrator and (3) the Trustee. The named
Fiduciaries shall have only those specific powers, duties,
responsibilities and obligations as are specifically given
them under the Plan. In general, the Employer shall have the
sole responsibility for making the contributions provided
for under Section 4.1 and shall have the sole authority to
appoint and remove the Trustee and the Administrator, to
formulate the Plan's "funding policy and method" and to
amend or terminate, in whole or in part, the Plan. The
Administrator shall have the sole responsibility for the
administration of the Plan, which responsibility is
specifically described in the Plan. The Trustee shall have
the sole responsibility of management of the assets held
under the Trust, except those assets, the management of
which has been assigned to an Investment Manager, who shall
be solely responsible for the management of the assets
assigned to it, all as specifically provided in the Plan.
Each named Fiduciary warrants that any directions given,
information furnished or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or
providing for such direction, information or action.
Furthermore, each named Fiduciary may rely upon any such
direction, information or action of another named Fiduciary
as being proper under the Plan and is not required under the
Plan to inquire into the propriety of any such direction,
information or action. It is intended under the Plan that
each named Fiduciary shall be responsible for the proper
exercise of its own powers, duties, responsibilities
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and obligations under the Plan. No named Fiduciary shall
guarantee the Trust Fund in any manner against
investment loss or depreciation in asset value. Any person
or group may serve in more than one Fiduciary capacity. In
the furtherance of their responsibilities hereunder, the
"named Fiduciaries" shall be empowered to interpret the
Plan and Trust and to resolve ambiguities, inconsistencies
and omissions, which findings shall be binding, final, and
conclusive.
8.14. HEADINGS
The headings and subheadings of this Plan have been
inserted for convenience of reference and are to be ignored
in any construction of the provisions hereof.
8.15. APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary,
contributions to this Plan are conditioned upon the initial
qualification of the Plan under Code Section 401. If the
Plan receives an adverse determination with respect to its
initial qualification, then the Plan may return such
contributions to the Employer within one year after such
determination, provided the application for the
determination is made by the time prescribed by law for
filing the Employer's return for the taxable year in which
the Plan was adopted, or such later date as the Secretary
of the Treasury may prescribe.
(b) Notwithstanding any provisions to the contrary,
except Sections 3.6, 3.7 and 4.1(f), any contribution by
the Employer to the Trust Fund is conditioned upon the
deductibility of the contribution by the Employer under the
Code and, to the extent any such deduction is disallowed,
the Employer may, within one year following the
disallowance of the deduction, demand repayment of such
disallowed contribution and the Trustee shall return such
contribution within one year following the disallowance.
Earnings of the Plan attributable to the excess
contribution may not be returned to the Employer, but any
losses attributable thereto must reduce the amount so
returned.
8.16. UNIFORMITY
All provisions of this Plan shall be interpreted and
applied in a uniform, nondiscriminatory manner. In the
event of any conflict between the terms of this Plan and
any Contract purchased hereunder, the Plan provisions shall
control.
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8.17 LIMITATION ON EMPLOYER STOCK TRANSACTIONS
The Administrator may require that:
(a) any Participant who is an officer or director of
the Employer subject to Section 16 ("Section 16") of the
Securities and Exchange Act of 1934, as amended (the
"Exchange Act") (an "Insider"), who receives a distribution
of Employer Stock under the Plan must cease receiving any
further contributions of, or make any further investment
in, Employer Stock under the Plan for a period of six
months from the date of such distribution; provided,
however, that extraordinary distributions of all of the
Employer Stock in the Plan and distributions of Employer
Stock in connection with such Participant's death,
retirement, disability or termination of employment or in
connection with a qualified domestic relations order (as
defined in Section 414(p) of the Code) are not subject to
this requirement;
(b) a Participant who is an Insider and ceases
participation in the Plan (within the meaning of Rule 16b-3
of the Exchange Act) may not again participate in the Plan
for at least six months after the date of such cessation
(in accordance with the requirements of Rule 16b-3); and
(c) with respect to transfers between the Employer
Stock Fund and any of the other funds of assets credited to
the account of a Participant who is an Insider, (1) the
election to make such transfer must be made during the
period beginning on the third business day following the
date of release of quarterly or annual summary statements
of sales and earnings of the Employer and ending with the
twelfth business day following such date and (2) the actual
transfer must occur as of a "valuation date" (as defined in
Section 5.1 above) which is at least six months after the
last valuation date as of which any assets credited to such
Participant's account were transferred between such funds.
ARTICLE IX
PARTICIPATING EMPLOYERS
9.1. ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with
the consent of the Employer and Trustee, any other
corporation or entity, whether an affiliate or subsidiary
or not, may adopt this Plan and all of the provisions
hereof and participate herein and be known as a
Participating Employer, by a properly executed document
evidencing said intent and will of such Participating
Employer.
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9.2. REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each such Participating Employer shall be required
to use the same Trustee as provided in this Plan.
(b) The Trustee may, but shall not be required to,
commingle, hold and invest as one Trust Fund all
contributions made by Participating Employers, as well as
all increments thereof. However, the assets of the Plan
shall, on an ongoing basis, be available to pay benefits to
all Participants and Beneficiaries under the Plan without
regard to the Employer or Participating Employer who
contributed such assets.
(c) The transfer of any Participant from or to an
Employer participating in this Plan, whether he be an
Employee of the Employer or a Participating Employer, shall
not affect such Participant's rights under the Plan, and
all amounts credited to such Participant's Combined
Account, as well as his accumulated service time with the
transferor or predecessor, and his length of participation
in the Plan, shall continue to his credit.
(d) All rights and values forfeited by termination of
employment shall inure only to the benefit of the
Participants of the Employer or Participating Employer by
which the forfeiting Participant was employed, except if
the Forfeiture is for an Employee whose Employer is an
Affiliated Employer, then said Forfeiture shall inure to
the benefit of the Participants of those Employers who are
Affiliated Employers. Should an Employee of one ("First")
Employer be transferred to an associated ("Second")
Employer which is an Affiliated Employer, such transfer
shall not cause his account balance (generated while an
Employee of "First" Employer) in any manner or by any
amount to be forfeited. Such Employee's Participant
Combined Account balance for all purposes of the Plan,
including length of service, shall be considered as though
he had always been employed by the "Second" Employer and as
such had received contributions, forfeitures, earnings or
losses, and appreciation or depreciation in value of assets
totaling amount so transferred.
(e) Any expenses of the Trust which are to be paid by
the Employer or borne by the Trust Fund shall be paid by
each Participating Employer in the same proportion that the
total amount standing to the credit of all Participants
employed by such Employer bears to the total standing to
the credit of all Participants.
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9.3. DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a
part of this Plan, provided, however, that with respect to
all of its relations with the Trustee and Administrator for
the purpose of this Plan, each Participating Employer shall
be deemed to have designated irrevocably the Employer as
its agent. Unless the context of the Plan clearly
indicates the contrary, the word "Employer" shall be deemed
to include each Participating Employer as related to its
adoption of the Plan.
9.4. EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred
between Participating Employers, and in the event of any
such transfer, the Employee involved shall carry with him
his accumulated service and eligibility. No such transfer
shall effect a termination of employment hereunder, and the
Participating Employer to which the Employee is transferred
shall thereupon become obligated hereunder with respect to
such Employee in the same manner as was the Participating
Employer from whom the Employee was transferred.
9.5. PARTICIPATING EMPLOYER'S CONTRIBUTION
Any contribution subject to allocation during each Plan
Year shall be allocated only among those Participants of
the Employer or Participating Employer making the
contribution, except if the contribution is made by an
Affiliated Employer, in which event such contribution shall
be allocated among all Participants of all Participating
Employers who are Affiliated Employers in accordance with
the provisions of this Plan. On the basis of the
information furnished by the Administrator, the Trustee
shall keep separate books and records concerning the
affairs of each Participating Employer hereunder and as to
the accounts and credits of the Employees of each
Participating Employer. The Trustee may, but need not,
register Contracts so as to evidence that a particular
Participating Employer is the interested Employer
hereunder, but in the event of an Employee transfer from
one Participating Employer to another, the employing
Employer shall immediately notify the Trustee thereof.
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9.6. AMENDMENT
Amendment of this Plan by the Employer at any time when
there shall be a Participating Employer hereunder shall
only be by the written action of each and every
Participating Employer and with the consent of the Trustee
where such consent is necessary in accordance with the
terms of this Plan.
9.7. DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to
discontinue or revoke its participation in the Plan. At
the time of any such discontinuance or revocation,
satisfactory evidence thereof and of any applicable
conditions imposed shall be delivered to the Trustee. The
Trustee shall thereafter transfer, deliver and assign
Contracts and other Trust Fund assets allocable to the
Participants of such Participating Employer to such new
Trustee as shall have been designated by such Participating
Employer, in the event that it has established a separate
pension plan for its Employees provided, however, that no
such transfer shall be made if the result is the
elimination or reduction of any "Section 411(d)(6)
protected benefits" in accordance with Section 7.1(c). If
no successor is designated, the Trustee shall retain such
assets for the Employees of said Participating Employer
pursuant to the provisions of Article VII hereof. In no
such event shall any part of the corpus or income of the
Trust as it relates to such Participating Employer be used
for or diverted for purposes other than for the exclusive
benefit of the Employees of such Participating Employer.
9.8. ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and
all necessary rules or regulations, binding upon all
Participating Employers and all Participants, to effectuate
the purpose of the Article.
IN WITNESS WHEREOF, this Plan has been executed the
day and year first above written.
MBIA INC.
By
----------------------
Employer
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EX-10
5
EXHIBIT 10.27
Consent
-------
MBIA Inc. hereby consents to the assignment, effective February 28, 1994
at the close of business, by Aetna Financial Services, Inc. ("AFSI") to Aetna
Capital Management, Inc. of all of its rights, duties and obligations under
the investment management agreement between MBIA Illinois and AFSI, dated
January 5, 1990.
MBIA Illinois
By: /S/ Arthur William
---------------------------
Name: /s/ Arthur M. Warren
-------------------------
Its: Senior Vice President, CFO
--------------------------
EX-10
6
EXHIBIT 10.48
================================================================================
SECOND AMENDMENT
TO
REVOLVING CREDIT AGREEMENT
BETWEEN
MBIA INC.
AND
CREDIT SUISSE
New York Branch
---------------------------
Dated as of September 30, 1994
----------------------------
================================================================================
SECOND AMENDMENT TO
REVOLVING CREDIT AGREEMENT
THIS AMENDMENT, dated as of September 30, 1994, between MBIA Inc., a
Connecticut corporation ("MBIA"), and CREDIT SUISSE, a banking corporation
organized under the laws of Switzerland, acting through its New York Branch (the
"Bank");
WHEREAS, MBIA and the Bank have heretofore entered into that certain
Revolving Credit Agreement, dated as of February 15, 1991 (as heretofore amended
and extended, the "Original Credit Agreement"); and
WHEREAS, MBIA and the Bank desire, upon the terms and subject to the
conditions hereinafter set forth, to amend the Original Credit Agreement in
certain respects;
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound hereby,
agree as follows:
Section 1. Amendments to Credit Agreement. Effective as of October 1, 1994,
the Original Credit Agreement is hereby amended as follows:
(a) Article 2 of the Original Credit Agreement is hereby amended and
restated in its entirety to read as follows:
"ARTICLE 2
"LOAN
"Section 2.1. Available Commitment. The Bank agrees, upon the terms
and subject to the conditions of this Agreement, to lend and relend to
MBIA, on and after the Effective Date and prior to the Expiration Date,
amounts which in the aggregate at any one time outstanding do not exceed
the Commitment at such time. Each Loan may be a Base Rate Loan, a Federal
Funds Rate Loan or a Quoted Rate Loan; provided that no more than five (5)
Quoted Rate Loans may be outstanding at any one time.
"Section 2.2. Manner of Borrowing and Disbursement. (a) Not later than
11:00 a.m., New York City time, on the Business Day on which each Loan is
to be made hereunder or, in the case of Quoted Rate Loans, at least three
(3) Business Days prior to each Loan to be made hereunder, MBIA shall give
the Bank a notice (which notice shall be irrevocable) specifying (i) the
date on which such Loan is to be made, which shall be a Business Day, (ii)
the amount of the proposed borrowing, (iii) the purpose of the proposed
borrowing, (iv) whether such Loan is to be made as a Base Rate Loan, a
Federal
-2-
Funds Rate Loan or a Quoted Rate Loan, and (v) if such Loan is to be a
Quoted Rate Loan, the Interest Period with respect thereto, which notice
shall be substantially in the form of, and contain the certifications
contained in, Exhibit B hereto.
"(b) Each Loan shall be in the amount of at least $1,000,000 and in
integral multiples of $1,000,000 (but not exceeding the Available
Commitment), or such lesser amount as shall equal the Available Commitment
at the time such Loan is made.
"(c) On the date specified in the notice described in paragraph (a),
the Bank shall, subject to the satisfaction of the conditions set forth in
Article 4, disburse the amount of the Loan described therein to an account
of MBIA maintained at the Bank or by wire transfer to an account in New
York City pursuant to MBIA's instructions.
"Section 2.3. Note. (a) The Loans shall be evidenced by, and be
repayable with interest in accordance with the terms of, a single Note
payable to the order of the Bank. The Note shall be dated the Effective
Date and shall be duly executed and delivered by MBIA.
"(b) The Bank is irrevocably authorized from time to time to record
the date and amount of each Loan, whether such Loan is a Base Rate Loan, a
Federal Funds Rate Loan or a Quoted Rate Loan and each payment and
prepayment with respect to each Loan on the grid attached to the Note or on
a continuation thereof which may be attached thereto by the Bank and made a
part thereof, and any such notation shall, absent manifest error,
constitute prima facie evidence of the accuracy of the information so
recorded; provided, that the failure to make any such notation shall not
affect the validity of MBIA's obligations hereunder or under the Note.
"Section 2.4. Interest Rates and Payment Dates. (a) MBIA agrees to pay
interest in respect of the unpaid principal amount of each Base Rate Loan
for each day from and including the day such Base Rate Loan was made to but
excluding the day the principal on such Base Rate Loan is due (whether at
maturity, by acceleration or otherwise), at a rate per annum equal to the
Base Rate Margin plus the Base Rate, which interest rate shall change as
and when the Base Rate shall change. Such interest shall be payable on each
successive Payment Date commencing with the first such date after the
making of such Base Rate Loan and when the principal amount of such Base
Rate Loan is due (whether at maturity, by acceleration or otherwise).
"(b) MBIA agrees to pay interest in respect of the unpaid principal
amount of each Quoted Rate Loan for each day from and including the day
such Loan was made to but excluding the day the principal on such Quoted
Rate Loan is due (whether at maturity, by acceleration or otherwise), at a
rate per
-3-
annum equal for the Interest Period applicable thereto to the Quoted Rate
Margin plus the applicable Quoted Rate for such Interest Period. Such
interest shall be payable when the principal amount of such Quoted Rate
Loan is due (whether at the end of the Interest Period applicable thereto
or other maturity, by acceleration or otherwise).
"(c) MBIA agrees to pay interest in respect of the unpaid principal
amount of each Federal Funds Rate Loan for each day from and including the
day such Federal Funds Rate Loan was made to but excluding the day the
principal on such Federal Funds Rate Loan is due (whether at maturity, by
acceleration or otherwise), at a rate per annum equal to the Federal Funds
Margin plus the Federal Funds Rate, which interest rate shall change as and
when the Federal Funds Rate shall change. Such interest shall be payable on
each successive Payment Date commencing with the first such date after the
making of such Federal Funds Rate Loan and when the principal amount of
such Federal Funds Rate Loan is due (whether at maturity, by acceleration
or otherwise).
"(d) Any overdue principal of any Loan and, to the extent permitted by
law overdue interest thereon shall bear interest (after as well as before
judgment), payable on demand, for each day from and including the date
payment thereof was due to but excluding the date of actual payment, at a
rate per annum equal to (i) in the case of Quoted Rate Loans, until the end
of the then current Interest Period, the sum of 2% plus the interest rate
otherwise applicable to the Loan, (ii) in the case of Federal Funds Rate
Loans, until the end of the then current Interest Period, the sum of 2%
plus the interest rate otherwise applicable to the Loan and (iii)
otherwise, the sum of 2% plus the Base Rate Margin plus the Base Rate from
time to time in effect, which interest rate shall change as and when the
Base Rate shall change.
"(e) The Bank shall determine each interest rate applicable to the
Loans hereunder. The Bank shall give prompt notice to MBIA by telex or
cable of each rate of interest so determined, and its determination thereof
shall be conclusive, absent manifest error.
"Section 2.5. Suspension of Certain Rates of Borrowing.
"(a) If
"(i) on any date on which a Quoted Rate would otherwise be set
the Bank shall have in good faith determined (which determination
shall be conclusive) that adequate and reasonable means do not exist
for ascertaining such Quoted Rate, or
"(ii) at any time the Bank shall have determined in good faith
(which determination shall be
-4-
conclusive) that the maintenance or funding of the Loans bearing
interest at the Quoted Rate has been made impracticable or unlawful by
(A) the occurrence of a contingency which materially and adversely
affects the interbank eurodollar market, or (B) compliance by the Bank
in good faith with any applicable law or governmental rule,
regulation, guideline or order or any interpretation thereof and
including the enactment of any new law or governmental rule,
regulation, guideline or order;
"then, and in either such event, the Bank shall on such date give notice
(by telephone confirmed in writing) to MBIA of such determination, which
determination shall commence a Suspension Period. In the event that the
Bank shall later determine in good faith (which determination shall be
conclusive) that the circumstances giving rise to a Suspension Period no
longer exist, it shall give MBIA notice (by telephone confirmed in writing)
on the day such determination is made, which date shall end such Suspension
Period.
"(b) Upon the commencement and during the continuation of any
Suspension Period, all Loans which would otherwise be made by the Bank as
Quoted Rate Loans shall be made instead as Federal Funds Rate Loans or Base
Rate Loans, as MBIA may have elected by notice received by the Bank prior
to 11:00 a.m. (New York City Time) on date such Loan is to be made or, in
the absence of such notice from MBIA as Federal Funds Rate Loans.
"(c) If the Bank notifies MBIA of a determination under subsection
(a)(ii) of this Section 2.5, MBIA shall, on the date specified in such
notice, either (x) prepay all Quoted Rate Loans in accordance with Section
2.7 hereof or (y) elect by notice received by the Bank prior to 11:00 a.m.
(New York City Time) on such date to convert such Loans into a Base Rate
Loan or a Federal Funds Rate Loan. Absent notice from MBIA of its choice of
(x) or (y), the Loans shall automatically be converted into a Federal Funds
Rate Loan upon such specified date.
"Section 2.6 Repayment of Loans. Each Quoted Rate Loan shall mature
and the unpaid principal amount thereof shall be due and payable on the
last day of the Interest Period therefor. All Loans shall mature and the
aggregate unpaid principal amount thereof shall be due and payable on the
Expiration Date
"Section 2.7 Prepayments. MBIA shall have the right at any time,
and from time to time, upon at least three (3) Business Days' notice to the
Bank to prepay the Loans, in whole or in part. Any such notice shall
specify (i) the amount of the Loans to be prepaid, (ii) whether such
prepayment is to be applied to Base Rate Loans, Federal Funds Rate Loans or
Quoted Rate Loans, or both, (iii) if applicable,
-5-
what portion of the prepayment (in increments of $1,000,000) is to be
applied to each, (iv) if applicable, which Quoted Rate Loans are to be
prepaid, and (v) the date of prepayment (which shall be a Business Day). In
the absence of such direction from MBIA, the Bank shall apply partial
principal prepayments of the Loans first to Base Rate Loans, then to
Federal Funds Rate Loans and then to Quoted Rate Loans in chronological
order of maturity. Amounts to be prepaid pursuant to this paragraph shall
irrevocably be due and payable on the date specified in the applicable
notice of prepayment. Interest on the amounts prepaid, accrued to the
prepayment date, shall be paid on such date and, in the case of a Quoted
Rate Loan, if the date of prepayment is other than the expiration date of
the Interest Period for such Quoted Rate Loan, such prepayment shall be
accompanied by the payment required by Section 3.4. Each partial prepayment
of the Loans made pursuant to this paragraph shall be in an aggregate
principal amount of at least $1,000,000 and in integral multiples of
$1,000,000."
(b) The second sentence of Section 3.1 of the Original Credit
Agreement is hereby amended and restated in its entirety to road as follows:
"The rate on which the commitment fee shall be calculated shall be twelve
basis points (.12%) per annum."
(c) Clause (iii) of the first sentence of Section 3.4 of the Original
Credit Agreement is hereby amended and restated in its entirety to read as
follows:
"(iii) the occurrence of any conversion of any Quoted Rate Loan to a
Federal Funds Rate Loan or Base Rate Loan pursuant to Section 2.5 on a date
which is not the last day of an Interest Period applicable thereto;"
(d) Section 6.10 of the Original Credit Agreement is hereby amended
and restated in its entirety to read as follows:
"Section 6.10. Indebtedness of MBIA and Subsidiaries. Neither MBIA nor
any Subsidiary shall create, incur, assume or guarantee, or permit to exist, or
become or remain liable directly or indirectly upon, any Debt (other than Debt
owed by a Subsidiary to its direct or indirect parent or to MBIA) except the
following:
"(a) Debt of MBIA in respect of the Note and the Loan
Documents;
"(b) Debt of the New York Insurance Subsidiary under the First
Restated Credit Agreement, dated as of October 1, 1993,
between the New York Insurance Subsidiary, Credit Suisse,
New York Branch, as Agent, and the lenders parties thereto,
as amended from time to time;
-6-
"(c) Other Debt of MBIA and its Subsidiaries so long as the Total
Funded Debt at any time outstanding does not exceed 20% of Total
Capitalization at such time; provided that at the time of the
incurrence of such Debt and immediately after giving effect to the
incurrence thereof, there shall exist no Event of Default or
condition, event or act which with notice or lapse of time or both
would become an Event of Default."
(e) Exhibit A of the Original Credit Agreement is hereby amended and
to add thereto the following definitions in the their proper alphabetical order:
"'Federal Funds Rate Loan' shall mean a Loan or a portion thereof, the
interest on which computed at the rate specified in Section 2.4(c)."
"'Federal Funds Margin' shall mean thirty-seven and one-half basis
points (.375%) plus the Applicable Margin."
"'Federal Funds Rate' shall mean, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/lOOth of l%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Bank from three Federal funds brokers of recognized standing selected by
the Bank "
"'Total Capitalization' shall mean, at any time, the sum of (a) Total
Funded Debt at such time, plus (b) the total stockholders' equity of MBIA
and its consolidated Subsidiaries, as reflected on MBIA's most recent
annual or quarterly consolidated balance sheet preceding the date of
determination prepared in accordance with generally accepted accounting
principles (without giving effect to State of Financial Accounting
Standards No. 115 promulgated May, 1993) by the Financial Accounting
Standards Board)."
"'Total Funded Debt' shall mean, at any time, the aggregate Debt of
MBIA and its Subsidiaries outstanding at such time which is classified as a
long-term obligation, determined on a consolidated basis in accordance with
generally accepted accounting principles."
(f) The definition of "Quoted Rate Margin" contained in Exhibit A of
the Original Credit Agreement is hereby amended and restated in its
entirety to read as follows:
-7-
"'Quoted Rate Margin' shall mean twenty basis points (.20%) plus the
Applicable Margin."
(g) Exhibit A of the Original Credit Agreement is hereby amended to
delete therefrom the definition of "Short-Term Debt".
(h) Exhibit B of the Original Credit Agreement is hereby amended and
restated in its entirety to read as set forth as Exhibit B to this Amendment.
Section 2. Representations and Warranties. In order to induce the Bank
to enter into this Amendment, MBIA makes the following representations and
warranties to the Bank, which shall survive the execution and delivery of this
Amendment and the making of any Loans:
(a) Due Authorization, Etc. The execution, delivery and performance by
MBIA of this Amendment and the Original Loan Agreement, as amended hereby, are
within its corporate powers, have been duly authorized by all necessary
corporate action and do not and will not (i) violate any provision of any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award presently in effect having applicability to MBIA or of the corporate
charter or articles or by-laws of MBIA, (ii) result in a breach of or constitute
a default under any indenture or loan or credit agreement or any other
agreement, lease or instrument to which MBIA is a party or by which it or its
properties may be bound or affected, or (iii) result in, or require, the
creation or imposition of any Lien upon or with respect to any of the properties
now owned or hereafter acquired by MBIA, other than, in the case of clauses (ii)
and (iii), breaches, defaults or Liens which could not materially and adversely
affect the business, assets, operations or financial condition of MBIA and its
Subsidiaries considered as a whole or of the New York Insurance Subsidiary.
(b) Approvals. No consent, approval or other action by, or any notice
to or filing with any court or administrative or governmental body is or will be
necessary for the valid execution, delivery or performance by MBIA of this
Amendment or the Original Credit Agreement, as amended hereby.
(c) Enforceability. This Amendment and the Original Credit Agreement,
as amended hereby, constitute legal, valid and binding obligations of MBIA,
enforceable against MBIA in accordance with their respective terms, except as
such enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
the availability of equitable remedies, whether such matter is heard in a court
of law or a court of equity.
(d) No Adverse Change. There has been no material adverse change in
the consolidated financial position or consolidated results of operations or
cash flows of MBIA and its subsidiaries taken as a whole or of the New York
Insurance
-8-
Subsidiary since the date of the most recent financial statements heretofore
delivered to the Bank pursuant to Section 6.9 of the Original Credit Agreement.
(e) Confirmation of Representations and Warranties; No Defaults. (i)
MBIA hereby confirms that its representations and warranties set forth in the
Original Credit Agreement (including without limitation those set forth in
Article 5 of the Original Credit Agreement) are true and correct as of the date
hereof.
(ii) As of the date hereof, there exists no Event of Default or
condition, event or act which with notice or lapse of time or both would become
an Event of Default.
Section 3. Original Credit Agreement. Except as expressly amended as
contemplated hereby, the Original Credit Agreement is hereby confirmed to be in
full force and effect in accordance with its terms.
Section 4. Miscellaneous. (a) Except as otherwise specified herein,
terms used in this Amendment and defined in Exhibit A of the Original Credit
Agreement shall have the meanings provided in such Exhibit A.
(a) All covenants, agreements, representations and warranties made
herein or in any certificate, document or instrument delivered pursuant hereto
shall survive the effectiveness hereof, the making of each Loan and the
occurrence of the Expiration Date and shall continue in full force and effect so
long as principal of or interest on any Loan or the Note remains outstanding or
unpaid, any other amount payable by MBIA under the Original Credit Agreement as
amended hereby, the Note or any other Loan Document remains unpaid or any other
obligation of MBIA to perform any other act hereunder or under the Original
Credit Agreement as amended hereby, the Note or any other Loan Document
remains unsatisfied or the Bank has any obligation to make a Loan or any other
advance of moneys to MBIA under the Original Credit Agreement as amended hereby.
(b) Any provision of this Amendment which is prohibited, unenforceable
or not authorized in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition, unenforceability or
nonauthorization without invalidating the remaining provisions hereof or
affecting the validity, enforceability or legality of such provision in any
other jurisdiction.
(c) This Amendment is a continuing obligation and binds, and the
benefits hereof shall inure to, MBIA and the Bank and their respective
successors and assigns; provided that MBIA may not transfer or assign any or all
of its rights or obligations hereunder without the prior written consent of the
Bank.
-9-
(d) No provision of this Amendment shall be waived, amended or
supplemented except by a written instrument executed by MBIA and the Bank.
(e) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
(f) Section headings in this Amendment are included herein for
convenience or reference only and shall not constitute a part of this Amendment
for any other purpose.
(g) This Amendment may be executed in several counterparts, each of
which shall be regarded as the original and all of which shall constitute one
and the same Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to Revolving Credit Agreement to be duly executed and delivered by
their respective officers thereunto duly authorized as of the date first above
written.
MBIA INC.
By
-----------------------------
Title: Treasurer
CREDIT SUISSE, New York Branch
By /s/ Patricia Countryman
-----------------------------
Title: PATRICIA COUNTRYMAN
MEMBER OF SENIOR MANAGEMENT
By /s/ Scott M. Allison
-----------------------------
Title: SCOTT M. ALLISON
ASSOCIATE
EXHIBIT B to
AMENDMENT TO
REVOLVING CREDIT AGREEMENT
FORM OF NOTICE OF BORROWING
[date]
CREDIT SUISSE
New York Branch
12 East 49th Street
New York, New York 10017
Attention: Public Finance Department
Re: Borrowing under Revolving Credit Agreement, dated as of February 15,
1991, between MBIA Inc. and Credit Suisse, New York Branch
Dear Sirs:
MBIA Inc., a Connecticut corporation ("MBIA"), hereby requests that [a
Loan/Loans] be made to MBIA by the Bank under the Revolving Credit Agreement
referred to above (as amended, the "Revolving Credit Agreement") as follows (all
capitalized terms herein having the meanings ascribed thereto in the Revolving
Credit Agreement):
1. The aggregate amount of the Loan[s] (the "Subject Loans") requested
hereby is $ ________ , which amount does not exceed the Available Commitment.
2. The Subject Loan[s] shall be [a Base Rate Loan, a Federal Funds Rate
Loan or [a] Quoted Rate Loan [S] ] as follows:
Interest Period
Amount (in increments (applicable to
Type of Loan of $1,000,000) Quoted Rate Loans)
------------ --------------------- ------------------
3. The date on which the Subject Loan[s] is/are requested to be made (the
"Loan Date") is ,____________, 19__, which is a Business Day not less than three
(3) Business Days after the date hereof.
4. Each of the conditions set forth in the Revolving Credit Agreement to
the Bank's obligations to make the Subject Loan, including without limitation
Article 4 thereof, has been satisfied.
5. The proceeds of the Subject Loan[s] will be applied as provided in
Section 6.1 of the Revolving Credit Agreement and more particularly as follows:
6. The statements set forth above shall be true and correct on and as of
the Loan Date.
7. The Subject Loan is to be disbursed to the following account.
__________________________
__________________________
__________________________
8. The undersigned is duly authorized and empowered in the name and on
behalf of MBIA to present this Notice of Borrowing and to request and obtain the
Subject Loan[s] upon and in accordance with, and subject to, the terms and
conditions set forth in the Revolving Credit Agreement and the Loan Documents.
IN WITNESS WHEREOF, MBIA has executed and delivered this Notice of
Borrowing this _________ day of ,_____________, 19__.
MBIA INC.
By
---------------------------
Name:
Title:
B-2
EX-10
7
EXHIBIT 10.49
AMENDMENT TO RIGHTS AGREEMENT
AMENDMENT, dated as of October 24, 1994, to the Rights Agreement, dated
as of December 12, 1991 (the "Rights Agreement"), between MBIA INC., a
Connecticut corporation (the "Company") and MELLON BANK, N.A., a national
banking association, as rights agent (the "Rights Agent").
Pursuant to Section 27 of the Rights Agreement, the Company and the
Rights Agent may from time to time supplement or amend the Rights Agreement in
accordance with the provisions of Section 27 thereof. All acts and things
necessary to make this Amendment a valid agreement, enforceable according to its
terms, have been done and preformed, and the execution and delivery of this
Amendment by the Company and the Rights Agent have been in all respects duly
authorized by the Company and the Rights Agent.
In consideration of the foregoing and the mutual agreements set forth
herein, the parties hereto agree as follows:
1. Section l(a) of the Rights Agreement is hereby modified and amended
by adding the following sentence to the end thereof:
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person", as defined pursuant to the foregoing provisions of this Section 1(a),
has become such inadvertently (including, without limitation, because (i) such
-
Person was unaware that it Beneficially Owned 10% or more of the Common Shares
of the Company or (ii) such Person was aware of the extent of such Beneficial
--
Ownership but such Person acquired Beneficial Ownership of such shares of
Common Shares without the intention to change or influence the control of the
Company and without actual knowledge of the consequences of such Beneficial
Ownership under this Rights Agreement), and such Person divests itself as
promptly as practicable of a sufficient number of shares of Common Shares so
that such Person would no longer be an "Acquiring Person", as defined pursuant
to the foregoing provisions of this Section 1(a), then such Person shall not be
deemed to be, or have been, an "Acquiring Person" for any purpose of this
Agreement, and no Shares Acquisition Date shall be deemed to have occurred. All
questions as to whether a Person who would otherwise be an Acquiring Person has
become such inadvertently shall be determined in good faith by the Board of
Directors of the Company, which determination shall be conclusive.
2. Section l(d)(ii)(B) of the Rights Agreement is hereby modified and
amended to read in its entirety:
(B) securities issuable upon exercise of Rights at any time prior to the
-
occurrence of either a Section ll(a)(ii) Event or a Section 13 Event, or (C)
-
securities issuable upon exercise of Rights from and after the occurrence of a
Section ll(a)(ii) Event or a Section 13 Event which Rights were acquired by
such Person or any of such Person's Affiliates or Associates prior to the
Distribution Date or pursuant to Section (3)(a) or Section 22 hereof (the
"Original Rights") or pursuant to Section ll(i) hereof in connection with an
adjustment made with respect to any Original Rights; or
3. Section l(ee) of the Rights Agreement is hereby modified and amended
to read in its entirety:
2
(ee) "Shares Acquisition Date" shall mean the first date of
public announcement by the Company that an Acquiring Person has become
such.
4. Section 23(a) of the Rights Agreement is hereby modified and amended
to read in its entirety:
(a) The Board of Directors may, at its option, at any time
prior to the earlier of (x) the Close of Business on the tenth Business
-
Day following the Shares Acquisition Date or (y) the Close of Business
-
on the Final Expiration Date, redeem all but not less than all of the
then outstanding Rights at a redemption price of $0.01 per Right,
appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption
price being hereinafter referred to as the "Redemption Price").
Notwithstanding anything in this Agreement to the contrary, the Rights
shall not be exercisable after the first occurrence of a Section
11(a)(ii) Event until such time as the Company's right of redemption
under this Section 23(a) has expired. The Board of Directors of the
Company, may, at its discretion, at any time prior to the Shares
Acquisition Date, extend the time within which to redeem the then
outstanding Rights prior to their exercise. The redemption of the Rights
by the Board of Directors may be made effective at such time, on such
basis and with such conditions as the Board of Directors in its sole
discretion may establish. The Company may, at its option, pay the
Redemption price in cash, Common Shares (based on the Current Market
Price of the Common Shares at the time of redemption) or any other form
of consideration deemed appropriate by the Board of Directors of the
Company.
5. Section 27 of the Rights Agreement is hereby modified and amended by
revising the first two sentences thereof to read as follows:
The Company may, by resolution of its Board of Directors, and
the Rights Agent shall, if the Company so directs, from time to time
supplement or amend this Agreement in any respect whatsoever (including,
without limitation, any extension of the period in which the
Rights may be redeemed) at any time prior to the Shares Acquisition
Date, without the approval of the any holders of certificates
representing Common Shares or, after the Distribution Date, of Right
Certificates. From and after the Shares Acquisition Date, the Company
may, by resolution of its Board of Directors, and the Rights Agent
shall, if the Company so directs, supplement or amend this Agreement
without the approval of any holders of certificates representing shares
of Common Shares or of Right Certificates in order (i) to cure any
-
ambiguity, (ii) to correct or supplement any provision contained herein
--
which may be defective or inconsistent with any other provisions herein,
or (iii) to change or supplement or make any other provisions in regard
---
to matters or questions arising hereunder which the Company and the
Rights Agent may deem necessary or desirable, which shall not adversely
affect the interests of holders of Right Certificates or, prior to the
Distribution Date, of Common Shares (other than an Acquiring Person or
an Affiliate or Associate of any such Person).
6. This Amendment to the Rights Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut and for all
purposes shall be governed by and construed in accordance with the laws of
such State applicable to contracts to be made and performed entirely within
such State.
7. This Amendment to the Rights Agreement may be executed in any number
of counterparts, each of which shall be an original, but such counterparts shall
together constitute one and the same instrument. Terms not defined herein shall,
unless the context otherwise requires, have the meanings assigned to such terms
in the Rights Agreement.
4
8. In all respects not inconsistent with the terms and provisions of
this Amendment to the Rights Agreement, the Rights Agreement is hereby ratified,
adopted, approved and confirmed. In executing and delivering this Amendment, the
Rights Agent shall be entitled to all the privileges and immunities afforded to
the Rights Agent under the terms and conditions of the Rights Agreement.
9. If any term, provision, covenant or restriction of this Amendment to
the Rights Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Amendment to the Rights
Agreement, and of the Rights Agreement, shall remain in full force and effect
and shall in no way be affected, impaired or invalidated.
5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and attested, all as of the date and year first above written.
Attest: MBIA, INC.
By /s/ By /s/
-------------------------------- --------------------------------
Attest: MELLON BANK, N.A.
By /s/ By /s/
-------------------------------- --------------------------------
6
EX-10
8
EXHIBIT 10.53
Consent
-------
MBIA Inc. hereby consents to the assignment, effective February 28, 1994
at the close of business, by Aetna Financial Services, Inc. ("AFSI") to Aetna
Capital Management, Inc. of all of AFSI's rights, duties and obligations under
the investment management agreement between MBIA Inc. and AFSI, dated
October 18, 1992.
MBIA Inc.
By: /S/ Arthur M. Warren
---------------------------
Name: Arthur M. Warren
-------------------------
Its: Senior Vice President, CFO
--------------------------
EX-10
9
EXHIBIT 10.63
=============================================================
FIRST AMENDMENT
TO
FIRST RESTATED CREDIT AGREEMENT
AMONG
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION
(MBIA),
THE BANKS SIGNATORY HERETO
AND
CREDIT SUISSE
New York Branch
as Agent
Dated as of September 23, 1994
=============================================================
FIRST AMENDMENT
THIS AMENDMENT, dated as of September 23, 1994, between MUNICIPAL BOND
INVESTORS ASSURANCE CORPORATION, a New York stock insurance corporation
("MBIA"), and CREDIT SUISSE, a banking corporation organized under the laws of
----
Switzerland, acting through its New York Branch ("Credit Suisse"), as Agent for
-------------
the Banks referred to herein (in such capacity, the "Agent") and individually as
-----
a Bank;
WHEREAS, MBIA, the Agent and the Banks identified therein are parties to
the First Restated Credit Agreement, dated as of October 1, 1993 (the "Restated
--------
Credit Agreement"); and
----------------
WHEREAS, MBIA and the Banks desire, upon the terms and subject to the
conditions hereinafter set forth, to amend the Restated Credit Agreement in
certain respects;
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound hereby,
agree as follows:
ARTICLE 1
MODIFICATIONS TO RESTATED CREDIT AGREEMENT
------------------------------------------
Section 1.1. Defined Terms. Except as otherwise specified herein, terms
----------- -------------
used in this Amendment and defined in Exhibit A of the Restated Credit Agreement
shall have the meanings provided in such Exhibit A.
Section 1.2. Amendment. If the First Amendment Effective Date (as defined
----------- ---------
below) occurs on or prior to September 30, 1994, then effective on October 1,
1994, Section 3.3 of the Restated Credit Agreement is hereby amended and
restated in its entirety to read as follows:
"Section 3.3 Extension of Commitments. The Expiration Date may be
----------- ------------------------
extended from time to time with the consent of the Agent and all Banks
(other than Nonextending Banks whose Commitments have been terminated),
each in their sole discretion, as provided in this Section 3.3. Not later
than July 1, 1995, and not later than each July 1 thereafter in respect of
succeeding one-year extension periods provided for below, or such later
date to which the Agent and the Majority Banks may consent in writing, MBIA
may notify the Agent if MBIA desires to have the Expiration Date extended
for a period of one year from the date on which it is then scheduled to
occur. The Agent shall promptly give the Banks notice of its receipt of any
such request and shall request
-2-
each Bank to consent to such extension, unless the Agent has determined to
withhold its consent to such extension. Such notice and request from the
Agent to the Banks may be given by the Agent subject to a reservation by
the Agent of its right to withhold consent to such extension at a later
date. Each Bank which elects to give its consent to such extension shall
deliver such consent to the Agent and MBIA prior to the later to occur of
(a) 90 days following the date of MBIA's request and (b) the July 1 of the
year which is six years prior to then scheduled Expiration Date (or in each
case such later date to which the Agent and MBIA have consented). Any Bank
which has not given its consent within such period shall be deemed to be a
"Nonextendinq Bank", and MBIA shall have the right at any time thereafter
-----------------
to elect to terminate the Commitment of such Nonextending Bank by not less
than five Business Days' prior notice to such Nonextending Bank and the
Agent unless, prior to the effectiveness of such termination, (i) any Loan
has been made or (ii) any Default or Event of Default has occurred and is
continuing. Any such termination shall be effective on the date specified
in such notice."
MBIA hereby confirms that (i) the term "Loan Documents" contained in Exhibit A
--------------
of the Restated Credit Agreement includes the Restated Credit Agreement, as
amended hereby, the Additional Note and the Bank Fee Letter as amended by the
amendment contemplated by Section 2.1(e) of this Amendment; (ii) the term "Note"
----
contained in such Exhibit A includes Additional Note; and (iii) the term "Bank
----
Fee Letter" contained in such Exhibit A includes the Bank Fee Letter, as amended
----------
by the amendment contemplated by Section 2.1(e) of this Amendment.
Section 1.3. Expiration Date. The parties hereby agree that, if the First
----------- ---------------
Amendment Effective Date occurs on or prior to September 30, 1994, then
effective on October 1, 1994, the Expiration Date, as heretofore extended, is
hereby further extended to September 30, 2001 pursuant to the provisions of
Section 3.3 of the Restated Credit Agreement, and acknowledge accordingly that,
if the First Amendment Effective Date occurs on or prior to September 30, 1994,
then effective on October 1, 1994, the current Commitment Period is the period
commencing on October 1, 1994 and ending on September 30, 2001.
Section 1.4. Increase of Commitment. If the First Amendment Effective Date
----------- ----------------------
occurs on or prior to September 30, 1994, then effective on October 1, 1994,
MBIA, Credit Suisse and the Agent hereby agree that, in accordance with the
provisions of Section 10.8(d) of the Restated Credit Agreement, the Commitment
of Credit Suisse shall be increased from $350,000,000 to $375,000,000. MBIA and
the Agent acknowledge that, giving effect to such increase, the Maximum
Commitment shall be $600,000,000.
-3-
Section 1.5. Consent of Banks. The Agent hereby confirms to MBIA that
----------- ----------------
it has received the consent of all Banks (to the extent required under the
Restated Credit Agreement) to the modifications to the Restated Credit Agreement
set forth in this Amendment.
ARTICLE 2
CONDITIONS PRECEDENT
--------------------
Section 2.1. Conditions Precedent to First Amendment Effective Date.
----------- ------------------------------------------------------
The "First Amendment Effective Date" shall be the date when each of the
following conditions has been fulfilled to the reasonable satisfaction of the
Agent; provided that the First Amendment Effective date may not occur later than
September 30, 1994 without the prior written consent of the Agent:
(a) on the First Amendment Effective Date (and after giving effect to
the effectiveness hereof), (i) there shall exist no Default or Event of Default,
and (ii) all representations and warranties made by MBIA herein or in any of
the Loan Documents shall be true and correct with the same effect as though such
representations and warranties had been made at and as of such time
(b) Credit Suisse shall have received an additional Note meeting the
requirements of Section 2.3 of the Restated Credit Agreement in the principal
amount of $25,000,000 (the "Additional Note").
---------------
(c) The Agent shall have received each of the following, in form and
substance satisfactory to the Agent:
(i) a certificate of any two of the President, any
Vice President or the Treasurer of MBIA to the effect that the conditions
set forth in Section 2.1(a) hereof have been satisfied as of the First
Amendment Effective Date and that no governmental filings, consents and
approvals are necessary to be secured by MBIA in order to permit the
borrowing under the Restated Credit Agreement, as modified hereby, the
grant of the Lien under the Security Agreement and the execution, delivery
and performance in accordance with their respective terms of this Amendment
and the other Loan Documents and the consummation of the transactions
contemplated hereby and thereby, each of which shall be in full force and
effect;
(ii) copies of the duly adopted resolutions of the Board of
Directors of MBIA, or an authorized committee thereof, authorizing the
execution, delivery and performance in accordance with their respective
terms of this Amendment and the Additional Note (collectively, the "First
-----
Amendment Documents"), accompanied by a certificate of the Secretary or an
-------------------
Assistant Secretary of MBIA stating as to (A) the effect that such
resolutions are in full force and effect on
-4-
the First Amendment Effective Date, (B) the incumbency and signatures of
the officers signing the First Amendment Documents on behalf of MBIA, and
(C) the effect that, from October 1, 1993 through and including the First
Amendment Effective Date, there has been no amendment, modification or
revocation of the articles of incorporation or by-law of MBIA;
(iii) opinions of the General Counsel of MBIA and Kutak Rock,
MBIA's counsel, each dated the First Amendment Effective Date, which are
substantially to the effect set forth in the forms attached hereto as,
respectively, Exhibits A and B; and
(iv) such other documents, instruments, approvals (and, if
reasonably requested by the Agent or the Majority Banks, duplicates or
executed copies thereof certified by an appropriate governmental official
or an authorized officer of MBIA) or opinions as the Agent or the Majority
Banks may reasonably request.
(d) on the First Amendment Effective Date, the Bank shall have
received reasonably satisfactory evidence that long-term obligations insured by
MBIA are publicly assigned a rating of Aaa by Moody's and AAA by S&P by reason
of such insurance.
(e) Effective as of October 1, 1994, the Bank Fee Letter shall have
been modified in a manner satisfactory to MBIA and the Agent and consented to by
all of the Banks.
(f) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Amendment and the Loan
Documents shall be satisfactory in form and substance to the Agent and its
counsel.
A certificate of the Agent delivered to MBIA stating that the First Amendment
Effective Date has occurred shall be conclusive evidence thereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Agent to enter into this Amendment and the
Banks to consent hereto and proceed with the transaction contemplated hereby,
MBIA makes the following representations and warranties to the Agent and the
Banks, which shall survive the execution and delivery of this Amendment and the
making of any Loans:
Section 3.1. Due Authorization, Etc. The execution, delivery and
----------- ----------------------
performance by MBIA of the First Amendment Documents and the Loan Documents as
amended thereby are within its corporate powers, have been duly authorized by
all necessary corporate action
-5-
and do not and will not (i) violate any provision of any law, rule, regulation
(including, without limitation, the New York Insurance Law, the Investment
Company Act of 1940, as amended, or Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System), order, writ, judgment, injunction,
decree, determination or award presently in effect having applicability to MBIA
or of the corporate charter or by-laws of MBIA, (ii) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which MBIA is a party or by which it or
its properties may be bound or affected, or (iii) result in, or require, the
creation or imposition of any Lien upon or with respect to any of the properties
now owned or hereafter acquired by MBIA (other than as contemplated by the Loan
Documents), other than, in the case of clauses (ii) and (iii), breaches,
defaults or Liens which could not materially and adversely affect the business,
assets, operations or financial condition of MBIA or the ability of MBIA to
perform its obligations under any Loan Document.
Section 3.2. Approvals. No consent, approval or other action by, or
----------- ---------
any notice to or filing with any court or administrative or governmental body is
or will be necessary for the valid execution, delivery or performance by MBIA of
the First Amendment Documents or the Loan Documents as amended thereby.
Section 3.3. Enforceability. Each First Amendment Document and each
----------- --------------
Loan Document as amended thereby, constitutes a legal, valid and binding
obligation of MBIA, enforceable against MBIA in accordance with their respective
terms, except as such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and the availability of equitable remedies, whether such matter is
heard in a court of law or a court of equity.
Section 3.4. Financial Statements, etc. (a) MBIA has heretofore
----------- -------------------------
furnished to the Agent (i) the audited consolidated and unaudited consolidating
balance sheets of MBIA Inc. and its subsidiaries at December 31, 1993, the
related audited consolidated statements of income, changes in stockholders'
equity and financial position or cash flows, as the case may be, and unaudited
consolidating statements of income for the year ended December 31, 1993, and
(ii) the unaudited consolidated and consolidating balance sheets of MBIA Inc.
and its subsidiaries as of March 31 and June 30, 1994, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the three months ended March 31, 1994, the six months ended June
30, 1994. Such financial statements were prepared in accordance with
generally accepted accounting principles consistently applied and present
fairly the consolidated financial position and consolidated results of
operations and cash flows of MBIA Inc. and its subsidiaries and the financial
position and results of operations and cash flows of MBIA at the dates and for
the periods indicated therein. There has been no material adverse change in the
consolidated financial position or consolidated results of operations or cash
flows of
-6-
MBIA Inc. and its subsidiaries taken as a whole or of MBIA since June 30, 1994.
(b) MBIA has heretofore furnished to the Agent its annual
statements and its financial statements as filed with the Department for the
year ended December 31, 1993 and its quarterly statements and financial
statements as filed with the Department for the periods ended March 31, 1994 and
June 30, 1994. Such annual and quarterly statements and financial statements
were prepared in accordance with the statutory accounting principles set forth
in the New York Insurance Law, all of the assets described therein were the
absolute property of MBIA at the dates set forth therein, free and clear of any
liens or claims thereon, except as therein stated, and each such Annual
Statement is a full and true statement of all the assets and liabilities and of
the condition and affairs of MBIA as of such dates and of its income and
deductions there from for the year or quarter ended on such dates.
(c) MBIA has heretofore furnished to the Agent a copy of the annual
report on Form 10-K of MBIA Inc. for the fiscal year ended December 31, 1993 as
filed with the Securities and Exchange Commission and the quarterly reports on
Form 10-Q of MBIA Inc. for each of the quarters ended March 31, 1994 and June
30, 1994 as filed with the Securities and Exchange Commission. Such annual and
quarterly reports were prepared in accordance with the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.
Section 3.5. Covered Portfolio. Substantially all of the Insured
----------- -----------------
Obligations in the Covered Portfolio are insured by MBIA under Insurance
Contracts in the form or forms heretofore supplied to the Agent in accordance
with MBIA's underwriting criteria as heretofore disclosed to the Agent, and in
MBIA's reasonable judgment such Insured Obligations represent an overall risk of
loss (based on all factors including without limitation investment quality and
geographical and market diversification which is not materially greater than the
risk of loss represented by all of MBIA's Insured Obligations as of the date
hereof.
Section 3.6. Confirmation of Representations and Warranties. MBIA
----------- ----------------------------------------------
hereby confirms that its representations and warranties set forth in the
Restated Credit Agreement (including without limitation those set forth in
Article 5 of the Restated Credit Agreement) are true and correct as of the date
hereof.
Section 3.7. Disclosure. There is no fact known to MBIA which
----------- ----------
materially adversely affects the business, assets, operations or financial
condition of MBIA or the ability of MBIA to perform its obligations under any
First Amendment Document or any Loan Document as amended thereby which has not
been set forth in this Amendment, in the financial statements or reports
required to be delivered pursuant to Section 3.4 hereof.
-7-
ARTICLE 4
MISCELLANEOUS
-------------
Section 4.1. Restated Credit Agreement. Except as expressly modified
----------- -------------------------
as contemplated hereby, the Restated Credit Agreement and the other Loan
Documents are hereby confirmed to be in full force and effect in accordance with
their respective terms.
Section 4.2. Survival. All covenants, agreements, representations and
----------- --------
warranties made herein or in any Loan Document or in any certificate, document
or instrument delivered pursuant hereto or thereto shall survive the First
Amendment Effective Date, the making of any Loan and the occurrence of the
Expiration Date and shall continue in full force and effect so long as principal
of or interest on any Loan or the Note remains outstanding or unpaid, any other
amount payable by MBIA under the Restated Credit Agreement as amended hereby,
any Note or any other Loan Document remains unpaid or any other obligation of
MBIA to perform any other act hereunder or under the Restated Credit Agreement
as amended hereby, any Note or any other Loan Document remains unsatisfied or
the Banks have any obligation to make a Loan or any other advance of moneys to
MBIA under the Restated Credit Agreement as amended hereby.
Section 4.3. Severability. Any provision of this Amendment which is
----------- ------------
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or nonauthorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 4.4. Successors and Assigns. This Amendment is a continuing
----------- ----------------------
obligation and binds, and the benefits hereof shall inure to, the parties hereto
and their respective successors and assigns; provided that MBIA may not
transfer or assign any or all of its rights or obligations hereunder except as
permitted by Section 10.8 of the Restated Credit Agreement.
Section 4.5. Amendments. No provision of this Amendment shall be
----------- ----------
waived, amended or supplemented except as provided in Section 10.12 of the
Restated Credit Agreement.
Section 4.6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
----------- -------------
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
Section 4.7. Headings. Section headings in this Amendment are included
herein for convenience or reference only and shall not constitute a part of this
Amendment for any other purpose.
Section 4.8 Counterparts. This Amendment may be executed in several
counterparts, each of which shall be regarded
-8-
as the original and all of which shall constitute one and the same Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
MUNICIPAL BOND INVESTORS
ASSURANCE CORPORATION
By /s/ Christopher W. Tilley
----------------------------
Title:
CREDIT SUISSE, New York Branch,
as Agent
By /s/ Patricia Countryman
---------------------------------
Title: Member Of Senior Management
By /s/ Lauri A. Sivaslian
---------------------------------
Title: Member of Senior Management
CREDIT SUISSE, New York Branch,
as Agent
By /s/ Patricia Countryman
---------------------------------
Title: Member Of Senior Management
By /s/ Lauri A. Sivaslian
---------------------------------
Title: Member of Senior Management
EXHIBIT A
TO FIRST AMENDMENT
Form of Opinion of General Counsel of MBIA
(attached hereto)
[Form of Opinion of General Counsel of MBIA]
September , 1994
---
The Parties Listed on
Schedule I hereto
Re: First Amendment to First Restated Credit Agreement Dated as of October
1, 1993, among Municipal Bond Investors Assurance Corporation,
Credit Suisse, New York Branch, as Agent and as a Bank and the other
Banks signatory thereto
Ladies and Gentlemen:
I am General Counsel of Municipal Bond Investors Assurance Corporation, a New
York stock insurance corporation ("MBIA"). This opinion is being given in
connection with the First Amendment, dated as of September 23, 1994 (the "First
Amendment"), to the First Restated Credit Agreement dated as of October 1, 1993
(the "First Restated Credit Agreement") among MBIA, Credit Suisse, New York
Branch, as a Bank and as Agent, and the other Banks signatory thereto. The First
Restated Credit Agreement, as amended by the First Amendment, is referred to
herein as the "Credit Agreeement." All capitalized terms used herein and not
otherwise defined shall have the respective meanings assigned thereto in the
Credit Agreement.
As General Counsel to MBIA, I am familiar with its Restated Charter and its By-
Laws, as amended to date, and I have responsibility for supervision of MBIA's
insurance regulatory compliance. I have examined such certificates of public
officials, such certificates of officers of MBIA and copies certified to my
satisfaction of such corporate documents and records of MBIA and of such other
papers as I have deemed relevant and necessary for the opinions set forth below.
In all such examinations, I have assumed the genuineness of all signatures, the
authority to sign and the authenticity of all documents submitted to me as
originals. I have also assumed the conformity with the originals of all
documents submitted to me as copies. I have relied upon certificates of public
officials and of officers of MBIA with respect to the accuracy of factual
matters contained therein which were not independently established.
The Parties Listed on Schedule I hereto
September , 1994
---
Page 2
Based upon the foregoing, it is my opinion that:
1. MBIA is a stock insurance corporation duly incorporated and validly
existing in good standing under the laws of the State of New York and has the
corporate power and all requisite licenses and franchises required to carry on
its insurance and other business, as now being conducted in the State of New
York and in each other jurisdiction where the nature of the business transacted
by it makes such qualification necessary, except any jurisdiction other than the
State of New York where failure to so qualify would not have a material adverse
effect on the business, assets, operations or financial condition of MBIA or the
ability of MBIA to perform its obligations under the First Amendment, the Credit
Agreement, and the Additional Note (as defined in the First Amendment) (the
"Transaction Documents").
2. The execution, delivery and performance of the Transaction Documents
are within the corporate powers of MBIA, have been duly authorized by all
necessary corporate action and do not (i) violate any provision of the Restated
Charter of By-Laws of MBIA, (ii) violate any provision of law, rule, regulation
(including without limitation, the New York Insurance Law, the Investment
Company Act of 1940, as amended, or Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System), order, writ, judgment, injunction,
decree, determination or award presently in effect having applicability to MBIA
the violation of which would affect the validity or enforceability of any of the
Transaction Documents or the ability of MBIA to perform its obligations under
the Transaction Documents, (iii) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which MBIA is a party or by which it or its properties may be
bound or affected or (iv) result in, or require, the creation or imposition of
any Lien upon or with respect to any of the properties now owned or hereafter
acquired by MBIA (other than as contemplated by the Loan Documents), other than,
in the case of clauses (iii) and (iv), breaches, defaults, the Permitted Liens
or Liens which could not materially and adversely affect the business, assets,
operations or financial condition of MBIA or the ability of MBIA to perform its
obligations under the Transaction Documents.
3. To the best of my knowledge, no consent, approval or other action by,
or any notice to or filing with, any court or administrative or governmental
body is required in connection with the execution, delivery or performance by
MBIA of the Transaction Documents.
4. To the best of my knowledge, there is no action , suit, proceeding or
investigation before or by any court, arbitrator or administrative or
governmental body pending or threatened against MBIA, wherein an adverse
decision, ruling or finding would materially and adversely affect (i) the
business, assets,
The Parties Listed on Schedule I hereto
September , 1994
---
Page 3
operations or financial condition of MBIA, (ii) the transactions contemplated by
the Credit Agreement or (iii) the validity or enforceability of the Transaction
Documents.
5. To the best of my knowledge, MBIA is not in violation of any provision
of any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to MBIA or of
the Restated Charter or By-Laws of MBIA, or in default under any material
indenture, agreement, lease or instrument to which it is a party or by which it
or any of its properties may be subject or bound, where such violation or
default may result in a material adverse effect on the business, assets,
operations or financial condition of MBIA or on its ability to perform its
obligations under the Transaction Documents.
6. To the best of my knowledge, MBIA is in complianice with the New York
Insurance Law and the regulations of the Department thereunder and with all
other applicable federal state and other laws, rules and regulations relating
to its insurance and other business, except with respect to failures, if any,
to comply which singly or in the aggregate do not have a material adverse effect
on the business, assets, operations or financial condition of MBIA or the
ability of MBIA to perform its obligations under any of the Transaction
Documents.
7. All of the issued and outstanding capital stock of MBIA is owned
beneficially and of record by MBIA Inc., subject to no Liens. There are no
options or similar rights of any Person to acquire any such capital stock or any
other capital stock of MBIA.
This opinion is being furnished to you and your participants in connection with
the execution of the First Amendment, and it is not to be used, circulated,
quoted or otherwise referred to for any purpose without my express written
consent.
Very truly yours,
Louis G Lenzi
General Counsel
SCHEDULE I
Credit Suisse, New York Branch
as a Bank and as Agent
12 East 49 Street New York, NY 10017
Caisse des Depots and Consignations
c/o CDC Capital, Inc.
9 West 57 Street -- 36th Floor
New York, NY 10019
Deutsche Bank AG
New York Branch
31 West 52nd Street
New York, NY 10019
Bayerische Landesbank Girozentrale
560 Lexington Avenue
New York, NY 10022
Landesbank Hessen-Thuringen Girozentrale
499 Park Avenue, l9th Floor
New York, NY 10022
Sudwestdeutsche Landesbank
3191 International Loans
Lautenschlagerstr. 2
D70173 Stuttgart, Germany
EXHIBIT B
TO FIRST AMENDMENT
Form of Opinion of Kutak, Rock
[attached hereto]
[Form of Opinion of Kutak Rock]
September , 1994
---
To the Parties Listed
on Schedule I hereto
Re: First Amendment to First Restated Credit Agreement Dated as of October
1, 1993 Among Municipal Bond Investors Assurance Corporation, Credit
Suisse, New York Branch, as Agent and as a Bank, and the Other Banks
Signatory Thereto
Ladies and Gentlemen:
This opinion is furnished to you in connection with tile First Amendment,
dated as of September 23, 1994 (the "First Amendment") to the First Restated
Credit Agreement dated as of October 1, 1993 (the "First Restated Credit
Agreement"), among Municipal Bond Investors Assurance Corporation ("MBIA"),
Credit Suisse, acting through its New York Branch, as a Bank and as Agent, and
the other Banks signatory thereto. The First Restated Credit Agreement, as
amended by the First Amendment, is referred to herein as the "Credit Agreement."
All capitalized terms used herein and not otherwise defined have the meanings
assigned thereto in the Credit Agreement. As used herein, "Transaction
Documents" means the First Amendment, the Credit Agreement and the Additional
Note (as defined in the First Amendment).
We have acted as special counsel to MBIA in connection with the execution
and delivery of the Transaction Documents. In this connection, we have examined
the Transaction Documents and such certificates of public officials, such
certificates of officers of MBIA, and copies certified to our satisfaction of
such corporate documents and records of MBIA, and such other documents as we
have deemed necessary or appropriate for the opinions set forth below. We have
relied upon such certificates of public officials, and of officers of MBIA with
respect to the accuracy of factual matters contained therein which were not
independently established.
We have also assumed (i) the due execution and delivery, pursuant to due
authorization, of (A) each document referred to in the immediately preceding
paragraph by all parties other than MBIA to such document, and (B) the
consent to the First Amendment of each Bank, (ii) the authenticity of all such
documents submitted to us as originals, (iii) the genuineness of all
signatures and (iv)
The Parties Listed on Schedule I hereto
September , 1994
---
Page 2
the conformity to the originals of all such documents submitted to us as copies.
Based upon the foregoing and upon such investigation as we have deemed
necessary, we are of the opinion that:
1. MBIA is a stock insurance corporation, duly incorporated and validly
existing under the laws of the State of New York, and is licensed and authorized
to carry on its business under the laws of the State of New York.
2. Each Transaction Document has been duly executed and is a valid and
binding obligation of MBIA enforceable in accordance with its terms, except that
such enforceability may be limited by laws relating to bankruptcy, insolvency,
reorganization, moratorium, receivership and other similar laws affecting
creditors' rights generally and by general principles of equity and the
enforceability as to rights to indemnity thereunder as may be subject to
limitations of public policy.
3. The execution, delivery and performance of the Transaction Documents
do not (a) violate any provision of the Restated Charter or Bylaws of MBIA or
(b) violate any provision of law (including without limitation the New York
Insurance Law or the Investment Company Act of 1940, as amended) or, to the best
of our knowledge, any rule or regulation (including without limitation
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System)
presently in effect having applicability to MBIA the violation of which would
(i) affect the validity or enforceability of any Transaction Document or the
ability of MBIA to perform its obligations thereunder, (ii) adversely affect the
Banks or their rights under any Transaction Document or (iii) materially
adversely affect the business, assets, operations or financial condition of
MBIA.
4. To the best of our knowledge, no consent, approval or other action by
or any notice to or filing with any court or administrative or governmental
body is required in connection with the execution, delivery or performance by
MBIA of the Transaction Documents. No consent, approval or other action by or
any notice to or filing with the Department is required in connection with the
execution, delivery or performance by MBIA of the Transaction Documents.
5. Except with respect to MBIA's obligations to pay the principal of and
interest on the Loans, the obligations of MBIA under the Transaction Documents
will rank, under the New York Insurance Law, at least pari passu in priority of
payment with all other unsecured obligations of MBIA, including without
limitation MBIA's obligation to pay claims under Insurance Contracts under the
New York Insurance Law, subject, however, to statutory priorities
The Parties Listed on Schedule I hereto
September , 1994
---
Page 3
granted to certain claims under Sections 7426 and 7435 of the New York Insurance
Law.
In rendering the opinions expressed herein, we express no opinion as to the
laws of any jurisdiction other than the State of New York and the federal laws
of the United States of America.
This opinion is being furnished to you and your participants solely in
connection with the execution of the First Amendment, and it is not to be used,
circulated, quoted or otherwise refit to for any purpose without our express
written consent.
Very truly yours,
SCHEDULE I
Credit Suisse, New York Branch
as a Bank and as Agent
12 East 49 Street
New York, NY 10017
Caisse des Depots and Consignations
c/o CDC Capital, Inc.
36th Floor, 9 West 57 Street
New York, NY 10019
Deutsche Bank AG
New York Branch
31 West 52 Street
New York, NY 10019
Bayerische Landesbank Girozentrale
560 Lexington Avenue
New York, NY 10022
Landesbank Hessen-Thuringen Girozentrale
l9th Floor, 499 Park Avenue
New York, NY 10022
Sudwestdeutsche Landesbank
3191 International Loans
Lautenschlagerstr. 2
D70173 Stuttgart, Germany
EX-10
10
EXHIBIT 10.66
$225,000,000
CREDIT AGREEMENT
dated as of
August 31, 1994
among
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION,
MBIA INC.,
The Banks Listed Herein
and
WACHOVIA BANK OF GEORGIA, N. A.,
as Agent
TABLE OF CONTENTS
CREDIT AGREEMENT
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions . . . . . . . . . . . . . 1
-----------
SECTION 1.02. Accounting Terms and Determinations . 9
-----------------------------------
SECTION 1.03. Use of Defined Terms. . . . . . . . . 10
--------------------
SECTION 1.04. Terminology . . . . . . . . . . . . . 10
-----------
SECTION 1.05. References. . . . . . . . . . . . . . 10
----------
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Make Syndicated Loans. 10
------------------------------------
SECTION 2.02. Method of Borrowing Syndicated Loans. 10
------------------------------------
SECTION 2.03. Money Market Loans. . . . . . . . . . 12
------------------
SECTION 2.04. Notes . . . . . . . . . . . . . . . . 16
-----
SECTION 2.05. Maturity of Loans . . . . . . . . . . 16
-----------------
SECTION 2.06. Interest Rates. . . . . . . . . . . . 17
--------------
SECTION 2.07. Fees. . . . . . . . . . . . . . . . . 19
----
SECTION 2.08. Optional Termination or Reduction
---------------------------------
of Commitments. . . . . . . . . . . . 19
--------------
SECTION 2.09. Termination of Commitments. . . . . . 20
--------------------------
SECTION 2.10. Optional Prepayments. . . . . . . . . 20
--------------------
SECTION 2.11. Mandatory Prepayments . . . . . . . . 20
---------------------
SECTION 2.12. General Provisions as to Payments . . 20
---------------------------------
SECTION 2.13. Computation of Interest and Fees. . . 23
--------------------------------
ARTICLE III
CONDITIONS TO BORROWINGS
SECTION 3.01. Conditions to Closing . . . . . . . . 23
---------------------
SECTION 3.02. Conditions to All Borrowings. . . . . 24
----------------------------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Corporate Existence and Power . . . . 25
-----------------------------
SECTION 4.02. Corporate and Governmental
--------------------------
Authorization; No Contravention . . . 25
-------------------------------
SECTION 4.03. Binding Effect. . . . . . . . . . . . 26
--------------
SECTION 4.04. Financial Information . . . . . . . . 26
---------------------
SECTION 4.05. Litigation. . . . . . . . . . . . . . 26
----------
SECTION 4.06. Compliance with ERISA . . . . . . . . 26
---------------------
SECTION 4.07. Taxes . . . . . . . . . . . . . . . . 26
-----
SECTION 4.08. Subsidiaries. . . . . . . . . . . . . 27
------------
SECTION 4.09. Not an Investment Company . . . . . . 27
-------------------------
SECTION 4.10 Public Utility Holding Company Act. . 27
----------------------------------
SECTION 4.11. Ownership of Property; Liens. . . . . 27
----------------------------
SECTION 4.12. No Default. . . . . . . . . . . . . . 27
----------
SECTION 4.13. Full Disclosure . . . . . . . . . . . 27
---------------
SECTION 4.14. Compliance with Laws. . . . . . . . . 28
--------------------
SECTION 4.15. Capital Stock . . . . . . . . . . . . 28
-------------
SECTION 4.16. Margin Stock. . . . . . . . . . . . . 28
------------
SECTION 4.17. Insolvency. . . . . . . . . . . . . . 28
----------
ARTICLE V
COVENANTS
SECTION 5.01. Information . . . . . . . . . . . . . 28
-----------
SECTION 5.02. Inspection of Property, Books
----------------------------
and Records . . . . . . . . . . . . . 30
-----------
SECTION 5.03. Negative Pledge . . . . . . . . . . . 31
---------------
SECTION 5.04. Maintenance of Existence. . . . . . . 31
------------------------
SECTION 5.05. Dissolution . . . . . . . . . . . . . 31
-----------
SECTION 5.06. Consolidations, Mergers and Sales
--------------------------------
of Assets. . . . . . . . . . . .. . . 31
---------
SECTION 5.07. Use of Proceeds . . . . . . . . . . . 32
---------------
SECTION 5.08. Compliance with Laws; Payment
-----------------------------
of Taxes. . . . . . . . . . . . . . . 32
--------
SECTION 5.09. Insurance . . . . . . . . . . . . . . 32
---------
SECTION 5.10. Change in Fiscal Year . . . . . . . . 32
---------------------
SECTION 5.11. Maintenance of Property . . . . . . . 32
-----------------------
SECTION 5.12. Transactions with Affiliates. . . . . 32
----------------------------
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default . . . . . . . . . . 33
-----------------
SECTION 6.02. Notice of Default . . . . . . . . . . 36
-----------------
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment, Powers and Immunities. . 36
----------------------------------
SECTION 7.02. Reliance by Agent . . . . . . . . . . 36
-----------------
SECTION 7.03. Defaults . . . . . . . . . . . . . . 37
--------
SECTION 7.04. Rights of Agent as a Bank . . . . . . 37
-------------------------
SECTION 7.05. Indemnification . . . . . . . . . . . 37
---------------
SECTION 7.06. CONSEQUENTIAL DAMAGES . . . . . . . . 38
---------------------
SECTION 7.07. Payee of Note Treated as Owner
------------------------------
SECTION 7.08. Non-Reliance on Agent and
-------------------------
Other Banks . . . . . . . . . . . . . 38
-----------
SECTION 7.09. Failure to Act. . . . . . . . . . . . 38
--------------
SECTION 7.10. Resignation or Removal of Agent . . . 39
-------------------------------
ARTICLE VIII
CHANGE IN CIRCUMSTANCES; COMPENSATION
SECTION 8.01. Basis for Determining Interest Rate
-----------------------------------
Inadequate or Unfair. . . . . . . . . 39
--------------------
SECTION 8.02. Illegality. . . . . . . . . . . . . . 40
----------
SECTION 8.03. Increased Cost and Reduced Return . . 40
---------------------------------
SECTION 8.04. Base Rate Loans Substituted for
-------------------------------
Affected Euro-Dollar Loans. . . . . . 42
--------------------------
SECTION 8.05. Compensation. . . . . . . . . . . . . 42
------------
SECTION 8.07. Replacement of Bank . . . . . . . . . 43
-------------------
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices . . . . . . . . . . . . . . . 44
-------
SECTION 9.02. No Waivers. . . . . . . . . . . . . . 44
----------
SECTION 9.03. Expenses; Documentary Taxes;
----------------------------
Indemnification. . . . . . . . . . . 44
---------------
SECTION 9.04. Setoffs; Sharing of Counterclaims . . 45
---------------------------------
SECTION 9.05. Amendments and Waivers. . . . . . . . 45
----------------------
SECTION 9.06. Margin Stock Collateral . . . . . . . 46
-----------------------
SECTION 9.07. Successors and Assigns. . . . . . . . 46
----------------------
SECTION 9.08. Confidentiality . . . . . . . . . . . 48
---------------
SECTION 9.09. Representation by Banks . . . . . . . 49
-----------------------
SECTION 9.10. Obligations Several . . . . . . . . . 49
-------------------
SECTION 9.11. Survival of Certain Obligations . . . 49
-------------------------------
SECTION 9.12. Georgia Law . . . . . . . . . . . . . 49
-----------
SECTION 9.13. Severability. . . . . . . . . . . . . 49
------------
SECTION 9.14. Interest. . . . . . . . . . . . . . . 50
--------
SECTION 9.15. Interpretation. . . . . . . . . . . . 50
--------------
SECTION 9.16. Consent to Jurisdiction . . . . . . . 50
-----------------------
SECTION 9.17. Counterparts. . . . . . . . . . . . . 50
------------
SECTION 9.18. Joint and Several Liability . . . . . 50
---------------------------
EXHIBIT A Form of Syndicated Note
EXHIBIT B Form of Money Market Note
EXHIBIT C Form of Opinion of Counsel for the Borrower
EXHIBIT D Form of Opinion of Special Counsel for the Agent
EXHIBIT E Form of Money Market Quote Request
EXHIBIT F Form of Money Market Quote
EXHIBIT G Form of Closing Certificate
EXHIBIT H Form of Secretary's Certificate
EXHIBIT I Form of Assignment and Acceptance
EXHIBIT J Form of Notice of Borrowing
EXHIBIT K-1 Form of Foreign Bank's Foreign Counsel Enforceability Opinion
EXHIBIT K-2 Form of Foreign Bank's U.S Branch U.S. Counsel Enforceability
Opinion
EXHIBIT L Form of Domestic Bank Counsel Opinion
CREDIT AGREEMENT
AGREEMENT dated as of August 31, 1994 among MUNICIPAL BOND
INVESTORS ASSURANCE CORPORATION, MBIA INC., the BANKS listed on the
signature pages hereof and WACHOVIA BANK OF GEORGIA, N.A., as Agent and as a
Bank.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The terms as defined in this Section 1.01
-----------
shall, for all purposes of this Agreement and any amendment hereto (except as
herein otherwise expressly provided or unless the context otherwise requires),
have the meanings set forth herein:
"Adjusted London Interbank Offered Rate" has the meaning set forth in
Section 2.06(c).
"Affiliate" of any Person means (i) any other Person which directly,
or indirectly through one or more intermediaries, controls such Person, (ii)
any other Person which directly, or indirectly through one or more
intermediaries, is controlled by or is under common control with such Person,
or (iii) any other Person of which such Person owns, directly or indirectly,
20% or more of the common stock or equivalent equity interests. As used herein,
the term "control" means possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"Agent" means Wachovia Bank of Georgia, N.A., a national banking
association organized under the laws of the United States of America, in its
capacity as agent for the Banks hereunder, and its successors and permitted
assigns in such capacity.
"Agent's Letter Agreement" means that certain letter agreement, dated
as of July 13, 1994, between the Borrowers and the Agent relating to the
structure of the Loans, and certain fees from time to time payable by the
Borrowers to the Agent, together with all amendments and modifications thereto
(including, without limitation, that certain side letter dated July 13, 1994
between the Borrowers and the Agent).
"Agreement" means this Credit Agreement, together with all amendments
and supplements hereto.
1
"Applicable Margin" has the meaning set forth in Section 2.06(a).
"Assignee" has the meaning set forth in Section 9.07(c).
"Assignment and Acceptance" means an Assignment and Acceptance
executed in accordance with Section 9.07(c) in the form attached hereto as
Exhibit I.
"Authority" has the meaning set forth in Section 8.02.
"Bank" means each bank listed on the signature pages hereof as having
a Commitment, and its successors and assigns.
"Base Rate" means for any Base Rate Loan for any day, the rate per
annum equal to the higher as of such day of (i) the Prime Rate, and (ii) one-
half of one percent above the Federal Funds Rate for such day. For purposes of
determining the Base Rate for any day, changes in the Prime Rate and the
Federal Funds Rate shall be effective on the date of each such change.
"Base Rate Loan" means a Loan which bears or is to bear interest at a
rate based upon the Base Rate.
"Borrowers" and "Borrower" mean Municipal Bond Investors Assurance
Corporation, a New York stock insurance corporation, MBIA Inc., a Connecticut
corporation, and their respective successors and permitted assigns, either
collectively or individually, as the context shall require.
"Borrowing" means a borrowing hereunder consisting of Loans made to
any Borrower by, (i) in the case of a Syndicated Borrowing, the Banks, or (ii)
in the case of a Money Market Borrowing, one or more of the Banks, in each case
pursuant to Article II. A Borrowing is a "Syndicated Borrowing" if such Loans
are Syndicated Loans or a "Money Market Borrowing" if such Loans are Money
Market Loans. A Borrowing is a "Euro-Dollar Borrowing" if such Loans are Euro-
Dollar Loans. A Borrowing is a "Base Rate Borrowing" if such Loans are Base
Rate Loans.
"Capital Stock" means any nonredeemable capital stock of the
Borrowers or any Consolidated Subsidiary (to the extent issued to a Person
other than the Borrowers), whether common or preferred.
"Change of Law" shall have the meaning set forth in Section 8.02.
"Closing Certificate" has the meaning set forth in Section 3.01(e).
"Closing Date" means August 31, 1994.
2
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor Federal tax code. Any reference to any provision of the Code shall
also be deemed to be a reference to any successor provision or provisions
thereof.
"Commitment" means, with respect to each Bank, (i) the amount set
forth opposite the name of such Bank on the signature pages hereof, or (ii) as
to any Bank which enters into an Assignment and Acceptance (whether as
transferor Bank or as Assignee thereunder), the amount of such Bank's
Commitment after giving effect to such Assignment and Acceptance, in each case
as such amount may be reduced from time to time pursuant to Sections 2.08 and
2.09.
"Commitment Fee Payment Date" means each March 31, June 30, September
30 and December 31.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which, in accordance with GAAP, would be consolidated
with those of the Borrowers in their consolidated financial statements as of
such date.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with either of the Borrowers, are treated as a
single employer under Section 414 of the Code.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (iv) all obligations of such Person as lessee under capital
leases, (v) all obligations of such Person to reimburse any bank or other
Person in respect of amounts payable under a banker's acceptance, (vi) all
Redeemable Preferred Stock of such Person (in the event such Person is a
corporation), (vii) all obligations (absolute or contingent) of such Person to
reimburse any bank or other Person in respect of amounts paid under a letter of
credit or similar instrument, (viii) all Debt of others secured by a Lien on
any asset of such Person, whether or not such Debt is assumed by such Person,
and (ix) all Debt of others Guaranteed by such Person, provided that in the
case of Municipal Bond Investors Assurance Corporation the calculation of Debt
shall not include Debt of others guaranteed by Municipal Bond Investors
Assurance Corporation in the ordinary course of its business.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived in writing, become an Event of Default.
3
"Default Rate" means, with respect to any Loan, on any day, the sum of
2% plus the then highest interest rate (including the Applicable Margin) which
may be applicable to any Loans hereunder (irrespective of whether any such type
of Loans are actually outstanding hereunder).
"Dividends" means for any period the sum of all dividends paid or
declared during such period in respect of any Capital Stock and Redeemable
Preferred Stock (other than dividends paid or payable in the form of additional
Capital Stock).
"Dollars" or "$" means dollars in lawful currency of the United States
of America.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in Georgia or New York are authorized or
required by law to close.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor law. Any reference to any provision
of ERISA shall also be deemed to be a reference to any successor provision or
provisions thereof.
"Euro-Dollar Business Day" means any Domestic Business Day on which
dealings in Dollar deposits are carried out in the London interbank market.
"Euro-Dollar Loan" means a Loan which bears or is to bear interest at
a rate based upon the London Interbank Offered Rate.
"Euro-Dollar Reserve Percentage" has the meaning set forth in Section
2.06(c).
"Event of Default" has the meaning set forth in Section 6.01.
"Extension Date" means that date which is 365 days after the Closing
Date and each time the Termination Date is extended as provided herein, the
Extension Date shall be extended for a corresponding 365 day period; provided,
that if an Extension Date would otherwise be on a day which is not a Domestic
Business Day such Extension Date shall be extended to the next succeeding
Domestic Business Day.
"Facility Fee Payment Date" means each March 31, June 30, September
30 and December 31.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the next higher l/lOOth of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if the
4
day for which such rate is to be determined is not a Domestic Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Domestic Business Day as so published on the next succeeding
Domestic Business Day, and (ii) if such rate is not so published for any day,
the Federal Funds Rate for such day shall be the average rate charged to
Wachovia on such day on such transactions as determined by the Agent.
"Fiscal Quarter" means any fiscal quarter of the Borrowers.
"Fiscal Year" means any fiscal year of the Borrowers.
"GAAP" means generally accepted accounting principles applied on a
basis consistent with those which, in accordance with Section 1.02, are to be
used in making the calculations for purposes of determining compliance with the
terms of this Agreement.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to secure, purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation (whether arising by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, to provide collateral security, to take-
or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for the purpose of assuring in any other manner the obligee of
such Debt or other obligation of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part), provided that the term
--------
Guarantee shall not include: (i) endorsements for collection or deposit in the
ordinary course of business; and (ii) in the case of Municipal Bond Investors
Assurance Corporation, Debt of others guaranteed by Municipal Bond Investors
Assurance Corporation in the ordinary course of its business. The term
"Guarantee" used as a verb has a corresponding meaning.
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending on
the numerically corresponding day in the first, second, third or sixth month
thereafter, as a Borrower may elect in the applicable Notice of Borrowing;
provided that:
--------
(a) any Interest Period (subject to clause (c) below) which would
otherwise end on a day which is not a Euro-Dollar Business Day shall be
extended to the next succeeding Euro-Dollar Business Day unless such Euro-
Dollar Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in
5
the appropriate subsequent calendar month) shall, subject to clause (c)
below, end on the last Euro-Dollar Business Day of the appropriate
subsequent calendar month; and
(c) no Interest Period may be selected which begins before the
Termination Date and would otherwise end after the Termination Date.
(2) with respect to each Base Rate Borrowing, the period commencing on the
date of such Borrowing and ending 30 days thereafter; provided that:
--------
(a) any Interest Period (subject to clause (b) below) which would
otherwise end on a day which is not a Domestic Business Day shall be
extended to the next succeeding Domestic Business Day; and
(b) no Interest Period may be selected which begins before the
Termination Date and would otherwise end after the Termination Date.
(3) with respect to each Money Market Borrowing, the period commencing on the
date of such Borrowing and ending 7 to 180 days thereafter, as a Borrower may
indicate in the applicable Money Market Quote Request; provided that:
--------
(a) any Interest Period (subject to clause (b) below) which would
otherwise end on a day which is not a Domestic Business Day shall be
extended to the next succeeding Domestic Business Day; and
(b) no Interest Period may be selected which begins before the
Termination Date and would otherwise end after the Termination Date.
"Investment" means any investment in any Person, whether by means of
purchase or acquisition of obligations or securities of such Person, capital
contribution to such Person, loan or advance to such Person, making of a time
deposit with such Person, Guarantee or assumption of any obligation of such
Person or otherwise.
"Lending Office" means, as to each Bank, its office located at its
address set forth on the signature pages hereof (or identified on the signature
pages hereof as its Lending Office) or such other office as such Bank may
hereafter designate as its Lending Office by notice to the Borrowers and the
Agent.
"Lien" means, with respect to any asset, any mortgage, deed to secure
debt, deed of trust, lien, pledge, charge, security interest, security title,
preferential arrangement which has the practical effect of constituting a
security interest or encumbrance, servitude or encumbrance of any kind in
respect of such asset to secure or assure payment of a Debt or a Guarantee,
whether by consensual agreement or by operation of statute or other law, or by
any agreement, contingent or otherwise, to provide any of the foregoing. For
the purposes of this Agreement, the Borrowers or any Subsidiary shall be deemed
to own subject to a Lien
6
any asset which they have acquired or hold subject to the interest of a vendor
or lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
"Loan" means a Syndicated Loan or a Money Market Loan and "Loans" means
Syndicated Loans or Money Market Loans, or any or all of them, as the context
shall require.
"Loan Documents" means this Agreement, the Notes, any other document
evidencing, relating to or securing the Loans, and any other document or
instrument delivered from time to time in connection with this Agreement, the
Notes or the Loans, as such documents and instruments may be amended or
supplemented from time to time.
"London Interbank Offered Rate" has the meaning set forth in Section
2.06(c).
"Margin Stock" means "margin stock" as defined in Regulation G, T, U or
X of the Board of Governors of the Federal Reserve System, as in effect from
time to time, together with all official rulings and interpretations issued
thereunder.
"Material Adverse Effect" means, with respect to any event, act,
condition or occurrence of whatever nature (including any adverse determination
in any litigation, arbitration, or governmental investigation or proceeding),
whether singly or in conjunction with any other event or events, act or acts,
condition or conditions, occurrence or occurrences, whether or not related, a
material adverse change in, or a material adverse effect upon, any of (a) the
rights and remedies of the Agent or the Banks under the Loan Documents, or the
ability of each Borrower to perform its obligations under the Loan Documents to
which it is a party, as applicable, or (b) the legality, validity or
enforceability of any Loan Document.
"Money Market Loan" means a Loan which bears or is to bear interest at a
Money Market Rate.
"Money Market Notes" means promissory notes of the Borrowers,
substantially in the form of Exhibit B hereto, evidencing the obligation of the
---------
Borrowers to repay the Money Market Loans.
"Money Market Quote" means an offer by a Bank to make a Money Market
Loan in accordance with Section 2.03(c).
"Money Market Quote Request" has the meaning set forth in Section
2.03(b).
"Money Market Rate" has the meaning set forth in Section 2.03(c)(ii)(C).
"Multiemployer Plan" shall have the meaning set forth in Section
4001(a)(3) of ERISA.
7
"Net Proceeds of Capital Stock" means any proceeds received by the
Borrowers or a Consolidated Subsidiary in respect of the issuance of Capital
Stock, after deducting therefrom all reasonable and customary costs and
expenses incurred by the Borrowers or such Consolidated Subsidiary directly in
connection with the issuance of such Capital Stock.
"Note" means a Syndicated Note or a Money Market Note and "Notes" means
Syndicated Notes or Money Market Notes, or any or all of them, as the context
shall require.
"Notice of Borrowing" has the meaning set forth in Section 2.02.
"Officer's Certificate" has the meaning set forth in Section 3.01(f).
"Participant" has the meaning set forth in Section 9.07(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership (including
without limitation, a joint venture), an unincorporated association, a trust or
any other entity or organization, including, but not limited to, a government
or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by a member of the
Controlled Group for employees of any member of the Controlled Group or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding 5 plan years made contributions.
"Prime Rate" refers to that interest rate so denominated and set by
Wachovia from time to time as an interest rate basis for borrowings. The Prime
Rate is but one of several interest rate bases used by Wachovia. Wachovia lends
at interest rates above and below the Prime Rate.
"Quotation Date" has the meaning set forth in Section 2.03(b)(i).
"Redeemable Preferred Stock" of any Person means any preferred stock
issued by such Person which is at any time prior to the Termination Date either
(i) mandatorily redeemable (by sinking fund or similar payments or otherwise) or
(ii) redeemable at the option of the holder thereof.
8
"Required Banks" means at any time Banks having at least 66 2/3% of the
aggregate amount of the Commitments or, if the Commitments are no longer in
effect, Banks holding at least 66 2/3% of the aggregate outstanding principal
amount of the Notes.
"Statutory Accounting Principles" means statutory accounting principles
prescribed by the National Association of Insurance Commissioners applied on a
basis consistent with those which in accordance with Section 1.02, that are to
be used in making the calculations for purposes of determining compliance with
the terms of this Agreement.
"Subsidiary" means any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Borrowers.
"Syndicated Loan" means a Base Rate Loan or a Euro-Dollar Loan and
Syndicated Loans means Base Rate Loans or Euro-Dollar Loans, or any or all of
them, as the context shall require.
"Syndicated Notes" means promissory notes of the Borrowers,
substantially in the form of Exhibit A hereto, evidencing the obligation of the
Borrowers to repay the Syndicated Loans, together with all amendments,
consolidations, modifications, renewals and supplements thereto and "Syndicated
Note" means any one of such Syndicated Notes.
"Taxes" has the meaning set forth in Section 2.12(c).
"Termination Date" means August 30, 1997, and any extension thereof made
pursuant to Section 2.05(b) hereof.
"Transferee" has the meaning set forth in Section 9.07(d).
"Unused Commitments" means at any date an amount equal to the aggregate
amount of the Commitments on such date less the aggregate outstanding principal
amount of the Loans on such date.
"Wachovia" means Wachovia Bank of Georgia, N.A., a national banking
association and its successors.
"Wholly Owned Subsidiary" means any Subsidiary all of the shares of
capital stock or other ownership interests of which (except directors'
qualifying shares) are at the time directly or indirectly owned by any Borrower.
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
-----------------------------------
specified herein, all terms of an accounting character used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to
9
be delivered hereunder shall be prepared in accordance with GAAP or Statutory
Accounting Principles, as applicable, applied on a basis consistent (except for
changes concurred in by the Borrowers' independent public accountants or
otherwise required by a change in GAAP or Statutory Accounting Principles, as
applicable) with the most recent audited consolidated financial statements of
the Borrowers and their Consolidated Subsidiaries delivered to the Banks.
SECTION 1.03. Use of Defined Terms. All terms defined in this Agreement
--------------------
shall have the same meanings when used in any of the other Loan Documents,
unless otherwise defined therein or unless the context shall otherwise require.
SECTION 1.04. Terminology. All personal pronouns used in this Agreement,
-----------
whether used in the masculine, feminine or neuter gender, shall include all
other genders; the singular shall include the plural and the plural shall
include the singular. Titles of Articles and Sections in this Agreement are for
convenience only, and neither limit nor amplify the provisions of this
Agreement.
SECTION 1.05. References. Unless otherwise indicated, references in this
----------
Agreement to "Articles", "Exhibits", "Schedules", and "Sections" are references
to articles, exhibits, schedules and sections hereof.
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Make Syndicated Loans. Each Bank severally
------------------------------------
agrees, on the terms and conditions set forth herein, to make Syndicated Loans
to the Borrowers from time to time before the Termination Date; provided that,
--------
immediately after each such Syndicated Loan is made, the aggregate outstanding
principal amount of Syndicated Loans by such Bank to either or both of the
Borrowers shall not exceed the amount of its Commitment, provided further that
-------- -------
the aggregate principal amount of all Syndicated Loans to the Borrowers,
together with the aggregate principal amount of all Money Market Loans to the
Borrowers, at any one time outstanding shall not exceed the aggregate amount of
the Commitments of all of the Banks at such time. Each Syndicated Borrowing
under this Section shall be in an aggregate principal amount of $5,000,000 or
any larger multiple of $500,000 (except that any such Syndicated Borrowing may
be in the aggregate amount of the Unused Commitments) and shall be made from
the several Banks ratably in proportion to their respective Commitments. Within
the foregoing limits, the Borrowers may borrow under this Section, repay or, to
the extent permitted by Section 2.10, prepay Syndicated Loans and reborrow under
this Section at any time before the Termination Date.
SECTION 2.02. Method of Borrowing Syndicated Loans. (a) A Borrower shall
------------------------------------
give the Agent notice in the form attached hereto as Exhibit J (a "Notice of
Borrowing") prior to 12:00 P.M. (Atlanta, Georgia time) at least 1 Domestic
Business Day before each
10
Base Rate Borrowing and at least 3 Euro-Dollar Business Days before each Euro-
Dollar Borrowing, specifying:
(i) the date of such Syndicated Borrowing, which shall be a Domestic
Business Day in the case of a Base Rate Borrowing or a Euro-Dollar
Business Day in the case of a Euro-Dollar Borrowing,
(ii) the aggregate amount of such Syndicated Borrowing,
(iii) whether the Syndicated Loans comprising such Syndicated Borrowing
are to be Base Rate Loans or Euro-Dollar Loans, and
(iv) in the case of a Euro-Dollar Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period.
(b) Upon receipt of a Notice of Borrowing, the Agent shall promptly
notify each Bank of the contents thereof and of such Bank's ratable share of
such Syndicated Borrowing and such Notice of Borrowing shall not thereafter be
revocable by the Borrower giving such Notice of Borrowing.
(c) Not later than 12:00 P.M. (Atlanta, Georgia time) on the date of
each Syndicated Borrowing, each Bank shall (except as provided in subsection
(d) of this Section) make available its ratable share of such Syndicated
Borrowing, in Federal or other funds immediately available in Atlanta, Georgia,
to the Agent at its address referred to in or specified pursuant to Section
9.01. Unless the Agent determines that any applicable condition specified in
Article III has not been satisfied, the Agent will make the funds so received
from the Banks available to the Borrower which provided the Notice of Borrowing
at the Agent's aforesaid address. Unless the Agent receives notice from a Bank,
at the Agent's address referred to in Section 9.01, no later than 4:00 P.M.
(local time at such address) on the Domestic Business Day before the date of a
Syndicated Borrowing stating that such Bank will not make a Syndicated Loan in
connection with such Syndicated Borrowing, the Agent shall be entitled to
assume that such Bank will make a Syndicated Loan in connection with such
Syndicated Borrowing and, in reliance on such assumption, the Agent may (but
shall not be obligated to) make available such Bank's ratable share of such
Syndicated Borrowing to the Borrower which provided the Notice of Borrowing for
the account of such Bank. If the Agent makes such Bank's ratable share available
to the Borrower which provided the Notice of Borrowing and such Bank does not
in fact make its ratable share of such Syndicated Borrowing available on such
date, the Agent shall be entitled to recover such Bank's ratable share from such
Bank or either of the Borrowers (and for such purpose shall be entitled to
charge such amount to any account of either of the Borrowers maintained with
the Agent), together with interest thereon for each day during the period from
the date of such Syndicated Borrowing until such sum shall be paid in full at a
rate per annum equal to the rate at which the Agent determines that it obtained
(or could have obtained) overnight Federal funds to cover such amount for each
such day during such
11
period, provided that any such payment by the Borrowers of such Bank's ratable
--------
share and interest thereon shall be without prejudice to any rights that the
Borrowers may have against such Bank. If such Bank shall repay to the Agent
such corresponding amount, such amount so repaid shall constitute such Bank's
Syndicated Loan included in such Syndicated Borrowing for purposes of this
Agreement.
(d) If any Bank makes a new Syndicated Loan hereunder on a day on which
a Borrower is to repay all or any part of an outstanding Syndicated Loan from
such Bank, such Bank shall apply the proceeds of its new Syndicated Loan to
make such repayment and only an amount equal to the difference (if any) between
the amount being borrowed and the amount being repaid shall be made available by
such Bank to the Agent as provided in subsection (c) of this Section, or
remitted by such Borrower to the Agent as provided in Section 2.12, as the case
may be.
(e) Notwithstanding anything to the contrary contained in this
Agreement, no Euro-Dollar Borrowing may be made if there shall have occurred a
Default or an Event of Default, which Default or Event of Default shall not
have been cured or waived in writing.
(f) In the event that a Notice of Borrowing fails to specify whether the
Loans comprising such Borrowing are to be Base Rate Loans or Euro-Dollar Loans,
such Loans shall be made as Base Rate Loans. If a Borrower is otherwise entitled
under this Agreement to repay any Loans maturing at the end of an Interest
Period applicable thereto with the proceeds of a new Borrowing, and such
Borrower fails to repay such Loans using its own moneys and fails to give a
Notice of Borrowing in connection with such new Borrowing, a new Borrowing shall
be deemed to be made on the date such Loans mature in an amount equal to the
principal amount of the Loans so maturing, and the Loans comprising such new
Borrowing shall be Base Rate Loans.
(g) Notwithstanding anything to the contrary contained herein, (i) there
shall not be more than six (6) different Interest Periods outstanding at the
same time (for which purpose Interest Periods described in different numbered
clauses of the definition of the term "Interest Period" shall be deemed to be
different Interest Periods even if they are coterminous) and (ii) the proceeds
of any Base Rate Borrowing shall be applied first to repay the unpaid principal
amount of all Base Rate Loans (if any) outstanding immediately before such Base
Rate Borrowing.
SECTION 2.03. Money Market Loans. (a) In addition to making Syndicated
------------------
Borrowings, a Borrower may, as set forth in this Section, request the Banks to
make offers to make Money Market Loans to such Borrower. The Banks may, but
shall have no obligation to, make such offers and a Borrower may, but shall have
no obligation to, accept any such offers in the manner set forth in this
Section, provided that:
(i) there may be no more than six (6) different Interest Periods for
both Syndicated Loans and Money Market Loans outstanding at the same time
12
(for which purpose Interest Periods described in different numbered clauses
of the definition of the term "Interest Period" shall be deemed to be
different Interest Periods even if they are coterminous); and
(ii) the aggregate principal amount of all Money Market Loans, together
with the aggregate principal amount of all Syndicated Loans, at any one
time outstanding shall not exceed the aggregate amount of the Commitments
of all of the Banks at such time.
A Money Market Loan made by any Bank shall not reduce such Bank's
obligation to make Syndicated Loans in the amount of its pro-rata share of the
Unused Commitments.
(b) When a Borrower wishes to request offers to make Money Market Loans,
it shall give the Agent (which shall promptly notify the Banks) notice
substantially in the form of Exhibit E hereto (a "Money Market Quote Request")
---------
so as to be received no later than 12:00 P.M. (Atlanta, Georgia time) on the
first Domestic Business Day prior to the date of the Money Market Borrowing
proposed therein (or such other time and date as such Borrower and the Agent,
with the consent of the Required Banks, may agree), specifying:
(i) the proposed date of such Money Market Borrowing, which shall be a
Domestic Business Day (the "Quotation Date");
(ii) the aggregate amount of such Money Market Borrowing, which shall be
at least $5,000,000 (and in larger multiples of $500,000) but shall not
cause the limits specified in Section 2.03 (a)(ii) to be violated; and
(iii) the duration of the Interest Period applicable thereto, which
shall be 7 to 180 days.
A Borrower may request offers to make Money Market Loans for up to three
different Interest Periods in a single Money Market Quote Request; provided
that the request for each separate Interest Period shall be deemed to be a
separate Money Market Quote Request for a separate Money Market Borrowing.
Except as otherwise provided in the immediately preceding sentence, the
Borrowers, collectively, shall not deliver a Money Market Quote Request more
frequently than once every 5 Domestic Business Days.
(c) (i) Each Bank may, but shall have no obligation to, submit a Money
Market Quote containing an offer to make a Money Market Loan in response to
any Money Market Quote Request; provided that, if a Borrower's request
under Section 2.03(b) specified more than one Interest Period, such Bank
may, but shall have no obligation to, make a single submission containing
a separate offer for each such Interest Period and each such separate offer
shall be deemed to be a separate Money Market Quote. Each Money Market
Quote must be submitted to the Agent not later than 10:00 A.M. (Atlanta,
13
Georgia time) on the Quotation Date (or such other time and date as the
Borrowers and the Agent, with the consent of the Required Banks, may
agree); provided that any Money Market Quote submitted by Wachovia may be
--------
submitted, and may only be submitted, if Wachovia notifies the requesting
Borrower of the terms of the offer contained therein not later than 9:45
A.M. (Atlanta, Georgia time) on the Quotation Date. Subject to Section
6.01, any Money Market Quote so made shall be irrevocable except with the
written consent of the Agent given on the instructions of the requesting
Borrower.
(ii) Each Money Market Quote shall be in substantially the form of
Exhibit F hereto and shall specify:
---------
(A) the proposed date of the Money Market Borrowing and the
duration of the Interest Period therefor, which shall be 7 to 180 days;
(B) the maximum principal amount of the Money Market Loan which the
quoting Bank is willing to make for the applicable Interest Period,
which principal amount (x) may be greater than or less than the
Commitment of the quoting Bank, (y) shall be at least $5,000,000 or a
larger multiple of $500,000, and (z) may not exceed the principal
amount of the Money Market Borrowing for which offers were requested;
(C) the rate of interest per annum (rounded, if necessary, to the
nearest 1/100th of 1%) (the "Money Market Rate") offered for each such
Money Market Loan; and
(D) the identity of the quoting Bank.
Unless otherwise agreed by the Agent and the Borrowers, no Money Market
Quote shall contain qualifying, conditional or similar language or propose
terms other than or in addition to those set forth in the applicable Money
Market Quote Request (other than setting forth the maximum principal
amount of the Money Market Loan which the quoting Bank is willing to make
for the applicable Interest Period).
(d) The Agent shall as promptly as practicable after the Money Market
Quote is submitted (but in any event not later than 10:30 A.M. (Atlanta, Georgia
time) on the Quotation Date notify the requesting Borrower of the terms (i) of
any Money Market Quote submitted by a Bank that is in accordance with Section
2.03(c) and (ii) of any Money Market Quote that amends, modifies or is
otherwise inconsistent with a previous Money Market Quote submitted by such Bank
with respect to the same Money Market Quote Request. Any such subsequent Money
Market Quote shall be disregarded by the Agent
14
unless such subsequent Money Market Quote is submitted solely to correct a
manifest error in such former Money Market Quote. The Agent's notice to the
requesting Borrower shall specify (A) the maximum aggregate principal amount of
the Money Market Borrowing for which offers have been received and (B) the
maximum principal amount and Money Market Rates so offered by each Bank
(identifying the Bank that made each Money Market Quote).
(e) Not later than 12:00 P.M. (Atlanta, Georgia time) on the Quotation
Date (or such other time and date as the Borrowers and the Agent, with the
consent of the Required Banks, may agree), the requesting Borrower shall notify
the Agent of its acceptance or nonacceptance of the offers so notified to it
pursuant to Section 2.03(d) and the Agent shall promptly notify each Bank that
has submitted a Money Market Quote. In the case of acceptance, such notice shall
specify the aggregate principal amount of offers for each Interest Period that
are accepted. The requesting Borrower may accept any Money Market Quote in
whole or in part (provided that any Money Market Quote accepted in part from
any Bank shall not be less than the amount set forth in the Money Market Quote
of such Bank as the minimum principal amount of the Money Market Loan such Bank
was willing to make for the applicable Interest Period); provided that:
--------
(i) the aggregate principal amount of each Money Market Borrowing may
not exceed the applicable amount set forth in the related Money Market
Quote Request;
(ii) the aggregate principal amount of each Money Market Borrowing shall
be at least $5,000,000 (and in larger multiples of $500,000) but shall not
cause the limits specified in Section 2.03(a) to be violated;
(iii) acceptance of offers may only be made in ascending order of Money
Market Rates; and
(iv) the requesting Borrower may not accept any offer where the Agent
has advised such Borrower that such offer fails to comply with
Section
2.03(c)(ii) or otherwise fails to comply with the requirements of this
Agreement (including, without limitation, Section 2.03(a)).
If offers are made by two or more Banks with the same Money Market Rates for a
greater aggregate principal amount than the amount in respect of which offers
are accepted for the related Interest Period, the principal amount of Money
Market Loans in respect of which such offers are accepted shall be allocated by
the requesting Borrower among such Banks as nearly as possible (in multiples of
$100,000) in proportion to the aggregate principal amount of such offers.
Determinations by the requesting Borrower of the amounts of Money Market Loans
shall be conclusive in the absence of manifest error.
(f) Any Bank whose offer to make any Money Market Loan has been accepted
shall, not later than 1:00 P.M. (Atlanta, Georgia time) on the Quotation Date,
15
make the amount of such Loan available to the Agent at its address referred to
in Section 9.01 in immediately available funds. The amount so received by the
Agent shall, subject to the terms and conditions of this Agreement, be made
available to the requesting Borrower on such date by depositing the same, in
immediately available funds, in an account of such Borrower maintained with
Wachovia.
SECTION 2.04. Notes. (a) The Syndicated Loans of each Bank shall be
-----
evidenced by a single Syndicated Note payable to the order of such Bank for the
account of its Lending Office in an amount equal to the original principal
amount of such Bank's Commitment.
(b) The Money Market Loans made by any Bank to the Borrowers shall be
evidenced by a single Money Market Note payable to the order of such Bank for
the account of its Lending Office.
(c) Upon receipt of each Bank's Notes pursuant to Section 3.01, the
Agent shall deliver such Notes to such Bank. Each Bank shall record, and prior
to any transfer of its Notes shall endorse on the schedule forming a part
thereof appropriate notations to evidence, the date, amount and maturity of,
and effective interest rate for, each Loan made by it, the date and amount of
each payment of principal made by the Borrowers with respect thereto and
whether, in the case of such Bank's Syndicated Note, such Syndicated Loan is a
Base Rate Loan or Euro-Dollar Loan, and such schedule shall constitute
rebuttable presumptive evidence of the principal amount owing and unpaid on
such Bank's Notes; provided that the failure of any Bank to make, or any error
--------
in making, any such recordation or endorsement shall not affect the obligation
of the borrowers hereunder or under the Notes or the ability of any Bank to
assign its Notes. Nothing contained in this Section 2.04(c) shall be construed
to authorize the transfer of a Note except in accordance with the terms and
conditions of Section 9.07. Each Bank is hereby irrevocably authorized by the
Borrowers so to endorse its Notes and to attach to and make a part of any Note a
continuation of any such schedule as and when required.
SECTION 2.05. Maturity of Loans. (a) Each Loan included in any Borrowing
-----------------
shall mature, and the principal amount thereof shall be due and payable, on the
last day of the Interest Period applicable to such Borrowing.
(b) Upon written request of both of the Borrowers, which shall be made
in writing and delivered to the Agent on a Domestic Business Day no fewer than
60 days prior to the then effective Extension Date, the Banks and the Agent in
their sole and absolute discretion may (but shall not be obligated to) extend
the then effective Termination Date for a period of 365 days. The terms of any
extension of the Termination Date shall be independently negotiated among the
Borrowers, the Banks and the Agent at the time of the extension request,
provided that the terms of the extension may be the same as those in effect
--------
prior to any extension should the Borrowers, the Banks and the Agent so agree;
provided, further, that should the terms of the extension be other than those
-------- -------
in effect prior
16
to the extension, then the Loan Documents shall be amended to the extent
necessary to incorporate any such different terms. In the event that a Bank
chooses to extend the Termination Date for such a 365 day period, notice shall
be given by such Bank to the Borrowers and the Agent not more than 30, nor fewer
than 15, days prior to the then effective Extension Date; provided that the
--------
Termination Date shall not be extended with respect to any of the Banks
(regardless of whether any relevant Bank has delivered a favorable extension
notice) unless the Required Banks have delivered favorable extension notices and
are willing to extend the Termination Date and either (i) the remaining Banks
shall on the Extension Date purchase ratable assignments (without any
obligations so to do) from each Bank (a "Terminating Bank") that has not
elected to extend the Termination Date (in the form of an Assignment and
Acceptance) in accordance with their respective percentage of the remaining
aggregate amount of the Commitments; provided that such remaining Banks shall be
--------
provided such opportunity (which opportunity shall allow such Banks at least
five Domestic Business Days in which to make a decision) prior to the Borrowers
finding another bank pursuant to the immediately succeeding clause (ii); and
provided, further, that should any of the remaining Banks elect not to purchase
-------- -------
such an assignment, then such other remaining Banks shall be entitled to
purchase an assignment on the Extension Date from any Terminating Bank which
includes the ratable interest that was otherwise available to such non-
purchasing remaining Bank or Banks, as the case may be; (ii) the Borrowers
shall find another bank, acceptable to the Agent, willing to accept an
assignment on the Extension Date from such terminating Bank (in the form of an
Assignment and Acceptance); or (iii) the Borrowers shall reduce the Aggregate
Commitments on the Extension Date in an amount equal to the sum of the
Commitments of all such Terminating Banks.
SECTION 2.06. Interest Rates. (a) "Applicable Margin" means (i) for any
--------------
Base Rate Loan, 0%; and (ii) for any Euro-Dollar Loan, .20%.
(b) Each Base Rate Loan shall bear interest on the outstanding principal
amount thereof, for each day from the date such Loan is made until it becomes
due (including the first day but excluding the last day), at a rate per annum
equal to the Base Rate for such day plus the Applicable Margin. Such interest
shall be payable for each Interest Period on the last day thereof. Any overdue
principal of and, to the extent permitted by applicable law, overdue interest
on any Base Rate Loan shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the Default Rate.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto, at a rate
per annum equal to the sum of the Applicable Margin plus the applicable
Adjusted London Interbank Offered Rate for such Interest Period; provided that
--------
if any Euro-Dollar Loan shall, as a result of clause (1)(c) of the definition
of Interest Period, have an Interest Period of less than one month, such Euro-
Dollar Loan shall bear interest during such Interest Period at the rate
applicable to Base Rate Loans during such period. Such interest shall be payable
for each Interest Period on the last day thereof and, if such Interest Period
is longer than 3 months, at
17
intervals of 3 months after the first day thereof. Any overdue principal of and,
to the extent permitted by applicable law, overdue interest on any Euro-Dollar
Loan shall bear interest, payable on demand, for each day until paid at a rate
per annum equal to the Default Rate.
The "Adjusted London Interbank Offered Rate" applicable to any Interest
Period means a rate per annum equal to the quotient obtained (rounded upward, if
necessary, to the next higher 1/100th of 1%) by dividing (i) the applicable
London Interbank Offered Rate for such Interest Period by (ii) 1.00 minus the
Euro-Dollar Reserve Percentage.
The "London Interbank Offered Rate" applicable to any Euro-Dollar Loan
means for the Interest Period of such Euro-Dollar Loan the rate per annum
determined on the basis of the offered rate for deposits in Dollars of amounts
equal or comparable to the principal amount of such Euro-Dollar Loan offered for
a term comparable to such Interest Period, which rates appear on the Reuters
Screen LIBO Page as of 11:00 a.m., London time, 2 Euro-Dollar Business Days
prior to the first day of such Interest Period, provided that (i) if more than
one such offered rate appears on the Reuters Screen LIBO Page, the "London
Interbank Offered Rate" will be the arithmetic average (rounded upward, if
necessary, to the next higher 1/100th of 1%) of such offered rates; and (ii) if
no such offered rates appear on such page, the "London Interbank Offered Rate"
for such Interest Period will be the arithmetic average (rounded, if necessary,
to the next higher 1/100th of 1%) of rates quoted by not less than 2 major banks
in New York City, selected by the Agent, at approximately 10:00 a.m., New York
City time, 2 Euro-Dollar Business Days prior to the first day of such Interest
Period, for deposits in Dollars offered to leading European banks for a period
comparable to such Interest Period in an amount comparable to the principal
amount of such Euro-Dollar Loan.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in respect of "Eurocurrency liabilities" (or in respect of any
other category of liabilities which includes deposits by reference to which the
interest rate on Euro-Dollar Loans is determined or any category of extensions
of credit or other assets which includes loans by a non-United States office of
any Bank to United States residents). The Adjusted London Interbank Offered Rate
shall be adjusted automatically on and as of the effective date of any change in
the Euro-Dollar Reserve Percentage.
(d) Any overdue principal of and, to the extent permitted by law,
overdue interest on any Euro-Dollar Loan shall bear interest, payable on demand,
for each day until paid at a rate per annum equal to the Default Rate.
(e) Each Money Market Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto, at a rate
per annum equal to the Money Market Rate for such Loan quoted by the Bank making
such Loan in accordance
18
with Section 2.03. Such interest shall be payable for such Interest Period on
the last day thereof and, if such Interest Period is longer than 90 days, at
intervals of 90 days after the first day thereof. Any overdue principal of and,
to the extent permitted by law, overdue interest on any Money Market Loan shall
bear interest, payable on demand, for each day until paid at a rate per annum
equal to the Default Rate.
(f) The Agent shall determine each interest rate applicable to the Loans
hereunder. The Agent shall give prompt notice to the Borrowers and the Banks by
telecopy of each rate of interest so determined, and its determination thereof
shall be conclusive in the absence of manifest error.
(g) After the occurrence and during the continuance of an Event of
Default, the principal amount of the Loans (and, to the extent permitted by
applicable law, all accrued interest thereon) may, at the election of the
Required Banks, bear interest at the Default Rate. If the Required Banks elect
that the principal amount of the Loans (and, to the extent permitted by
applicable law, all accrued interest thereon) shall bear interest at the Default
Rate, the Agent shall give notice to the Borrowers of such election; provided
that the Agent shall not be required to provide the Borrowers any such notice if
any Event of Default specified in Section 6.01 (h) or 6.01 (i) occurs with
respect to either of the Borrowers.
SECTION 2.07. Fees. (a) The Borrowers shall pay to the Agent for the
----
ratable account of each Bank a commitment fee equal to the product of: (i) a per
annum percentage equal to .025 of 1%, times (ii) the aggregate of the daily
average amounts of the Unused Commitments. Such commitment fee shall accrue from
and including the Closing Date to and including the Termination Date and shall
be payable quarterly in arrears on each Commitment Fee Payment Date and on the
Termination Date; provided, that should the Commitments be terminated at any
--------
time prior to the Termination Date for any reason, the entire accrued and unpaid
commitment fees shall be paid on the date of such termination.
(b) The Borrowers shall also pay to the Agent for the ratable account of
each Bank a facility fee equal to the product of: (i) the aggregate of the daily
average amounts of such Bank's Commitment times (ii) a per annum percentage
equal to .05 of 1% per annum. Such facility fee shall accrue from and including
the Closing Date to and including the Termination Date. Facility fees shall be
payable quarterly in arrears on each Facility Fee Payment Date and on the
Termination Date; provided, that should the Commitments be terminated at any
--------
time prior to the Termination Date for any reason, the entire accrued and unpaid
facility fee (through the date of such termination) shall be paid on the date of
such termination.
(c) The Borrowers shall pay to the Agent, for the account and sole
benefit of the Agent, such fees and other amounts at such times as set forth in
the Agent's Letter Agreement.
19
SECTION 2.08. Optional Termination or Reduction of Commitments. The
------------------------------------------------
Borrowers may, upon at least 3 Domestic Business Days' notice from both
Borrowers to the Agent, terminate at any time, or proportionately reduce from
time to time by an aggregate amount of at least $5,000,000 or any larger
multiple of $1,000,000, the Commitments. If the Commitments are terminated in
their entirety, all accrued fees (as provided under Section 2.07) through the
effective date of such termination shall be payable on the effective date of
such termination.
SECTION 2.09. Termination of Commitments. The Commitments shall
--------------------------
terminate on the Termination Date and any Loans then outstanding (together with
accrued interest thereon) shall be due and payable on such date.
SECTION 2.10. Optional Prepayments. (a) Either Borrower may, upon at
--------------------
least 1 Domestic Business Day's notice to the Agent, prepay any Base Rate
Borrowing in whole at any time, or from time to time in part in amounts
aggregating at least $5,000,000, or any larger multiple of $1,000,000, by paying
the principal amount to be prepaid together with accrued interest (through but
excluding the date of prepayment) thereon to the date of prepayment. Each such
optional prepayment shall be applied to prepay ratably the Base Rate Loans of
the several Banks included in such Base Rate Borrowing.
(b) Except as provided in Sections 8.02 and 2.12, the Borrowers may not
prepay all or any portion of the principal amount of any Euro-Dollar Loan or any
Money Market Loan prior to the maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant to this Section, the
Agent shall promptly notify each Bank of the contents thereof and of such Bank's
ratable share of such prepayment and such notice shall not thereafter be
revocable by the Borrowers.
SECTION 2.11. Mandatory Prepayments. On each date on which the
---------------------
Commitments are reduced pursuant to Section 2.08, the Borrowers shall repay or
prepay such principal amount of the outstanding Loans, if any (together with
interest accrued thereon and any amounts due under Section 8.05(a)), as may be
necessary so that after such payment the aggregate unpaid principal amount of
the Loans does not exceed the aggregate amount of the Commitments as then
reduced. Each such payment or prepayment shall be applied to repay or prepay
ratably the Loans of the several Banks; provided that such prepayment shall be
--------
applied, first, to Syndicated Loans outstanding on the date of such prepayment
(in direct order of maturity) and second, to Money Market Loans outstanding on
the date of such prepayment (in direct order of maturity).
SECTION 2.12. General Provisions as to Payments. (a) The Borrowers shall
---------------------------------
make each payment of principal of, and interest on, the Loans and of commitment
fees and facility fees hereunder, not later than 11:00 A.M. (Atlanta, Georgia
time) on the date when due, in Federal or other funds immediately available in
Atlanta, Georgia, to the Agent at its
20
address referred to in Section 9.01. The Agent will promptly distribute to each
Bank its ratable share of each such payment received by the Agent for the
account of the Banks.
(b) Whenever any payment of principal of, or interest on, the Base Rate
Loans, the Money Market Loans or of fees shall be due on a day which is not a
Domestic Business Day, the date for payment thereof shall be extended to the
next succeeding Domestic Business Day. Whenever any payment of principal of, or
interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-
Dollar Business Day, the date for payment thereof shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls
in another calendar month, in which case the date for payment thereof shall be
the next preceding Euro-Dollar Business Day. If the date for any payment of
principal is extended by operation of law or otherwise, interest thereon shall
be payable for such extended time.
(c) All payments of principal, interest and fees and all other amounts
to be made by the Borrowers pursuant to this Agreement with respect to any Loan
or fee relating thereto shall be paid without deduction for, and free from, any
tax, imposts, levies, duties, deductions, or withholdings of any nature now or
at anytime hereafter imposed by any governmental authority or by any taxing
authority thereof or therein excluding in the case of each Bank, taxes imposed
on or measured by its net income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which such Bank is organized or any political
subdivision thereof and, in the case of each Bank, taxes imposed on its income,
and franchise taxes imposed on it, by the jurisdiction of such Bank's applicable
Lending Office or any political subdivision thereof (all such non-excluded
taxes, imposts, levies, duties, deductions or withholdings of any nature being
"Taxes"). In the event that the Borrowers are required by applicable law to make
any such withholding or deduction of Taxes with respect to any Loan or fee or
other amount, the Borrowers shall pay such deduction or withholding to the
applicable taxing authority, shall promptly furnish to any Bank in respect of
which such deduction or withholding is made all receipts and other documents
evidencing such payment and shall pay to such Bank additional amounts as may be
necessary in order that the amount received by such Bank after the required
withholding or other payment shall equal the amount such Bank would have
received had no such withholding or other payment been made. A certificate of
any Bank as to any amounts to be paid with respect to such Bank by the Borrowers
under this Section 2.12 (c), stating in reasonable detail the amount and nature
of such Taxes, shall, absent manifest error, be final, conclusive and binding
on the parties hereto. The Borrowers shall promptly furnish to any Bank such
certificates, receipts and other documents as may be required (in the judgment
of any Bank) to establish any tax credit to which such Bank may be entitled, to
verify or evidence that all Taxes have been paid and to determine whether
payments to such Bank are exempt from or not subject to withholding or deduction
of Taxes. The provisions of this Section 2.12 (c) shall survive termination of
this Agreement.
(d) On or before September 30, 1994 in the case of any Bank which is
organized under the laws of a jurisdiction outside the United States, and from
time to time thereafter if
21
requested by the Borrowers, any Bank organized under the laws of a jurisdiction
outside the United States shall provide the Borrowers with the forms prescribed
by the Internal Revenue Service of the United States certifying as to such
Person's status for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to it hereunder or
other documents reasonably satisfactory to the Borrowers which shall indicate
that all payments to be made to such Banks hereunder are not subject to
deduction or withholding of any United States federal income taxes. Unless the
Borrowers have received forms (such as IRS Form 1001 or Form 4224) or other
documents reasonably satisfactory to them, indicating that payments hereunder
are not subject to United States withholding tax or are subject to such tax at
a rate reduced by an applicable tax treaty, the Borrowers shall withhold taxes
from such payments at the applicable statutory rate in the case of payments to
or for a Bank organized under the laws of a jurisdiction outside the United
States.
(e) In the event that any Bank determines in good faith that it has
received a cash refund of, or that it has received a reduction in United States
federal income taxes which it would otherwise be required to pay by reason of a
deduction against its income or a credit against tax liability for, any Taxes
for which it has received an additional payment by the Borrowers pursuant to
Section 2.12 (c) hereof, it shall promptly remit an amount equal to such refund
or reduction, but not exceeding the amount of such additional payment made by
the Borrowers, to the Borrowers to the extent such Bank determines that it can
do so without prejudicing its retention of the amount of such refund or
reduction or any of its rights to any other relief or allowance which may be
available to it. Each agreement between a Bank and a Participant shall require
that in the event such Participant in good faith makes such a determination with
respect to a refund or reduction, it shall remit an amount equal to such refund
or reduction, but not exceeding the amount of such additional payment made by
the Borrowers applicable to such participation, to such Bank for the account of
the Borrowers, and such Bank shall deliver any such payments actually received
to the Borrowers. In the event that any Bank or any Participant determines in
good faith that it is no longer entitled to receive or retain any such refund,
deduction or credit, the Borrowers shall upon notice promptly return to the
Bank for its own account or for the account of such Participant, as the case may
be, any related payment made to the Borrowers pursuant to this paragraph.
Nothing contained herein shall be construed (i) to grant to the Borrowers or
their agents or representatives access to any financial or tax records of any
Bank or any Participant or any right to receive copies thereof, (ii) to impose
upon any Bank or any Participant any obligation to file for or otherwise claim
any such deduction or credit or to institute, prosecute or defend any claim,
action or proceeding for the recovery of any such refund or for obtaining any
such reduction, which matters shall remain in the sole discretion of the Banks
and the Participants, or (iii) to impose upon the Banks any obligation to claim
or to institute, prosecute or defend any action for collecting or obtaining any
amounts due from a Participant to a Bank pursuant to this Section.
Without prejudice to the survival of any other agreement of the
Borrowers hereunder, the agreements and obligations of the Borrowers contained
in this Section 2.12 shall be applicable with respect to any Participant,
Assignee or other Transferee, and any
22
calculations required by such provisions shall (i) be made based upon the
circumstances of such Participant, Assignee or other Transferee, and (ii)
constitute a continuing agreement and shall survive the termination of this
Agreement and the payment in full or cancellation of the Notes; provided, that
no Participant shall be entitled to the benefits of this Section 2.12 to an
extent or in an amount greater than the Bank which sold the applicable
participation to such Participant.
(f) Each of the Borrowers hereby agrees that all of their indebtedness,
liabilities and obligations under this Agreement, the Notes and the other Loan
Documents shall be joint and several.
SECTION 2.13. Computation of Interest and Fees. Interest on Base Rate
--------------------------------
Loans shall be computed on the basis of a year of 365 days (366 days in case of
a leap year) and paid for the actual number of days elapsed (including the first
day but excluding the last day). Interest on Euro-Dollar Loans and interest on
Money Market Loans shall be computed on the basis of a year of 360 days and paid
for the actual number of days elapsed, calculated as to each Interest Period
from and including the first day thereof to but excluding the last day thereof.
Commitment fees, facility fees and any other fees payable hereunder shall be
computed on the basis of a year of 360 days and paid for the actual number of
days elapsed.
ARTICLE III
CONDITIONS TO BORROWINGS
SECTION 3.01. Conditions to Closing. The following conditions shall be
---------------------
satisfied on or before the Closing Date:
(a) receipt by the Agent from each of the parties hereto of either (i) a
duly executed counterpart of this Agreement signed by such party or (ii) a
facsimile transmission stating that such party has duly executed a
counterpart of this Agreement and sent such counterpart to the Agent;
(b) receipt by the Agent of a duly executed Syndicated Note and a duly
executed Money Market Note for the account of each Bank complying with the
provisions of Section 2.04;
(c) receipt by the Agent of an opinion of the general counsel or
assistant general counsel of the Borrower, dated as of the Closing Date,
substantially in the form of Exhibit C hereto and covering such additional
matters relating to the transactions contemplated hereby as the Agent or
any Bank may reasonably request;
(d) receipt by the Agent of an opinion of Womble Carlyle Sandridge &
Rice, special counsel for the Agent, dated as of the Closing Date,
substantially in the form
23
of Exhibit D hereto and covering such additional matters relating to the
transactions contemplated hereby as the Agent may reasonably request;
(e) receipt by the Agent of a certificate (the "Closing Certificate"),
dated the Closing Date, substantially in the form of Exhibit G hereto,
signed by a principal financial officer of each Borrower, to the effect
that (i) no Default has occurred and is continuing on the date of the first
Borrowing and (ii) the representations and warranties of the Borrowers
contained in Article IV are true on and as of the date of the first
Borrowing hereunder; and
(f) receipt by the Agent of all documents which the Agent or any Bank
may reasonably request relating to the existence of the Borrowers, the
corporate authority for and the validity of this Agreement and the Notes,
and any other matters relevant hereto, all in form and substance
satisfactory to the Agent, including without limitation a certificate of
incumbency of each of the Borrowers (the "Officer's Certificate"), signed
by the Secretary or an Assistant Secretary of such Borrower, substantially
in the form of Exhibit H hereto, certifying as to the names, true
signatures and incumbency of the officer or officers of the Borrower
authorized to execute and deliver the Loan Documents, and certified copies
of the following items: (i) the Borrowers' Certificates of Incorporation,
(ii) the Borrowers' Bylaws, (iii) a certificate of the Secretary of State
of the States of New York and Connecticut, as appropriate, as to the good
standing of Municipal Bond Investors Assurance Corporation and MBIA Inc.,
as New York and Connecticut corporations, respectively, and (iv) the action
taken by the Board of Directors of each of the Borrowers authorizing the
Borrowers' execution, delivery and performance of this Agreement, the
Notes and the other Loan Documents to which the Borrowers are a party;
Within three (3) Domestic Business Days after the Closing Date, the
Agent will provide the Borrowers with written confirmation of the items
referenced in (a) through (f) above that have been received by the Agent.
SECTION 3.02. Conditions to All Borrowings. The obligation of each Bank
----------------------------
to make a Loan on the occasion of each Borrowing is subject to the satisfaction
of the following conditions:
(a) either (i) receipt by the Agent of Notice of Borrowing as required
by Section 2.02 (if such Borrowing is a Syndicated Borrowing); or (ii)
compliance with the provisions of Section 2.03 (if such Borrowing is a
Money Market Borrowing);
(b) the fact that, immediately before and after such Borrowing, no
Default shall have occurred and be continuing;
24
(c) the fact that the representations and warranties of both of the
Borrowers contained in Article IV of this Agreement shall be true on and as
of the date of such Borrowing; and
(d) the fact that, immediately after such Borrowing (i) the aggregate
outstanding principal amount of the Syndicated Loans of each Bank will not
exceed the amount of its Commitment and (ii) the aggregate outstanding
principal amount of the Loans will not exceed the aggregate amount of the
Commitments of all of the Banks as of such date.
Each Borrowing hereunder shall be deemed to be a representation and warranty by
both of the Borrowers on the date of such Borrowing as to the truth and accuracy
of the facts specified in clauses (b), (c) and (d) of this Section; provided
--------
that such Borrowing shall not be deemed to be such a representation and warranty
to the effect set forth in Section 4.04(b) as to any event, act or condition
having a Material Adverse Effect which has theretofore been disclosed in writing
by the Borrowers to the Banks if the aggregate outstanding principal amount of
the Loans immediately after such Borrowing will not exceed the aggregate
outstanding principal amount thereof immediately before such Borrowing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrowers represent and warrant that:
SECTION 4.01. Corporate Existence and Power. The Borrowers are
-----------------------------
corporations duly organized, validly existing and in good standing under the
laws of the jurisdiction of their incorporation, are duly qualified to transact
business in every jurisdiction where, by the nature of their businesses, such
qualification is necessary, and have all corporate powers and all governmental
licenses, authorizations, consents and approvals required to carry on their
businesses as now conducted.
SECTION 4.02. Corporate and Governmental Authorization; No
--------------------------------------------
Contravention. The execution, delivery and performance by the Borrowers of this
-------------
Agreement, the Notes and the other Loan Documents (i) are within each of the
Borrower's corporate powers, (ii) have been duly authorized by all necessary
corporate action, (iii) require no action by or in respect of, or filing with,
any governmental body, agency or official, (iv) do not contravene, or constitute
a default under, any provision of applicable law or regulation or of the
certificate of incorporation or by-laws of each of the Borrowers or of any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Borrowers or any of their Subsidiaries, and (v) do not result in the
creation or imposition of any Lien on any asset of the Borrowers or any of their
Subsidiaries.
25
SECTION 4.03. Binding Effect. This Agreement constitutes a valid and
--------------
binding agreement of each of the Borrowers enforceable in accordance with its
terms, and the Notes and the other Loan Documents, when executed and delivered
in accordance with this Agreement, will constitute valid and binding obligations
of each of the Borrowers enforceable in accordance with their respective terms,
provided that the enforceability hereof and thereof is subject in each case to
--------
general principles of equity and to bankruptcy, insolvency and similar laws
affecting the enforcement of creditors' rights generally.
SECTION 4.04. Financial Information. (a) The consolidated balance sheet
---------------------
of the Borrowers and their Consolidated Subsidiaries as of December 31,1993 and
the related consolidated statements of income, shareholders' equity and cash
flows for the Fiscal Year then ended, reported on by Coopers & Lybrand, copies
of which have been delivered to each of the Banks, and the unaudited
consolidated financial statements of the Borrowers for the interim period ended
March 31, 1994, copies of which have been delivered to each of the Banks, fairly
present, in conformity with GAAP or Statutory Accounting Principles, as
applicable consistently applied, the consolidated financial position of the
Borrowers and their Consolidated Subsidiaries as of such dates and their
consolidated results of operations and cash flows for such periods stated.
(b) Since December 31, 1993 there has been no event, act, condition or
occurrence having a Material Adverse Effect.
SECTION 4.05. Litigation. There is no action, suit or proceeding
----------
pending, or to the knowledge of the Borrowers threatened, against or affecting
the Borrowers or any of their Subsidiaries before any court or arbitrator or any
governmental body, agency or official which could have a Material Adverse Effect
or which in any manner draws into question the validity or enforceability of, or
could impair the ability of the Borrowers to perform their obligations under,
this Agreement, the Notes or any of the other Loan Documents.
SECTION 4.06. Compliance with ERISA. (a) The Borrowers and each member
---------------------
of the Controlled Group have fulfilled their obligations under the minimum
funding standards of ERISA and the Code with respect to each Plan and are in
compliance in all material respects with the presently applicable provisions of
ERISA and the Code, and have not incurred any liability to the PBGC or a Plan
under Title IV of ERISA.
(b) Neither the Borrowers nor any member of the Controlled Group is or
ever has been obligated to contribute to any Multiemployer Plan.
SECTION 4.07. Taxes. There have been filed on behalf of the Borrowers
-----
and their Subsidiaries all Federal, state and local income, excise, property and
other tax returns which are required to be filed by them and all taxes due
pursuant to such returns or pursuant to any assessment received by or on behalf
of the Borrowers or any Subsidiary have been paid. The charges, accruals and
reserves on the books of each of the Borrowers and their Subsidiaries in
respect of taxes or other governmental charges are, in the opinion of each of
26
the Borrowers, adequate. United States income tax returns of the Borrowers and
their Subsidiaries have been examined and closed through the Fiscal Year ended
December 31, 1990.
SECTION 4.08. Subsidiaries. Each of the Borrowers' Subsidiaries is a
------------
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, is duly qualified to transact business in
every jurisdiction where, by the nature of its business, such qualification is
necessary, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted. The Borrowers have no Subsidiaries except those Subsidiaries listed
on Schedule 4.08, which accurately sets forth each such Subsidiary's complete
-------------
name and jurisdiction of incorporation.
SECTION 4.09. Not an Investment Company. Neither of the Borrowers is an
-------------------------
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 4.10. Public Utility Holding Company Act. Neither of the
----------------------------------
Borrowers nor any of their Subsidiaries is a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company", as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended.
SECTION 4.11. Ownership of Property; Liens. Each of the Borrowers and
----------------------------
their Consolidated Subsidiaries has title to their properties sufficient for the
conduct of its business, and none of such property is subject to any Lien except
as permitted in Section 5.03.
SECTION 4.12. No Default. Neither of the Borrowers nor any of their
----------
Consolidated Subsidiaries is in default under or with respect to any agreement,
instrument or undertaking to which it is a party or by which it or any of its
property is bound which could have or cause a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
SECTION 4.13. Full Disclosure. All information heretofore furnished by
---------------
the Borrowers to the Agent or any Bank for purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all such
information hereafter furnished by the Borrowers to the Agent or any Bank will
be, true, accurate and complete in every material respect or based on reasonable
estimates on the date as of which such information is stated or certified. The
Borrowers have disclosed to the Banks in writing any and all facts which could
have or cause a Material Adverse Effect.
27
SECTION 4.14. Compliance with Laws. The Borrowers and each of their
--------------------
Subsidiaries are in compliance with all applicable laws, except where any
failure to comply with any such laws would not, alone or in the aggregate, have
a Material Adverse Effect.
SECTION 4.15. Capital Stock. All Capital Stock, debentures, bonds, notes
-------------
and all other securities of each of the Borrowers and their Subsidiaries
presently issued and outstanding are validly and properly issued in accordance
with all applicable laws, including, but not limited to, the "Blue Sky" laws of
all applicable states and the federal securities laws. The issued shares of
Capital Stock of each of the Borrowers' Wholly Owned Subsidiaries are owned by
the Borrowers free and clear of any Lien or adverse claim. At least a majority
of the issued shares of capital stock of each of the Borrowers' other
Subsidiaries (other than Wholly Owned Subsidiaries) is owned by the Borrowers
free and clear of any Lien or adverse claim.
SECTION 4.16. Margin Stock. Neither of the Borrowers nor any of their
------------
Subsidiaries are engaged principally, or as one of their important activities,
in the business of purchasing or carrying any Margin Stock, and no part of the
proceeds of any Loan will be used to purchase or carry any Margin Stock or to
extend credit to others for the purpose of purchasing or carrying any Margin
Stock, or be used for any purpose which violates, or which is inconsistent with,
the provisions of Regulation X.
SECTION 4.17. Insolvency. After giving effect to the execution and
----------
delivery of the Loan Documents and the making of the Loans under this Agreement,
neither of the Borrowers will be "insolvent," within the meaning of such term
as used in O.C.G.A. (S) 18-2-22 or as defined in (S) 101 of Title 11 of the
United States Code or Section 2 of the Uniform Fraudulent Transfer Act, or any
other applicable state law pertaining to fraudulent transfers, as each may be
amended from time to time, or be unable to pay its debts generally as such
debts become due, or have an unreasonably small capital to engage in any
business or transaction, whether current or contemplated.
ARTICLE V
COVENANTS
The Borrowers agree that, so long as any Bank has any Commitment
hereunder or any amount payable under any Note remains unpaid:
SECTION 5.01. Information. The Borrowers will deliver to each of the
-----------
Banks:
(a) as soon as available and in any event within sixty (60) days after
the end of each of the first three quarterly fiscal periods in each fiscal
year of MBIA Inc., consolidated and consolidating balance sheets of MBIA
Inc. and its Subsidiaries (including, without limitation, Municipal Bond
Investors Assurance Corporation), as at
28
the end of such period and the related consolidated statements of income,
changes in stockholders' equity and cash flows and consolidating statement
of income of MBIA Inc. and its Subsidiaries for such period and (in the
case of the second and third quarterly periods) for the period from the
beginning of the current fiscal year to the end of such quarterly period,
setting forth in each case in comparative form the consolidated and, where
applicable, consolidating figures for the corresponding periods of the
previous fiscal year, all in reasonable detail and certified by a principal
financial officer of MBIA Inc. as presenting fairly, in accordance with
GAAP (except as specifically set forth therein; provided any exceptions or
qualifications thereto must be acceptable to the Required Banks) on a basis
consistent with such prior fiscal periods, the information contained
therein, subject to changes resulting from normal year-end audit
adjustments:
(b) as soon as available and in any event within 120 days after the end
of each fiscal year of MBIA Inc., consolidated and consolidating balance
sheets of MBIA Inc. and its Subsidiaries (including, without limitation,
Municipal Bond Investors Assurance Corporation) as at the end of such year
and the related consolidated statements of income, operations, changes in
stockholders' equity and cash flows and consolidating statement of income
of MBIA Inc. and its Subsidiaries for such fiscal year, setting forth in
each case in comparative form the consolidated and, where applicable,
consolidating figures for the previous fiscal year, all in reasonable
detail and (a) in the case of such consolidated financial statements,
accompanied by a report thereon of Coopers & Lybrand or other independent
public accountants of recognized national standing selected by MBIA Inc.,
which report shall state that such consolidated financial statements
present fairly the consolidated financial position of MBIA Inc. and its
Subsidiaries as at the dates indicated and the consolidated results of
their operations and cash flows for the periods indicated in conformity
with GAAP applied on a basis consistent with prior years (except as
otherwise specified in such report; provided any exceptions or
qualifications thereto must be acceptable to the Required Banks) and that
the audit by such accountants in connection with such consolidated
financial statements has been made in accordance with generally accepted
auditing standards, and (b) in the case of such consolidating financial
statements, certified by a principal financial officer of MBIA Inc. as
presenting fairly, in accordance with generally accepted accounting
principles applied (except as specifically set forth therein; provided any
exceptions or qualifications thereto must be acceptable to the Required
Banks) on a basis consistent with such prior fiscal periods, the
information contained therein;
(c) within 5 Domestic Business Days after either Borrower becomes aware
of the occurrence of any Default, a certificate of the chief financial
officer or the chief accounting officer of each of the Borrowers setting
forth the details thereof and the action which the Borrowers are taking or
propose to take with respect thereto;
29
(d) promptly upon the mailing thereof to the security holders of the
Borrowers generally, copies of all financial statements, reports and proxy
statements so mailed;
(e) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent) and annual, quarterly or monthly reports
which the Borrowers shall have filed with the Securities and Exchange
Commission or any national securities exchange;
(f) if and when the Borrowers or any member of the Controlled Group (i)
gives or is required to give notice to the PBGC of any "reportable event"
(as defined in Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under Title IV of ERISA,
or knows that the plan administrator of any Plan has given or is required
to give notice of any such reportable event, a copy of the notice of such
reportable event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of ERISA,
a copy of such notice; or (iii) receives notice from the PBGC under Title
IV of ERISA of an intent to terminate or appoint a trustee to administer
any Plan, a copy of such notice;
(g) promptly after the Borrowers know of the commencement thereof,
notice of any litigation, dispute or proceeding involving a claim against
either of the Borrowers and/or any Subsidiary for $10,000,000 or more in
excess of amounts covered in full by applicable insurance;
(h) from time to time such additional information regarding the
financial position or business of the Borrowers and their Subsidiaries as
the Agent, at the request of any Bank, may reasonably request; and
(i) promptly after the filing thereof, a copy of the annual statements
for each calendar year and quarterly statements for each calendar quarter
as filed with the New York Insurance Department or other then comparable
agency of other jurisdictions and the financial statements of Municipal
Bond Investors Assurance Corporation for each calendar year or quarter
prepared in accordance with Statutory Accounting Principles accompanied by
a report thereon of the independent public accountants of MBIA Inc.
referred to in paragraph (b) above.
SECTION 5.02. Inspection of Property, Books and Records. The Borrowers
-----------------------------------------
will (i) keep, and will cause each Subsidiary to keep, proper books of record
and account in which full, true and correct entries in conformity with GAAP or
Statutory Accounting Principles, as applicable, shall be made of all dealings
and transactions in relation to its business and activities; and (ii) permit,
and will cause each Subsidiary to permit, representatives of any Bank at such
Bank's expense prior to the occurrence of an Event of Default and at the
Borrowers' expense after the occurrence of an Event of Default to visit
30
and inspect any of their respective properties, to examine their respective
books and records and to discuss their respective affairs, finances and accounts
with their respective officers, employees and independent public accountants.
The Borrowers agree to cooperate and assist in such visits and inspections, in
each case at such reasonable times and as often as may reasonably be desired.
SECTION 5.03. Negative Pledge. Neither of the Borrowers nor any of their
---------------
Consolidated Subsidiaries will create, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by it, except:
(i) Liens securing any loan to be made under the Credit Agreement
between MBIA Corp. and Credit Suisse originally dated as of December 29,
1989 and amended January 5, 1990 and as amended from time to time and
amended and restated on September 30,1993 and as may be amended thereafter
from time to time;
(ii) Liens created on certain insurance premiums by a Trust Agreement
effective December 31, 1989 between Municipal Bond Investors Assurance
Corporation, MBIA Insurance Corp. of Illinois and the trustee thereunder,
as amended from time to time;
(iii) As to MBIA Corp., Liens (in addition to Liens permitted under
Section 5.03 (i), (iv) and (v)) in an aggregate principal amount of up to
$10,000,000;
(iv) Liens not securing Debt which are incurred in the ordinary course
of business; and
(v) Liens securing repurchase agreements constituting a borrowing of
funds by MBIA Inc. or any Subsidiary of MBIA Inc. in the ordinary course of
business for liquidity purposes and in no event for a period exceeding
ninety (90) days in each case.
SECTION 5.04. Maintenance of Existence. Each of the Borrowers shall
------------------------
maintain its corporate existence and carry on its business in substantially the
same manner and in substantially the same fields as such business is now carried
on and maintained.
SECTION 5.05. Dissolution. Neither of the Borrowers shall suffer or
-----------
permit dissolution or liquidation either in whole or in part or redeem or retire
any shares of their own stock, except through corporate reorganization to the
extent permitted by Section 5.06.
SECTION 5.06. Consolidations, Mergers and Sales of Assets. The Borrowers
-------------------------------------------
will not consolidate or merge with or into, or sell, lease or otherwise transfer
all or any substantial part of their assets to, any other Person, provided that
--------
(a) either of the Borrowers may merge with another Person if (i) such Person was
organized under the laws of the
31
United States of America or one of its states, (ii) one of the Borrowers is the
corporation surviving such merger and (iii) immediately after giving effect to
such merger, no Default shall have occurred and be continuing, and (b)
Subsidiaries of the Borrowers may merge with one another.
SECTION 5.07. Use of Proceeds. No portion of the proceeds of the Loans
---------------
will be used by the Borrowers or any Subsidiary (i) in connection with, either
directly or indirectly, any tender offer for, or other acquisition of, stock of
any corporation with a view towards obtaining control of such other corporation,
(ii) directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any Margin Stock, or (iii) for any purpose
in violation of any applicable law or regulation.
SECTION 5.08. Compliance with Laws; Payment of Taxes. The Borrowers
--------------------------------------
will, and will cause each of their Subsidiaries and each member of the
Controlled Group to, comply with applicable laws (including but not limited to
ERISA), regulations and similar requirements of governmental authorities
(including but not limited to PBGC), except where (i) the necessity of such
compliance is being contested in good faith through appropriate proceedings
diligently pursued; and (ii) any failure to comply with any such laws would not,
alone or in the aggregate, have a Material Adverse Effect. The Borrowers will,
and will cause each of their Subsidiaries to, pay promptly when due all taxes,
assessments, governmental charges, claims for labor, supplies, rent and other
obligations which, if unpaid, might become a lien against the property of the
Borrowers or any Subsidiary, except liabilities being contested in good faith by
appropriate proceedings diligently pursued.
SECTION 5.09. Insurance. The Borrowers will maintain, and will cause
---------
each of their Subsidiaries to maintain (either in the name of the Borrowers or
in such Subsidiary's own name), with financially sound and reputable insurance
companies, insurance on all their property in at least such amounts and against
at least such risks as are usually insured against in the same general area by
companies of established repute engaged in the same or similar businesses.
SECTION 5.10. Change in Fiscal Year. Neither of the Borrowers shall
---------------------
change their Fiscal Year without the consent of the Required Banks.
SECTION 5.11. Maintenance of Property. The Borrowers shall, and shall
-----------------------
cause each Subsidiary to, maintain all of their properties and assets in good
condition, repair and working order, ordinary wear and tear excepted.
SECTION 5.12. Transactions with Affiliates. Neither of the Borrowers nor
----------------------------
any of their Subsidiaries shall enter into, or be a party to, any transaction
with any Affiliate of the Borrowers or such Subsidiary (which Affiliate is not
one of the Borrowers or a Subsidiary), except as permitted by law and in the
ordinary course of business and pursuant to reasonable terms.
32
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the following events
-----------------
("Events of Default") shall have occurred and be continuing:
(a) either of the Borrowers shall fail to pay when due any principal of
any Loan or shall fail to pay any interest on any Loan within three
Domestic Business Days after such interest shall become due, or shall fail
to pay any fee or other amount payable hereunder within five Domestic
Business Days after such fee or other amount becomes due; or
(b) either of the Borrowers shall fail to observe or perform any
covenant contained in Sections 5.02(ii), 5.04 to 5.07, inclusive, or
Section 5.11; or
(c) either of the Borrowers shall fail to observe or perform any
covenant contained in Section 5.03 for five days after the earlier of (i)
the first day on which any Borrower has knowledge of such failure or (ii)
written notice thereof has been given to any Borrower by the Agent at the
request of any Bank; or
(d) either of the Borrowers shall fail to observe or perform any
covenant or agreement contained herein (other than those covered by clause
(a), (b) or (c) above) for thirty days after the earlier of (i) the first
day on which any Borrower has knowledge of such failure or (ii) written
notice thereof has been given to any Borrower by the Agent at the request
of any Bank; or
(e) any representation, warranty, certification or statement made or
deemed made by either of the Borrowers in Article IV of this Agreement or
in any certificate, financial statement or other document delivered
pursuant to this Agreement shall prove to have been incorrect or misleading
in any material respect when made (or deemed made); or
(f) either of the Borrowers or any Subsidiary shall fail to make any
payment in respect of Debt outstanding (other than the Notes) when due or
within any applicable grace period; or
(g) any event or condition shall occur which results in the acceleration
of the maturity of Debt outstanding in an aggregate amount equal to or in
excess of $10,000,000 of either of the Borrowers or any Subsidiary or the
mandatory prepayment or purchase of such Debt by either of the Borrowers
(or their designee) or such Subsidiary (or its designee) prior to the
scheduled maturity thereof, or enables (or, with the giving of notice or
lapse of time or both, would enable) the holders of such Debt or any Person
acting on such holders' behalf to accelerate the maturity
33
thereof or require the mandatory prepayment or purchase thereof prior to
the scheduled maturity thereof, without regard to whether such holders or
other Person shall have exercised or waived their right to do so; or
(h) either of the Borrowers or any Subsidiary shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other
relief with respect to themselves or their debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of them or any substantial part of their property, or shall
consent to any such relief or to the appointment of or taking possession by
any such official in an involuntary case or other proceeding commenced
against them, or shall make a general assignment for the benefit of
creditors, or shall fail generally, or shall admit in writing their
inability, to pay their debts as they become due, or shall take any
corporate action to authorize any of the foregoing, or shall become or be
declared by a court of competent jurisdiction to be insolvent; or
(i) an involuntary case or other proceeding shall be commenced against
either of the Borrowers or any Subsidiary seeking liquidation,
reorganization or other relief with respect to them or their debts under
any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of them or any substantial part of their property,
and such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 60 days; or an order for relief shall be entered
against either of the Borrowers or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect; or
(j) either of the Borrowers or any member of the Controlled Group shall
fail to pay when due any material amount which they shall have become
liable to pay to the PBGC or to a Plan under Title IV of ERISA; or the PBGC
shall institute proceedings under Title IV of ERISA to terminate or to
cause a trustee to be appointed to administer any such Plan or Plans or a
proceeding shall be instituted by a fiduciary of any such Plan or Plans to
enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not
have been dismissed within 30 days thereafter; or a condition shall exist
by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any such Plan or Plans must be terminated; or
(k) one or more judgments or orders for the payment of money in an
aggregate amount in excess of $10,000,000 shall be rendered against either
of the Borrowers or any Subsidiary and such judgment or order shall
continue unsatisfied and unstayed for a period of 30 days; or
(j) a federal tax lien shall be filed against either of the Borrowers
under Section 6323 of the Code or a lien of the PBGC shall be filed against
either of the
34
Borrowers or any Subsidiary under Section 4068 of ERISA and in either case
such lien shall remain undischarged for a period of 25 days after the date
of filing; or
(m) (i) any Person or two or more Persons acting in concert shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of
1934) of 20% or more of the outstanding shares of the voting stock of MBIA
Inc.; or (ii) as of any date a majority of the Board of Directors of MBIA
Inc. consists of individuals who were not either (A) directors of MBIA Inc.
as of the corresponding date of the previous year, (B) selected or
nominated to become directors by the Board of Directors of MBIA Inc. of
which a majority consisted of individuals described in clause (A), or (C)
selected or nominated to become directors by the Board of Directors of MBIA
Inc. of which a majority consisted of individuals described in clause (A)
and individuals described in clause (B); or
(n) MBIA Inc. shall at any time or times and for any reason cease to own
(either directly or indirectly through a wholly owned intermediate
Subsidiary) all of the Capital Stock or other ownership interests (except
for director's qualifying shares) of Municipal Bond Investors Assurance
Corporation; or
(o) Municipal Bond Investors Assurance Corporation shall fail to
maintain an insurer claims paying rating of AA+ or better as determined by
Standard and Poors Corporation and Aa1 or better as determined by Moody's
Investors Service, Inc.; or
(p) MBIA Inc. shall fail to maintain a long term debt rating of A or
better as determined by Standard and Poors Corporation and A2 or better as
determined by Moody's Investors Service, Inc.
then, and in every such event, the Agent shall (i) if requested by the Required
Banks, by notice to the Borrowers terminate the Commitments and they shall
thereupon terminate, and (ii) if requested by the Required Banks, by notice to
the Borrowers declare the Notes (together with accrued interest thereon) and all
other amounts payable hereunder and under the other Loan Documents to be, and
the Notes (together will all accrued interest thereon) and all other amounts
payable hereunder and under the other Loan Documents shall thereupon become,
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Borrowers; provided that if
--------
any Event of Default specified in clause (h) or (i) above occurs with respect to
either of the Borrowers, without any notice to the Borrowers or any other act by
the Agent or the Banks, the Commitments shall thereupon automatically terminate
and the Notes (together with accrued interest thereon) and all other amounts
payable hereunder and under the other Loan Documents shall automatically become
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Borrowers. Notwithstanding
the foregoing, the Agent shall have available to it all other
35
remedies at law or equity, and shall exercise any one or all of them at the
request of the Required Banks.
SECTION 6.02. Notice of Default. The Agent shall give notice to the
-----------------
Borrowers of any Default under Sections 6.01(c) or 6.01(d) promptly upon being
requested to do so by any Bank and shall thereupon notify all the Banks thereof.
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment, Powers and Immunities. Each Bank hereby
----------------------------------
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under the other Loan Documents with such powers as are specifically delegated to
the Agent by the terms hereof and thereof, together with such other powers as
are reasonably incidental thereto. The Agent: (a) shall have no duties or
responsibilities except as expressly set forth in this Agreement and the other
Loan Documents, and shall not by reason of this Agreement or any other Loan
Document be a trustee for any Bank; (b) shall not be responsible to the Banks
for any recitals, statements, representations or warranties contained in this
Agreement or any other Loan Document, or in any certificate or other document
referred to or provided for in, or received by any Bank under, this Agreement or
any other Loan Document, or for the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
any other document referred to or provided for herein or therein or for any
failure by the Borrowers to perform any of their obligations hereunder or
thereunder; (c) shall not be required to initiate or conduct any litigation or
collection proceedings hereunder or under any other Loan Document except to the
extent requested by the Required Banks, and then only on terms and conditions
satisfactory to the Agent, and (d) shall not be responsible for any action taken
or omitted to be taken by it hereunder or under any other Loan Document or any
other document or instrument referred to or provided for herein or therein or in
connection herewith or therewith, except for its own gross negligence or willful
misconduct. The Agent may employ agents and attorneys-in-fact and shall not be
responsible for the negligence or misconduct of any such agents or attorneys-in-
fact selected by it with reasonable care. The provisions of this Article VII are
solely for the benefit of the Agent and the Banks, and the Borrowers shall not
have any rights as a third party beneficiary of any of the provisions hereof. In
performing its functions and duties under this Agreement and under the other
Loan Documents, the Agent shall act solely as agent of the Banks and does not
assume and shall not be deemed to have assumed any obligation towards or
relationship of agency or trust with or for the Borrowers. The duties of the
Agent shall be ministerial and administrative in nature, and the Agent shall not
have by reason of this Agreement or any other Loan Document a fiduciary
relationship in respect of any Bank.
SECTION 7.02. Reliance by Agent. The Agent shall be entitled to rely
-----------------
upon any certification, notice or other communication (including any thereof by
telephone, telefax, telegram or cable) believed by it to be genuine and correct
and to have been signed or sent
36
by or on behalf of the proper Person or Persons, and upon advice and statements
of legal counsel, independent accountants or other experts selected by the
Agent. As to any matters not expressly provided for by this Agreement or any
other Loan Document, the Agent shall in all cases be fully protected in acting,
or in refraining from acting, hereunder and thereunder in accordance with
instructions signed by the Required Banks, and such instructions of the
Required Banks in any action taken or failure to act pursuant thereto shall be
binding on all of the Banks.
SECTION 7.03. Defaults. The Agent shall not be deemed to have knowledge
--------
of the occurrence of a Default or an Event of Default (other than the non-
payment of principal of or interest on the Loans) unless the Agent has received
notice from a Bank or the Borrowers specifying such Default or Event of Default
and stating that such notice is a "Notice of Default". In the event that the
Agent receives such a notice of the occurrence of a Default or an Event of
Default, the Agent shall give prompt notice thereof to the Banks. The Agent
shall give each Bank prompt notice of each non-payment of principal of or
interest on the Loans, whether or not such Bank has received any notice of the
occurrence of such non-payment. The Agent shall (subject to Section 9.05) take
such action with respect to such Default or Event of Default as shall be
directed by the Required Banks, provided that, unless and until the Agent shall
have received such directions, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the best interests of
the Banks.
SECTION 7.04. Rights of Agent as a Bank. With respect to the Loans made
-------------------------
by it, Wachovia in its capacity as a Bank hereunder shall have the same rights
and powers hereunder as any other Bank and may exercise the same as though it
were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the
context otherwise indicates, include Wachovia in its individual capacity. The
Agent may (without having to account therefor to any Bank) accept deposits from,
lend money to and generally engage in any kind of banking, trust or other
business with the Borrowers (and any of their Affiliates) as if it were not
acting as the Agent, and the Agent may accept fees and other consideration from
the Borrowers (in addition to any agency fees and arrangement fees heretofore
agreed to between the Borrowers and the Agent) for services in connection with
this Agreement or any other Loan Document or otherwise without having to account
for the same to the Banks.
SECTION 7.05. Indemnification. Each Bank severally agrees to indemnify
---------------
the Agent, to the extent the Agent shall not have been reimbursed by the
Borrowers, ratably in accordance with its Commitment, for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including, without limitation, counsel fees and disbursements)
or disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of this Agreement or any other Loan Document or any other documents contemplated
by or referred to herein or therein or the transactions contemplated hereby or
thereby (excluding, unless an Event of Default has occurred and is continuing,
the normal administrative costs and expenses incident to the performance of its
agency duties hereunder) or the enforcement
37
of any of the terms hereof or thereof or any such other documents; provided,
--------
however, that no Bank shall be liable for any of the foregoing to the extent
-------
they arise from the gross negligence or willful misconduct of the Agent. If any
indemnity furnished to the Agent for any purpose shall, in the opinion of the
Agent, be insufficient or become impaired, the Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished.
SECTION 7.06. CONSEQUENTIAL DAMAGES. THE AGENT SHALL NOT BE RESPONSIBLE
---------------------
OR LIABLE TO ANY BANK, THE BORROWERS OR ANY OTHER PERSON OR ENTITY FOR ANY
PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF
THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
SECTION 7.07. Payee of Note Treated as Owner. The Agent may deem and
------------------------------
treat the payee of any Note as the owner thereof for all purposes hereof unless
and until a written notice of the assignment or transfer thereof shall have been
filed with the Agent and the provisions of Section 9.07(c) have been satisfied.
Any requests, authority or consent of any Person who at the time of making such
request or giving such authority or consent is the holder of any Note shall be
conclusive and binding or any subsequent holder, transferee or assignee of that
Note or of any Note or Notes issued in exchange therefor or replacement thereof.
SECTION 7.08. Non-Reliance on Agent and Other Banks. Each Bank agrees
-------------------------------------
that it has, independently and without reliance on the Agent or any other Bank,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis of the Borrowers and decision to enter into this
Agreement and that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Loan
Documents. The Agent shall not be required to keep itself (or any Bank) informed
as to the performance or observance by the Borrowers of this Agreement or any of
the other Loan Documents or any other document referred to or provided for
herein or therein or to inspect the properties or books of the Borrowers or any
other Person. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent hereunder or under
the other Loan Documents, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the affairs,
financial condition or business of the Borrowers or any other Person (or any of
their Affiliates) which may come into the possession of the Agent.
SECTION 7.09. Failure to Act. Except for action expressly required of
--------------
the Agent hereunder or under the other Loan Documents, the Agent shall in all
cases be fully justified in failing or refusing to act hereunder and thereunder
unless it shall receive further
38
assurances to its satisfaction by the Banks of their indemnification obligations
under Section 7.05 against any and all liability and expense which may be
incurred by the Agent by reason of taking, continuing to take, or failing to
take any such action.
SECTION 7.10. Resignation or Removal of Agent. Subject to the appointment
-------------------------------
and acceptance of a successor Agent as provided below, the Agent may resign at
any time by giving notice thereof to the Banks and the Borrowers and the Agent
may be removed at any time with or without cause by the Required Banks. The
Agent hereunder shall not resign unless before or contemporaneous with such
resignation, a successor Agent has accepted its appointment as Agent hereunder.
Upon any such resignation or removal, the Required Banks shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed by
the Required Banks and shall have accepted such appointment within 30 days after
the retiring Agent's notice of resignation or the Required Banks' removal of the
retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a
successor Agent. Any successor Agent shall be a bank which has a combined
capital and surplus of at least $500,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Article VII
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent hereunder.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES; COMPENSATION
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair.
--------------------------------------------------------
If on or prior to the first day of any Interest Period:
(a) the Agent determines that deposits in Dollars (in the applicable
amounts) are not being offered in the relevant market for such Interest
Period, or
(b) the Required Banks advise the Agent that the London Interbank
Offered Rate, as determined by the Agent will not adequately and fairly
reflect, in any material respect, the cost to such Banks of funding the
Euro-Dollar Loans for such Interest Period,
the Agent shall forthwith give notice thereof to the Borrower and the Banks,
whereupon until the Agent notifies the Borrowers that the circumstances giving
rise to such suspension no longer exist, the obligations of the Banks to make
the Euro-Dollar Loans shall be suspended. Unless the Borrower requesting a Euro-
Dollar Loan notifies the Agent at least 2 Domestic Business Days before the date
of any Borrowing of Euro-Dollar Loans for which a
39
Notice of Borrowing has previously been given that it: elects not to borrow on
such date, such Borrowing shall instead be made as a Base Rate Borrowing.
SECTION 8.02. Illegality. If, after the date hereof, the adoption of any
----------
applicable law, rule or regulation, or any change in any existing or future
law, rule or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof (any such authority,
bank or agency being referred to as an "Authority" and any such event being
referred to as a "Change of Law"), or compliance by any Bank (or its Lending
Office) with any request or directive (whether or not having the force of law)
of any Authority shall make it unlawful or impossible for any Bank (or its
Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank
shall so notify the Agent, the Agent shall forthwith give notice thereof to the
other Banks and the Borrowers, whereupon until such Bank notifies the Borrowers
and the Agent that the circumstances giving rise to such suspension no longer
exist, the obligation of such Bank to make Euro-Dollar Loans shall be
suspended. Before giving any notice to the Agent pursuant to this Section, such
Bank shall designate a different Lending Office if such designation will avoid
the need for giving such notice and will not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank. If such Bank shall determine that it may
not lawfully continue to maintain and fund any of its outstanding Euro-Dollar
Loans to maturity and shall so specify in such notice, the Borrowers shall
immediately prepay in full the then outstanding principal amount of each Euro-
Dollar Loan of such Bank, together with accrued interest thereon. Concurrently
with prepaying each such Euro-Dollar Loan, the Borrowers may borrow a Base Rate
Loan in an equal principal amount from such Bank (on which interest and
principal shall be payable contemporaneously with the related Euro-Dollar Loans
of the other Banks), and such Bank shall make such a Base Rate Loan.
SECTION 8.03. Increased Cost and Reduced Return. (a) If after the date
---------------------------------
hereof, a Change of Law or compliance by any Bank (or its Lending Office) with
any request or directive (whether or not having the force of law) of any
Authority:
(i) shall subject any Bank (or its Lending Office) to any tax, duty or
other charge with respect to its Euro-Dollar Loans, its Notes or its
obligation to make Euro-Dollar Loans, or shall change the basis of
taxation of payments to any Bank (or its Lending Office) of the principal
of or interest on its Euro-Dollar Loans or any other amounts due under this
Agreement in respect of its Euro-Dollar Loans or its obligation to make
Euro-Dollar Loans (except for changes in the rate of tax on the overall net
income of such Bank or its lending Office imposed by the jurisdiction
which such Bank's principal executive office or Lending Office is located);
or
(ii) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding with respect to any Euro-Dollar Loan any such
requirement included in an applicable Euro-Dollar
40
Reserve Percentage) against assets of, deposits with or for the account of,
or credit extended by, any Bank (or its Lending Office); or
(iii) shall impose on any Bank (or its Lending Office) or on the London
interbank market any other condition affecting its Euro-Dollar Loans, its
Notes or its obligation to make Euro-Dollar Loans;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Lending Office) of making or maintaining any Euro-Dollar Loan, or to reduce
the amount of any sum received or receivable by such Bank (or its Lending
Office) under this Agreement or under its Notes with respect thereto, by an
amount deemed by such Bank to be material, then, within 15 days after demand by
such Bank (with a copy to the Agent), the Borrowers shall pay to such Bank such
additional amount or amounts as will compensate such Bank for such increased
cost or reduction.
(b) If any Bank shall have determined that after the date hereof the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change in any existing or future law, rule or regulation, or any change
in the interpretation or administration thereof, or compliance by any Bank (or
its Lending Office) with any request or directive regarding capital adequacy
(whether or not having the force of law) of any Authority, has or would have
the effect of reducing the rate of return on such Bank's capital as a
consequence of its obligations hereunder to a level below that which such Bank
could have achieved but for such adoption, change or compliance (taking into
consideration such Bank's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, within 15
days after demand by such Bank, the Borrowers shall pay to such Bank such
additional amount or amounts as will compensate such Bank for such reduction.
(c) Each Bank will promptly notify the Borrowers and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section and will designate a
different Lending Office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank. A certificate of any Bank claiming
compensation under this Section and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error. In determining such amount, such Bank may use any reasonable
averaging and attribution methods.
(d) The provisions of this Section 8.03 shall be applicable with respect
to any Participant, Assignee or other Transferee, and any calculations required
by such provisions shall be made subject to Section 9.07 (b) based upon the
circumstances of such Participant, Assignee or other Transferee.
41
SECTION 8.04. Base Rate Loans Substituted for Affected Euro-Dollar
----------------------------------------------------
Loans. If (i) the obligation of any Bank to make or maintain Euro-Dollar Loans
-----
has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded
compensation under Section 8.03, and the Borrowers shall, by at least 5 Euro-
Dollar Business Days' prior notice to such Bank through the Agent, have elected
that the provisions of this Section shall apply to such Bank, then, unless and
until such Bank notifies the Borrowers that the circumstances giving rise to
such suspension or demand for compensation no longer apply:
(a) all Loans which would otherwise be made by such Bank as Euro-Dollar
Loans shall be made instead as Base Rate Loans (in all cases interest and
principal on such Loans shall be payable contemporaneously with the related
Euro-Dollar Loans of the other Banks), and
(b) after each of its Euro-Dollar Loans has been repaid, all payments of
principal which would otherwise be applied to repay such Euro-Dollar Loans
shall be applied to repay its Base Rate Loans instead.
In the event that the Borrowers shall elect that the provisions of this Section
shall apply to any Bank, the Borrowers shall remain liable for, and shall pay to
such Bank as provided herein, all amounts due such Bank under Section 8.03 in
respect of the period preceding the date of conversion of such Bank's Loans
resulting from the Borrowers' election.
SECTION 8.05. Compensation. Upon the request of any Bank, delivered to
------------
the Borrowers and the Agent, the Borrowers shall pay to such Bank such amount or
amounts as shall compensate such Bank for any breakage cost incurred by such
Bank as a result of:
(a) any payment or prepayment (pursuant to Section 2.08) of a Euro-Dollar
Loan or a Money Market Loan on a date other than the last day of an Interest
Period for such Euro-Dollar Loan or Money Market Loan, as the case may be;
(b) any failure by a Borrower to prepay a Euro-Dollar Loan or a Money
Market Loan on the date for such prepayment specified in the relevant notice of
prepayment hereunder;
(c) any failure by a Borrower to borrow a Euro-Dollar Loan on the date for
the Euro-Dollar Borrowing of which such Euro-Dollar Loan is a part specified in
the applicable Notice of Borrowing delivered pursuant to Section 2.02; or
(d) any failure by a Borrower to borrow a Money Market Loan (with respect
to which such Borrower has accepted a Money Market Quote) on the date for the
Money Market Borrowing of which such Money Market Loan is a part specified in
the applicable Money Market Quote Request delivered pursuant to Section 2.03;
42
such compensation to include, without limitation, an amount equal to the excess,
if any, of (x) the amount of interest which would have accrued on the amount so
paid or prepaid or not prepaid or borrowed for the period from the date of such
payment, prepayment or failure to prepay or borrow to the last day of the then
current Interest Period for such Euro-Dollar Loan (or, in the case of a failure
to prepay or borrow, the Interest Period for such Euro-Dollar Loan which would
have commenced on the date of such failure to prepay or borrow) at the
applicable rate of interest for such Euro-Dollar Loan provided for herein over
(y) the amount of interest (as reasonably determined by such Bank) such Bank
would have paid on deposits in Dollars of comparable amounts having terms
comparable to such period placed with it by leading banks in the London
interbank market.
SECTION 8.07. Replacement of Bank. In the event that any Bank gives any
-------------------
notice under Section 8.02 resulting in the suspension of its obligation to make
Euro-Dollar Loans or requests compensation pursuant to Sections 2.12 (c) or
8.03, or the Borrowers are required to make any withholding or deduction of
Taxes pursuant to Section 2.12 (c), then, so long as the condition giving rise
to such suspension or compensation exists, the Borrower may designate another
bank or financial institution (such bank or financial institution being herein
called a "Replacement Bank") acceptable to the Agent (which acceptance will not
be unreasonably withheld) and which is not an Affiliate of the Borrower, to
assume such Bank's Commitment hereunder and to purchase the Loans of such Bank
and such Bank's rights under this Agreement and the Notes held by such Bank, all
without recourse to or representation or warranty by, or expense to, such Bank,
for a purchase price equal to the outstanding principal amount of the Loans
payable to such Bank plus any accrued but unpaid interest on such Loans and
----
accrued but unpaid fees owing to such Bank plus any amounts payable to such Bank
----
under Section 8.05, and upon such assumption, purchase and substitution, and
subject to the execution and delivery to the Agent by the Replacement Bank of
documentation satisfactory to the Agent (pursuant to which such Replacement Bank
shall assume the obligations of such original Bank under this Agreement), the
Replacement Bank shall succeed to the rights and obligations of such Bank
hereunder. In the event that the Borrower exercises its rights under the
preceding sentence, the Bank against which such rights were exercised shall no
longer be a party hereto or have any rights or obligations hereunder; provided
--------
that the obligations of the Borrower to such Bank under Article VIII and Section
9.03 with respect to events occurring or obligations arising before or as a
result of such replacement shall survive such exercise.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other communications to
-------
any party hereunder shall be in writing (including facsimile transmission or
similar writing) and shall be given to such party at its address or telecopy
number set forth on the signature pages hereof or such other address or telecopy
number as such party may hereafter specify for the purpose by notice to each
other party. Each such notice, request or other
43
communication shall be effective (i) if given by telecopier, when such telecopy
is transmitted to the telecopy number specified in this Section and the
telecopy machine used by the sender provides a written confirmation that such
telecopy has been so transmitted or receipt of such telecopy transmission is
otherwise confirmed, (ii) if given by mail, 72 hours after such communication
is deposited in the mails with first class postage prepaid, addressed as
aforesaid, and (iii) if given by any other means, when delivered at the address
specified in this Section; provided that notices to the Agent under Article II
--------
or Article VIII shall not be effective until received.
SECTION 9.02. No Waivers. No failure or delay by the Agent or any Bank
----------
in exercising any right, power or privilege hereunder or under any Note or other
Loan Document shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03. Expenses; Documentary Taxes; Indemnification. (a) The
--------------------------------------------
Borrowers shall pay (i) all out-of-pocket expenses of the Agent, including
reasonable fees and disbursements of special counsel for the Agent, in
connection with the preparation of this Agreement and the other Loan Documents
(subject to the terms of the Agent's Letter Agreement), any waiver or consent
hereunder or thereunder or any amendment hereof or thereof or any Default
hereunder or thereunder and (ii) if an Event of Default occurs, all out-of-
pocket expenses incurred by the Agent or any Bank, including reasonable fees and
disbursements of counsel, in connection with such Event of Default and
collection and other enforcement proceedings resulting therefrom, including out-
of-pocket expenses incurred in enforcing this Agreement and the other Loan
Documents.
(b) The Borrowers shall indemnify the Agent and each Bank against any
transfer taxes, documentary taxes, assessments or charges made by any Authority
by reason of the execution and delivery of this Agreement or the other Loan
Documents.
(c) The Borrowers shall indemnify the Agent and the Banks and each
Affiliate of the Agent and their respective directors, officers, employees and
agents from, and hold each of them harmless against, any and all losses,
liabilities, claims or damages to which any of them may become subject, insofar
as such losses, liabilities, claims or damages arise out of or result from any
actual or proposed use by the Borrowers of the proceeds of any extension of
credit by any Bank hereunder or breach by the Borrowers of this Agreement or any
other Loan Document or from investigation, litigation (including, without
limitation, any actions taken by the Agent or any of the Banks to enforce this
Agreement or any of the other Loan Documents) or other proceeding (including,
without limitation, any threatened investigation or proceeding) relating to the
foregoing, and the Borrowers shall reimburse the Agent and each Bank, and each
Affiliate of the Agent and their respective directors, officers, employees and
agents, upon demand for any expenses (including, without limitation, reasonable
legal fees) incurred in connection with any such investigation or proceeding;
but excluding any such
44
losses, liabilities, claims, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified.
SECTION 9.04. Setoffs; Sharing of Counterclaims. (a) The Banks hereby
---------------------------------
agree they shall not exercise any right of setoff against any deposit of money
or other property of the Borrowers held by a Bank.
(b) Each Bank agrees that if it shall, by exercising any right of
counterclaim or otherwise, receive payment of a proportion of the aggregate
amount of principal and interest owing with respect to the Syndicated Notes held
by it which is greater than the proportion received by any other Bank in respect
of the aggregate amount of all principal and interest owing with respect to the
Syndicated Notes held by such other Bank, the Bank receiving such
proportionately greater payment shall purchase such participations in the
Syndicated Notes held by the other Banks owing to such other Banks, and/or such
other adjustments shall be made, as may be required so that all such payments of
principal and interest with respect to the Syndicated Notes held by the Banks
owing to such other Banks shall be shared by the Banks pro rata; provided that
--------
(i) nothing in this Section shall impair the right of any Bank to exercise any
right of counterclaim it may have and to apply the amount subject to such
exercise to the payment of indebtedness (including, without limitation, Money
Market Loans) of the Borrowers other than its indebtedness under the Syndicated
Notes, and (ii) if all or any portion of such payment received by the purchasing
Bank is thereafter recovered from such purchasing Bank, such purchase from each
other Bank shall be rescinded and such other Bank shall repay to the purchasing
Bank the purchase price of such participation to the extent of such recovery
together with an amount equal to such other Bank's ratable share (according to
the proportion of (x) the amount of such other Bank's required repayment to (y)
the total amount so recovered from the purchasing Bank) of any interest or other
amount paid or payable by the purchasing Bank in respect of the total amount so
recovered. The Borrowers agree, to the fullest extent they may effectively do so
under applicable law, that any holder of a participation in a Syndicated Note,
whether or not acquired pursuant to the foregoing arrangements, may exercise
rights of counterclaim and other rights with respect to such participation as
fully as if such holder of a participation were a direct creditor of the
Borrowers in the amount of such participation.
SECTION 9.05. Amendments and Waivers. (a) Any provision of this
----------------------
Agreement, the Notes or any other Loan Documents may be amended or waived if,
but only if, such amendment or waiver is in writing and is signed by both of the
Borrowers and the Required Banks (and, if the rights or duties of the Agent are
affected thereby, by the Agent); provided that no such amendment or waiver
--------
shall, unless signed by all the Banks, (i) change the Commitment of any Bank or
subject any Bank to any additional obligation, (ii) change the principal of or
rate of interest on any Loan or any fees hereunder, (iii) change the date fixed
for any payment of principal of or interest on any Loan or any fees hereunder,
(iv) change the amount of principal, interest or fees due on any date fixed for
the payment thereof, (v) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Notes, or the percentage of Banks,
which shall be required for the Banks or
45
any of them to take any action under this Section or any other provision of this
Agreement, or (vi) change the manner of application of any payments made under
this Agreement or the Notes.
(b) The Borrowers will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions of this
Agreement unless each Bank shall be informed thereof by the Borrowers and shall
be afforded an opportunity of considering the same and shall be supplied by the
Borrowers with sufficient information to enable it to make an informed decision
with respect thereto. Executed or true and correct copies of any waiver or
consent effected pursuant to the provisions of this Agreement shall be delivered
by the Borrowers to each Bank forthwith following the date on which the same
shall have been executed and delivered by the requisite percentage of Banks. The
Borrowers will not, directly or indirectly, pay or cause to be paid any
remuneration, whether by way of supplemental or additional interest, fee or
otherwise to any Bank (in its capacity as such) as consideration for or as an
inducement to the entering into by such Bank of any waiver or amendment of any
of the terms and provisions of this Agreement unless such remuneration is
concurrently paid, on the same terms, ratably to all such Banks.
SECTION 9.06. Margin Stock Collateral. Each of the Banks represents to
-----------------------
the Agent and each of the other Banks that it in good faith is not, directly or
indirectly (by negative pledge or otherwise), relying upon any Margin Stock as
collateral in the extension or maintenance of the credit provided for in this
Agreement.
SECTION 9.07. Successors and Assigns. (a) The provisions of this
----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided that the Borrowers may not
assign or otherwise transfer any of their rights under this Agreement.
(b) Subject to the terms of Section 9.08 regarding the disclosure of
certain information to proposed Participants, any Bank may at any time sell to
one or more Persons (each a "Participant") participating interests in any Loan
owing to such Bank, any Note held by such Bank, any Commitment hereunder or any
other interest of such Bank hereunder. In the event of any such sale by a Bank
of a participating interest to a Participant, such Bank's obligations under this
Agreement shall remain unchanged, such Bank shall remain solely responsible for
the performance thereof, such Bank shall remain the holder of any such Note for
all purposes under this Agreement, and the Borrowers and the Agent shall
continue to deal solely and directly with such Bank in connection with such
Bank's rights and obligations under this Agreement. In no event shall a Bank
that sells a participation be obligated to the Participant to take or refrain
from taking any action hereunder except that such Bank may agree that it will
not (except as provided below), without the consent of the Participant, agree to
(i) the change of any date fixed for the payment of principal of or interest on
the related Loan or Loans, (ii) the change of the amount of any principal,
interest or fees due on any date fixed for the payment thereof with respect to
the related Loan or Loans, (iii) the change of the principal of the related Loan
or Loans, or (iv) any change in the rate at which either
46
interest is payable thereon or (if the Participant is entitled to any part
thereof) commitment fee or facility fee is payable hereunder from the rate at
which the Participant is entitled to receive interest or commitment fee (as the
case may be) in respect of such participation. Each Bank selling a
participating interest in any Loan, Note, Commitment or other interest under
this Agreement shall, within 10 Domestic Business Days of such sale, provide the
Borrowers and the Agent with written notification stating that such sale has
occurred and identifying the Participant and the interest purchased by such
Participant. The Borrowers agree that each Participant shall be entitled to the
benefits of Article VIII with respect to its participation in Loans outstanding
from time to time; provided, that no Participant shall be entitled to the
benefits of Article VIII to an extent or in an amount greater than the Bank
which sold the applicable participation to such Participant.
(c) Any Bank may at any time assign to one or more banks or financial
institutions (each an "Assignee") all, or a proportionate part of all, of its
rights and obligations under this Agreement, the Notes and the other Loan
Documents, and such Assignee shall assume all such rights and obligations,
pursuant to an Assignment and Acceptance in the form attached hereto as Exhibit
I, executed by such Assignee, such transferor Bank and the Agent (and, in the
case of an Assignee that is not then a Bank or an Affiliate of a Bank, by the
Borrowers); provided that (i) no interest may be sold by a Bank pursuant to this
paragraph (c) unless the Assignee shall agree to assume ratably equivalent
portions of the transferor Bank's Commitment, (ii) the amount of the Commitment
of the assigning Bank subject to such assignment (determined as of the effective
date of the assignment) shall be equal to $5,000,000(or any larger multiple of
$1,000,000),(iii) unless a Default has occurred and is continuing (in which case
the consent of the Borrowers is not required), no interest may be sold by a Bank
pursuant to this paragraph (c)l to any Assignee that is not then a Bank or an
Affiliate of a Bank without the consent of both of the Borrowers, which consent
shall not be unreasonably withheld, and (iv) a Bank may not have more than
three (3) Assignees at any one time. Upon (A) execution of the Assignment and
Acceptance by such transferor Bank, such Assignee, the Agent and (if applicable)
the Borrowers, (B) delivery of an executed copy of the Assignment and
Acceptance to the Borrowers and the Agent, (C) payment by such Assignee to such
transferor Bank of an amount equal to the purchase price agreed between such
transferor Bank and such Assignee, and (D) payment by such Assignee to the Agent
of a processing and recordation fee of $2,500 to the Agent, and (E) if
requested by the Borrowers, (1) if the Assignee is organized under the laws of a
jurisdiction outside the United States, delivery of legal opinions
substantially in the forms attached hereto as Exhibits K-1 and K-2, and (2) if
the Assignee is organized under the laws of a jurisdiction within the United
States, delivery of a legal opinion substantially in the form attached hereto
as Exhibit L, from legal counsel to such Assignee confirming that the
Assignment and Acceptance is duly authorized by and an enforceable agreement of,
the Assignee, such Assignee shall for all purposes be a Bank party to this
Agreement and shall have all the rights and obligations of a Bank under this
Agreement (including, without limitation, the rights of a Bank under Section
2.03) to the same extent as if it were an original party hereto with a
Commitment as set forth in such instrument of assumption, and the transferor
Bank shall be released from its obligations hereunder to a corresponding
47
extent, and no further consent or action by the Borrowers, the Banks or the
Agent shall be required. Upon the consummation of any transfer to an Assignee
pursuant to this paragraph (c), the transferor Bank, the Agent and the
Borrowers shall make appropriate arrangements so that, if required, a new Note
is issued to each of such Assignee and such transferor Bank.
(d) Subject to the provisions of Section 9.08, the Borrowers authorize
each Bank to disclose to any Participant, Assignee or any successor to any Bank
by operation of law or regulation (each a "Transferee") and any prospective
Transferee any and all financial and other information in such Bank's possession
concerning the Borrowers which has been delivered to such Bank by the Borrowers
pursuant to this Agreement or which has been delivered to such Bank by the
Borrowers in connection with such Bank's credit evaluation prior to entering
into this Agreement.
(e) No Transferee shall be entitled to receive any greater payment under
Section 8.03 than the transferor Bank would have been entitled to receive with
respect to the rights transferred, unless such transfer is made with the
Borrowers' prior written consent or by reason of the provisions of Section 8.02
or 8.03 requiring such Bank to designate a different Lending Office under
certain circumstances or at a time when the circumstances giving rise to such
greater payment did not exist.
(f) Anything in this Section 9.07 to the contrary notwithstanding, any
Bank may assign and pledge all or any portion of the Loans and/or obligations
owing to it to any Federal Reserve Bank or the United States Treasury as
collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by such Federal Reserve
Bank, provided that any payment in respect of such assigned Loans and/or
obligations made by the Borrower to the assigning and/or pledging Bank in
accordance with the terms of this Agreement shall satisfy the Borrower's
obligations hereunder in respect of such assigned Loans and/or obligations to
the extent of such payment. No such assignment shall release the assigning
and/or pledging Bank from its obligations hereunder.
SECTION 9.08. Confidentiality. Each Bank agrees to keep any information
---------------
delivered or made available by the Borrowers to it which is clearly indicated
to be confidential information, confidential from anyone other than persons
employed or retained by such Bank who are or are expected to become engaged in
evaluating, approving, structuring or administering the Loans; provided,
--------
however, that nothing herein shall prevent any Bank from disclosing such
-------
information (i) to any other Bank, (ii) upon the order of any court or
administrative agency, (iii) upon the request or demand of any regulatory
agency or authority having jurisdiction over such Bank, (iv) which has been
publicly disclosed, (v) to the extent reasonably required in connection with
any litigation to which the Agent, any Bank or their respective Affiliates may
be a party, (vi) to the extent reasonably required in connection with the
exercise of any remedy hereunder, (vii) to such Bank's legal counsel and
independent auditors and (viii) to any actual or proposed Participant, Assignee
or other Transferee of all or part of its rights hereunder provided that: (A)
any actual or proposed Participant, Assignee
48
or other Transferee has prior to such disclosure, agreed in writing to be bound
by the provisions of this Section 9.08; and (B) a Bank must obtain the consent
of the Borrowers prior to the disclosure to any proposed Participant of any
information which is clearly indicated to be confidential information, provided
further that if a Bank obtains the Borrowers consent to the disclosure of such
confidential information to a proposed Participant a Bank shall not be required
to obtain any further or additional consent regarding subsequent disclosures to
such proposed Participant.
SECTION 9.09. Representation by Banks. Each Bank hereby represents that
-----------------------
it is a commercial lender or financial institution which makes loans in the
ordinary course of its business and that it will make its Loans hereunder for
its own account in the ordinary course of such business; provided, however,
-------- -------
that, subject to Section 9.07, the disposition of the Note or Notes held by that
Bank shall at all times be within its exclusive control.
SECTION 9.10. Obligations Several. The obligations of each Bank
-------------------
hereunder are several, and no Bank shall be responsible for the obligations or
commitment of any other Bank hereunder. Nothing contained in this Agreement and
no action taken by the Banks pursuant hereto shall be deemed to constitute the
Banks to be a partnership, an association, a joint venture or any other kind of
entity. The amounts payable at any time hereunder to each Bank shall be a
separate and independent debt, and each Bank shall be entitled to protect and
enforce its rights arising out of this Agreement or any other Loan Document and
it shall not be necessary for any other Bank to be joined as an additional party
in any proceeding for such purpose.
SECTION 9.11. Survival of Certain Obligations. Sections 8.03(a),
-------------------------------
8.03(b), 8.05 and 9.03, and the obligations of the Borrowers thereunder, shall
survive, and shall continue to be enforceable notwithstanding, the termination
of this Agreement and the Commitments and the payment in full of the principal
of and interest on all Loans.
SECTION 9.12. Georgia Law. This Agreement and each Note shall be
-----------
construed in accordance with and governed by the law of the State of Georgia.
SECTION 9.13. Severability. In case any one or more of the provisions
------------
contained in this Agreement, the Notes or any of the other Loan Documents should
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby and shall be enforced to the
greatest extent permitted by law.
SECTION 9.14. Interest. In no event shall the amount of interest due or
--------
payable hereunder or under the Notes exceed the maximum rate of interest allowed
by applicable law, and in the event any such payment is inadvertently made to
any Bank by the Borrowers or inadvertently received by any Bank, then such
excess sum shall be credited as a payment of principal, unless the Borrowers
shall notify such Bank in writing that it elects to have such excess sum
returned forthwith. It is the express intent hereof that the Borrowers
49
not pay and the Banks not receive, directly or indirectly in any manner
whatsoever, interest in excess of that which may legally be paid by the
Borrowers under applicable law.
SECTION 9.15. Interpretation. No provision of this Agreement or any of
--------------
the other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.
SECTION 9.16. Consent to Jurisdiction. Each of the Borrowers hereby (a)
-----------------------
submits to personal jurisdiction in the State of Georgia, the courts thereof and
the United States District Courts sitting therein, for the enforcement of this
Agreement, the Notes and the other Loan Documents, (b) waives any and all
personal rights under the law of any jurisdiction to object on any basis
(including, without limitation, inconvenience of forum) to jurisdiction or
venue within the State of Georgia for the purpose of litigation to enforce this
Agreement, the Notes or the other Loan Documents, and (c) agrees that service of
process may be made upon it in the manner prescribed in Section 9.01 for the
giving of notice to the Borrowers. Nothing herein contained, however, shall
prevent the Agent from bringing any action or exercising any rights against any
security and against the Borrowers personally, and against any assets of the
Borrowers, within any other state or jurisdiction.
SECTION 9.17. Counterparts. This Agreement may be signed in any number
------------
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument. Delivery of an
executed counterpart of a signature page to this Agreement, any Note or any
other Loan Document by telecopier shall be effective as delivery of a manually
executed counterpart of this Agreement, such Note or Loan Document.
SECTION 9.18. Joint and Several Liability. Each of the Borrowers hereby
---------------------------
agrees that all of their indebtedness, liabilities and obligations under this
Agreement, the Notes and the other Loan Documents shall be joint and several.
[Remainder of this page intentionally left blank]
50
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, under seal, by their respective authorized officers as of the day
and year first above written.
MBIA INC.
By: /s/ Christopher W. Tilley (SEAL)
-------------------------
Title: Treasurer
MBIA Inc.
113 King Street
Armonk, New York 10504
Attention: Christopher W. Tilley
Telecopy number: (914) 765-3163
Telephone number: (914) 765-3013
MUNICIPAL BOND INVESTORS
ASSURANCE CORPORATION
By: /s/ Christopher W. Tilley (SEAL)
-------------------------
Municipal Bond Investors
Assurance Corporation
113 King Street
Armonk, New York 10504
Attention: Christopher W. Tilley
Telecopy number: (914) 765-3163
Telephone number: (914) 765-3013
[Remainder of this page intentionally left blank]
51
COMMITMENTS WACHOVIA BANK OF GEORGIA, N.A., as
Agent and as a Bank
$50,000,000
By: /s/ (SEAL)
------------------------
Title: Senior Vice President
Lending Office
Wachovia Bank of Georgia, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attention: Linda M. Harris
Telecopy number: (404) 332-6898
Telephone number: (404) 332-5709
With a copy to:
Wachovia Bank of Georgia, N.A.
c/o Wachovia Corporate Services, Inc.
152 West 57th Street
New York, New York 10019
Attention: J. P. Mathis
Telecopy number: (212) 603-7729
Telephone number: (212) 603-7704
[Remainder of this page intentionally left blank]
52
$37,500.000 BANCO SANTANDER
By: /s/ (SEAL)
---------------------------
Title:
Lending Office
Banco Santander
45 East 53rd Street
New York, New York 10022
Attention: Robert Schlegel
Telecopy number: (212) 350-3690
Telephone number:(212) 350-3657
[Remainder of this page intentionally left blank]
53
$37,500,000 THE SUMITOMO BANK, LTD.,
NEW YORK BRANCH
By: /s/ (SEAL)
--------------------------
Title: Joint General Manager
Lending Office
The Sumitomo Bank, Ltd.,
New York Branch
One World Trade Center, Suite 9651
New York, New York 10048
Attention: Leo Pagarigan
Telecopy number: (212) 553-0118
Telephone number: (212) 553-1832
[Remainder of this page intentionally left blank]
54
$25,000,000 THE CHASE MANHATTAN BANK, N.A.
By: /s/ J. David Parker, Jr. (SEAL)
-------------------------
Title:
Lending Office
The Chase Manhattan Bank, N. A.
Worldwide Insurance Division
1 Chase Manhattan Plaza
Global Insurance Division
4th Floor
New York, New York 10081
Attention: J. David Parker, Jr.,
Vice President
Telecopy number: (212) 552-3651
Telephone number:(212) 552-7631
[Remainder of this page intentionally left blank]
55
$25,000,000 COMMERZBANK AKTIENGESELLSCHAFT
By: /s/ J. Boysen /s/ M. McCarthy (SEAL)
------------------------------
Title: Senior VP Assistant Treasurer
Lending Office
Commerzbank
Two World Financial Center
New York, New York 10281-1050
Attention: Michael Hintz
Telecopy number: (212) 266-7235
Telephone number: (212) 266-7316
[Remainder of this page intentionally left blank]
56
$25,000,000 THE INDUSTRIAL BANK OF JAPAN, LIMITED
NEW YORK BRANCH
By: /s/ Toshiyuki Ban (SEAL)
-------------------------
Title: Senior Vice President
Lending Office
The Industrial Bank of Japan, Limited
New York Branch
Public and Financial Institution Group
245 Park Avenue
New York, New York 10167
Attention: Toshiyuki Ban,
Senior Vice President
Telecopy number: (212) 682-2870
Telephone number: (212) 309-6444
[Remainder of this page intentionally left blank]
57
$25,000,000 NBD BANK, N.A.
/s/ Anna R. Hoffman
By: ___________________________ (SEAL)
Title: Vice President
Lending Office
NBD Bank, N.A.
611 Woodward Avenue
Detroit, Michigan 48226
Telecopy number: (313) 225-1586
Telephone number: (313) 225-2985
TOTAL COMMITMENTS:
$225,000,000
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58
EXHIBIT 10.66A
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment")
is made as of the fourteenth day of October, 1994, among MUNICIPAL BOND
INVESTORS ASSURANCE CORPORATION and MBIA, INC. (collectively, the "Borrowers"),
the BANKS listed on the signature pages hereof (together with their respective
successors and assigns, the "Banks") and WACHOVIA BANK OF GEORGIA, N.A., as
Agent (the "Agent").
Background:
----------
The Borrowers, the Banks and the Agent have entered into a certain
Credit Agreement, dated as of August 31, 1994 (the "Credit Agreement").
The Borrowers, the Banks and the Agent wish to amend the Credit
Agreement in certain respects, as hereinafter provided.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions. Capitalized terms used herein which are not
-----------
otherwise defined herein shall have the respective meanings assigned to them in
the Credit Agreement.
SECTION 2. Amendments. The Credit Agreement is hereby amended as set
----------
forth in this Section 2.
2.1 Amendment to Section 1.01. Paragraph (3) of the definition of
-------------------------
"Interest Period" as set forth in Section 1.01 of the Credit Agreement is
hereby amended and restated in its entirety to read as follows:
(3) with respect to each Money Market Borrowing, the
period commencing on the date of such Borrowing and
ending 7 to 365 days thereafter, as a Borrower may
indicate in the applicable Money Market Quote Request;
provided that:
--------
(a) any Interest Period (subject to clause (b)
below) which would otherwise end on a day which is
not a Domestic Business Day shall be extended to the
next succeeding Domestic Business Day; and
(b) no Interest Period may be selected which begins
before the Termination Date and would otherwise
end after the Termination Date.
2.2 Amendment to Section 2.03.
--------------------------
(a) Subsection 2.03(b)(iii) of the Credit Agreement is amended and
restated in its entirety to read as follows:
(iii) the duration of the Interest Period applicable thereto, which
shall be 7 to 365 days.
(b) Subsection 2.03(c)(ii)(A) of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
(A) the proposed date of the Money Market Borrowing and the
duration of the Interest Period therefor, which shall be 7 to 365
days;
2.3 Amendment to Exhibit E. The footnote designated *** on Exhibit E
----------------------
to the Credit Agreement is hereby amended and restated in its entirety to read
as follows:
*** A period of 7 to 365 days.
2.4 Amendment to Exhibit F. The footnote designated as number 4
----------------------
on Exhibit F to the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
4 A period of 7 to 365 days.
SECTION 3. No Other Amendment. Except for the amendments set forth
------------------
above, the text of the Credit Agreement shall remain unchanged and in full force
and effect. This Amendment is not intended to effect, nor shall it be construed
as, a novation. The Credit Agreement and this Amendment shall be construed
together as a single instrument.
SECTION 4. Representations and Warranties. The Borrowers hereby
------------------------------
represent and warrant in favor of the Agent and the Banks as follows:
(a) No Default or Event of Default under the Credit Agreement has
occurred and is continuing on the date hereof;
(b) The Borrowers have the corporate power and authority to enter into
this Amendment and to do all acts and things as are required or contemplated
hereunder to be done, observed and performed by them;
(c) This Amendment has been duly authorized, validly executed and
delivered by one or more authorized officers of the Borrowers and this Amendment
constitutes the legal, valid and binding obligation of the Borrowers enforceable
against them in accordance with its terms; and
2
(d) The execution and delivery of this Amendment and the Borrowers'
performance hereunder do not and will not require the consent or approval of any
regulatory authority or governmental authority or agency having jurisdiction
over the Borrowers, nor be in contravention of or in conflict with the
respective Certificates of Incorporation or Bylaws of the Borrowers, or the
provision of any statute, or any judgment, order or indenture, instrument,
agreement or undertaking, to which the Borrowers are a party or by which the
Borrowers' assets or properties are or may become bound.
SECTION 5. Counterparts. This Amendment may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original and all of which,
taken together, shall constitute one and the same agreement.
SECTION 6. Governing Law. This Amendment shall be deemed to be made
-------------
pursuant to the laws of the State of Georgia with respect to agreements made and
to be performed wholly in the State of Georgia and shall be construed,
interpreted, performed and enforced in accordance therewith.
SECTION 7. Effective Date. This Amendment shall become effective as of
--------------
October 14, 1994.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
MUNICIPAL BOND INVESTORS
ASSURANCE CORPORATION
By: /s/ Christopher W. Tilley (SEAL)
----------------------------------
Title: Treasurer
MBIA INC.
By: /s/ Christopher W. Tilley (SEAL)
----------------------------------
Title: Treasurer
3
WACHOVIA BANK OF GEORGIA, N.A., as
Agent and as a Bank
By: /s/ (SEAL)
----------------------------------
Title:
[Remainder of this page intentionally left blank]
4
BANCO SANTANDER
By: /s/ /s/ (SEAL)
----------------------------------
Title:
[Remainder of this page intentionally left blank]
5
THE SUMITOMO BANK, LTD.
NEW YORK BRANCH
By: /s/ (SEAL)
----------------------------------
Title: Joint General Manager
[Remainder of this page intentionally left blank]
6
THE CHASE MANHATTAN BANK, N.A.
By: /s/ J. David Parker, Jr. (SEAL)
---------------------------------------
Title: Vice President
[Remainder of this page intentionally left blank]
7
COMMERZBANK AKTIENGESELLSCHAFT
By: /s/ Werner Niemeyer /s/ Michael Hintz (SEAL)
--------------------------------------
Title: Werner Niemeyer Michael Hintz
Vice President Vice President
[Remainder of this page intentionally left blank]
8
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
NEW YORK BRANCH
By: /s/ Toshiyuki Ban (SEAL)
----------------------------------
Title: Senior Vice President
[Remainder of this page intentionally left blank]
9
NBD BANK, N.A.
By: /s/ Anna R. Hoffman (SEAL)
----------------------------------
Title: Vice President
[Remainder of this page intentionally left blank]
10
EX-10
11
EXHIBIT 10.67
ENDORSEMENT NO. 13
to the
Reinsurance Agreements, dated as of
December 30, 1986 (the "Agreements") entered
into severally by and between THE AETNA
CASUALTY AND SURETY COMPANY, FIREMAN'S FUND
INSURANCE COMPANY, CIGNA PROPERTY AND CASUALTY
INSURANCE COMPANY (formerly Aetna Insurance
Company), and THE CONTINENTAL INSURANCE COMPANY
(collectively, the "Ceding Companies")
respectively, and MBIA Inc. ("MBIA Inc.")
WITNESSETH:
WHEREAS, the Ceding Companies were participants in the following
reinsurance agreements (collectively, the "Reinsurance Treaties") with
Security Insurance Company of Hartford, as reinsurer ("Reinsurer"):
(a) the Municipal Bond Quota Share and Surplus Reinsurance Agreement
entered into by the Association members, as amended, which reinsures a portion
of each Association member's participation in the municipal bond guaranty
insurance provided by the Municipal Bond Insurance Association (the
"Association"), which insurance became effective 12:01 A.M., December 1, 1983
and before midnight, November 30, 1984; and
(b) the Municipal Bond Quota Share and Surplus Reinsurance Agreement
entered into by the Association members, as amended, which reinsures a portion
of each Association member's participation in the municipal bond guaranty
insurance provided by the Municipal Bond Insurance Association (the
"Association"), which Insurance became effective on and after 12:01 A.M.,
December 1, 1984 and before midnight, April 30, 1987; and
WHEREAS, by Addenda to the Termination Endorsement to the Reinsurance
Treaties and with due consideration, each Ceding Company has agreed to
recapture, and the Reinsurer has agreed to allow each Ceding Company to
recapture as of 12:01 A.M., Eastern Standard Time, December 1, 1990, its
respective share of one hundred percent (100%) of the Reinsurer's rights,
liabilities, including run-off liabilities, and other obligations arising under
the Reinsurance Treaties; and
- 1 -
Endorsement No. 13
WHEREAS, the Covered Business (as defined in the Reinsurance
Agreements dated as of December 30, 1986 (the "Agreements")) ceded to MBIA Inc.
under the Agreements was net of cessions by the Association to third-party
reinsurers under treaties as in effect at the Effective Time (as defined in the
Agreements), regardless of subsequent amendment or termination thereof; and
WHEREAS, by Reinsurance Assumption Agreements, dated as of December
30, 1986, the rights and the liabilities and other obligations of MBIA Inc. in
the Agreements have, in their entirety, been assigned to and assumed by
Municipal Bond Investors Assurance Corporation ("MBIA Corp.") in their entirety
and the Ceding Companies have released MBIA Inc. from all obligations under the
respective Agreements,
NOW, THEREFORE, the undersigned hereby agree that, effective 12:01
A.M., Eastern Standard Time, December 1, 1990, Covered Business (as defined in
the Agreements) is no longer net of the Ceding Companies' respective
participations in one hundred percent (100%) of the cessions to the Reinsurer
under the Reinsurance Treaties, and, in consideration thereof, each of the
undersigned Ceding Companies will pay, and MBIA Corp. will accept, such Ceding
Company's share of $425,418 (representing the unearned premium reserve of
$665,807, minus a $188,024
- 2 -
Endorsement No. 13
ceding commission, minus a $66,581 override commission, and plus a $14,216
contingent commission, calculated in accordance with statutory accounting
practices).
IN WITNESS WHEREOF, the parties hereto, by their respective duly
authorized officers, have executed this Endorsement No. 13.
Agreed this day of , 1993
At:
THE AETNA CASUALTY AND SURETY COMPANY
By:
----------------------------------
Agreed this day of , 1993
At:
FIREMAN'S FUND INSURANCE COMPANY
By:
----------------------------------
Agreed this 2 day of March, 1993
At:
CIGNA PROPERTY AND CASUALTY INSURANCE
COMPANY (formerly AETNA INSURANCE COMPANY)
By: /s/ Barry Birth
----------------------------------
Vice President
Agreed this day of , 1993
At:
THE CONTINENTAL INSURANCE COMPANY
By:
----------------------------------
Agreed this day of , 1993
At:
MUNICIPAL BOND INVESTORS ASSURANCE
CORPORATION
By:
----------------------------------
MBIA-13
- 3 -
Endorsement No. 13
EX-10
12
EXHIBIT 10.68
ENDORSEMENT NO. 16
to the
Reinsurance Agreements, dated as of
December 30, 1986 (the "Agreements") entered
into severally by and between THE AETNA
CASUALTY AND SURETY COMPANY, FIREMAN'S FUND
INSURANCE COMPANY, CIGNA PROPERTY AND CASUALTY
INSURANCE COMPANY (formerly Aetna Insurance
Company), and THE CONTINENTAL INSURANCE COMPANY
(collectively, the "Ceding Companies")
respectively, and MBIA Inc. ("MBIA Inc.")
WITNESSETH:
WHEREAS, the Ceding Companies were participants in the following
reinsurance agreements (collectively, the "Reinsurance Treaties") with Skandia
America Reinsurance Corporation, New York, New York, as reinsurer ("Reinsurer"):
(a) the Municipal Bond Variable Quota Share Reinsurance Agreement, as
amended, which reinsures a portion of each Association member's participation in
the municipal bond guaranty insurance provided by the Association, effective
12:01 A.M., December 1, 1978, through Midnight, November 30, 1982;
(b) the Municipal Bond Quota Share and Surplus Reinsurance Agreement,
as amended, which reinsures a portion of each Association member's participation
in the municipal bond guaranty insurance provided by the Association, effective
12:01 A.M., December 1, 1982, through Midnight, November 30, 1983;
(c) the Municipal Bond Quota Share and Surplus Reinsurance Agreement,
as amended, which reinsures a portion of each Association member's participation
in the municipal bond guaranty insurance provided by the Association, effective
12:01 A.M., December 1, 1983, through Midnight, November 30, 1984;
(d) the Municipal Bond Quota Share and Surplus Reinsurance Agreement,
as amended, which reinsures a portion of each Association member's participation
in the municipal bond guaranty insurance provided by the Association, effective
12:01 A.M. December 1, 1984 through Midnight, April 30, 1987; and
- 1 -
Endorsement No. 16
WHEREAS, by Addenda to the Termination Endorsement to the
Reinsurance Treaties and with due consideration, each Ceding Company has agreed
to recapture, and the Reinsurer has agreed to allow each Ceding Company to
recapture as of Midnight, September 30, 1992, its respective share of one
hundred percent (100%) of the Reinsurer's rights, liabilities, including run-off
liabilities, and other obligations arising under the Reinsurance Treaties; and
WHEREAS, the Covered Business (as defined in the Reinsurance
Agreements dated as of December 30, 1986 (the "Agreements")) ceded to MBIA Inc.
under the Agreements was net of cessions by the Association to third-party
reinsurers under treaties as in effect at the Effective Time (as defined in the
Agreements), regardless of subsequent amendment or termination thereof, and
WHEREAS, by Reinsurance Assumption Agreements, dated as of December
30, 1986, the rights and the liabilities and other obligations of MBIA Inc. in
the Agreements have, in their entirety, been assigned to and assumed by
Municipal Bond Investors Assurance Corporation ("MBIA Corp.") in their entirety
and the Ceding Companies have released MBIA Inc. from all obligations under the
respective Agreements,
NOW, THEREFORE, the undersigned hereby agree that, effective Midnight,
September 30, 1992, Covered Business (as defined in the Agreements) is no longer
net of the Ceding Companies' respective participations in one hundred percent
(100%) of the cessions to the Reinsurer under the Reinsurance Treaties, and, in
consideration thereof, each of the undersigned Ceding Companies will pay, and
MBIA Corp. will accept, such
- 2 -
Endorsement No. 16
Ceding Company's share of $4,175,811 (representing the unearned premium reserve
of $5,559,045, minus a $1,572,734 ceding commission, and plus a $189,500
contingent commission, calculated in accordance with statutory accounting
practices).
IN WITNESS WHEREOF, the parties hereto, by their respective duly
authorized officers, have executed this Endorsement No. 16.
Agreed this 22 day of January, 1993
At: Hartford, Ct.
THE AETNA CASUALTY AND SURETY COMPANY
By: /s/
-------------------------------------
Agreed this day of , 1993
At:
FIREMAN'S FUND INSURANCE COMPANY
By:
-------------------------------------
Agreed this day of , 1993
At:
CIGNA PROPERTY AND CASUALTY INSURANCE
COMPANY (formerly AETNA INSURANCE COMPANY)
By:
-------------------------------------
Agreed this day of , 1993
At:
THE CONTINENTAL INSURANCE COMPANY
By:
-------------------------------------
Agreed this 5th day of February, 1993
At:
MUNICIPAL BOND INVESTORS ASSURANCE
CORPORATION
By: /s/ Judith C. Radash
-------------------------------------
By:
MBIA-16.SK
- 3 -
Endorsement No. 16
EX-10
13
EXHIBIT 10.69
ENDORSEMENT NO. 19
------------------
to the
Reinsurance Agreements, dated as of December 30, 1986 (the
"Agreements"), entered into severally by and between THE AETNA CASUALTY AND
SURETY COMPANY, FIREMAN'S FUND INSURANCE COMPANY, CIGNA PROPERTY AND CASUALTY
INSURANCE COMPANY (formerly Aetna Insurance Company) and THE CONTINENTAL
INSURANCE COMPANY (collectively, the "Ceding Companies"), respectively, and MBIA
INC. ("MBIA Inc."), subsequently assumed by Municipal Bond Investors Assurance
Corporation ("MBIA Corp.").
W I T N E S S E T H
-------------------
WHEREAS, the Ceding Companies and The Travelers Indemnity Company
("Travelers") as members of the Municipal Bond Insurance Association (the
"Association") were participants in a Reinsurance Agreement with the American
Insurance Company, (the "American Reinsurance Agreement"), effective as of 12:01
A.M., Eastern Standard Time, August 24, 1983, pursuant to which the American
Insurance Company reinsured the Bonds (as defined in the American Reinsurance
Agreement and described on Schedule A thereto) (the "Municipal Bond
Insurances"); and
WHEREAS, the American Reinsurance Agreement was terminated, effective
12:01 A.M., Eastern Standard Time, October 1, 1993, as respects business
becoming effective on and after said time and date and the American Insurance
Company allowed the Ceding Companies and Travelers to recapture their respective
shares of 100% of the American Insurance Company's liabilities under the
American Reinsurance Agreement and the Ceding Companies and Travelers agreed to
recapture as of October 1, 1993 their respective shares of 100% of the American
Insurance Company's liabilities under the American Reinsurance Agreement; and
WHEREAS, by Reinsurance Assumption Agreements, dated as of December
30, 1986, the rights and the liabilities and other obligations of MBIA Inc. in
the Agreements have, in their entirety, been assigned to and assumed by MBIA
Corp. in their entirety, and the Ceding Companies have released MBIA Inc. from
all obligations under the respective Agreements;
NOW THEREFORE, the undersigned parties hereby agree that, effective
12:01 A.M., Eastern Standard Time, October 1, 1993, Covered Business as defined
in the Agreements is no longer net of the Ceding Companies' respective
participations in cessions by the Association under the American Reinsurance
Agreement as amended, and, in consideration thereof, each of the undersigned
hereby authorizes Municipal Issuers Service Corporation to pay on its behalf,
and MBIA Corp. hereby accepts, such Ceding Company's respective share of
$418,874 (representing the unearned premium reserve).
IN WITNESS WHEREOF the parties hereto, by their respective duly
authorized officers, have executed this Endorsement No. 19 as of the dates
recorded below:
THE AETNA CASUALTY AND SURETY
COMPANY
By: /s/
-------------------------------------
Title: Director - Corporate Finance
----------------------------------
Date: June 2, 1994
-----------------------------------
CIGNA PROPERTY AND CASUALTY
INSURANCE COMPANY (formerly
Aetna Insurance Company)
By:
-------------------------------------
Title:
----------------------------------
Date:
-----------------------------------
THE CONTINENTAL INSURANCE
COMPANY
By:
-------------------------------------
Title:
----------------------------------
Date:
-----------------------------------
FIREMAN'S FUND INSURANCE COMPANY
By:
-------------------------------------
Title:
----------------------------------
Date:
-----------------------------------
MUNICIPAL BOND INVESTORS
ASSURANCE CORPORATION
By: /s/ Judith C. Radash
-------------------------------------
Title: Vice President
----------------------------------
Date: June 16, 1994
-----------------------------------
EX-11
14
EXHIBIT 11
MBIA INC. AND SUBSIDIARIES
for the Years Ended December 31, 1994, 1993 and 1992
Computation of Earnings Per Share Assuming Full Dilution
(In thousands except per share amounts)
1994 1993 1992
---- ---- ----
Net Income $260,209 $259,033 $188,707
======= ======== ========
Fully diluted shares:
Average number of common
shares outstanding 41,686 41,963 40,287
Assummed exercise of
dilutive stock options 402 504 621
------ --------- -----
42,088 42,467 40,908
====== ========= ======
Earnings per share assuming
full dilution $ 6.18 $ 6.10 $ 4.61
====== ========== =======
EX-13
15
MBIA Inc. and Subsidiaries
Financial Review
Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
Selected Financial and Statistical Data 23
Report of Independent Accountants 24
Consolidated Statements of Income 25
Consolidated Balance Sheets 26
Consolidated Statements of Changes in Shareholders' Equity 27
Consolidated Statements of Cash Flows 28
Notes to Consolidated Financial Statements 29
17
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations For the Years Ended December 31, 1994 and 1993
MBIA Inc.'s (the "Company") 1994 net income was $260.2 million compared with
$259.0 million in 1993. Earnings per share grew 1% to $6.18 from $6.10 in 1993.
The Company's 1993 results included an extraordinary net income benefit of $0.30
per share from the adoption of mandatory accounting changes primarily related
to deferred taxes. Excluding the effect of these accounting changes, earnings
per share for 1994 increased 7% over 1993.
The Company also measures its performance in terms of core earnings, which
exclude the effects of the relatively less predictable elements of net premiums
earned from refundings and calls of previously insured issues, realized gains
and accounting changes and are therefore more indicative of MBIA's underlying
profit trend. Core earnings per share increased by 15% to $5.26 in 1994 compared
with $4.56 a year earlier.
According to industry sources, total long-term new issue municipal bond
volume declined 44% to $164.4 billion of par value in 1994 from the record
$292.0 billion in 1993. The 1994 decline was due to the unusually sharp rise in
interest rates. The insured portion increased nominally to 38% from 37% in 1993.
In 1994, the Company's principal operating subsidiary, Municipal Bond Investors
Assurance Corporation ("MBIA Corp."), once again led the industry in market
share, guaranteeing 40% of insured long-term new issue municipal bond volume.
Influenced significantly by this operating environment, gross premiums
written declined 25% to $360.8 million from $479.3 million in 1993. Included in
gross premiums written was $19.4 million of premiums received from international
operations, compared with $1.3 million in 1993. In 1994, assumed premiums
related to previously ceded portfolios were $0.2 million. For 1993, gross
premiums written included $16.2 million of assumed premiums of which $10.8
million was related to a portfolio written by one of the five member companies
of MBIA Corp.'s predecessor, the Municipal Bond Insurance Association (the
"Association"). Installment premiums received for policies issued in prior
years, including net amounts assumed related to the installment business of the
Association, were $32.9 million and $34.7 million for 1994 and 1993,
respectively.
Premiums ceded to reinsurers were $49.3 million in 1994 compared with $47.6
million in 1993. The increase in the proportionate level of cessions in 1994 was
related to an increase in treaty reinsurance due to capacity constraints and to
cessions made on unusually large European transactions.
The Company monitors on a continual basis the creditworthiness of its
reinsurers. The substantial majority (97%) of the Company's current reinsurance
treaty capacity is with reinsurance companies which are rated AA or better by
Standard & Poor's or A or better by A. M. Best & Co., an insurance rating
organization. In 1994, the maximum amount reinsured by any one reinsurance
company as a percent of the Company's gross premiums written was 4%. As of
December 31, 1994, the maximum amount of debt service outstanding reinsured by
any one reinsurance company as a percent of insured gross debt service
outstanding was also 4%. The Company remains liable for risks reinsured but
believes that the likelihood of not recovering the reinsured portion of losses
from its reinsurers is remote.
Typically, insurance premiums are paid in full at the time the insurance
policy is issued and are earned pro rata over the period of risk. Premiums are
allocated to each bond maturity based on par amount and are earned on a
straight-line basis over the term of each maturity. Accordingly, the portion of
net premiums earned on each policy in any given year represents a relatively
small percentage of the total net upfront premium received. The balance
represents deferred premium revenue to be earned in the future over the
remaining life of the bond.
Approximately 10% of MBIA's premiums are collected on an installment basis.
Installment premiums are not recorded as a component of deferred premium revenue
until received and therefore represent an off-balance-sheet value which will
contribute to future earned premiums and cash flow. MBIA estimates the present
value of its future stream of payments to be S176.9 million. The present value
of installment premiums related to MBIA's asset-backed and UIT businesses
written in 1994 increased 43% to $43.6 million from $30.6 million in 1993.
Premiums earned decreased 6% to $218.3 million in 1994 from $231.3 million
in 1993. The growth in deferred premium revenue from the addition of new
business in 1993 was more than offset by the decline in earned premiums
associated with bond refundings and calls during 1994, which were significantly
lower than in the prior year.
When an MBIA-insured bond issue is refunded or retired early, the
outstanding liability associated with the refunded or called portion is
extinguished and the related deferred premium revenue is earned immediately,
except for any portion which may be applied as a credit toward the premium
18
charged on the refunding bond issue if it is insured by MBIA Corp. Earned
premiums generated by refunded and called bonds in 1994 declined to $53.0
million from 1993's $85.6 million. The amount of bond refundings and calls is
difficult to predict since it is influenced by a variety of factors such as
prevailing interest rates relative to the coupon rates of the original issue,
the issuer's desire to modify restrictive covenants and applicable regulations
under the Internal Revenue Code.
At year-end 1994, the Company's total investments at market value were
$4.87 billion, including $1.68 billion related to the Company's municipal
investment agreement business.
Net investment income (excluding the amounts earned on investment agreement
assets, which are recorded as a component of investment management services
income) increased 8% to $193.9 million in 1994 compared with $178.9 million in
1993. This increase was primarily the result of the growth of investments from
continued positive operating cash flow of $376.4 million. Average investments
excluding investment agreement assets were $3.12 billion in 1994 compared with
$2.75 billion for the prior year. Tax-exempt securities at yearend 1994
represented 78% of the total market value of investments compared with 70% at
yearend 1993. Net realized capital gains in 1994 were $10.3 million, compared
with $9.7 million in the prior year.
Over the last three years, MBIA has undertaken the development of
investment management services which capitalize on its capabilities, reputation
and marketplace relationships. In aggregate for 1994, these businesses
contributed $15.5 million in revenue, a substantial increase over 1993's revenue
of $4.7 million. Included in investment management services revenue for 1994 is
$1.8 million of net proceeds from the sale of MBIA's 49% interest in a joint
venture.
MBIA Municipal Investors Service Corporation ("MBIA/ MISC"), a subsidiary
of the Company, provides cash management services for local governments, school
districts and similar authorities. As of December 31,1994, MBIA/MISC, operating
under the name of "CLASS," had almost 950 clients and over $1.7 billion of
client assets under management compared with $1.5 billion at year-end 1993.
MBIA/MISC is operating in eight states and plans to continue its expansion into
additional states. In addition, MBIA/MISC provides fund administration services
to over 200 clients.
In 1993, the Company formed a new wholly owned subsidiary, MBIA Investment
Management Corp. ("IMC"), to provide investment agreements guaranteed as to
principal and interest for states, municipalities and municipal authorities. At
yearend 1994, IMC had outstanding investment agreements of $1.53 billion
compared with $0.49 billion at year-end 1993. The related assets are high
quality securities and are recorded as a component of the Company's total
investments.
Municipal investment agreements are recorded as balance sheet liabilities
at the time such agreements are executed. The liability for a municipal
investment agreement is carried at the principal value of the obligation plus
accrued interest due. Interest expense on municipal investment agreements is
computed daily, based upon the outstanding liability at rates specified in the
agreements. Such interest expense is deducted from the investment income arising
from related investment agreement assets, and the net amount is included in
investment management services income.
The provision for losses and loss adjustment expenses during 1994 was $8.1
million compared with $7.8 million in 1993, representing additions to the loss
reserves consistent with the Company's reserve methodology. At December 31,
1994, $22.0 million of the $40.1 million loss and loss adjustment expense
reserve was allocated on a case basis compared with $7.5 million of the $33.7
million reserve at year-end 1993. In 1994, the Company increased its case
reserve with respect to the default of Sacred Heart Hospital and potential
future shortfalls in several single-family housing issues. In 1993, the Company
recognized expected loss recoveries having a present value of approximately
$10.0 million related to a previously established case reserve. Neither the
increase in case reserves nor the recognition of recoveries had any impact on
net income, since the change in the Company's case specific reserve was offset
by a corresponding change in the unallocated portion of its general loss
reserve. There were no losses recorded relating to Orange County, California,
which declared bankruptcy in December 1994. MBIA has no direct exposure to
Orange County's outstanding debt, although it
19
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
has insured debt of other participants in the county's investment pool. Based on
information currently available, MBIA does not anticipate any monetary defaults
on any MBIA-insured bonds related to the Orange County situation.
In 1994, policy acquisition costs net of deferrals decreased $3.6 million
to $21.8 million. Since policy acquisition costs are deferred and amortized over
the period in which the related premiums are earned, this decrease was a
function of the lower level of premiums earned caused by the 1994 decline in
refunding activity. Other insurance operating expenses increased to $41.0
million in 1994 from $37.9 million in the prior year.
Expenses of MBIA's investment management services businesses increased to
$10.6 million in 1994 from $5.4 million in the prior year. The increase was due
to the expansion of CLASS into additional states, expanded operations of IMC and
the costs associated with establishing an internal investment management
capability during the year. These 1994 increases in expenses were more than
offset by increased investment management services income.
In 1994, the Company incurred $27.2 million of interest expense compared
with $26.9 million in 1993. The increase in 1994 resulted from utilization of
short-term bank borrowings under existing lines of credit during the year.
In summary, aggregate expenses for 1994 increased 5% to $110.1 million from
$104.9 million in 1993.
The Company's effective tax rate decreased in 1994 to 21.0% compared with
24.0% in 1993. The decrease was due principally to a higher proportion of tax-
exempt income in 1994 compared with 1993.
Results of Operations For the Years Ended December 31, 1993 and 1992
MBIA Inc.'s 1993 net income increased 37% to $259.0 million, compared with
$188.7 million in 1992. Earnings per share grew 32% to $6.10 from $4.62 in 1992.
The Company's 1993 results include an extraordinary net income benefit of $0.30
per share from the adoption of mandatory accounting changes primarily related to
deferred taxes. Excluding the effect of accounting changes, net income for 1993
rose 30% to $246.1 million and earnings per share increased 26% to $5.80.
The Company also measures its performance in terms of core earnings, which
exclude the effects of the relatively less predictable elements of net premiums
earned from refundings and calls of previously insured issues, realized gains
and accounting changes. Core earnings per share increased by 19% to $4.56 in
1993 compared with $3.83 in the previous year.
For the year ended December 31,1993, the weighted average number of shares and
common stock equivalents outstanding increased to 42.5 million from 40.8 million
the prior year. This increase was primarily the result of the full year impact
of the Company's sale of 2.9 million shares of its common stock in 1992.
According to industry sources, total long-term new issue municipal bond volume
grew by 24% to $292.0 billion of par value in 1993 from $235.0 billion in 1992,
with the insured portion increasing to a record 37% compared with 34% in 1992.
Demand for bond insurance surged as municipal officials sought to lower
borrowing costs and municipal bond investors continued to seek insurance
protection. Lower interest rates resulted in a record number of new bond
offerings sold to refinance debt originally sold at higher rates. In 1993, MBIA
Corp. once again led the industry in market share, guaranteeing 36% of the
insured long-term new issue municipal bond volume.
Within this operating environment, gross premiums written increased 30% to
$479.3 million from $368.7 million in 1992. New issue and secondary market
municipal and structured finance premiums, the major components of gross
premiums written, increased 29% to $428.4 million in 1993 compared with $332.4
million in 1992. For 1993, gross premiums written included $16.2 million of
assumed premiums of which $10.8 million was related to a portfolio written by
one of the five member companies of the Association. In 1992, assumed premiums
related to previously ceded portfolios were $5.0 million. Installment premiums
received for policies issued in prior years, including net amounts assumed
related to the installment business of the Association, were $34.7 million and
$31.3 million for 1993 and 1992, respectively.
In 1990, MBIA established a wholly owned French subsidiary, MBIA Assurance S.A.
("MBIA Assurance") to expand its capabilities in the European market for credit-
enhanced financings. MBIA Assurance, the first monoline financial guarantor to
be licensed in Europe, is rated Aaa by Moody's and AAA by Standard & Poor's.
MBIA Assurance has a reinsurance treaty with MBIA Corp., whereby it reinsures a
substantial portion of its business. In 1993, MBIA Assurance insured five
transactions, three of which were public bond issues for French municipal
authorities.
20
Premiums ceded to reinsurers were $47.6 million compared with $32.6 million
in 1992. The increase was primarily due to higher gross premiums written in
1993.
Premiums earned increased 42% to $231.3 million from $162.9 million in 1992. The
increase in premiums earned in 1993 resulted from the growth in deferred premium
revenue from the addition of new business in 1992 and from earned premiums
associated with bond refundings and calls during 1993, which were significantly
higher than in the prior year.
Earned premiums generated by refunded and called bonds in 1993 were $85.6
million, almost double 1992's $43.1 million. Of these amounts, $62.6 million and
$30.5 million, respectively, related to issues for which MBIA Corp. insured the
replacement bonds.
The Company's total investments were $3.54 billion at year-end 1993, including
$538.8 million related to the Company's municipal investment agreement business.
Net investment income (excluding the amounts earned on investment agreement
assets, which ate recorded as a component of investment management services
income) increased 19% to $178.9 million in 1993 compared with $150.5 million in
1992. This increase was primarily the result of the growth of investments from
continued positive operating cash flows of $470.9 million. Average investments
excluding investment agreement assets were $2.75 billion in 1993 compared with
$2.25 billion for the prior year. Tax-exempt investments at year-end 1993
represented 70% of total investments, compared with 75% last year. Net realized
capital gains in 1993 were $9.7 million, virtually unchanged from the prior year
amount of $9.8 million.
In aggregate for 1993, MBIA's investment management services contributed $4.7
million in revenues, more than double the 1992 revenue of $2.3 million.
As of December 31,1993, MBIA/MISC, operating under the name of "CLASS," had 556
clients and over $1.5 billion of client assets under management, almost double
the prior year amount of $832 million. MBIA/MISC is operating in six states and
plans to continue its expansion into additional states in the near term.
TOPSTAR (SM), a program to provide synthetic short-term tax-exempt securities to
institutional investors, was introduced in October 1992. MBIA Inc. and its
partner, Caisse des Depots et Consignations, established a jointly owned new
company called MBIA Investors Capital Corp. to offer the program. The company
purchases long-term, high quality municipal bonds, attaches a tender option and
resells the securities as synthetic short-term instruments. At the end of 1993
the new venture had $351.8 million of these short-term instruments outstanding.
The provision for losses and loss adjustment expenses during 1993 was $7.8
million, compared with $5.6 million in 1992, representing additions to the loss
reserves consistent with the Company's reserve methodology. At December 31,
1993, $7.5 million of the $33.7 million loss and loss adjustment expense reserve
was allocated on a case basis, compared with $14.4 million of the $25.5 million
reserve at year-end 1992. During the first quarter of 1993, the Company
recognized expected loss recoveries having a present value of approximately
$10.0 million related to a previously established case reserve. The recognition
of these recoveries had no impact on net income, since the reduction in the
Company's case-specific reserve was offset by a corresponding increase in the
unallocated portion of its general loss reserve.
Although 1993 policy acquisition costs net of deferrals increased $7.4 million
to $25.5 million, the ratio of such costs to premiums earned remained unchanged
at 11% from 1992. Since policy acquisition costs are deferred and amortized over
the period in which the related premiums are earned, this increase was a
function of the higher level of premiums earned. Other insurance operating
expenses increased to $37.9 million in 1993 from $34.1 million in the prior
year.
Expenses related to MBIA's investment management services increased to $5.4
million in 1993 from $3.4 million in the prior year. The increase was primarily
due to start-up costs associated with IMC and the expansion of CLASS into
additional states.
In 1993, the Company incurred $26.9 million of interest expense compared with
$20.5 million in 1992, as a result of additional fixed rate, long-term public
debt sold in 1992.
In summary, aggregate expenses for 1993 increased 25% to $104.9 million from
$83.7 million in 1992.
The Company's effective tax rate increased in 1993 to 24.0% compared with 22.7%
in 1992. The increase was due principally to the 1993 increase in the Federal
corporate tax rate to 35%. The total effect on the Company's income tax
provision was an increase of $5.5 million, of which $3.2 million resulted from
the recalculation of deferred taxes at the new Federal rate.
21
MBIA Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The Financial Accounting Standards Board has issued three changes in accounting
principles which the Company adopted in 1993. The adoption of Statement of
Financial Accounting Standards ("SFAS")109, "Accounting for Income Taxes,"
resulted in increases to net income and earnings per share of $13.0 million and
$0.30, respectively. The Company also adopted SFAS 106 relating to employee
post-retirement benefits, which resulted in a charge to net income of $0.1
million. Finally, the Company adopted SFAS 113 concerning accounting for
reinsurance, which had no income statement impact but which increased both
assets ("prepaid reinsurance premiums") and liabilities (unearned premium
reserve, now relabeled "deferred premium revenue") by $170.6 million and $164.4
million as of December 31,1993 and 1992, respectively.
Liquidity and Capital Resources
At year-end 1994, the market value of the Company's consolidated investment
portfolio was $4.87 billion, an increase of 30% from $3.76 billion at year-end
1993.
The market value of investments related to MBIA's insurance activities decreased
1% from $3.22 billion at year-end 1993 to $3.19 billion at year-end 1994. The
positive operating cash flows from MBIA Corp.'s insurance premiums and
investment activities were more than offset by the decline in the overall market
value of the portfolio in a rising interest rate environment. The value of
investments related to MBIA's municipal investment agreement business grew 212%
to $1.68 billion from $0.54 billion at year-end 1993, as a result of the
increase in obligations under municipal investment contracts.
The Company's fixed income investment portfolio has been classified as
available-for-sale in accordance with SFAS 115. The difference between market
value and amortized cost is primarily related to changes in interest rates, and
if the portfolio is held to maturity, the Company expects to realize an amount
substantially equal to amortized cost.
Despite a rising interest rate environment in 1994 and the resultant drop in
insured new issuance, MBIA Corp.'s liquidity position remained strong, as net
cash provided by its operations aggregated $367.5 million in 1994, a decrease
from $487.5 million in 1993 and $369.3 million in 1992 when interest rates were
lower. The Company's liquidity is in part dependent upon MBIA Corp.'s ability to
pay dividends to the Company. MBIA Corp.'s net income, consisting of premium
earnings and investment income less losses and expenses, is a source of
continuing additions to earned surplus and dividend-paying capability. Under New
York insurance law, without prior approval of the Superintendent of the New York
State Insurance Department, MBIA Corp. may pay a dividend only from earned
surplus subject to the maintenance of a minimum capital requirement. The
dividends in any 12-month period may not exceed the lesser of 10% of its
policyholders' surplus as shown on its last filed statutory-basis financial
statements or adjusted net investment income, as defined, for such 12-month
period. In 1994, MBIA Corp. paid dividends of $38 million and at December
31,1994 had approximately $73 million available for payment of further dividends
to the Company without prior approval.
MBIA Corp. has an irrevocable standby line of credit with a group of major
banks, which was increased to $600 million as of September 30,1994, to provide
funds for the payment of claims in the event that severe losses should occur.
The agreement is for a seven-year term expiring on September 30, 2001 but,
subject to approval by the banks, the agreement may be renewed annually to
extend the term to seven years beyond the renewal date. To further facilitate
the immediate payment of claims, should they occur, the Company and MBIA Corp.
maintain short-term liquidity facilities totaling $250 million with a group of
major banks. At December 31, 1994, $17 million was outstanding under these
facilities.
MBIA Corp. also maintains a high degree of liquidity within its investment
portfolio in the form of readily marketable high quality fixed income securities
and short-term investments. In management's opinion, the capital resources of
MBIA Corp.--represented by the liquidity of its investment portfolio, its annual
cash flows from operations and bank lines of credit--are more than adequate to
meet the Company's expected cash requirements.
At year-end 1994, MBIA Corp. had $22.0 million in case specific loss reserves.
Any related payments are expected to be funded from operating cash flows.
22
MBIA Inc. and Subsidiaries
Selected Financial and Statistical Data
The selected financial information in the table below should be read in
conjunction with the consolidated financial statements and notes
that appear in the pages which follow.
MBIA Inc. and Subsidiaries (1)
Years ended December 31
Dollars in millions
except per share amounts 1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- ------- -------- ------- --------
Summary Income
Statement Data:
Insurance:
Gross premiums written $ 361 $ 479 $ 369 $ 269 $ 211 $ 159 $ 156 $ 171
Net premiums written 312 432 336 223 181 137 145 152
Premiums earned 218 231 163 132 107 91 82 81
Net investment income 194 179 150 132 115 80 67 54
Net realized gains 10 10 10 3 - - 1 1
Investment management
services:
Income 16 5 2 1 - - - -
Net realized losses (1) - - - - - - -
Income before income taxes 329 324 244 190 165 135 118 108
Net income 260 259 189 145 127 102 92 74
Net income per common share $ 6.18 $ 6.10 $ 4.62 $ 3.74 $ 3.33 $ 2.74 $ 2.45 $ 1.98
======== ======== ======== ======== ======== ======== ======== ========
Summary Balance Sheet Data:
Investments $ 4,867 $ 3,544 $ 2,529 $ 1,961 $ 1,724 $ 1,501 $ 1,104 $ 979
Total assets 5,456 4,106 3,049 2,438 2,159 1,904 1,309 1,176
Deferred premium revenue 1,512 1,403 1,196 1,019 902 811 520 449
Loss andloss adjustment expense
reserves 40 34 26 21 5 - - -
Long-term debt 299 299 299 199 200 195 - -
Shareholders' equity 1,705 1,596 1,382 1,063 932 777 705 620
Book value per share 40.96 38.18 33.00 27.58 24.35 21.08 18.80 16.54
Dividends Per Common Share:
Declared $ 1.14 $ .94 $ .76 $ .62 $ .48 $ .41 $ .19 $ .12
Paid $ 1.09 $ .89 $ .72 $ .59 $ .44 $ .31 $ .19 $ .12
GAAP Financial Ratios:
Loss ratio 3.7% 3.4% 3.4 % 13.0% 4.7% 0.0% O.0% 0.0%
Underwriting expense ratio 28.8 27.4 32.0 30.1 33.7 38.5 39.6 35.2
Combined ratio 32.5 30.8 35.4 43.1 38.4 38.5 39.6 35.2
Net debt service
outstanding $304,502 $266,784 $223,056 $181,604 $157,707 $137,221 $90,343 $72,837
Net par amount outstanding $164,318 $141,387 $112,483. $ 90,043 $ 75,979 $ 65,290 $42,917 $34,319
======== ======== ======== ======== ======== ======== ======= =======
(1) Balance sheet amounts as of December 31, 1994, 1993,1992, 1991, 1990, and
1989 and income statement amounts for the years ended December 31, 1994, 1993,
1992, 1991, and 1990 include the accounts of MBIA Insurance Corp. of Illinois
(formerly BIG Insurance Company) (See Note I to consolidated financial
statements).
23
MBIA Inc. and Subsidiaries
Report of Independent Accountants
To the Board of Directors and Shareholders of
MBIA Inc.:
We have audited the accompanying consolidated balance sheets of MBIA Inc. and
Subsidiaries as of December 31,1994 and 1993, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MBIA Inc. and
Subsidiaries as of December 31, 1994 and 1993, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 7 to the consolidated financial statements, effective
January 1, 1993 the Company adopted Statement of Financial Accounting Standards
No.109, "Accounting for Income Taxes." As discussed in Note 2 to the
consolidated financial statements, effective January 1, 1994 the Company adopted
Statement of Financial Accounting Standards No.115, "Accounting for Certain
Investments in Debt and Equity Securities."
/s/ Coopers & Lybrand L.L.P.
New York, New York
February 1, 1995
24
MBIA Inc. and Subsidiaries
Consolidated Statements of Income
Years ended December 31
--------------------------------------
Dollars in thousands except per share amounts 1994 1993 1992
---------- ---------- ----------
Revenues
Insurance:
Gross premiums written $ 360,836 $ 479,347 $ 368,732
Ceded premiums (49,281) (47,552) (32,588)
---------- ---------- ----------
Net premiums written 311,555 431,795 336,144
Increase in deferred premium revenue (93,226) (200,519) (173,203)
---------- ---------- ----------
Premiums earned (net of ceded premiums of
$33,340, $41,409 and $28,276) 218,329 231,276 162,941
Net investment income 193,853 178,884 150,478
Net realized gains 10,335 9,727 9,834
Investment management services:
Income 16,178 4,672 2,306
Net realized (losses) gains (726) 58 -
Other 1,567 4,361 2,354
---------- ---------- ----------
Total revenues 439,536 428,978 327,913
---------- ---------- ----------
Expenses
Insurance:
Losses and loss adjustment 8,093 7,821 5,619
Policy acquisition costs, net 21,845 25,480 18,119
Operating 41,026 37,946 34,081
Investment management services 10,611 5,409 3,414
Interest 27,159 26,900 20,523
Other 1,380 1,387 1,896
---------- ---------- ----------
Total expenses 110,114 104,943 83,652
---------- ---------- ----------
Income before income taxes 329,422 324,035 244,261
Provision for income taxes 69,213 77,925 55,554
---------- ---------- ----------
Income before cumulative effect of
accounting changes 260,209 246,110 188,707
Cumulative effect of accounting changes - 12,923 -
Net income $ 260,209 $ 259,033 $ 188,707
========== ========== ==========
Income per common share before
cumulative effect of accounting change $ 6.18 $ 5.80 $ 4.62
Net income per common share $ 6.18 $ 6.10 $ 4.62
========== ========== ==========
Weighted average number of common shares and
common stock equivalents outstanding 42,085,943 42,465,980 40,806,811
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
25
MBIA Inc. and Subsidiaries
Consolidated Balance Sheets
Dollars in thousands except per share amounts December 31, 1994 December 31, 1993
----------------- -----------------
Assets
Investments:
Fixed maturity securities, at amortized cost
(market value $3,015,527) $ - $2,796,699
Fixed maturity securities held as available-for-sale
at market (amortized cost $3,123,838) 3,051,906 -
Short-term investments, at amortized cost (which
approximates market value) 121,384 104,205
Other investments 17,550 104,681
---------- ----------
3,190,840 3,005,585
Municipal investment agreement portfolio
at amortized cost (market value $536,590) - 538,751
Municipal investment agreement portfolio held as available-
for-sale at market (amortized cost $1,738,375) 1,675,935 -
---------- ----------
Total investments 4,866,775 3,544,336
Cash and cash equivalents 7,940 2,492
Accrued investment income 68,486 54,194
Deferred acquisition costs 133,048 120,484
Prepaid reinsurance premiums 186,492 170,551
Goodwill (less accumulated amortization of $36,115 and $31,088) 111,252 116,279
Property and equipment, at cost (less accumulated depreciation
of $13,917 and $10,734) 45,069 44,115
Receivable for investments sold 945 31,903
Other assets 36,432 21,359
---------- ----------
Total assets $5,456,439 $4,106,313
========== ==========
Liabilities and Shareholders' Equity
Liabilities:
Deferred premium revenue $1,512,211 $1,402,807
Loss and loss adjustment expense reserves 40,148 33,735
Long-term debt 298,790 298,680
Municipal investment agreements 1,526,133 493,014
Current income taxes payable - 1,811
Deferred income taxes 76,843 107,881
Payable for investments purchased 209,966 111,279
Other liabilities 87,632 60,748
---------- ----------
Total liabilities 3,751,723 2,509,955
---------- ----------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, par value $1 per share; authorized shares -
10,000,000; issued and outstanding - none - -
Common stock, par value $1 per share; authorized shares -
100,000,000; issued shares - 42,077,387 and 42,074,387 42,077 42,074
Additional paid-in capital 719,750 719,281
Retained earnings 1,057,092 844,916
Cumulative translation adjustment 503 (1,218)
Unrealized (depreciation) appreciation of investments,
net of deferred income tax (benefit) provision of $(46,292)
and $3,813 (86,560) 7,080
Treasury stock, at cost; 461,763 shares in 1994 and 260,243
shares in 1993 (28,146) (15,775)
---------- ----------
Total shareholders' equity 1,704,716 1,596,358
---------- ----------
Total liabilities and shareholders' equity $5,456,439 $4,106,313
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
26
MBIA Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
For the years ended December 31, 1994, 1993 and 1992
Unrealized
Common Stock Additional Cumulative Appreciation Treasury Stock
In thousands except per ---------------- Paid-in Retained Translation (Depreciation) -----------------
share amounts Shares Amount Capital Earnings Adjustment of Investments Shares Amount
------ ------- ---------- ---------- -------------- -------------- ------ -------
Balance, January 1, 1992 39,030 $39,030 $567,505 $ 468,531 $ (133) $ 159 475 $11,755
Net proceeds from issuance
of shares 2,930 2,930 141,726 - - - - -
Exercise of stock options - - 4,531 (1,107) - - (396) (9,880)
Net income - - - 188,707 - - - -
Change in foreign currency
translation - - - - (356) - - -
Change in unrealized
appreciation of investments
net of change in deferred
income taxes of $(1,750) - - - - - 3,397 - -
Dividends (declared per
common share $.76, paid per
common share $.72) - - - (30,915) - - - -
------ ------- ---------- ---------- -------------- -------------- ------ -------
Balance, December 31, 1992 41,960 41,960 713,762 625,216 (489) 3,556 79 1,875
------ ------- ---------- ---------- -------------- -------------- ------ -------
Treasury shares acquired - - - - - - 238 15,255
Exercise of stock options 114 114 5,519 121 - - (57) (1,355)
Net income - - - 259,033 - - - -
Change in foreign currency
translation - - - - (729) - - -
Change in unrealized
appreciation of investments
net of change in deferred income
taxes of $(1,981) - - - - - 3,524 - -
Dividends (declared per
common share $.94, paid per
common share $.89) - - - (39,454) - - - -
------ ------- ---------- ---------- -------------- -------------- ------ -------
Balance, December 31, 1993 42,074 42,074 719,281 844,916 (1,218) 7,080 260 15,775
------ ------- ---------- ---------- -------------- -------------- ------ -------
Treasury shares acquired - - - - - - 246 14,411
Exercise of stock options 3 3 469 (526) - - (44) (2,040)
Net income - - - 260,209 - - - -
Change in foreign currency
translation - - - - 1,721 - - -
Change in unrealized
depreciation of investments
net of change in deferred income
taxes of $50,105 - - - - - (93,640) - -
Dividends (declared per
common share $1.14, paid per
common share $1.09) - - - (47,507) - - - -
------ ------- ---------- ---------- -------------- -------------- ------ -------
Balance, December 31, 1994 42,077 $42,077 $719,750 $1,057,092 $ 503 $(86,560) 462 $28,146
====== ======= ========== ========== ============== ============== ====== =======
The accompanying notes are an integral part of the consolidated financial
statements.
27
MBIA Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31
-----------------------------------------
Dollars in thousands 1994 1993 1992
----------- ------------ ------------
Cash flows from operating activities:
Net income $ 260,209 $ 259,033 $ 188,707
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accrued investment income (13,692) (7,238) (9,886)
Increase in deferred acquisition costs (12,564) (10,033) (13,278)
Increase in prepaid reinsurance premiums (15,941) (6,143) (4,312)
Increase in deferred premium revenue 109,167 206,662 177,515
Increase in loss and loss adjustment expense reserves 6,413 8,225 4,337
Depreciation 3,181 2,884 2,353
Amortization of goodwill 5,027 5,069 5,162
Amortization of bond discount, net 619 (702) 672
Net realized gains on sale of investments (9,609) (9,727) (9,834)
Deferred income taxes 19,067 7,531 8,652
Other, net 24,560 15,301 (9,628)
----------- ------------ ------------
Total adjustments to net income 116,228 211,829 151,753
----------- ------------ ------------
Net cash provided by operating activities 376,437 470,862 340,460
----------- ------------ ------------
Cash flows from investing activities:
Purchase of fixed maturity securities, net of
payable for investments purchased (1,017,306) (816,551) (961,976)
Sale of fixed maturity securities, net of receivable
for investments sold 515,548 241,711 371,693
Redemption of fixed maturity securities, net of
receivable for investments redeemed 128,274 225,608 40,947
Sale of short-term investments, net 3,547 (40,461) 26,621
Purchase of other investments (7,864) (37,778) (31,766)
Sale of other investments 95,320 - 1,761
Purchases for municipal investment agreement
portfolio, net of payable for investments purchased (1,627,561) (561,187) -
Sales from municipal investment agreement portfolio,
net of receivable for investments sold 585,648 70,456 -
Capital expenditures, net of disposals (4,075) (6,770) (9,128)
----------- ------------ ------------
Net cash used by investing activities (1,328,469) (924,972) (561,848)
----------- ------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock - - 144,656
Dividends paid (45,513) (37,342) (28,673)
Net proceeds from issuance of long-term debt - - 98,900
Purchase oftreasury stock (14,411) (15,255) -
Proceeds from issuance of municipal investment agreements 1,786,574 518,245 -
Payments for drawdowns of municipal investment agreements (771,156) (27,381) -
Exercise of stock options 1,986 7,109 13,304
----------- ------------ ------------
Net cash provided by financing activities 957,480 445,376 228,187
----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents 5,448 (8,734) 6,799
Cash and cash equivalents - beginning of year 2,492 11,226 4,427
----------- ------------ ------------
Cash and cash equivalents - end of year $ 7,940 $ 2,492 $ 11,226
----------- ------------ ------------
Supplemental cash flow disclosures:
Income taxes paid $ 53,921 $ 53,597 $ 41,270
Interest paid:
Long-term debt $ 26,575 $ 26,416 $ 18,416
Municipal investment agreements 36,225 358 -
=========== ============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
28
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Business and Organization
MBIA Inc. (the"Company") was incorporated in Connecticut on November 12,1986 as
a licensed insurer and, through the following series of transactions during
December 1986, became the successor to the business of the Municipal Bond
Insurance Association (the "Association"), a voluntary unincorporated
association of insurers writing municipal bond and note insurance as agent for
the member insurance companies:
. The Company acquired for $17 million all of the outstanding common stock of a
New York domiciled insurance company and changed the name of the insurance
company to Municipal Bond Investors Assurance Corporation ("MBIA Corp.").
Prior to the acquisition, all of the obligations of this company were
reinsured and/or indemnified by the former owner.
. Four of the five member companies of the Association together with their
affiliates purchased all of the outstanding common stock of the Company and
entered into reinsurance agreements whereby they ceded to the Company
substantially all of the net unearned premiums on existing and future
Association business and the interest in, or obligation for, contingent
commissions resulting from their participation in the Association. The
Company's reinsurance obligations were then assumed by MBIA Corp. The
participation of these four members aggregated approximately 89% of the net
insurance in force of the Association. The net assets transferred from the
predecessor included the cash transferred in connection with the reinsurance
agreements, the related deferred acquisition costs and contingent commissions
receivable, net of the related unearned premiums and contingent commissions
payable. The deferred income taxes inherent in these assets and liabilities
were recorded by the Company. Contingent commissions receivable (payable)
with respect to premiums earned prior to the effective date of the reinsurance
agreements by the Association in accordance with statutory accounting
practices, remained as assets (liabilities) of the member companies.
. The Company acquired from an unrelated company for $68 million all of the
outstanding common stock of Municipal Issuers Service Corporation ("MISC"),
and certain related companies, which had been the managing general agency of
the Association.
Effective December 31, 1989, the Company acquired for $288 million all of
the outstanding stock of Bond Investors Group, Inc. ("BIG"), the parent company
of Bond Investors Guaranty Insurance Company ("BIG Ins."), which was
subsequently renamed MBIA Insurance Corp. of Illinois ("MBIA Illinois"). The
acquisition of BIG has been accounted for as a purchase and the price was
allocated to the net assets of the acquired company based on the market value of
such assets and liabilities at the date of acquisition.
In January 1990, MBIA Illinois ceded its portfolio of net insured
obligations in exchange for cash and investments equal to its unearned premium
reserve of $153 million to MBIA Corp. Subsequent to this cession, MBIA Inc.
contributed the common stock of BIG to MBIA Corp. The insured portfolio acquired
from BIG consists of municipal obligations with risk characteristics similar to
those insured by MBIA Corp. On December 31,1990, BIG was merged into MBIA
Illinois.
Also in 1990, the Company formed MBIA Assurance S.A. ("MBIA Assurance"), a
wholly owned French subsidiary, to write financial guarantee insurance in the
international community. MBIA Assurance provides insurance for public
infrastructure financings, structured finance transactions and certain
obligations of financial institutions. The stock of MBIA Assurance was
contributed to MBIA Corp. in 1991 and, pursuant to a reinsurance agreement with
MBIA Corp., a substantial amount of the risks insured by MBIA Assurance is
reinsured by MBIA Corp.
At the end of 1990, MBIA Municipal Investors Service Corporation
("MBIA/MISC") was formed as a subsidiary of the Company. MBIA/ MISC operates a
cooperative cash management program for school districts and municipalities
under the product name CLASS.
At the end of 1992, the Company and Caisse des Depots et Consignations
("Caisse des Depots") established a jointly owned company, MBIA Investors
Capital Corp. ("MICC") to offer a tender option bond program named TOPSTAR(SM).
MICC purchased long-term, high quality municipal bonds, attached a tender option
agreement and resold the securities as synthetic short-term instruments. MICC
was managed by the Company and CDC Capital Inc., a subsidiary of Caisse des
Depots in New York. In August of 1994, the Company sold its 49% ownership
interest.
29
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
In 1993, the Company formed a wholly owned subsidiary, MBIA Investment
Management Corp. ("IMC"), with the principal purpose of providing guaranteed
investment agreements guaranteed as to principal and interest for states,
municipalities and municipal authorities. IMC commenced operations in August
1993.
Also in 1993, MBIA Corp. assumed the remaining business from the fifth
member of the Association.
In 1994, the Company formed a wholly owned subsidiary, MBIA Securities
Corp. ("SECO"), to provide fixed income investment management and trading
services for the Company and its municipal cash management service businesses.
2. Significant Accounting Policies
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles ("GAAP"). Significant accounting
policies are as follows:
Consolidation
The consolidated financial statements include the accounts of the Company, MBIA
Corp., MBIA Illinois, MBIA Assurance, SECO, MISC, MBIA/MISC, IMC and BIG
Services, Inc. The investment in MICC was accounted for on the equity method.
All significant intercompany balances have been eliminated. Certain amounts have
been reclassified in prior years' financial statements to conform to the current
presentation.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and demand deposits with banks.
Investments
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards ("SFAS") 115. In accordance with SFAS 115, the Company reclassified
its entire investment portfolio (including "Fixed maturity securities" and its
"Municipal investment agreement portfolio") as "available-for-sale." Pursuant to
SFAS 115, securities classified as available-for-sale are required to be
reported in the financial statements at market value, with unrealized gains and
losses reflected as a separate component of shareholders' equity. The cumulative
effect of the Company's adoption of SFAS 115 was a decrease in shareholders'
equity at December 31, 1994 of $87.3 million, net of taxes. The adoption of SFAS
115 had no effect on the Company's earnings. As required under SFAS 115, prior
years' financial statements have not been restated. Accordingly, Fixed maturity
securities and the Municipal investment agreement portfolio reported in the
Company's consolidated balance sheet at December 31, 1993 are reflected at
amortized cost, based on the Company's then stated intention to hold such
securities to maturity.
Bond discounts and premiums are amortized on the effective-yield method
over the remaining term of the securities. For pre-refunded bonds the remaining
term is determined based on the contractual refunding date. Short-term
investments are carried at amortized cost, which approximates market value.
Investment income is recorded as earned. Realized gains or losses on the sale of
investments are determined by specific identification and are included as a
separate component of revenues.
The municipal investment agreement portfolio is composed of fixed maturity
securities and short-term investments which are subject to the accounting
policies discussed above. Realized gains or losses from the municipal investment
agreement portfolio are determined by specific identification. Investment income
from the municipal investment agreement portfolio is recorded as a component of
investment management services income as earned. Municipal investment agreement
portfolio accrued interest income, receivables for investments sold and payables
for investments purchased are included in the respective consolidated accounts.
Other investments consist primarily of marketable equity securities and the
Company's interest in limited partnerships and a mutual fund which invests
principally in marketable equity securities. The Company records dividends from
its investment in marketable equity securities and its share of limited
partnerships and mutual funds as a component of investment income. In addition,
the Company records its share of the unrealized gains and losses on these
investments, net of applicable deferred income taxes, as a separate component of
shareholders' equity.
Premium Revenue Recognition
Premiums are earned pro rata over the period of risk. Premiums are allocated to
each bond maturity based on par amount and are earned on a straight-line basis
over the term
30
of each maturity.When an insured issue is retired early, is called by the
issuer, or is in substance paid in advance through a refunding or defeasance
accomplished by placing U.S. Government securities in escrow, the remaining
deferred premium revenue, net of the portion which is credited to a new policy
in those cases where the Company insures the refunding issue, is earned at that
time, since there is no longer risk to the Company. Accordingly, deferred
premium revenue represents the portion of premiums written that is applicable to
the unexpired risk of insured bonds and notes.
Policy Acquisition Costs
Policy acquisition costs include only those expenses that relate primarily to,
and vary with, premium production. For business produced directly by MBIA Corp.,
such costs include compensation of employees involved in marketing, underwriting
and policy issuance functions, certain rating agency fees, state premium taxes
and certain other underwriting expenses, reduced by ceding commission income on
premiums ceded to reinsurers. For business assumed from the Association, such
costs were comprised of management fees, certain rating agency fees and
marketing and legal costs, reduced by ceding commissions received by the
Association on premiums ceded to reinsurers. Policy acquisition costs are
deferred and amortized over the period in which the related premiums are earned.
Losses and Loss Adjustment Expenses
Reserves for losses and loss adjustment expenses ("LAE") are established in an
amount equal to the Company's estimate of the identified and unidentified
losses, including costs of settlement on the obligations it has insured.
To the extent that specific insured issues are identified as currently or
likely to be in default, the present value of expected payments, including loss
and loss adjustment expenses associated with these issues, net of expected
recoveries, is allocated within the total loss reserve as case basis reserves.
Management of the Company periodically evaluates its estimates for losses and
LAE and any resulting adjustments are reflected in current earnings. Management
believes that the reserves are adequate to cover the ultimate net cost of
claims, but the reserves are necessarily based on estimates and there can be no
assurance that the ultimate liability will not exceed such estimates.
Municipal Investment Agreements
Municipal investment agreements are recorded as liabilities on the balance sheet
at the time such agreements are executed. The liability for a municipal
investment agreement is carried at the face value of the agreement plus accrued
interest, whereas the related assets are recorded at market value. Interest
expense on municipal investment agreements is computed daily based upon the
outstanding liability balance at rates specified in the agreements and is
included in investment management services income.
Contingent Commissions
Contingent commissions may be receivable from the Company's and the
Association's reinsurers under various reinsurance treaties and are accrued as
the related premiums are earned.
Investment Management Services Operations
Investment management services income is composed of the net investment income
and operating revenues of MBIA/MISC, IMC, SECO and the Company's equity in the
earnings of MICC. In 1994, investment management services income also included
the net proceeds from the sale of the Company's 49% ownership interest in
MlCC. The operating expenses of MBIA/MISC, IMC and SECO are reported in
investment management services expenses.
Income Taxes
Deferred income taxes are provided in respect of temporary differences between
the financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse.
The Internal Revenue Code permits financial guarantee insurance companies
to deduct from taxable income additions to the statutory contingency reserve
subject to certain limitations. The tax benefits obtained from such deductions
must be invested in non-interest bearing U.S. Government tax and loss bonds. The
Company records purchases of tax and loss bonds as payments of Federal income
taxes. The amounts deducted must be restored to taxable income when the
contingency reserve is released, at which time the Company may present the tax
and loss bonds for redemption to satisfy the additional tax liability.
Property and Equipment
Property and equipment consists of the Company's headquarters, furniture,
fixtures and equipment, which are recorded at cost and, exclusive of land, are
depreciated on the straight-line method over their estimated service lives
ranging from 3 to 31 years. Maintenance and repairs are charged to expenses as
incurred.
31
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Goodwill
Goodwill represents the excess of the cost of the acquisitions of MBIA Corp.,
MISC and MBIA Illinois over the tangible net assets acquired. Goodwill
attributed to the acquisition of MBIA Corp. and MISC is amortized by the
straight-line method over 25 years. Goodwill attributed to the acquisition of
MBIA Illinois is amortized according to the recognition of future profits from
its deferred premium revenue and installment premiums, except for a minor
portion attributed to state licenses, which is amortized by the straight-line
method over 25 years.
Earnings Per Share
Earnings per share are computed based on the weighted average number of shares,
including common stock equivalents, outstanding during each period.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated at
current exchange rates. Operating results are translated at average rates of
exchange prevailing during the year. Unrealized gains or losses resulting from
translation are included as a separate component of shareholders' equity.
3. Statutory Accounting Practices
The financial statements have been prepared on the basis of GAAP, which differs
in certain respects from the statutory accounting practices prescribed or
permitted by the insurance regulatory authorities. Statutory accounting
practices differ from GAAP in the following respects:
. premiums are earned only when the related risk has expired rather than over
the period of the risk;
. acquisition costs are charged to operations as incurred rather than as the
related premiums are earned;
. contingent commissions are accrued when the related earned premiums are
recognized;
. a contingency reserve is computed on the basis of statutory requirements, and
reserves for losses and LAE are established, at present value, for specific
insured issues which are identified as currently or likely to be in default.
Under GAAP, reserves are established based on the Company's reasonable
estimate of the identified and unidentified losses and LAE on the insured
obligations it has written;
. Federal income taxes are only provided on taxable income for which income
taxes are currently payable, while under GAAP deferred income taxes are
provided with respect to temporary differences;
. fixed maturity securities are reported at amortized cost rather than
market;
. tax and loss bonds purchased are reflected as admitted assets as well as
payments of income taxes; and
. certain assets designated as "non-admitted assets" are charged directly
against surplus but are reflected as assets under GAAP.
The following is a reconciliation of consolidated shareholders' equity
presented on a GAAP basis for the Company and consolidated subsidiaries to
statutory capital and surplus for MBIA Corp. and its subsidiaries, MBIA Illinois
and MBIA Assurance:
As of December 31
-----------------------------------
In thousands 1994 1993 1992
---------- ---------- ----------
Company's GAAP
shareholders' equity $1,704,716 $1,596,358 $1,382,130
Contributions to MBIA Corp. 273,273 263,411 251,561
Premium revenue recognition (296,524) (242,577) (210,179)
Deferral of acquisition costs (133,048) (120,484) (110,451)
Unrealized losses (gains) 132,852 (3,447) (1,783)
Contingent commissions (1,706) (1,880) (2,185)
Contingency reserve (620,988) (539,103) (403,875)
Loss and loss adjustment
expense reserves 18,181 26,262 11,085
Deferred income taxes 69,371 100,393 90,909
Tax and loss bonds 50,471 25,771 31,454
Goodwill (110,543) (115,503) (120,505)
Other 23,983 (11,465) (22,168)
---------- ---------- ----------
Statutory capital and surplus $1,110,038 $ 977,736 $ 895,993
========== ========== ==========
Consolidated net income of MBIA Corp., determined in accordance with statutory
accounting practices for the years ended December 31, 1994, 1993 and 1992 was
$224.9 million, $258.4 million and $189.6 million, respectively.
32
4. Premiums Earned from Refunded
and Called Bonds
Premiums earned include $53.0 million, S85.6 million and $43.1 million for
1994,1993 and 1992, respectively, related to refunded and called bonds.
5. Investments
The Company's investment objective is to optimize long-term, after-tax returns
while emphasizing the preservation of capital and claims-paying capability
through maintenance of high quality investments with adequate liquidity and by
the avoidance of excessive interest rate risk exposure through prudent maturity
selection. The Company's investment policies limit the amount of credit exposure
to any one issuer. The fixed maturity portfolio comprises high quality (average
Double-A) taxable and tax-exempt investments of diversified maturities.
The following tables set forth the amortized cost and market value of the
fixed maturities included in the consolidated investment portfolio of the
Company, as of December 31, 1994 and 1993. Included in the 1994 and 1993
balances are the fixed maturities held in the municipal investment agreement
portfolio, which had an amortized cost of $1,645.6 million and $416.4 million,
respectively.
Gross Gross
Amortized Unrealized Unrealized Market
In thousands Cost Gains Losses Value
---------- ---------- ---------- -----------
December 31, 1994
Taxable bonds
United States Treasury
and Government Agency $ 851,817 $ 3,061 $(23,564) $ 831,314
Corporate and other
obligations 1,521,241 2,441 (74,943) 1,448,739
Tax-exempt bonds
State and municipal
obligations 2,396,384 36,631 (77,998) 2,355,017
---------- ---------- ---------- -----------
Total fixed maturities $4,769,442 $42,133 $(176,505) $4,635,070
---------- ---------- ---------- -----------
Gross Gross
Amortized Unrealized Unrealized Market
In thousands Cost Gains Losses Value
---------- ---------- ---------- -----------
Taxable bonds
United States Treasury
and Government Agency $ 457,060 $ 17,541 $ 791 $ 473,810
Corporate and other
obligations 702,446 27,727 4,399 725,774
Tax-exempt bonds
State and municipal
obligations 2,053,585 177,285 695 2,230,175
---------- ---------- ---------- -----------
Total fixed maturities $3,213,091 $ 222,553 $ 5,885 $3,429,759
========== ========== ========== ===========
Fixed maturity investments carried at market value of $7.4 million at
December 31,1994 and at amortized cost of $7.6 million at December 31,1993, were
on deposit with various regulatory authorities to comply with insurance laws.
The table below sets forth the distribution by expected maturity of the
fixed maturities and short-term investments at amortized cost and market value
at December 31,1994. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations.
In thousands Amortized Cost Market Value
-------------- ------------
Maturity
Within 1 year $ 274,561 $ 274,069
Beyond 1 year but within 5 years 1,083,227 1,081,284
Beyond 5 years but within 10 years 1,654,248 1,612,247
Beyond 10 years but within 15 years 1,085,374 1,049,278
Beyond 15 years but within 20 years 488,716 462,441
Beyond 20 years 397,471 369,906
---------- ----------
Total fixed maturities and
short-term investments $4,983,597 $4,849,225
========== ==========
33
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Investment Income and Gains and Losses
Investment income consists of:
Years ended December 31
----------------------------
In thousands 1994 1993 1992
-------- -------- --------
Fixed maturities $194,163 $176,344 $148,358
Short-term investments 2,332 3,048 3,047
Other investments 167 2,206 1,355
-------- -------- --------
Gross investment income 196,662 181,598 152,760
Investment expenses 2,809 2,714 2,282
-------- -------- --------
Net investment income 193,853 178,884 150,478
Net realized gains (losses):
Fixed maturities 784 9,112 10,213
Other investments 9,551 615 (379)
-------- -------- --------
Net realized gains 10,335 9,727 9,834
-------- -------- --------
Total investment income $204,188 $188,611 $160,312
======== ======== ========
Total investment income excludes investment income and realized gains and
losses from MBIA/MISC, IMC and SECO, which are reported in investment management
services revenues.
Unrealized gains (losses) consist of:
As of December 31
--------------------
In thousands 1994 1993
--------- --------
Fixed maturities:
Gains $ 42,133 $222,553
Losses (176,505) (5,885)
--------- --------
Net (134,372) 216,668
Other investments:
Gains 2,563 10,953
Losses (1,043) (60)
--------- --------
Net 1,520 10,893
--------- --------
Total (132,852) 227,561
Deferred income tax (benefit) (46,292) 3,813
--------- --------
Unrealized (losses) gains - net $(86,560) $223,748
========= ========
The deferred tax benefit in 1994 relates primarily to unrealized losses on
the Company's fixed maturity investments, which are reflected in shareholders'
equity in 1994 in accordance with the Company's adoption of SFAS 115.
The change in net unrealized gains (losses) consists of:
Years ended December 31
------------------------------
In thousands 1994 1993 1992
--------- -------- -------
Fixed maturities $(351,040) $100,413 $19,396
Other investments (9,373) 5,505 5,147
--------- -------- -------
Total (360,413) 105,918 24,543
Deferred income tax (benefit) (50,105) 1,981 1,750
--------- -------- -------
Unrealized (losses) gains - net $(310,308) $103,937 $22,793
========= ======== =======
7. Income Taxes
Effective January 1,1993, the Company changed its method of accounting for
income taxes from the income statement-based deferred method to the balance
sheet-based liability method required by SFAS 109. The Company adopted the new
pronouncement on the cumulative catch-up basis and recorded a cumulative
adjustment, which increased net income and reduced the deferred tax liability by
$13.0 million. The cumulative effect represents the impact of adjusting the
deferred tax liability to reflect the January 1,1993 tax rate of 34% as opposed
to the higher tax rates in effect when certain of the deferred taxes originated.
As permitted under the new rules, prior years' financial statements have not
been restated.
SFAS 109 requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. The effect
on tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at December 31,1994 and 1993 are presented below:
In thousands 1994 1993
-------- --------
Deferred tax assets
Tax and loss bonds $ 50,332 $ 24,168
Unrealized losses 46,292 -
Alternative minimum tax credit
carryforward 22,391 7,570
Loss and loss adjustment expense
reserves 6,363 9,192
Other 4,008 3,084
-------- --------
Total gross deferred tax assets 129,386 44,014
-------- --------
Deferred tax liabilities
Contingency reserve 91,439 47,621
Deferred premium revenue 54,523 45,903
Deferred acquisition costs 48,900 44,502
Unrealized gains - 3,813
Contingent commissions 4,746 4,744
Other 6,621 5,312
-------- --------
Total gross deferred tax liabilities 206,229 151,895
-------- --------
Net deferred tax liability $ 76,843 $107,881
======== ========
34
Under SFAS 109, a change in the Federal tax rate requires a restatement of
deferred tax assets and liabilities. Accordingly, the restatement for the change
in the 1993 Federal tax rate resulted in a $5.5 million or $0.13 per share
increase in the tax provision, of which $3.2 million or $0.08 per share resulted
from the recalculation of deferred taxes at the new Federal rate.
The provision for income taxes is composed of:
Years ended December 31
-------------------------
In thousands 1994 1993 1992
------- ------- -------
Current $50,146 $57,299 $46,902
Deferred 19,067 20,626 8,652
------- ------- -------
Total $69,213 $77,925 $55,554
======= ======= =======
The provision for income taxes gives effect to permanent differences between
financial and taxable income. Accordingly, the Company's effective income tax
rate differs from the statutory rate on ordinary income. The reasons for the
Company's lower effective tax rates are as follows:
Years ended December 31
-------------------------
In thousands 1994 1993 1992
------- ------- -------
Income taxes computed on
pre-tax financial income at
statutory rates 35.0% 35.0% 34.0%
Increase (reduction) in taxes
resulting from:
Tax-exempt interest (12.9) (11.4) (12.4)
Amortization of goodwill 0.5 0.6 0.7
Other, net (1.6) (0.2) 0.4
------- ------- -------
Provision for income taxes 21.0% 24.0% 22.7%
======= ======= =======
8. Dividends and Capital Requirements
Under NewYork Insurance Law, MBIA Corp. may pay a dividend only from earned
surplus subject to the maintenance of a minimum capital requirement. The
dividends in any 12-month period may not exceed the lesser of 10% of its
policyholders' surplus as shown on its last filed statutory-basis financial
statements or of adjusted net investment income, as defined, for such 12-month
period, without prior approval of the Superintendent of the New York State
Insurance Department.
In accordance with such restrictions on the amount of dividends which can
be paid in any 12-month period, MBIA Corp. had approximately $73 million
available for the payment of dividends as of December 31, 1994. In 1994, 1993
and 1992, MBIA Corp. declared and paid dividends of $38 million, $50 million and
$22 million, respectively, to the Company.
The insurance departments of New York State and certain other states and
the agencies which rate the bonds insured by MBIA Corp. have various
requirements with which MBIA Corp. was in compliance as of December 31, 1994,
relating to the maintenance of certain minimum ratios of statutory capital and
reserves to net insurance in force.
9. Long-term Debt and Lines of Credit
Long-term debt consists of:
As of December 31
--------------------
In thousands 1994 1993
-------- --------
9.000% Notes due 2001 $100,000 $100,000
9.375% Notes due 2011 100,000 100,000
8.200% Debentures due 2022 100,000 100,000
-------- --------
300,000 300,000
Less unamortized discount 1,210 1,320
-------- --------
$298,790 $298,680
======== ========
The Company's long-term debt is subject to certain covenants, none of which
significantly restrict the Company's operating activities or dividend-paying
ability.
MBIA Corp. has a standby line of credit commitment in the amount of $600
million with a group of major banks to provide loans to MBIA Corp. after it has
incurred cumulative losses (net of any recoveries) from September 30, 1994 in
excess of the greater of $500 million and 6.25% of average annual debt service.
The obligation to repay loans made under
35
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
this agreement is a limited recourse obligation payable solely from, and
collaterized by, a pledge of recoveries realized on defaulted insured
obligations including certain installment premiums and other collateral. This
commitment has a seven-year term and expires on September 30, 2001, but, subject
to approval by the banks, may be annually renewed to extend the term to seven
years beyond the renewal date.
The Company and MBIA Corp. maintain bank liquidity facilities aggregating
$250 million. At December 31, 1994, $17 million was outstanding under these
facilities.
10. Obligations Under Municipal
Investment Agreements
Obligations under municipal investment agreements are recorded as liabilities on
the balance sheet based upon proceeds received at the time such agreements are
executed. Upon the occurrence of certain contractually agreed upon events, some
of these funds may be withdrawn at various times prior to maturity at the option
of the investor. As of December 31, 1994, the interest rates on these agreements
ranged from 3.3% to 8.1%.
Payments due under these investment agreements in each of the next five
years ending December 31, and thereafter, based upon expected withdrawal dates,
were as follows:
In thousands Principal Amount
----------------
Expected withdrawal date
1995 $ 883,356
1996 165,188
1997 61,026
1998 20,047
1999 42,907
Thereafter 333,758
----------
$1,506,282
==========
A portion of the obligations requires securities to be pledged as
collateral. As of December 31, 1994, the market value of securities pledged as
collateral with respect to these obligations approximated $399 million.
11. Net Insurance In Force
MBIA Corp. guarantees the timely payment of principal and interest on municipal
and certain non-municipal bonds and notes. MBIA Corp.'s ultimate exposure to
credit loss in the event of nonperformance by the insured is represented by the
insurance in force as set forth below.
The insurance policies issued by MBIA Corp. are unconditional commitments
to guarantee timely payment on the bonds and notes to bondholders. The
creditworthiness of each insured issue is evaluated prior to the issuance of
insurance and each insured issue must comply with MBIA Corp.'s underwriting
guidelines. Further, the payments to be made by the issuer on the bonds or notes
may be backed by a pledge of revenues, reserve funds, letters of credit,
investment contracts or collateral in the form of mortgages or other assets. The
right to such money or collateral would typically become MBIA Corp.'s upon the
payment of the insured amount by MBIA Corp.
As of December 31, 1994, insurance in force, net of cessions to reinsurers,
has a range of maturity of 1-40 years. Net insurance in force includes
international business of $2.5 billion representing 18 issues and $0.3 billion
representing 5 issues at December 31, 1994 and 1993, respectively.The
distribution
36
of net insurance in force by state and type of bond, excluding IMC's $1,526.1
million and $493.0 million municipal investment agreement liability guaranteed
by MBIA Corp. in 1994 and 1993, respectively, is set forth in the tables below:
As of December 31
---------------------------------------------------------------------------------
1994 1993
--------------------------------------- ---------------------------------------
Number % of Net Number % of Net
Net Insurance of Issues Insurance Net Insurance of Issues Insurance
State In Force Outstanding In Force In Force Outstanding In Force
------------- ----------- --------- ------------- ----------- ---------
(in billions) (in billions)
California $ 43.9 2,832 14.4% $ 37.9 2,410 14.2
Florida 25.4 1,805 8.4 22.9 1,716 8.6
New York 23.5 4,360 7.7 21.0 4,101 7.9
Pennsylvania 19.5 2,108 6.4 17.7 1,889 6.6
Texas 18.6 2,102 6.1 17.5 1,784 6.5
New Jersey 15.0 1,590 4.9 11.9 1,298 4.5
Illinois 14.7 1,139 4.8 12.2 1,120 4.6
Massachusetts 8.6 1,064 2.8 7.4 959 2.8
Ohio 8.3 996 2.7 7.0 915 2.6
Georgia 7.4 978 2.5 5.9 815 2.2
All others 119.6 10,723 39.3 105.4 10,130 39.5
------ ------ ----- ------ ------ -----
$304.5 29,697 100.0% $266.8 27,137 100.0
====== ====== ===== ====== ====== =====
As of December 31
---------------------------------------------------------------------------------
1994 1993
--------------------------------------- ---------------------------------------
Number % of Net Number % of Net
Net Insurance of Issues Insurance Net Insurance of Issues Insurance
State In Force Outstanding In Force In Force Outstanding In Force
------------- ----------- --------- ------------- ----------- ---------
(in billions) (in billions)
Municipal
General obligation $ 84.2 11,029 27.7% $ 72.7 10,310 27.3
Utilities 56.0 5,087 18.4 50.8 4,640 19.0
Health care 50.6 2,670 16.6 47.7 2,558 17.9
Special revenue 22.7 1,291 7.4 20.6 1,153 7.7
Transportation 21.3 1,486 7.0 19.1 1,431 7.1
Industrial development and
pollution control revenue 15.1 1,016 5.0 11.2 1,058 4.2
Higher education 14.0 1,208 4.6 12.7 1,119 4.8
Housing 13.6 2,663 4.5 14.7 2,614 5.5
Other 3.8 124 1.2 2.4 68 0.9
------ ------ ----- ------ ------ -----
281.3 26,574 92.4 251.9 24,951 94.4
------ ------ ----- ------ ------ -----
Non-municipal
Asset-/mortgage-backed 12.8 151 4.2 8.5 94 3.2
Investor-owned utilities 5.7 2,918 1.9 4.5 2,056 1.7
Other 4.7 54 1.5 1.9 36 0.7
------ ------ ----- ------ ------ -----
23.2 3,123 7.6 14.9 2,186 5.6
------ ------ ----- ------ ------ -----
$304.5 29,697 100.0% $266.8 27,137 100.0
====== ====== ===== ====== ====== =====
37
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Reinsurance
MBIA Corp. reinsures portions of its risks with other insurance companies
through various quota and surplus share reinsurance treaties and facultative
agreements. In the event that any or all of the reinsurers were unable to meet
their obligations, MBIA Corp. would be liable for such defaulted amounts.
Amounts deducted from gross insurance in force for reinsurance ceded by
MBIA Corp. and MBIA Illinois were $42.6 billion and $36.8 billion, at December
31, 1994 and 1993, respectively. Ceded insurance in force includes international
business of $0.7 billion representing two issues at December 31, 1994. The
distribution of ceded insurance in force by state and type of bond is set forth
in the tables below:
As of December 31
-------------------------------------------------
1994 1993
--------------------- ---------------------
% of % of
Ceded Ceded Ceded Ceded
Insurance Insurance Insurance Insurance
State In Force In Force In Force In Force
--------- --------- --------- ---------
(in billions) (in billions)
California $ 7.5 17.6% $ 5.7 15.5%
New York 4.9 11.5 4.2 11.4
Pennsylvania 2.6 6.1 2.7 7.3
Texas 2.5 5.9 2.6 7.1
Illinois 2.3 5.4 1.9 5.2
Florida 2.1 4.9 1.9 5.2
New Jersey 2.0 4.7 0.9 2.4
District of Columbia 1.6 3.8 0.9 2.4
Washington 1.2 2.8 1.1 3.0
Puerto Rico 1.1 2.6 1.1 3.0
Ohio 0.9 2.1 0.7 1.9
Massachusetts 0.9 2.1 0.8 2.2
All others 13.0 30.5 12.3 33.4
----- ----- ----- -----
$42.6 100.0% $36.8 100.0%
===== ===== ===== =====
As of December 31
-------------------------------------------------
1994 1993
--------------------- ---------------------
% of % of
Ceded Ceded Ceded Ceded
Insurance Insurance Insurance Insurance
Type of Bond In Force In Force In Force In Force
--------- --------- --------- ---------
(in billions) (in billions)
Municipal
General obligation $ 9.7 22.8% $ 8.3 22.5
Utilities 8.5 20.0 8.8 23.9
Health care 6.5 15.3 6.8 18.5
Transportation 4.5 10.6 3.1 8.4
Industrial development
and pollution
control revenue 2.9 6.8 0.3 0.8
Special revenue 2.7 6.3 2.6 7.1
Higher education 1.2 2.8 0.9 2.4
Housing 1.0 2.3 1.2 3.3
Other 1.5 3.5 1.8 4.9
----- ----- ----- -----
38.5 90.4 33.8 91.8
----- ----- ----- -----
Non-municipal
Asset-/mortgage-backed 2.7 6.3 2.1 5.7
Other 1.4 3.3 0.9 2.5
----- ----- ----- -----
4.1 9.6 3.0 8.2
----- ----- ----- -----
$42.6 100.0% $36.8 100.0%
===== ===== ===== =====
Gross premiums written include $0.2 million in 1994, $5.4 million in 1993 and
$5.0 million in 1992 related to the reassumption by MBIA Corp. of reinsurance
previously ceded. Also included in gross premiums in 1993 is $10.8 million of
premiums assumed from a member of the Association. Ceded premiums written are
net of $1.6 million in 1994, $2.5 million in 1993 and $4.7 million in 1992
related to the reassumption of reinsurance previously ceded by MBIA Corp.
Effective January 1,1993, the Company adopted SFAS 113. Under SFAS 113,
assets and liabilities relating to reinsurance contracts must be shown gross of
the effects of reinsurance. SFAS 113 also established guidelines to determine
whether risk is transferred under a reinsurance contract. If risk is
transferred, the conditions for reinsurance accounting are met. If risk is not
transferred, the contract is accounted for as a deposit.
38
13. Pension and Profit Sharing Plans
The Company has a pension plan covering all eligible employees. The pension plan
is a defined contribution plan and the Company contributes 10% of each eligible
employee's annual total compensation. Pension expense for the years ended
December 31, 1994, 1993 and 1992 was $3.3 million, $3.3 million and $2.8
million, respectively. The Company also has a profit sharing/401(k) plan which
allows eligible employees to contribute up to 10% of eligible compensation. The
Company matches employee contributions up to the first 5% of total compensation.
Company contributions to the profit sharing plan aggregated $1.4 million, $1.4
million and $1.1 million for the years ended December 31, 1994, 1993 and 1992,
respectively. The 401(k) plan company match amounts are invested in common stock
of the Company. Amounts relating to the above plans that exceed limitations
established by Federal regulations are contributed to a non-qualified deferred
compensation plan. Of the above amounts for the pension and profit sharing
plans, $2.6 million, $2.6 million and $2.2 million for the years ended December
31, 1994, 1993 and 1992, respectively, are included in policy acquisition costs.
Effective January 1, 1993, the Company adopted SFAS 106. Under SFAS 106,
companies are required to accrue the cost of employee post-retirement benefits
other than pensions during the years that employees render service. Prior to
January 1, 1993, the Company had accounted for these post-retirement benefits on
a cash basis. In 1993, the Company adopted the new pronouncement on the
cumulative catch-up basis and recorded a cumulative effect adjustment which
decreased net income and increased other liabilities by $0.1 million. As of
January 1, 1994, the Company eliminated these post-retirement benefits.
14. Common Stock Incentives
On March 2, 1987, the Company adopted a plan for key employees of the Company
and its subsidiaries to enable those employees to acquire shares of common stock
of the Company or to benefit from appreciation in the price of the common stock
of the Company. Options granted will either be Incentive Stock Options ("ISOs"),
where they qualify under Section 422(a) of the Internal Revenue Code, or Non-
Qualified Stock Options ("NQSOs").
ISOs and NQSOs may be granted at a price not less than 100% of the market value
of the Company's common stock as determined on the date granted. Options will be
exercisable as specified at the time of grant and expire 10 years from the date
of grant (or shorter if specified or following termination of employment).
The Board of Directors of the Company has authorized a maximum of 3,753,011
shares of the Company's common stock to be granted as options. As of December
31, 1994, 3,251,937 options had been granted net of expirations and
cancellations, leaving the total amount available for future grants at 501,074.
Options granted through 1990 are exercisable in equal annual installments on
each of the first three anniversaries of the grant at 100% of the market price
at date of grant. The options granted since 1990 are exercisable in five equal
annual installments commencing one year after the date of grant. Accelerated
vesting and exercisability of those options is possible if the Company's return
on equity for the year is at least equal to the threshold return on equity
specified in the annual financial plan and if earnings per share are at least
2.5% greater than plan earnings per share.
39
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Additional information with respect to stock options is summarized below:
1994
-------------------------
Number Option Price
Options of Shares Per Share
--------- --------------
Outstanding at beginning of year 1,591,487 $16.50 -69.00
Granted 552,700 50.125-60.125
Exercised 47,080 23.50 -50.00
Expired or cancelled 6,020 35.125-69.00
--------- --------------
Outstanding at year-end 2,091,087 $16.50 -69.00
--------- --------------
Exercisable at year-end 1,376,847 $16.50 -69.00
========= ==============
1993
-------------------------
Number Option Price
Options of Shares Per Share
--------- --------------
Outstanding at beginning of year 1,559,675 $16.50 -50.00
Granted 208,400 69.00
Exercised 170,588 16.50 -50.00
Expired or cancelled 6,000 35.125-69.00
--------- --------------
Outstanding at year-end 1,591,487 $16.50 -69.00
--------- --------------
Exercisable at year-end 1,141,301 $16.50 -50.00
========= ==============
1992
-------------------------
Number Option Price
Options of Shares Per Share
--------- --------------
Outstanding at beginning of year 1,749,553 $16.50-41.125
Granted 217,000 50.00
Exercised 394,820 16.50-41.125
Expired or cancelled 12,058 16.50-50.00
--------- --------------
Outstanding at year-end 1,559,675 $16.50-50.00
--------- --------------
Exercisable at year-end 1,014,450 $16.50-41.125
========= ==============
15. Shareholders' Rights Plan
In December 1991, the Board of Directors of the Company declared a dividend
distribution of one preferred share purchase right (a "Right") for each
outstanding share of the Company's common stock. Each Right entitles its holder
to purchase from the Company one one-hundredth of a share of the Company's
Junior Participating Cumulative Preferred Shares at a price of $160, subject to
certain adjustments. Initially, the Rights are attached to the common stock and
will not be transferable separately nor become exercisable until the earlier to
occur of (i) ten business days following the date of the public announcement by
the Company (the "Shares Acquisition Date") that a person or group of persons
has acquired or obtained the right to acquire beneficial ownership of 10% or
more of the outstanding shares of the Company's common stock and (ii) ten
business days (or later as may be determined by the Board of Directors) after
the announcement or commencement of a tender offer or exchange offer which, if
successful, would result in the bidder owning 10% or more of the outstanding
shares of the Company's common stock. However, no person shall be deemed to have
acquired or obtained the right to acquire the beneficial ownership of 10% or
more of the outstanding shares of the Cornpany's common stock, if the Board of
Directors determines that such acquisition is inadvertent, and such person
promptly divests itself of a sufficient number of shares to be below the 10%
ownership threshold.
If the acquiring person or group acquires beneficial ownership of 10% or more of
the Company's common stock (except pursuant to a tender or exchange offer for
all outstanding common stock of the Company, determined by the Company's
independent directors to be at a fair price and in the best interests of the
Company and its shareholders), each holder of a Right (other than the acquirer)
will be entitled to purchase, for $160, that number of shares of common stock of
the Company having a market value of $320. Similarly, if after an acquiring
person or group so acquires 10% or more of the Company's common stock, the
Company is acquired in a merger or other business combination and is not the
surviving entity, or its common stock is changed or exchanged in whole or in
part, or 50% or more of the Company's assets, cash flow or earning power is
sold, each holder of a Right (other than the acquirer) will be entitled to
purchase, for $160, that number of shares of common stock of the acquiring
company having a market value of $320. The Board of Directors may redeem the
Rights in whole at $.01 per Right at any time prior to ten business days
following the Shares Acquisition Date. Further, at any time after a person or
group acquires 10% or more, but less than 50%, of the Company's common stock,
the Board of Directors of the Company may exchange the Rights (other than those
held by the acquirer) in whole or in part, at an exchange ratio of one share of
common stock per Right. The Board of Directors may also amend the Rights at any
time prior to the Shares Acquisition Date. The Rights will expire on December
12, 2001, unless earlier redeemed or exchanged.
40
16. Related Party Transactions
The business assumed from the Association, relating to insurance on unit
investment trusts sponsored by two members of the Association, includes deferred
premium revenue of $1.9 million and $2.3 million at December 31, 1994 and 1993,
respectively.
In 1993, MBIA Corp. assumed the balance of $10.8 million of deferred premium
revenue from the member of the Association which had not previously ceded its
insurance portfolio to MBIA Corp. Also in 1993, MBIA Corp. assumed $0.4 million
of deferred premium revenue relating to one of the trusts which was previously
ceded to an affiliate of an Association member.
Since 1989, MBIA Corp. has executed five surety bonds to guarantee the payment
obligations of the members of the Association, one of which is a principal
shareholder, which had their Standard & Poor's claims-paying rating downgraded
from Triple-A on their previously issued Association policies. In the event that
they do not meet their Association policy payment obligations, MBIA Corp. will
pay the required amounts directly to the paying agent instead of to the former
Association member as was previously required. The aggregate amount payable by
MBIA Corp. on these surety bonds is limited to $340 million. These surety bonds
remain outstanding as of December 31, 1994.
Included in other investments are 78,000 shares of common stock of Credit Local
de France, a major shareholder, which were purchased by the Company for $3.0
million in 1991.
The Company has investment management and advisory agreements with an affiliate
of a principal shareholder, which provides for payment of fees on assets under
management. Total related expenses for the years ended December 31, 1994, 1993
and 1992 amounted to $2.6 million, $2.5 million and $2.1 million, respectively.
The Company has various insurance averages provided by a principal shareholder,
the cost of which totaled $1.9 million, $2.0 million and $2.2 million,
respectively, for the years ended December 31, 1994, 1993 and 1992.
The Company has outstanding letters of credit for MBIA/ MISC that are intended
to support the net asset value of the investments managed by MBIA/ MISC. These
letters can be drawn upon in the event the liquidation of such assets at below
cost is required.
17. Public Offerings of Common Stock
In February 1992, the Company completed a public offering of 9.4 million shares
of the Company's common stock. Of the shares offered, 7.9 million were sold by
existing shareholders and 1.5 million were new shares offered by the Company.
The Company realized $69.6 million in new capital from the offering.
In October 1992, the Company completed a public offering of 1.8 million shares
of the Company's common stock. The offering consisted of 1.4 million new shares
sold by the Company and 0.4 million shares sold by an existing shareholder. The
Cornpany realized $75.1 million in new capital from the offering.
18. FairValue of Financial Instruments
The estimated fair value amounts of financial instruments shown in the following
table have been determined by the Company using available market information and
appropriate valuation methodologies. However, in certain cases considerable
judgment is necessarily required to interpret market data to develop estimates
of fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amount the Company could realize in a current market exchange.
The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.
Fixed maturity securities - The fair value of fixed maturity securities equals
quoted market price, if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar securities.
Short-term investments- Short-term investments are carried at amortized cost
which, because of their short duration, is a reasonable estimate of fair value.
Other investments - Other investments consist principally of marketable equity
securities as well as the Company's interest in limited partnerships and a
mutual fund, both of which invest primarily in marketable equity securities. The
fair value of other investments is based on quoted market prices.
41
MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Municipal investment agreement portfolio - The municipal investment agreement
portfolio is composed of fixed maturity securities and short-term investments.
Its fair value equals the quoted market price, if available, of its fixed
maturities plus the amortized cost of its short-term investments, which because
of their short duration, is a reasonable estimate of fair value. If a quoted
market price is not available for a fixed maturity security, fair value is
estimated using quoted market prices for similar securities.
Cash and cash equivalents, receivable for investments sold and payable for
investments purchased - The carrying amounts of these items are a reasonable
estimate of their fair value.
Prepaid reinsurance premiums - The fair value of the Company's prepaid
reinsurance premiums is based on the estimated cost of entering into an
assumption of the entire portfolio with third party reinsurers under current
market conditions.
Deferred premium revenue - The fair value of the Company's deferred premium
revenue is based on the estimated cost of entering into a cession of the entire
portfolio with third party reinsurers under current market conditions.
Loss and loss adjustment expense reserves - The carrying amount is composed of
the present value of the expected cash flows for specifically identified claims
combined with an estimate for unidentified claims. Therefore, the carrying
amount is a reasonable estimate of the fair value of the reserve.
Long-term debt - The fair value is estimated based on the quoted market prices
for the same or similar securities.
Municipal investment agreements - The fair value of municipal investment
agreements is estimated using discounted cash flow calculations based upon
interest rates currently being offered for similar agreements with maturities
consistent with those remaining for the agreements being valued.
Installment premiums - The fair value is derived by calculating the present
value of the estimated future cash flow stream at the Company's estimated cost
of capital.
As of December 31, 1994 As of December 31, 1993
--------------------------------------------------
Carrying Estimated Carrying Estimated
In thousands Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
Assets:
Fixed maturity
securities $3,051,906 $3,051,906 $2,796,699 $3,015,527
Short-term
investments 121,384 121,384 104,205 104,205
Other investments 17,550 17,550 104,681 104,681
Municipal
investment
agreement
portfolio 1,675,935 1,675,935 538,751 536,591
Cash and cash
equivalents 7,940 7,940 2,492 2,492
Prepaid reinsurance
premiums 186,492 159,736 170,551 141,441
Receivable for
investments sold 945 945 31,903 31,903
Liabilities:
Deferred premium
revenue 1,512,211 1,295,305 1,402,807 1,173,882
Loss and loss
adjustment
expense reserves 40,148 40,148 33,735 33,735
Long-term debt 298,790 299,315 298,680 357,950
Municipal
investment
agreements 1,526,133 1,476,426 493,014 491,534
Payable for
investments
purchased 209,966 209,966 111,279 111,279
Off-balance-sheet
instruments:
Installment
premiums - 176,944 - 186,490
========== ========== ========== ==========
42
19. Quarterly Financial Information (Unaudited)
A summary of selected quarterly income statement information follows:
Dollars in thousands except per share amounts
1994 First Second Third Fourth Year
-------- -------- -------- -------- --------
Gross premiums written $84,311 $109,975 $ 80,099 $ 86,451 $360,836
Net premiums written 76,513 91,098 68,088 75,856 311,555
Premiums earned 54,452 53,688 54,730 55,459 218,329
Investment income and realized gains and losses 52,637 50,502 50,158 50,165 203,462
All other revenues 2,538 5,884 5,124 4,199 17,745
Income before income taxes 82,909 83,022 82,513 80,978 329,422
Net income $65,741 $ 64,951 $ 65,047 $ 64,470 $260,209
======= ======== ======== ======== ========
Net income per common share $ 1.56 $ 1.54 $ 1.54 $ 1.53 $ 6.18
======= ======== ======== ======== ========
1993 First Second Third Fourth Year
------- -------- -------- -------- --------
Gross premiums written $98,025 $154,315 $110,022 $116,985 $479,347
Net premiums written 89,189 133,992 103,535 105,079 431,795
Premiums earned 53,465 58,921 61,237 57,653 231,276
Investment income and realized gains and losses 45,014 47,287 46,333 50,063 188,697
All other revenues 1,834 2,726 2,652 1,793 9,005
Income before income taxes 75,379 82,404 84,405 81,847 324,035
Net income $72,651 $ 63,841 $ 59,817 $ 62,724 $259,033
======= ======== ======== ======== ========
Net income per common share $ 1.71 $ 1.50 $ 1.41 $ 1.48 $ 6.10
======= ======== ======== ======== ========
1992 First Second Third Fourth Year
------- -------- -------- -------- --------
Gross premiums written $72,701 $110,460 $ 80,302 $105,269 $368,732
Net premiums written 64,491 101,639 72,763 97,251 336,144
Premiums earned 38,751 40,546 40,555 43,089 162,941
Investment income and realized gains and losses 35,966 39,960 40,437 43,949 160,312
All other revenues 641 791 1,325 1,903 4,660
Income before income taxes 56,191 61,196 62,495 64,379 244,261
Net income $43,213 $ 47,946 $ 48,636 $ 48 912 $188,707
======= ======== ======== ======== ========
Net income per common share $ 1.09 $ 1.18 $ 1.19 $ 1.16 $ 4.62
======= ======== ======== ======== ========
Due to the changes in the number of shares outstanding, quarterly per share
amounts may not add to the totals for the years.
43
MBIA Inc. and Subsidiaries
Senior Officers
MBIA Inc.
David H. Elliott
Chairman and
Chief Executive Officer
Richard L. Weill
President
Robert R. Godfrey
Executive Vice President
James E. Malling
Executive Vice President
Hilda H. Boas
Senior Vice President
Janis Strong Christensen
Senior Vice President
Louis G. Lenzi
General Counsel and
Secretary
Julliette S. Tehrani
Senior Vice President and
Controller
Arthur M. Warren
Senior Vice President and
Chief Financial Officer
Christopher W. Tilley
Vice President and Treasurer
Municipal Bond Investors
Assurance Corporation
David H. Elliott
Chairman and
Chief Executive Officer
Richard L. Weill
President
Neil G. Budnick
Senior Vice President,
Assistant to the Chairman
Louis G. Lenzi
General Counsel and
Secretary
Thomas O. Scherer
Senior Vice President,
Director of Risk Assessment
Insurance Operations
William P. Condon
Senior Vice President,
Director of Public Finance Group
Gary P. Karvelis
Senior Vice President, Director
of Secondary Market Products
Thomas A. Landers
Senior Vice President,
Director of Market Research
David C. Stevens
Senior Vice President, Director
of Insured Porfolio Management
Corporate Marketing,
Corporate Development and
Human Resources
James E. Malling
Executive Vice President
Hilda H. Boas
Senior Vice President,
Director of Human Resources and
Corporate Administration
Margaret D. Garfunkel
Senior Vice President, Director
of Corporate Development
Paul C. O'Shea
Senior Vice President, Director
of Corporate Marketing
Finance
Arthur M. Warren
Senior Vice President and
Chief Financial Officer
Julliette S. Tehrani
Senior Vice President, Director
of Finance and Controller
Christopher W. Tilley
Vice President and Treasurer
Marketing Services
Robert R. Godfrey
Executive Vice President
William G. Gallagher
Senior Vice President, Director
of Institutional, Retail and
Issuer Marketing
Underwriting Policy and
Review
Janis Strong Christensen
Senior Vice President, Director of
Underwriting Policy and Review
MBIA Assurance S.A.
Michael J. Maguire
Senior Vice President,
Directeur General
Serge Marle
Directeur du Developpement
MBIA Investment
Management Corp.
Margaret D. Garfunkel
President
MBIA Municipal Investors
Service Corporation
Leon J. Karvelis, Jr.
President
Francie Heller
Executive Vice President
MBIA Securities Corp.
Robert M. Ohanesian
President
MBIA Capital Corp.
Margaret D. Garfunkel
President
44
MBIA Inc. and Subsidiaries
Shareholder Information
Corporate Headquarters
MBIA Inc.
113 King Street
Armonk, New York 10504
914 273-4545
Annual Meeting
The annual meeting of shareholders of MBIA Inc. will be held on Thursday, May
11, 1995 at 10:00 a.m. in MBIA Inc.'s offices in Armonk, New York.
Form 10-K
A copy of the company's annual report on Form 10-K to the Securities and
Exchange Commission is available on request by writing to Shareholder
Information at the address above.
Quarterly Reports
If you would like to receive quarterly reports from MBIA, please contact
Shareholder Information at the address or telephone number above. The company
mails quarterly shareholder reports only upon request.
Transfer Agent, Registrar and
Dividend Disbursing Agent
Mellon Securities Trust Company
c/o Mellon Securities Transfer Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
800 288-9541
Investor Relations
Gregory R. Diamond
Vice President, Investor Relations
914 765-3014
Arthur M. Warren
Senior Vice President and
Chief Financial Officer
914 765-3010
Exchange Listing
MBIA Inc. common stock is listed on the New York Stock Exchange (ticker
symbol: MBI). The approximate number of holders of record, including individual
owners, of MBIA's common stock was 509 as of December 31, 1994.
Common Stock Data
Dividends Paid Market Price*
per Share High Low Close
-------------- ------ ------------ ------
1994
1st Quarter $.26 65 1/4 53 1/2 54 5/8
2nd Quarter .26 61 52 3/4 57 3/8
3rd Quarter .26 62 1/2 56 5/8 59 5/8
4th Quarter .31 59 7/8 47 1/4 56 1/8
1993
1st Quarter $.21 $69 7/8 $55 1/4 $67 7/8
2nd Quarter .21 68 5/8 61 65 7/8
3rd Quarter .21 81 1/4 65 1/4 76 3/8
4th Quarter .26 79 1/4 62 1/2 62 7/8
EX-21
16
Subsidiaries of MBIA Inc.
NAME OF SUBSIDIARY STATE OF INCORPORATION
Municipal Bond Investors Assurance Corporation New York
MBIA Assurance S.A. France
MBIA Service Corporation Delaware
Municipal Issuers Service Corporation New York
MBIA Municipal Investors Service Corporation Delaware
MBIA Capital Corp. Delaware
MBIA Insurance Corp. of Illinois (formerly known Illinois
as Bond Investors Guaranty Insurance Company)
MBIA Investment Management Corp. Delaware
MBIA Securities Corp. Delaware
Bond Investors Guaranty Services, Inc. New York
EX-23
17
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference into the Registration Statements
on Form S-8 (Nos. 33-22441 and 33-46062) of:
(1) Our report dated February 1, 1995, on our audits of the
consolidated financial statements of MBIA Inc. and
Subsidiaries as of December 31, 1994 and 1993, and for each
of the three years in the period ended December 31, 1994 and
1993, and for each of the three years in the period ended
December 31, 1994, which report is incorporated by reference
in this 1994 Annual Report on Form 10-K; and
(2) Our report dated February 1, 1995, on our audits of the
financial statement schedules of MBIA Inc. and Subsidiaries,
which report is included in this 1994 Annual Report on Form
10-K.
New York, New York
March 29, 1995 /s/Coopers & Lybrand
EX-24
18
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints each of David
H. Elliott, Richard L. Weill and Louis G. Lenzi as his/her true
and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him/her and in his/her name,
place and stead, in any and all capacities, to sign the Annual
Report on Form 10-K of MBIA Inc. for the year ended December 31,
1994, and any or all amendments thereto, and to file the same,
and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his/her substitute, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have set my hand and seal this 9th day
of March, 1995.
/s/William O. Bailey /s/Daniel P. Kearney
/s/Joseph W. Brown, Jr. /s/James A. Lebenthal
/s/David C. Clapp /s/Robert B. Nicholas
/s/William H. Gray /s/Paul A. Volcker
/s/Freda S. Johnson
EX-27
19
7
1,000
YEAR
DEC-31-1994
JAN-01-1994
DEC-31-1994
3,051,906
0
0
0
0
0
4,866,775
7,940
0
133,048
5,456,439
40,148
1,512,211
0
0
298,790
42,077
0
0
1,662,639
5,456,439
218,329
193,853
10,335
17,019
8,093
21,845
41,026
329,422
69,213
260,209
0
0
0
260,209
6.18
6.18
0
0
0
0
0
0
0
EX-99
20
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION and SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1994 and 1993
and for the years ended December 31, 1994, 1993 AND 1992
REPORT OF INDEPENDENT ACCOUNTANTS
----------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION:
We have audited the accompanying consolidated balance sheets of
Municipal Bond Investors Assurance Corporation and Subsidiaries
as of December 31, 1994 and 1993, and the related consolidated
statements of income, changes in shareholder's equity and cash
flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Municipal Bond Investors Assurance
Corporation and Subsidiaries as of December 31, 1994 and 1993,
and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 7 to the consolidated financial statements,
effective January 1, 1993 the Company adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income
Taxes." As discussed in Note 2 to the consolidated financial
statements, effective January 1, 1994 the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities."
/s/ COOPERS & LYBRAND L. L. P.
-------------------------------
New York, New York
February 1, 1995
PAGE 1 OF 27
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
December 31, 1994 December 31, 1993
----------------- -----------------
ASSETS
Investments:
Fixed maturity securities,
at amortized cost (market
value $2,971,369) $ --- $2,753,974
Fixed maturity securities
held as available-for-sale
at market (amortized
cost $3,123,838) 3,051,906 ---
Short-term investments,
at amortized cost (which
approximates market value) 121,384 104,205
Other investments 11,970 98,215
---------- ----------
TOTAL INVESTMENTS 3,185,260 2,956,394
Cash and cash equivalents 1,332 747
Accrued investment income 55,347 51,514
Deferred acquisition costs 133,048 120,484
Prepaid reinsurance premiums 186,492 170,551
Goodwill (less accumulated
amortization of $32,437
and $27,476) 110,543 115,504
Property and equipment, at cost
(less accumulated depreciation
of $9,501 and $3,452) 39,648 37,574
Receivable for investments sold 945 1,949
Other assets 46,552 18,912
---------- ----------
TOTAL ASSETS $3,759,167 $3,473,629
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Deferred premium revenue $1,512,211 $1,402,807
Loss and loss adjustment
expense reserves 40,148 33,735
Current income taxes payable --- 1,771
Deferred income taxes 97,828 106,686
Payable for investments purchased 6,552 33,340
Other liabilities 46,925 37,547
---------- ----------
TOTAL LIABILITIES 1,703,664 1,615,886
---------- ----------
Shareholder's Equity
Common stock, par value
$150 per share; authorized,
issued and outstanding
- 100,000 shares 15,000 15,000
Additional paid-in capital 953,655 943,794
Retained earnings 1,134,061 895,312
Cumulative translation adjustment 427 (1,203)
Unrealized (depreciation)
appreciation of investments,
net of deferred income tax
(benefit) provision of
$(25,334) and $2,606 (47,640) 4,840
---------- ----------
TOTAL SHAREHOLDER'S EQUITY 2,055,503 1,857,743
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $3,759,167 $3,473,629
========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
-2-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
Years ended December 31
------------------------------
1994 1993 1992
-------- -------- --------
Revenues:
Gross premiums written $361,523 $479,390 $368,732
Ceded premiums (49,281) (47,552) (32,588)
-------- -------- --------
Net premiums written 312,242 431,838 336,144
Increase in deferred premium revenue (93,226) (200,519) (173,203)
-------- -------- --------
Premiums earned (net of ceded
premiums of $33,340, $41,409
and $28,276) 219,016 231,319 162,941
Net investment income 193,966 175,329 149,359
Net realized gains 10,335 8,941 11,419
Other income 1,539 3,996 2,001
-------- -------- --------
Total revenues 424,856 419,585 325,720
-------- -------- --------
Expenses:
Losses and loss
adjustment expenses 8,093 7,821 5,619
Underwriting and operating expenses 41,044 38,006 34,092
Policy acquisition costs, net 21,845 25,480 18,119
-------- -------- --------
Total expenses 70,982 71,307 57,830
-------- -------- --------
Income before income taxes and
cumulative effect of accounting
changes 353,874 348,278 267,890
Provision for income taxes 77,125 86,684 54,802
-------- -------- --------
Income before cumulative effect
of accounting changes 276,749 261,594 213,088
Cumulative effect of accounting changes --- 12,923 ---
-------- -------- --------
Net income $276,749 $274,517 $213,088
======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
-3-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
For the years ended December 31, 1994, 1993 and 1992
(Dollars in thousands except per share amounts)
Unrealized
Common Stock Additional Cumulative Appreciation
------------ Paid-in Retained Translation (Depreciation)
Shares Amount Capital Earnings Adjustment of Investments
------ ------ --------- -------- ----------- --------------
Balance,
January 1,
1992 100,000 $ 2,500 $776,544 $ 479,707 $ (126) $ 143
Increase in
par value
of common
stock --- 12,500 (12,500) --- --- ---
Net income --- --- --- 213,088 --- ---
Change in
foreign
currency
translation --- --- --- --- (348) ---
Change in
unrealized
appreciation of
investments net
of change in
deferred income
taxes of
$(1,151) --- --- --- --- --- 2,236
Dividends
declared (per
common share
$220.00) --- --- --- (22,000) --- ---
Capital
contribution
from MBIA Inc. --- --- 163,368 --- --- ---
Tax reduction
related to
MBIA Inc.'s
Stock Option
Plan --- --- 4,531 --- --- ---
------- ------- -------- ---------- ----- --------
Balance,
December 31,
1992 100,000 15,000 931,943 670,795 (474) 2,379
------- ------- -------- ---------- ----- --------
Net income --- --- --- 274,517 --- ---
Change in
foreign
currency
translation --- --- --- --- (729) ---
Change in
unrealized
appreciation
of investments
net of change
in deferred
income taxes
of $(1,381) --- --- --- --- --- 2,461
Dividends
declared (per
common share
$500.00) --- --- --- (50,000) --- ---
Tax reduction
related to
tax sharing
agreement
with MBIA Inc. --- --- 11,851 --- --- ---
------- ------- -------- ---------- ----- --------
Balance,
December 31,
1993 100,000 15,000 943,794 895,312 (1,203) 4,840
------- ------- -------- ---------- ----- --------
Net income --- --- --- 276,749 --- ---
Change in
foreign
currency
translation --- --- --- --- 1,630 ---
Change in
unrealized
depreciation
of investments
net of change
in deferred
income taxes
of $27,940 --- --- --- --- --- (52,480)
Dividends
declared (per
common share
$380.00) --- --- --- (38,000) --- ---
Tax reduction
related to
tax sharing
agreement with
MBIA Inc. --- --- 9,861 --- --- ---
------- ------- -------- ---------- ----- --------
Balance,
December 31,
1994 100,000 $15,000 $953,655 $1,134,061 $ 427 $(47,640)
======= ======= ======== ========== ===== ========
The accompanying notes are an integral part of the consolidated
financial statements.
-4-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years ended December 31
----------------------------------
1994 1993 1992
----------- --------- ---------
Cash flows from operating activities:
Net income $ 276,749 $274,517 $ 213,088
Adjustments to reconcile net income to
net cash provided by operating
activities:
Increase in accrued investment income (3,833) (5,009) (8,869)
Increase in deferred acquisition costs (12,564) (10,033) (13,278)
Increase in prepaid reinsurance premiums (15,941) (6,143) (4,312)
Increase in deferred premium revenue 109,167 206,662 177,515
Increase in loss and loss adjustment
expense reserves 6,413 8,225 4,337
Depreciation 1,607 1,259 685
Amortization of goodwill 4,961 5,001 5,095
Amortization of bond premium
(discount), net 621 (743) 647
Net realized gains on sale of
investments (10,335) (8,941) (11,419)
Deferred income taxes 19,082 7,503 8,217
Other, net (8,469) 15,234 (2,385)
----------- --------- ---------
Total adjustments to net income 90,709 213,015 156,233
----------- --------- ---------
Net cash provided by operating
activities 367,458 487,532 369,321
----------- --------- ---------
Cash flows from investing activities:
Purchase of fixed maturity securities,
net of payable for investments
purchased (1,060,033) (786,510) (913,643)
Sale of fixed maturity securities,
net of receivable for investments
sold 515,548 205,342 371,693
Redemption of fixed maturity
securities, net of receivable
for investments redeemed 128,274 225,608 40,947
Sale (purchase) of short-term
investments, net 3,547 (40,461) 28,206
Sale (purchase) of other
investments 87,456 (37,777) (30,005)
Capital expenditures, net of disposals (3,665) (3,601) (8,029)
----------- --------- ---------
Net cash used in investing activities (328,873) (437,399) (510,831)
----------- --------- ---------
Cash flows from financing activities:
Capital contribution from MBIA Inc. --- --- 163,368
Dividends paid (38,000) (50,000) (22,000)
----------- --------- ---------
Net cash (used) provided by
financing activities (38,000) (50,000) 141,368
----------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 585 133 (142)
Cash and cash equivalents -
beginning of year 747 614 756
------------- --------- ---------
Cash and cash equivalents -
end of year $ 1,332 $ 747 $ 614
============= ========= =========
Supplemental cash flow disclosures:
Income taxes paid $ 53,569 $ 52,967 $ 40,997
The accompanying notes are an integral part of the
consolidated financial statements.
- 5 -
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
-----------------------------
Municipal Bond Investors Assurance Corporation ("MBIA Corp.") is
a wholly-owned subsidiary of MBIA Inc. MBIA Inc. was
incorporated in Connecticut on November 12, 1986 as a licensed
insurer and, through the following series of transactions during
December 1986, became the successor to the business of the
Municipal Bond Insurance Association (the "Association"), a
voluntary unincorporated association of insurers writing
municipal bond and note insurance as agent for the member
insurance companies:
. MBIA Inc. acquired for $17 million all of the outstanding
common stock of a New York domiciled insurance company and
changed the name of the insurance company to MBIA Corp.
Prior to the acquisition, all of the obligations of this
company were reinsured and/or indemnified by the former
owner.
. Four of the five member companies of the Association
together with their affiliates purchased all of the
outstanding common stock of MBIA Inc. and entered into
reinsurance agreements whereby they ceded to MBIA Inc.
substantially all of the net unearned premiums on existing
and future Association business and the interest in, or
obligation for, contingent commissions resulting from their
participation in the Association. MBIA Inc.'s reinsurance
obligations were then assumed by MBIA Corp. The
participation of these four members aggregated approximately
89% of the net insurance in force of the Association. The
net assets transferred from the predecessor included the
cash transferred in connection with the reinsurance
agreements, the related deferred acquisition costs and
contingent commissions receivable, net of the related
unearned premiums and contingent commissions payable. The
deferred income taxes inherent in these assets and
liabilities were recorded by MBIA Corp. Contingent
commissions receivable (payable) with respect to premiums
earned prior to the effective date of the reinsurance
agreements by the Association in accordance with statutory
accounting practices, remained as assets (liabilities) of
the member companies.
Effective December 31, 1989, MBIA Inc. acquired for $288 million
all of the outstanding stock of Bond Investors Group, Inc.
("BIG"), the parent company of Bond Investors Guaranty Insurance
Company ("BIG Ins."), which was subsequently renamed MBIA
Insurance Corp. of Illinois ("MBIA Illinois").
-6-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In January 1990, MBIA Illinois ceded its portfolio of net insured
obligations in exchange for cash and investments equal to its
unearned premium reserve of $153 million to MBIA Corp.
Subsequent to this cession, MBIA Inc. contributed the common
stock of BIG to MBIA Corp. resulting in additional paid-in
capital of $200 million. The insured portfolio acquired from BIG
consists of municipal obligations with risk characteristics
similar to those insured by MBIA Corp. On December 31, 1990, BIG
was merged into MBIA Illinois.
Also in 1990, MBIA Inc. formed MBIA Assurance S.A. ("MBIA
Assurance"), a wholly-owned, French subsidiary, to write
financial guarantee insurance in the international community.
MBIA Assurance provides insurance for public infrastructure
financings, structured finance transactions and certain
obligations of financial institutions. The stock of MBIA
Assurance was contributed to MBIA Corp. in 1991 resulting in
additional paid-in capital of $6 million. Pursuant to a
reinsurance agreement with MBIA Corp., a substantial amount of
the risks insured by MBIA Assurance is reinsured by MBIA Corp.
In 1993, MBIA Inc. formed a wholly-owned subsidiary, MBIA
Investment Management Corp. ("IMC"), with the principal purpose
of providing guaranteed investment agreements guaranteed as to
principal and interest for states, municipalities and municipal
authorities. IMC commenced operations in August 1993. MBIA
Corp. insures IMC's outstanding investment agreement liabilities.
In 1993, MBIA Corp. assumed the remaining business from the fifth
member of the Association.
2. SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------
The consolidated financial statements have been prepared on the
basis of generally accepted accounting principles ("GAAP").
Significant accounting policies are as follows:
-7-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONSOLIDATION
The consolidated financial statements include the accounts of
MBIA Corp., MBIA Illinois, MBIA Assurance and BIG Services, Inc.
All significant intercompany balances have been eliminated.
Certain amounts have been reclassified in prior years' financial
statements to conform to the current presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and demand
deposits with banks.
INVESTMENTS
Effective January 1, 1994, MBIA Corp. adopted Statement of
Financial Accounting Standards ("SFAS") 115. In accordance with
SFAS 115, MBIA Corp. reclassified its entire investment portfolio
(including "Fixed maturity securities" and its "Municipal
investment agreement portfolio") as "available-for-sale."
Pursuant to SFAS 115, securities classified as available-for-sale
are required to be reported in the financial statements at market
value, with unrealized gains and losses reflected as a separate
component of shareholders' equity. The cumulative effect of MBIA
Corp.'s adoption of SFAS 115 was a decrease in shareholders'
equity at December 31, 1994 of $46.8 million, net of taxes. The
adoption of SFAS 115 had no effect on MBIA Corp.'s earnings. As
required under SFAS 115, prior years' financial statements have
not been restated. Accordingly, Fixed maturity securities
reported in MBIA Corp.'s consolidated balance sheet at December
31, 1993 are reflected at amortized cost, based on MBIA Corp.'s
then stated intention to hold such securities to maturity.
Bond discounts and premiums are amortized on the effective-yield
method over the remaining term of the securities. For pre-
refunded bonds the remaining term is determined based on the
contractual refunding date. Short-term investments are carried
at amortized cost, which approximates market value. Investment
income is recorded as earned. Realized gains or losses on the
sale of investments are determined by specific identification and
are included as a separate component of revenues.
Other investments consist of MBIA Corp.'s interest in limited
partnerships and a mutual fund which invests principally in
marketable equity securities. MBIA Corp. records dividends from
its investment in marketable equity securities and its share of
limited partnerships and mutual funds as a component of
investment income. In addition, MBIA Corp. records its share of
-8-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the unrealized gains and losses on these investments, net of
applicable deferred income taxes, as a separate component of
shareholder's equity.
PREMIUM REVENUE RECOGNITION
Premiums are earned pro rata over the period of risk. Premiums
are allocated to each bond maturity based on par amount and are
earned on a straight-line basis over the term of each maturity.
When an insured issue is retired early, is called by the issuer,
or is in substance paid in advance through a refunding or
defeasance accomplished by placing U.S. Government securities in
escrow, the remaining deferred premium revenue, net of the
portion which is credited to a new policy in those cases where
MBIA Corp. insures the refunding issue, is earned at that time,
since there is no longer risk to MBIA Corp. Accordingly,
deferred premium revenue represents the portion of premiums
written that is applicable to the unexpired risk of insured bonds
and notes.
POLICY ACQUISITION COSTS
Policy acquisition costs include only those expenses that relate
primarily to, and vary with, premium production. For business
produced directly by MBIA Corp., such costs include compensation
of employees involved in marketing, underwriting and policy
issuance functions, certain rating agency fees, state premium
taxes and certain other underwriting expenses, reduced by ceding
commission income on premiums ceded to reinsurers. For business
assumed from the Association, such costs were comprised of
management fees, certain rating agency fees and marketing and
legal costs, reduced by ceding commissions received by the
Association on premiums ceded to reinsurers. Policy acquisition
costs are deferred and amortized over the period in which the
related premiums are earned.
LOSSES AND LOSS ADJUSTMENT EXPENSES
Reserves for losses and loss adjustment expenses ("LAE") are
established in an amount equal to MBIA Corp.'s estimate of the
identified and unidentified losses, including costs of settlement
on the obligations it has insured.
To the extent that specific insured issues are identified as
currently or likely to be in default, the present value of
expected payments, including loss and loss adjustment expenses
associated with these issues, net of expected recoveries, is
allocated within the total loss reserve as case basis reserves.
Management of MBIA Corp. periodically evaluates its estimates for
losses and LAE and any resulting adjustments are reflected in
current earnings. Management believes that the reserves are
adequate to cover the ultimate net cost of claims, but the
-9-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
reserves are necessarily based on estimates and there can be no assurance
that the ultimate liability will not exceed such estimates.
CONTINGENT COMMISSIONS
Contingent commissions may be receivable from MBIA Corp.'s and
the Association's reinsurers under various reinsurance treaties
and are accrued as the related premiums are earned.
INCOME TAXES
MBIA Corp. is included in the consolidated tax return of MBIA
Inc. The tax provision for MBIA Corp. for financial reporting
purposes is determined on a stand alone basis. Any benefit
derived by MBIA Corp. as a result of the tax sharing agreement
with MBIA Inc. and its subsidiaries is reflected directly in
shareholder's equity for financial reporting purposes.
Deferred income taxes are provided in respect of temporary
differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.
The Internal Revenue Code permits financial guarantee insurance
companies to deduct from taxable income additions to the
statutory contingency reserve subject to certain limitations.
The tax benefits obtained from such deductions must be invested
in non-interest bearing U. S. Government tax and loss bonds.
MBIA Corp. records purchases of tax and loss bonds as payments of
Federal income taxes. The amounts deducted must be restored to
taxable income when the contingency reserve is released, at which
time MBIA Corp. may present the tax and loss bonds for redemption
to satisfy the additional tax liability.
PROPERTY AND EQUIPMENT
Property and equipment consists of MBIA Corp.'s headquarters and
equipment and MBIA Assurance's furniture, fixtures and equipment,
which are recorded at cost and, exclusive of land, are
depreciated on the straight-line method over their estimated
service lives ranging from 4 to 31 years. Maintenance and
repairs are charged to expenses as incurred.
GOODWILL
Goodwill represents the excess of the cost of the acquired and
contributed subsidiaries over the tangible net assets at the time
of acquisition or contribution. Goodwill attributed to the
acquisition of the licensed insurance company includes
recognition of the value of the state licenses held
-10-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
by that company, and is amortized by the straight-line method
over 25 years. Goodwill related to the wholly-owned subsidiary
of MBIA Inc. contributed in 1988 is amortized by the
straight-line method over 25 years. Goodwill attributed to the
acquisition of MBIA Illinois is amortized according to the
recognition of future profits from its deferred premium revenue
and installment premiums, except for a minor portion attributed
to state licenses, which is amortized by the straight-line method
over 25 years.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are
translated at current exchange rates. Operating results are
translated at average rates of exchange prevailing during the
year. Unrealized gains or losses resulting from translation are
included as a separate component of shareholder's equity.
3. STATUTORY ACCOUNTING PRACTICES
----------------------------------
The financial statements have been prepared on the basis of GAAP,
which differs in certain respects from the statutory accounting
practices prescribed or permitted by the insurance regulatory
authorities. Statutory accounting practices differ from GAAP in
the following respects:
. premiums are earned only when the related risk has
expired rather than over the period of the risk;
. acquisition costs are charged to operations as incurred
rather than as the related premiums are earned;
. contingent commissions are accrued when the related
earned premiums are recognized;
. a contingency reserve is computed on the basis of
statutory requirements and reserves for losses and LAE are
established, at present value, for specific insured issues
which are identified as currently or likely to be in
default, while under GAAP reserves are established based
on MBIA Corp.'s reasonable estimate of the identified and
unidentified losses and LAE on the insured obligations it
has written;
-11-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
. Federal income taxes are only provided on taxable income
for which income taxes are currently payable, while under
GAAP deferred income taxes are provided with respect to
temporary differences;
. fixed maturity securities are reported at amortized cost
rather than market;
. tax and loss bonds purchased are reflected as admitted
assets as well as payments of income taxes; and
. certain assets designated as "non-admitted assets" are
charged directly against surplus but are reflected as
assets under GAAP.
The following is a reconciliation of consolidated shareholder's
equity presented on a GAAP basis to statutory capital and surplus
for MBIA Corp. and its subsidiaries, MBIA Illinois and MBIA
Assurance:
As of December 31
--------------------------------------
In thousands 1994 1993 1992
---------- ---------- ----------
GAAP shareholder's equity $2,055,503 $1,857,743 $1,619,643
Premium revenue recognition (296,524) (242,577) (210,179)
Deferral of acquisition costs (133,048) (120,484) (110,451)
Unrealized losses 71,932 --- ---
Contingent commissions (1,706) (1,880) (2,185)
Contingency reserve (620,988) (539,103) (403,875)
Loss and loss adjustment
expense reserves 18,181 26,262 11,085
Deferred income taxes 90,328 99,186 90,303
Tax and loss bonds 50,471 25,771 31,454
Goodwill (110,543) (115,503) (120,505)
Other (13,568) (11,679) (9,297)
---------- ---------- ----------
Statutory capital
and surplus $1,110,038 $ 977,736 $ 895,993
========== ========== ==========
Consolidated net income of MBIA Corp. determined in accordance
with statutory accounting practices for the years ended December
31, 1994, 1993 and 1992 was $224.9 million, $258.4 million and
$189.6 million, respectively.
-12-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. PREMIUMS EARNED FROM REFUNDED AND CALLED BONDS
--------------------------------------------------
Premiums earned include $53.0 million, $85.6 million and $43.1
million for 1994, 1993 and 1992 respectively, related to refunded
and called bonds.
5. INVESTMENTS
---------------
MBIA Corp.'s investment objective is to optimize long-term,
after-tax returns while emphasizing the preservation of capital
and claims-paying capability through maintenance of high quality
investments with adequate liquidity and by the avoidance of
excessive interest rate risk exposure through prudent maturity
selection. MBIA Corp.'s investment policies limit the amount of
credit exposure to any one issuer. The fixed maturity portfolio
comprises high quality (average Double-A) taxable and tax-exempt
investments of diversified maturities.
The following tables set forth the amortized cost and market
value of the fixed maturities included in the consolidated
investment portfolio of MBIA Corp. as of December 31, 1994 and
1993.
Gross Gross
Amortized Unrealized Unrealized
In thousands Cost Gains Losses Market Value
------------------------------------------------------------------------------
DECEMBER 31, 1994
Taxable bonds
United States Treasury
and Government Agency $ 258,531 $ 3,012 $ 10,663 $ 250,880
Corporate and other
obligations 468,923 2,387 25,301 446,009
Tax-exempt bonds
State and municipal
obligations 2,396,384 36,631 77,998 2,355,017
---------- ------- -------- ----------
Total fixed
maturities $3,123,838 $42,030 $113,962 $3,051,906
========== ======= ======== ==========
-13-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Gross Gross
Amortized Unrealized Unrealized
In thousands Cost Gains Losses Market Value
-----------------------------------------------------------------------------
DECEMBER 31, 1993
Taxable bonds
United States Treasury
and Government Agency $ 334,729 $ 17,326 $ 354 $ 351,701
Corporate and other
obligations 365,660 25,326 1,493 389,493
Tax-exempt bonds
State and municipal
obligations 2,053,585 177,285 695 2,230,175
---------- -------- ------ ----------
Total fixed maturities $2,753,974 $219,937 $2,542 $2,971,369
========== ======== ====== ==========
Fixed maturity investments carried at market value of $7.4
million at December 31, 1994 and at amortized cost of $7.6
million at December 31, 1993, were on deposit with various
regulatory authorities to comply with insurance laws.
The table below sets forth the distribution by expected maturity
of the fixed maturities and short-term investments at amortized
cost and market value at December 31, 1994. Expected maturities
may differ from contractual maturities because borrowers may have
the right to call or prepay obligations.
Amortized Market
In thousands Cost Value
--------------------------------------------------------------------
Maturity
Within 1 year $ 121,428 $121,384
Beyond 1 year but within 5 years 512,741 526,119
Beyond 5 years but within 10 years 1,387,250 1,351,090
Beyond 10 years but within 15 years 788,742 762,187
Beyond 15 years but within 20 years 397,700 377,225
Beyond 20 years 37,361 35,285
---------- ----------
Total fixed maturities and short-term
investments $3,245,222 $3,173,290
========== ==========
-14-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INVESTMENT INCOME AND GAINS AND LOSSES
------------------------------------------
Investment income consists of:
Years ended December 31
--------------------------------
In thousands 1994 1993 1992
-------------------------------------------------------------------------
Fixed maturities $193,729 $173,070 $147,598
Short-term investments 3,003 2,844 2,749
Other investments 12 2,078 1,265
-------- -------- --------
Gross investment income 196,744 177,992 151,612
Investment expenses 2,778 2,663 2,253
-------- -------- --------
Net investment income 193,966 175,329 149,359
Net realized gains (losses):
Fixed maturities 784 8,326 11,798
Other investments 9,551 615 (379)
-------- -------- --------
Net realized gains (losses) 10,335 8,941 11,419
-------- -------- --------
Total investment income $204,301 $184,270 $160,778
======== ======== ========
Unrealized gains (losses) consist of:
As of December 31
---------------------
In thousands 1994 1993
--------------------------------------------------------------------------
Fixed maturities:
Gains $ 42,030 $219,937
Losses (113,962) (2,542)
--------- --------
Net (71,932) 217,395
Other investments:
Gains --- 7,446
Losses (1,042) ---
--------- --------
Net (1,042) 7,446
Total (72,974) 224,841
Deferred income tax (benefit) (25,334) 2,606
--------- --------
Unrealized (losses) gains - net $ (47,640) $222,235
========= ========
The deferred tax benefit in 1994 relates primarily to unrealized
losses on MBIA Corp.'s fixed maturity investments, which are
reflected in shareholders' equity in 1994 in accordance with MBIA
Corp.'s adoption of SFAS 115.
-15-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The change in net unrealized gains (losses) consists of:
Years ended December 31
----------------------------------
In thousands 1994 1993 1992
--------------------------------------------------------------------------
Fixed maturities $(71,932) $101,418 $19,118
Other investments (8,488) 3,842 3,387
-------- -------- -------
Total (80,420) 105,260 22,505
Deferred income tax (benefit) (27,940) 1,381 1,151
-------- -------- -------
Unrealized (losses) gains, net $(52,480) $103,879 $21,354
======== ======== =======
7. INCOME TAXES
----------------
Effective January 1, 1993, MBIA Corp. changed its method of
accounting for income taxes from the income statement-based
deferred method to the balance sheet-based liability method
required by SFAS 109. MBIA Corp. adopted the new pronouncement
on the cumulative catch-up basis and recorded a cumulative
adjustment, which increased net income and reduced the deferred
tax liability by $13.0 million. The cumulative effect represents
the impact of adjusting the deferred tax liability to reflect the
January 1, 1993 tax rate of 34% as opposed to the higher tax
rates in effect when certain of the deferred taxes originated.
As permitted under the new rules, prior years' financial
statements have not been restated.
SFAS 109 requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax
returns. Under this method, deferred taxes assets and
liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences
are expected to reverse. The effect on tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
-16-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The tax effects of temporary differences that give rise to
deferred tax assets and liabilities at December 31, 1994 and 1993
are as presented below:
In thousands 1994 1993
--------------------------------------------------------------------------
Deferred tax assets
Tax and loss bonds $ 50,332 $ 24,168
Unrealized losses 25,334 ---
Alternative minimum tax credit carry forwards 22,391 7,570
Loss and loss adjustment expense reserves 6,363 9,192
Other 3,981 3,084
-------- -------
Total gross deferred tax assets 108,401 44,014
-------- -------
Deferred tax liabilities
Contingency reserve 91,439 47,621
Deferred premium revenue 54,523 45,903
Deferred acquisition costs 48,900 44,502
Unrealized gains --- 2,606
Contingent commissions 4,746 4,744
Other 6,621 5,324
-------- --------
Total gross deferred tax liabilities 206,229 150,700
-------- --------
Net deferred tax liability $ 97,828 $106,686
======== ========
Under SFAS 109, a change in the Federal tax rate requires a
restatement of deferred tax assets and liabilities. Accordingly,
the restatement for the change in the 1993 Federal tax rate
resulted in a $5.4 million increase in the tax provision, of
which $3.2 million resulted from the recalculation of deferred
taxes at the new Federal rate.
The provision for income taxes is composed of:
Years ended December 31
----------------------------
In thousands 1994 1993 1992
-----------------------------------------------------------------
Current $58,043 $66,086 $46,585
Deferred 19,082 20,598 8,217
------- ------- -------
Total $77,125 $86,684 $54,802
======= ======= =======
-17-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The provision for income taxes gives effect to permanent
differences between financial and taxable income. Accordingly,
MBIA Corp.'s effective income tax rate differs from the statutory
rate on ordinary income. The reasons for MBIA Corp.'s lower
effective tax rates are as follows:
Years ended December 31
-----------------------
1994 1993 1992
------------------------------------------------------------------
Income taxes computed on pre-tax
financial income at statutory rates 35.0% 35.0% 34.0%
Increase (reduction) in taxes
resulting from:
Tax-exempt interest (12.0) (10.6) (11.3)
Benefit from tax sharing agreement --- --- (3.0)
Amortization of goodwill 0.5 0.5 0.7
Other (1.7) --- 0.1
---- ---- ----
Provision for income taxes 21.8% 24.9% 20.5%
==== ==== ====
8. DIVIDENDS AND CAPITAL REQUIREMENTS
--------------------------------------
Under New York Insurance Law, MBIA Corp. may pay a dividend only
from earned surplus subject to the maintenance of a minimum
capital requirement and the dividends in any 12-month period may
not exceed the lesser of 10% of its policyholders' surplus as
shown on its last filed statutory-basis financial statements, or
of adjusted net investment income, as defined, for such 12-month
period, without prior approval of the Superintendent of the New
York State Insurance Department.
In accordance with such restrictions on the amount of dividends
which can be paid in any 12-month period, MBIA Corp. had
approximately $73 million available for the payment of dividends
as of December 31, 1994. In 1994, 1993 and 1992, MBIA Corp.
declared and paid dividends of $38 million, $50 million and $22
million, respectively, to MBIA Inc.
Under Illinois Insurance Law, MBIA Illinois may pay a dividend
from unassigned surplus, and the dividends in any 12-month period
may not exceed the greater of 10% of policyholders' surplus
(total capital and surplus) at the end of the preceding calendar
year, or the net income of the preceding calendar year without
prior approval of the Illinois State Insurance Department.
-18-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In accordance with such restrictions on the amount of dividends
which can be paid in any 12-month period, MBIA Illinois may pay a
dividend only with prior approval as of December 31, 1994.
The insurance departments of New York State and certain other
states and the agencies which rate the bonds insured by MBIA
Corp. have various requirements with which MBIA Corp. was in
compliance as of December 31, 1994, relating to the maintenance
of certain minimum ratios of statutory capital and reserves to
net insurance in force.
9. LINES OF CREDIT
-------------------
MBIA Corp. has a standby line of credit commitment in the amount
of $600 million with a group of major banks to provide loans to
MBIA Corp. after it has incurred cumulative losses (net of any
recoveries) from September 30, 1994 in excess of the greater of
$500 million and 6.25% of average annual debt service. The
obligation to repay loans made under this agreement is a limited
recourse obligation payable solely from, and collateralized by, a
pledge of recoveries realized on defaulted insured obligations
including certain installment premiums and other collateral.
This commitment has a seven-year term and expires on September
30, 2001 but, subject to approval by the banks, may be annually
renewed to extend the term to seven years beyond the renewal
date.
MBIA Corp. and MBIA Inc. maintain bank liquidity facilities
aggregating $250 million.
At December 31, 1994, $17 million was outstanding under these
facilities.
10. NET INSURANCE IN FORCE
---------------------------
MBIA Corp. guarantees the timely payment of principal and
interest on municipal and certain non-municipal bonds and notes.
MBIA Corp.'s ultimate exposure to credit loss in the event of
nonperformance by the insured is represented by the insurance in
force as set forth below.
The insurance policies issued by MBIA Corp. are unconditional
commitments to guarantee timely payment on the bonds and notes to
bondholders. The creditworthiness of each insured issue is
evaluated prior to the issuance of insurance and each insured
issue must comply with MBIA Corp.'s underwriting guidelines.
-19-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Further, the payments to be made by the issuer on the bonds or
notes may be backed by a pledge of revenues, reserve funds,
letters of credit, investment contracts or collateral in the
form of mortgages or other assets. The right to such money
or collateral would typically become MBIA Corp.'s upon the
payment of the insured amount by MBIA Corp.
As of December 31, 1994, insurance in force, net of cessions to
reinsurers, has a range of maturity of 1-40 years. Net insurance
in force includes international business of $2.5 billion
representing 18 issues and $0.3 billion representing 5 issues at
December 31, 1994 and 1993, respectively. The distribution of
net insurance in force by state and type of bond, including IMC's
$1,526.1 million and $493.0 million municipal investment
agreement liability guaranteed by MBIA Corp. in 1994 and 1993,
respectively, is set forth in the tables below:
As of December 31
----------------------------------------------------------------
1994 1993
------------------------------- -------------------------------
Net Number % of Net Net Number % of Net
Insurance of Issues Insurance Insurance of Issues Insurance
In Force Outstanding In Force In Force Outstanding In Force
--------- ----------- --------- --------- ----------- --------
(in billions) (in billions)
California $ 43.9 2,832 14.3% $ 37.9 2,410 14.2%
Florida 25.4 1,805 8.3 22.9 1,716 8.6
New York 25.0 4,447 8.2 21.5 4,116 8.0
Pennsylvania 19.5 2,108 6.4 17.7 1,889 6.6
Texas 18.6 2,102 6.1 17.5 1,784 6.5
New Jersey 15.0 1,590 4.9 11.9 1,298 4.5
Illinois 14.7 1,139 4.8 12.2 1,120 4.6
Massachusetts 8.6 1,064 2.8 7.4 959 2.8
Ohio 8.3 996 2.7 7.0 915 2.6
Georgia 7.4 978 2.4 5.9 815 2.2
All others 119.6 10,723 39.1 105.4 10,130 39.4
------ ------ ----- ------ ------ -----
$306.0 29,784 100.0% $267.3 27,152 100.0%
====== ====== ===== ====== ====== =====
-20-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31
---------------------------------------------------------------
1994 1993
------------------------------- -------------------------------
Net Number % of Net Net Number % of Net
Insurance of Issues Insurance Insurance of Issues Insurance
In Force Outstanding In Force In Force Outstanding In Force
--------- ----------- --------- --------- ----------- ---------
(in billions) (in billions)
Municipal
General
Obligation $ 84.2 11,029 27.5% $ 72.7 10,310 27.2%
Utilities 56.0 5,087 18.3 50.8 4,640 19.0
Health Care 50.6 2,670 16.5 47.7 2,558 17.8
Special Revenue 22.7 1,291 7.4 20.6 1,153 7.7
Transportation 21.3 1,486 7.0 19.1 1,431 7.1
Industrial
development
and pollution
control
revenue 15.1 1,016 4.9 11.2 1,058 4.2
Higher education 14.0 1,208 4.6 12.7 1,119 4.8
Housing 13.6 2,663 4.5 14.7 2,614 5.5
Other 3.8 124 1.2 2.4 68 0.9
------ ------ ----- ------ ------ -----
281.3 26,574 91.9 251.9 24,951 94.2
------ ------ ----- ------ ------ -----
Non-municipal
Asset/mortgage-
backed 12.8 151 4.2 8.5 94 3.2
Investor-owned
utilities 5.7 2,918 1.9 4.5 2,056 1.7
Other 6.2 141 2.0 2.4 51 0.9
------ ------ ----- ------ ------ -----
24.7 3,210 8.1 15.4 2,201 5.8
------ ----- ----- ------ ------ -----
$306.0 29,784 100.0% $267.3 27,152 100.0%
====== ====== ===== ====== ====== =====
11. REINSURANCE
----------------
MBIA Corp. reinsures portions of its risks with other insurance
companies through various quota and surplus share reinsurance
treaties and facultative agreements. In the event that any or
all of the reinsurers were unable to meet their obligations, MBIA
Corp. would be liable for such defaulted amounts.
Amounts deducted from gross insurance in force for reinsurance
ceded by MBIA Corp. and MBIA Illinois were $42.6 billion and
$36.8 billion, at December 31, 1994 and 1993, respectively.
Ceded insurance in force includes international business of $0.7
billion representing two issues at December 31, 1994. The
distribution of ceded insurance in force by state and type of
bond is set forth in the tables below:
-21-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31
------------------------------------------------
1994 1993
---------------------- ----------------------
Ceded % of Ceded Ceded % of Ceded
Insurance Insurance Insurance Insurance
State In Force In Force In Force In Force
-------------------------------------------------------------------------
(in billions) (in billions)
California $ 7.5 17.6% $ 5.7 15.5%
New York 4.9 11.5 4.2 11.4
Pennsylvania 2.6 6.1 2.7 7.3
Texas 2.5 5.9 2.6 7.1
Illinois 2.3 5.4 1.9 5.2
Florida 2.1 4.9 1.9 5.2
New Jersey 2.0 4.7 0.9 2.4
District of Columbia 1.6 3.8 0.9 2.4
Washington 1.2 2.8 1.1 3.0
Puerto Rico 1.1 2.6 1.1 3.0
Ohio 0.9 2.1 0.7 1.9
Massachusetts 0.9 2.1 0.8 2.2
All others 13.0 30.5 12.3 33.4
----- ----- ----- -----
$42.6 100.0% $36.8 100.0%
===== ===== ===== =====
As of December 31
------------------------------------------------
1994 1993
---------------------- ----------------------
Ceded % of Ceded Ceded % of Ceded
Insurance Insurance Insurance Insurance
Type of Bond In Force In Force In Force In Force
-------------------------------------------------------------------------
(in billions) (in billions)
Municipal
General obligation $ 9.7 22.8% $ 8.3 22.5%
Utilities 8.5 20.0 8.8 23.9
Health care 6.5 15.3 6.8 18.5
Transportation 4.5 10.6 3.1 8.4
Industrial development
and pollution
control revenue 2.9 6.8 0.3 0.8
Special revenue 2.7 6.3 2.6 7.1
Higher education 1.2 2.8 0.9 2.4
Housing 1.0 2.3 1.2 3.3
Other 1.5 3.5 1.8 4.9
----- ----- ----- -----
38.5 90.4 33.8 91.8
----- ----- ----- -----
Non-municipal
Asset/mortgage-backed 2.7 6.3 2.1 5.7
Other 1.4 3.3 0.9 2.5
----- ----- ----- -----
4.1 9.6 3.0 8.2
----- ----- ----- -----
$42.6 100.0% $36.8 100.0%
===== ===== ===== =====
-22-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Included in gross premiums written are assumed premiums from
other insurance companies of $6.3 million, $20.4 million and
$10.1 million for the years ended December 31, 1994, 1993 and
1992, respectively. The percentages of the amounts assumed to
net premiums written were 2.0%, 4.7% and 3.0% in 1994, 1993 and
1992, respectively.
Gross premiums written include $0.2 million in 1994, $5.4 million
in 1993 and $5.0 million in 1992 related to the reassumption by
MBIA Corp. of reinsurance previously ceded. Also included in
gross premiums in 1993 is $10.8 million of premiums assumed from
a member of the Association. Ceded premiums written are net of
$1.6 million in 1994, $2.5 million in 1993 and $4.7 million in
1992 related to the reassumption of reinsurance previously ceded
by MBIA Corp.
Effective January 1, 1993, MBIA Corp. adopted SFAS 113. Under
SFAS 113, assets and liabilities relating to reinsurance
contracts must be shown gross of the effects of reinsurance.
SFAS 113 also established guidelines to determine whether risk is
transferred under a reinsurance contract. If risk is
transferred, the conditions for reinsurance accounting are met.
If risk is not transferred, the contract is accounted for as a
deposit.
12. EMPLOYEE BENEFITS
----------------------
MBIA Corp. participates in MBIA Inc.'s pension plan covering all
eligible employees. The pension plan is a defined contribution
plan and MBIA Corp. contributes 10% of each eligible employee's
annual total compensation. Pension expense for the years ended
December 31, 1994, 1993 and 1992 was $3.0 million, $3.1 million
and $2.7 million, respectively. MBIA Corp. also has a profit
sharing/401(k) plan which allows eligible employees to contribute
up to 10% of eligible compensation. MBIA Corp. matches employee
contributions up to the first 5% of total compensation. MBIA
Corp. contributions to the profit sharing plan aggregated $1.4
million, $1.3 million and $0.9 million for the years ended
December 31, 1994, 1993 and 1992, respectively. The 401(k) plan
amounts are invested in common stock of MBIA Inc. Amounts
relating to the above plans that exceed limitations established
by Federal regulations are contributed to a non-qualified
deferred compensation plan. Of the above amounts for the pension
and profit sharing plans, $2.6 million, $2.6 million and $2.2
million for the years ended December 31, 1994, 1993 and 1992,
respectively, are included in policy acquisition costs.
-23-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MBIA Corp. also participates in MBIA Inc.'s common stock
incentive plan which enables employees of MBIA Corp. to acquire
shares of MBIA Inc. or to benefit from appreciation in the price
of the common stock of MBIA Inc. Certain key employees of MBIA
Corp. were granted Stock Appreciation Rights ("SARs"). On
March 29, 1991, those MBIA Corp. employees who had previously
been granted SARS agreed to the cancellation of such SARs.
Effective January 1, 1993, MBIA Corp. adopted SFAS 106. Under
SFAS 106, companies are required to accrue the cost of employee
post-retirement benefits other than pensions during the years
that employees render service. Prior to January 1, 1993, MBIA
Corp. had accounted for these post-retirement benefits on a cash
basis. In 1993, MBIA Corp. adopted the new pronouncement on the
cumulative catch-up basis and recorded a cumulative effect
adjustment which decreased net income and increased other
liabilities by $0.1 million. As of January 1, 1994, MBIA Corp.
eliminated these post-retirement benefits.
13. RELATED PARTY TRANSACTIONS
-------------------------------
The business assumed from the Association, relating to insurance
on unit investment trusts sponsored by two members of the
Association, includes deferred premium revenue of $1.9 million
and $2.3 million at December 31, 1994 and 1993, respectively.
In 1993, MBIA Corp. assumed the balance of $10.8 million of
deferred premium revenue from a member of the Association which
had not previously ceded its insurance portfolio to MBIA Corp.
Also in 1993, MBIA Corp. assumed $0.4 million of deferred premium
revenue relating to one of the trusts which was previously ceded
to an affiliate of an Association member.
Since 1989, MBIA Corp. has executed five surety bonds to
guarantee the payment obligations of the members of the
Association, one of which is a principal shareholder of MBIA
Inc., which had their Standard & Poor's claims-paying rating
downgraded from Triple-A on their previously issued Association
policies. In the event that they do not meet their Association
policy payment obligations, MBIA Corp. will pay the required
amounts directly to the paying agent instead of to the former
Association member as was previously required. The aggregate
amount payable by MBIA Corp. on these surety bonds is limited to
$340 million. These surety bonds remain outstanding as of
December 31, 1994.
-24-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MBIA Corp. has investment management and advisory agreements with
an affiliate of a principal shareholder of MBIA Inc., which
provides for payment of fees on assets under management. Total
related expenses for the years ended December 31, 1994, 1993 and
1992 amounted to $2.6 million, $2.4 million and $2.1 million,
respectively.
MBIA Corp. has various insurance coverages provided by a
principal shareholder of MBIA Inc., the cost of which was $1.9
million, $2.0 million and $2.2 million for the years ended
December 31, 1994, 1993 and 1992, respectively.
Included in other assets at December 31, 1993 is $3.2 million of
net receivables from MBIA Inc. and other subsidiaries. Included
in other liabilities at December 31, 1992 is $2.8 million of net
payables to MBIA Inc. and other subsidiaries.
14. Fair Value of Financial Instruments
----------------------------------------
The estimated fair value amounts of financial instruments shown
in the following table have been determined by MBIA Corp. using
available market information and appropriate valuation
methodologies. However, in certain cases considerable judgment
is necessarily required to interpret market data to develop
estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amount MBIA Corp.
could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
FIXED MATURITY SECURITIES - The fair value of fixed maturity
securities equals quoted market price, if available. If a quoted
market price is not available, fair value is estimated using
quoted market prices for similar securities.
SHORT-TERM INVESTMENTS - Short-term investments are carried at
amortized cost which, because of their short duration, is a
reasonable estimate of fair value.
-25-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
OTHER INVESTMENTS - Other investments consist of MBIA Corp.'s
interest in limited partnerships and a mutual fund which invests
principally in marketable equity securities. The fair value of
other investments is based on quoted market prices.
CASH AND CASH EQUIVALENTS, RECEIVABLE FOR INVESTMENTS SOLD AND
PAYABLE FOR INVESTMENTS PURCHASED - The carrying amounts of
these items are a reasonable estimate of their fair value.
PREPAID REINSURANCE PREMIUMS - The fair value of MBIA Corp.'s
prepaid reinsurance premiums is based on the estimated cost of
entering into an assumption of the entire portfolio with third
party reinsurers under current market conditions.
DEFERRED PREMIUM REVENUE - The fair value of MBIA Corp.'s
deferred premium revenue is based on the estimated cost of
entering into a cession of the entire portfolio with third party
reinsurers under current market conditions.
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES - The carrying amount
is composed of the present value of the expected cash flows for
specifically identified claims combined with an estimate for
unidentified claims. Therefore, the carrying amount is a
reasonable estimate of the fair value of the reserve.
INSTALLMENT PREMIUMS - The fair value is derived by
calculating the present value of the estimated future cash flow
stream at MBIA Corp.'s estimated cost of capital.
-26-
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31,
-----------------------------------------------
1994 1993
--------------------- ---------------------
Carrying Estimated Carrying Estimated
In thousands Amount Fair Value Amount Fair Value
--------------------------------------------------------------------------
ASSETS:
Fixed maturity
securities $3,051,906 $3,051,906 $2,753,974 $2,971,369
Short-term investments 121,384 121,384 104,205 104,205
Other investments 11,970 11,970 98,215 98,215
Cash and cash equivalents 1,332 1,332 747 747
Prepaid reinsurance
premiums 186,492 159,736 170,551 141,441
Receivable for
investments sold 945 945 1,949 1,949
LIABILITIES:
Deferred premium
revenue 1,512,211 1,295,305 1,402,807 1,173,882
Loss and loss adjustment
expense reserves 40,148 40,148 33,735 33,735
Payable for investments
purchased 6,552 6,552 33,340 33,340
OFF-BALANCE-SHEET
INSTRUMENTS:
Installment premiums --- 176,944 --- 186,490