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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K Commission File No. 0-15902
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended September 30, 1996
[X] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from _________________ to __________________
ESSEF Corporation
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(Exact name of registrant as specified in its charter)
Ohio 34-0777631
- --------------------------------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
220 Park Drive, Chardon, Ohio 44024
- --------------------------------------- ------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (216) 286-2200
---------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on which Registered
- -------------------------- -----------------------------------------
Common Shares, None. The Company's common stock trades on The
No Par Value. Nasdaq Stock Market under the symbol ESSF.
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, as
amended, during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (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. [ X ]
The aggregate market value of the Registrant's Common Shares held by
non-affiliates of the Registrant on December 18, 1996 was $47,043,493.
----------------
Indicate the number of shares outstanding of each of the issuer's classes of
common shares, as of the latest practicable date.
Class Outstanding at December 18, 1996
- --------------------------- -------------------------------------
Common Shares, no par value 4,802,762 Shares
----------------
Portions of the following documents are incorporated by reference:
(1) 1996 Annual Report to Shareholders Part II
(2) Definitive Proxy Statement for the Annual Meeting
of Shareholders to be held January 23, 1997 Part III
The sequential page in this Report where the Exhibit Index appears is 21.
Page 1 of 21 sequentially numbered pages
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ESSEF CORPORATION
1996 FORM 10-K ANNUAL REPORT
Table of Contents
Begins
PART I On
Page
Item 1. Business..................................................... 3
Item 2. Properties................................................... 8
Item 3. Legal Proceedings............................................ 10
Item 4. Submission of Matters to a Vote of Security Holders ......... 10
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholders' Matters........................................ 11
Item 6. Selected Financial Data...................................... 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 11
Item 8. Financial Statements and Supplementary Data.................. 11
Item 9. Disagreements on Accounting and Financial Disclosure......... 11
PART III
Item 10. Directors and Executive Officers of the Registrant........... 12
Item 11. Executive Compensation....................................... 13
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 13
Item 13. Certain Relationships and Related Transactions............... 13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..................................................... 14
Page 2 of 21 sequentially numbered pages
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PART I
ITEM 1. BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS.
--------------------------------
Essef Corporation "The Company" was incorporated in Ohio in 1954 as Structural
Fibers, Inc. and commenced operations by focusing on an emerging technology: the
use of fiberglass reinforced plastics (FRP) as an alternative to metal in cast,
forged, and other formed or fabricated parts. The Company, having a strong
engineering oriented emphasis, pioneered the production of such products for use
in Polaris and Hercules missiles, jet engines, electrical components, and other
national defense related items.
This experience helped the Company successfully develop a proprietary molding
technology that radically changed its direction. Perfection of the internal
bag-molding process enabled mass production of seamless pressure vessels with
fiberglass-reinforced plastic, and in 1959, the Company began to specialize in
the manufacture of these products.
During the last five years, the Company's development has focused on
growth by acquisitions in the U.S. and internal growth both in the U.S. and
internationally.
In 1994, the Company acquired Purex Pool Systems, Inc., a manufacturer of
pumps, filters and heaters for swimming pools and spas.
In 1995, the Company acquired Advanced Structures, Inc., a manufacturer of
pressure vessels and other components for the treatment of water; acquired
Euroimpex Srl in Milan, Italy, a manufacturer of pressure vessels and other
components for the treatment of water; acquired Compool Corporation, a
manufacturer of electronic controls and valves for swimming pools and spas; and
formed a joint venture with a German manufacturer and distributor of metal
hydropneumatic pressure vessels to develop a composite hydropneumatic pressure
vessel for sale in Europe.
In 1996, the Company formed Structural India Private, Ltd. which will build a
plant in Goa, India to manufacture pressure vessels for sale in India, Asia,
Europe and the U.S.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
----------------------------------------------
[For financial information about industry segments in which the Company
operates, see Item 8 Financial Statements and Supplementary Data; Note
9: Business Segment Information under Notes to Consolidated Financial
Statements.]
(c) NARRATIVE DESCRIPTION OF BUSINESS.
----------------------------------
The Company designs, manufactures and markets products made from engineered
plastics and specialized polymers combined with fiberglass and other reinforcing
materials. It draws on its ability to adapt emerging technologies in plastic
materials and plastic processing equipment to design and manufacture products
requiring special performance characteristics such as high strength-to-weight
ratios, resistance to corrosion, precise
Page 3 of 21 sequentially numbered pages
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dimensional tolerances, and particular surface appearance. The Company
operates in two industry segments: 1) water treatment and systems equipment,
and 2) swimming pool and spa equipment.
WATER TREATMENT AND SYSTEMS EQUIPMENT INDUSTRY SEGMENT
Principal Products
The Company manufactures and distributes fiberglass reinforced plastic
pressure vessels for the treatment, storage and delivery of water for
residential, commercial and industrial use. The Company produces two companion
lines of vessels, distinguishable by design and method of construction but not
by purpose or function, for sale to both the water treatment equipment and water
systems equipment markets of this industry segment. The vessels comprising what
has become known as the FRP product line (an acronym for fiberglass reinforced
plastic) are integrally cast of a matrix of thermosetting resin and randomly
laid chopped fiberglass reinforcing filaments. By contrast, the vessels
comprising the newer polyglass (PolyGlass(TM)) product line are either
blow-molded or rotationally cast of thermoplastic resins and then reinforced
by a patterned winding of continuous fiberglass filaments. The Company also
manufactures composite pressure vessel housings for industrial and municipal
reverse osmosis membrane systems.
ENPAC, a wholly-owned subsidiary, manufactures engineered plastic vessels and
related accessory products for spill prevention, secondary containment and
regulated transport of industrial and environmentally hazardous waste materials.
[For information relating to sales of the water treatment and systems
equipment segment, see Item 8 Financial Statements and Supplementary
Data; Note 9: Business Segment Information under Notes to Consolidated
Financial Statements.]
Customers and Distribution
The Company sells water treatment products to major original equipment
manufacturers (OEMs) in the United States, Canada, Europe and other
international markets through salaried sales personnel and commissioned sales
representatives. It sells water systems products through both salaried sales
personnel and commissioned sales representatives to plumbing wholesalers and
well system supply houses primarily in the United States and Canada. The Company
sells environmental systems products, containers and related plastic products
primarily through distributors located principally in the United States.
Competition
The Company's major competitor in the manufacture of pressure vessels in the
United States is Park International, Inc. The Company has several competitors in
Europe. The Company competes both domestically and in Europe on the basis of its
extensive product line, quality and service.
Page 4 of 21 sequentially numbered pages
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It's estimated that manufacturers of steel tanks currently hold in excess of
85% of the hydropneumatic and expansion pressure vessels market. The largest
producer of steel tanks and the Company's primary competitor in these products
is Amtrol, Inc. The Company competes in this market by providing its customers
with better features, responsive distribution practices, and competitive
pricing.
The Company is one of several manufacturers supplying products and vessels,
the majority of which in this industry are steel, for spill prevention and
secondary containment of environmentally hazardous waste materials. The Company
competes on the basis of quality and an innovative product line.
SWIMMING POOL AND SPA EQUIPMENT INDUSTRY SEGMENT
Principal Products
The Company manufactures and sells a complete line of filters, heaters, pumps,
underwater lights, white goods, electronic controls, valves and other
accessories for swimming pools and spas under the Purex-Triton(TM) and
Compool(TM) names.
The filters come in a range of sizes and materials to satisfy consumer needs.
The filter media is sand, diatomaceous earth, or cartridge. Pumps are made in a
range of sizes from 1/2 to 25 horsepower and configured for high flow or high
pressure. Lights are provided in a variety of wattages as well as bulb type and
cord length. The heaters are gas and are available with electronic or pilot
light ignition. White goods consist of skimmers, main drains, and fittings which
come in a variety of configurations and sizes.
[For information relating to sales of the swimming pool and spa equipment
segment, see Item 8 Financial Statements and Supplementary Data]
Customers and Distribution
In the swimming pool market, the Company sells its products primarily to
distributors. Sales of spa products and jetted tub pumps are made primarily to
OEMs and the balance to distributors. The Company maintains a field sales
organization made up of salaried territory managers, each of whom is assigned to
and based in a geographic region to service customer accounts and develop
business within that particular region. The Company also has two commissioned
sales groups geographically dispersed throughout the United States and Canada.
Recently, one of its customers, South Central Pool Supply, Inc. acquired another
customer, The B-L-Network, Inc., with the result that the combined entity now
constitutes more than 10% of the Company's revenues.
Competition
There are eight significant competitors in the swimming pool and spa equipment
market, two of which are considered by the Company to be its major competitors.
The Company is a market leader in sales of in-ground pool filters. The Company
competes in the filter market by offering high quality products which are priced
competitively.
Page 5 of 21 sequentially numbered pages
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With its growing family of Challenger(TM) and WhisperFlo(TM) pumps, the
Company competes effectively in the pump market. In particular, its market
presence, existing distribution channels and reputation for quality in the
filter market contribute to its continuing market penetration.
SOURCES AND AVAILABILITY OF RAW MATERIALS - ALL INDUSTRY SEGMENTS
- -----------------------------------------------------------------
The principal materials used in both segments of the Company's business are
fiberglass and plastic resins. The Company has alternate sources for these
materials and is not dependent on any single supplier. The Company has alternate
sources for substantially all other materials required in its production
processes.
BACKLOG - BUSINESS IN GENERAL
- -----------------------------
As of September 30, 1996 and September 30, 1995, the Company had a backlog of
orders believed by it to be firm of approximately $10,114,000 and $7,511,000,
respectively. The Company expects the backlog as of September 30, 1996 to be
delivered in fiscal 1997.
SEASONALITY AND WORKING CAPITAL
- -------------------------------
The swimming pool and spa equipment segment experiences the greatest demand
for its products during the second and third quarters of each fiscal year, when
it will fill approximately 60% of its distributors' orders. During this period,
its distributors increase their inventories in order to meet the peak demand for
swimming pool equipment which occurs in the spring and early summer months.
The Company's peak demand for working capital also occurs during the second
and third quarters. In addition to the strong demand it experiences, the
swimming pool and spa segment offers its customers extended terms during this
period, thereby decreasing cash flow from operations. The Company expects its
working capital requirements to continue to fluctuate on a seasonal basis and to
be financed both from its revolving credit facility and from operations.
ENGINEERING AND DEVELOPMENT
- ---------------------------
The Company believes its success is dependent upon its ability to adapt
materials, machines, processes and other emerging technologies to design and
manufacture new products, and to improve the performance, quality and
manufactured cost of existing products. For this reason, expenditures of the
Company in engineering and development have been primarily directed to the
development of devices and processes and not to fundamental research.
[For expenditures on engineering and development see Item 8 Financial
Statements and Supplementary Data; CONSOLIDATED STATEMENTS OF INCOME - ESSEF
AND SUBSIDIARIES FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994; line
item ENGINEERING AND DEVELOPMENT.]
Page 6 of 21 sequentially numbered pages
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PATENTS AND TRADEMARKS
- ----------------------
The Company owns various trademarks, trade names and logos, the most important
of which are Challenger(TM), Codeline(TM), Compool(TM), Comtech(TM),
Hatteras(R), MiniMax(TM), Nautilus(R), Poly Glass(TM), Purex(TM),
Purex-Triton(TM), Triton(R), WellMate(TM) and WhisperFlo(TM). The Company owns
a number of patents covering various aspects of its products and manufacturing
processes. Although the Company believes its patents, trademarks, trade names
and logos enhance its competitive position and the name recognition of its
products, the Company relies more on its reputation for quality and its
relationship with customers for the maintenance and growth of its business.
ENVIRONMENTAL MATTERS
- ---------------------
The Company's manufacturing processes, like those of the plastics industry
generally, result in the generation of hazardous and other plant waste and
emissions. Consequently, the Company is subject to various federal, state and
local laws and regulations relating to environmental protection. The Company
routinely monitors and maintains installed equipment as necessary to remain in
substantial compliance with applicable environmental regulations to which they
are subject. All operating facilities file reports with and obtain current
operating permits from appropriate governmental oversight agencies.
EMPLOYEES
- ---------
At September 30, 1996, the Company employed approximately 1,200 persons, of
whom approximately 350 are salaried managerial, administrative and supervisory
personnel. The balance are hourly personnel. Approximately 110 hourly employees
at the Purex Pool Systems subsidiary are covered by a collective bargaining
agreement. The Company has not experienced work stoppages and considers its
relations with its employees to be good.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
[For financial information about foreign and domestic operations and export
sales see item 8 Financial Statements and Supplementary Data; NOTE 9:
BUSINESS SEGMENT INFORMATION under NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.]
Page 7 of 21 sequentially numbered pages
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ITEM 2. PROPERTIES.
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The Company's headquarters are in Chardon, Ohio, in offices contiguous to the
division operating there.
The Company conducts its manufacturing, accounting, purchasing, marketing and
engineering operations at eight facilities in the United States, one in Belgium,
two in Italy and one in the U.K. In addition the Company has a facility located
in the U.S. which it has classified as real estate held for sale in its
financial statements. The table below summarizes certain information with
respect to the principal facilities.
Approximate
Acreage and Principal
Location Square Footage Status Products
- -------- -------------- ------ --------
Chardon, Ohio 234,000 sq.ft. Owned Manufacture of water
treatment and systems
equipment; Corporate
Headquarters
Sanford, 243,200 sq.ft. Owned Manufacture and ware-
North Carolina housing of swimming
pool and spa equipment
Sunrise, Florida 1,250 sq.ft. Leased South America sales office
for swimming pool and
spa equipment
City of Industry, 139,000 sq.ft. Leased Manufacture and ware-
California housing of swimming
pool and spa equipment
Eastlake, Ohio 59,500 sq.ft. Leased Manufacture of hazardous
waste containers and
related products
Shell Rock, Iowa 56,214 sq.ft. Owned Manufacture of molds and
tooling for blow molding
applications
Herentals, Belgium 116,400 sq.ft. Owned Manufacture of water
treatment and systems
equipment, and swimming
pool and spa equipment
Escondido, California 64,000 sq.ft. Leased Manufacture of composite
pressure vessel housings
Gloucester, U.K. 250 sq.ft. Leased European sales office for
composite pressure vessel
housings
Milan, Italy 19,375 sq.ft. Leased Manufacture of pressure
vessels and other products
for water treatment
Page 8 of 21 sequentially numbered pages
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Approximate
Acreage and Principal
Location Square Footage Status Products
-------- -------------- ------ --------
Milan, Italy 25,900 sq.ft. Leased Manufacture of pressure
vessels and other products
for water treatment
Mountain View, 16,600 sq.ft. Leased Manufacture of electronic
California. controls and valves for
swimming pools and spas
Daytona Beach, 147,000 sq.ft. Owned Real estate held for sale,
Florida leased to a third party
Goa, India 70,000 sq.ft. Owned Land on which buildings
will be constructed to
manufacture pressure
vessels and other products
for water treatment
The Company considers all of its properties, both owned and leased, together
with the related machinery and equipment contained therein to be well
maintained, in good operating condition, and suitable and adequate for its
present and foreseeable future needs.
Page 9 of 21 sequentially numbered pages
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ITEM 3. LEGAL PROCEEDINGS.
- --------------------------
The Company is a participating defendant under a 1985 consent decree issued in
UNITED STATES OF AMERICA V. CHEM-DYNE CORPORATION. This consent decree attempts
to resolve conflicting claims of responsibility and provide for the cleanup of a
toxic waste disposal site in Hamilton, Ohio. The Company contributed
approximately $29,000 of the $23,000,000 trust established by the consent decree
and paid approximately $12,000 in administrative costs associated with the suit.
Although the Company remains contingently liable for any and all additional
amounts that may be necessary for the cleanup of the disposal site, the Company
does not believe that any significant additional expense will be incurred.
In 1996, several actions were brought against the Company before the United
States District Court for the Southern District of New York, Docket No.
94Civ.5270, including a class action on behalf of passengers, various individual
passenger actions, and an action by Celebrity Cruises, concerning alleged
exposure by passengers to Legionnaire's bacteria aboard the cruise ship M/V
Horizon, a Celebrity Cruises, Inc. ship. Celebrity Cruises is also a defendant
in the passenger actions. The litigation is in its early stages. Management has
instructed legal counsel to defend the Company vigorously.
Additionally, certain other claims, suits and complaints arising in the ordinary
course of business have also been filed or are pending against the Company. In
the opinion of management, the results of all such matters will not have a
material adverse effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -------------------------------------------------------------
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the year
covered by this report.
Page 10 of 21 sequentially numbered pages
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS'
- ------- -------------------------------------------------------------------
MATTERS.
--------
Essef Corporation Common Shares are listed in the NASDAQ Stock Market
under the symbol ESSF. At November 22, 1996 the outstanding common
shares were held by 305 shareholders of record. There were no cash
dividends declared or paid for the year ended September 30, 1996 as the
company continued its policy of retaining earnings and cash for future
expansion of the business. [For information in respect of the market
price range see page 15 of Essef's 1996 Annual Report to Shareholders
incorporated herein by reference to Exhibit 13 of this filing.]
ITEM 6. SELECTED FINANCIAL DATA.
- ------- ------------------------
Information with respect to selected financial data for each of the
last five fiscal years contained on pages 14 and 15 of Essef's 1996
Annual Report to shareholders is incorporated herein by reference to
Exhibit 13 of this filing [1996 Annual Report to Shareholders].
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
The Management's discussion and analysis of financial condition and
results of operations contained on pages 16 and 17 of Essef's 1996
Annual Report to shareholders is incorporated herein by reference to
Exhibit 13 of this filing [1996 Annual Report to Shareholders].
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------- --------------------------------------------
The consolidated financial statements and accompanying notes of Essef
and its subsidiaries contained on pages 18 through 29, inclusive of
Essef's 1996 Annual Report to its shareholders, together with the
report of Independent Public Accountants relating thereto contained on
page 30 thereof, and the unaudited quarterly financial data under the
heading "Quarterly Financial Information" on page 15 of such Annual
Report, are incorporated herein by reference to Exhibit 13 of this
filing [1996 Annual Report to Shareholders].
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None
Page 11 of 21 sequentially numbered pages
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
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(a) Identification of Directors
---------------------------
[For identity of directors and director-nominees including age, business
experience, positions held and other relevant information see Essef
Corporation - Proxy Statement - December 18, 1996; (definitive proxy statement
filed with the Commission pursuant to Regulation 14A) under the headings
NOMINATION AND ELECTION OF DIRECTORS, NOMINEES AND DIRECTORS, on pages 2-4 and
DIRECTORS' COMMITTEES, MEETINGS AND FEES on page 5; incorporated herein by
this reference].
(b) Identification of Executive Officers
------------------------------------
The persons named below are the executive officers of the Company at the date
hereof.
Name Age Position
---- --- --------
Thomas B. Waldin 54 President and Chief Executive
Officer, Director
Elliot B. Ross 50 Executive Vice President and
Chief Operating Officer,
Director
Stuart D. Neidus 45 Executive Vice President and
Chief Financial Officer
Gerald C. Hornick 63 Vice President and
Assistant Treasurer
Douglas J. Brittelle 49 President Pac-Fab, Inc.
Thomas B. Waldin has been Chief Executive Officer of the Company since his
appointment on October 26, 1990, and President and a Director since his
appointment and election January 31, 1991. Since 1977, Mr. Waldin has been
active as an investor in and director of a number of small businesses. He
retired in 1987 as Chief Operating Officer of USG Interiors, Inc., and Chief
Executive Officer of Donn, Inc. The former is a unit of USG Corporation, a
worldwide manufacturer and distributor of building products, created in
connection with the acquisition of Donn, Inc. in 1986.
Page 12 of 21 sequentially numbered pages
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Elliot B. Ross has been Executive Vice President and Chief Operating Officer
of the Company since January 31, 1994. Prior to joining the Company, Mr. Ross
was the co-chairman of Inverness Partners and Inverness Casting Group. Prior to
founding Inverness, he spent 14 years as a member and partner in the Cleveland
office of McKinsey & Company.
Stuart D. Neidus has been Executive Vice President and Chief Financial Officer
since September 3, 1996. Prior to that, from 1992 to 1996 he served in various
positions with Premier Farnell plc (the successor to Premier Industrial
Corporation), most recently as Executive Vice President. Prior to that Mr.
Neidus was with KPMG Peat Marwick LLP from 1973 to 1992 where he was a partner
since 1984.
Gerald C. Hornick has been a Vice President of the Company since 1970 and has
served as Chief Operating Officer of Structural North America since 1985, and as
President since January, 1991. He has been Assistant Treasurer of Essef
Corporation since 1988.
Douglas J. Brittelle has been President of Pac-Fab, Inc. since January 3,
1995. Prior to that, from 1971 to 1994 he served in various positions with
General Electric, most recently, he served as General Manager of G.E.'s
Apparatus Service Business headquartered in Schenectady, New York. Prior to
that, he was General Manager of G.E.'s Transformer Business headquartered in
Hickory, North Carolina from 1983 to 1992.
ITEM 11. EXECUTIVE COMPENSATION.
- -------- -----------------------
[For information relating to compensation of executive officers and
directors see Essef Corporation - Proxy Statement - December 18, 1996;
under the headings DIRECTORS' COMMITTEES, MEETINGS AND FEES on page 5,
and EXECUTIVE COMPENSATION on page 6; incorporated herein by this
reference].
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------- ---------------------------------------------------------------
[For information relating to security ownership of certain beneficial
owners and management see Essef Corporation - Proxy Statement -
December 18, 1996; under the heading BENEFICIAL OWNERSHIP OF SHARES
appearing on pages 14-16; incorporated herein by this reference].
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------- -----------------------------------------------
[For information regarding related transactions see Essef Corporation
- Proxy Statement - December 18, 1996; under the heading BENEFICIAL
OWNERSHIP OF SHARES on pages 14-16; incorporated herein by this
reference].
Page 13 of 21 sequentially numbered pages
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- -------- -----------------------------------------------------------------
(a) Documents filed as part of this report:
---------------------------------------
(1) The following consolidated financial statements of Essef
Corporation and Subsidiaries, together with the independent auditors'
report relating thereto, contained on pages 18 through 30, inclusive
of Essef's 1996 Annual Report to its shareholders, and the unaudited
quarterly financial data set forth under the heading "Quarterly
Financial Information" on page 15 of such Annual Report, are
incorporated herein by reference to Exhibit 13 of this filing [1996
Annual Report to Shareholders].
Consolidated Balance Sheets at September 30, 1996 and 1995
Consolidated Statements of Income for the years ended
September 30, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity for the years
ended September 30, 1996, 1995 and 1994
Consolidated Statement of Cash Flows for the years ended
September 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Quarterly Financial Information (unaudited)
(2) All financial statement schedules are omitted because they are not
required, not applicable, or the information is given in the
consolidated financial statements or the notes thereto.
Page 14 of 21 sequentially numbered pages
<PAGE> 15
(3) Exhibits Required to be Filed by Item 601 of Regulation S-K
Current Form 10-K Document/Data
Exhibit Number Required
- ----------------- -------------
3.1 Second Amended Articles of Incorporation
effective May 8, 1987. (Reference is made to Exhibit
3.1 to the report on Form 10K for the year ended
September 30, 1993, which exhibit is herein
incorporated by reference)
3.2 Code of Regulations as Amended January 30, 1992.
(Reference is made to Exhibit 3.2 to the report on Form
10K for the year ended September 30, 1993, which
exhibit is herein incorporated by reference)
4.1 Articles 4 and 5 of Second Amended Articles of
Incorporation effective May 8, 1987 (See 3.1
above)
10.1 1987 Employees' Stock Option Plan. (Reference is
made to Exhibit 10.1 to the report on Form 10K for
the year ended September 30, 1994, which exhibit
is herein incorporated by reference)
10.2 Deferred Compensation Plan as amended September
29, 1989. (Reference is made to Exhibit 10.2 to
the report on form 10K for the year ended
September 30, 1989, which exhibit is herein
incorporated by reference)
10.3 Trust Agreement for Essef Corporation Employees'
Retirement Plan and Trust (October 1, 1992
Restatement). (Reference is made to Exhibit 10.3 to the
report on form 10K for the year ended September 30,
1993, which exhibit is herein incorporated by
reference)
10.4 Employment Agreement - Thomas B. Waldin, Chief
Executive Officer. (Reference is made to Exhibit
10.7 to the report on form 10K for the year ended
September 30, 1990, which exhibit is herein
incorporated by reference)
10.5 First Amendment to Employment Agreement -
Thomas B. Waldin, Chief Executive Officer. (Reference
is made to Exhibit 10.9 to the report on form 10K for
the year ended September 30, 1994, which exhibit is
herein incorporated by reference)
10.6 Employment Agreement - Elliot B. Ross, Chief
Operating Officer. (Reference is made to form 8-K
filed January 25, 1994, which exhibit is herein
incorporated by reference)
Page 15 of 21 sequentially numbered pages
<PAGE> 16
Current Form 10-K Document/Data
Exhibit Number Required
- ----------------- -------------
10.7 Employment Agreement - Douglas J. Brittelle,
President Pac-Fab, Inc. (Reference is made to
Exhibit 10.12 to the report on Form 10K for the
year ended September 30, 1995, which exhibit is
herein incorporated by reference)
10.8 Employment Agreement - Stuart D. Neidus, Executive
Vice President and Chief Financial Officer.
10.9 Asset Purchase Agreement between Purex Pool
Systems, Inc. and Hydrotech Chemical Corporation
dated as of March 1, 1994. (Reference is made to
Exhibit 2 to the report on form 10Q for the
quarter ended March 31, 1994, which exhibit is
herein incorporated by reference)
10.10 Amendment Number One, dated March 19, 1994, to
Asset Purchase Agreement between Purex Pool
Systems, Inc. and Hydrotech Chemical Corporation
dated as of March 1, 1994. (Reference is made to
form 8-K dated March 19, 1994 which exhibit is
herein incorporated by reference)
10.11 Credit Agreement between Essef Corporation and
Society National Bank, Agent for banks named
therein, dated March 1, 1994. (Reference is made
to Exhibit 4.2 to the report on form 10Q for the
quarter ended March 31, 1994, which exhibit is
herein incorporated by reference)
10.12 Credit Agreement first amendment between Essef
Corporation and Society National Bank, Agent for banks
named therein, dated January 3, 1995. (Reference is
made to Exhibit 10.1 to the report on form 10Q for the
quarter ended March 31, 1995, which exhibit is herein
incorporated by reference)
10.13 Credit Agreement second amendment between Essef
Corporation and Society National Bank, Agent for banks
named therein, dated March 26, 1996.
10.14 Trust Agreement for Essef Corporation Employees'
Retirement Plan and Trust (October 1, 1995
Restatement).
11 Computation of Earnings Per Share.
13 1996 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
Page 16 of 21 sequentially numbered pages
<PAGE> 17
Current Form 10-K Document/Data
Exhibit Number Required
- ----------------- -------------
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 1994 Report of Independent Public Accountants.
27.1 Financial Data Schedule.
(b) There were no reports filed on Form 8-K during the last quarter of fiscal
year ended 1996.
Page 17 of 21 sequentially numbered pages
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Essef Corporation
By /s/ STUART D. NEIDUS
------------------------------------------
Stuart D. Neidus
Executive Vice President and
Chief Financial Officer
December 18, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Signature Title
- --------- -----
/s/ THOMAS B. WALDIN Chief Executive Officer
- ---------------------------- (Principal Executive Officer)
Thomas B. Waldin
/s/ STUART D. NEIDUS Executive Vice President and
- ---------------------------- Chief Financial Officer
Stuart D. Neidus (Principal Financial Officer)
Page 18 of 21 sequentially number pages
<PAGE> 19
Signature Title
- --------- -----
/s/ GORDON D. HARNETT Director
- ----------------------------
Gordon D. Harnett
/s/ CHARLES W. W. HORNER Director
- ----------------------------
Charles W. W. Horner
/s/ GEORGE M. HUMPHREY, II Director
- ----------------------------
George M. Humphrey, II
/s/ MARY ANN JORGENSON Director
- ----------------------------
Mary Ann Jorgenson
/s/ RALPH T. KING Director
- ----------------------------
Ralph T. King
/s/ ELLIOT B. ROSS Director
- ----------------------------
Elliot B. Ross
Date: December 18, 1996
Page 19 of 21 sequentially numbered pages
<PAGE> 20
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
Commission File No. 0-15902
----------
Essef Corporation
EXHIBIT VOLUME
Page 20 of 21 sequentially numbered pages
<PAGE> 21
Essef Corporation
1996 Form 10-K Annual Report
Exhibit Volume - Table of Contents
Exhibits filed with and sequentially numbered as part of the report
Number Exhibit Description
- ------ -------------------
10.8 Employment Agreement - Stuart D. Neidus, Executive Vice
President and Chief Financial Officer
10.13 Credit Agreement second amendment between Essef Corporation and
Society National Bank
10.14 Trust Agreement for Essef Corporation Employees Retirement Plan
and Trust(October 1, 1995 Restatement)
11 Computation of Earnings Per Share
13 1996 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Arthur Andersen LLP
23.3 1994 Report of Independent Public Accountants
27.1 Financial Data Schedule
Page 21 of 21 sequentially numbered pages
<PAGE> 1
Exhibit 10.8
EMPLOYMENT AGREEMENT
--------------------
ESSEF Corporation, an Ohio corporation (the "Company"), and Stuart D.
Neidus (the "Executive") agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) The Company agrees to employ the Executive, and the Executive
agrees to serve the Company, as the Company's Executive Vice President and Chief
Financial Officer. The Executive shall report to the Company's Chief Executive
Officer and the Board of Directors of the Company and shall have supervision and
control over, and responsibility for, the accounting, treasury and financial
control matters of the Company and such other powers and duties as are
customarily performed by Executive Vice Presidents and Chief Financial Officers
of companies similar in size to the Company, together with such other duties,
consistent with his position as set forth above, as may be reasonably requested
by the Chief Executive Officer or the Board of Directors.
(b) On a day-to-day basis, the Executive shall, subject to the
parameters set forth in Section 1(a), (i) perform such duties as may be assigned
by the Chief Executive Officer, the Chief Operating Officer and the Board of
Directors, (ii) devote substantially all of his working time to the business and
affairs of the Company (provided, however, that, so long as it does not
unreasonably interfere with his employment obligations to the Company hereunder,
the Executive shall be entitled to attend to outside investments, and subject to
prior approval of the Board of Directors, serve as a director of a corporation
which does not compete with the Company (as provided in Section 11 hereof) or as
a director, trustee or officer of or otherwise participate in educational,
welfare, social, religious, charitable and civic organizations, and (iii) use
his good faith efforts to advance the interests of the Company and to improve
the value of the Company to its shareholders.
2. TERM. The Company's employment of the Executive shall commence on
September 3, 1996 (the "Commencement Date") and expire on September 30, 1998.
Unless terminated as provided in Section 9 hereof, this Agreement shall be
extended automatically as of each September 30 thereafter for one (1) additional
"fiscal year"
<PAGE> 2
period with such modified terms as mutually agreed. The term
"fiscal year" means the period beginning on October 1 in one year and ending on
September 30 in the next year.
3. COMPENSATION.
(a) The Executive's annual base salary ("base salary") during the
term of this Agreement shall be at least Two Hundred Thousand Dollars (USD
200,000), such base salary to be reviewed annually by the Compensation Committee
of the Board of Directors or an authorized subcommittee thereof (the
"Committee").
(b) In addition to the base salary, the Company shall pay the
Executive a bonus targeted at Fifty percent (50%) of his base salary for each
fiscal year ("Target Bonus"), and the Committee shall determine the appropriate
target earnings per share ("Targeted Earnings Per Share") or other performance
measure for bonus purposes. For fiscal year 1997 the Target Bonus shall be
calculated as follows: ((actual earnings per share less 75% of Targeted Earnings
Per Share) divided by (Targeted Earnings Per Share less 75% of Targeted Earnings
Per Share)) multiplied by the Target Bonus amount. For example, if Targeted
Earnings Per Share were $2.00 and actual earnings per share were $2.50 the
Executive would earn 200% of his Target Bonus.
There shall be no cap on bonus potential. For purposes of bonus
calculations, net income from the Fame note shall not be included for purposes
of determining the actual and target goal. Such bonus shall be determined and
paid within thirty (30) days after the Company's audited financial statements
become available. For fiscal year 1997, the Executive shall be paid a bonus of
the greater of Fifty Thousand Dollars (USD 50,000) (the "Guaranteed Bonus") or
the bonus calculated as set forth above for his performance during fiscal year
1997.
4. OPTIONS.
(a) INITIAL OPTIONS.
(i) Subject to the limitation in (iii) below, the Company
hereby grants to the Executive options (the "Initial Options") to purchase Fifty
Thousand (50,000) shares of the Company's common stock (the "Shares") at the
price and subject to the following terms and conditions. The Initial Options
shall vest as of the Commencement
<PAGE> 3
Date.
(ii) The exercise price per Share for the Initial Options shall
be the higher of (aa) the average closing price per Share as reported by NASDAQ
during the five (5) trading days immediately preceding the Commencement Date or
(bb) Seventeen Dollars and Fifty Cents (USD 17.50) per Share.
(iii) Regardless of the fact that Initial Options are deemed to
vest in the Executive on the Commencement Date, the Executive may exercise
Initial Options only in the percentages and at the times set forth below:
0% prior to the first anniversary of the Commencement Date;
20% at any time after the first anniversary of the Commencement Date;
40% at any time after the second anniversary of the Commencement Date;
60% at any time after the third anniversary of the Commencement Date;
80% at any time after the fourth anniversary of the Commencement Date;
and
100% at any time after the fifth anniversary of the Commencement Date.
(b) PERFORMANCE OPTIONS.
(i) The Company hereby grants the Executive options (the
"Performance Options") to purchase an additional Seventy-Five Thousand (75,000)
Shares. The Performance Options shall vest in three (3) tranches of Twenty-Five
Thousand (25,000) Performance Options each on the later of (aa) the fifth (5th)
anniversary of the Commencement Date or (bb) the following dates for each
tranche:
(xx) First Tranche -- when the average closing price of the
Shares as reported by NASDAQ for twenty (20) consecutive trading days
reaches Twenty-Six Dollars and Twenty-Five Cents (USD 26.25);
(yy) Second Tranche -- when the average closing price of the
Shares as reported by NASDAQ for twenty (20) consecutive trading days
reaches Thirty-Five Dollars (USD 35.00);
(zz) Third Tranche -- when the average closing price of the
Shares as reported by NASDAQ for twenty (20) consecutive trading days
reaches Forty-Three Dollars and Seventy-Five Cents (USD 43.75).
(ii) The exercise price per Share for the Performance Options shall be
the higher of (aa) the
<PAGE> 4
average closing price per Share as reported by NASDAQ during the five (5)
trading days immediately preceding the Commencement Date or (bb) Seventeen
Dollars and Fifty Cents (USD 17.50) per Share.
(c) TRANSFERABILITY OF OPTIONS. Neither the Initial Options nor the
Performance Options are transferable by the Executive other than by will, the
laws of descent and distribution or by gift to members of the Executive's
immediate family comprised of his spouse and children ("immediate family") or by
transfer to a trust for the benefit of his immediate family.
(d) TERM OF OPTIONS. Subject to the terms and conditions hereof, the
Initial Options and/or the Performance Options (collectively, the "Options") may
be exercised after they vest at any time prior to the tenth (10th) anniversary
of the Commencement Date by delivering to the Company at its principal place of
business a written notice, signed by the person entitled to exercise the
options, stating the Executive's election to exercise the Options and stating
the number of Options to be exercised. Such notice shall, as an essential part
thereof, be accompanied by the payment of the full purchase price of the Shares
then to be purchased and the amount, if any, required to be withheld for
federal, state and local tax purposes on account of the exercise of the Options.
The Options shall be deemed exercised as of the date that the Company receives
such notice and payment. Payment of the full purchase price must be made in cash
or by certified check. Promptly after the proper exercise of an Option, the
Company or its transfer agent shall issue in the name of the person exercising
the Option, and deliver to him, a certificate or certificates for the Shares
purchased. As holder of the Options, the Executive shall have no rights as
Shareholder or otherwise in respect of any of the Shares as to which the Options
shall not have effectively been exercised.
(e) RESTRICTIONS ON EXERCISE. No Option shall be exercisable if such
exercise would violate:
(i) any generally applicable state securities laws;
(ii) any applicable registration or other requirements under the
Securities Act of 1933, as amended (the "Act"), or applicable
requirements of NASDAQ; or
(iii) any generally applicable legal requirement of any other
governmental authority.
Furthermore, if a registration statement with respect to the Shares to be issued
upon the exercise of the Options is not in effect and if counsel for the Company
reasonably deems it necessary or desirable in order to avoid possible violation
of the Act, the Company may require, as a condition to its issuance and delivery
of certificates for the Shares, the delivery to the Company of a commitment in
writing by the person exercising the Options that at the time of such exercise
it is his intention to acquire such Shares for his own account for investment
only and not with a view
<PAGE> 5
to, or for resale in connection with, the distribution thereof; that such person
understands the Shares may be "restricted securities" as defined in Rule 144 of
the Securities and Exchange Commission; and that any resale, transfer or other
disposition of said Shares will be accomplished only in compliance with Rule
144, the Act, or other or subsequently applicable Rules and Regulations
thereunder. The Company may place on the certificates evidencing such Shares an
appropriate legend reflecting the aforesaid commitment and may refuse to permit
transfer of such certificates until it has been furnished evidence reasonably
satisfactory to it that no violation of the Act or the Rules and Regulations
thereunder would be involved in such transfer.
The Company shall use its best efforts to cause the underlying Shares to
be registered under the Act prior to, or concurrently with, the exercise by the
Executive of the Initial Options and Performance Options.
(f) TAXES. If all or any of the amounts payable to the Executive under
this Agreement (together with all other payments of cash or property, whether
pursuant to this Agreement or otherwise, including, without limitation, the
issuance of Shares or Options) constitutes "excess parachute payments" within
the meaning of Section 280G of the Code that are subject to the excise tax
imposed by Section 4999 of the Code (or any similar tax or assessment), the
amounts payable hereunder shall be increased to the extent necessary to place
the Executive in the same after-tax position as he would have been in had no
such tax assessment been imposed on any such payment paid or payable to the
Executive under this Agreement or any other payment that the Executive may
receive in connection therewith. The determination of the amount of any such tax
or assessment and the incremental payment required hereby in connection
therewith shall be made by the accounting firm employed by the Executive within
thirty (30) calendar days after such payment and said incremental payment shall
be made within five (5) calendar days after determination has been made. If,
after the date upon which the payment required by this Section 4(f) has been
made, it is determined (pursuant to final regulations or published rulings of
the Internal Revenue Service, final judgment of a court of competent
jurisdiction, Internal Revenue Service audit assessment, or otherwise) that the
amount of excise or other similar taxes or assessments payable by the Executive
is greater than the amount initially so
<PAGE> 6
determined, then the Company shall pay the Executive an amount equal to the sum
of: (i) such additional excise or other taxes, PLUS (ii) any interest, fines and
penalties resulting from such underpayment, PLUS (iii) an amount necessary to
reimburse the Executive for any income, excise or other tax assessment payable
by the Executive with respect to the amounts specified in (i) and (ii) above,
and the reimbursement provided by this clause (iii), in the manner described
above in this Section 4(f). Payment thereof shall be made within five (5)
calendar days after the date of such subsequent determination. If, after the
date upon which the payment required by this Section 4(f) has been made to the
Executive, it is determined that Executive is entitled to receive a refund of
all or part of such payment, then the Executive shall pay to the Company all
amounts received by the Executive as a refund of any such overpayment of excise
or other taxes.
(g) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES PURCHASABLE. If
the Company shall at any time after the date hereof: (i) declare a dividend on
the Shares payable in shares of its capital stock (whether common shares or of
capital stock of any other class), (ii) subdivide its outstanding Shares, or
(iii) combine its outstanding Shares into a smaller number of Shares, the
exercise price in effect at the time of the record date for that dividend or of
the effective date of that subdivision or combination, and/or the number and
kind of Shares issuable on that date pursuant to an exercise of the Option,
shall be proportionately adjusted so that the Executive shall be entitled to
receive the aggregate number and kind of Shares which, if the Option had been
exercised immediately prior to that date, the Executive would have owned upon
such exercise and been entitled to receive by virtue of that dividend,
subdivision, combination, consolidation or merger. The foregoing adjustment
shall be made successively whenever any event listed above shall occur. The
Compensation Committee shall have sole discretion to determine the most
appropriate manner and amount of adjustments hereunder.
5. BENEFITS. During the term of this Agreement, the Executive and his
eligible dependents shall be entitled to participate in and receive benefits
under any profit-sharing plan, health, disability, medical insurance or other
employee welfare or benefit plan or arrangement made generally available by the
Company during the term of
<PAGE> 7
this Agreement to its executives and key management employees. The Executive
shall also be a participant in the Company's "Performance Share Plan" with a
target award of Fifty Thousand Dollars (USD 50,000) per year over a two (2) to
three (3) year performance period, as determined by the Compensation Committee.
Such Performance Share Plan is currently being developed by the Compensation
Committee for final consideration by the Board of Directors and submission to
shareholders for approval, if required.
6. CAR. During the term of this Agreement, the Company shall provide
the Executive with an automobile and shall pay for operating expenses incurred
in connection with the use of the automobile, including the costs of insurance,
gas, maintenance and car phone.
7. VACATION. The Executive shall be entitled to the number of paid
vacation days in each calendar year determined by the Board from time to time.
8. RIGHT OF FIRST REFUSAL.
(a) If the Executive wishes to sell, assign or otherwise transfer to a
single purchaser Twenty-Five Thousand (25,000) or more Shares, the Executive
shall first comply with the terms of the following right of first refusal.
(b) The Executive may sell such Shares if the Shares proposed to be
sold are first offered for purchase to the Company. Such offer of purchase shall
be delivered by the Executive to the Company by a written notice containing
(i) a true copy of the offer of the proposed purchaser of the Shares (the
"Offer"), which offer shall set forth the number of Shares to be purchased,
the price for those Shares and the name and address of the proposed purchaser
and (ii) a written offer by the Executive to sell all of the Shares
covered by the Offer to the Company in accordance with the terms of this
Agreement and the Offer.
(c) Upon approval by the Board, the Company or its nominee shall have
the right to accept the Executive's offer in writing within sixty (60) days
after the date of the notice. If such offer is accepted, the Shares shall be
sold to the Company or such nominee at the office of the Company at a mutually
convenient time within
<PAGE> 8
twenty (20) days after the acceptance of the offer. At the Closing of such
sale, the Executive shall deliver the certificates representing the Shares
free of any adverse claims, liens or encumbrances whatsoever, duly endorsed
for transfer, and the Company or its nominee, as the case may be, shall
deliver to the Executive the purchase price relating to the Shares being
purchased.
(d) If the Company fails to exercise its purchase rights under this
Section 8 for a period of thirty (30) days after the termination of the period
within which the Company had the right to purchase the Shares, the Executive may
transfer the Shares that are the subject of the Offer to the proposed purchaser,
but only in strict accordance with the Offer. If such sale is consummated within
a sixty (60) day period thereafter, the Shares in the hands of the proposed
purchaser shall no longer be subject to the provisions of this right of first
refusal. If such sale is not so consummated, the Shares shall continue to be
subject to all of the provisions of this Agreement.
9. DISABILITY OR DEATH; RESIGNATION; TERMINATION FOR CAUSE; OTHER
TERMINATIONS.
(a) DISABILITY OR DEATH. If the Executive is incapacitated for a
period of three (3) consecutive months so that he cannot perform his duties
hereunder on a full-time basis, then either the Company or the Executive may
give written notice to the other terminating the Executive's employment
effective thirty (30) days thereafter (the "Disability Termination Date"). The
Company shall continue to provide salary, medical coverage, disability and group
life insurance to the Executive for six (6) months after the Disability
Termination Date. If the Executive dies prior to the termination of his
employment or if notice of termination for disability is given as provided
above, the Company's obligations hereunder shall terminate as of the earlier of
the Executive's death or the Disability Termination Date. In the event of the
Executive's death, his estate may exercise any Options vested and exercisable at
the date of death for one (1) year after such death. In the event of disability,
the Executive may exercise any options vested and exercisable at the Disability
Termination Date for a period of three (3) months after the Disability
Termination Date. In the event of death or disability, the number of Performance
Options that may be exercised is the number of Performance Options that have met
the Share price hurdles, multiplied by a fraction not to exceed the
<PAGE> 9
whole number one (1), the numerator of which shall be the number of whole months
since the Commencement Date and the denominator of which shall be sixty (60). In
the event of death or disability, the Company shall pay to the Executive the
prorated portion (through the applicable termination date) of the Executive's
Target Bonus that would have been paid had the Executive been employed by the
Company at the end of the fiscal year in which the applicable termination date
occurred. Such Target Bonus shall be calculated according to actual Company
results for the respective fiscal year and paid at the same time other Company
bonuses are paid.
(b) RESIGNATION. If the Executive's employment is terminated by reason
of his voluntary resignation, all of the Company's obligations hereunder shall
terminate as of the termination date. All unexercised Options, both vested and
unvested, shall be automatically forfeited and canceled by the Company.
(c) TERMINATION FOR CAUSE. If the Company terminates the Executive's
employment for cause (as defined below), all of the Company's obligations
hereunder shall immediately terminate as of the termination date. All
unexercised Options, both vested and unvested, shall be automatically forfeited
and canceled by the Company. As used herein, "for cause" shall mean (i) gross
misconduct by the Executive that is materially inconsistent with the terms
hereof, or (ii) material failure by the Executive to perform his duties, either
of which continues after written notice thereof and a fifteen (15) day chance to
cure or (iii) the Executive's conviction for committing a felony.
(d) OTHER TERMINATIONS. If the Company terminates the Executive's
employment other than for cause (including failing to extend the term at the end
of any fiscal year), both the Company's and the Executive's obligations
hereunder shall immediately terminate as of the termination date; provided,
however, that (i) the Executive may exercise within one (1) year from the date
the Company delivers notice of termination (the "Termination Date") any Initial
Options held by him on the Termination Date, and any Performance Options that
have met the Share price hurdles prior to the Termination Date, multiplied by a
fraction not to exceed the whole number one (1), the numerator of which shall be
the number of whole months since the Commencement Date and the denominator of
which shall be sixty (60) and the Company shall continue to provide salary and
medical, group life and disability
<PAGE> 10
insurance (collectively, "insurance benefits") to the Executive until the
later of September 30, 1998 or one (1) year after the Termination Date. In
addition the Company shall pay the prorated portion (through the Termination
Date) of the Executive's Target Bonus that would have been paid had the
Executive been employed by the Company at the end of the fiscal year in which
the Termination Date occurred. Such Target Bonus will be calculated according
to actual Company results for the fiscal year and paid at the same time other
Company bonuses are paid.
If (i) the Company materially changes the Executive's duties and
responsibilities as set forth in Section 1 without his consent; or (ii) there
occurs a "change in control" (as hereinafter defined) of the Company, then in
any such event the Executive shall have the right to terminate his employment
with the Company, but such termination shall not be considered a voluntary
resignation or termination of such employment or of this Agreement by the
Executive but rather a discharge of the Executive by the Company without "cause"
under this Section 9(d).
The term "change in control" means the first to occur of the following
events:
(i) when any "person" as defined in Section 3(a)(9) of the
Exchange Act and as used in Sections 13(d) and 14(d) thereof, including
a "group" as defined in Section 13(d) of the Exchange Act, but
excluding the Company and any employee benefit plan sponsored or
maintained by the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act, as amended from time to
time), of securities of the Company representing more than fifty
percent (50%) of the combined voting power of the Company's then
outstanding securities; or
(ii) The completion of a transaction requiring shareholder
approval for the acquisition of substantially all of the stock or
assets of the Company by an entity other than the Company or any merger
of the Company into another company and the Company is not the
surviving company.
Notwithstanding anything to the contrary contained in this Agreement, including
without limitation, anything contained in Subsections 4(a) or 4(b) hereof, upon
the occurrence of a "change of control" of the Company the Initial
<PAGE> 11
Options shall immediately become exercisable by the Executive at any
time and the Performance Options may be exercised by the Executive to the extent
that the price of the Shares had reached the required levels of Subsections
4(b)(i)(xx), (yy) or (zz) as of the date of such change of control.
10. TRADE SECRETS; CONFIDENTIAL AND PROPRIETARY INFORMATION. The
Executive shall not at any time or in any manner, either directly or indirectly,
divulge, disclose or communicate to any person, firm, company, corporation or
business in any manner whatsoever any confidential information relating to the
business of the Company, including without limitation, the Company's pricing
policies, trade secrets, know-how, strategic plans and similar types of
information. This Section 10 shall be interpreted with the Executive's role as
Chief Financial Officer and liaison with the securities markets and the
investing public in general in mind. The foregoing restrictions shall not apply
to the extent that such information (a) is obtainable in the public domain, (b)
becomes obtainable in the public domain, except by reason of the breach by the
Executive of the terms hereof, or (c) is required to be disclosed by rule of law
or by order of a court or governmental body or agency. This Section 10 shall
remain in full force and effect for a period of ten (10) years after expiration
or termination of this Agreement for any reason.
11. COVENANT NOT TO COMPETE. During the term of this Agreement and for a
period of five (5) years thereafter the Executive will not, without the
Company's prior written consent, directly or indirectly engage in, make any
investment in or have any interest in any business in competition with the
business of the Company; and the Executive will not advise, assist or render
services either directly or indirectly to any person, firm, company, corporation
or business other than the Company with reference to any business in competition
with the business engaged in by the Company during the Executive's employment by
the Company. Notwithstanding the foregoing, the ownership of securities of any
business competing with the Company, if such securities are publicly traded on a
national securities market and constitute less than five percent (5%) of the
outstanding stock thereof, shall not constitute a violation of this provision.
For purposes of this Section 11, a business in competition with the Company
shall mean any business engaged in the manufacture, design, processing, sale or
distribution of products that are the
<PAGE> 12
same as or similar to those of the Company at any time during the term of this
Agreement. This Agreement shall inure to the benefit of, and be enforceable by,
the parties' successors, representatives, executors, administrators or
assignees.
12. NOTICES. All notices, requests, demands and other communications
made or given in connection with this Agreement shall be in writing and shall be
deemed to have been duly given (a) if delivered, at the time delivered or (b) if
mailed, at the time mailed at any general or branch United States Post Office
enclosed in a registered or certified postage paid envelope addressed to the
address of the respective parties as follows:
To the Company:
ESSEF Corporation
220 Park Drive
Chardon, OH 44024
Attention: Chief Executive Officer
To the Executive:
Stuart D. Neidus
7860 Sugarbush Lane
Gates Mills, OH 44040
or to such other addresses as the party to whom notice is to be given may have
previously furnished to the other party in writing in the manner set forth
above, provided that notices of changes of address shall only be effective upon
receipt.
13. MODIFICATIONS AND WAIVERS. No provisions of this Agreement may be
modified or discharged unless such modification or discharge is authorized by
the Board of Directors and is agreed to in writing, signed by the Executive and
by another executive officer of the Company. No waiver by either party hereto of
any breach by the other party hereto or any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties hereto relating to the subject matter hereof, and there are no
written or oral terms or representations made by either party other than those
<PAGE> 13
contained herein.
15. GOVERNING LAW. The validity, interpretation, construction,
performance and enforcement of this Agreement shall be governed by the laws of
the State of Ohio.
16. INVALIDITY. The unenforceability or invalidity of any provision of
this Agreement shall not affect the enforceability or validity of the balance of
the Agreement. In the event that any such provision should be or becomes invalid
for any reason, such provision shall remain effective to the maximum extent
permissible, and the parties shall consult and agree on a legally acceptable
modification giving effect to the commercial objectives of the unenforceable or
invalid provision, and every other provision of this Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
August 16, 1996.
ESSEF CORPORATION
By:
- ---------------- ---------------------------------
Stuart D. Neidus Elliot B. Ross, Executive Vice
President and Chief Operating Officer
<PAGE> 1
Exhibit 10.13
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Second Amendment") is
entered into by and among ESSEF CORPORATION, an Ohio corporation ("Essef"),
PAC-FAB, INC., a Delaware corporation ("Pac-Fab"), ENPAC CORPORATION, a Delaware
corporation ("Enpac"), SANFORD TECHNOLOGY CORPORATION (f/k/a FAME Plastics,
Inc.), a North Carolina corporation ("Sanford"), PUREX POOL SYSTEMS, INC., a
Delaware corporation ("Purex"), HOBSON BROTHERS ALUMINUM FOUNDRY AND MOULD
WORKS, INC., an Ohio corporation ("Hobson"; sometimes Hobson, Essef, Pac-Fab,
Enpac, Sanford, and Purex collectively may be called "Borrowers" or individually
"Borrower"), SOCIETY NATIONAL BANK ("Society"), BRANCH BANKING AND TRUST COMPANY
("BBT"), and NBD BANK, N.A. ("NBD"; sometimes Society, BBT, and NBD collectively
may be called "Banks" and individually "Bank"), and SOCIETY NATIONAL BANK as
agent for Banks ("Agent").
RECITALS
--------
A. On March 1, 1994, Borrowers, Banks and Agent
entered into a certain Credit Agreement (the "Credit Agreement"; all terms
defined therein being used in this Second Amendment with the same meaning unless
otherwise stated), under the provisions of which Banks agreed to provide to
Borrowers a revolving credit facility in the maximum aggregate amount of
$33,000,000, an acquisition-related line of credit in the maximum aggregate
amount of $10,000,000 and an additional term loan facility in the maximum
aggregate amount of $10,000,000.
B. Effective January 3, 1995, Borrowers, Banks and
Agent entered into the First Amendment to Credit Agreement (the "First
Amendment") to (1) reduce the Applicable Base Rate Margin applicable to the
Revolving Loans, the Acquisition Term Loans and the Purex Division Term Loan,
and (2) reduce the Applicable LIBOR Loan Margin applicable to the Revolving
Loans, the Acquisition Term Loans and the Purex Division Term Loan.
C. Borrowers and Banks now desire to amend the Credit
Agreement to (1) extend the Commitment Period for the Revolving Loans, the
Acquisition Term Loans and the Purex Division Term Loan, (2) reduce the
Applicable LIBOR Loan Margin applicable to the Revolving Loans, the Acquisition
Term Loans and the Purex Division Term Loan.
PROVISIONS
----------
NOW, THEREFORE, in consideration of the foregoing and the following
provisions, the parties agree as follows:
Section I. AMENDMENTS TO CREDIT AGREEMENT.
-------------------------------
The Credit Agreement is amended as follows:
1. On and after the effective date of this Second
Amendment, each reference in the Credit Agreement and this Second Amendment to
"this Agreement," "hereunder," and "hereof," or words of like import
<PAGE> 2
referring to the Credit Agreement, shall mean and refer to the Credit Agreement
as amended by the First Amendment and the Second Amendment. The Credit
Agreement, as amended, is, and shall continue to be, in full force and effect
and hereby is ratified and confirmed in all respects.
2. The definition of "Applicable LIBOR Loan
Margin" set forth in Section 1.8 of the Credit Agreement, as amended, is
amended and restated in its entirety as follows:
1.8. APPLICABLE LIBOR LOAN MARGIN. The Applicable LIBOR Loan Margin
applicable to (a) the Revolving Loans, (b) the Acquisition Term Loans and
(c) the Purex Division Term Loan shall be 100 basis points above Adjusted
LIBOR.
3. The definition of "Commitment Period" set forth
in Section 1.20 of the Credit Agreement, as amended, is amended and restated
in its entirety as follows:
1.20. COMMITMENT PERIOD. The Commitment Period applicable to
(a) the Revolving Loans shall be the period from th e
Effective Date of this Agreement to and including January 31, 1998;
provided, however, that, upon delivery by Borrowers to Agent of each of
Essef's Form 10-K and audited financial statements for the fisc al year
ending immediately prior to the year for which such extension is being
requested, Borrowers may by written notice to each Bank request a one (1)
year extension of this Agreement, in which case such extension will be
permitted in the event each Bank agrees to such extension; and
(b) the Acquisition Line of Credit shall be the period
from the Effective Date of this Agreement to and including January 31,
1998; provided, however, that, upon delivery by Borrowers to Agent of
each of Essef's Form 10-K and audited financial statements for the fiscal
ye ar ending immediately prior to the year for which such extension is
being requested, Borrowers may by written notice to each Bank request a
one (1) year extension of this Agreement, in which case such extension
will be permitted in the event each Bank agrees to such extension.
4. The definition of "Letters of Credit" in
Section 1.33 of the Credit Agreement, as amended, is amended and restated in
its entirety as follows:
1.33. LETTERS OF CREDIT. Standby Letters of Credit provided
to one or more Borrowers by a Letter of Credit Bank in such form as
Borrowers and the Letter of Credit Bank may agree, b ut in no case having
a final expiration date later than January 31, 1998. Each Letter of
Credit issued by a Letter of Credit Bank shall identify (a) the
respective dates of issuance and expiration of such Letter of Credit, (b)
the amount of such Letter of Credit (which shall be a sum certain), (c)
the beneficiary and account party of such Letter of Credit, and (d) the
drafts and other documents necessary to be presented to the Letter of
Credit Bank upon a drawing under such Letter of Credit.
<PAGE> 3
5. Section 2.1(a)(i) of the Credit Agreement, as
amended, is amended and restated in its entirety as follows:
(i) BASE LENDING RATE REVOLVING LOANS OR LIBOR REVOLVING LOANS. The
Borrowers shall have the option, subject to the provisions set forth in
this Agreement, to borrow under this Agreement, repay the same in w hole
or in part, and re-borrow again at any time and from time to time, an
amount up to the amount of the Commitment less the outstanding amounts of
standby Letters of Credit issued by the Letter of Credit Bank (with such
Letters of Credit not to exceed a maximum of $1,000,000) for the benefit
of Borrowers (the "Revolving Loans"). Subject to the provisions of this
Agreement, the Revolving Loans shall become due and payab le in full on
January 31, 1998. The outstanding principal balance of the Revolving
Loans shall bear interest at a rate per annum which shall be the Base
Lending Rate from time to time in effect plus the Applicable Base Rate
Margin, or at a rate per annum which shall be equal to Adjusted LIBOR
plus the Applicable LIBOR Loan Margin.
6. Section 2.1(a)(v) of the Credit Agreement, as
amended, is amended and restated in its entirety as follows:
(v) ISSUANCE OF NOTES. The obligation of Borrowers to repay the
Revolving Loans made by each Bank to Borrowers and to pay interest on
such Revolving Loans shall be evidenced by the Revolving Loan Note s of
Borrowers dated March 1, 1994, as amended and restated by the Amen ded
and Restated Revolving Loan Notes substantially the form of EXHIBITS
(A)(1)-(3) attached to the Second Amendment to Credit Agreement dated
March 26, 1996, with appro- priate insertions, and payable to the order
of such Bank on January 31, 1998 in the principal amount of its Revolving
Loan Commi tment or, if less, the aggregate unpaid principal amount of
the Revolving Loans made to Borrowers by each Bank.
7. Section 2.1(b)(iv) of the Credit Agreement, as
amended, is amended and restated in its entirety as follows:
(iv) ISSUANCE OF ACQUISITION TERM LOAN NOTES. The obligation of
Borrowers to repay each Acquisition Term Loan made by each Bank to
Borrowers, and to pay interest on such Acquisition Term Loan, shall be
evidenced by an Acquisition Term Loan Note of Borrowers in substantially
the form of EXHIBITS (B)(1)-(3) attached to the Second Amendment to
Credit Agreement dated March 26, 1996, with appro- priate insertions,
dated the date such Acquisition Term Loan is made and payable to the
order of such Bank in the principal amount of such Bank's pro rata share
of such acquisition Term Loan (determined in accordance with SCHEDULE A).
The principal amount of such Acquisition Term Loan Note shall be repaid
in equal consecutive quarterly installments, commencing on the last day
of the third month following the month in which such Acqu isition Term
Loan is made to Borrowers, the amount of such quarterly p rincipal
payment to be determined by utilizing a four (4) year amortization
schedule; PROVIDED, however, that, subject to the provisions of this
Agreement, the unpaid principal balance outstanding on such Acquisition
Term Loan Note shall be due and payable on January 31, 1998.
<PAGE> 4
8. Section 2.1(c)(iv) of the Credit Agreement, as
amended, is amended and restated in its entirety as follows:
(iv) ISSUANCE OF THE PUREX DIVISION TERM LOAN NOTE. The obligation of
Borrowers to repay the Purex Division Term Loan made by each Ban k to
Borrowers, and to pay interest on such loan, shall be evidence d by the
Purex Division Term Loan Notes of Borrowers dated March 1, 1994, a s
amended and restated by the Amended and Restated Purex Division Term Loan
Notes in substantially the form of EXHIBITS (C)(1)-(3) attached to the
Second Amendment to Credit Agreement dated March 26, 1996, with
appropriate insertions and payable to the order of such Bank in the
principal amount of such Bank's pro rata share of such loan (determined
in accordance with SCHEDULE A). The principal amount of such note shall
be repaid in equal consecutive quarterly installments, commencing on the
last day of the third month following the month in which such loan is
made to Borrowers, the amount of such quarterly principal payment to be
determined by utilizing a seven (7) year amortization schedule; provided,
however, that, subject to the provisions of this Agreement, the unpaid
principal balance outstanding on such note shall be due and payable on
January 31, 1998.
9. Section 2.1(d) of the Credit Agreement, as
amended, is deleted in its entirety.
Section II. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWERS.
A. To the extent such representations, warranties and covenants pertain
to or are to be performed by Borrowers, all representations, warranties
and covenants in the Credit Agreement shall continue and be binding on
Borrower under this Second Amendment.
Section III. CONDITIONS PRECEDENT.
Borrowers acknowledge that the effectiveness of this Second Amendment is
subject to the receipt by Agent of the following documents on the date of this
Second Amendment, all in form and substance satisfactory to Agent and its
counsel:
A. The Second Amendment signed by a duly authorized officer of each
Borrower.
B. An executed copy of an Amended and Restated Revolving Loan Note
for each Revolving Loan of Borrowers in substantially the form of
EXHIBITS A(1)-(3) attached to this Second Amendment.
C. An executed copy of an Amended and Restated Purex Division Term
Loan Note for each Purex Division Term Loan of Borrowers in substantially
the form of EXHIBITS C(1)-(3) attached to this Second Amendment.
D. A certificate signed by a duly authorized officer of each
Borrower to the effect that:
<PAGE> 5
(a) As of the date hereof, no Possible Default exists.
(b) The representations and warranties of Borrowers set forth in the
Credit Agreement are true as of the date of this Second Amendment with
the same force and effect as i f made on the date of this Second
Amendment.
(C) Attached to such certificate is a certified copy of resolutions of
Members of the Board of Directors of each Borrower approving this Second
Amendment and all of the matters described in this Second Amendment, and
authorizing the execution, delivery and performance by each Borrower of
this Second Amendment and every other document required to be delivered
pursuant to this Second Amendment.
(d) Each Borrower's Articles (or Certificate) of Incorporation and Code
of Regulations (or Bylaws) have not been amended since the execution of
the Credit Agreement, and they continue to remain in full force and
effect as of the date of this Second Amendment.
(e) The officer signing certifies the incumbency and signatures of the
officers of each Borrower signing this Second Amendment and every other
document to be delivered pursuant to the Second Amendment.
E. Such other documents as Agent may reasonably request to implement
this Second Amendment and the transactions described in this Second
Amendment.
Section IV. APPLICABLE LAW.
This Second Amendment shall be deemed to be a contract under the laws of the
State of Ohio and, for all purposes, shall be construed in accordance with the
laws of such State.
Section V. COUNTERPARTS.
This Second Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any one
of the parties to this Second Amendment may execute this Second Amendment by
signing such counterpart.
IN WITNESS WHEREOF, the parties have caused this Second Amendment to be
executed by their duly authorized officers this 26th day of March, 1996.
<PAGE> 6
ESSEF CORPORATION PAC-FAB,INC.
By: By:
----------------------------- ----------------------------
Title: Title:
----------------------------- ----------------------------
SANFORD TECHNOLOGY CORPORATION HOBSON BROTHERS ALUMINUM
(f/k/a FAME Plastics, Inc.) FOUNDRY AND MOULD WORKS, INC.
By: By:
----------------------------- ----------------------------
Title: Title:
----------------------------- ----------------------------
ENPAC CORPORATION PUREX POOL SYSTEMS, INC.
By: By:
----------------------------- ----------------------------
Title: Title:
----------------------------- ----------------------------
NBD BANK, N.A. BRANCH BANKING AND TRUST COMPANY
By: By:
----------------------------- ----------------------------
Title: Title:
----------------------------- ----------------------------
SOCIETY NATIONAL BANK
SOCIETY NATIONAL BANK, AGENT
By: By:
----------------------------- ----------------------------
Title: Title:
----------------------------- ----------------------------
<PAGE> 1
Exhibit 10.14
-------------
ESSEF CORPORATION
EMPLOYEES' RETIREMENT PLAN
(October 1, 1995 Restatement)
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
ARTICLE I - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II - HOURS OF SERVICE. . . . . . . . . . . . . . . . . . 10
1. General Rule. . . . . . . . . . . . . . . . . . . . . . . 10
2. Limitations Applicable to Paragraph
(b) of Section 1. . . . . . . . . . . . . . . . . . . . . 12
3. Determination of Hours of Service
Under Paragraph (b) of Section 1. . . . . . . . . . . . . 12
4. Crediting of Hours of Service to
Computation Periods . . . . . . . . . . . . . . . . . . . 14
5. "Computation Period". . . . . . . . . . . . . . . . . . . 15
ARTICLE III - EMPLOYEE PARTICIPATION . . . . . . . . . . . . . . 15
1. Participation . . . . . . . . . . . . . . . . . . . . . . 15
2. Eligibility Dates . . . . . . . . . . . . . . . . . . . . 16
3. Election Relating to Deferred
Compensation Contributions. . . . . . . . . . . . . . . . 16
4. Years of Service. . . . . . . . . . . . . . . . . . . . . 17
5. Reemployment After Break in Service . . . . . . . . . . . 18
6. Certification of New Participants . . . . . . . . . . . . 18
7. Changes in Employment Status;
Transfers of Employment . . . . . . . . . . . . . . . . . 18
ARTICLE IV - BENEFICIARIES . . . . . . . . . . . . . . . . . . . 19
1. Designation of Beneficiary. . . . . . . . . . . . . . . . 19
2. Beneficiary in Absence of Designation . . . . . . . . . . 21
ARTICLE V - CONTRIBUTIONS MADE ON BEHALF OF PARTICIPANTS . . . . 21
1. Deferred Compensation Contributions . . . . . . . . . . . 21
2. Administration and Limitation . . . . . . . . . . . . . . 24
3. Changes in Reduction Authorizations . . . . . . . . . . . 25
4. Suspension of Contributions . . . . . . . . . . . . . . . 25
5. Distribution of Excess Contributions. . . . . . . . . . . 26
6. Distribution of Excess Deferrals. . . . . . . . . . . . . 27
7. Treatment of Employer Matching
Contributions Relating to Excess
Deferral or Contribution. . . . . . . . . . . . . . . . . 29
8. Nonforfeitability . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VI - OTHER EMPLOYER CONTRIBUTIONS. . . . . . . . . . . . 30
1. Amount of Contributions . . . . . . . . . . . . . . . . . 30
2. Payment of Contributions. . . . . . . . . . . . . . . . . 31
3. Limitation on Amount. . . . . . . . . . . . . . . . . . . 31
4. Profit-Sharing Plan . . . . . . . . . . . . . . . . . . . 31
5. Finality of Determination . . . . . . . . . . . . . . . . 31
6. Limitation on Matching Employer
Contributions for Highly Compensated
Employees . . . . . . . . . . . . . . . . . . . . . . . . 32
7. Forfeiture or Distribution of Excess
Matching Employer Contributions . . . . . . . . . . . . . 34
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE PAGE
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<S> <C>
8. Effect of Plan Termination. . . . . . . . . . . . . . . . 35
ARTICLE VII - ROLLOVER CONTRIBUTIONS . . . . . . . . . . . . . . 36
1. Rollover Contributions. . . . . . . . . . . . . . . . . . 36
2. Administration. . . . . . . . . . . . . . . . . . . . . . 36
3. Rollover Contributions Not Considered
for Certain Plan Purposes . . . . . . . . . . . . . . . . 37
ARTICLE VIII - DEPOSIT AND INVESTMENT OF CONTRIBUTIONS . . . . . 37
1. Deposit of Contributions. . . . . . . . . . . . . . . . . 37
2. Investment Elections. . . . . . . . . . . . . . . . . . . 37
ARTICLE IX - INVESTMENT FUNDS AND PARTICIPANTS' ACCOUNTS . . . . 39
1. Investment Funds. . . . . . . . . . . . . . . . . . . . . 39
2. Separate Accounts . . . . . . . . . . . . . . . . . . . . 40
3. Account Balances. . . . . . . . . . . . . . . . . . . . . 41
ARTICLE X - ALLOCATIONS TO ACCOUNTS AND VALUATIONS . . . . . . . 41
1. Allocation of Basic Employer
Contributions Among Participants. . . . . . . . . . . . . 41
2. Allocation of Regular Employer
Contributions and Forfeitures Among
Participants. . . . . . . . . . . . . . . . . . . . . . . 42
3. Allocation of Matching Employer
Contributions Among Participants. . . . . . . . . . . . . 44
4. Limitation on Crediting of
Contributions and Forfeitures . . . . . . . . . . . . . . 45
5. Valuation of Participant's Interest . . . . . . . . . . . 50
6. Finality of Committee's Determination . . . . . . . . . . 51
7. Notification. . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE XI - TERMINATION OF PARTICIPATION AND DISTRIBUTION . . . 52
1. Termination of Participation. . . . . . . . . . . . . . . 52
2. Vesting Schedule. . . . . . . . . . . . . . . . . . . . . 53
3. Distribution. . . . . . . . . . . . . . . . . . . . . . . 54
4. Years of Vested Service . . . . . . . . . . . . . . . . . 55
5. Election of Former Schedule . . . . . . . . . . . . . . . 55
6. Distribution. . . . . . . . . . . . . . . . . . . . . . . 56
7. Disposition of Non-vested Amounts . . . . . . . . . . . . 58
8. Effect of Committee's Determination . . . . . . . . . . . 59
9. Reemployment of Former Participant. . . . . . . . . . . . 59
10. Restrictions on Alienation. . . . . . . . . . . . . . . . 60
11. Facility of Payment . . . . . . . . . . . . . . . . . . . 60
12. Buy Back of Forfeited Amounts . . . . . . . . . . . . . . 61
13. Distribution Upon Certain Events. . . . . . . . . . . . . 62
ARTICLE XII - INSURANCE CONTRACTS. . . . . . . . . . . . . . . . 63
1. Purchase of Contracts . . . . . . . . . . . . . . . . . . 63
2. Payment of Premiums . . . . . . . . . . . . . . . . . . . 63
3. Insurance Companies . . . . . . . . . . . . . . . . . . . 63
4. Overriding Conditions and Limitations . . . . . . . . . . 64
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
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<S> <C>
5. Death Benefits. . . . . . . . . . . . . . . . . . . . . . 65
6. Other Distributions; Vesting. . . . . . . . . . . . . . . 65
7. Distribution, Sale and Surrender of
Contracts.. . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE XIII - WITHDRAWALS . . . . . . . . . . . . . . . . . . . 68
1. Withdrawal of Deferred Compensation
Contributions . . . . . . . . . . . . . . . . . . . . . . 68
2. Distribution of Deferred Compensation
Contributions After Attainment of Age
59 1/2. . . . . . . . . . . . . . . . . . . . . . . . . . 71
ARTICLE XIV - THE COMMITTEE. . . . . . . . . . . . . . . . . . . 71
1. Membership. . . . . . . . . . . . . . . . . . . . . . . . 71
2. Rules and Regulations . . . . . . . . . . . . . . . . . . 71
3. Authority of Committee and Employers. . . . . . . . . . . 72
4. Action of Committee . . . . . . . . . . . . . . . . . . . 73
5. Claims Review Procedure . . . . . . . . . . . . . . . . . 73
6. Resignation, Removal, and Designation
of Successors . . . . . . . . . . . . . . . . . . . . . . 75
7. Records . . . . . . . . . . . . . . . . . . . . . . . . . 75
8. Compensation. . . . . . . . . . . . . . . . . . . . . . . 75
9. Indemnification . . . . . . . . . . . . . . . . . . . . . 76
10. Qualified Domestic Relations Orders . . . . . . . . . . . 77
ARTICLE XV - INVESTMENT MANAGERS . . . . . . . . . . . . . . . . 77
ARTICLE XVI - AMENDMENT, TERMINATION, AND WITHDRAWAL . . . . . . 78
1. Amendment . . . . . . . . . . . . . . . . . . . . . . . . 78
2. Limitation on Amendment . . . . . . . . . . . . . . . . . 78
3. Termination . . . . . . . . . . . . . . . . . . . . . . . 79
4. Withdrawal of an Employer . . . . . . . . . . . . . . . . 80
5. Corporate Reorganization. . . . . . . . . . . . . . . . . 80
ARTICLE XVII - EXTENSION OF PLAN . . . . . . . . . . . . . . . . 80
1. Adoption by Related Corporations. . . . . . . . . . . . . 80
2. Special Provisions Relating to Hobson
Brothers Aluminum Foundry & Mould
Works, Inc. . . . . . . . . . . . . . . . . . . . . . . . 81
3. Special Provisions Relating to Purex
Pool Systems, Inc.. . . . . . . . . . . . . . . . . . . . 81
4. Special Provisions Relating to
Advanced Structures, Inc. . . . . . . . . . . . . . . . . 82
5. Special Provisions Relating to
Compool, Inc. . . . . . . . . . . . . . . . . . . . . . . 82
ARTICLE XVIII - TOP-HEAVY PROVISIONS . . . . . . . . . . . . . . 83
1. Applicability . . . . . . . . . . . . . . . . . . . . . . 83
2. Top-Heavy Definitions . . . . . . . . . . . . . . . . . . 84
3. Accelerated Vesting . . . . . . . . . . . . . . . . . . . 86
4. Minimum Employer Contribution . . . . . . . . . . . . . . 86
5. Adjustments to Section 415 Limitations. . . . . . . . . . 87
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
6. Compensation Taken Into Account . . . . . . . . . . . . . 88
ARTICLE XIX - MERGER OF ESSEF CORPORATION TAX CREDIT EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST . . . . . . . . . . . . . . . . . . . 88
1. Merger of the Plans and Trusts. . . . . . . . . . . . . . 88
2. Employer Stock Fund . . . . . . . . . . . . . . . . . . . 89
3. Separate Accounts . . . . . . . . . . . . . . . . . . . . 89
4. Administration and Valuation of ESOP
Accounts. . . . . . . . . . . . . . . . . . . . . . . . . 89
5. Adjustments to Tax Credit . . . . . . . . . . . . . . . . 90
6. Vested Interest of Participants . . . . . . . . . . . . . 91
7. Employer Stock Fund Dividends . . . . . . . . . . . . . . 91
8. Voting Shares . . . . . . . . . . . . . . . . . . . . . . 91
9. Distribution. . . . . . . . . . . . . . . . . . . . . . . 92
10. Special Diversification Distributions . . . . . . . . . . 94
11. Overriding Provision. . . . . . . . . . . . . . . . . . . 96
12. Right of First Refusal. . . . . . . . . . . . . . . . . . 97
13. "Put" Option. . . . . . . . . . . . . . . . . . . . . . . 98
14. Other Options . . . . . . . . . . . . . . . . . . . . . . 99
15. Nonterminable Protection and Rights . . . . . . . . . . . 99
16. Expenses. . . . . . . . . . . . . . . . . . . . . . . . .100
17. General Provisions. . . . . . . . . . . . . . . . . . . .101
18. Definitions . . . . . . . . . . . . . . . . . . . . . . .101
ARTICLE XX - MINIMUM DISTRIBUTION REQUIREMENTS . . . . . . . . .102
1. Overriding Provision. . . . . . . . . . . . . . . . . . .102
2. Required Beginning Date . . . . . . . . . . . . . . . . .102
3. Limits on Distribution Periods. . . . . . . . . . . . . .102
4. Distribution Beginning Before Death . . . . . . . . . . .102
5. Distribution Beginning After Death. . . . . . . . . . . .103
6. Death of Surviving Spouse . . . . . . . . . . . . . . . .104
7. Amounts Payable to Child. . . . . . . . . . . . . . . . .104
8. Commencement Date . . . . . . . . . . . . . . . . . . . .104
9. Definitions . . . . . . . . . . . . . . . . . . . . . . .104
10. Transitional Rule . . . . . . . . . . . . . . . . . . . .106
ARTICLE XXI - MERGER OF HOBSON BROTHERS MOULD PATTERN WORKS, LTD. SALARY
REDUCTION PROFIT SHARING PLAN AND TRUST. . . . . . . . . . . .108
1. Merger of Plans and Trusts. . . . . . . . . . . . . . . .108
2. Allocated Insurance Contracts . . . . . . . . . . . . . .109
3. Separate Accounts . . . . . . . . . . . . . . . . . . . .109
4. Special Sub-Accounts. . . . . . . . . . . . . . . . . . .110
5. Nonforfeitable Benefit. . . . . . . . . . . . . . . . . .110
6. Withdrawal of Rollover Contributions. . . . . . . . . . .110
ARTICLE XXII - SPECIAL DISTRIBUTION RULES. . . . . . . . . . . .111
ARTICLE XXIII - PARTICIPANT LOANS. . . . . . . . . . . . . . . .114
1. Application for Loans . . . . . . . . . . . . . . . . . .114
2. Repayment of Loans. . . . . . . . . . . . . . . . . . . .114
3. Interest. . . . . . . . . . . . . . . . . . . . . . . . .115
4. Collateral. . . . . . . . . . . . . . . . . . . . . . . .115
</TABLE>
(iv0
<PAGE> 6
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
ARTICLE XXIV - MISCELLANEOUS PROVISIONS. . . . . . . . . . . . 116
1. No Commitment as to Employment. . . . . . . . . . . . . 116
2. Benefits. . . . . . . . . . . . . . . . . . . . . . . . 116
3. No Guarantees . . . . . . . . . . . . . . . . . . . . . 116
4. Precedent . . . . . . . . . . . . . . . . . . . . . . . 116
5. Duty to Furnish Information . . . . . . . . . . . . . . 116
6. Withholding . . . . . . . . . . . . . . . . . . . . . . 117
7. Merger, Consolidation, or Transfer of
Plan Assets . . . . . . . . . . . . . . . . . . . . . . 117
8. Condition on Employer Contributions . . . . . . . . . . 117
9. Back Pay Awards . . . . . . . . . . . . . . . . . . . . 118
10. Validity of Plan. . . . . . . . . . . . . . . . . . . . 119
11. Parties Bound . . . . . . . . . . . . . . . . . . . . . 120
12. Leased Employee . . . . . . . . . . . . . . . . . . . . 120
13. Agents, Recordkeepers, Attorneys and
Accountants . . . . . . . . . . . . . . . . . . . . . . 121
ARTICLE XXV - DIRECT ROLLOVER. . . . . . . . . . . . . . . . . 121
1. Direct Rollover Election. . . . . . . . . . . . . . . . 121
2. Definitions . . . . . . . . . . . . . . . . . . . . . . 122
</TABLE>
(v)
<PAGE> 7
ESSEF CORPORATION
EMPLOYEES' RETIREMENT PLAN
(October 1, 1995 Restatement)
THIS AGREEMENT, made and entered into at Chardon, Ohio, this 1st day of
October, 1995, pursuant to resolution of the Board of Directors of ESSEF
CORPORATION, an Ohio corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company currently maintains in effect the ESSEF Corporation
Employees' Retirement Plan and Trust for the exclusive benefit of eligible
employees and their beneficiaries under a trust agreement amended and restated
effective as of October 1, 1989, as amended on five subsequent occasions; and
WHEREAS, it is deemed desirable further to amend and to restate the terms,
provisions, and conditions of said Plan, effective as of October 1, 1995, or as
otherwise set forth herein, as hereinafter set forth;
WHEREAS, the Company has entered into a separate trust agreement effective
October 19, 1995 with First National Bank of Ohio as trustee ("Trustee");
WHEREAS, it is deemed advisable to merge the Advanced Structures, Inc.
401(k) Plan into the Plan effective September 30, 1995; and
NOW, THEREFORE, the parties agree that, effective as of October 1, 1995,
or such other date as may be expressly provided herein with respect to a
particular provision, said Plan as previously amended, is hereby amended and
restated in its entirety to provide as hereinafter set forth, and that the
Trustee shall hold all assets presently held by it and all funds and other
property hereafter contributed to it pursuant to the provisions hereof, together
with all the increments,
<PAGE> 8
proceeds, investments, and reinvestments thereof, in trust, for the uses and
purposes and upon the terms and conditions hereinafter set forth.
ARTICLE I
DEFINITIONS
-----------
The following words and phrases as used herein shall have the following
meanings, unless a different meaning is plainly required by the context:
1. The "Act" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time. Reference to a section of the Act shall
include such section and any comparable section or sections of any future
legislation that amends, supplements, or supersedes such section.
2. The "Agreement" shall mean this Plan, including any amendment hereof.
3. The "Beneficiary" of a Participant, or of a former Participant, shall
mean the person or persons who, under the provisions of Article IV, shall be
entitled to receive distribution hereunder in the event such Participant or
former Participant dies before his interest shall have been distributed to him
in full.
4. A "Break in Service" shall mean any Plan year during which a person's
employment by an Employer or a related corporation results in his completing
less than 501 hours of service for such Employer or such related corporation or
during which a person completes no hours of service for such Employer or such
related corporation; provided, however, that no person shall incur a Break in
Service solely by reason of (i) temporary absence from work not exceeding 12
months resulting from illness, layoff, or other cause if authorized in advance
by an Employer or a related corporation pursuant to its uniform leave policy, if
his employment shall not otherwise be terminated during the period of such
absence; or (ii) absence
2
<PAGE> 9
from work due to military service in the Armed Forces of the United States, so
long as he returns to work with an Employer or a related corporation within the
period during which he retains reemployment rights under federal law.
5. The "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time. Reference to a section of the Code shall include such section and
any comparable section or sections of any future legislation that amends,
supplements, or supersedes such section.
6. The "Committee" shall mean the Committee established in accordance with
the provisions of Article XIV, at the time designated, qualified, and acting
hereunder.
7. The "Compensation" of a Participant for any Plan year shall mean the
base compensation, overtime pay, and cash bonus paid, or which would have been
paid except for the provisions of a salary reduction agreement pursuant to which
an Employer has made contributions that are not includible in gross income under
Section 125 or 402(a)(8) of the Code, during such Plan Year by an Employer for
the services of such Participant as an Employee while he is a Participant;
provided, however, that the Compensation of a Participant for a Plan Year shall
not include any amount in excess of $150,000 (subject to adjustment annually as
provided in Section 401(a)(17)(B) and Section 415(d) of the Code.) In
determining the Compensation of a Participant for purposes of this limitation,
the rules of Section 414(q)(6) of the Code shall apply, except in applying such
rules, the term "family" shall include only the spouse of the Participant and
any lineal descendants of the Participant who have not attained age 19 before
the close of the Plan Year. If as a result of applying the family aggregation
rule described in the preceding sentence the annual Compensation limitation
would be exceeded, the limitation shall be prorated among the affected family
3
<PAGE> 10
members in proportion to each member's Compensation determined prior to
application of the family aggregation rules.
8. The "Company" shall mean ESSEF Corporation (formerly known as ESSEF
Industries, Inc.), an Ohio corporation, its corporate successors and any
corporation into which it is merged or consolidated.
9. A "Deferred Compensation Contribution" shall mean, with respect to a
Participant, the percentage of Compensation by which such Participant has
elected to have his earnings reduced in accordance with the provisions of
Section 3 of Article III and which shall be contributed to the Plan on his
behalf by his Employer in accordance with the provisions of Section 1 of Article
V.
10. An "Eligibility Date" shall mean, with respect to any Employee, the
earliest date on which he may become a Participant under Article III.
11. An "Employee" shall mean any person who is employed by an Employer,
including for all Plan purposes except participating in the Plan and sharing in
Employer contributions, any "leased employee" as defined in Section 12 of
Article XXIV, except that the term shall not include (a) any person who renders
service to an Employer solely as a director or an independent contractor, (b)
any person covered by a collective bargaining agreement unless such agreement
specifically provides for coverage under the Plan, or (c) any person who is a
non resident alien (within the meaning of Section 7701(b)(1)(B) of the Code) and
who receives no earned income (within the meaning of Section 911(d)(2) of the
Code) from the Employer that constitutes income from sources within the United
States (within the meaning of Section 861(a)(3) of the Code).
12. An "Employer" shall mean the Company; Pac Fab,
4
<PAGE> 11
Inc., a Delaware corporation; for periods on and after March 1, 1989, Hobson
Brothers Aluminum Foundry & Mould Works, Inc., an Ohio corporation; for periods
on and after October 1, 1989, ENPAC Corporation, a Delaware corporation; for
periods on and after March 1, 1994, Purex Pool Systems, Inc., a Delaware
corporation; for periods on and after October 1, 1995, Advanced Structures,
Inc., an Ohio corporation and Compool Corporation, an Ohio corporation; and any
related corporation which adopts the Plan, as provided in section 1 of Article
XVII, so long as such related corporation has not withdrawn from the Plan.
13. An "Employer contribution" shall mean an amount contributed to the Plan
by an Employer in accordance with the provisions of Section 1 of Article VI,
which shall include such Employer's Matching Employer contribution, Basic
Employer contribution, and Regular Employer contribution as described therein.
14. A "Highly Compensated Employee" shall mean an Employee or former
Employee who is a highly compensated active employee or highly compensated
former employee as defined hereunder. A "highly compensated active employee"
includes any Employee who performs services for an Employer during the
determination year and who (i) was a five percent owner at any time during the
determination year or the look back year, (ii) received Compensation from an
Employer during the look back year in excess of $75,000 (subject to adjustment
annually at the same time and in the same manner as under Section 415(d) of the
Code), (iii) was in the top paid group of employees for the Plan Year and
received Compensation from an Employer during the look back year in excess of
$50,000 (subject to adjustment annually at the same time and in the same manner
as under Section 415(d) of the Code), (iv) was an officer of an Employer during
the look back year and received Compensation during that year in excess of 50
percent of the dollar
5
<PAGE> 12
limitation in effect for that year under Section 415(b)(1)(A) of the Code or, if
no officer received Compensation in excess of that amount for the look back year
or the determination year, received the greatest Compensation for the look back
year of any officer, or (v) was one of the 100 employees paid the greatest
Compensation by an Employer for the determination year and would be described in
(ii), (iii), or (iv) above if the term "determination year" were substituted for
"look back year". A "highly compensated former employee" includes any Employee
who separated from service with the Employers (or is deemed to have separated
from service with the Employers) prior to the determination year, performed no
services for an Employer during the determination year, and was a highly
compensated active employee for either the separation year or any determination
year ending on or after the date the Employer attains age 55. The determination
of who is a Highly Compensated Employee hereunder, including determinations as
to the number and identity of employees in the top paid group, the 100 employees
receiving the greatest Compensation from an Employer, the number of employees
treated as officers, and the Compensation considered, shall be made in
accordance with the provisions of Section 414(q) of the Code and regulations
issued thereunder. For purposes of this definition, the following terms shall
have the following meanings:
(a) The "determination year" means the Plan Year.
(b) The "look back year" means the 12-month period immediately
preceding the determination year.
15. An "Hour of Service" shall mean, with respect to any person, an hour
which is determined and credited as such in accordance with the provisions of
Article II.
16. An "Investment Fund" shall mean any separate
6
<PAGE> 13
investment trust fund maintained by the Trustee for the Plan and referred to in
Section 1 of Article IX.
17. A "Participant" shall mean a person who becomes eligible to participate
in the Plan in accordance with the provisions of Article III, and whose
participation has not been terminated.
18. The "Plan" shall mean the profit sharing retirement plan originally
established on September 29, 1972, as currently embodied in this Agreement,
which plan is called the "ESSEF Corporation Employees' Retirement Plan" (known
as the "ESSEF Corporation Employees' Profit-Sharing Retirement Plan" for certain
periods prior to October 1, 1989, and as the "ESSEF Industries, Inc. Employees'
Profit-Sharing Retirement Plan" for certain periods prior to July 1, 1986.)
19. "Plan Administrator", which is the administrator for purposes of the
Act and the plan administrator for purposes of the Code, shall mean the Company.
20. A "Plan Year" shall mean the 12-month period which ends on September 30
of each year; provided, that the term shall not include any such 12-month period
which ended prior to the effective date of the Plan.
21. A "Related Corporation" shall mean any corporation, other than an
Employer, which is a member of a controlled group of corporations of which an
Employer is a member as determined under Section 1563(a) of the Code, without
regard to Section 1563(a)(4) and Section 1563(e)(3)(C) of the Code, any trade or
business (whether or not incorporated) which is a member of a group under common
control with the Employer as determined under Section 414(c) of the Code, any
organization, other than an Employer, which is a member of an affiliated service
group of which the Employer is also a member as determined under Section 414(m)
of the Code and
7
<PAGE> 14
any entity, other than an Employer, which is required to be aggregated with an
Employer pursuant to regulations under Section 414(o) of the Code.
22. A "Rollover Contribution" shall mean an amount contributed to the Plan
by a Participant in accordance with the provisions of Section 1 of Article VII.
23. A "Separate Account" shall mean any of the accounts maintained by the
Trustee in the name of a Participant in the Trust, and shall include his
Employer Regular account, his Employer Matching account, his Deferred
Compensation account-A, his Deferred Compensation account-B, and his Rollover
account as provided in Section 2 of Article IX, his ESOP account, as provided in
Section 4 of Article XIX, and his Hobson account, as provided in Section 4 of
Article XXI.
24. A "Settlement Date" shall mean the date upon which a Participant ceases
to be such, as set forth in Section 1 of Article XI.
25. The "Trust" shall mean the trust originally established on September
29, 1972, as currently set forth effective+ October 1, 1995 in the trust
agreement by and between the Company and First National Bank of Ohio, and shall
include each Investment Fund, the Employer Stock Fund, and any insurance
contracts held hereunder, which trust is called the "ESSEF Corporation
Employees' Retirement Trust" (known as the "ESSEF Corporation Employees'
Profit-Sharing Retirement Trust" for certain periods prior to October 1, 1989,
and as the "ESSEF Industries, Inc. Employees' Profit-Sharing Retirement Trust"
for certain periods of time prior to July 1, 1986).
26. The "Trustee" shall mean First National Bank of Ohio or any predecessor
or successor trustee which at the time shall be designated, qualified, and
acting under a trust agreement with the Company.
8
<PAGE> 15
27. A "Valuation Date" shall mean such dates as established by the
Committee, not less frequently than the last day of each calendar quarter.
The masculine pronoun wherever used herein shall include the feminine in
any case so requiring.
ARTICLE II
HOURS OF SERVICE
----------------
1. GENERAL RULE. An "Hour of Service" with respect to any person shall mean
(a) each hour for which he is paid, or entitled to payment, for the
performance of duties for an Employer or a Related Corporation during the
applicable computation period; provided, however, that hours paid for at a
premium rate shall be treated as straight-time hours;
(b) subject to the provisions of Section 2 of this Article II, each hour
for which he is paid, or entitled to payment, by an Employer or a Related
Corporation on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship has terminated)
due to vacation, holiday, illness, incapacity (including disability), layoff,
jury duty, military duty, or leave of absence; and
(c) each hour for which back pay, irrespective of mitigation of damages,
is either awarded or agreed to by an Employer or a Related Corporation;
provided, however, that the same Hour of Service shall not be credited both
under paragraph (a) or (b) of this Section 1, as the case may be, and under
this paragraph (c); and provided, further, that the crediting of hours of
service for back pay awarded or agreed to with respect to periods described in
such paragraph (b) shall be subject to the limitations set forth therein and in
Section 2 of this Article II.
Notwithstanding the foregoing and solely for purposes of determining whether a
person, who is absent from employment with an Employer or a Related Corporation
beginning on or after October 1, 1985, (i) by reason of the person's pregnancy,
(ii) by reason of the birth of the person's child, (iii) by reason of the
placement of a child with the person in connection with the person's adoption of
the child, or (iv) for purposes of caring for such child
9
<PAGE> 16
during the period immediately following birth or adoption, has incurred a Break
in Service, hours of service shall include those hours with which such person
would otherwise have been credited but for such absence, or shall include eight
hours of service for each day of absence if the actual hours to be credited
cannot be determined; except that not more than 501 hours are to be credited by
reason of any such pregnancy, birth, placement or period of such child care. Any
hours included as hours of service pursuant to the immediately preceding
sentence shall be credited to the computation period in which the absence from
employment begins, if such person otherwise would incur a Break in Service in
such computation period, or in any other case, to the immediately following
computation period; except that no such credit will be given unless the person
furnishes to the Plan Administrator such timely information as may reasonably be
required to establish that the absence from employment was for one of the
reasons enumerated in the immediately foregoing sentence, and the number of days
for which there was such an absence.
2. LIMITATIONS APPLICABLE TO PARAGRAPH (B) OF SECTION 1. In the application
of the provisions of paragraph (b) of Section 1 of this Article II, the
following provisions shall apply:
(a) No more than 501 hours of service shall be credited under such
paragraph (b) to a person on account of any single continuous period during
which he performs no duties (whether or not such period occurs in a single
computation period).
(b) An hour for which a person is directly or indirectly paid, or
entitled to payment, on account of a period during which no duties are
performed shall not be credited to him if such payment is made or due under a
plan maintained solely for the purpose of complying with applicable Workers'
Compensation, unemployment compensation, or disability insurance laws.
(c) Hours of service shall not be credited with respect to a payment
which solely reimburses a person for medical or medically related expenses
incurred by him.
(d) For purposes of such paragraph
10
<PAGE> 17
(b), a payment shall be deemed to be made by or due from an Employer or a
Related Corporation (i) regardless of whether such payment is made by or
due from such employer directly or indirectly, through (among others) a
trust fund or insurer to which any such employer contributes or pays
premiums, and (ii) regardless of whether contributions made or due to such
trust fund, insurer, or other entity are for the benefit of particular
persons or are on behalf of a group of persons in the aggregate.
3. DETERMINATION OF HOURS OF SERVICE UNDER PARAGRAPH (B) OF SECTION 1. In
the case of a payment which is made or due on account of a period during which a
person performs no duties, and which results in the crediting of hours of
service under paragraph (b) of Section 1 of this Article II, or in the case of
an award or agreement for back pay, to the extent that such award or agreement
is made with respect to a period described in such paragraph (b), the number of
hours of service to be credited shall be determined in accordance with the
following provisions:
(a) Except as provided in paragraph (d) of this Section 3, in the case of
a payment made or due which is calculated on the basis of units of time, such
as hours, days, weeks, or months, the number of hours of service to be
credited shall be the number of regularly scheduled working hours included in
the units of time on the basis of which the payment is calculated. For
purposes of the preceding sentence, in the case of a person without a regular
work schedule, the number of hours to be credited shall be calculated on the
basis of a 40-hour workweek and an eight-hour workday.
(b) Except as provided in such paragraph (d), in the case of a payment
made or due which is not calculated on the basis of units of time, the number
of hours of service to be credited shall be equal to the amount of the payment
divided by the person's most recent hourly rate of compensation (as determined
under paragraph (c) of this Section 3) before the period during which no
duties are performed.
(c) For purposes of paragraph (b) of this Section 3 a person's hourly
rate of compensation shall be determined in accordance with the following
provisions:
(i) In the case of a person whose compensation is determined on the basis
of an hourly rate, such hourly rate shall be such person's most recent hourly
rate of compensation.
(ii) In the case of a person whose compensation is determined on the
basis of a fixed rate for specified periods of time (other than hours) such as
days,
11
<PAGE> 18
weeks, or months, such person's hourly rate of compensation shall be his
most recent rate of compensation for a specified period of time (other than
an hour), divided by the number of hours regularly scheduled for the
performance of duties during such period of time. For purposes of the
preceding sentence, in the case of a person without a regular work
schedule, such person's hourly rate of compensation shall be calculated on
the basis of a 40-hour workweek and an eight-hour workday.
(iii) In the case of a person whose compensation is not determined on the
basis of a fixed rate for specified periods of time, such person's hourly
rate of compensation shall be the lowest hourly rate of compensa tion paid
to persons in the same job classification as that of such pers on or, if no
one in the same job classification has an hourly rate, the minimum wage as
established from time to time under Section 6(a)(1) of the Fair Labor
Standards Act of 1938, as amended.
(d) Notwithstanding the provisions of paragraphs (a) and (b) of this
Section 3, a person shall not be credited on account of a period during
which no duties are performed with a number of hours of service which is
greater than the number of hours regularly scheduled for the performance of
duties during such period. For purposes of applying the preceding sentence
in the case of a person without a regular work schedule, the number of
hours of service to be credited to such person for a period during which no
duties are performed shall be calculated on the basis of a 40-hour workweek
and an eight-hour workday.
4. CREDITING OF HOURS OF SERVICE TO COMPUTATION PERIODS. Hours of service
determined under Section 1 of this Article II shall be credited to the
appropriate computation period in accordance with the following provisions:
(a) Hours of service described in paragraph (a) of such Section 1
shall be credited to the computation period in which the duties are
performed.
(b) Hours of service described in paragraph (b) of such Section 1
shall be credited as follows:
(i) hours of service credited to a person on account of a payment
which is calculated on the basis of units of time, such as hours, days,
weeks, or months, shall be credited to the computation period or periods in
which the period during which no duties are performed occurs, beginning
with the first unit of time to which the payment relates; and
(ii) hours of service credited to a person on account of a payment
which is not calculated on the basis of units of time shall be credited to
the computation period in which the period during which no duties are
performed occurs, or, if the period during which no duties are performed
12
<PAGE> 19
extends beyond one computation period, such hours of service shall be
allocated equally between the first two such computation periods.
(c) Hours of service described in paragraph (c) of such Section 1 shall
be credited to the computation period or periods to which the award or
agreement for back pay pertains, rather than to the computation period in
which the award, agreement, or payment is made.
(d) Notwithstanding the provisions of this Section 4, in the case of
hours of service to be credited to a person in connection with a period of no
more than 31 days which extends beyond one computation period, all such hours
of service shall be credited to the second such computation period.
5. "COMPUTATION PERIOD". For purposes only of this Article II, a
"computation period", with respect to the determination of an Employee's years
of vested service, shall mean a Plan Year, and, with respect to the
determination of a person's years of service, shall mean the 12-month period
commencing on the first date he completes an Hour of Service or a Plan Year
beginning after the date he completes his first Hour of Service, as the case may
be.
ARTICLE III
EMPLOYEE PARTICIPATION
----------------------
1. PARTICIPATION. Each Employee who was a Participant on September 30,
1994, shall continue as a Participant hereunder. Each other Employee shall
become a Participant on the earliest Eligibility Date occurring on or after
October 1, 1995, on which he has attained age 21 and has satisfied either of the
following eligibility requirements:
(a) completion of six months of full-time employment with an
Employer without interruption, or
(b) completion of one year of service.
For purposes of paragraph (a) of this Section 1, an Employee shall be deemed to
be employed on a full-time basis only if his customary employment contemplates
his completion of at least 1,000 hours of service in a Plan Year.
13
<PAGE> 20
2. ELIGIBILITY DATES. An Employee shall become a Participant as of the
first January 1, April 1, July 1, or October 1 coincident with or following the
first date on which the Employee has satisfied the age and service eligibility
requirements specified in Section 1 of this Article III.
3. ELECTION RELATING TO DEFERRED COMPENSATION CONTRIBUTIONS. During any
month of December, March, June or September including or occurring after the
date on which a Participant has satisfied the eligibility requirements specified
in Section 1 of this Article III, such Participant may file with the Committee a
written election with respect to a Compensation reduction authorization on a
form prescribed by the Committee, which authorizes his Employer to make Deferred
Compensation Contributions on his behalf in accordance with the provisions of
Section 1 of Article V, effective for the first payroll period ending on or
after the January 1, April 1, July 1, or October 1 first following receipt of
such election by the Committee, as the case may be.
4. YEARS OF SERVICE. For the purpose only of applying the eligibility
requirements set forth in Section 1 of this Article III, years of service shall
be determined in accordance with the following provisions:
(a) An Employee will be credited with a year of service if, as of the end
of the 12-month period commencing on the first date he completes an Hour of
Service, he has completed at least 1,000 hours of service. If an Employee
fails to complete 1,000 hours of service during this 12-month period, he will
be credited with a year of service for the first Plan Year (beginning after
the date he completes his first Hour of Service) in which he completes at
least 1,000 hours of service. He shall be credited with an additional year of
service for each Plan Year, including the Plan Year in which such 12-month
period terminated, in which he completes at least 1,000 hours of service.
(b) In the case of an Employee who has a Break in Service,
14
<PAGE> 21
(i) if an Employee did not have a non-forfeitable right to any
portion of any Employer derived Separate Account before his Break in
Service commenced, his years of service prior to the Break in Service shall
be disregarded for purposes of determining his eligibility if the number of
his consecutive breaks in service equals or exceeds the greater of five or
the aggregate number of years of service such Employee had before his Break
in Service commenced; and
(ii) if his years of service are not excluded under (i) above or if he
had a nonforfeitable right to any portion of any Employer derived Separate
Account before his Break in Service commenced, his years of service before
the Break in Service commenced will be reinstated upon his again completing
an Hour of Service as an Employee.
Notwithstanding the foregoing provisions of this paragraph (b), however, in
no event shall any years of service be taken into account for purposes of
determining eligibility by reason of amendments made to this paragraph (b)
to comply with the Retirement Equity Act of 1984, if such years of service
would not have been taken into account for such purpose on September 30,
1985, under the provisions of this paragraph (b) in effect on such date.
5. REEMPLOYMENT AFTER BREAK IN SERVICE. If an Employee who incurs a Break
in Service after his employment is terminated is thereafter reemployed as an
Employee and if his years of service prior to such Break in Service are
reinstated under paragraph (b)(ii) of Section 4 of this Article III, he shall
become a Participant or again become a Participant, as the case may be, on the
date such service is reinstated. If a former Employee who incurs a Break in
Service after his employment is terminated is thereafter reemployed as an
Employee and if he does not become a Participant immediately upon his completing
an Hour of Service as an Employee in accordance with the preceding provisions of
this Section 5, he shall become a Participant or again become a Participant, as
the case may be, on the earliest Eligibility Date indicated in Section 2 of this
Article III with respect to which he meets the eligibility requirements
indicated in Section 1 of this Article III based on his period of reemployment.
6. CERTIFICATION OF NEW PARTICIPANTS. As soon as practicable after each
Eligibility Date, each Employer shall transmit to the
15
<PAGE> 22
Company, the Trustee, and the Committee a certified list of all Employees
becoming Participants on such date. Each Employee so certified shall be notified
of such fact by his Employer. Upon becoming a Participant hereunder, an Employee
shall become entitled to the benefits under the Plan and shall be bound by all
provisions of this Plan.
7. CHANGES IN EMPLOYMENT STATUS; TRANSFERS OF EMPLOYMENT. If a Participant
ceases to be an Employee but continues in the employment of (i) an Employer in
some other capacity, or (ii) a Related Corporation, he shall nevertheless
continue as a Participant until his participation is otherwise terminated in
accordance with the provisions of this Plan; provided, however, that such
Participant shall share in any Employer contributions and forfeitures for any
Plan Year of such participation only to the extent and on the basis of his
Compensation for services as an Employee or on the basis of Deferred
Compensation Contributions made on his behalf during such Plan Year, as the case
may be; and provided, further, that no Deferred Compensation Contributions shall
be made on behalf of such Participant in accordance with the terms of his
Compensation reduction authorization except on the basis of his Compensation for
services as an Employee during such Plan Year. Moreover, if a person is
transferred directly from employment (i) with an Employer in a capacity other
than as an Employee or (ii) with a Related Corporation, to employment with an
Employer as an Employee, his service with such Employer or such Related
Corporation shall be included in determining his eligibility under Section 1 of
this Article III.
ARTICLE IV
BENEFICIARIES
-------------
1. DESIGNATION OF BENEFICIARY. In the case of a Participant or former
Participant who is not married, the Beneficiary to whom
16
<PAGE> 23
distribution shall be made hereunder in the event such Participant or former
Participant dies before his interest shall have been distributed to him in full
shall be such person or persons as designated by the Participant or former
Participant. In the case of a Participant or former Participant who is married,
the Beneficiary to whom distribution shall be made hereunder in the event such
Participant or former Participant dies before his interest shall have been
distributed to him in full shall be his surviving spouse, if any, or alternately
such person or persons as designated by the Participant or former Participant,
provided that such designation has been consented to in writing by the surviving
spouse, if any, of such Participant or former Participant. To be effective, any
such consent must acknowledge the effect of such action and be witnessed by a
notary public or a Plan representative, unless a Plan representative finds that
such consent cannot be obtained because the spouse cannot be located or because
of other circumstances set forth in Section 417(a)(2) of the Code and
regulations issued thereunder. A designation of Beneficiary hereunder may be
changed at any time and from time to time by the Participant or former
Participant, provided that such change of designation has been consented to in
the manner described above by the surviving spouse, if any, of such Participant
or former Participant. Any such designation or change of designation, with
spousal consent when necessary, shall be made in writing in the form prescribed
by the Committee, and shall become effective only when filed by the Participant
or former Participant with the Committee; provided, however, that any such
designation or change of designation which is received by the Committee after
the death of the Participant or former Participant shall be disregarded.
2. BENEFICIARY IN ABSENCE OF DESIGNATION. If a deceased Participant or
former Participant has no surviving spouse and if either no Beneficiary for such
Participant or former Participant shall have
17
<PAGE> 24
been designated or all those designated as his Beneficiary shall have died prior
to the death of such Participant or former Participant, then the Beneficiary
shall be the estate of such Participant or former Participant. If any
Beneficiary shall die after becoming entitled to receive distribution hereunder
and before such distribution is made in full, and if no other person or persons
shall have been designated to receive the balance of such distribution upon the
happening of such contingency, the estate of such deceased Beneficiary shall
become the Beneficiary as to such balance.
ARTICLE V
CONTRIBUTIONS MADE ON BEHALF OF PARTICIPANTS
--------------------------------------------
1. DEFERRED COMPENSATION CONTRIBUTIONS. Commencing with the first payroll
period with respect to which a Participant has made an election described in
Section 3 of Article III, each Participant may elect to have a Deferred
Compensation Contribution made to the Plan by his Employer which shall be a
percentage of his Compensation of not less than one percent nor more than twelve
percent; provided, however, that the Deferred Compensation Contribution to be
made on behalf of a Participant shall not, when aggregated with all other
elective deferrals made on behalf of the Participant under any other plan,
contract, or arrangement of an Employer or a Related Corporation exceed the
"applicable limit" for the Participant's taxable year beginning in the calendar
year. The "applicable limit" for a Participant's taxable year beginning the 1987
calendar year is $7,000 and for each subsequent calendar year is an adjusted
amount established by the Secretary of Treasury pursuant to Section 402(g)(5) of
the Code. In the event a Participant elects to have his Employer make any
Deferred Compensation Contribution on his behalf, the Compensation of such
Participant shall be reduced for each payroll period by the percentage he
elected to have contributed on his behalf to the Plan in accordance with the
terms of the Compensation reduction authorization in
18
<PAGE> 25
effect for such Participant pursuant to this Section 1 and Section 3 of Article
III or Section 3 of this Article V, as the case may be, except that if the
Company determines that a Compensation reduction authorization by a Participant
will result in his exceeding the annual limitation described above, the Company
shall adjust the Compensation reduction authorization of such Participant to
such smaller percentage as will result in the annual limitation not being
exceeded. Notwithstanding any other provision in this Plan to the contrary, no
Deferred Compensation contributions made with respect to a Plan Year on behalf
of Participants who are Highly Compensated Employees shall result in an average
actual deferral percentage for such Participants which exceeds the greater of:
(a) a percentage which is equal to 125 percent of the average actual
deferral percentage for all other Participants; or
(b) a percentage which is not more than 200 percent of the average
actual deferral percentage for all other Participants and which is not more
than two percentage points higher than the average actual deferral
percentage for all other Participants.
The Company shall adjust as required the projected actual deferral
percentages of Highly Compensated Employees by reducing such percentages in
order, beginning with the highest of such percentages, to such smaller
percentages that will result in the limits set forth above not being exceeded.
The Company shall then adjust the Compensation reduction authorizations of
affected Highly Compensated Employees to reflect the adjustment made to their
actual deferral percentages. For purposes of this Section 1, the following terms
shall have the following meanings, and further subject to the limitations of
Section 401(a)(17) of the Code.
(c) The term "Compensation" means Compensation as defined in Section
414(s) of the Code, including any amount contributed by the Employers
pursuant to a salary reduction agreement that is not includible in the
gross income of an Employee under Section 125, 402(a)(8), 402(h), or 403(b)
of the Code, and further subject to the limitations of Section
19
<PAGE> 26
401(a)(17) of the Code.
(d) The term "actual deferral percentage" with respect to a
Participant for a Plan Year means the ratio of the Deferred Compensation
Contributions made on his behalf with respect to the Plan Year to his
Compensation for such Plan Year, except that, to the extent permitted by
regulations promulgated by the Secretary of the Treasury, the Company may
elect to take into account in computing the numerator of each Participant's
actual deferral percentage the Basic Employer contributions (as defined in
paragraph (a) of Section 1 of Article VI) made on his behalf for the Plan
Year.
(e) The term "Family Member" with respect to a Participant means the
Participant's spouse, his lineal ascendants, his lineal descendants, and
the spouses of such lineal ascendants and descendants.
For purposes of applying the limitation contained in this Section 1, the
Deferred Compensation Contributions, Basic Employer contributions, and
Compensation of any Participant who is a Family Member of a Participant who is
(i) a five percent owner or (ii) among the ten Highly Compensated Employees
receiving the greatest Compensation for the Plan Year, shall be aggregated with
the Deferred Compensation Contributions, Basic Employer contributions, and
Compensation of such five percent owner or Highly Compensated Employee
Participant, and such Family Member shall not be considered a Participant for
purposes of determining the average actual deferral percentage for all other
Participants.
(1) ADMINISTRATION AND LIMITATION. Each Employer shall cause to be
delivered to the Trustee all Deferred Compensation Contributions made in
accordance with the provisions of Section 1 of this Article V as soon as
reasonably practicable, but not later than 30 days after the last day of the
calendar month in which ends the payroll period with respect to which such
Deferred Compensation Contributions are made; provided, however, that each
Employer's contribution hereunder for any Plan Year shall not exceed the
limitation specified in Section 3 of Article VI. Subject to the provisions of
Article VIII, the Committee shall credit the amount of Deferred Compensa-
20
<PAGE> 27
tion Contributions made by each Employer on behalf of a Participant to such
Participant's Deferred Compensation account
2. CHANGES IN REDUCTION AUTHORIZATIONS. During any month of December,
March, June, or September a Participant may change the percentage of his
Compensation which he causes to be contributed on his behalf as Deferred
Compensation Contributions by filing an amended Compensation reduction
authorization with the Committee, effective for the first payroll period ending
on or after the January 1, April 1, July 1, or October 1 first following receipt
of such amended Compensation reduction authorization by the Committee, as the
case may be; provided, however, that he shall be limited to selecting a
percentage of his Compensation of not less than one percent nor more than twelve
percent. Deferred Compensation Contributions shall be made on behalf of such
Participant by his Employer, pursuant to the amended Compensation reduction
authorization filed in accordance with the foregoing provisions of this Section
3, commencing with the first payroll period for which such filing becomes
effective, until otherwise altered or terminated in accordance with this Plan.
3. SUSPENSION OF CONTRIBUTIONS. Any Participant for whom Deferred
Compensation Contributions are being made under this Article V may have
suspended such contributions at any time by giving at least 15 days advance
written notice to the Committee, unless the Committee shall accept as adequate
shorter notice. Any suspension which results in the cessation of Deferred
Compensation Contributions shall take effect no later than with the first
payment of Compensation to such Participant following the expiration of the
15-day notice period and shall remain in effect until Deferred Compensation
Contributions are resumed as hereinafter set forth. Any Participant who has
suspended his Deferred Compensation Contributions in accordance with the
foregoing provisions of this Section 4 may have such
21
<PAGE> 28
contributions resumed only by filing a new Compensation reduction authorization
with the Committee during any month of December, March, June, or September, in
which event such contributions shall be resumed effective for the first payroll
period ending on or after the January 1, April 1, July 1, or October 1 first
following receipt of such Compensation reduction authorization by the Committee.
4. DISTRIBUTION OF EXCESS CONTRIBUTIONS. Notwithstanding any other
provision of this Plan to the contrary, in the event that the limitation
contained in Section 1 of this Article V is exceeded in any Plan Year, the
excess Deferred Compensation Contributions with respect to a Highly Compensated
Employee, plus any allocable income for the Plan Year, shall be charged against
his interest in the various Investment Funds in which such amounts are invested
in accordance with procedures adopted by the Committee and shall be distributed
to the Highly Compensated Employee prior to the end of the succeeding Plan Year.
The income allocable to excess Deferred Compensation Contributions shall be
determined by multiplying the gain or loss allocable for the Plan Year to the
Deferred Compensation Contributions made on behalf of the Participant (and Basic
Contributions treated as elective contributions for purposes of Section 1 of
this Article V for the Plan Year) by a fraction the numerator of which is the
amount of the Participant's excess Deferred Compensation Contributions and the
denominator of which is the sum of (a) the balance of the Participant's Deferred
Compensation Contribution Account-A (and Deferred Compensation Contribution
Account-B, to the extent such amounts have been treated as elective
contributions for purposes of Section 1 of this Article V) as of the beginning
of the Plan Year, plus (b) the Deferred Compensation Contributions made on
behalf of the Participant and Basic Contributions treated as elective
contributions for purposes of Section 1 of Article V for the Plan Year. For
22
<PAGE> 29
purposes of this Section 5, "excess Deferred Compensation Contributions" with
respect to a Highly Compensated Employee means the excess of the Deferred
Compensation Contributions made on his behalf over the maximum amount permitted
to be contributed on his behalf under Section 2 of this Article V, determined by
reducing Deferred Compensation Contributions made on behalf of Highly
Compensated Employees in order of their actual deferral percentages beginning
with the highest of such percentages. The amount of excess Deferred Compensation
Contributions for a Plan Year shall be reduced by any excess deferrals as
defined in Section 6 of this Article V previously distributed to the Highly
Compensated Employee for the Highly Compensated Employee's taxable year ending
with or within such Plan Year.
5. DISTRIBUTION OF EXCESS DEFERRALS. Notwithstanding anything to the
contrary contained in this Plan, in the event that a Participant notifies the
Company in writing no later than the first March 1 following the close of his
taxable year that excess deferrals have been made on his behalf under the Plan
for such taxable year, such excess amounts, plus any income allocable for the
taxable year, shall be charged against his interest in the various Investment
Funds in which such amounts are invested in accordance with procedures adopted
by the Committee and shall be distributed to the Participant no later than the
April 15 immediately following such taxable year. For purposes of this Section
6, "excess deferrals" means that portion of a Participant's Deferred
Compensation Contributions that, when added to amounts deferred under other
plans or arrangements described in Sections 401(k), 408(k) or 403(b) of the
Code, would exceed the limit imposed on the Participant under Section 402(g) of
the Code for the taxable year of the Participant in which the Deferred
Compensation Contributions were made. In the event that a Participant's
aggregate elective deferrals under all plans of the Employers and all Related
23
<PAGE> 30
Corporations exceed the applicable limit under Section 402(g) of the Code for
the taxable year, the Participant, no later than the first March 1 following the
close of such taxable year shall be deemed to have designated the allocation of
the excess deferrals among the Plan and any other plan of an Employer or a
Related Corporation under which the elective deferrals occurred and shall be
deemed to have notified each plan of the portion allocated to it, which shall be
the excess deferrals multiplied by a fraction the numerator of which is the
Participant's elective deferrals for the taxable year under the plan and the
denominator of which is the Participant's elective deferrals for the taxable
year, and the Company, not later than the first April 15 following the close of
the taxable year, shall direct distribution to the Participant of the amount of
the excess elective deferrals allocated to the Plan and any income allocable
thereto for the taxable year; provided, however, that any such distributed
excess elective deferrals shall nevertheless be taken into account for purposes
of computing deferral percentages for the Plan Year in which made under Section
1 of this Article V, but with respect only to Highly Compensated Employees. The
income allocable to excess deferrals under the Plan shall be determined in the
manner set forth in Section 5 of this Article V, but substituting "taxable year"
for Plan Year and "excess deferrals" for excess Deferred Compensation
Contributions and deleting references to amounts other than elective deferrals
which have been treated as elective contributions for purposes of Section 1 of
Article V. The amount of excess deferrals for a taxable year under this Section
6 shall be reduced by any excess Deferred Compensation Contributions as defined
in Section 5 of this Article V previously distributed with respect to the
Participant for the Plan Year beginning with or within such taxable year.
6. TREATMENT OF EMPLOYER MATCHING CONTRIBUTIONS
24
<PAGE> 31
RELATING TO EXCESS DEFERRAL OR CONTRIBUTION. Notwithstanding anything to the
contrary contained in this Plan, if any portion of the Employer Matching
contribution is allocated to a Participant in accordance with Section 3 of
Article X and if the Deferred Compensation Contribution made on behalf of such
Participant to which such Employer Matching contribution allocation relates is
treated as an excess Deferred Compensation Contribution under Section 5 of this
Article V or as an excess deferral under Section 6 of this Article V, such
Employer Matching contribution allocation shall thereupon be forfeited by such
Participant and shall be applied against the Matching Employer contribution
obligation of his Employer for the Plan Year in which the forfeiture occurs, in
the manner described in Section 7 of Article XI.
7. NONFORFEITABILITY. Deferred Compensation Contributions and Basic
Employer Contributions (as defined in paragraph (a) of Section 1 of Article VI)
shall be fully vested at all times.
ARTICLE VI
OTHER EMPLOYER CONTRIBUTIONS
----------------------------
1. AMOUNT OF CONTRIBUTIONS. Each Employer shall contribute for each month,
beginning on or after October 1, 1995, the amount determined with respect to
Employees of such Employer which is necessary to fund matching allocations
described under Section 3 of Article X for such month; subject to reduction by
any forfeitures with respect to Employees of such Employer as provided in
Section 7 of this Article VI (such amount being hereinafter referred to as such
Employer's "Matching Employer contribution"). In addition, each Employer shall
contribute for each Plan Year beginning on or after October 1, 1995, an amount
equal to the sum of:
(a) two percent of the Compensation for such Plan Year paid by such
Employer to each Participant included on the list described in Section 1 of
Article X for such Plan Year (such amount being hereinafter referred to as
such Employer's "Basic Employer contribution"); and
25
<PAGE> 32
(b) such additional amount, if any, as the Board of Directors of the
Company shall determine by action specifying the amount of such
contribution and the Plan Year for which it is being made (such amount
being hereinafter referred to as such Employer's "Regular Employer
contribution").
2. PAYMENT OF CONTRIBUTIONS. Each Employer contribution for any Plan Year
shall be paid in cash to the Trustee. Each Employer contribution for such Plan
Year, regardless of when actually paid, shall for purposes of Trust accounting
and reporting be deemed to have been made on the last day of such Plan Year.
Upon receipt of any such contribution, the Trustee shall deposit the same in the
Investment Funds as further described in Section 1 of Article VIII for
investment pursuant to the investment elections of the Participants whose
accounts are allocated a portion of such contribution.
3. LIMITATION ON AMOUNT. Notwithstanding anything to the contrary contained
in this Plan, the total contribution of any Employer for any Plan Year,
including Deferred Compensation Contributions made on behalf of Employees, shall
in no event exceed (i) the maximum amount which will constitute an allowable
deduction for such year to such Employer under Section 404 of the Code, (ii) the
maximum amount which may be contributed by such Employer under Section 415 of
the Code, or (iii) the maximum amount which may be contributed pursuant to any
wage stabilization law, or any regulation, ruling, or order issued pursuant to
law.
4. PROFIT-SHARING PLAN. An Employer may contribute to the Plan without
regard to current or accumulated earnings and profits for the taxable year or
years ending with or within the Plan Year. Notwithstanding the foregoing, the
Plan shall continue to be designed to qualify as a profit-sharing plan under the
Code.
5. FINALITY OF DETERMINATION. The Company shall have exclusive
responsibility with respect to determining the amount of
26
<PAGE> 33
Employer contributions and, upon determining the amount of the contribution to
be made by each Employer for a Plan Year, shall transmit to the Trustee and to
the Committee a written statement of the amount thereof, together with a
certificate by an authorized officer of the Company certifying to the
correctness thereof. A determination so made and certified shall be final and
conclusive upon all Employers, the Trustee, the Committee, and all Participants,
former Participants, and beneficiaries.
6. LIMITATION ON MATCHING EMPLOYER CONTRIBUTIONS FOR HIGHLY COMPENSATED
EMPLOYEES. Notwithstanding any other provision of this Plan to the contrary, no
Matching Employer contributions made with respect to a Plan Year on behalf of
Participants who are Highly Compensated Employees shall result in an average
contribution percentage for such Participants which exceeds the greater of:
(a) a percentage which is equal to 125 percent of the average
contribution percentage for all other Participants; or
(b) a percentage which is not more than 200 percent of the average
contribution percentage for all other Participants and that is not more
than two percentage points higher than the average contribution percentage
for all other Participants; provided, however, that, to the extent required
by regulations of the Secretary of the Treasury, the alternative limitation
contained in this paragraph (b) shall not be used for purposes of this
Section 6 in any Plan Year with respect to which the Company uses paragraph
(b) of Section 1 of Article V to meet the actual deferral percentage
limitations specified therein.
For purposes of this Section 6, the following terms shall have the following
meanings:
(c) The term "Compensation" means Compensation as defined in Section
414(s) of the Code, including any amount contributed by the Employers
pursuant to a salary reduction agreement that is not includible in the
gross income of an Employee under Section 125, 402(a)(8), 402(h), or 403(b)
of the Code, and further subject to the limitations of Section 401(a)(17)
of the Code.
(c) The term "contribution percentage" with respect to a Participant
for a Plan Year means the ratio
27
<PAGE> 34
of the Matching Employer contributions made on his behalf for the Plan Year
to his Compensation for such Plan Year, except that, to the extent
permitted by regulations promulgated by the Secretary of the Treasury, the
Company may elect to take into account in computing the numerator of each
Participant's contribution percentage the Deferred Compensation
Contributions and Basic Employer contributions made on his behalf for the
Plan Year.
(d) The term "Family Member" with respect to a Participant means the
Participant's spouse, his lineal ascendants, his lineal descendants, and
the spouses of such lineal ascendants and descendants.
For purposes of applying the limitations contained in this Section 6, the
Matching Employer contributions and Compensation of any Participant who is a
Family Member of a Participant who is (i) a five percent owner or (ii) among the
ten Highly Compensated Employees receiving the greatest Compensation for the
Plan Year, shall be aggregated with the Matching Employer contributions and
Compensation of such five percent owner or Highly Compensated Employee
Participant, and such Family Member shall not be considered a Participant for
purposes of determining the average contribution percentage for all other
Participants. In the event that the limitation described in paragraph (b) of
this Section 6 relating to multiple use of the alternative limitation is
applicable with respect to a Plan Year, the Company shall determine the order in
which corrective distributions are to be made hereunder so as to distribute in
the aggregate the smallest amount necessary to eliminate excess amounts with
respect to the Plan Year.
7. FORFEITURE OR DISTRIBUTION OF EXCESS MATCHING EMPLOYER CONTRIBUTIONS.
Notwithstanding any other provision of this Plan to the contrary, in the event
that the limitation contained in Section 6 of this Article VI is exceeded in any
Plan Year, the excess Matching Employer contributions with respect to a Highly
Compensated Employee, plus any allocable income for the Plan Year, shall be
charged against his interest in the various Investment Funds in which such
amounts
28
<PAGE> 35
are invested in accordance with procedures adopted by the Committee and shall be
forfeited or distributed prior to the end of the succeeding Plan Year as
hereinafter provided in the same proportion as the Highly Compensated Employee's
forfeitable and vested interest in his Employer Matching account to which such
contributions have been credited. The income allocable to excess Matching
Employer contributions shall be determined in the manner set forth in Section 5
of Article V, but substituting "excess Matching Employer contributions" for
excess Deferred Compensation Contributions and using as the denominator the sum
of (a) the balance of the Participant's Employer Matching account as of the
beginning of the Plan Year and (b) the Matching Employer Contributions made for
the Participant for the Plan Year. Any amounts forfeited with respect to a
Participant pursuant to this Section 7 shall be applied against the Matching
Employer contribution obligation of his Employer for the Plan Year in which the
forfeiture occurs. For purposes of this Section 7, "Excess Matching Employer
contributions" with respect to a Highly Compensated Employee means the excess of
the Matching Employer contributions made on his behalf over the maximum amount
permitted to be contributed on his behalf under Section 6 of this Article VI,
determined by reducing Matching Employer contributions made on behalf of Highly
Compensated Employees in order of their contribution percentages beginning with
the highest of such percentages. The determination of the amount of excess
Matching Employer contributions shall be made after application of Section 5 of
Article V, if applicable, and after application of Section 6 of Article V, if
applicable.
8. EFFECT OF PLAN TERMINATION. Notwithstanding anything to the contrary
contained in this Agreement, a termination of the Plan by the Company shall
operate as a termination of the liability of the Company and all other Employers
to make further contributions hereunder; and
29
<PAGE> 36
a termination of the Plan as to any Employer shall operate as a termination of
the liability of such Employer to make further contributions hereunder;
provided, however, that no such termination shall relieve any Employer of its
obligation to pay contributions hereunder for Plan Years ended prior to the date
of any such termination.
ARTICLE VII
ROLLOVER CONTRIBUTIONS
----------------------
1. ROLLOVER CONTRIBUTIONS. A Participant who prior to his employment with
an Employer was a participant in a plan maintained by a previous employer and
qualified under Section 401 of the Code and who receives a distribution from
such plan that he either elects (i) to roll over immediately to a qualified
retirement plan or (ii) to roll over into a conduit IRA from which he receives a
later distribution, may elect to make a Rollover Contribution to the Plan if he
is entitled under Section 402(a)(5) of the Code to roll over such distribution
to another qualified retirement plan. The Committee shall establish procedures
for determining whether a particular distribution meets the requirements to be
accepted as a Rollover Contribution hereunder, and all Rollover Contributions
shall be made subject to any such procedures. A Participant shall make a
Rollover Contribution to the Plan by delivering, or causing to be delivered, to
the Trustee the Rollover Contribution amount within 60 days of receipt of the
distribution from the plan or from the conduit IRA in such manner as shall be
specified by the Committee.
2. ADMINISTRATION. Notwithstanding anything to the contrary contained in
the Plan, all Rollover Contributions received by the Trustee shall be held by
the Trustee and administered in accordance with the provisions of this Article
VII. Upon receipt of any Rollover Contribution, the Rollover account of the
Participant to whom it is attributable
30
<PAGE> 37
shall be credited with the amount of the Rollover Contribution, and such amount
shall be deposited in the Investment Funds as further described in Section 1 of
Article VIII. The Participant's interest in his Rollover account shall at all
times be fully vested.
3. ROLLOVER CONTRIBUTIONS NOT CONSIDERED FOR CERTAIN PLAN PURPOSES.
Separate Accounts to which any Rollover Contributions have been credited shall
not be aggregated with the other Separate Accounts maintained under the Plan for
purposes of determining whether the Plan is top heavy within the meaning of
paragraph (i) of Section 2 of Article XVIII, except that amounts contained in a
Separate Account that are attributable to any Rollover Contributions made from a
plan maintained by an Employer or a Related Corporation shall be aggregated with
the other Separate Accounts maintained under the Plan for purposes of
determining whether the Plan is top heavy.
ARTICLE VIII
DEPOSIT AND INVESTMENT OF CONTRIBUTIONS
---------------------------------------
1. DEPOSIT OF CONTRIBUTIONS. All Employer contributions, Deferred
Compensation contributions, and Rollover Contributions shall be deposited in the
Investment Funds in accordance with directions received from the Committee;
provided, however, that the Committee's directions shall be based upon the
investment election of each Participant, former Participant, or Beneficiary made
in accordance with the provisions of Section 2 of this Article VIII.
2. INVESTMENT ELECTIONS. Each Participant, upon becoming a Participant,
shall make an investment election in the manner and form prescribed or permitted
by the Committee, directing the manner in which Employer contributions, Deferred
Compensation Contributions, and Rollover Contributions made by him or on his
behalf shall be deposited and held by the
31
<PAGE> 38
Trustee. An investment election shall specify the percentage, in five percent
increments, of such contributions that shall be invested in one or more of the
Investment Funds with the sum of such percentages equaling 100 percent. A
Participant may make separate investment elections with respect to a
Participant's existing account balance and future contributions. With respect to
any person who is a Participant, former Participant, or Beneficiary of a
deceased Participant or former Participant on October 1, 1995, the investment
election he makes for the period beginning on that date shall govern the
investment of his existing Separate Account balances (other than his ESOP
account, if any, or any insurance contract held for him hereunder), as the case
may be. The investment election made by a Participant, former Participant, or
Beneficiary of a deceased Participant or former Participant shall remain in
effect until he causes a change of investment election to be made in such form
and manner as the Committee shall prescribe or permit. An investment election or
change of investment election shall become effective as soon as is practicable
following its delivery, depending upon the method of making such election, and
within such number of days following such delivery as the Committee shall
prescribe. In the event a Participant, former Participant, or Beneficiary of a
deceased Participant or former Participant changes his investment election,
amounts credited to his Separate Accounts (other than his ESOP account, if any,
or any insurance contract held for him hereunder), as the case may be, as of the
effective date of the election shall be transferred between the Investment Funds
in accordance with the percentages specified in his election and future
contributions made by him or on his behalf shall be deposited in the Investment
Funds in the manner specified in such election.
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ARTICLE IX
INVESTMENT FUNDS AND PARTICIPANTS' ACCOUNTS
-------------------------------------------
1. INVESTMENT FUNDS. The Committee shall cause one or more trust funds to
be established, each of which is herein referred to as an Investment Fund, to
hold and administer all of the assets of the Trust, except assets held in the
Employer Stock Fund as provided in Section 2 of Article XIX, any insurance
contracts held by the Trustee under the provisions of Article XII, and any
allocated insurance contracts held by the Trustee under the provisions of
Section 2 of Article XXI. The Committee shall determine the number and type of
Investment Funds which are from time to time to be maintained and shall notify
the Trustee in writing concerning the same. The interest of each Participant in
any Investment Fund shall be an undivided interest.
Effective October 1, 1994, an amount of each Participant's accounts
invested in the Plan's Fixed Income Fund, equal to the same proportion which the
value of the guaranteed interest contract issued by Confederation Life Insurance
Company bore to the total value of investments held by the Fixed Income Fund as
of June 30, 1994, has been placed into a subaccount. Amounts in the subaccount
are frozen and are not available for distribution, withdrawal or transfer until
the contract has been liquidated, sold, exchanged or redeemed for cash.
2. SEPARATE ACCOUNTS. With respect to each Employee who becomes a
Participant, there shall be maintained five Separate Accounts in his name, as
follows: (i) an Employer Regular account, which shall reflect his share of
Employer contributions made with respect to Plan Years ending prior to October
1, 1982, his share of Regular Employer contributions made with respect to Plan
Years ending after October 1, 1982, and forfeitures derived from such amounts,
as well as such account's share of
33
<PAGE> 40
net increase or decrease in value of the assets of the Investment Funds; (ii) an
Employer Matching account, which shall reflect his share of the Matching
Employer contribution, as well as such account's share of net increase or
decrease in value of the assets of the Investment Funds; (iii) a Deferred
Compensation account-A, which shall reflect his Deferred Compensation
Contributions, as well as such account's share of net increase or decrease in
value of the assets of the Investment Funds; (iv) a Deferred Compensation
account-B, which shall reflect his share of Basic Employer contributions made
with respect to Plan Years ending after October 1, 1982, as well as such
account's share of net increase or decrease in value of the assets of the
Investment Funds; and (v) a Rollover account, which shall reflect his own
Rollover Contributions, as well as such account's share of net increase or
decrease in value of the assets of the Investment Funds. The Committee shall
cause such Separate Accounts to be maintained and administered for each
Participant in accordance with the provisions of this Plan. Sub-accounts shall
be maintained under each Separate Account to reflect separately contributions
allocated to each Investment Fund established hereunder and the earnings and
losses attributable thereto. Such other sub-accounts may be established as are
necessary or appropriate to reflect a Participant's interest in the Trust.
3. ACCOUNT BALANCES. For all purposes of this Plan, the balance of each
Separate Account of a Participant and of a former Participant or Beneficiary as
of any date shall be the balance of each such account after all credits and
charges thereto, for and as of such date, have been made as provided in this
Plan.
ARTICLE X
ALLOCATIONS TO ACCOUNTS AND VALUATIONS
--------------------------------------
1. ALLOCATION OF BASIC EMPLOYER CONTRIBUTIONS
34
<PAGE> 41
AMONG PARTICIPANTS. Within a reasonable time after the end of each Plan Year,
each Employer shall certify and deliver to the Committee a list of all persons
who were Participants during the Plan Year, together with a statement of the
Compensation of each such Participant and a statement of the amount of Deferred
Compensation Contributions, if any, made on behalf of each such Participant for
such Plan Year. Notwithstanding the foregoing, such list shall not include any
Participant who did not complete at least 500 hours of service during such Plan
Year, unless such Participant was reinstated as a Participant under Section 5 of
Article III after the first day of such Plan Year. After delivery of such list,
Basic Employer contributions for such Plan Year shall thereupon be allocated
among all Participants included on such list who were paid Compensation for such
Plan Year. Subject to the provisions of Section 4 of this Article X, the share
of each such Participant shall be in the ratio which that portion of his
Compensation for such Plan Year bears to the aggregate Compensation of all such
Participants for such Plan Year. As of the last day of such Plan Year, the
Deferred Compensation account-B of each Participant of each Participant who has
incurred a Settlement Date prior thereto, shall be credited with his share of
Basic Employer contributions as so determined. However, notwithstanding the
portions of this Section 1 which provide that Basic Employer contributions are
allocated as of the last day of a Plan Year, the provisions of Section 2 of
Article VI, and the provisions of paragraph (e) of Section 5 of Article X, in
the event a Participant's employment is terminated prior to the last day of a
Plan Year under any of the circumstances set forth in Section 1 of Article XI,
the amount allocable to such Participant hereunder for such Plan Year shall be
credited to his Deferred Compensation account-B as of the earlier of the date he
receives distribution of all amounts then credited to Deferred Compensation
account-B or the last day of such Plan Year, and any such
35
<PAGE> 42
distribution occurring no later than the last day of such Plan Year shall
include such amount.
2. ALLOCATION OF REGULAR EMPLOYER CONTRIBUTIONS AND FORFEITURES AMONG
PARTICIPANTS. In connection with the preparation of the list described in
Section 1 of Article X for each Plan Year, each Employer shall also specify
which Participants were no longer employed by an Employer or a Related
Corporation on the last day of such Plan Year for reasons other than termination
of employment in accordance with paragraphs (a), (b), and (c) of Section 1 of
Article XI. After delivery of such list, Regular Employer contributions for such
Plan Year shall thereupon be allocated among the Participants included on such
list, excluding, however, those who are no longer employed by an Employer or a
Related Corporation on the last day of such Plan Year for reasons other than
termination of employment in accordance with paragraphs (a), (b), and (c) of
Section 1 of Article XI. Effective October 1, 1994, forfeitures occurring during
such Plan Year that are derived from Regular Employer contributions shall be
used (a) to satisfy any restoration of forfeitures required under Section 13 of
Article XI; (b) to reduce Plan expenses which are not paid by the Company and
(c) if any forfeitures remain, shall be allocated among the Participants as set
forth above. Notwithstanding the foregoing, forfeitures allocable to the frozen
Confederation Life Insurance Company guaranteed interest contract shall remain
in suspense until and to the extent such contract has been liquidated, sold,
exchanged or redeemed for cash.
Subject to the provisions of Section 4 of this Article X, the share of each
Participant eligible to share in such allocation shall be in the ratio which his
Compensation for such Plan Year bears to the aggregate Compensation for such
Plan Year of all Participants eligible to share in such allocation. As of the
last day of such Plan Year, the Regular Employer account of each
36
<PAGE> 43
Participant eligible to share in such allocation shall be credited with his
share of Regular Employer contributions and any forfeitures, as so determined.
In the case of a Participant who has incurred a Settlement Date as provided in
paragraph (a), (b), or (c) of Section 1 of Article XI prior to the allocation of
Regular Employer contributions and forfeitures, if any, pursuant to this Section
2 for such Plan Year, his allocation shall be credited to his Regular Employer
account.
3. ALLOCATION OF MATCHING EMPLOYER CONTRIBUTIONS AMONG PARTICIPANTS. Within
a reasonable time after the end of each month, each Employer shall certify and
deliver to the Committee a list of all persons who were Participants during the
month ending on such date, together with a statement of the Compensation of each
such Participant and a statement of the amount of Deferred Compensation
Contributions made on behalf of each such Participant with respect to payroll
periods ending in such month, if any. After delivery of such list, Matching
Employer contributions for such month shall thereupon be allocated among all
Participants included on such list on behalf of whom Deferred Compensation
Contributions were made by an Employer for such month. Subject to the provisions
of Section 4 of this Article X, the share of each such Participant shall be
equal to the sum of the following, determined with reference to the percentage
of his Compensation for each payroll period ending in such month which is
contributed on his behalf as Deferred Compensation Contributions:
(a) 100% of his Compensation not in excess of two percent contributed
to the Plan on his behalf as Deferred Compensation Contributions;
(b) 40% of his Compensation in excess of two percent but not in excess
of three percent contributed to the Plan on his behalf as Deferred
Compensation Contributions; and
(c) 20% of his Compensation in excess of three percent but not in
excess of six percent contributed to the Plan on his behalf as Deferred
Compensation Contribu-
37
<PAGE> 44
tions.
As of the last day of each month, the Employer Matching account of
each Participant of each Participant who has incurred a Settlement Date as
provided in Section 1 of Article XI prior thereto, shall be credited with his
share of Matching Employer contributions, as so determined. In the case of a
Participant who has incurred a Settlement Date prior to the allocation of
Matching Employer contributions pursuant to this Section 2 for a month, his
allocation shall be credited to his Employer Matching account.
4. LIMITATION ON CREDITING OF CONTRIBUTIONS AND FORFEITURES.
Notwithstanding anything to the contrary contained in this Plan, the amount of
Employer contributions, Deferred Compensation Contributions, and forfeitures
which may be credited to the Separate Accounts of any Participant or former
Participant, as the case may be, shall be subject to the following provisions:
(a) For purposes of this Section 4, the annual addition with respect
to a Participant or former Participant shall mean the sum for any Plan Year
of the following amounts:
(i) Deferred Compensation Contributions and Employer contributions and
forfeitures which are credited to any Separate Account of such Participant
or former Participant for such Plan Year pursuant to Section 2 of Article V
and Sections 1, 2, and 3 of this Article X;
(ii) the amount, if any, of contributions and forfeitures as provided
in (i) above and voluntary employee contributions which are credited to the
Participant or former Participant under any other qualified defined
contribution plan (whether or not terminated) maintained by an Employer or
a Related Corporation concurrently with the Plan; and
(iii)the amount, if any, allocated to an individual medical account,
as defined in Section 415(l)(2) of the Code, which is part of a pension or
annuity plan maintained by an Employer or a Related Corporation and the
amount, if any, attributable to post-retirement medical benefits allocated
to the Separate Account of a key employee, as defined in Section 419A(d)(3)
of the Code, under a welfare benefit fund, as defined in Section 419(e) of
the Code, maintained by an Employer or a Related Corporation.
38
<PAGE> 45
The annual addition for any limitation year beginning before October 1,
1987, shall not be recomputed to treat all Participant voluntary
contributions as annual additions.
(b) For purposes of this Section 4, the Plan Year shall be the
"limitation year" within the meaning of Section 415 of the Code, and the
"Compensation" of a Participant shall mean his wages, salaries, and other
amounts received for personal services actually rendered in the course of
employment with an Employer or a Related Corporation, excluding, however,
(i) contributions made by an Employer or a Related Corporation to a plan of
deferred Compensation to the extent that, before the application of the
limitations of Section 415 to such plan, the contributions are not
includible in the gross income of the Participant for the taxable year in
which contributed, (ii) contributions made by an Employer or a Related
Corporation on his behalf to a simplified employee pension described in
Section 408(k) of the Code, (iii) any distributions from a plan of deferred
Compensation (other than amounts received pursuant to an unfunded
nonqualified plan in the year such amounts are includible in the gross
income of the Participant), (iv) amounts received from the exercise of a
nonqualified stock option or when restricted stock or other property held
by the Participant becomes freely transferable or is no longer subject to
substantial risk of forfeiture, (v) amounts received from the sale,
exchange, or other disposition of stock acquired under a qualified stock
option, and (vi) any other amounts that receive special tax benefits, such
as premiums for group term life insurance (but only to the extent that the
premiums are not includible in the gross income of the Participant).
(c) For the Plan Year commencing October 1, 1989, and each Plan Year
thereafter, the annual addition with respect to a Participant or former
Participant shall not exceed the lesser of (i) $30,000 or 25 percent of the
defined benefit dollar limitation set forth in Section 415(b)(1) of the
Code in effect for the limitation year, or (ii) 25 percent of such
Participant's Compensation for such Plan Year. If the annual addition to
the accounts of a Participant or former Participant in any Plan Year would
exceed the limitation contained in this Section 4 absent such limitation,
there shall first be distributed to such Participant or former Participant
the amount of Deferred Compensation Contributions made on his behalf for
such Plan Year which is necessary to eliminate such excess (plus the
earnings, if any, attributable to such excess), but only to the extent that
no Matching Employer contributions have been allocated with respect
thereto. If the limitation contained in this Section 4 would still be
exceeded, the portion of the Regular Employer contributions and of any
forfeitures, which would be allocated to such Participant or former
Participant under Section 2 of this Article X, but which would exceed the
limitation herein, shall be deemed a forfeiture for such Plan Year and
shall, subject to the provisions of this Section 4, be reallocated among
and credited to the Separate Accounts of the remaining Participants and
former Participants who are
39
<PAGE> 46
eligible to share in such contributions and forfeitures for such Plan Year;
provided, however, that if the allocation of the Regular Employer
contributions and any forfeitures in accordance with this Section 4 would
cause the limitation herein to be exceeded with respect to each such
limitation herein to be exceeded with respect to each such Participant and
former Participant in the Plan for the Plan Year, then such excess amounts
shall be held unallocated in a suspense account established for such Plan
Year. No such suspense account shall share in any increase or decrease in
the net worth of the Trust. If a suspense account is in existence at any
time during a Plan Year, other than the Plan Year with respect to which it
is established, all amounts in such suspense account shall be allocated and
reallocated among and credited to the Separate Accounts of the eligible
Participants and former Participants who have received Compensation from
the Employers in accordance with the provisions of Section 2 of this
Article X and this Section 4, before any Employer contributions or Deferred
Compensation Contributions which would constitute annual additions to such
Participants and former Participants may be made to the Plan for such Plan
Year. The amounts so allocated shall constitute annual additions for the
Plan Year with respect to which such allocation is made. If the limitation
contained in this Section 4 would still be exceeded, the portion of the
Matching Employer contributions which would be allocated to such
Participant or former Participant under Section 3 of this Article X, but
which would exceed the limitation herein, shall be deemed a forfeiture for
such Plan Year and disposed of in accordance with Section 7 of Article XI.
If the limitation contained in this Section 4 would still be exceeded, the
portion of the Basic Employer contributions which would be allocated to
such Participant or former Participant under Section 1 of this Article X,
but which would exceed the limitation herein, shall be deemed a forfeiture
for such Plan Year and shall be held unallocated in a suspense account
established for such Plan Year and shall for all Plan purposes be applied
against the Employers' Basic Employer contribution obligation for the next
following Plan Year (and succeeding Plan Years, as necessary). No such
suspense account shall share in any increase or decrease in the net worth
of the Trust. Finally, if the limitation contained in this Section 4 would
still be exceeded, the Deferred Compensation Contributions to be made on
behalf of such Participant or former Participant shall, to the extent
necessary to eliminate such excess (plus the earnings, if any, attributable
to such excess), be distributed to such Participant or former Participant.
For purposes of this paragraph (c), "excess annual additions" shall result
only from the allocation of forfeitures, a reasonable error in estimating
annual Compensation, a reasonable error in determining the amount of
Deferred Compensation Contributions that may be made with respect to any
Participant under the limits of Section 415 of the Code, or other limited
facts and circumstances that the Commissioner of Internal Revenue finds
justify the availability of the provisions set forth above.
(d) If any Participant or former Par-
40
<PAGE> 47
ticipant in the Plan also shall be covered by a qualified defined benefit
plan (whether or not terminated) maintained by an Employer or a Related
Corporation concurrently with the Plan, the sum of the defined benefit plan
fraction (as defined in Section 415(e)(2) of the Code) and the defined
contribution plan fraction (as defined in Section 415(e)(3) of the Code)
shall in no event exceed 1.0 in any Plan Year. In the event the special
limitation contained in this paragraph (d) is exceeded, the benefits
otherwise payable to the Participant or former Participant under any such
qualified defined benefit plan shall be reduced to the extent necessary to
meet such limitation.
(e) In the event that a Participant or former Participant is covered
by any other qualified defined contribution plan (whether or not
terminated) maintained by an Employer or a Related Corporation concurrently
with the Plan, the procedure set forth in paragraph (c) of this Section 4
shall be implemented first by returning the Participant's or former
Participant's own contributions for such Plan Year under all of the defined
contribution plans. If the limitation contained in this Section 4 still is
not satisfied after returning all of the Participant's own contributions
under all such plans, the procedure set forth in paragraph (c) of this
Section 4 shall be implemented by distributing to the Participant or former
Participant the amount of Deferred Compensation Contributions and elective
deferrals under all of the defined contribution plans. If the limitation
contained in this section 4 still is not satisfied, the amount of the
Employer contribution and of any forfeitures which is deemed a forfeiture
under paragraph (c) of this Section 4 shall be effected first under the
Plan and, if the limitation still is not satisfied, on a pro rata basis
among all of such other plans, unless the Participant is covered by a money
purchase pension plan, in which event the forfeiture shall be effected
first under the defined contribution plans which are not money purchase
pension plans and, if the limitation still is not satisfied, then under
such money purchase pension plans. In the event that a Participant is
covered by a qualified defined benefit plan, the procedure set forth in
paragraph (d) of this Section 4 shall be implemented prior to effecting any
reduction in the Participant's benefit under the defined contribution
plans.
(f) In the event that the limitations of paragraph (d) of this Section
4 are applicable, the following adjustments shall be made for purposes of
applying such paragraph (d):
(i) If, before October 3, 1973, the Participant or former Participant
was an active participant in a qualified defined benefit plan maintained by
an Employer or a Related Corporation and otherwise satisfies the
requirements of Section 2004(d)(2) of the Act, the defined benefit plan
fraction described in paragraph (d)(i) of this Section 4 shall not exceed
1.0.
(ii) The sum of the annual addition to a Participant's or former
Participant's accounts for each year
41
<PAGE> 48
of service completed in Plan Years beginning prior to October 1, 1976,
which shall be included for purposes of determining the defined
contribution plan fraction described in paragraph (d)(ii) of this Section 4
shall not exceed the sum of the maximum permissible annual addition to such
accounts under paragraph (a) of this Section 4 for such Plan Years.
(g) For purposes of this Section 4, the meaning of Related
Corporation" shall be as modified by Section 415(h) of the Code.
5. VALUATION OF PARTICIPANT'S INTEREST. As of each Valuation Date the
Committee shall cause each Separate Account of each Participant to be adjusted
to reflect any increase or decrease in net worth of each Investment Fund since
the immediately preceding Valuation Date, in the following manner:
(a) The Trustee shall value all of the assets of the Investment Fund
at fair market value.
(b) On the basis of the valuation provided under paragraph (a) of this
Section 5 and after making appropriate adjustments for the amount of any
contribution made with respect to the Plan Year or month ending on such
date, for any forfeitures occurring during the Plan Year ending on such
date, for any distributions and withdrawals from the Investment Fund since
the immediately preceding Valuation Date and prior to such date, for any
transfers to or from the Investment Fund since such preceding Valuation
Date and prior to such date, the net increase or decrease in net worth of
the Investment Fund which is attributable to net earnings and all profits
and losses, realized and unrealized, since the immediately preceding
Valuation Date, shall be determined.
(c) The net increase or decrease in the net worth of the Investment
Fund as thus determined shall be allocated among all Participants, former
Participants, and beneficiaries who have an interest in such Fund.
(d) There shall then be credited to the Deferred Compensation
account-A and the Employer Matching account of each Participant the
portions of the Deferred Compensation Contributions and Matching Employer
contributions made by the Employers for the month ending on such date and
allocated to such Participant or former Participant pursuant to Section 2
of Article V and Section 3 of this Article X.
(e) Finally, there shall then be credited to the Employer Regular
account and Deferred Compensation account-B of each Participant the
portions of the annual contributions made by the Employers for the Plan
Year ending on such date and any forfeitures allocated to such Participant
or
42
<PAGE> 49
former Participant pursuant to Sections 1 and 2 of this Article X.
6. FINALITY OF COMMITTEE'S DETERMINATION. The Trustee's determination of
the net income, liabilities, and value of the assets of the Investment Funds,
and the Committee's determination of the balance of each account maintained
hereunder shall be conclusive upon the Employers and all Participants, former
Participants, and beneficiaries hereunder.
7. NOTIFICATION. Following each calendar quarter the Trustee shall furnish
the Committee with a list showing the balances of all Investment Funds as of
such Valuation Date. As soon as reasonably possible after the end of each Plan
Year and at such additional time or times as established by the Committee, the
Committee shall notify each Participant, former Participant, or Beneficiary of
the balances of his Separate Accounts as of the last day of such Plan Year. The
notification also shall state with respect to each Separate Account the portion
of such account which is nonforfeitable as of the last day of such Plan Year.
ARTICLE XI
TERMINATION OF PARTICIPATION AND DISTRIBUTION
---------------------------------------------
1. TERMINATION OF PARTICIPATION. Each Participant shall cease to be a
Participant hereunder upon the first to occur of the following dates:
(a) on the date such Participant's employment with an Employer or a
Related Corporation is terminated after he has attained age 65, or after he
has attained age 55 and completed 10 years of vested service;
(b) on the date such Participant's employment with an Employer or a
Related Corporation is terminated because of physical or mental disability
preventing his continuing in the service of such employer, as determined by
the Committee upon the basis of a written certificate of a physician
selected by it;
(c) on the date such Participant's em-
43
<PAGE> 50
ployment with an Employer or a Related Corporation is terminated because of
the death of such Participant;
(d) on the date such Participant's employment with an Employer or a
Related Corporation is terminated after he has completed 10 years of vested
service under Section 4 of this Article XI or, if such Participant
completes an Hour of Service on or after October 1, 1989, on the date such
employment is terminated after he has completed 7 years of vested service
under such Section 4; or
(e) on the date such Participant's employment with an Employer or a
Related Corporation is terminated under any other circumstances.
The date upon which a Participant ceases to be such is hereinafter referred to
as his "Settlement Date", and written notice thereof shall be given promptly by
his Employer to the Committee. Notwithstanding anything to the contrary
contained in this Plan, on his attainment of age 65 a Participant's right to
receive distribution of the balance of his Separate Accounts as of his
Settlement Date, in accordance with the provisions of this Article XI, shall be
fully vested and nonforfeitable.
2. VESTING SCHEDULE. A Participant whose employment with an Employer or a
Related Corporation terminates in accordance with paragraph (e) of Section 1 of
this Article XI shall have a vested interest in his Employer Regular accounts
and Employer Matching accounts equal to a percentage determined in accordance
with the applicable schedule set forth below.
(a) If the Participant's Settlement Date under such paragraph (e)
occurred prior to October 1, 1989, or he does not complete an Hour of
Service on or after such date, the following schedule shall apply:
<TABLE>
<CAPTION>
YEARS OF VESTED SERVICE/PERCENTAGE
----------------------------------
<S> <C>
Less than three 0
Three but less than four 30
Four but less than five 40
Five but less than six 50
</TABLE>
44
<PAGE> 51
<TABLE>
<S> <C>
Six but less than seven 60
Seven but less than eight 70
Eight but less than nine 80
Nine but less than ten 90
Ten 100
</TABLE>
(b) Effective October 1, 1989, if the Participant completes an Hour of
Service on or after such date and his Settlement Date under such paragraph
(e) occurs on or after October 1, 1989, the Participant shall have a 100%
vested interest in his Employer Matching account and shall have a vested
interest in his Employer Regular account determined in accordance with the
following schedule:
<TABLE>
<CAPTION>
YEARS OF VESTED SERVICE/PERCENTAGE
----------------------------------
<S> <C>
Less than three 0
Three but less than four 30
Four but less than five 40
Five but less than six 60
Six but less than seven 80
Seven 100
</TABLE>
Notwithstanding the foregoing provisions of Sections 1 and 2 of this Article XI,
the vested interest of each person who was a Participant on the day immediately
prior to the effective date of this Plan shall not on such date be less than his
vested interest under the Plan as in effect on the day immediately prior to such
date. The portion of benefits of Employees of Advanced Structures, Inc. under
the Advanced Structures, Inc. 401(k) Plan which was not fully vested as of
September 30, 1995, shall thereafter be subject to the above schedule for all
periods of service beginning October 1, 1995.
3. DISTRIBUTION. As of a Participant's Settlement Date, and after notice
thereof has been given as provided in Section 1 of
45
<PAGE> 52
this Article XI, all or a portion of the balance of each of the Participant's
Separate Accounts shall become available for distribution pursuant to Section 6
of this Article XI, as follows:
(a) In the event such Participant's Settlement Date occurs under the
conditions specified in paragraph (a), (b), (c), or (d) of Section 1 of
this Article XI, the entire balance of each of his Separate Accounts as of
such Settlement Date shall become available for distribution.
(b) In the event such Participant's Settlement Date occurs under the
conditions stated in paragraph (e) of Section 1 of this Article XI,
(i) that portion of the balances of his Employer Regular account and
Employer Matching account which shall be determined in accordance with the
vesting schedule set forth in Section 2 of this Article XI shall become
available for distribution; and
(ii) the entire balances of his Deferred Compensation account-A,
Deferred Compensation account-B, and Rollover account as of such Settlement
Date shall become available for distribution.
4. YEARS OF VESTED SERVICE. For the purpose of applying the vesting
schedule set forth in Section 2 of this Article XI, a Participant shall be
credited with a year of vested service for each Plan Year during which he
completes at least 1,000 hours of service; provided, however, that service which
the Participant completed prior to a Break in Service shall not be included in
determining a Participant's years of vested service unless either (i) the
Participant had a portion of his Employer Regular account, Employer Matching
account, or Deferred Compensation account-B credited to his account as a result
of his Break in Service, or (ii) the number of consecutive Plan Years in which
he had a Break in Service is less than the greater of five or the aggregate
number of years of vested service which he had when his Break in Service
commenced. Notwithstanding the foregoing provisions of this Section 4, however,
in no event shall any years of vested service be taken into account for purposes
of determining a Participant's vested interest under the Plan by reason of
amendments made to
46
<PAGE> 53
this Section 4 to comply with the Retirement Equity Act of 1984, if such years
of vested service would not have been taken into account for such purpose on
September 30, 1985, under the provisions of this Section 4 in effect on such
date.
5. ELECTION OF FORMER SCHEDULE. In the event the Company adopts an
amendment to the Plan that directly or indirectly affects the computation of a
Participant's nonforfeitable interest in his Employer Regular account, Employer
Matching account, or Deferred Compensation account-B, any Participant with five
or more years of vested service (or, effective October 1, 1989, with respect to
any Participant credited with an Hour of Service on or after such date, three or
more years of vested service) shall have a right to have his nonforfeitable
interest in such Separate Accounts continue to be determined under the vesting
schedule in effect prior to such amendment rather than under the new vesting
schedule, unless the nonforfeitable interest of such Participant in such
Separate Accounts under the Plan, as amended, at any time, is not less than such
interest determined without regard to such amendment. Such Participant shall
exercise such right by giving written notice of his exercise thereof to the
Company within 60 days after the latest of (i) the date he received notice of
such amendment from the Company, (ii) the effective date of the amendment, or
(iii) the date the amendment is adopted. Notwithstanding the foregoing
provisions of this Section 5, the vested interest of each Participant on the
effective date of such amendment shall not be less than his vested interest
under the Plan as in effect immediately prior to the effective date thereof.
6. DISTRIBUTION. The Trustee shall be directed to make distribution to or
for the benefit of the former Participant or his Beneficiary, as the case may
be, from his interest in the Investment Funds which, on any date, shall be equal
to the vested balance in his accounts as
47
<PAGE> 54
of such date. Distribution shall be made in the form of a single sum payment,
unless the former Participant or Beneficiary elects distribution in a series of
installments over a period not in excess of the normal life expectancy of the
distributee, such installments to be equal in amount except as necessary to
adjust for any net earnings of and changes in the market value of the Investment
Funds. Distribution under any such method shall be made or commenced as soon as
reasonably practicable after the former Participant's Settlement Date, but in no
event later than 60 days after the latest of the close of the Plan Year in which
(a) the Participant attains age 65, (b) the tenth (10th) anniversary of the year
in which the Participant commenced participation in the Plan occurs, or (c) the
Participant terminates employment; provided, however, that at the election of
the Participant the Trustee shall defer making or commencing distribution until
the earlier of a specified date or the date referred to in Section 2 of Article
XX. In the event that an amount is credited to the account of a former
Participant after his Settlement Date in accordance with Section 1, 2, or 3 of
Article X, the Trustee shall make or commence distribution to the former
Participant or his Beneficiary, as the case may be, as soon as reasonably
practicable after such amount is credited, subject to the deferral provision set
forth above. Notwithstanding the foregoing, (i) if the amount distributable to a
former Participant is in excess of $3,500 (or was at the time of any prior
distribution) and the former Participant has not attained age 65, no
distribution shall be made to such former Participant without his written
consent, and (ii) if the amount distributable to a former Participant is $3,500
or less (and did not exceed $3,500 at the time of any prior distribution), such
interest shall be distributed as a lump sum as soon as reasonably practicable
following his Settlement Date. Distributions shall also be made in accordance
with and subject to Articles XX and XXII.
48
<PAGE> 55
7. DISPOSITION OF NON-VESTED AMOUNTS. In the case of a Participant whose
Settlement Date occurs under the conditions specified in paragraph (e) of
Section 1 of this Article XI, any non-vested amounts in the Participant's
Employer Regular account that are not credited to his account following the
occurrence of his Settlement Date shall be disposed of as follows:
(a) In the event that the former Participant receives distribution of his
entire account (including a deemed distribution) prior to the end of the
second Plan Year beginning on or after his Settlement Date, the non-vested
balance remaining in the Participant's Employer Regular account will be
treated as a forfeiture as of the date such distribution is made, at which
time the Participant's Employer Regular account shall be closed. If there is
no vested amount credited to the Participant's account at the end of the
second Plan Year beginning on or after his Settlement Date, there shall then
be a deemed distribution of the Participant's balance of his account.
(b) In the event that paragraph (a) is not applicable, the non-vested
balance remaining in the Participant's Employer Regular account will
continue to be held in such account and will not be treated as a forfeiture
until the last day of the Plan Year in which the Participant incurs his fifth
consecutive Break in Service. In the event that such a Participant returns to
employment with an Employer or a Related Corporation prior to incurring five
consecutive breaks in service, his accounts, determined as of the Valuation
Date next following his date of rehire, shall be recredited as of such
Valuation Date to restore his Employer Regular account, Employer Matching
account, Deferred Compensation account-A, Deferred Compensation account-B, and
Rollover account to the same amounts previously existing in such Separate
Accounts, less any distributions.
Whenever the interest of a Participant or former Participant in his Employer
Regular account is either forfeited or otherwise deemed a forfeiture under the
provisions of the Plan with respect to a Plan Year, the portion of the
forfeiture attributable to the Employer Regular account, as of the last day of
such Plan Year, shall be applied as set forth in Section 2 of Article X.
8. EFFECT OF COMMITTEE'S DETERMINATION. In exercising its authority under
this Article XI, the Committee shall act in such manner as it shall in good
faith determine will most adequately and
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fairly meet the needs of each former Participant or Beneficiary, as the case may
be. No authority shall be exercised in such manner as to discriminate between
any class or group of Participants. The Committee's determination of all
questions which may arise under this Article XI (if made in accordance with the
standards prescribed herein) shall be conclusive upon all persons claiming to
have any interest hereunder. In making any determinations hereunder, the
Committee may rely upon any signed statement which the Participant files with
it.
9. REEMPLOYMENT OF FORMER PARTICIPANT. If a former Participant is
reemployed by an Employer or by any Related Corporation, he shall be treated as
a new employee for all purposes of this Plan, subject to the provisions hereof
relating to crediting years of service and years of vested service. All or part
of any distributions which are otherwise payable hereunder by reason of his
former participation in the Plan shall be suspended during the period of such
reemployment, or until the Plan is terminated, whichever first occurs, at which
time payment shall be resumed in accordance with any of the methods provided in
Section 6 of this Article XI.
10. Restrictions on Alienation. Except as provided in Section 401(a)(13)(B)
of the Code relating to qualified domestic relations orders, no right or
interest under the Plan at any time shall be subject in any manner to
anticipation, alienation, assignment (either at law or in equity), encumbrance,
garnishment, levy, execution, or other legal or equitable process. No person
shall have power in any manner to anticipate, transfer, assign (either at law or
in equity), alienate, or subject to attachment, garnishment, levy, execution, or
other legal or equitable process, or in any way encumber his rights or interests
under the Plan, and any attempt to do so shall be void.
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11. FACILITY OF PAYMENT. In the event that it shall be found that any
person to whom an amount is payable hereunder is incapable of attending to his
financial affairs because of any mental or physical condition, including the
infirmities of advanced age, such amount (unless prior claim therefor shall have
been made by a duly qualified guardian or other legal representative) may, in
the discretion of the Committee, be paid to another person for the use or
benefit of the person found incapable of attending to his financial affairs or
in satisfaction of legal obligations incurred by or on behalf of such person.
The Trustee shall make such payment only upon receipt of written instructions to
such effect from the Committee. Any such payment shall be charged to the account
of the person found incapable of attending to his financial affairs and shall be
a complete discharge of any liability therefor under this Plan.
12. BUY BACK OF FORFEITED AMOUNTS. A Participant who receives a
distribution on account of a Settlement Date under the conditions specified in
paragraph (e) of Section 1 of this Article XI, and who, as a result thereof,
forfeits all or a portion of the amounts credited to his Employer Regular
account, shall have such forfeited amounts recredited to his Employer Regular
account upon his subsequent resumption of employment covered under the Plan,
without adjustment for interim gains or losses experienced by the Investment
Funds, provided that he repays to the Plan the full amount of the distribution
he received as a result of his prior Settlement Date, and provided, further,
that such repayment occurs no later than the earlier of five years after the
date of the Participant's resumption of employment covered under the Plan or the
time when the Participant has incurred five consecutive one year breaks in
service following the date of the distribution. Funds needed in any Plan Year to
recredit the Separate Account of a reemployed Participant with the amount of
prior forfeitures in
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accordance with the preceding sentence, to the extent not provided by his
Employer by way of a separate Plan contribution, shall first come from
forfeitures that arise during such Plan Year, to the extent sufficient, and
shall then come from additional Employer contributions in such Plan Year.
13. DISTRIBUTION UPON CERTAIN EVENTS. Not withstanding any provision to the
contrary, distribution of a Participant's interest under the Plan may be made,
in accordance with the provisions of Section 6 of Article XI, upon the
occurrence of one of the following events:
(a) The termination of the Plan without establishment or maintenance of
another defined contribution plan (other than an employee stock ownership plan
as defined in Section 4975(e)(7) of the Code).
(b) The disposition by an Employer of substantially all of the assets
(within the meaning of Section 409(d)(2) of the Code) used by such Employer in
a trade or business of such Employer, but only with respect to an employee who
continues employment with the corporation acquiring such assets.
(c) The disposition by an Employer of such Employer's interest in a
subsidiary (within the meaning of Section 409(d)(3) of the Code), but only
with respect to an employee who continues employment with such subsidiary.
An event shall not be treated as described in this Section 14 with respect to
any employee unless the employee receives a lump sum distribution by reason of
the event. For purposes of this Section 14, the term "lump sum distribution" has
the meaning given such term by Section 402(e)(4) of the Code, without regard to
clauses (i), (ii), (iii), and (iv) of subparagraph (A), subparagraph (B), or
subparagraph (H) thereof. An event shall not be treated as described in
paragraph (b) or (c) of this Section 14 unless the transferor corporation
continues to maintain the Plan after the disposition and the purchaser does not
maintain the Plan after the disposition. Moreover, a disposition may not be made
pursuant to paragraph (b) or (c) of this Section 14 except in connection with
the disposition that results in the employee's transfer to the purchaser and
generally must be made by the end of the second
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calendar year after the calendar year in which the disposition occurred.
ARTICLE XII
INSURANCE CONTRACTS
-------------------
1. PURCHASE OF CONTRACTS. Effective October 1, 1995, no additional
investments shall be made in life insurance contracts hereunder.
2. PAYMENT OF PREMIUMS. The Trustee, upon written instructions from the
Committee, shall pay each premium on any such contract or contracts held for a
Participant and shall charge such premium payment to his Employer Regular
account. The Trustee shall be under no obligation to pay any premium, however,
unless there are sufficient funds available from the interest of such
Participant in the Investment Funds to make such payment. Each contract shall
provide that all dividends and other credits payable thereunder, if any, shall
be applied in reduction of premiums, except that any postmortem or termination
dividend shall be added to and become a part of the proceeds payable to the
Beneficiary under the contract.
3. INSURANCE COMPANIES. No insurance company which shall have issued any
such contract shall be under any duty to see to the application of any sum paid
by it to the Trustee. No such insurance company shall be under any obligation to
ascertain whether any action taken or proposed to be taken by the Trustee is
authorized under the Plan or is subject to any authority, approval or direction
of an Employer or the Committee; nor shall any such insurance company be under
obligation to ascertain the reason for any action taken or proposed to be taken
by the Trustee. The certificate of the Trustee signed by any Vice President or
Trust Officer thereof and filed with the insurance company, may be received by
such insurance company as conclusive evidence of the authority of the Trustee to
act with respect to the matters therein contained.
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4. OVERRIDING CONDITIONS AND LIMITATIONS. Notwithstanding anything to the
contrary contained in this Plan, the provisions of this Section 4 shall govern:
(a) At no time shall the aggregate of the premiums paid for any
ordinary life or term life insurance contract or contracts upon the life of
any Participant hereunder equal or exceed the sum of his own voluntary
contributions, if any, under the Plan, and:
(i) if only ordinary life insurance contracts upon the life of such
Participant are held hereunder, 50% of the contributions of the Employers
theretofore allocated to him under the Plan; or
(ii) if only term life insurance contracts upon the life of such
Participant are held hereunder, 25% of the contributions of the Employers
theretofore allocated to him under the Plan.
If both ordinary life and term life insurance contracts upon the life of
any Participant are held hereunder, at no time shall the aggregate of
one-half of the premiums paid for any ordinary life insurance contracts
plus the premiums paid for any term life insurance contract equal or exceed
the sum of his own voluntary contributions under the Plan, if any, and 25%
of the contributions of the Employers theretofore allocated to him under
the Plan. In order to comply with these limitations, the Committee shall in
writing direct the Trustee to take such action, with respect to any such
contract or contracts held by it, as the Committee shall deem advisable,
including, but not limited to, conversion to paid up basis or surrender of
such contract or contracts or any part or parts thereof.
(b) At all times each such contract, or evidence thereof, upon the
life of any Participant shall be held by the Trustee separate and apart
from the Investment Funds. The value of any such contract shall not be
taken into account in valuing the assets of the Investment Funds nor shall
such value be considered in determining the amount of a Participant's
interest in the Investment Funds.
(c) A Participant, upon 30 days written notice to the Committee, may
elect to have the purchase of insurance on his life discontinued. Any such
notice shall specify the date on which such purchase is to be discontinued,
but in no event shall any such notice be effective with respect to premiums
which already have been paid. Upon receipt of such notice, the Committee
shall in writing direct the Trustee to surrender any contract or contracts
held on the Participant's life on the date specified in his notice. The
cash surrender value, if any, of any such contracts shall be added to the
Investment Funds when received by the Trustee, and, when added, an amount
equal to the cash surrender value, if any, shall be
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credited to his Employer Regular account.
5. DEATH BENEFITS. Upon the death of any Participant on whose life any
contract is held hereunder, the proceeds of such contract shall be paid in
accordance with the provisions of Article IV.
6. OTHER DISTRIBUTIONS; VESTING.
(a) Upon a Participant's termination of participation before attaining
age 65 or before completing seven (ten, if he did not complete an Hour of
Service on or after October 1, 1989) years of vested service, for any
reason other than death or disability, as set forth in paragraph (e) of
Section 1 of Article XI, the former Participant shall have a vested
interest in the cash surrender value, if any, of each contract on his life
then held hereunder, which shall be the same percentage which is applied to
determine his vested interest in the balance of his Employer Regular
account under paragraph (b)(i) of Section 3 of Article XI.
(b) Upon a Participant's termination of participation under any other
circumstances, or in the event of a termination of the Plan, the
Participant shall have a fully vested interest in the cash surrender value,
if any, of each contract held on his life hereunder.
(c) Distribution of the vested interest of a former Participant
determined under this Section 6 shall be made in the form of an insurance
contract or contracts delivered to such former Participant as soon as
reasonably practicable, but in no event later than the 60th day after the
close of the Plan Year in which his participation terminated; provided,
however, that an amount equal in value to any portion of the cash surrender
value of any such contract which is not vested in him shall be charged
against his account and disposed of in accordance with paragraph (d) of
this Section 6; and provided, further, that if distribution of such former
Participant's interest is to be deferred beyond the date specified above,
upon written instructions of the Committee to the Trustee such interest
shall be transferred to the Investment Funds in cash, and the amount
thereof shall be credited to the former Participant's account to be
distributed to or for the benefit of the former Participant and, in the
event of his death, to or for the benefit of his Beneficiary, all in the
manner specified in Section 6 of Article XI.
(d) Any portion of the cash surrender value, if any, of any contract
held on the life of a Participant hereunder which is not vested in him,
shall be forfeited by the former Participant and deposited by the Trustee
in the Investment Funds, the amount thereof to be treated in the same
manner as other forfeitures, as provided in Section 7 of Article XI.
(e) To implement the provisions of
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this Section 6, the Committee shall in writing direct the Trustee to take
such action with respect to any contract or contracts held hereunder as the
Committee shall deem advisable, including, but not limited to, conversion
to a paid-up basis or surrender of the contract or contracts or any part or
parts thereof. In no event may any contract or contracts, or any portion of
the value thereof, be retained in the Trust after a former Participant's
Settlement Date, or after any termination of the Plan, for the purpose of
continuing life insurance protection for such former Participant.
7. DISTRIBUTION, SALE AND SURRENDER OF CONTRACTS.
(a) During the period October 1, 1995, through November 10, 1995, each
Participant in the Plan on whose life a life insurance contract has been
purchased hereunder with funds for his Regular Employer account (other than
those held in a Hobson account under Article XXI, Section 2) and who, as of
October 1, 1995, has been a Participant for least five (5) years, may elect
to have such contract distributed to him as a taxable distribution. Each
Participant making such election shall either (i) pay to the Company an
amount equal to 20% of the fair market value of such contract, to satisfy
the Company's federal income tax withholding obligations with respect to
such distribution, or (ii) elect to have an additional sum distributed in a
taxable distribution from his Employer Regular account which, when added to
the fair market value of such contract, is equal to 20% of the sum, to be
used for such required withholding.
(b) During the period of October 1, 1995, through November 10, 1995,
each Participant in the Plan on whose life a life insurance contract has
been purchased hereunder with funds from his Regular Employer account
(other than those held in a Hobson account under Article XXI, Section 2),
may elect to purchase the contract, for its fair market value payable in
cash, upon such terms and conditions as established by the Committee
necessary to assure exemption from treatment as a prohibited transaction
under federal law as set forth in Prohibited Transaction Exemption 92-6.
(c) If a Participant elects not (or fails to elect) to have his life
insurance contract distributed to him pursuant to (a) above or to purchase
such contract pursuant to (b) above within the time established by the
Committee, such contract (other than those held in a Hobson account under
Article XXI, Section) shall be surrendered to its issuer, effective October
31, 1995. The cash surrender value of such contracts received by the
Trustee upon surrender shall be added to the Investment Funds and an amount
equal to the cash surrender value of such Participant's contract shall be
credited to his Employer Regular account.
(d) In the event a life insurance contract is either purchased by a
Participant under (a) above or distributed to him under (b) above, such
Participant shall thereafter be the owner of such
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contract and shall be responsible for the payment of all further premiums
required under its terms. No distributions shall be made from the Plan
solely for the purpose of payment of such premiums; provided, however, that
distributions may be made as otherwise set forth in the Plan.
ARTICLE XIII
WITHDRAWALS
-----------
1. WITHDRAWAL OF DEFERRED COMPENSATION CONTRIBUTIONS. Subject to the
provisions of this Section 1, a Participant may file a written request with the
Committee, not less than 30 days in advance of the date on which it is requested
to be effective, for a withdrawal, in an amount not less than $500, from his
Deferred Compensation account-A as of such date; provided, however, that no such
withdrawal shall be permitted by the Committee unless it shall determine that
such withdrawal is made on account of an immediate and heavy financial need of
the Participant and is necessary to satisfy such financial need. A withdrawal is
made on account of an immediate and heavy financial need if and only if the
withdrawal is made for:
(a) expenses for medical care described in Section 213(d) of the
Code previously incurred by the Participant, the Participant's spouse, or
any dependents of the Participant (as defined in Section 152 of the Code)
or necessary for these persons to obtain medical care described in Section
213(d) of the Code;
(b) costs directly related to the purchase (excluding mortgage
payments) of a principal residence for the Participant;
(c) payment of tuition and related educational fees for the next 12
months of post-secondary education for the Participant, his spouse,
children or dependents (as defined in Section 152 of the Code); or
(d) payments necessary to prevent the eviction of the Participant from
his principal residence or foreclosure on the mortgage of the Participant's
principal residence.
A withdrawal will be treated as necessary to satisfy an immediate and heavy
financial need if and only if the requirements of either paragraph (1) or (2)
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set forth below are met.
(1) The Committee reasonably relies upon the Participant's
representation that the need cannot be relieved:
(a) through reimbursement or compensation by insurance or otherwise;
(b) by reasonable liquidation of the Participant's assets, to the
extent such liquidation would not itself cause an immediate and heavy
financial need;
(c) by cessation of Deferred Compensation Contributions or Voluntary
Contributions under the Plan; or
(d) by other distributions or nontaxable (at the time of the loan)
loans from plans maintained by an Employer or other employers, or by
borrowing from commercial sources on reasonable commercial terms.
(2) All of the following requirements are satisfied with respect to
the Participant:
(a) The withdrawal is not in excess of the amount of the immediate and
heavy financial need of the Participant, provided that the amount of the
need may include any amounts necessary to pay any federal, state, or local
taxes or penalties reasonably anticipated to result from the withdrawal;
(b) The Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans currently available under
all plans maintained by an Employer or any Related Corporation;
(c) The Participant's Deferred Compensation Contributions and
Voluntary Contributions under the Plan and the Participant's elective
(Section 401(k) of the Code) contributions and employee (after-tax)
contributions under all other plans maintained by an Employer or any
Related Corporation (other than mandatory employee contributions under a
defined benefit plan and contributions under a welfare plan, including
pursuant to Section 125 of the Code) are suspended for twelve months after
his receipt of the withdrawal; and
(d) The Participant shall not have made or make Deferred Compensation
Contributions under the Plan and elective (Section 401(k) of the Code)
contributions under any other plan(s) maintained by an Employer or any
Related Corporation for the Participant's taxable year immediately
following the taxable year of the withdrawal in excess of the applicable
limit under Section 402(g) of the Code for such next taxable year less the
amount of such Participant's Deferred Compensation Contributions under the
Plan and elective (Section
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401(k) of the Code) contributions for the taxable year of the withdrawal.
The provisions of (c) and (d) of paragraph (2) above shall automatically be
effective if the requirements of such paragraph (2) are used to treat a
withdrawal as necessary to satisfy an immediate and heavy financial need.
Moreover, in the case of any Participant who has not attained age 59-1/2, no
such withdrawal shall exceed an amount equal to the Deferred Compensation
Contributions made on behalf of the Participant and income attributable to the
Deferred Compensation Contributions that is credited to the Participant's
account as of September 30, 1988. Any amount withdrawn by a Participant shall be
charged against his Deferred Compensation account-A as of the date such
withdrawal is paid, and shall be charged against his subaccounts thereunder in
accordance with procedures adopted by the Committee. Upon receipt of
instructions to such effect from the Committee, the Trustee shall pay such
amount to the Participant.
2. DISTRIBUTION OF DEFERRED COMPENSATION CONTRIBUTIONS AFTER ATTAINMENT OF
AGE 59-1/2. Subject to the provisions of this Section 2, a Participant who has
attained age 59-1/2. may file a written request with the Committee, not less
than 30 days in advance of the date on which it is requested to be effective,
for a distribution of the amount then credited to his Deferred Compensation
account-A. The amount distributed shall be charged against his Deferred
Compensation account-A as of the date such distribution is paid, and shall be
charged against his subaccounts thereunder in accordance with procedures adopted
by the Committee. Upon receipt of instructions to such effect from the
Committee, the Trustee shall distribute such amount to the Participant. A
Participant shall not be permitted to receive a distribution under this Section
2 on more than two occasions following attainment of age 59-1/2.
ARTICLE XIV
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THE COMMITTEE
-------------
1. MEMBERSHIP. The Company, by action of its Board of Directors, shall
appoint a Committee of at least three persons to administer the Plan as
hereinafter set forth. Upon his appointment to the Committee by the Company,
each such appointee shall become a member of the Committee by accepting his
appointment in a writing signed by him and delivered to the Company.
2. RULES AND REGULATIONS. The Committee may from time to time formulate
such rules and regulations for its organization and the transaction of its
business as it deems suitable and as are consistent with the provisions of this
Plan.
3. AUTHORITY OF COMMITTEE AND EMPLOYERS. Each of the Employers and the
Committee shall have the authority to perform the functions conferred upon it
herein, and shall have all the powers and authority which are required in
connection therewith, subject, however, to the limitations hereinafter set
forth. The Committee shall have all the powers and authority expressly conferred
upon it herein and further shall have the discretionary power and authority to
interpret and construe the Plan and to resolve any disputes arising thereunder,
subject, however, to the provisions of Section 5 of this Article XIV. The
Committee may employ such attorneys, recordkeepers, agents, and accountants as
it may deem necessary or advisable to assist it in carrying out its duties
hereunder. The Committee shall have no authority to allocate any of its powers,
authority, or responsibilities for the operation and administration of the Plan
to any other person. Each Employer, the Committee, and the Trustee are hereby
designated as "named fiduciaries" of the Plan as such term is defined in Section
402(a)(2) of the Act. The Company, by action of its Board of Directors, may
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(a) allocate any of the powers, authority, or responsibilities for
the operation and administration of the Plan, which are retained by it or
granted by this Article XIV to the Committee, to itself, to one or more
other Employers, to the Committee, or to the Trustee; and
(b) designate a person other than itself or the Committee to carry
out any of such powers, authority, or responsibilities;
provided, however, that no powers, authority, or responsibilities of the Trustee
shall be subject to the provisions of paragraph (b) of this Section 3; and
provided, further, that no allocation or delegation by the Company of any of its
or of the Committee's powers, authority, or responsibilities to the Trustee
shall become effective unless such allocation or delegation shall first be
accepted by the Trustee in a writing signed by it and delivered to the Company.
4. ACTION OF COMMITTEE. Any act authorized, permitted, or required to be
taken by the Committee under the Plan may be taken by a majority of the members
of the Committee at the time acting hereunder, either by vote at a meeting, or
in writing without a meeting. All notices, advices, directions, certifications,
approvals, and instructions required or authorized to be given by the Committee
under the Plan shall be in writing and signed by a majority of the members of
the Committee, or by such member or members as may be designated by an
instrument in writing, signed by all the members thereof and filed with the
Trustee, as having authority to execute such documents on its behalf. Subject to
the provisions of Section 5 of this Article XIV, any action taken by the
committee which is authorized, permitted, or required under the Plan shall be
final and binding upon the parties to this Plan, all persons who have or who
claim an interest under the Plan, and all third parties dealing with an
Employer, the Committee, or the Trustee.
5. CLAIMS REVIEW PROCEDURE. Whenever the
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Committee decides for whatever reason to deny, whether in whole or in part, a
claim for benefits filed by any person (hereinafter referred to as the
"Claimant"), the Plan Administrator shall transmit a written notice of the
Committee's decision to the claimant, which shall be written in a manner
calculated to be understood by the Claimant and contain a statement of the
specific reasons for the denial of the claim and a statement advising the
Claimant that, within 60 days of the date on which he receives such notice, he
may obtain review of the decision of the Committee in accordance with the
procedures hereinafter set forth. Within such 60-day period, the Claimant or his
authorized representative may request that the claim denial be reviewed by
filing with the Plan Administrator a written request therefor, which request
shall contain the following information:
(a) the date on which the Claimant's request was filed with the Plan
Administrator; provided, however, that the date on which the Claimant's
request for review was in fact filed with the Plan Administrator shall
control in the event that the date of the actual filing is later than the
date stated by the Claimant pursuant to this paragraph (a);
(b) the specific portions of the denial of his claim which the
Claimant requests the Plan Administrator to review;
(c) a statement by the Claimant setting forth the basis upon which
he believes the Plan Administrator should reverse the Committee's previous
denial of his claim for benefits and accept this claim as made; and
(d) any written material (offered as exhibits) which the Claimant
desires the Plan Administrator to examine in its consideration of his
position as stated pursuant to paragraph (c) of this Section 5.
Within 60 days of the date determined pursuant to paragraph (a) of this Section
5, the Plan Administrator shall conduct a full and fair review of the
Committee's decision denying the Claimant's claim for benefits. Within 60 days
of the date of such hearing, the Plan Administrator shall render its written
decision on review, written in a manner calculated to be understood
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by the Claimant, specifying the reasons and Plan provisions upon which its
decision was based.
6. RESIGNATION, REMOVAL, AND DESIGNATION OF SUCCESSORS. Any member of the
Committee may at any time resign, and any member may be removed by action of the
Board of Directors of the Company. Vacancies for these or other reasons shall be
filled by appointees of the Board of Directors of the Company, and any such
appointee shall become a member of the Committee by accepting his appointment as
provided in Section 1 of this Article XIV. The Committee shall promptly notify
the Trustee of any change in its membership. Nothing herein contained shall be
construed to prevent any Participant or any director, officer, employee, or
shareholder of an Employer from serving as a member of the Committee, but no
member of the Committee who is a Participant shall take any part in any action
relating solely to his participation.
7. RECORDS. The Committee shall maintain records of all meetings,
proceedings, and actions held, undertaken, or performed by it, and shall furnish
to the Company such reports as it may from time to time request. The Committee
may appoint as its Secretary, to keep a record of its meetings, proceedings, and
actions, a person who may, but need not be, a member of the Committee.
8. COMPENSATION. The members of the Committee shall receive no compensation
for their services performed as such, but any and all expenses, including,
without limitation, compensation to agents and counsel, reasonably incurred by
them in carrying out the powers and duties herein conferred, shall be paid from
the Trust property in accordance with and subject to the provisions of Section 7
of Article XV, subject, however, to allocation among all Employers, the share of
each to be determined by the Company on a fair and equitable basis.
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9. INDEMNIFICATION. In addition to whatever rights of indemnification the
members of the Committee or of the Board of Directors of an Employer, or any
other person or persons (other than the Trustee or any recordkeeper or third
party administrator) to whom any power, authority, or responsibility of the
Company or of the Committee is delegated pursuant to paragraph (b) of Section 3
of this Article XIV, may be entitled under the Articles of Incorporation,
regulations, or by-laws of an Employer, under any provision of law, or under any
other agreement, the Company shall satisfy, subject, however, to allocation
among all Employers, the share of each to be determined by the Company on a fair
and equitable basis, any liability actually and reasonably incurred by any such
member or such other person or persons, including expenses, attorneys' fees,
judgments, fines, and amounts paid in settlement, in connection with any
threatened, pending, or completed action, suit, or proceeding which is related
to the exercise or failure to exercise by such member or such other person or
persons of any of the powers, authority, responsibilities, or discretion
provided under this Plan, or reasonably believed by such member or such other
person or persons to be provided hereunder, and any action taken by such member
or such other person or persons in connection therewith.
10. QUALIFIED DOMESTIC RELATIONS ORDERS. The Committee shall establish
reasonable procedures to determine the status of domestic relations orders and
to administer distributions under domestic relations orders which are deemed to
be qualified orders. Such procedures shall be in writing and shall comply with
the provisions of Section 414(p) of the Code and regulations issued thereunder.
Notwithstanding anything to the contrary contained in the Plan, the Committee
shall direct the Trustee to make immediate distribution to or for the benefit of
an alternate payee under a domestic relations order that has been determined to
be a qualified order
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of the alternate payee's benefit under the Plan in any form which such benefit
may be paid under the Plan to the Participant or former Participant with respect
to whom such qualified order applies, but only if the qualified order provides
for the immediate distribution.
ARTICLE XV
INVESTMENT MANAGERS
-------------------
The Company at any time and from time to time, by action of its Board of
Directors, may appoint an Investment Manager to manage the investment of any
assets of the Trust. The term "Investment Manager" shall have the same meaning
as provided in Section 3(38) of the Act. Upon appointment of the Investment
Manager in writing and the written acknowledgment by the Investment Manager of
its status as a fiduciary with respect to the Plan and Trust, it shall have such
authority as is delegated to it by the resolution of the Board of Directors in
which it is appointed, together with such authority as thereafter from time to
time may be delegated to it by resolution of the Board of Directors. Upon the
appointment of an Investment Manager and the delegation to it of authority over
investment management as herein provided, the Trustee shall be required to
follow the written investment directions of the Investment Manager. Any such
written direction of the Investment Manager may be of a continuing nature, or
otherwise, and may be revoked or superseded by the Investment Manager at any
time by notice in writing to the Trustee.
ARTICLE XVI
AMENDMENT, TERMINATION, AND WITHDRAWAL
--------------------------------------
1. AMENDMENT. Subject to the provisions of Section 2 of this Article XVI,
the Company may at any time and from time to time, by action of its Board of
Directors, amend this Plan.
2. LIMITATION ON AMENDMENT. The Company shall
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<PAGE> 72
make no amendment to this Plan which shall result in the forfeiture or reduction
of the interest of any Participant, former Participant, or Beneficiary in any
Investment Fund, or in any insurance contract held hereunder; provided, however,
that nothing herein contained shall restrict the right to amend the provisions
hereof relating to the administration of the Plan and Trust. Moreover, no such
amendment shall be made hereunder which shall permit any part of the Trust
property to revert to an Employer or be used for or be diverted to purposes
other than the exclusive benefit of the Participants, former Participants, and
their beneficiaries.
3. TERMINATION. The Company reserves the right, by action of its Board of
Directors, to terminate the Plan at any time, which termination shall become
effective upon notice in writing to the Committee and to the Trustee (the
effective date of such termination being hereinafter referred to as the
"termination date"). The Plan shall terminate automatically if there shall be a
complete discontinuance of contributions by all Employers hereunder. In the
event of the termination of the Plan by the Company, any other Employer may
continue the Plan in effect for the benefit of its own employees. In the event
of the termination of the Plan, written notice thereof shall be given to all
persons who have a vested interest hereunder and to the Trustee. Notwithstanding
anything to the contrary contained in this Plan, upon any such Plan termination,
the interest of each Participant, former Participant, and Beneficiary shall
become fully vested and nonforfeitable; and, if there is a partial termination
of the Plan, the interest of each Participant, former Participant, and
Beneficiary who is affected by such partial termination shall become fully
vested and nonforfeitable. Moreover, no such Plan termination shall affect the
continuance of distributions from any account created prior to the termination
date, in accordance with the method determined prior to such date.
Notwithstanding
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<PAGE> 73
any termination of the Plan, the Committee shall continue in existence for all
purposes of administration until all assets of the Trust are completely
distributed by the Trustee, at which time the Trust itself shall automatically
terminate.
4. WITHDRAWAL OF AN EMPLOYER. Any Employer other than the Company may, by
action of its Board of Directors, withdraw from the Plan, such withdrawal to be
effective upon notice in writing to the Committee (the effective date of such
withdrawal being hereinafter referred to as the "withdrawal date"); and such
withdrawing Employer shall thereupon cease to be an Employer for all purposes
hereof. Moreover, a complete discontinuance by such an Employer of the
contributions otherwise required of it hereunder shall be deemed automatically
to constitute a withdrawal of such Employer from the Plan. Notwithstanding the
foregoing provisions of this Section 4, such withdrawing Employer may continue
the Plan in effect for the benefit of its own employees.
5. CORPORATE REORGANIZATION. The merger, consolidation, or liquidation of
the Company, any Employer, or any Related Corporation with or into the Company,
any other Employer, or any other Related Corporation shall not constitute a
termination of the Plan as to the Company or such Employer.
ARTICLE XVII
EXTENSION OF PLAN
-----------------
1. Adoption by Related Corporations. A Related Corporation may, by action
of its Board of Directors and with the consent of the Board of Directors of the
Company, adopt the Plan as of a specified date and become an Employer hereunder
by causing an appropriate written instrument evidencing such adoption to be
executed pursuant to the authority of its Board of Directors and filed with the
Company, the Committee, and the
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Trustee; and notice of such adoption shall be given by the adopting Employer to
its Employees.
2. SPECIAL PROVISIONS RELATING TO HOBSON BROTHERS ALUMINUM FOUNDRY & MOULD
WORKS, INC. Hobson Brothers Aluminum Foundry & Mould Works, Inc., an Ohio
corporation ("Hobson") became an Employer hereunder effective March 1, 1989.
Notwithstanding any other provision of the Plan to the contrary, for purposes of
Section 1 of Article III and Section 4 of Article XI, each Employee of Hobson
shall receive credit for his employment with Hobson Brothers Aluminum Foundry &
Mould Works, Ltd. prior to October 14, 1988, as if such employment were
employment with an Employer.
3. SPECIAL PROVISIONS RELATING TO PUREX POOL SYSTEMS, INC. Purex Pool
Systems, Inc., a Delaware corporation ("Purex"), became an Employer hereunder
effective upon the closing date of the transaction contemplated by the Purchase
Agreement between Purex Pool Systems, Inc. and Hydrotech Chemical Corporation
dated March 1, 1994 (the "Closing Date"). Notwithstanding any other provision of
the Plan to the contrary, for purposes of Section 1 of Article III and Section 4
of Article XI, each Employee of Purex shall receive credit for his employment
with Hydrotech Chemical Corporation prior to the Closing Date, for purposes of
determining eligibility to participate and years of vested service, as if such
employment were employment with an Employer. Moreover, notwithstanding the
provisions of Section 2 of Article III, each Employee of Purex who would have
become a Participant as of a date no later than October 1, 1993, based upon his
service as determined under this Section 3, shall become a Participant on the
Closing Date (a "Purex Participant"). Finally, notwithstanding the provisions of
Section 3 of Article III relating to Deferred Compensation Contribution
elections, each Purex Participant may make an election thereunder effective on
the Closing Date.
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<PAGE> 75
4. SPECIAL PROVISIONS RELATING TO ADVANCED STRUCTURES, INC. Advanced
Structures, Inc., an Ohio corporation ("ASI"), became an Employer hereunder
effective October 1, 1995. Notwithstanding any other provision of the Plan to
the contrary, for purposes of Section 1 of Article III and Section 4 of Article
XI, each Employee of ASI shall receive credit for his employment with Advanced
Structures, Inc., a California corporation, prior to October 1, 1995, for
purposes of determining eligibility to participate and years of vested service,
as if such employment were employment with an Employer. An Employee of ASI as of
October 1, 1995 who has a benefit under the Advanced Structures, Inc. 401(k)
Plan shall be referred to herein as an "ASI Participant" and the special
distribution rules of Article XXII shall apply to such Participants.
5. SPECIAL PROVISIONS RELATING TO COMPOOL, INC. Compool, Inc., an Ohio
corporation ("Compool"), became an Employer hereunder effective October 1, 1995.
Notwithstanding any other provision of the Trust Agreement to the contrary, for
purposes of Section 1 of Article III and Section 4 of Article XI, each Employee
of Compool shall receive credit for his employment with Compool Corporation, an
Ohio corporation, prior to October 1, 1995, for purposes of determining
eligibility to participate and years of vested service, as if such employment
were employment with an Employer.
ARTICLE XVIII
TOP-HEAVY PROVISIONS
--------------------
1. APPLICABILITY. Notwithstanding any other provision to the contrary, in
the event the Plan is deemed to be a top-heavy plan for any Plan Year, the
provisions contained in this Article XVIII with respect to vesting and Employer
contributions shall be applicable with respect to such Plan Year. In the event
that the Plan is determined to be a
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<PAGE> 76
top-heavy plan and upon a subsequent determination date is determined to no
longer be a top-heavy plan, the vesting and the Employer contribution provisions
in effect immediately preceding the Plan Year in which the Plan was determined
to be a top-heavy plan shall again become applicable as of such subsequent
determination date; provided, however, that in the event such prior vesting
schedule does again become applicable, the provisions of Section 5 of Article XI
and Section 2 of Article XVI shall apply (a) to preserve the nonforfeitable
accrued benefit of any Participant, former Participant, or Beneficiary and (b)
to permit any Participant with the requisite number of years of vested service
specified in Section 5 of Article XI to elect to continue to have his
nonforfeitable interest in his Employer Regular account and his Employer
Matching account determined in accordance with the vesting schedule applicable
while the Plan was a top-heavy plan.
2. TOP-HEAVY DEFINITIONS. For purposes of this Article XVIII, the following
definitions shall apply:
(a) The term "determination date" with respect to any Plan Year shall
mean the last day of the preceding Plan Year (or, in the case of the first
Plan Year of the Plan, the last day of the first Plan Year).
(b) The term "key employee" shall mean any Participant or former
Participant who is a key employee pursuant to the provisions of Section
416(i)(1) of the Code and any Beneficiary of such Participant or former
Participant.
(c) The term "non-key employee" shall mean any Participant who is not
a key employee.
(d) The term "permissive aggregation group" shall mean those plans
included in an Employer's required aggregation group in conjunction with
any other plan or plans of an Employer, so long as the entire group of
plans would continue to meet the requirements of Sections 401(a)(4) and 410
of the Code.
(e) The term "required aggregation group" shall include (i) all plans
of an Employer in which a key employee is a participant, and (ii) all other
plans of an Employer which enable a plan described in (i) to meet the
requirements of Sections 401(a)(4) or 410 of the Code.
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<PAGE> 77
(f) A "super top-heavy group" with respect to a particular Plan Year
shall mean a required or permissive aggregation group that, as of the
determination date, would qualify as a top-heavy group under the definition
in paragraph (h) of this Section 2 with "90 percent" substituted for "60
percent" each place where "60 percent" appears in such definition.
(g) The term "super top-heavy plan" with respect to a particular Plan
Year shall mean a plan that, as of the determination date, would qualify as
a top-heavy plan under the definition in paragraph (i) of this Section 2
with "90 percent" substituted for "60 percent" each place where "60
percent" appears in such definition. A plan is also a "super top-heavy
plan" if it is part of a super top-heavy group.
(h) The term "top-heavy group" with respect to a particular Plan Year
shall mean a required or a permissive aggregation group if the sum, as of
the determination date, of the present value of the cumulative accrued
benefits for key employees under all defined benefit plans included in such
group and the aggregate of the account balances of key employees under all
defined contribution plans included in such group exceeds 60 percent of a
similar sum determined for all employees covered by the plans included in
such group.
(i) The term "top-heavy plan" with respect to a particular Plan Year
shall mean (i), in the case of a defined contribution plan, a plan for
which, as of the determination date, the aggregate of the accounts (within
the meaning of Section 416(g) of the Code and the Regulations thereunder)
of key employees exceeds 60 percent of the aggregate of the accounts of all
participants under the plan, with the accounts valued as of the most recent
Valuation Date under the plan coinciding with or preceding the
determination date, and (ii), in the case of a defined benefit plan for
which, as of the determination date, the present value, as of the relevant
Valuation Date, of the cumulative accrued benefits payable under the plan
(within the meaning of Section 416(g) of the Code and the Regulations
thereunder) to key employees exceeds 60 percent of the present value, as of
the relevant Valuation Date, of the cumulative accrued benefits under the
plan for all employees, with present value of accrued benefits to be
determined in accordance with the actuarial assumptions specified in such
defined benefit plan. In the case of a defined benefit plan, the accrued
benefit of a Participant other than a key employee shall be determined
under the method, if any, that uniformly applies for accrual under all
defined benefit plans maintained by the Employer or if there is no such
method, as if such benefit accrued not more rapidly than the slowest
accrual rate permitted under the fractional rule of Section 411(b)(1)(C) of
the Code. A plan is also a "top-heavy plan" if it is part of a top-heavy
group. For purposes of this Article XVIII, the Valuation Date" with respect
to each determination date for a defined benefit plan shall mean the most
recent date on which plan costs for minimum funding purposes have been
determined.
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<PAGE> 78
For purposes of this paragraph (i), for any Plan Year beginning after
December 31, 1984, the accounts and accrued benefits of any employee who
has not performed any service for any Employer or a Related Corporation
during the five-year period ending on the determination date shall be
disregarded.
(j) The term "Compensation" with respect to any Participant shall mean
Compensation as defined under Section 415 of the Code.
3. ACCELERATED VESTING. In the event the Plan is determined to be a
top-heavy plan with respect to any Plan Year beginning after December 31, 1983,
a Participant shall have the nonforfeitable percentage of the balances of his
Employer Regular account and Employer Matching account determined no less
rapidly than by application of the following vesting schedule:
<TABLE>
<CAPTION>
Years of Vested Service
-----------------------
Nonforfeitable Percentage
-------------------------
<S> <C>
Less than 2 years 0%
2 years but less than 3 years 20%
3 years but less than 4 years 40%
4 years but less than 5 years 60%
5 years but less than 6 years 80%
6 years or more 100%
</TABLE>
4. MINIMUM EMPLOYER CONTRIBUTION. In the event the Plan is determined to be
a top-heavy plan with respect to any Plan Year beginning after December 31,
1988, the Employer contributions (other than Deferred Compensation
Contributions) and forfeitures allocated to the Separate Accounts of each
Participant who is a non-key employee who is not separated from service with the
Employers as of the end of such Plan Year shall be no less than the lesser of
(a) three percent of his Compensation or (b) the largest percentage of
Compensation that is allocated for such Plan Year to the Separate Accounts of
any key employee attributable to Employer contributions and forfeitures
(including Deferred Compensation Contribu-
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<PAGE> 79
tions), except that, in the event the Plan is part of a required aggregation
group, and the Plan enables a defined benefit plan included in such group to
meet the requirements of Section 401(a)(4) or 410 of the Code, the minimum
allocation of Employer contributions and forfeitures to the Separate Accounts of
each nonkey employee shall be three percent of the Compensation of such non-key
employee. Any minimum allocation to the Separate Accounts of a Participant
required by this Section 4 shall be made without regard to the number of hours
of service credited to such Participant for the Plan Year and without regard to
any social security contribution made by an Employer on behalf of the
Participant. Notwithstanding the minimum top-heavy allocation requirements of
this Section 4, in the event that the Plan is a top-heavy plan, each non-key
employee hereunder who is also covered under a top-heavy defined benefit plan
maintained by an Employer will receive the top-heavy benefits provided for under
such defined benefit plan equal to his average Compensation during the testing
period multiplied by the lesser of two percent times years of service with the
Employers or twenty percent, all as described in such plan, in lieu of the
minimum top-heavy allocation under the Plan.
5. ADJUSTMENTS TO SECTION 415 LIMITATIONS. Notwithstanding the provisions
of paragraph (d) of Section 4 of Article X, in the event that the Plan is a
top-heavy plan and an Employer maintains a defined benefit plan covering some or
all of the employees that are covered by the Plan, the denominators of the
defined benefit and defined contribution fractions described in paragraph (d) of
Section 4 of Article X of the Plan, shall be computed by substituting "1.0" for
"1.25," and the special transition rule for the defined contribution fraction
for Plan Years ending after December 31, 1982, as permitted by Section
415(e)(6)(B)(i) of the Code, shall be applied to the Plan by substituting
"$41,500" for "$51,875"; except
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<PAGE> 80
that such substitutions shall not be applied to the Plan if (a) the Plan is not
a super top-heavy plan, (b) the Employer contribution for such Plan Year
allocated to a non-key employee who participates only under one or more defined
contribution plans of an Employer is not less than four percent of such non-key
employee's Compensation, and (c) the minimum annual retirement benefit accrued
by a non-key employee who participates only under one or more defined benefit
plans of an Employer or who participates under both a defined benefit and a
defined contribution plan of an Employer is not less than the lesser of his
average Compensation during the testing period multiplied by the lesser of three
percent times years of service with an Employer or thirty percent, all as
described in such defined benefit plans.
6. COMPENSATION TAKEN INTO ACCOUNT. The annual Compensation of any
Participant to be taken into account under the Plan during any Plan Year in
which the Plan is determined to be a top-heavy plan shall not exceed $150,000
for Plan Years beginning on or after October 1, 1994 (subject to adjustment
annually as provided in Section 401(a)(17)(B) and Section 415(d) of the Code).
ARTICLE XIX
MERGER OF ESSEF CORPORATION
TAX CREDIT EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST
------------------------
1. MERGER OF THE PLANS AND TRUSTS. Effective September 30, 1987, the ESSEF
Corporation Tax Credit Employee Stock Ownership Plan (the "ESOP") maintained
under instrument made effective October 1, 1983, as amended, was merged into and
made a part of the Plan, and the trust maintained in conjunction with the ESOP
was merged into and made a part of the Trust.
2. EMPLOYER STOCK FUND. The Trustee maintains hereunder a common trust fund
known as the Employer Stock Fund, which is
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<PAGE> 81
designed to invest primarily in Shares and meet the applicable requirements of
Section 409 of the Code. The Employer Stock Fund shall hold and administer such
assets as were transferred from the trust maintained in conjunction with the
ESOP and the increments, proceeds, investments, and reinvestments thereof, in
accordance with the provisions of this Article XIX, but subject to all
provisions of this Plan relating to the Trust property in general. All of the
provisions of Article XV shall apply as stated therein, except that all
references to an Investment Fund shall be construed and applied as meaning the
Employer Stock Fund. The interest of each Participant in the Employer Stock Fund
shall be an undivided interest.
3. SEPARATE ACCOUNTS. A Separate Account (hereinafter referred to as an
"ESOP account") shall be maintained in accordance with the provisions of Section
2 of Article IX in the name of each Participant who prior to September 30, 1987,
was participating in the ESOP, which shall reflect such account's pro rata share
of annual net increase or decrease in value of assets of the Employer Stock
Fund.
4. ADMINISTRATION AND VALUATION OF ESOP ACCOUNTS. As of each Valuation Date
the Trustee shall be directed to value the assets of the Employer Stock Fund and
adjust all ESOP accounts in the same manner as provided in Section 5 of Article
X with respect to the Investment Funds, except that in making such valuation and
adjustment only the Employer Stock Fund shall be taken into consideration.
Notwithstanding the foregoing, all valuations of Shares acquired after December
31, 1986, which are not readily tradable on an established securities market
with respect to activities carried on by the Plan shall be made by an
independent appraiser meeting requirements similar to those contained in
regulations under Section 170(a)(1) of the Code. The ESOP account of a former
Participant shall be charged with the amount of any distribution made from the
Employer Stock Fund
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<PAGE> 82
with respect to such former Participant as of the date of distribution.
Notwithstanding the foregoing provisions of this Section 4, Shares shall be
accounted for separately from other contributions to the Plan, and such
additional sub-accounts as may be appropriate to accomplish this purpose shall
be maintained. All of the provisions of Article XVI shall apply as stated
therein, except that all references to an Investment Fund shall be construed and
applied as meaning the Employer Stock Fund.
5. ADJUSTMENTS TO TAX CREDIT. Contributions under the ESOP were based on
the amount of Tax Credit. In the event that the amount of any Tax Credit claimed
by the Company on its consolidated federal income tax return for any taxable
year under Section 41(a)(2) of the Internal Revenue Code of 1954, as amended
(the "1954 Code") is reduced as the result of a final determination of federal
income tax, then the amount of the employer contributions attributable thereto
which were transferred to the trust for the ESOP shall remain in the Employer
Stock Fund and shall continue to be allocated to Participants. No further
contributions shall be made by the Company pursuant to the ESOP. No allocations
of contributions shall be made to ESOP accounts, and no amendment shall be made
to the Plan which changes provisions of the Plan governing the amount, price,
and timing of any grant or award of Shares pursuant to the ESOP feature of the
Plan more frequently than once every six months, other than to comport with
changes in the Code, the Act, or the rules thereunder.
6. VESTED INTEREST OF PARTICIPANTS. Subject to the provisions of Sections
15 and 16 of this Article XIX, the balance of each of the Participants' ESOP
accounts shall be and remain fully vested and nonforfeitable at all times.
7. EMPLOYER STOCK FUND DIVIDENDS. All dividends earned by Shares held in
the Employer Stock Fund shall be reinvested by the
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<PAGE> 83
Trustee in the Employer Stock Fund.
8. VOTING SHARES. Before each meeting of its shareholders and provided that
the Company does not have a registration-type class of securities, the Company
shall cause to be sent to the Trustee and to each Participant, former
Participant, and Beneficiary to whom any amount is then allocated in an ESOP
account for such person, a description of any corporate matter to be considered
at the meeting which (by law or charter) involves the voting of Shares with
respect to the approval or disapproval of any corporate merger or consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all assets of a trade or business, or such similar transaction as
may be prescribed by federal regulations, together with a form requesting that
each such person give to the Trustee his confidential instructions with respect
to the manner in which his proportionate interest in the Shares held in the
Employer Stock Fund on the relevant record date shall be voted by the Trustee
with respect to such matter. If the Company does have a registration-type class
of securities, before each meeting of its shareholders the Company shall cause
to be sent to the Trustee and to each Participant, former Participant, and
Beneficiary to whom any amount is then allocated in an ESOP account for such
person, a description of any corporate matter to be considered at the meeting,
together with a form requesting that each such person give to the Trustee his
confidential instructions with respect to the manner in which his proportionate
interest in such Shares shall be voted by the Trustee with respect to such
matter. The Trustee shall be directed to vote such Shares as instructed upon
receipt of any such instructions and be held in the strictest confidence and
shall not be divulged or released to any person, including officers or employees
of the Company, except to the extent deemed necessary by the Trustee in order to
vote such Shares. The Trustee shall be directed not to
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<PAGE> 84
vote any such Shares with respect to which it does not receive instructions
hereunder.
9. DISTRIBUTION. Notwithstanding the provisions of Section 3 of Article XI,
when a Participant incurs his Settlement Date, his ESOP account shall continue
to be maintained until distribution is made in accordance with the provisions of
this Plan relating to distributions generally. Distributions from the Employer
Stock Fund shall be made in the form of cash; provided, however, that a former
Participant or his Beneficiary shall have the right to elect, by written notice
delivered to the Committee in accordance with its rules, to receive all or a
portion of his interest in the Employer Stock Fund in Shares, except that an
amount equivalent in value to a fractional Share otherwise payable hereunder
shall be paid in cash. Notwithstanding anything to the contrary contained in
this Plan, a Participant may elect to have the portion of his ESOP account
attributable to Shares acquired by the Plan after December 31, 1986, distributed
as follows:
(a) If the Participant separates from service by reason of the
attainment of age 65, death, or disability, the distribution of such
portion of the Participant's ESOP account will begin not later than one
year after the close of the Plan Year in which such event occurs, unless
the Participant otherwise elects under provisions of this Plan other than
this Section 9.
(b) If the Participant separates from service for reason other than
those enumerated in paragraph (a) above, and is not reemployed by an
Employer or a Related Corporation at the end of the fifth Plan Year
following the Plan Year of such separation from service, distribution of
such portion of the Participant's ESOP account will begin not later than
one year after the close of the fifth Plan Year following the Plan Year in
which the Participant separated from service, unless the Participant
otherwise elects under provisions of this Plan other than this Section 9.
(c) If the Participant separates from service for a reason other than
those enumerated in paragraph (a) above, and is employed by an Employer or
a Related Corporation as of the last day of the fifth Plan Year following
the Plan Year of such separation from service, distribution to the
Participant, prior to any subsequent separation from service, shall be only
in accordance with terms of this Plan other than
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<PAGE> 85
this Section 9.
Distributions required under paragraphs (a), (b), and (c) of this Section 9
shall be made in substantially equal annual payments over a period of five years
unless the Participant otherwise elects under provisions of this Plan other than
this Section 9. In no event shall such distribution period exceed the period
permitted under Section 401(a)(9) of the Code. The portion of a Participant's
ESOP account attributable to Shares which were acquired by the Plan after
December 31, 1986, shall be determined in the manner described in Section 10 of
this Article XIX, unless federal regulations or administrative pronouncements of
the Internal Revenue Service otherwise require.
10. SPECIAL DIVERSIFICATION DISTRIBUTIONS. Each Qualified Participant shall
be permitted to elect distribution of 25 percent of the value of his ESOP
account attributable to Shares which were acquired by the Plan after December
31, 1986, as determined below, within 90 days after the last day of each Plan
Year during the Participant's Qualified Election Period. Within 90 days after
the close of the last Plan Year in the Participant's Qualified Election Period,
a Qualified Participant may elect distribution of 50 percent of the value of
such account. The Participant's election shall be provided to the Company in
writing and shall be effective no later than 180 days after the close of the
Plan Year to which the election applies. In the event a Qualified Participant
makes such an election, the Trustee shall be directed to distribute
(notwithstanding Section 409(d) of the Code) the portion of the Participant's
ESOP account balance that is covered by the election within 90 days after the
last day of the period during which the election can be made. Such distribution
shall be subject to such requirements of Section 13 of this Article XIX. This
Section 10 shall apply notwithstanding any other provision of this Plan other
than such provisions as require the consent of the Participant to a distribution
with
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<PAGE> 86
a present value in excess of $3,500. If the Participant does not consent to a
distribution under this Section 10, such amount shall be retained in the Trust.
Any distribution under this Section 10 shall be made first from Shares allocated
to the Participant's ESOP account at least 84 months before the month in which
the distribution occurs. For purposes of this Section 10, in determining the
portion of a Participant's ESOP account attributable to Shares which were
acquired by the Plan after December 31, 1986, there shall be disregarded the
following Shares:
(a) Shares acquired by or contributed to the ESOP on or before
December 31, 1986, but allocated to Participants' accounts after that date;
(b) Shares acquired by or contributed to the ESOP after December 31,
1986, if with respect to such Shares a Tax Credit was calculated with
reference to Compensation paid or accrued prior to January 1, 1987, such
Shares were acquired or contributed within the time period provided in
Section 404(a)(6) of the Code plus such additional time allowed for
contributions to the ESOP under Section 41(c)(2) and 41(c)(4) of the 1954
Code, and the Shares were allocated as of a date no later than the last day
of the Plan Year ending within the Company's first taxable year ending on
or after December 31, 1986;
(c) Shares acquired after December 31, 1986, which were purchased with
contributions made to the ESOP in cash on or before December 31, 1986, if
such contributions were used to purchase Shares within 60 days after the
date of the contribution;
(d) Shares acquired after December 31, 1986, which were purchased with
earnings or dividends paid in cash on or before December 31, 1986, if such
earnings or dividends were used to purchase Shares within 60 days from the
date of payment to the ESOP; and
(e) Any other Shares permitted to be disregarded for this purpose
under federal regulations or other administrative pronouncement of the
Internal Revenue Service.
Moreover, in determining the Shares subject to the diversification election
under this Section 10, it shall be presumed that Shares allocated to Separate
Accounts after December 31, 1986, consist first of those acquired or contributed
after such date. Finally, if the fair market value, determined
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<PAGE> 87
at the Valuation Date immediately preceding the first day on which a Qualified
Participant is eligible to make a diversification election, of the Shares
acquired or contributed to the Plan after December 31, 1986, and allocated to a
Qualified Participant's ESOP account is $500 or less, then the foregoing
provisions permitting a diversification election shall not apply with respect to
such Qualified Participant for such year. The portion of a Qualified
Participant's ESOP account subject to the diversification election in each year
in the Qualified Election Period shall be determined by computing either 25
percent or 50 percent, as the case may be, of the Shares subject to the
diversification election that have ever been allocated to his ESOP account on or
before the most recent allocation date and reducing such amount by the number of
Shares previously distributed to him pursuant to a diversification election.
11. OVERRIDING PROVISION. Notwithstanding anything to the contrary
contained in this Plan other than Section 10 of this Article XIX, no Share which
was allocated under the ESOP to a Participant may be distributed prior to the
expiration of eighty-four (84) months following the month in which such Share
was allocated to such Participant except in the case of
(a) the death, disability or separation from service of such
Participant;
(b) a transfer of such Participant to the employment of an acquiring
employer from the employment of his Employer in the case of a sale to the
acquiring employer of substantially all of the assets used by such Employer
in a trade or business conducted by it; or
(c) a disposition of an Employer's interest in a subsidiary when such
Participant continues employment with the subsidiary so disposed.
In the event paragraph (b) or (c) of this Section 11 is applicable, each such
Participant shall be deemed to have incurred his Settlement Date on the date
such event occurs. For purposes of this Section 11, appropriate records
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showing the dates on which allocations of Shares are made shall be maintained by
the Committee (or if the Committee so elects, by such other person or entity as
the Committee shall designate).
12. RIGHT OF FIRST REFUSAL. At any time when Shares are not publicly
traded, all Shares distributed by the Trustee may, as determined by the Company,
be subject to a "right of first refusal." Such a "right" shall provide that
prior to any subsequent transfer, the Shares must first be offered by written
offer to the Trust, and then, if refused by the Trust, to the Company. In the
event that the proposed transfer constitutes a gift or other such transfer at
less than fair market value, the price per share shall be the fair market value
determined as of the Valuation Date coinciding with or immediately preceding the
date offered to the Trust. In the event of a proposed purchase by a prospective
bona fide purchaser, the offer to the Trustee and the Company shall be at the
greater of fair market value or at the price offered to be paid by the
prospective bona fide purchaser; provided, however, that the Trust shall not
purchase any Shares when the purchase price of such Shares is in excess of fair
market value. The Trust or Company, as the case may be, may accept the offer at
any time during a period not exceeding 14 days after receipt of such offer.
13. "PUT" OPTION. A former Participant or a Beneficiary, or a donee or heir
of a former Participant or Beneficiary, shall be granted at the time that Shares
not readily tradable on an established market are distributed to him, an option
to "put" such Shares to the Company; provided, however, that the Trust shall
have the option to assume the rights and obligations of the Company at the time
the "put" option is exercised. A "put" option shall provide that, for a period
of 60 days (excluding any period during which the Company is prohibited from
honoring the "put" option by, applicable federal or state law) after such Shares
are distributed by the
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Trustee to a former Participant or Beneficiary, the former Participant or
Beneficiary, or his donee or heir, shall have the right to have the Company
purchase such Shares at their fair market value, and if the "put" option is not
exercised within such sixty (60) day period, it may be exercised during an
additional period of at least sixty (60) days commencing on the first
anniversary of the date such Shares were distributed by the Trustee. For
purposes of this Section 13, fair market value shall be based on the fair market
value determined as of the Valuation Date coinciding with or immediately
preceding the date of exercise. Such "put" option shall be exercised by
notifying the company in writing. If the entire balance to the credit of the
Participant is distributed within one taxable year of the Participant or his
Beneficiary, payment of the fair market value of the Participant's ESOP account
balance shall be made no less rapidly than in five substantially equal annual
payments over a period beginning not later than 30 days after the exercise of
the "put," and adequate security shall be provided and reasonable interest paid
on amounts not paid after 30 days. If the distribution of the Participant's ESOP
account is part of an installment distribution, payment of the fair market value
of the Shares repurchased shall be made no later than 30 days after exercise of
the "put."
14. OTHER OPTIONS. Except as otherwise provided in this Article XIX, no
person may be required to sell Shares to the Company, nor may the Trust enter
into an agreement which obligates the Trust to purchase Shares upon the death of
a shareholder.
15. NONTERMINABLE PROTECTION AND RIGHTS. Except as provided in Sections 12
and 13 of this Article XIX, or as otherwise required by applicable law, no Share
may be subject to put, call, or other option, or buy-sell or similar arrangement
while held by or when distributed from the Trust, whether or not the Plan is an
employee stock ownership plan.
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Moreover, if the Trustee holds or distributes any Shares which are not publicly
traded without restriction when distributed or which cease to be so traded
within the otherwise applicable "put" option periods, and the Plan is not then
an employee stock ownership plan, the "put" option described in section 13 of
this Article XIX shall be nonterminable with respect to such Shares; provided,
however, that in the case of such Shares ceasing to be publicly traded without
restriction within the otherwise applicable "put" option periods, the Company
shall notify each distributes described in such Section 13 who is then holding
any such Shares in writing on or before the tenth day after the date the Shares
cease to be so traded that for the remainder of such period or periods such
Shares are subject to a "put" option and the terms thereof, all as set forth in
such Section 13; and provided, further, that the number of days between such
tenth day and the date on which notice is actually given, if later than on the
tenth day, shall be added to the duration of the "put" option.
16. EXPENSES. All expenses of administering the Employer Stock Fund shall
be paid by the Employer Stock Fund as a general charge thereon, as the Committee
shall from time to time direct, to the extent that such expenses do not exceed
the lesser of:
(a)the sum of (i) ten percent of the first $100,000 of the dividends
paid to the Plan with respect to Shares during such Plan Year, and
(ii) five percent of the amount of such dividends in excess of
$100,000, or
(b) $100,000.
All such expenses not so paid shall be paid by the Company, subject, however, to
allocation among all Employers, the share of each to be determined by the
Company on a fair and equitable basis.
17. GENERAL PROVISIONS. All of the provisions of Article XVI shall apply
with respect to the Employer Stock Fund as stated
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therein, except that all references to an Investment Fund shall be construed and
applied as meaning the Employer Stock Fund.
18. DEFINITIONS. For purposes of this Article XIX, the following words and
phrases as used herein shall have the following meanings, unless a different
meaning is plainly required by the context:
(a) The "Shares" shall mean common stock issued by the Company which
is readily tradable on an established securities market, or, if there is no
such common stock, the term shall mean common stock of the Company with
voting power and dividend rights no less favorable than the voting power
and dividend rights of other common stock of the Company.
(b) The "Tax Credit" shall mean the employee stock ownership tax
credit that is described in Section 41(a)(2) of the 1954 Code and that is
contingent upon meeting the requirements of Section 41(c)(1) of the 1954
Code.
(c) A "Qualified Participant" shall mean a Participant or former
Participant who has attained age 55 and who has completed at least ten
years of participation in the Plan.
(d) The "Qualified Election Period" shall mean the five Plan Year
period beginning with the later of
(i) the Plan Year after the Plan Year in which the Participant attains
age 55; or
(ii) the Plan Year after the Plan Year in which the Participant first
becomes a Qualified Participant.
ARTICLE XX
MINIMUM DISTRIBUTION REQUIREMENTS
---------------------------------
1. OVERRIDING PROVISION. The requirements of this Article XX shall apply to
any distribution of a Participant's interest and will take precedence over any
inconsistent provisions of the Plan. Unless otherwise specified, the provisions
of this Article XX apply to calendar years beginning after December 31, 1984.
All distributions required under this Article XX shall be determined and made in
accordance with the Treasury Regulations under Section 401(a)(9) of the Code,
including the minimum
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distribution incidental benefit requirement of Treasury Reg. Section
1.401(a)(9)-2.
2. REQUIRED BEGINNING DATE. The entire interest of a Participant must be
distributed or begin to be distributed no later than the Participant's required
beginning date, otherwise in accordance with the provisions of Section 6 of
Article XI.
3. LIMITS ON DISTRIBUTION PERIODS. As of the first distribution calendar
year, distributions, if not made in a single lump-sum payment, may only be made
over one of the following periods (or a combination thereof):
(a) the life of the Participant,
(b) the life of the Participant and a Beneficiary,
(c) a period certain not extending beyond the life expectancy of the
Participant, or
(d) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a Beneficiary.
4. DISTRIBUTION BEGINNING BEFORE DEATH. If the Participant dies after
distribution of his interest has begun, the remaining portion of such interest
will continue to be distributed at least as rapidly as under the method of
distribution being used prior to the Participant's death.
5. DISTRIBUTION BEGINNING AFTER DEATH. If the Participant dies before
distribution of his interest begins, distribution of the Participant's entire
interest shall be completed by December 31 of the calendar year containing the
fifth anniversary of the Participant's death except to the extent that an
election is made to receive distributions in accordance with (a) or (b) below:
(a) if any portion of the Participant's interest is payable to a
Beneficiary, distributions may be made over a period certain not greater
than the life expectancy of the Beneficiary commencing on or before
December
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31 of the calendar year immediately following the calendar year in which
the Participant died;
(b) if the Beneficiary is the Participant's surviving spouse, the date
distributions are required to begin in accordance with (a) above shall not
be earlier than the later of (1) December 31 of the calendar year
immediately following the calendar year in which the Participant died and
(2) December 31 of the calendar year in which the Participant would have
attained age 70-1/2.
If the Participant has not made an election pursuant to this Section 5 by the
time of his death, the Participant's Beneficiary must elect the method of
distribution no later than the earlier of (1) December 31 of the calendar year
in which distributions would be required to begin under this Section 5, or (2)
December 31 of the calendar year which contains the fifth anniversary of the
date of death of the Participant. If the Participant has no Beneficiary, or if
the Beneficiary does not elect a method of distribution, distribution of the
Participant's entire interest must be completed by December 31 of the calendar
year containing the fifth anniversary of the Participant's death.
6. DEATH OF SURVIVING SPOUSE. For purposes of Section 5 of this Article XX,
if the surviving spouse dies after the Participant, but before payments to such
spouse begin, the provisions of Section 5 of this Article XX, with the exception
of paragraph (b), shall be applied as if the surviving spouse were the
Participant.
7. AMOUNTS PAYABLE TO CHILD. For purposes of Sections 4 and 5 of this
Article XX, any amount paid to a child of the Participant will be treated as if
it had been paid to the surviving spouse if the amount becomes payable to the
surviving spouse when the child reaches the age of majority.
8. COMMENCEMENT DATE. For the purposes of Sections 4, 5, 6, and 7 of this
Article XX, distribution of a Participant's interest is considered to begin on
the Participant's required beginning date
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(or, if Section 6 of this Article XX is applicable, the date distribution is
required to begin to the surviving spouse pursuant to Section 5 of this Article
XX).
9. DEFINITIONS. For purposes of this Article XX, the following definitions
and other provisions shall apply:
(a) APPLICABLE LIFE EXPECTANCY. The life expectancy (or joint and last
survivor expectancy) calculated using the attained age of the Participant
(or Beneficiary) as of the Participant's (or Beneficiary's) birthday in the
applicable calendar year reduced by one for each calendar year which has
elapsed since the date life expectancy was first calculated. If life
expectancy is being recalculated, the applicable life expectancy shall be
the life expectancy as so recalculated. The applicable calendar year shall
be the first distribution calendar year, and if life expectancy is being
recalculated such succeeding calendar year.
(b) BENEFICIARY. The individual who is designated as the Beneficiary
under the Plan in accordance with Section 401(a)(9) of the Code and the
regulations thereunder.
(c) DISTRIBUTION CALENDAR YEAR. A calendar year for which a minimum
distribution is required. For distributions beginning before the
Participant's death, the first distribution calendar year is the calendar
year immediately preceding the calendar year which contains the
Participant's required beginning date. For distributions beginning after
the Participant's death, the first distribution calendar year is the
calendar year in which distributions are required to begin pursuant to
Sections 4, 5, 6, 7, and 8 of this Article XX.
(d) LIFE EXPECTANCY. Life expectancy and joint and last survivor
expectancy are computed by use of the expected return multiples in Tables V
and VI of Treasury Reg. Section 1.72-9.
Unless otherwise elected by the Participant (or spouse, in the case of
distributions described in Section 5(b) of this Article XX) by the time
distributions are required to begin, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the
Participant (or spouse) and shall apply to all subsequent years. The life
expectancy of a nonspouse Beneficiary may not be recalculated.
(e) REQUIRED BEGINNING DATE.
(i) GENERAL RULE. The required beginning date of a Participant is
the first day of April of the
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calendar year following the calendar year in which the Participant attains
age 70-1/2.
(ii) TRANSITIONAL RULE. The required beginning date of a Participant
who attains age 70 before January 1, 1988, shall be determined in
accordance with (1) or (2) below:
(1) NON-5-PERCENT OWNERS. The required beginning date of a Participant
who is not a "5-percent owner" (as defined in (iii) below) is the first day
of April of the calendar year following the calendar year in which the
later of retirement or attainment of age 70-1/2 occurs.
(2) 5-PERCENT OWNERS. The required beginning date of a Participant who
is a 5-percent owner during any year beginning after December 31, 1979, is
the first day of April following the later of:
(A) the calendar year in which the Participant attains age 70-1/2, or
(B) the earlier of the calendar year with or within which ends the
Plan Year in which the Participant becomes a 5-percent owner, or the
calendar year in which the Participant retires.
The required beginning date of a Participant who is not a 5-percent
owner who attains age 70-1/2 during 1988 and who has not retired as of
January 1, 1989, is April 1, 1990.
(iii) 5-PERCENT OWNER. A Participant is treated as a 5-percent owner
for purposes of this paragraph (e) if such Participant is a 5-percent owner
as defined in Section 416(i) of the Code (determined in accordance with
Section 416 of the Code but without regard to whether the Plan is
top-heavy) at any time during the Plan Year ending with or within the
calendar year in which such owner attains age 66-1/2 or any subsequent Plan
Year.
iv) Once distributions have begun to a 5-percent owner under this paragraph
(e) they must continue to be distributed, even if the Participant ceases to be a
5-percent owner in a subsequent year.
10. TRANSITIONAL RULE. Notwithstanding the other requirements of this
Article XX, distribution on behalf of any Participant, including a 5-percent
owner, may be made in accordance with all of the following requirements
(regardless of when such distribution commences):
(a) The distribution by the Trust is one which would not have
disqualified the Trust under Section 401(a)(9) of the Code as in effect
prior to amendment by the Deficit Reduction Act of 1984.
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(b) The distribution is in accordance with a method of distribution
designated by the Participant whose interest in the Trust is being
distributed or, if the Participant is deceased, by a Beneficiary of such
Participant.
(c) Such designation was in writing, was signed by the Participant or
the Beneficiary, and was made before January 1, 1984.
(d) The Participant had accrued a benefit under the Plan as of
December 31, 1983.
(e) The method of distribution designated by the Participant or the
Beneficiary specifies the time at which distribution will commence, the
period over which distributions will be made, and in the case of any
distribution upon the Participant's death, the beneficiaries of the
Participant listed in order of priority.
A distribution upon death will not be covered by this transitional rule unless
the information in the designation contains the required information described
above with respect to the distributions to be made upon the death of the
Participant. For any distribution which commences before January 1, 1984, but
continues after December 31, 1983, the Participant or the Beneficiary to whom
such distribution is being made, will be presumed to have designated the method
of distribution under which the distribution is being made if the method of
distribution was specified in writing and the distribution satisfied the
requirements in paragraphs (a) and (e) of this Section 10 of this Article XX. If
a designation is revoked any subsequent distribution must satisfy the
requirements of Section 401(a)(9) of the Code and the regulations thereunder. If
a designation is revoked subsequent to the date distributions are required to
begin, the Trust must distribute by the end of the calendar year following the
calendar year in which the revocation occurs the total amount not yet
distributed which would have been required to have been distributed to satisfy
Section 401(a)(9) of the Code and the regulations thereunder, but for the
Section 242(b)(2) election. For calendar years beginning after December 31,
1988, such distributions must meet the minimum distribution incidental benefit
requirements in Treasury
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Reg. Section 1.401(a)(9)-2. Any changes in the designation will be considered to
be a revocation of the designation. However, the mere substitution or addition
of another Beneficiary (one not named in the designation) under the designation
will not be considered to be a revocation of the designation, so long as such
substitution or addition does not alter the period over which distributions are
to be made under the designation, directly or indirectly (for example, by
altering the relevant measuring life). In the case in which an amount is
transferred or rolled over from one plan to another plan, the rules in Q&A J-2
and Q&A J-3 of Treasury Reg. Section 1.401(a)(9)-1 shall apply.
ARTICLE XXI
MERGER OF HOBSON BROTHERS MOULD PATTERN WORKS, LTD.
SALARY REDUCTION PROFIT SHARING PLAN AND TRUST
----------------------------------------------
1. MERGER OF PLANS AND TRUSTS. Effective as of September 30, 1989, the
Hobson Brothers Mould & Pattern Works, Ltd. Salary Reduction Profit Sharing Plan
(the "Hobson Plan") was merged into and made a part of the Plan, and its related
trust (the "Hobson Trust") was merged into and made a part of the Trust, and the
provisions of this Plan thereafter govern with respect to the interests of
participants in the Hobson Plan.
2. ALLOCATED INSURANCE CONTRACTS. Any allocated insurance contract held
under the Hobson Plan shall continue to be held by the Trustee under the Trust
for the benefit of the Participant with respect to whom it was issued, but no
additional amounts shall be deposited under any such contract. Distribution of
or under any such contract shall be made in accordance with its terms at such
time or times as distribution may otherwise be made under the Plan, subject to
the provisions of Article XXII. In the event that a Participant determines to
surrender any such contract, the proceeds shall thereupon be deposited in the
Investment Funds in accordance with his investment election made in accordance
with Article VIII and credited to his Hobson account described below.
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3. SEPARATE ACCOUNTS. A Separate Account (hereinafter referred to as a
"Hobson account") shall be maintained in accordance with the provisions of
Section 2 of Article IX in the name of each person who immediately prior to
September 30, 1989, was participating in the Hobson Plan, and an account shall
be maintained as described in Section 3 of Article IX in the name of each person
who on September 30, 1989, was a participant under the Hobson Plan but who had
terminated employment. There shall be credited to each such account an amount
equal to such person's account balance (other than amounts attributable to
allocated insurance contracts) under the Hobson Plan on September 30, 1989,
after adjustment for valuation and any allocations of contributions and
forfeitures as of such date in accordance with the provisions of the Hobson Plan
(including any contribution received by the Trustee with respect to the Hobson
Plan for any period prior to the merger described in this Article XXI) (the
"Hobson Benefit").
4. SPECIAL SUB-ACCOUNTS. There shall also be maintained with respect to
each account established under Section 3 of this Article XXI, sub-accounts for
each participant in the Hobson Plan to reflect the portion of each such account
under the Plan which is attributable to (i) salary reduction contributions made
to the Hobson Plan, (ii) matching contributions made to the Hobson Plan, (iii)
additional profit-sharing contributions made by the employer under the Hobson
Plan, and (iv) participant rollover contributions made to the Hobson Plan. The
Committee shall maintain a record of the amount of each Participant's salary
reduction contributions under the Hobson Plan and income credited with respect
thereto as of December 31, 1988.
5. NONFORFEITABLE BENEFIT. The Hobson Benefit of each Participant and
former Participant shall be at all times fully vested
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and nonforfeitable.
6. WITHDRAWAL OF ROLLOVER CONTRIBUTIONS. Subject to the provisions of
Article XXII, a Participant may, by giving prior written notice to the Company,
withdraw amounts attributable to his participant rollover contributions made to
the Hobson Plan, in which event his Separate Account shall be adjusted to
reflect such withdrawal.
ARTICLE XXII
SPECIAL DISTRIBUTION RULES
--------------------------
Distribution of a Participant's Hobson Benefit and an ASI Participant's
entire interest ("ASI Benefit") shall commence in accordance with the provisions
of Section 6 of Article XI, except that a former Participant whose amount
distributable under the Plan exceeds $3,500, may elect to defer commencement of
his Hobson Benefit until such time as distribution is required in accordance
with Section 401(a)(9) of the Code. Notwithstanding any provision of the Plan to
the contrary, unless the amount distributable to a former Participant under the
Plan does not (and did not at the time of any prior distribution) exceed $3,500,
distribution of a former Participant's Hobson Benefit or ASI Benefit shall be
made in accordance with the following provisions:
(a) A former Participant who is not married shall receive distribution
of his Hobson Benefit or his ASI Benefit, in the form of an annuity for
life ("Life Annuity"), which shall be provided through the purchase with
the Hobson Benefit or ASI Benefit of a single premium, nontransferable
annuity contract from a legal reserve life insurance company authorized to
do business in the State of Ohio, unless another method of distribution
under Section 6 of Article XI is elected pursuant to a qualified election
within the 90-day period ending on the date benefit payments would
commence.
(b) A former Participant who is married shall receive distribution of
his Hobson Benefit or ASI Benefit in the form of an annuity for the life of
the former Participant with a survivor annuity for the life of the former
Participant's spouse that is equal to 50% of the amount of the annuity
payable during the joint lives of the former Participant and the spouse
("50% Joint and Survivor Annuity"), which shall
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be provided through the purchase with the Hobson Benefit or ASI Benefit of
a single premium, nontransferable annuity contract from a legal reserve
life insurance company authorized to do business in the State of Ohio,
unless another method of distribution under Section 6 of Article XI is
elected pursuant to a qualified election within the 90-day period ending on
the date benefit payments would commence.
(c) A qualified election for purposes of paragraphs (a), (b) and (e)
of this Article XXII means a written waiver of the Life Annuity or 50%
Joint and Survivor Annuity or Preretirement Survivor Annuity, if
applicable, and designation of an alternative method of distribution, which
waiver has been consented to by the Participant's spouse, if any, and the
consent acknowledges the effect of the waiver, has been witnessed by a Plan
representative or Notary Public, and is limited to a benefit for a specific
alternate Beneficiary or to a specific form of benefit. A written waiver by
a Participant without spousal consent will constitute a qualified election
if the Participant establishes to the satisfaction of a Plan representative
that spousal consent cannot be obtained either because there is no spouse
or because the spouse cannot be located. Any spousal consent to a waiver of
a 50% Joint and Survivor Annuity and Preretirement Survivor Annuity shall
be valid only with respect to the spouse who signs the consent or, in the
case of a deemed qualified election, with respect to the designated spouse.
A Participant may revoke a prior qualified election without spousal consent
at any time before the commencement of benefits, but any subsequent waiver
shall be valid only if it satisfies the requirements of a qualified
election.
(d) Each Participant with a Hobson Benefit or ASI Benefit shall be
provided by the Company no less than 30 days (unless waived by the
Participant in a manner which complies with applicable Treasury
Regulations) and no more than 90 days before the commencement of benefits a
written explanation of (i) the terms and conditions of the Life Annuity or
50% Joint and Survivor Annuity, (ii) the Participant's right to make and
the effect of an election to waive the Life Annuity or 50% Joint and
Survivor Annuity, (iii) the rights of a Participant's spouse, if
applicable, and (iv) the eligibility conditions and other material features
of the other methods of distribution, including the relative values of the
distribution methods.
(e) A Participant who is and has been married throughout the one year
period ending on the date of his death and who dies prior to the
commencement of distribution of his Hobson Benefit shall be deemed to have
elected distribution of 50% of his Hobson Benefit or, if an ASI
Participant, his entire ASI Benefit in the form of an annuity for the life
of the surviving spouse of the Participant ("Preretirement Survivor
Annuity"), which shall be provided through the purchase with 50% of the
Hobson Benefit or ASI Benefit of a single premium, nontransferable annuity
contract from a legal reserve life insurance company authorized to do
business in the State of
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Ohio, unless the Participant has filed a qualified election, as defined in
paragraph (c) of this Article XXII, with the Company during the applicable
election period that has not been withdrawn; provided, however, that any
Hobson Benefit or ASI Benefit under the Plan that is not distributed in the
form of a Preretirement Survivor Annuity shall be distributed pursuant to
the qualified election of the Participant on file with the Company or
alternatively pursuant to the provisions of Article IV. The surviving
spouse may elect to have payment commence within a reasonable period of
time following the date of the Participant's death. The applicable election
period is the period which begins on the first day of the Plan Year in
which the Participant attains age 35 and ends on the date of the
Participant's death. If a Participant separates from service prior to the
first day of the Plan Year in which age 35 is attained, the election period
with respect to a Preretirement Survivor Annuity shall begin on the date of
separation.
(f) Each Participant with a Hobson Benefit or ASI Benefit shall be
provided by the Company within the applicable period a written explanation
of (i) the terms and conditions of the Preretirement Survivor Annuity, (ii)
the Participant's right to make and the effect of an election to waive the
Preretirement Survivor Annuity, and (iii) the rights of a Participant's
spouse. The term "applicable period" means with respect to a Participant,
whichever of the following periods ends last:
(A) 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;
(B) a reasonable period after the individual becomes a Participant;
(C) a reasonable period ending after the Preretirement Survivor
Annuity is no longer fully subsidized;
(D) a reasonable period ending after Section 401(a)(11) of the Code
applies to the Participant;
(E) a reasonable period after separation from service in the case of a
Participant who separates before attaining age 35.
(g) The provisions of this Article XXII shall be effective with
respect to distributions including benefits accrued under the Hobson Plan
or the ASI Plan to the extent necessary to satisfy the requirements of the
Retirement Equity Act of 1984.
(h) All other provisions of the Plan shall apply to the distribution
of the Hobson Benefit and the ASI Benefit, but only to the extent the
provisions are not
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contrary to the provisions of this Article XXII.
ARTICLE XXIII
PARTICIPANT LOANS
-----------------
1. APPLICATION FOR LOANS. Upon the application of any Participant, the
Committee, in accordance with a uniform, nondiscriminatory policy set forth in
written procedures established by the Committee, may approve a loan to such
Participant from the Participant's Deferred Compensation Account - A, Rollover
account, or salary reduction subaccount of his Hobson account. The total of any
such loans made to a given Participant shall not exceed the lesser of:
(a) Fifty Thousand ($50,000) Dollars (reduced by the highest
outstanding balance of any other loan to the Participant from the Plan or
another plan of an Employer or a related corporation during the preceding
12 month period); or
(b) One-half (1/2) of the Participant's nonforfeitable interest in the
Plan and all other qualified plans maintained by the Employer.
2. REPAYMENT OF LOANS. Any such loan shall be repaid by the Participant in
such manner as the Committee shall determine, provided that the Committee shall
require that such loan be repaid with substantially level payments of principal
and interest being made by payroll deduction, within a specified period of time
not extending beyond the earlier of (a) the Participant's termination of
employment, (b) the revocation of his payroll deduction authorization, or (c)
the fifth (5th) anniversary of the date of the loan. The five (5) year
limitation shall not apply to any loan used to acquire any dwelling unit which
within a reasonable time is to be used (determined at the time the loan is made)
as the principal residence of the Participant. In the event of a default by a
Participant on a loan made
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<PAGE> 103
by the Plan, the Trustee may not attach or otherwise enforce collection against
such Participant's account until such time as he would have been entitled to a
distribution under the terms of the Plan.
3. INTEREST. All such loans shall be investments of the Trust, interest
being charged thereon at a rate determined by the Committee based on what is
customary in similar arms-length transactions in the community, considering the
adequacy and type of collateral used to secure repayment of the loan.
4. COLLATERAL. Loans under this Article shall not be approved unless the
loan(s) can be adequately secured using the Participant's vested account
balance. No more than fifty (50%) percent of the present value of the
Participant's account balance shall be used as collateral on all loans to the
Participant. No loan shall be made pursuant to this Article to a Participant who
is an ASI Participant as defined in Section 4 of Article XVII, or to a
Participant borrowing from his Hobson Benefit as defined in Section 4 of Article
XXI, unless, if married at the time the loan is granted, the Participant's
spouse consents, in writing, to the use of the Participant's account balance as
security for the loan.
ARTICLE XXIV
MISCELLANEOUS PROVISIONS
------------------------
1. NO COMMITMENT AS TO EMPLOYMENT. Nothing herein contained shall be
construed as a commitment or agreement upon the part of any Participant
hereunder to continue his employment with an Employer, and nothing herein
contained shall be construed as a commitment on the part of an Employer to
continue the employment or rate of Compensation of any Participant hereunder for
any period.
2. BENEFITS. Nothing in this Plan shall be construed to confer any right or
claim upon any person other than the parties
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<PAGE> 104
hereto, Participants, former Participants, and beneficiaries.
3. NO GUARANTEES. Neither the Company, any Employer, nor the Committee
guarantees the Trust from loss or depreciation, nor the payment of any amount
which may become due to any person hereunder.
4. PRECEDENT. Except as otherwise specifically provided, no action taken in
accordance with this Plan by the Company, any other Employer or the Committee
shall be construed or relied upon as a precedent for similar action under
similar circumstances.
5. DUTY TO FURNISH INFORMATION. Each of the Company, the other Employers or
the Committee shall furnish to any of the others any documents, reports,
returns, statements, or other information that any of the others reasonably
deems necessary to perform its duties imposed hereunder or otherwise imposed by
law.
6. WITHHOLDING. The Trustee shall be directed to withhold any tax which by
any present or future law is required to be withheld from any payment to any
Participant, former Participant, or Beneficiary hereunder, unless an Employer
shall have notified the Trustee in writing to the effect that the Employer has
withheld such tax.
7. MERGER, CONSOLIDATION, OR TRANSFER OF PLAN ASSETS. The Plan shall not be
merged or consolidated with any other plan, nor shall any of its assets or
liabilities be transferred to another plan, unless, immediately after such
merger, consolidation, or transfer of assets or liabilities, each Participant in
the Plan would receive a benefit under the Plan which is at least equal to the
benefit he would have received immediately prior to such merger, consolidation,
or transfer of assets or liabilities (assuming in each instance that the Plan
had then terminated).
8. CONDITION ON EMPLOYER CONTRIBUTIONS. Notwithstanding anything to the
contrary contained in this agreement, any
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<PAGE> 105
obligation of any Employer to make any contribution hereunder is hereby
conditioned upon (i) for periods prior to December 22, 1987, the continued
qualification of the Plan under Section 401(a) of the Code, provided that such
contribution shall be returned to such Employer within one year after the date
of denial of qualification of the Plan in connection with an amendment to the
Plan or Trust and (ii) the deductibility of the contribution under Section 404
of the Code, provided that such contribution shall be returned to such Employer
(to the extent disallowed) within one year after the disallowance of the
deduction. Furthermore, a contribution which is made by any Employer under a
mistake of fact shall be returned to such Employer within one year after the
payment of the contribution. Except as otherwise provided in this Section 8,
however, in no event shall any portion of the Trust property ever revert to or
otherwise inure to the benefit of any Employer or a Related Corporation.
9. BACK PAY AWARDS. The provisions of this Section 9 shall apply only to an
Employee or former Employee who becomes entitled to back pay by an award or
agreement of an Employer without regard to mitigation of damages. If a person to
whom this Section 9 applies was or would have been eligible to make an election
under Section 3 of Article III after the hours of service applicable to such
back pay award or agreement have been credited in accordance with the provisions
of Article II, and if such person shall make within 30 days of the date he
receives notice of the provisions of this Section 9 an election under Section 3
of Article III (retroactive to any ppayroll period he was or has become eligible
to do so), then any Deferred Compensation Contributions which were not
previously made but which, after application of the foregoing provisions of this
Section 9, would have been made under the provisions of Section 1 of Article V,
if such Participant so elects, shall be made out of the proceeds of such back
pay
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<PAGE> 106
award or agreement. To the extent that any Deferred Compensation Contributions
are made in accordance with the provisions of the foregoing sentence, his
Employer shall also make a Matching Employer contribution for such Participant,
in addition to a contribution equal to any other Employer contributions and
forfeitures which would have been allocated to the Participant as of the last
day of a Plan Year under the provisions of Article X, as in effect during the
period to which the back pay award or agreement relates. The amount of such
additional contributions shall be credited
(a) to his Deferred Compensation account-A, Deferred Compensation
account-B, Employer Regular account, and Employer Matching account, as
appropriate, if such person is a Participant when the award or agreement is
made or becomes a Participant as a result of the provisions of this Section
9, or
(b) to his account if such person is a former Participant whose
Settlement Date occurred under Section 1 of Article XI before the award or
agreement is made; moreover, if a portion of such former Participant's
Employer Regular account and Employer Matching account was not credited to
his account under Section 3 of Article XI as of his Settlement Date, the
amount of such additional contribution for him shall include an amount
equal to the difference, if any, between the amount which would have been
so credited after application of the provisions of this Section 9 and the
amount which was so credited.
Any additional contributions made by such Employer pursuant to this Section 9
shall be made in accordance with, and subject to the limitations of, Articles V
and VI.
10. VALIDITY OF PLAN. The validity of this Plan shall be determined and
construed and interpreted in accordance with the Act and the Code, and to the
extent not preempted thereby, by laws of the State of Ohio. The invalidity or
illegality of any provision of this Plan shall not affect the legality or
validity of any other part thereof.
11. PARTIES BOUND. This Plan shall be binding upon the parties hereto, the
Employers, the Committee, all Participants, former Participants, and
beneficiaries hereunder, and, as the case may be, the
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<PAGE> 107
heirs, executors, administrators, successors, and assigns of each of them.
12. LEASED EMPLOYEE. The term "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 Section 414(n)(6) of the Code) 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: (i) such
employee is covered by a money purchase pension plan providing: (1) a
nonintegrated employer contribution rate of at least 10 percent of Compensation,
as defined in Section 415(c)(3) of the Code, but including amounts contributed
pursuant to a salary reduction agreement which are excludable from the
employee's gross income under Section 125, Section 402(a)(8), Section 402(h) or
Section 403(b) of the Code, (2) immediate participation, and (3) full and
immediate vesting; and (ii) leased employees do not constitute more than 20
percent of the recipient's nonhighly compensated work force.
13. AGENTS, RECORDKEEPERS, ATTORNEYS AND ACCOUNTANTS. The Company and
Committee are empowered to employ such agents, recordkeepers, attorneys
(including attorneys who may be counsel for the Company) and accountants as
they, or either of them, may deem necessary or proper in connection with the
maintenance and administration of the Plan. Subject to the provisions of Section
16 of Article XIX, the reasonable compensation and expenses of such agents,
recordkeepers, attorneys and
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<PAGE> 108
accountants shall be paid out of the Trust property; provided, however, that the
Company may elect to make payment of such amounts, subject, however, to
allocation among all Employers, the share of each to be determined by the
Company on a fair and equitable basis.
ARTICLE XXV
DIRECT ROLLOVER
---------------
1. DIRECT ROLLOVER ELECTION. This Article applies to distributions made on
or after January 1, 1993. Notwithstanding any provision of the plan to the
contrary that would otherwise limit a distributee's election under this Article,
a distributee may elect, at the time and in the manner prescribed by the plan
administrator, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
2. DEFINITIONS.
(a) Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any portion of the balance to
the credit of the distributee, except that an eligible rollover
distribution does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the distributee's
designated Beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Section
401(a)(9) of the Code; and the portion of any distribution that is not
includible in gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to employer securities).
(b) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the distributee's
eligible rollover 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) Distributee: A distributee includes an employee or former
employee. In addition, the employee's or former employee's surviving spouse
and the employee's or former employee's spouse or former spouse who is the
alternate payee under a qualified
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<PAGE> 109
domestic relations order, as defined in Section 414(p) of the Code, are
distributees with regard to the interest of the spouse or former spouse.
(d) Direct rollover: A direct rollover is a payment by the plan to the
eligible retirement plan specified by the distributee.
IN WITNESS WHEREOF, the Company, by its duly authorized officers, has
caused this Plan to be executed as of the day and year first above written.
ESSEF CORPORATION
By ____________________________
Title:
And ___________________________
Title:
103
<PAGE> 1
Exhibit 11
----------
COMPUTATION OF PER SHARE EARNINGS
The computation of primary earnings per share is as follows:
<TABLE>
<CAPTION>
Year Ended September 30
1996 1995
---- ----
<S> <C> <C>
Weighted average shares outstanding 5,112,834 4,949,485
Add equivalent shares for
stock options (a) 879,233 881,613
--------- ---------
Average shares outstanding for
computation of primary earnings
per share 5,992,067 5,831,098
========= =========
Income before extraordinary
item $9,326,000 $6,591,000
========= =========
Net income $9,326,000 $7,511,000
========= =========
Primary earnings per common share:
Before extraordinary item $1.56 $1.13
========= =========
Net income $1.56 $1.29
========= =========
<FN>
(a) Computed under the "Treasury Stock Method" using the average market price
for the respective period.
</TABLE>
<PAGE> 1
Exhibit 13
Movement, Storage and Treatment of Water:
A Global Industry
ESSEF
1996 Annual Report
<PAGE> 2
[Reverse-type caption]
ABOUT THE COMPANY
Essef Corporation is the world's largest supplier of high-performance composite
components and subsystems for the movement, storage, and treatment of water and
other liquids. The Company's products, which incorporate advanced technologies,
are basic to nearly every water treatment filtration or storage system
manufactured today. End users in more than fifty countries on six continents
rely on Essef's skilled people to provide products and services that deliver
integrated solutions for commercial, residential, industrial, and municipal
applications.
[Text resumes]
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share data)
1996 1995 Change
-----------------------------------
<S> <C> <C> <C>
Net Sales $200,864 $157,507 + 27.5%
Income From Operations 17,039 11,905 + 43.1
Income Before Extraordinary Item 9,326 6,591 + 41.5
Net Income 9,326 7,511 + 24.2
Net Income Per Share Before
Extraordinary Item 1.56 1.13 + 38.1
Net Income Per Share 1.56 1.29 + 20.9
Shareholders' Equity 53,338 51,426 + 3.7
Return on Shareholders' Equity 17.4% 17.4% --
Book Value Per Share $ 11.11 $ 9.91 + 12.1
</TABLE>
GENERAL INFORMATION
ANNUAL MEETING
The Annual Meeting of Shareholders of Essef Corporation will be held at the
Corporate offices on January 23, 1997, at 10:00 a.m.
FORM 10-K
Copies of the Company's Annual Report on Form 10-K as filed with the Securities
and Exchange Commission will be provided upon written request to:
Stuart D. Neidus
Executive Vice President and
Chief Financial Officer
Essef Corporation
220 Park Drive
Chardon, Ohio 44024
TRANSFER AGENT AND REGISTRAR
Key Corp Shareholder Services, Inc.
127 Public Square, Post Office Box 6477, Cleveland, Ohio 44115
Customer Service (800) 542-7792.
STOCK EXCHANGE LISTING
Essef Corporation Common Shares are listed in the NASDAQ Stock Market under the
symbol ESSF.
<PAGE> 3
TO OUR SHAREHOLDERS:
Our return on stockholders' equity last year was 17.4%, resulting in earnings
of $9,326,000 or $1.56 per share. The EPS increased 38.1% from the previous
year's $1.13 before extraordinary item, well above our long-term goal of a
15-20% increase per year. Sales also set a new record at $200,864,000, an
increase of 27.5%. Growth came both from acquisitions made in fiscal 1995 as
well as from internal growth, as anticipated in our strategy. Our cash generated
from operations increased over 45% to $16,403,000 with the majority of the funds
used for capital expenditures and our stock repurchase program.
1996 REVIEW
In contrast with 1995 when we made three acquisitions, our attention in 1996
was focused on assimilating acquisitions and on investments supporting internal
growth. We continue to be very pleased with the acquisitions we have made. In
all cases they are contributing to earnings and generally their organizations
have been successfully integrated. Particularly strong growth took place at
CodeLine, formerly Advanced Structures, Inc., under Peter Darby's leadership
where sales increased over 20% and profits exceeded expectations. This
acquisition increased our participation in the rapidly growing membrane
filtration market with a product line that shares technology and distribution
channels with our pressure vessel operations.
The most important investment commitment that we made during the year was to
India and Southeast Asia. We formed a wholly owned subsidiary in India and
expect to complete a 70,000 square foot plant there this year. Initially the
organization will produce and market pressure vessels for export and domestic
use while gradually adding other Essef products including resold products and
products developed or produced under license to meet the needs of the region. We
also opened an office in Taiwan and will add additional sales people in the
region in 1997.
In North America we began a plant expansion in Chardon, Ohio to expand
capacity and to broaden our line which now includes the largest composite
pressure vessels in the world at 96 inches in diameter and 5,000 gallons in
capacity. A line of commercial boilers was developed by adapting and scaling up
the technology of our very successful MiniMax heater. A family of smaller, lower
cost membrane filter pressure vessels was introduced for the commercial market
to complement our traditional strength in the high performance specification
market. One of the product areas with the greatest potential is pressure vessels
in various hot water applications. Historically, composite vessels were limited
to applications up to 150 degrees F, but this year we field tested, gained
certification for and began selling designs which work at 180 degrees F. Our
goal is 240 degrees F.
In all, we developed some 50 products, all reflecting our strong and
continuing commitment to internal growth, to new products and to continuous
improvement in every business. This commitment is reflected in our engineering
and development expenditures which increased 33% to $5.5 million.
Hobson did not recover quickly from its fire and had a poor year, earning
$.08 per share less than in fiscal 1995. We are continuing to try to sell Hobson
but will do so only at a satisfactory price. However, Hobson's poor performance
was offset by the improvement of ENPAC which made a slight positive
contribution. While we are encouraged about ENPAC's performance, we are watching
it closely to prevent unpleasant surprises and are working with its management
to develop an appropriate business strategy. The start-up and development costs
of our joint venture, Reflex-
3
<PAGE> 4
[Reverse-type caption]
"The year's numbers--17.4% return on equity, $200 million in sales, $1.56 in
earnings--reflect a successful year as a result of hard work by an outstanding
group of people and a generally favorable economic environment."
"Along with our commitment to superior operating performance, we are committed
to providing attractive long term returns to shareholders, returns which reflect
those operating results."
"Your Company today has the best people, the broadest capability, best
positioning and soundest financial condition in its history. With that, we are
committed to producing superior operating results and returns to you, our
shareholders."
[Text resumes]
WellMate, reduced our earnings by about $.04 per share as the implementation
date of the German legislation which the joint venture's products were designed
to meet was delayed until early 1997. The products developed for Reflex-WellMate
are our first entree into the European market for pressure vessels in hot water
systems.
The year's numbers--17.4% return on equity, $200 million in sales, $1.56 in
earnings--reflect a successful year as a result of hard work by an outstanding
group of people and a generally favorable economic environment. What the numbers
conceal are the many expenditures that were made and programs that were
undertaken to ensure the continuation of that success in the future.
STRATEGY
Essef is the world's leading producer of composite pressure vessels for the
movement, storage and treatment of water. The goal of our development work is to
increase the capability of those vessels to make them suitable for use in more
applications, applications where metal vessels are presently required.
Capability spans many characteristics including for example, size, temperature
capability, pressure rating and cost. The Chardon expansion addresses the size
characteristic and will open new markets in applications such as very large
filters for water parks and aquariums. Increased temperature capability is being
broadly addressed and will lead us into hot water storage and expansion tanks
and vessels used in hot water processing systems such as commercial dishwashers.
Development work in membrane housings is focused on lower pressure, lower cost
vessels to be offered to the fast growing commercial and industrial markets.
Most of the pressure vessels sold in the world are still made of metal. The
primary pressure vessel strategy will continue to be to displace metal vessels
by developing vessels that can outperform metal ones and offer increased value
to the user. We believe that superior product performance and increased value
will translate into a growing business with superior profit margins.
Essef is also one of the world's leading producers of swimming pool
equipment. While our original entry into this market was manufacturing pressure
vessels for use as filters, we now offer a broad line of equipment. The pool
market in the U.S., which accounts for about 60% of the world's market, is
consolidating and we intend to emerge from the consolidation as one of the
leaders with an even broader line and stronger position than before. This will
be accomplished through a strong customer and cost focus, a continuing
commitment to innovative product development and more strategic acquisitions.
Our primary pool strategy is to be one of the leading suppliers of a full line
of products for the pool industry.
We have developed water handling expertise throughout Essef but particularly
in the pool business. Expertise in areas such as filtration, water heating, and
pumping can be applied to many other markets. Another element of our growth
strategy is to use that expertise to start new ventures to attack new markets.
Our final overall strategy is to become much more international. We believe
that while the developing markets are small today, the highest growth rates for
our products are in those markets outside the U.S. and Europe, and we are
committing significant resources to those areas. The plant in India, office in
Taiwan, initiatives in Southeast Asia, the Caribbean, Central and South America,
Eastern Europe and the Middle East are all aimed at that opportunity.
<PAGE> 5
ORGANIZATION
Stu Neidus became our Chief Financial Officer in September. Stu with his
broad experience as a Partner in a Big 6 accounting firm as well as an Executive
Vice President in a very successful Fortune 500 company brings strong new
capabilities to the traditional investor relations, treasury and controllership
functions. However, he has experience in and will also be involved with
acquisitions, systems, human resources and overall company operations and
strategy.
Peter Bajka, Peter Darby and Rino Leoni, the three successful entrepreneurs
from whom we made our three acquisitions last year, are all enjoying their
association with us. We are fortunate to be able to augment our management with
them.
Sunil Ghorawat joined us and has moved his family back to India where he has
become the Managing Director of our new Indian subsidiary.
OUTLOOK
A full year of operations of the three acquisitions completed in the fourth
quarter of 1995, new product introductions, geographic expansion and a
combination of healthy economies and good weather led to strong growth in 1996.
When we analyze the opportunities I have described, we believe that we can
continue to produce trend line growth of 10-15% and 15-20% per year in sales and
earnings respectively, coming equally from internal growth and acquisitions.
While there is some possibility of accelerating that growth with a major
acquisition, we are committed to maintaining our sharp focus and profitable
performance and will not act rashly to jeopardize what we have accomplished.
We believe that we have earned superior returns on stockholders' equity in
the last several years and that such results can continue with the strategy in
place. We are pleased that, in the November 1996 issue, Forbes magazine
recognized our performance by selecting us as one of the "Forbes Best 200 Small
Companies in America." While we take satisfaction from our accomplishments, we
are disappointed that they are not more highly valued by the stock market. While
our limited number of tradeable shares can be blamed in part, we believe that we
deserve a higher multiple than the 11-12 we have at an $18 stock price,
especially in today's elevated stock market. Along with our commitment to
superior operating performance, we are committed to providing attractive long
term returns to shareholders, returns which reflect those operating results. If
we are unable to convince the investment community that our value is much
greater than that reflected in our stock price, we will explore other options to
have shareholders benefit from our performance. Other options would include a
merger or sale of the Company, a more extensive share buyback program or, taking
the Company private.
Your Company today has the best people, the broadest capability, best
positioning and soundest financial condition in its history. With that, we are
committed to producing superior operating results and returns to you, our
shareholders.
Thomas B. Waldin
President and Chief Executive Officer
December 2, 1996
5
<PAGE> 6
[Reverse-type caption]
Structural North America's composite pressure vessels are used to provide
ultra-pure water for the electronics market.
Pac-Fab's
PurexTriton(R)
brand offers water filtration solutions to countries around the world.
WellMate's
high-performing line of low-profile tanks are ideal for booster and in-line
applications.
Controls, pumps, heaters, filters and valves -- all produced by Pac Fab --
are key components of swimming pools and spas.
[Text resumes]
<PAGE> 7
Expanding
and Capturing Growth
Opportunities
Essef made great strides in fiscal 1996, increasing the size and number of
its markets and its ability to successfully attack those markets with innovative
technology and products and a responsive organization. At the same time, the
demand for Essef's products -- components and systems to move, store, and treat
water -- continues to grow steadily in every part of the world. As a result,
Essef has significantly increased its ability to grow, not only with the
market, but also to enlarge its share of the market and sustain its solid growth
record.
Every part of the world needs clean water for health, commerce, agriculture,
and recreation. Each of these uses requires components and systems to utilize
the world's limited water resources in a more cost-effective manner. This need
is growing most rapidly in the developing regions of the world. As high
technology and basic manufacturing businesses expand globally, they require pure
water to maintain world-class quality. In addition, equipment for wastewater
treatment is critical to permit industrial expansion without a threat to the
environment and to protect public water supplies. This industrial demand, steady
population growth, and the increasing desire for a cleaner and more reliable
residential water supply is creating strong, long-term growth opportunities for
Essef.
Essef has built its business on the design, manufacture, and marketing of
high-performance, composite pressure vessels and allied components for the
storage, treatment, and movement of water. In fiscal 1996, Essef shipped more
than 1 million pressure vessels to markets around the world. Perhaps more
important, it simultaneously developed new proprietary technologies to expand
the end-use applications of its pressure vessels and components. The hot water
storage and treatment market is now open for the first time to composite
technologies. In addition, new technology has broken several size barriers that
previously restricted the use of composites in high-volume applications.
These developments, along with the introduction of more than fifty new and
refined products, have increased Essef's multi-billion dollar available market
by more than 20% at the same time that the base demand for water treatment
products is increasing by at least 5% per year on a global basis.
World-class engineering has positioned
Essef's Companies as recognized leaders in the markets they serve.
[Graphics]
(Above) Essef continually strives to build products -- and partnerships -- that
will achieve continued growth.
(Left) Research, development and testing are key to maintaining Essef's
leadership position.
7
<PAGE> 8
[Reverse-type caption]
Structural North America's high-temperature vessels are used in wide variety of
commercial and industrial applications.
A complete line of water treatment products is designed and marketed by
Structural Europe N.V.
CodeLine's membrane housing systems are an integral part of municipal water
treatment facilities across the country.
ENPAC's innovative line of hazardous material containment products protects
workers and the environment.
[Text resumes]
<PAGE> 9
Essef now employs more than a dozen brand names as vehicles for building the
successful sale of its products around the world. Strong brands provide Essef's
distribution partners, as well as its own Euroimpex distributor in Italy, the
marketing focus and competitive power to capture their increasing business
opportunities. The solid growth of our swimming pool segment in fiscal 1996
clearly demonstrates the power of Essef's brand names, as PurexTriton has become
widely recognized for the quality, durability, and functionality it represents.
Geographic expansion was a significant focus for the Company in fiscal 1996.
The recognition of Asia as a very attractive market stimulated the formation of
Structural India Private, Limited. This new subsidiary has already received
government approvals to construct a 70,000 square foot facility to manufacture
pressure vessels in Goa, located on the west coast of India. The new facility
will economically serve a number of markets, including Europe, the United
States, and other Asian countries in addition to India. The facility should
begin production by late 1997. Essef has added local sales people in several
countries in Asia in order to stimulate product demand and grow current market
share. Additional initiatives which began in 1996 in South America, the
Caribbean, and the Middle East should yield results in fiscal 1997.
Essef's investments in people development played a major role in the progress
of the business in fiscal 1996 and has increased the potential for continued
profitable growth in future years. The company accelerated the implementation of
world-class manufacturing processes in order to improve product quality,
customer responsiveness, and both people and asset productivity. Essef also
invested heavily in equipment and systems in order to increase its competitive
advantages. With these investments, Essef is building a clear and sustainable
advantage over its competitors, other composite and plastic product
manufacturers, as well as steel pressure vessel manufacturers. These investments
also provide the company with much stronger ties with its distribution partners.
With a global perspective, proprietary technologies, and a motivated group of
dedicated people, Essef is truly making its mark in an industry that is just
becoming recognized by the investment community for its growth opportunities. We
are building an organization that is capturing these opportunities for the
benefit of our shareholders, employees, customers, and vendors.
[Graphics]
Leading edge manufacturing technology maximizes efficiency, quality and
throughput.
(Above) Essef products routinely meet or exceed the exacting standards of the
American Society of Mechanical Engineers.
(Left) Essef prides itself on its customer focused and product knowledgeable
people.
9
<PAGE> 10
[Reverse-type caption]
SWIMMING POOL AND
SPA EQUIPMENT BRANDS
WATER TREATMENT
AND SYSTEMS EQUIPMENT
BRANDS
[Text resumes]
REVIEW
OF SEGMENTS AND
OPERATIONS
SWIMMING POOL AND SPA EQUIPMENT SEGMENT
The Swimming Pool and Spa Equipment segment reached a new milestone in
fiscal 1996, surpassing the $100,000,000 mark in sales for the first time at
$103,201,000 and increasing income from operations 14% to $9,563,000.
PAC-FAB, INC.
Pac-Fab strengthened its position in fiscal 1996 as a world-leading
manufacturer of swimming pool equipment by focusing on the highest standards in
customer service, introducing a record number of new products, expanding into
new markets, and continuing to improve its operations through highly motivated
and well-trained employee teams.
COMPLETE SYSTEM PRODUCT OFFERING
Purex, acquired in 1994, and Compool, acquired in late 1995, have been
fully integrated with Pac-Fab, incorporating the product strengths of each
business into PurexTriton(R), a complete line of pool and spa equipment. The
PurexTriton line includes market-leading products such as WhisperFlo(TM) pumps,
Triton(TM) filters, and MiniMax(TM) heaters. Adding Compool valves, actuators,
and computer controls creates a complete pool and spa system and provides
greater value, easier operation, and happier pool owners. Pac-Fab is now the
only manufacturer in the world offering a complete line of computer-controlled
spa and pool equipment.
The complete line of PurexTriton products carries a full-system warranty
and is backed by service support ready for quick-response shipment to customers
from both the North Carolina and California distribution centers. A new
information system, combined with improved processes, has increased order
processing speed and improved communication with customers.
PRODUCT LINE EXPANSION
As a result of an outstanding product development team, Pac-Fab has
introduced and is developing more new and innovative products than at any time
in the Company's history. In 1996, Compool introduced a line of easy-to-use
computer controls, which offer industry-leading features. The recently enhanced
MiniMax heater line has electronic controls and a balanced flue exhaust, which
improves operation in severe wind conditions. Adding to the success of the
<PAGE> 11
MiniMax outdoor heater, the new PowerMax(TM) heater was developed with induced
draft for indoor application, and the MiniMax XL line of stainless steel heaters
offers pool owners extended life and superior operation. The filter line has
also been expanded with a new cartridge filter series, which offers a lower cost
and user-friendly design. Continuing Pac-Fab's growth in the commercial segment,
its line of composite pumps will be available up to 25 horsepower. A complete
line of pool heaters and automatic pool cleaners will be introduced in 1997.
PRODUCTIVITY THROUGH PEOPLE
Highly motivated work cell teams at Pac-Fab's North Carolina and California
facilities have steadily improved operations by increasing quality and
productivity, reducing cycle time, and supporting outstanding customer service.
These self-directed teams continue to be Pac-Fab's greatest strength and are the
driving force behind the Company's goal to continuously raise operating
performance levels. They are also dedicated to providing increased customer
value, while leveraging on its growth to achieve a greater return on investment.
Building on its market strength in the domestic pool and spa market,
Pac-Fab's future growth will also be driven from strategic acquisitions and
worldwide market expansion. In 1996, Structural Europe launched the new Azur(TM)
above-ground swimming pool line in side- and top-mount versions, creating an
important entry into the rapidly growing above-ground segment. In addition,
enhancements were made to European design filters, pumps, and valves, and a
heater was introduced in order to strengthen the Company's overall position in
the European swimming pool equipment market.
POSITIVE OUTLOOK
The outlook for 1997 is promising for the Swimming Pool & Spa Equipment
segment. The two prime market drivers, home mortgage rates and consumer
confidence, remain at attractive levels while Pac-Fab's new products and
enhanced service levels will provide increased value to the market and further
strengthen its competitive position.
WATER TREATMENT AND SYSTEMS EQUIPMENT SEGMENT
The Water Treatment and Systems segment had its best year ever. Sales
increased 37% to $97,663,000 with income from operations increasing 71% to
$10,319,000.
Six business units make up this important and rapidly growing segment.
Structural North America is organized in three business units: Pressure Vessels
and WellMate in Chardon, Ohio, and CodeLine(TM) in Escondido, California.
Structural Europe has one unit headquartered in Belgium, and its Euroimpex
business is headquartered in Milan, Italy. The Company's ENPAC unit is located
in Eastlake, Ohio.
PRESSURE VESSELS
EXPANDING GROWTH OPPORTUNITIES
The Pressure Vessel team set new records for sales growth and earnings.
Significant product development investments over the past two years contributed
to sales growth in 1996 and expanded the markets in which Structural North
America competes. Specifically, the Company introduced ASME-rated pressure
vessels for high-temperature applications and
11
<PAGE> 12
[Reverse-type caption]
WATER TREATMENT
AND SYSTEMS EQUIPMENT
BRANDS
[Text resumes]
developed 96-inch diameter composite pressure vessels. Also driving sales growth
was the further market penetration in the Pacific Rim, where sales increased
significantly, because of more sales people in Asia.
The expanded product and geographic opportunities for pressure vessels led
to the approval of a $3 million addition to the manufacturing facility in
Chardon, which will focus on large-diameter and high-temperature pressure
vessels. The business unit's increased capacity was due to significant
productivity gains, which also led to lower production costs for the entire line
of fiberglass reinforced plastics and composite pressure vessels. As a result of
larger available markets, wider product performance and increased capacity, the
outlook for Pressure Vessels is more attractive than at any point in the
Company's history.
WELLMATE
ACHIEVING RECORD PERFORMANCE
The WellMate business unit also enjoyed a record year in 1996, outperforming
any prior year by a significant margin. The record year can be attributed to the
WellMate team's redesign of its products and processes, which increased sales
and reduced costs. Two new product lines, MiniMate(TM) and Low-Profile(TM),
were met with quick market acceptance and are expected to contribute strongly to
WellMate's growth in 1997. The WellMate business also introduced the CompTec(TM)
brand, a line of hydro-pneumatic pressure vessels targeted at the industrial and
commercial market segments. The CompTec product line can be used not only in
cold-water applications, but also in hot-water applications, where composite
products historically could not be used.
The WellMate team has created a solid base of outstanding product
performance, compelling business economics, an ongoing product development
program, and a new brand for the commercial and industrial segment. The
team-based approach to organization can respond more quickly and effectively to
the growth opportunities in the market.
CODELINE
CONTINUING RAPID GROWTH
The CodeLine membrane housing team also achieved record sales and earnings
in fiscal 1996. In this first full year since the August 1995 acquisition,
manufacturing capacity doubled and productivity improved significantly. At the
same time, the CodeLine organization was effectively integrated with the
Pressure Vessel businesses.
In fiscal 1996, the membrane housing segment increased its investment in
product development. As a result, in 1997, two new low-pressure, low-cost
four-inch diameter
<PAGE> 13
housings will be introduced along with a patented lower-cost design head for the
eight-inch diameter product line. These products, and the segment's expanded
capacity, will support CodeLine's leadership position in the global reverse
osmosis market segment, which is growing at 15 percent to 20 percent per year.
STRUCTURAL EUROPE
INTEGRATING EUROIMPEX
Fiscal 1996 was a challenging but exciting year for Structural Europe. The
talented people at this unit integrated the Euroimpex acquisition, which was
completed in August 1995, and made significant progress in expanding
manufacturing capacity, the product line, and market coverage.
Euroimpex has been a valuable addition and solid contributor to the European
operations, both because of strong manufacturing capability and its position as
the leading water treatment component distributor in Italy.
Structural Europe invested heavily at the beginning of fiscal 1996 in new
blow-molding and manufacturing equipment in order to double the capacity of the
fast-growing composite product line. In addition, it developed new welding and
rotomolding technologies that can use a wider range of high-performance plastic
materials in pressure vessel production. These new engineering efforts expand
the number of commercial and industrial pressure vessel products available to
serve the rapidly growing global demand.
[Graphic]
Structural Europe also made significant investments in marketing and sales
to strengthen CodeLine's position in the membrane housing product market and to
introduce ENPAC products. In addition, new initiatives for all Essef products
were started in eastern Europe and the Middle East, both developing markets with
excellent growth opportunities.
It is hoped that fiscal 1997 will bring revitalization of the German and
French economies, which should permit Structural Europe to capitalize on its
investments in manufacturing capacity, product-line expansion, and marketing and
sales capabilities.
ENPAC CORPORATION
RETURNING TO SOLID PERFORMANCE
ENPAC, the Company's venture in spill-containment and
environmental-protection products, exhibited a turnaround during fiscal 1996
with substantial improvements in both sales and operating profit. The turnaround
was largely due to the introduction of new products, better focus in
distribution, cost control, and improvements in operating efficiency. Fiscal
1996 also saw two noticeable events: the favorable resolution of a lawsuit
against two former employees and their companies over breach of fiduciary duty;
and the consolidation in September 1996 of ENPAC's operations in a newer, more
efficient building in Eastlake, Ohio.
ENPAC implemented several new programs, intensive training efforts, and
creative promotions to strengthen its distribution network in fiscal 1996. The
subsidiary also introduced six products, which offer additional spill prevention
capabilities.
With its more efficient management and facility in place, ENPAC expects to
continue to increase its sales and profits through refined marketing and
distribution efforts and the introduction of several new and high value-added
products in fiscal 1997.
13
<PAGE> 14
SELECTED FINANCIAL DATA
Essef Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------
(Dollars in thousands except per share data) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Net Sales $200,864 $157,507 $134,020 $104,466 $99,061
Income from Operations 17,039 11,905 12,010 6,987 8,180
Income Before
Extraordinary Item 9,326 6,591 6,995 6,173 6,960
Net Income 9,326 7,511 6,995 6,173 6,960
Per Share
Income Before Extraordinary Item 1.56 1.13 1.22 1.08 1.22
Net Income 1.56 1.29 1.22 1.08 1.22
Net Income - Proforma* 1.56 1.29 1.22 0.76 0.89
Return on Shareholders' Equity 17.4% 17.4% 20.8% 23.1% 33.5%
BALANCE SHEET DATA
Total Assets $111,248 $106,624 $74,171 $55,199 $57,297
Working Capital 15,201 18,725 18,212 8,316 4,880
Current Ratio 1.4:1 1.6:1 2.0:1 1.6:1 1.3:1
Long-Term Debt 17,512 20,788 16,246 8,819 12,573
Shareholders' Equity 53,338 51,426 37,896 30,076 25,598
Long-Term Debt to Equity 33% 40% 43% 29% 49%
Book Value Per Share 11.11 9.91 7.78 6.18 5.27
<FN>
* Proforma: on a fully taxed basis to give effect to the utilization of tax
loss carryforwards in 1993 and 1992.
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER DATA
Capital Expenditures $ 6,580 $ 8,387 $ 4,906 $ 3,662 $ 5,757
Depreciation and Amortization 5,909 6,229 5,499 5,210 5,146
Engineering and Development 5,547 4,174 3,168 2,581 2,207
Average Fully Diluted Shares
Outstanding 5,992,067 5,831,098 5,742,705 5,713,763 5,696,268
Market Price of Stock
High 18.50 18.50 18.25 14.00 13.63
Low 14.50 14.00 11.50 10.25 8.00
At September 30 17.50 17.50 14.25 11.75 12.00
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL INFORMATION (Unaudited)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
(Dollars in thousands --------------- --------------- --------------- ---------------
except per share data) 1996 1995 1996 1995 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $39,133 $32,019 $53,674 $39,926 $61,376 $45,942 $46,681 $39,620
Gross Profit 10,880 8,951 15,256 11,525 18,561 13,574 13,465 9,333
Income Before
Extraordinary Item 890 897 2,697 2,125 4,363 3,179 1,376 390
Net Income 890 897 2,697 2,125 4,363 3,179 1,376 1,310
Per Share
Income Before
Extraordinary Item .15 .16 .44 .37 .73 .55 .24 .06
Net Income .15 .16 .44 .37 .73 .55 .24 .22
Market Price of Stock
High $ 18.50 $ 16.00 $ 17.75 $ 16.25 $ 17.50 $ 16.50 $ 18.50 $ 18.50
Low $ 14.50 $ 14.25 $ 15.75 $ 14.00 $ 14.50 $ 15.50 $ 15.75 $ 15.75
</TABLE>
EPS - PROFORMA BOOK VALUE PER SHARE
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1996 Compared to 1995
Net sales of $200,864,000 increased 27.5% from 1995 net sales of $157,507,000.
The 1995 acquisitions of CodeLine, Compool and Euroimpex represented
approximately 17.1% of the increase while growth within each of the existing
businesses accounted for the balance. The Company's continued emphasis on global
expansion resulted in foreign sales growth of 51.9% versus 24.1% domestic
growth. As of September 30, 1996 and 1995, the Company had a backlog of orders
of approximately $10,114,000 and $7,511,000, respectively. The Company expects
that the September 30, 1996 backlog will be delivered in fiscal 1997.
Cost of sales decreased from 72.5% to 71.0% of net sales. The decrease was
attributable to cost reduction programs and a reduction in depreciation expense.
Operating expenses, consisting of engineering and development, selling, and
administrative expenses increased $9,645,000. As a percentage of sales,
operating expenses increased slightly from 20.0% to 20.5%. The increase was
attributable primarily to the costs of integrating acquired businesses and their
different cost structures, new system start-up costs, greater investments in
engineering and development, and higher employee related costs.
Interest expense increased by $535,000 or 25.8% to $2,610,000. This was the
result of an approximate 23.9% increase in average outstanding borrowings and an
increase in the effective interest rate of approximately 75 basis points.
The Company's effective tax rate of 35.0% was lower than the 1995 rate of 36.0%
due to the impact of foreign taxes.
The above items resulted in a 41.5% increase in income before extraordinary
item, and a 38.1% increase in income per share before extraordinary item while
net income increased 24.2% and net income per share increased 20.9%.
RESULTS OF OPERATIONS
1995 Compared with 1994
Net sales of $157,507,000 increased 17.5% from 1994 net sales of $134,020,000.
Acquisitions represented approximately 13.7% of the increase while new products
and a steady demand accounted for the balance. The Company's emphasis on global
expansion and acquisitions resulted in foreign sales growth of 25.1% versus
16.5% domestic growth. As of September 30, 1995 and 1994, the Company had a
backlog of orders of approximately $7,511,000 and $7,871,000, respectively.
Cost of sales increased from 69.6% to 72.5%. All divisions experienced increases
except Structural Europe which was flat. The increase in cost of sales was
primarily the result of increases in material cost and changes in product mix.
Operating expenses increased $2,751,000, but as a percentage of sales decreased
from 21.4% to 20.0%. The percentage of sales decrease was a result of better
management of operating expenses and increased sales.
16
<PAGE> 17
Interest expense increased by $800,000 to $2,075,000. This was the result of an
approximate 15% increase in average outstanding borrowings of the Company (for
acquisition purposes) and an increase in the effective interest rate of
approximately 170 basis points.
The Company's effective tax rate of 36.0% was lower than the 1994 effective tax
rate of 38.5% due primarily to lower foreign rates.
The extraordinary item in 1995 is the excess of $1,437,000 (less related income
tax of $517,000) of the insurance claim proceeds over the net book value of the
Company's assets destroyed as a result of the fire in Hobson Brothers' foundry
building. The above items resulted in a 7.3% increase in net income and a 5.7%
increase in net income per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $15,201,000 at September 30, 1996 compared to
$18,725,000 at September 30, 1995, and the ratio of current assets to current
liabilities decreased slightly to 1.4 to 1 from 1.6 to 1. Cash flows from
operating activities generated $16,403,000 versus $11,287,000 in 1995 and was
the primary source of funds needed for capital expenditures and to repurchase
shares. In 1996, the Company invested $6,580,000 in property, plant and
equipment to improve productivity, expand capacity and add new products.
As part of a program previously authorized by the Board of Directors, the
Company purchased approximately 403,000 shares of its Common Stock in 1996 for
$7,012,000. In July 1996, the Board increased the authorization for repurchases
to 925,000 shares to be used for strategic acquisitions and employee incentive
plans.
The Company expects to continue its policy of not paying dividends and retaining
earnings and cash for the future expansion of the business.
The Company has a revolving loan, acquisition-related line of credit and term
loan facility providing a maximum availability of $53,000,000 through its bank
group. In addition, the Company's European subsidiaries have lines of credit of
$15,000,000. As of September 30, 1996, approximately $42,100,000 is available
under these facilities. Management expects that cash generated from operating
activities combined with its borrowing capacity will be sufficient to meet its
current obligations, to fund current operating and capital requirements and
finance future growth.
The Company is involved in various claims and lawsuits incidental to its
business, including product liability claims which are covered by insurance.
Although the Company believes that its reserves are adequate, a significant
increase in the aggregate amount of claims could have an adverse effect on the
deductible level or upon the Company's ability to obtain product liability
coverage for certain product lines. Management is addressing this issue in
various ways and is reasonably confident, but cannot guarantee, that the
situation will be managed with no material adverse impact on the Company.
17
<PAGE> 18
CONSOLIDATED STATEMENTS OF INCOME
Essef Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------
(Dollars in thousands except per share data) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $200,864 $157,507 $134,020
Cost of sales 142,702 114,124 93,283
- -----------------------------------------------------------------------------------------------------
Gross profit 58,162 43,383 40,737
Operating expenses
Engineering and development 5,547 4,174 3,168
Selling 19,534 16,319 16,105
Administrative 16,042 10,985 9,454
- -----------------------------------------------------------------------------------------------------
Total operating expenses 41,123 31,478 28,727
- -----------------------------------------------------------------------------------------------------
Income from operations 17,039 11,905 12,010
Interest expense 2,610 2,075 1,275
Other (income) expense, net 82 (471) (639)
- -----------------------------------------------------------------------------------------------------
Income before income taxes
and extraordinary item 14,347 10,301 11,374
Provision for income taxes 5,021 3,710 4,379
- -----------------------------------------------------------------------------------------------------
Income before extraordinary item 9,326 6,591 6,995
Extraordinary item
less applicable income taxes of $517 -- 920 --
- -----------------------------------------------------------------------------------------------------
Net income $ 9,326 $ 7,511 $ 6,995
=====================================================================================================
Per share information:
Income before
extraordinary item $ 1.56 $ 1.13 $ 1.22
=====================================================================================================
Net income $ 1.56 $ 1.29 $ 1.22
=====================================================================================================
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 19
CONSOLIDATED BALANCE SHEETS
Essef Corporation and Subsidiaries
<TABLE>
<CAPTION>
Assets September 30,
-------------
(Dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 2,620 $ 3,870
Accounts receivable, less allowance for doubtful
accounts of $1,319 and $1,167, respectively 29,017 25,714
Inventories 19,445 16,928
Prepayments and other 1,645 3,165
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 52,727 49,677
Property, Plant and Equipment, at cost
Land 363 369
Buildings 17,805 17,582
Machinery and equipment 69,193 64,178
- ----------------------------------------------------------------------------------------------------------------------
87,361 82,129
Less accumulated depreciation 49,064 44,383
- ----------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 38,297 37,746
Other Assets
Real estate held for sale 4,333 4,333
Goodwill, net 13,402 13,305
Other 2,489 1,563
- ----------------------------------------------------------------------------------------------------------------------
$111,248 $106,624
======================================================================================================================
<CAPTION>
Liabilities and Shareholders' Equity
- ----------------------------------------------------------------------------------------------------------------------
Current Liabilities
<S> <C> <C>
Notes payable $ 6,999 $ 5,383
Current maturities of long-term debt 1,467 1,522
Accounts payable 12,247 9,562
Accrued expenses 7,422 7,716
Accrued compensation 5,059 4,057
Accrued income taxes 4,332 2,712
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 37,526 30,952
Long-Term Debt 17,512 20,788
Deferred Income Taxes 1,890 1,571
Other Long-Term Liabilities 982 1,887
Shareholders' Equity
Preferred shares without par value, authorized 1,000,000 shares, none issued -- --
Common shares without par value, authorized 15,000,000 shares,
issued 5,306,627 and 5,289,188 shares, respectively 21,444 21,361
Treasury shares at cost, 503,927 and 101,330 shares, respectively (7,962) (950)
Retained earnings 38,338 29,012
Foreign currency translation adjustment 1,518 2,003
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 53,338 51,426
- ----------------------------------------------------------------------------------------------------------------------
$111,248 $106,624
======================================================================================================================
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 20
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Essef Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------
Cumulative
Common Retained Translation Treasury
(Dollars in thousands) Stock Earnings Adjustment Stock Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance--
September 30, 1993 $15,751 $l4,506 $ 769 $ (950) $30,076
Net income -- 6,995 -- -- 6,995
Exercise of stock
options (4,205 shares) 244 -- -- -- 244
Foreign currency
translation adjustment -- -- 581 -- 581
- -----------------------------------------------------------------------------------------------------
Balance--
September 30, 1994 15,995 21,501 1,350 (950) 37,896
Net income -- 7,511 -- -- 7,511
Exercise of stock 96 -- -- -- 96
options (8,947 shares)
Issuance of shares
for acquisition
(309,991 shares) 5,270 -- -- -- 5,270
Foreign currency
translation adjustment -- -- 653 -- 653
- -----------------------------------------------------------------------------------------------------
Balance--
September 30, 1995 21,361 29,012 2,003 (950) 51,426
Net income -- 9,326 -- -- 9,326
Exercise of stock
options (17,439 shares) 83 -- -- -- 83
Purchase of treasury
shares (402,597 shares) -- -- -- (7,012) (7,012)
Foreign currency
translation adjustment -- -- (485) -- (485)
- -----------------------------------------------------------------------------------------------------
Balance--
September 30, 1996 $21,444 $38,338 $1,518 $(7,962) $53,338
=====================================================================================================
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 21
CONSOLIDATED STATEMENTS OF CASH FLOWS
Essef Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------
(Dollars in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 9,326 $ 7,511 $ 6,995
Adjustments to reconcile net income
to net cash from operating activities
Extraordinary item -- (920) --
Depreciation and amortization 5,909 6,229 5,499
Other 195 -- 26
Changes in operating assets and
liabilities
Accounts receivable (3,508) (1,929) (6,326)
Inventories (2,604) (1,046) 29
Prepayments and other 1,518 (1,484) (85)
Accounts payable 3,762 243 996
Accrued expenses 747 (1,428) l,389
Accrued and deferred income taxes 1,963 4,111 (367)
Other long-term liabilities (905) -- --
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 16,403 11,287 8,156
- -----------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Additions to property, plant and equipment (6,580) (8,387) (4,906)
Business acquisitions (936) (1,577) (10,750)
Other, net (1,449) (1,785) 134
- -----------------------------------------------------------------------------------------------------
Net cash used in investing activities (8,965) (11,749) (15,522)
- -----------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from long-term debt -- 5,900 9,643
Repayments of long-term debt (3,331) (9,556) (2,848)
Increase in notes payable 1,572 5,383 --
Treasury stock acquired (7,012) -- --
Proceeds from exercise of stock options 83 96 244
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (8,688) 1,823 7,039
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (1,250) 1,361 (327)
Cash and cash equivalents
Beginning of year 3,870 2,509 2,836
- -----------------------------------------------------------------------------------------------------
End of year $ 2,620 $ 3,870 $ 2,509
=====================================================================================================
Supplemental Cash Flow Information
Interest paid $ 2,450 $ 2,168 $ 1,191
Income taxes paid, net $ 3,080 $ 126 $ 4,386
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Essef Corporation and Subsidiaries
September 30, 1996, 1995 and 1994
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Essef Corporation is the leading worldwide supplier of composite components and
subsystems for the movement, storage and treatment of water. Residential,
commercial, industrial, and municipal end-users rely on the Company's
high-performance products for consistent and reliable results. Essef's
technology produces products that are basic to almost any water treatment,
filtration, or storage system. The Company reports its business in two segments:
Swimming Pool and Spa Equipment, and Water Treatment and Systems Equipment.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Essef Corporation
and subsidiaries (the Company). All significant intercompany items have been
eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short term investments with initial
maturities of three months or less to be cash equivalents.
DEPRECIATION AND AMORTIZATION
Depreciation is computed on the straight-line method for financial reporting
purposes while accelerated methods are used for tax reporting purposes. The
Company determined, effective October 1, 1995, that principally due to
preventative maintenance programs, asset lives have been extended. As a result
the Company prospectively changed the lives of certain assets reducing
depreciation expenses by approximately $1,430,000 in 1996. ($.15 per share for
the year.)
GOODWILL
Goodwill arising from business acquisitions is amortized on the straight-line
method over forty years. Accumulated amortization at September 30, 1996 and 1995
was $465,000 and $130,000, respectively. The Company continually evaluates
goodwill to assess recoverability.
INCOME TAXES
The provision for income taxes includes federal, foreign, state and local taxes
currently payable and those deferred because of temporary differences between
financial statement and tax bases of assets.
EARNINGS PER SHARE
The computation of earnings per share is based on the weighted average number of
outstanding common shares and equivalents (stock options) during the periods.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign subsidiaries are translated at
current exchange rates and the results of operations are translated at the
average exchange rates during the periods. Adjustments resulting from these
translations are recorded as a separate component of shareholders' equity.
22
<PAGE> 23
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts in order to be
consistent with the presentation for the current year.
2 INVENTORIES
Inventories are stated at the lower of cost or market. Cost was determined using
the last-in, first-out (LIFO) method for 59% and 62% of inventories in 1996 and
1995, respectively. The balance of the Company's inventories are valued using
the first-in, first-out (FIFO) method. A summary of inventories follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
FIFO Cost:
Raw materials $10,023 $10,089
Work-in-process 2,266 2,445
Finished goods 8,529 6,225
- -----------------------------------------------------------------------------------------------------
20,818 18,759
Excess of FIFO over LIFO cost (1,373) (1,831)
- -----------------------------------------------------------------------------------------------------
Net inventories $19,445 $16,928
=====================================================================================================
</TABLE>
3 REAL ESTATE HELD FOR SALE
In November 1996, the Company received title to the real estate that in prior
years was securing a note receivable under an agreement for deed. The note
receivable had been obtained in connection with the sale of assets in 1991.
Under the terms of the arrangement, the Company has agreed to lease the property
back to the existing tenant for a one-year term. The note, in the amount of
$3,850,000 in 1996 and 1995, is now recorded as real estate held for sale which
approximates its fair value based on current appraisals.
4 FINANCIAL INSTRUMENTS
The Company has financial instruments which consist primarily of cash and cash
equivalents, receivables, payables and debt instruments. The Company has
determined that the estimated fair value of its financial instruments
approximates carrying value. At September 30, 1996 and 1995, the Company held no
derivative financial instruments.
23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Essef Corporation and Subsidiaries
5 DEBT
The Company's European subsidiaries have lines of credit of approximately
$15,000,000 available for working capital. At September 30, 1996 and 1995,
approximately $3,249,000 and $1,633,000, respectively was outstanding. At
September 30, 1996, interest was at rates ranging from 4.25% to 11.25%. In
addition, a note payable of $3,750,000 relating to an acquisition was
outstanding at September 30, 1996 and 1995. The interest rate on the note is 8%.
The Company and its bank group have an unsecured $33,000,000 revolving loan, an
acquisition-related line of credit in the maximum aggregate amount of
$10,000,000, and an additional term loan facility in the maximum aggregate
amount of $10,000,000. There were no outstanding borrowings on the
acquisition-related line of credit at September 30, 1996 and 1995. The revolving
loan is due January 31, 1998 and may be extended in one year increments with the
approval of the bank group. The term loan is payable in equal quarterly
installments using a seven year amortization schedule with the unpaid principal
balance outstanding due January 31, 1998. Interest rates for the revolver,
acquisition-related line of credit, and term loan are based on increments over
the lead bank's base lending rate or LIBOR rate at the Company's option. A 3/8
percent commitment fee is payable on the unused portion of the revolving loan
and the acquisition-related line of credit. The Company is in compliance with
all of its covenants under its credit facility. As of September 30, 1996,
interest rates for the revolving debt and the term loan ranged from 6.43% to
8.25%.
The long-term debt components are as follows:
<TABLE>
<CAPTION>
September 30,
-------------
(Dollars in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Term loan $ 6,428 $ 8,214
Revolving credit agreement 12,425 13,900
Other loans 126 196
- -----------------------------------------------------------------------------------------------------
18,979 22,310
Less current maturities 1,467 1,522
- -----------------------------------------------------------------------------------------------------
$17,512 $20,788
=====================================================================================================
</TABLE>
The long-term debt at September 30, 1996 of $17,512 is payable in 1998.
6 INCOME TAXES
The provision for income taxes is calculated based upon the following components
of income before taxes:
<TABLE>
<CAPTION>
September 30,
-------------
(Dollars in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $11,957 $ 8,393 $10,225
Foreign 2,390 1,908 1,149
- -----------------------------------------------------------------------------------------------------
$14,347 $10,301 $11,374
=====================================================================================================
</TABLE>
24
<PAGE> 25
The significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
September 30,
-------------
(Dollars in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 4,433 $ 2,485 $ 3,369
Foreign (277) (311) 313
State 546 226 603
- -----------------------------------------------------------------------------------------------------
Total current 4,702 2,400 4,285
- -----------------------------------------------------------------------------------------------------
Deferred
Federal 294 1,199 96
Foreign (25) (116) (18)
State 50 227 16
- -----------------------------------------------------------------------------------------------------
Total deferred 319 1,310 94
- -----------------------------------------------------------------------------------------------------
$ 5,021 $ 3,710 $ 4,379
=====================================================================================================
</TABLE>
The significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
September 30,
-------------
(Dollars in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Nondeductible accruals $ 2,735 $ 2,201
Tax credits and net operating loss carryforwards 627 403
Deferred tax liabilities
Depreciation and amortization (5,252) (4,175)
- -----------------------------------------------------------------------------------------------
Net deferred tax liabilities $(1,890) $(1,571)
===============================================================================================
</TABLE>
The consolidated tax provision differs from the tax provision computed at
statutory United States tax rates for the following reasons:
<TABLE>
<CAPTION>
September 30,
-------------
(Dollars in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax provision at federal rate of 34% $ 4,877 $ 3,502 $ 3,867
State income taxes 557 453 619
Foreign tax differential (597) (426) (96)
Other, net 184 181 (11)
- -----------------------------------------------------------------------------------------------------
$ 5,021 $ 3,710 $ 4,379
=====================================================================================================
</TABLE>
7 LEASES
The Company leases some of its facilities and equipment. Total rental expenses
were $1,521,000, $982,000 and $945,000 in 1996, 1995 and 1994, respectively.
Minimum annual rental commitments for the next five years under non-cancelable
operating leases are the following: 1997, $1,505,000; 1998, $1,368,000; 1999,
$926,000; 2000, $640,000; 2001, $298,000; later years $4,000.
25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Essef Corporation and Subsidiaries
8 RETIREMENT AND DEFERRED COMPENSATION PLANS
The Company has a qualified defined contribution retirement plan covering
substantially all of its non-union U.S. employees. The plan provides for an
annual basic contribution by the Company equal to 2% of each participant's
compensation (which is fully vested), a discretionary contribution (which is
fully vested after seven years), and a matching contribution (which is fully
vested). Total Company contributions were approximately $1,514,000, $1,155,000
and $1,070,000 for the years ended September 30, 1996, 1995 and 1994,
respectively.
The Company has a deferred compensation plan which permits certain officers and
directors to defer a portion of their compensation. The deferred compensation
together with accumulated interest is distributable after retirement or
termination and amounted to $564,000 and $576,000 at September 30, 1996 and
1995, respectively.
The Company has a non-qualified retirement plan for its Board of Directors based
on years of service and the annual retainers. At September 30, 1996 and 1995,
approximately $418,000 and $375,000, respectively have been recorded in other
long-term liabilities.
9 BUSINESS SEGMENT INFORMATION
The Company operates in two industry segments: Water Treatment and Systems
Equipment, and Swimming Pool and Spa Equipment. The Water Treatment and Systems
Equipment segment manufactures products for moving, storing and treating water
in residential, commercial, industrial and municipal water supply systems. This
segment also manufactures products for the transport and containment of
hazardous and industrial waste materials, as well as molds and tools used in the
plastic blow molding industries. Swimming Pool and Spa Equipment operations
include pumps, filters, heaters, controls, valves, lights and other components
for swimming pools and spas. Geographically, operations of the Company are
located principally in the United States and Europe. The following table
contains a summary of information for each industry segment and by geographic
area.
<TABLE>
<CAPTION>
BY INDUSTRY SEGMENT
(Dollars in thousands)
Income Depreciation
Industry Net From Identifiable Capital and
Segment Year Sales Operations Assets Expenditures Amortization
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Water Treatment 1996 $ 97,663 $10,319 $ 60,377 $4,458 $3,955
and Systems 1995 71,556 6,044 58,239 5,509 3,705
Equipment 1994 65,134 7,330 32,517 3,481 3,379
Swimming Pool 1996 103,201 9,563 44,318 2,080 1,925
and Spa 1995 85,951 8,419 40,465 2,833 2,480
Equipment 1994 68,886 6,848 34,627 1,395 2,063
Corporate 1996 (2,843) 6,553 42 29
1995 (2,558) 7,920 45 44
1994 (2,168) 7,027 30 57
Consolidated 1996 200,864 17,039 111,248 6,580 5,909
1995 157,507 11,905 106,624 8,387 6,229
1994 134,020 12,010 74,171 4,906 5,499
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
BY GEOGRAPHIC AREA
(Dollars in thousands)
Income Depreciation
Net From Identifiable Capital and
Area Year Sales Operations Assets Expenditures Amortization
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States 1996 $171,602 $17,631 $ 84,244 $5,468 $4,670
1995 138,249 12,957 80,857 6,538 4,842
1994 118,623 13,460 56,798 4,074 4,300
Foreign 1996 29,262 2,251 20,451 1,070 1,210
1995 19,258 1,506 17,847 1,804 1,343
1994 15,397 718 10,346 802 1,142
Corporate 1996 (2,843) 6,553 42 29
1995 (2,558) 7,920 45 44
1994 (2,168) 7,027 30 57
Consolidated 1996 200,864 17,039 111,248 6,580 5,909
1995 157,507 11,905 106,624 8,387 6,229
1994 134,020 12,010 74,171 4,906 5,499
</TABLE>
Export sales from the Company's United States operations were approximately
$16,133,000, $12,125,000 and $8,075,000 for the years ended September 30, 1996,
1995 and 1994, respectively.
10 CAPITAL STOCK AND STOCK OPTION PLAN
The Company has a stock option plan for employees granting ten year options for
the purchase of up to 500,000 common shares of the Company. Options may be
exercised partially during the first three to five years from the date of grant,
and in whole or in part thereafter. The outstanding options expire at various
dates through the year 2006. Activity in the stock option plan is as follows:
<TABLE>
<CAPTION>
Number
of options Price Per Share
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding October 1, 1994 246,066 $3.38--$8.50
Granted 16,000 $16.33--$16.50
Expired (14,323) $8.50--$16.50
Exercised (8,947) $3.38--$8.50
- ----------------------------------------------------------------------------------------------------------------
Outstanding October 1, 1995 238,796 $3.38--$16.50
Granted 81,069 $17.50
Expired (1,259) $16.50
Exercised (17,439) $3.38--$8.50
- ----------------------------------------------------------------------------------------------------------------
Outstanding September 30, 1996 301,167 $3.38--$17.50
================================================================================================================
Exercisable September 30, 1996 129,942
================================================================================================================
</TABLE>
27
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Essef Corporation and Subsidiaries
10 CAPITAL STOCK AND STOCK OPTION PLAN (CONTINUED)
In addition to the options shown above, in 1990, the Company granted options to
purchase 971,000 common shares at $2.00 per share. These options expire ten
years from the date of grant and are fully vested. None of these options has
been exercised. Additionally, in 1994, 1995 and 1996, the Company granted
certain officers options to purchase 150,000, 25,000 and 75,000 common shares,
respectively. These options vest based on attainment of specified financial
results and expire 10 years from the date of grant.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which requires adoption no later than fiscal years beginning
after December 15, 1995. The new standard defines a fair value method of
accounting for stock options and similar equity instruments. Companies are also
permitted to continue to account for such transactions under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
with certain other disclosures.
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption. The Company
has not yet determined if it will elect to change to the fair value method, nor
has it determined the effect the new standard will have on net income and
earnings per share should it elect to make such a change. Adoption of the new
standard will have no effect on the Company's cash flows.
11 BUSINESS ACQUISITIONS
On July 21, 1995, Advanced Structures, Inc. (CodeLine) of Escondido, California,
a manufacturer of composite pressure vessel housings for industrial and
municipal reverse osmosis membrane systems, was acquired and merged into a
wholly-owned subsidiary of the Company. On August 4, 1995, the Company acquired
certain assets and assumed certain liabilities of Euroimpex in Milan, Italy, a
distributor and manufacturer of pressure vessels and other components for the
water treatment industry. On September 1, 1995, the Company acquired certain
assets and liabilities of Compool Corporation of Mountainview, California, a
manufacturer of electronic controls and valves for swimming pools and spas. The
Company paid in total approximately $13 million in a combination of cash, notes
and Essef Common Stock. Under earn-out agreements related to these acquisitions,
additional amounts are contingent on the acquired companies reaching certain
profitability goals through September 30, 2000. Any such payments will be
accounted for as additional costs in excess of net assets acquired in the year
earned.
On March 7, 1994 the Company acquired certain assets and assumed certain
liabilities of the Purex Pool Products Division of Hydrotech Chemical
Corporation, a subsidiary of Great Lakes Chemical Company for approximately
$13.6 million. Purex is a manufacturer of filters, pumps, lights, and heaters
for swimming pools and spas.
All of these acquisitions were accounted for as purchases and thus the purchase
price was allocated to the assets and liabilities based on their estimated fair
value as of the date of acquisition. The results of operations have been
included in the Company's results since acquisition. The cost in excess of net
assets acquired is amortized on a straight line basis over forty years.
28
<PAGE> 29
The following unaudited proforma consolidated results of operations give effect
to the above acquisitions as though they were acquired at the beginning of each
period shown. The proforma information has been presented for comparative
purposes only and does not purport to be indicative of what would have occurred
had the acquisitions been made at the beginning of the earliest period
presented, or of results which may occur in the future.
<TABLE>
<CAPTION>
(Dollars in thousands except per share data) September 30,
-------------
(Unaudited) 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales $179,137 $166,121
Income before extraordinary item 7,030 7,087
Net income 7,950 7,087
Earnings per share:
Before extraordinary item 1.16 1.17
Net income 1.31 1.17
</TABLE>
12 JOINT VENTURE
On December 1, 1994, the Company signed a joint venture agreement with a German
manufacturer and distributor of metal hydropneumatic pressure vessels. The joint
venture, Reflex-WellMate GmbH, is developing a composite hydropneumatic pressure
vessel for hot water systems to be manufactured and sold in Europe. The
Company's interest in the joint venture is being accounted for using the equity
method of accounting. At September 30, 1996 and 1995, the Company had made
investments and advances of approximately $1,820,000 and $1,570,000,
respectively, of which $1,820,000 and $910,000, respectively are included in
other non-current assets. During 1996, the joint venture commenced operations
and the Company recognized a loss of $385,000.
13 EXTRAORDINARY ITEM
In February, 1995, Hobson Brothers, a subsidiary of the Company, suffered a
major fire in their foundry building. All assets destroyed were insured and the
Company has settled its claim with the carrier. The excess of $1,437,000 (less
related income tax of $517,000) of the insurance claim over the net book value
of the Company's assets has been reflected as an extraordinary gain.
Additionally, proceeds of $200,000 were included in operating income to offset
fire-related business interruption costs.
14 LITIGATION
In 1996, several actions were brought against the Company before the United
States District Court for the Southern District of New York, Docket No. 94 Civ.
5270, including, a class action on behalf of passengers, various individual
passenger actions, and an action by Celebrity Cruises, concerning alleged
exposure by passengers to Legionnaire's bacteria aboard the cruise ship M/V
Horizon, a Celebrity Cruises, Inc. ship. Celebrity Cruises is also a defendant
in the passenger actions. The litigation is in its early stages. Management has
instructed legal counsel to defend the Company vigorously.
Additionally, certain other claims, suits and complaints arising in the ordinary
course of business have also been filed or are pending against the Company. In
the opinion of management, the results of all such matters will not have a
material adverse effect on the Company's financial condition.
29
<PAGE> 30
REPORT OF MANAGEMENT
Management is responsible for the preparation and accuracy of the financial
statements and other information included in this report. The consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles using, where appropriate, management's best estimates and
judgment.
In meeting its responsibility for the reliability of the financial
statements, the Company depends upon its system of internal controls. The system
is supported by policies and guidelines, and by careful selection and training
of financial management personnel. Management believes that the Company's
internal control systems provide reasonable assurance that assets are
safeguarded against losses from unauthorized use or disposition, that
transactions are executed in accordance with management's authorization, and
accounting records are reliable as a basis for preparing financial statements.
The Board of Directors through its Audit Committee, which is composed
entirely of Directors who are neither officers nor employees of the Company, is
responsible for determining that management fulfills its responsibilities. The
Audit Committee meets periodically with Management and with the independent
public accountants to review and assess the activities of each in meeting their
respective responsibilities.
The annual audit by the independent accountants provides an objective,
independent review of management's discharge of its responsibilities as they
relate to the fairness of reported operating results and financial condition.
The auditors obtain and maintain an understanding of the Company's accounting
and financial controls and conduct such tests and related procedures as they
deem necessary to arrive at an opinion on the fairness of the Company's
consolidated financial statements. The independent accountants have full access
to the Audit Committee to discuss, with and without management present, the
results of their audit work, the adequacy of internal accounting controls, and
the quality of financial reporting.
Thomas B. Waldin
President and Chief Executive Officer
Stuart D. Neidus
Executive Vice President and Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS, ESSEF CORPORATION
We have audited the accompanying consolidated balance sheets of Essef
Corporation and subsidiaries as of September 30, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years then ended. 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. The financial statements of the
Company for the year ended September 30, 1994 were audited by other auditors
whose report, dated November 4, 1994, expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of Essef
Corporation and subsidiaries at September 30, 1996 and 1995 and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Cleveland, Ohio November 19, 1996
30
<PAGE> 31
<TABLE>
<S> <C>
CHARLES W.W. HORNER (2) Assistant Controller, Retired, Reliance Electric Company
RALPH T. KING (1,2,3) Chairman of the Board, Essef Corporation and The Creative Label Company
MARY ANN JORGENSON, ESQ.(4) Partner, Squire, Sanders & Dempsey
THOMAS B. WALDIN (1) President and Chief Executive Officer, Essef Corporation
GEORGE M. HUMPHREY, II (2,3,4) President and Prinicpal, Extrudex, LP
GORDON D. HARNETT (1,3,4) President and Chief Executive Officer, Brush Wellman, Inc.
ELLIOT B. ROSS Executive Vice President and Chief Operating Officer, Essef Corporation
<FN>
COMMITTEES OF THE BOARD:
1. Executive Committee
2. Audit Committee
3. Compensation Committee
4. Committee on Directors
- --------------------------------------------------------------------------------------------------
</TABLE>
CORPORATE OFFICERS
<TABLE>
<S> <C>
THOMAS B. WALDIN President and Chief Executive Officer
ELLIOT B. ROSS Executive Vice President and Chief Operating Officer
STUART D. NEIDUS Executive Vice President and Chief Financial Officer
GERALD C. HORNICK Vice President and Assistant Treasurer
MARY ANN JORGENSON, ESQ. Secretary
CAROLYN J. BULLER, ESQ. Assistant Secretary
NANCY G. TROUTMAN Assistant Secretary
</TABLE>
- --------------------------------------------------------------------------------
SUBSIDIARIES AND FACILITIES
Structural North America
Pressure Vessel Division
Industrial Parkway
Chardon, OH 44024
Structural North America
WellMate Water Systems
220 Park Drive
Chardon, OH 44024
Structural North America
CodeLine Division
2181 Meyers Avenue
Escondido, CA 92029
Structural India Private, Limited
Verna Industrial Park, Phase II
Goa, India
Essef Caribbean, Incorporated
13794 N.W. 4th Street, Suite 204
Sunrise, FL 33325
Structural Europe N.V.
Industriepark Wolfstee
B-2200 Herentals, Belgium
Euroimpex S.p.A.
Via Reiss Romoli, 4
20019 - Settimo Milanese
Milan, Italy
Pac-Fab, East
1620 Hawkins Avenue
Sanford, NC 27330
Pac-Fab, West
18400 East Gale Avenue
City of Industry, CA 91748
Compool Corporation
599 Fairchild Drive
Mountainview, CA 94043
Reflex-WellMate GmbH
Gersteinstr. 19
59227
Ahlen, Germany
ENPAC Corporation
34355 Vokes Drive
Eastlake, OH 44095
Contaminant Recovery
Systems
140 Waterman Avenue
Centredale, RI 02911
Hobson Brothers Aluminum
Foundry & Mould Works, Inc.
Highway 3 West
Shell Rock, IA 50670
31
<PAGE> 32
ESSEF
Corporate Offices
220 Park Drive
Chardon, Ohio 44024
(216) 286-2200
<PAGE> 1
Exhibit 21
----------
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State or other
jurisdiction of
incorporation
Subsidiary or organization
- ---------- ---------------
<S> <C>
Advanced Structures, Inc. Ohio
Compool, Inc. Ohio
ENPAC Corporation Delaware
EPPS, Ltd. Mauritius
Essef Caribbean, Inc. Ohio
Essef Manufacturing FSC, Inc. U.S. Virgin Islands
Euroimpex Spa Italy
Hobson Brothers Aluminum Foundry
& Mould Works, Inc. Ohio
Pac-Fab, Inc. Delaware
Purex Pool Systems, Inc. Delaware
Sanford Technology Corporation North Carolina
Structural Europe N.V. Belgium
Structural Iberica S.A. Spain
Structural India Private, Ltd. India
</TABLE>
<PAGE> 1
Exhibit 23.1
------------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-17758 of Essef Corporation on Form S-8 of our report dated November 19, 1996,
appearing in this Annual Report on Form 10-K of Essef Corporation for the year
ended September 30, 1996.
Deloitte & Touche LLP
- ---------------------
Deloitte & Touche LLP
Cleveland, Ohio
December 18, 1996
<PAGE> 1
Exhibit 23.2
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion of our
report dated November 4, 1994, included and incorporated by reference in this
Form 10-K, into the Company's previously filed Registration Statement on Form
S-8 File No. 33-17758.
Arthur Andersen LLP
- -------------------
Arthur Andersen LLP
Cleveland, Ohio
December 18, 1996
<PAGE> 1
Exhibit 23.3
------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Essef Corporation
We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows of Essef Corporation and subsidiaries for
the year ended September 30, 1994. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, results of operations and cash flows of Essef
Corporation and subsidiaries for the year ended September 30, 1994, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland Ohio
November 4, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 2,620
<SECURITIES> 0
<RECEIVABLES> 29,017
<ALLOWANCES> 0
<INVENTORY> 19,445
<CURRENT-ASSETS> 52,727
<PP&E> 87,361
<DEPRECIATION> (49,064)
<TOTAL-ASSETS> 111,248
<CURRENT-LIABILITIES> 37,526
<BONDS> 0
<COMMON> 13,482
0
0
<OTHER-SE> 39,856
<TOTAL-LIABILITY-AND-EQUITY> 111,248
<SALES> 200,864
<TOTAL-REVENUES> 200,864
<CGS> 142,702
<TOTAL-COSTS> 183,825
<OTHER-EXPENSES> 82
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,610
<INCOME-PRETAX> 14,347
<INCOME-TAX> 5,021
<INCOME-CONTINUING> 9,326
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,326
<EPS-PRIMARY> 1.56
<EPS-DILUTED> 1.56
</TABLE>
