SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (Fee Required)
For the Fiscal Year Ended December 31, 1995
OR
[_] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (No Fee Required)
Commission File No 0-10181
ELJER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-227087
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17120 Dallas Parkway
Dallas, Texas 75248
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 407-2600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $1 par value New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
As of March 5, 1996, there were outstanding 7,152,252 shares of the
registrant's common stock, par value $1, which is the only class of common or
voting stock of the registrant. As of that date, the aggregate market value of
the shares of common stock held by nonaffiliates of the registrant (based on the
closing price for the common stock on the New York Stock Exchange on March 5,
1996) was approximately $76,112,000.
Documents Incorporated by Reference
The information called for by Part III is incorporated by reference
to the definitive Proxy Statement for the Annual Meeting of Stockholders of the
Company to be held April 16, 1996, which will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 1995.
<PAGE>
Item 1. BUSINESS
BACKGROUND
General
Eljer Industries, Inc. through its subsidiaries ("Eljer Industries" or,
together with its subsidiaries, the "Company") is a leading manufacturer of high
quality building products for residential construction, commercial construction
and repair and remodeling markets. The Company manufactures and markets plumbing
and heating, ventilating and air conditioning ("HVAC") products in North America
and HVAC products in Europe. The Company markets its products through wholesale
distribution channels and, in North America, directly to building products
retailers. In North America, Eljer Industries is one of three leading full-line
suppliers of bath and kitchen fixtures and faucets and is a leading supplier of
registers, grilles and venting systems. In Europe, the Company is a leading
manufacturer of prefabricated chimneys and venting systems. During fiscal years
1995, 1994 and 1993, revenues from sales of plumbing products comprised
approximately 59%, 61% and 59%, respectively, of the Company's net sales, with
the balance derived from the sale of HVAC products.
o North American Operations
Eljer Plumbingware, a division of Eljer Manufacturing, Inc. ("Eljer
Manufacturing"), a wholly-owned subsidiary of Eljer Industries, manufactures and
markets a full line of plumbing fixtures, including vitreous china toilets and
lavatories and enameled cast iron tubs, whirlpools and lavatories. It also
markets faucets manufactured by United States Brass Corporation ("U.S. Brass"),
a wholly-owned subsidiary of Eljer Manufacturing.
U.S. Brass manufactures and markets a full range of faucets, plumbing
supplies, connectors and flexible plumbing systems in the United States. On May
23, 1994, U.S. Brass filed a voluntary petition for reorganization under Chapter
11 of the Federal Bankruptcy Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the Eastern District of Texas (the "Bankruptcy Court"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 and Note 2 to the Consolidated Financial Statements in
Item 8 for further discussion.
Selkirk Metalbestos and Dry Manufacturing, each divisions of Eljer
Manufacturing, manufacture and market HVAC products, including registers,
grilles, venting systems, prefabricated chimneys, air diffusers and fireplaces.
Combined, Selkirk and Dry, along with a Selkirk subsidiary in Canada
("Selkirk/Dry"), are a market leader for registers, grilles and venting systems
in North America.
In February 1995, the Company formed Industrias Eljer de Mexico, S.A.
de C.V., ("Eljer de Mexico") under the laws of Mexico. Eljer de Mexico engages
in certain assembly and packaging operations on behalf of the Company in
Ojinaga, Chihuahua, Mexico.
o European Operations
The Company has European subsidiaries operating primarily in the United
Kingdom and Germany ("Selkirk Europe"). Selkirk Europe manufactures and markets
a full line of prefabricated chimneys and venting systems for both
commercial/industrial and residential markets. These products are used in new
construction, as well as for repair and replacement uses, including energy
conversion. The energy conversion from coal to oil and gas is a major source of
demand for Selkirk Europe's venting products. Selkirk Europe is a market leader
for these products in Europe, and also sells its products in other markets
around the world.
1
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History
The "Eljer" business name traces its origin to a plumbing supply
manufacturing business formed in 1904. The Company's North American HVAC
products business originated in 1925, U.S. Brass became a plumbing company in
1962 and the Company's European business dates from 1964. Through various
transactions in the 1980's, Household International, Inc. ("Household") acquired
the businesses that now make up Eljer Industries.
Eljer Industries itself was organized under the laws of the State of
Delaware on January 26, 1989, as a wholly-owned subsidiary of Household. Under
Household's ownership, various Eljer businesses operated as subsidiaries or as
divisions of subsidiaries of Household. On April 14, 1989, all the outstanding
shares of common stock of Eljer Industries were distributed to holders of
Household common stock (the "spin-off"). The Company has operated as a
publicly-held corporation since that date.
DESCRIPTION OF BUSINESS
Products
Plumbing Fixtures. Eljer Plumbingware manufactures and markets enameled
cast iron and vitreous china plumbing fixtures, including toilets, lavatories
and bathtubs for residential and commercial applications. Eljer Plumbingware
also markets faucets and acrylic bathtubs and whirlpools for these applications.
Eljer Plumbingware's line of products includes bathroom and kitchen fixtures for
new and remodeled construction. Eljer Plumbingware regularly updates its
products and colors in response to changing style trends and develops new
products as the market demands. Eljer Plumbingware has been a leader in
developing and manufacturing low water consumption 1.6 gallon toilets, which are
statutorily mandated throughout the United States. Eljer Plumbingware offers a
broad line of such products.
Cast iron and vitreous china fixtures are sold under the Eljer
trademark. The Company manufactures vitreous china fixtures in two domestic
plants and imports certain specialized fixtures from Thailand. Enameled cast
iron fixtures are manufactured at one domestic plant. See "Properties" in Item
2.
Faucets, Plumbing Supplies and Systems. U.S. Brass manufactures a wide
range of faucets, plumbing supplies and plumbing systems for residential and
commercial construction, remodeling and do-it-yourself applications. U.S. Brass
markets these products under the Valley, Eastman and Qest trademarks. The Valley
trademark applies to faucets ranging from competitively priced bathroom faucets
to high-end luxury models (Valley Plus) and also includes kitchen faucets. Eljer
Plumbingware markets, under the Eljer trademark, faucets manufactured by U.S.
Brass that complement its fixture line. U.S. Brass also manufactures several
private label faucets for large retailers. Eastman plumbing supplies include
supply tubes and valves, fittings, air gaps and flexible gas and water
connectors. Qest plumbing systems, incorporating polybutylene pipe and metal
connective fittings, offer ease of installation, freeze tolerance and cost
reduction to builders and plumbing contractors. In 1996, U.S. Brass will begin
manufacturing and marketing QestPEX plumbing systems. QestPEX uses pipe extruded
from cross-linked polyethylene ("PEX") resin. The Company believes the QestPEX
system offers the same favorable attributes as the Qest polybutylene system. The
sale of the Qest polybutylene system will be phased out in 1996 as Shell
Chemical Company ("Shell Chemical"), a subsidiary of Shell Oil Company, the only
supplier of polybutylene resin, has announced it will no longer sell this resin
for plumbing applications in the U.S. Polybutylene plumbing systems using acetal
fittings (the "Qest system"), manufactured and sold for residential site-built
installations from 1979 through 1986, and for other installations from about
1975 through 1990, have been the subject of litigation. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7, and Notes 2 and 13 to the Consolidated Financial Statements in Item 8.
Heating, Ventilating and Air Conditioning Products. The Company,
through Selkirk/Dry and Selkirk Europe, manufactures and markets, in the United
States, Canada and Europe, prefabricated chimneys, venting systems, registers,
grilles and other related specialty items.
The Company believes it is a leading manufacturer of venting systems of
its type in North America and in Europe. These venting systems are used in
residential, commercial and industrial construction primarily to provide venting
of discharge from a furnace, appliance, boiler or diesel engine to the outside.
Eljer Industries'
2
<PAGE>
brands in North America are sold primarily under the Metalbestos, Airmate, P.S.
Chimney and Sel-Vent trademarks and in Europe under the Selkirk, Nova, Supra and
Europa trademarks.
Selkirk/Dry's products are used primarily in new residential and
commercial construction and are marketed in the United States under the Airmate
and Sel-Aire trademarks and in Canada under the Lloydaire trademark. They are
also sold in the retail market under the Showcase trademark. The Company also
manufactures other specialty products, including gas and wood-burning
fireplaces.
Markets and Distribution
Plumbing. The Company markets plumbing products primarily in North
America through agents and direct salesmen. The Company also sells plumbing
products through wholesale distributors in the Far and Middle East. Eljer
Industries supports its product lines with a variety of advertising, including
national and trade magazines. Plumbing products are sold domestically primarily
through two major channels of distribution: (1) plumbing wholesalers and (2)
retail outlets. Sales through retail channels accounted for approximately 39% of
net plumbing sales in 1995.
Plumbing products sold by the Company are used primarily in new home
construction and repair/remodeling; therefore demand for plumbing products is
closely related to the rate of new housing starts and fluctuations in remodeling
and repair activities. The housing market is cyclical and is affected primarily
by interest rates, consumer confidence and the availability of mortgage loans.
The repair and remodeling markets are less cyclical, providing a different
source of demand for plumbing products and reducing the Company's reliance on
new home construction. Both housing starts and the repair and remodeling market
experienced declines in 1995, and many published forecasts indicate housing
starts will continue at relatively low levels in 1996. The other end use of the
Company's plumbing products is the commercial/industrial market, which consists
of hotels, health care facilities, educational and penal institutions and office
buildings.
The markets for plumbing products are highly competitive. Competition
is based on brand recognition, design and quality of the product, product
performance, price and service, with the relative importance of these factors
varying among products and markets. The Company, Kohler Company and American
Standard, Inc. are the better recognized companies selling fixtures in the
United States. The Company believes that overall it has the third largest market
share in the plumbing fixtures market. The Company also is a supplier in the
faucet market, in which there are numerous major domestic and import
manufacturers, several of which are substantially larger than the Company.
HVAC. The Company's HVAC products are used in the residential,
industrial and commercial construction markets for new construction and repair
and remodeling applications. HVAC products are sold primarily to regional
wholesalers and through retailers and contractors. Sales of these products are
subject to customer demand and general business conditions in these markets and
the North American and European economies. The Company believes that eastern
European markets, as they convert to natural gas, represent a strong market
potential in the future, depending on the economic environment.
In all major HVAC product lines there are a variety of competitors who
aggressively compete for market share. Competition is based primarily on brand
recognition, product design, product quality, range of product line, price,
service and engineering support. The Company believes that it is competitive
with respect to each of these factors.
Raw Materials
The manufacture of plumbing products requires clay, iron, brass, copper
and plastic, including polybutylene resin. Other than polybutylene resin, which
is currently produced domestically only by Shell Chemical, these materials are,
and have been, readily available from several sources. In the past, the Company
has not experienced difficulty in obtaining polybutylene resin from Shell
Chemical as needed. However, subsequent to yearend, Shell Chemical announced
that it will discontinue the sale of polybutylene resin effective April 16,
1996. In 1996, the Company will introduce a new product, QestPEX, utilizing a
cross- linked polyethylene ("PEX") resin. PEX resin is readily available from
several sources.
3
<PAGE>
The major raw materials used in the manufacture of HVAC products are
cold-rolled steel, galvanized steel, stainless steel coils and aluminum coils.
These materials are readily available from several sources and the Company has
experienced no difficulties with respect to availability of these materials.
FOREIGN AND DOMESTIC OPERATIONS
See Note 15 to the Consolidated Financial Statements in Item 8 for
geographic segment financial data.
GENERAL
Customers. The Company is not dependent upon any single customer, or
upon any single group of customers, the loss of which would have a material
adverse effect on the Company.
Backlog of Orders and Inventory. The backlog of unshipped factory
orders at the end of fiscal years 1995 and 1994 was approximately $17.1 million
and $19.8 million, respectively. The Company expects that all the orders in
backlog at the end of fiscal year 1995 will be shipped during 1996. The Company
must carry inventory of certain products to meet rapid delivery requirements of
its customers.
Employees. The Company employs approximately 3,700 people,
approximately 1,600 of whom are covered by collective bargaining agreements with
various labor unions. The collective bargaining agreement at the manufacturing
plant in Nampa, Idaho, expired July 8, 1991. The plant has been operating
without a contract since that date. A new three year agreement was reached at
the Company's Ford City, Pennsylvania, plant effective May 27, 1995, without
production interruption. This was the only location for which an agreement
expired in 1995. The Company's other collective bargaining agreements have
expiration dates in 1996 or in 1997. On March 5, 1996, employees at the
Company's Salem, Ohio, plant did not approve a new collective bargaining
agreement and a strike commenced. While the Company does not have any means to
predict the length of the work stopage, it is hopeful an agreement can be
reached quickly. In general, relations with employees have been satisfactory.
Patents and Trademarks. The Company has a number of United States and
foreign patents and also holds a number of patent applications, licenses,
trademarks and trade names, including the trademarks mentioned herein. Except
for certain trademarks mentioned herein, none of the foregoing is believed to be
material to the Company.
Other. No material portion of the Company's operations is subject to
renegotiation of profits or termination of contracts at the election of the
federal government. The Company's operations, taken as a whole, are not
significantly seasonal, although many products experience increased sales during
the second and third quarters of the year due to larger housing construction
activity, and certain HVAC products often experience higher sales in the autumn
months.
4
<PAGE>
Item 1a. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, titles with Eljer Industries and
principal occupations and employment for the past five years of the executive
officers of Eljer Industries.
<TABLE>
<CAPTION>
Name and Age Office and Experience
<S> <C>
Scott G. Arbuckle, 64.........................President and Chief Executive Officer. Mr. Arbuckle has served
in his current position since February 1990. Mr. Arbuckle
previously served as Executive Vice President of Eljer Industries
and President of the HVAC Group. He joined U.S. Brass in 1963.
James A. Harris, 39............................Executive Vice President. Mr. Harris has served in his
current position since January 1996 and also serves as the
President of Eljer Manufacturing, Inc. Mr. Harris previously served
as Vice President-Sales and Marketing of Eljer Industries from
January 1992 to December 1995. Prior to January 1992, Mr.
Harris served as Vice President-Marketing.
Brooks F. Sherman, 35..........................Vice President-Finance, Chief Financial Officer and Treasurer. Mr.
Sherman has served in his current position since June 1995. Mr.
Sherman previously served as Controller, Treasurer and Assistant
Secretary since April 1991 and as Controller and Assistant
Secretary since 1989.
James F. Thomason, 61..........................Vice President-Manufacturing. Mr. Thomason has served in his
current position since April 1991, having previously served as
Group President-Selkirk/Dry N.A. from April 1990 to April 1991.
Prior to joining Eljer Industries, Mr. Thomason served in various
management positions with the Kohler Company, most recently as
Vice President-Operations for Plumbing and Specialty Products,
International.
George W. Hanthorn, 48.........................Vice President-General Counsel and Secretary. Mr. Hanthorn
has served in this position since October 1994. Mr. Hanthorn
previously served as Senior Vice President-General Counsel and
Secretary of Greyhound Lines, Inc., Dallas, Texas, a publicly-held
transportation services company, from 1990 to 1994, and as Vice
President, General Counsel and Secretary of Greyhound Lines,
Inc. from 1987 to 1990.
Nancy J. Duricic, 41...........................Vice President-Human Resources. Ms. Duricic has served in her
current position since January 1996. Ms. Duricic previously
served as Director-Human Resources from June 1995 to
December 1995, as Director-Compensation and Benefits from
January 1992 to June 1995, and as Manager of Employee
Benefits since September 1990.
5
<PAGE>
Steven M. Rodman, 41...........................Vice President-Sales and Marketing. Mr. Rodman has served in
his current position since January 1996, having previously served
as Eljer Manufacturing, Inc.'s Vice President-Consumer Sales
since joining the Company in August 1992. Mr. Rodman
previously served as Director of Sales for Artesian Plumbing
Products, Mansfield, Ohio, a privately-held plumbing fixture
manufacturer.
Gerald J. Morris, 55...........................Controller and Assistant Secretary. Mr. Morris has served in his
current position since June 1995 and has held a variety of division
controllership positions since joining the Company in February
1981, most recently as Controller-Manufacturing.
</TABLE>
6
<PAGE>
Item 2. PROPERTIES
The following table sets forth the location, approximate square footage
and use of each of the principal manufacturing plants of the Company, separated
by the operating unit or subsidiary which operates the facility. Except as
indicated in the table, all the plants are owned by the Company.
<TABLE>
<CAPTION>
Approximate
Location Square Footage Use
<S> <C> <C>
Eljer Plumbingware:
Ford City, Pennsylvania......... 736,000 Manufacture of vitreous china products.
Salem, Ohio..................... 477,000 Foundry-manufacture of enameled cast iron products.
Tupelo, Mississippi<F1>.......... 422,000 Manufacture of vitreous china products.
U.S. Brass:
Abilene, Texas.................. 174,000 Manufacture of faucets.
Commerce, Texas................. 172,000 Manufacture of flexible plumbing systems and brass
and copper gas and water connectors.
Plano, Texas.................... 98,000 Manufacture of brass plumbing supplies.
Elkhart, Indiana................ 97,000 Manufacture of flexible plumbing systems.
Selkirk/Dry:
Winters, Texas.................. 337,000 Manufacture of registers, grilles, diffusers and gas
vents.
Logan, Ohio..................... 194,000 Manufacture of gas vents and chimney systems.
Nampa, Idaho.................... 154,000 Manufacture of gas vents and chimney systems.
Coleman, Texas.................. 110,000 Manufacture of registers, grilles and fireplaces.
Brockville, Ontario, Canada..... 75,000 Manufacture of fireplaces and chimney systems.
Mississauga, Ontario, Canada<F2> 55,000 Manufacture of registers and grilles.
Selkirk Europe:
Barnstaple, England............. 92,000 Manufacture of gas vents and chimney systems.
Mullicott Cross, England........ 68,000 Manufacture of venting and specialty products.
Eljer de Mexico:
Ojinaga, Mexico<F3>.............. 19,000 Assembly and packaging.
- ------------
<FN>
<F1> Leased until 2066
<F2> Leased until 1999
<F3> Leased until 1998
</FN>
</TABLE>
In general, the manufacturing facilities for plumbing products are in
good condition and are operating at capacities which range from approximately
45% to 95%.
The manufacturing facilities for gas vents and chimney systems are
presently operating at approximately 70% capacity, except the Canadian plant,
which is operating at a lower capacity level. The plants which are used to
manufacture registers, grilles and other specialty items are presently operating
at approximately 90% capacity except the Canadian plant, which is operating at a
lower capacity level. Each of these facilities is in good condition.
All Selkirk/Dry and Eljer Plumbingware properties, with the exception
of the Salem, Ohio, plant, secure the Company's domestic bank term loans. The
Commerce, Texas, location secures certain industrial revenue bond obligations.
All owned properties in England secure both the revolving credit agreement and
the term debt in the United Kingdom. See Notes 3 and 7 to the Consolidated
Financial Statements in Item 8 for further discussion.
In addition to the foregoing, the Company owns or leases a number of
warehouse distribution centers throughout the United States.
7
<PAGE>
Item 3. LEGAL PROCEEDINGS
U.S. Brass
U.S. Brass is involved in significant legal proceedings including a
number of claims which involve Qest systems manufactured and sold by U.S. Brass.
On May 23, 1994, U.S. Brass filed a voluntary petition for reorganization under
Chapter 11 of the Bankruptcy Code. See "Liquidity and Capital Resources" in Item
7 and Note 2 to the Consolidated Financial Statements in Item 8 for discussion
of the litigation and the related bankruptcy proceeding.
Household Litigation
The Company is currently involved in litigation with Household relating
to the spin-off. See Note 14 to the Consolidated Financial Statements in Item 8
for further discussion.
Environmental Proceedings
The Company operates plants that may generate hazardous and
non-hazardous waste, disposal of which is subject to federal and state
regulation. The past disposal of hazardous and non-hazardous waste generated at
the Company's plants may now be subject to the requirements of the federal
Resource Conservation and Recovery Act and comparable state statutes. Several
Company facilities have been required to implement programs to remedy the
effects of past waste disposal. Not all plants have been the focus of
comprehensive environmental studies. Except as described in Note 13
to the Consolidated Financial Statements in Item 8, the Company is
not aware of any instances of noncompliance with currently applicable safety,
health and environmental laws and regulations which might have a significant
adverse effect on the Company's financial condition or results of operations.
With respect to current operating procedures, the Company believes that it is in
material compliance with such applicable laws and regulations. The Company has
established accruals of approximately $15.1 million at the end of 1995
pertaining to environmental, health and safety matters which the Company
believes are adequate. Although the timing of the related payments is uncertain,
the Company believes that a substantial portion of the payments will be made
over the next three years. See Note 13 to the Consolidated Financial Statements
in Item 8 for discussion of individual sites and environmental related
litigation.
Additional information regarding legal proceedings of the Company is
set forth herein in Notes 2, 13 and 14 to the Consolidated Financial Statements
in Item 8, and is incorporated herein by these references.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders of Eljer Industries
during the fourth quarter of fiscal year 1995.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market Information for Common Stock
Eljer Industries' common stock is traded principally on the New York
Stock Exchange. The following table reflects the range of high and low selling
prices of Eljer Industries' common stock by quarter for 1995 and 1994. This
information is based on selling prices as reported by the New York Stock
Exchange.
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<TABLE>
<CAPTION>
1995 1994
--------------- ------------------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
First Quarter....................$6-3/4 $4-1/8 $9-1/4 $6-5/8
Second Quarter................... 6-1/2 5 8-1/2 5-7/8
Third Quarter.................... 6-1/4 4-5/8 8-1/2 6-1/2
Fourth Quarter................... 12 3-3/4 7-3/4 5-1/8
</TABLE>
Holders
At March 5, 1996, there were approximately 8,340 holders of record of
common stock.
Dividends
No dividends were declared in fiscal 1995 or 1994. The Board of
Directors intends to review its dividend policy regularly with the intent of
restoring a cash dividend when appropriate; however, Eljer Industries is
currently restricted by certain debt covenants from paying dividends during the
term of its U.S. term debt agreement. See Notes 3 and 7 to the Consolidated
Financial Statements in Item 8.
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of Eljer
Industries. This historical data should be read in conjunction with the
Consolidated Financial Statements and the related notes thereto in Item 8 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------ ------ ------ ------
(In millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales............................................ $397.4 $406.1 $387.6 $397.3 $402.5
Income from operations before unusual
items........................................... 20.6 22.1 21.1 23.4 19.0
Income (loss) from operations........................ 21.3 .3<F3> 21.1 23.4 (33.9)
Income (loss) before income taxes.................... 6.8 (12.4)<F3> 6.4 9.4 (47.8)
Income (loss) before extraordinary item
and cumulative effects of changes in
accounting principles........................... 4.9 (12.2)<F3> 3.9 (2.1) (59.7)
Net income (loss).................................... 4.9 (12.2)<F3> 3.9 (57.3)<F2> (59.7)
Earnings (loss) per share before
extraordinary item and cumulative
effects of changes in accounting
principles...................................... .69 (1.72)<F3> .55 (.30) (8.46)
Earnings (loss) per share............................ .69 (1.72)<F3> .55 (8.11)<F2> (8.46)
Total assets......................................... 249.0 257.1 235.4 254.4 239.2
Long-term debt....................................... 81.7 83.0 103.1 114.8 87.7<F1>
Dividends per common share........................... - - - - -
- ---------------------
<FN>
<F1> Includes long-term debt subject to restructure, included in Current Liabilities at the end of 1991.
<F2> Includes an extraordinary charge of $16.0 million ($2.26 per share) and cumulative effects of changes in accounting
principles of $39.2 million ($5.55 per share).
<F3> Includes a $21.9 million unusual charge related to U.S. Brass. See Note 2 to the Consolidated Financial Statements
in Item 8 for additional discussion.
</FN>
</TABLE>
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Year ended December 31, 1995 ("1995") compared with year ended January
1, 1995 ("1994")
Net sales decreased $8.7 million, or 2.1%, for 1995 compared to 1994.
The decline is due to an approximate 8% decline in U.S. housing starts. North
American sales declined $13.0 million or 3.8%. To offset the decline in
traditional sales resulting from the depressed new housing market, the Company
increased sales through retail channels approximately $2.1 million by expanding
its product line offerings to existing retail accounts. Partially offsetting the
North American decline, European operations achieved a $4.3 million increase in
net sales. The improved European results were due to multiple programs
instituted to increase sales combined with favorable exchange rates. Published
forecasts indicate that 1996 U.S. housing starts will not improve significantly
over 1995 levels. Eljer will continue to evaluate alternative markets and
channels of distribution to balance the demand for its products.
Gross profit margins decreased to 25.7% in 1995 compared to 27.8% in
1994. This decline is primarily due to significant increases in raw material
costs in both North America and Europe including brass, aluminum, stainless
steel, copper and polybutylene resin. In response, the Company implemented price
increases on all product lines containing these materials during the first half
of 1995. During the last half of 1995 these price increases began to favorably
impact results. Subsequent to yearend, the Company was notified by Shell
Chemical, the supplier of polybutylene resin used in the manufacture of
polybutylene plumbing systems ("Qest"), that effective April 16, 1996, they will
discontinue the sale of this resin for pipe applications in the U.S. In 1996,
the Company will introduce a new product, QestPEX, utilizing a cross-linked
polyethylene ("PEX") resin, in the pipe extrusion. Like the Qest system, QestPEX
is a flexible, freeze resistant pipe using metal insert fittings with crimp
rings. This system has been used effectively in Europe for many years by other
manufacturers.
In addition, the gross profit margins were favorably impacted by a
curtailment gain recorded in connection with a redesign and amendment of certain
of the Company's pension plans covering both salaried and hourly employees. The
amendments reflect a change in the Company's approach toward employee retirement
plans which includes providing increased benefits under its 401(k) plan in lieu
of certain of its pension plans. The total impact of the curtailment gain on
gross profit was $2.2 million.
Total selling and administrative expenses for 1995 were $8.1 million,
or 9.9%, lower than 1994 levels and declined as a percent of sales from 20.1% in
1994 to 18.5% in 1995. The decline is primarily the result of the cost reduction
programs instituted in each of the Company's business units which resulted in
lower advertising and administrative costs. These reductions were partially
offset by severance and related costs associated with several management changes
made in mid-1995 to reduce future expenses and strengthen the management team.
The Company expects to see the full financial benefit of these changes in 1996.
Also, in connection with the redesign and amendment of certain pension plans
discussed above, a curtailment gain was recorded favorably impacting selling and
administrative expenses by $1.1 million. Conversely, the Company accrued an
additional $1.4 million for environmental related liabilities. See Note 13 to
the Consolidated Financial Statements in Item 8 for further discussion.
Litigation costs decreased approximately $855,000 in 1995 below 1994
levels primarily as a result of management's continued efforts to control these
costs in light of the magnitude of the legal matters facing the Company. These
costs include legal fees incurred by both Eljer Industries and U.S. Brass in
connection with the Chapter 11 bankruptcy proceeding of U.S. Brass, as well as
the litigation with Household relating to the spin-off.
As a result of the uncertainties related to the availability of
insurance coverage and the ultimate outcome of the bankruptcy proceeding, U.S.
Brass recorded a $21.9 million unusual charge against earnings in 1994 which
reduced its net book value to zero. U.S. Brass intends to maintain an equity
balance of zero during the course of the bankruptcy. Accordingly, in 1995 U.S.
Brass recorded an unusual gain adjustment of approximately $676,000 to maintain
its equity balance at zero. U.S. Brass incurred a net loss in 1995 as a direct
result of $2.1 million in legal fees associated with the bankruptcy. See Note 2
to the Consolidated Financial Statements in Item 8 for additional discussion.
10
<PAGE>
Interest expense increased $2.3 million in 1995 over 1994 levels. This
is due primarily to scheduled rate increases on debt and an amendment to the
U.S. term debt agreement effected in late 1994. In addition, prime interest
rates were higher in 1995.
Income tax expense increased to $1.9 million in 1995 from a benefit of
$173,000 in 1994. The tax benefit in 1994 was due to European and Canadian
pre-tax losses and the Company's ability to utilize deferred tax benefits in the
United States. The Company continues to utilize deferred tax benefits in the
United States, but 1995 tax costs were increased by $1.1 million due to payments
associated with unrealizable tax benefits on payments made to Household under an
indemnification agreement with Household. See Note 11 to the Consolidated
Financial Statements in Item 8 for additional discussion.
1994 compared with year ended January 2, 1994 ("1993")
Net sales increased 4.8% or $18.5 million over the 1993 level resulting
in the strongest sales performance since 1990. The increase was the result of
strong performances in substantially all North American markets where the
Company continued to benefit from an improved housing economy and penetration of
its traditional channels of distribution and retail chains. 1994 sales of
products in North America increased $27.3 million or 8.7% over the 1993 level.
As anticipated, European sales continued to decline during 1994, dropping $8.8
million or 11.8% despite a $1.6 million favorable exchange rate impact due to
the weakening U.S. dollar.
Gross profit margins decreased to 27.8% in 1994 compared to 28.2% in
1993. The decline was the result of a significant reduction in the level of
sales of higher margin products in Europe, where the market has remained soft,
primarily offset by improved margins on the Company's plumbing products due to
increased volume and improved product mix. The Company reengineered the European
operations to reduce costs and anticipates the benefits of these changes, as
well as expected modest economic strengthening, should improve the European
results in 1995, although raw material price increases will limit this
improvement. The reengineering consisted primarily of the relocation of the
Company's operations in Germany to its plants in the United Kingdom. Costs
related to the restructuring were approximately $867,000 in 1994 and were
covered by accruals established in 1991.
Gross profit margins for 1994 improved in North America to 26.5% from
25.6% in 1993. This was primarily attributable to production efficiencies and
better cost absorption associated with increased volume.
Total selling and administrative expenses for 1994 were $865,000 or
1.1% higher than the 1993 level ($81.8 million in 1994; $80.9 million in 1993)
primarily as a result of increased sales incentives and commissions due to
higher sales volume, partially offset by lower advertising costs. Litigation
costs continued to increase in 1994, rising $1.6 million over the 1993 level.
The higher costs related primarily to the Chapter 11 bankruptcy proceeding of
U.S. Brass. See Note 2 to the Consolidated Financial Statements in Item 8 for
additional discussion.
In December 1994, U.S. Brass recorded a $21.9 million unusual charge
due to uncertainties related to the availability of insurance coverage related
to Qest system claims and its inability to achieve a prompt resolution of the
bankruptcy case, reducing its net book value to zero. See additional discussion
in Note 2 to the Consolidated Financial Statements in Item 8.
Despite the increased litigation costs, and not considering the unusual
charge discussed above, 1994 North American operating income increased $6.4
million, or 40.8%, over the 1993 level, more than offsetting the $5.4 million
European decline.
Interest expense decreased $2.0 million or 13.6% in 1994 from the 1993
level. The decrease was due primarily to the April 1994 expiration of an
unfavorable interest rate swap agreement offset somewhat by an increase in
interest rates on substantially all North American borrowings primarily due to
increases in the prime rate. Interest expense related to the swap agreement was
approximately $1.3 million and $4.4 million in 1994 and 1993, respectively.
Income tax expense was reduced from $2.5 million in 1993 to a tax
benefit of $173,000 in 1994. This was due to benefits realized related to
certain European pretax losses in 1994 partially offset by the Company's
inability to realize the tax benefit of its loss in the United States, which
arose from the unusual charge recorded by U.S. Brass.
11
<PAGE>
Without considering the $21.9 million unusual charge discussed above,
net income for 1994 would have increased $5.7 million over the 1993 level,
resulting in the Company's best performance since its spin-off from Household.
As a result of the unusual charge, net income for 1994 decreased $16.1 million
from the 1993 level.
Liquidity and Capital Resources
The net cash provided by operating activities of $12.3 million was
$1.6 million more than in 1994. In 1994, the cash flow was negatively impacted
by a $13.0 million payment to repay all amounts outstanding under the Company's
prior accounts receivable sales program. Offsetting this payment, cash flow from
operations in 1994 was favorably impacted by the timing of payments to vendors,
timing of payments under sales incentive programs and higher operating earnings.
The Company has an unfunded postretirement benefit obligation of $39.4 million
at the end of 1995. The Company funds its postretirement benefit obligation on a
pay-as-you-go basis. Funding was $1.7 million and $2.9 million in 1995 and 1994,
respectively.
Capital expenditures in 1995 were $14.0 million and included payments
related to a new state-of-the-art kiln and dryers at the Company's Tupelo,
Mississippi, chinaware plant; enameling robots at the Company's Salem, Ohio,
cast iron plant; and new welded dual wall chimney production equipment at the
Company's United Kingdom plants, as well as the replacement and improvement of
capital equipment at various other locations.
The Company maintains letters of credit securing its casualty insurance
program. Prior to October 1995, one of these letters of credit was fully cash
collateralized with the financial institution then providing the letter of
credit. In October 1995, Congress Financial Corp. ("Congress") began providing
this letter of credit and the original financial institution returned the cash
that had been used as collateral. These funds were then used to reduce the
Company's short-term borrowings. The letter of credit reduces the amount
available for borrowing under the revolving credit facility
provided by Congress. In total, the Company decreased its short-term
borrowings during 1995 by $4.3 million. See Note 7 to the Consolidated
Financial Statements in Item 8 for further discussion of the Company's
financing agreements.
In total, the Company reduced its long-term borrowings by $4.4 million
in 1995. These payments were financed primarily with cash generated by
operations and cash on hand.
In August 1995, the Company amended its U.S. term debt agreement to
extend the maturity date to January 31, 1997. Under the terms of the amendment,
a $3.0 million principal payment was made in August 1995 in addition to a
$200,000 extension fee. Scheduled principal payments are $2.0 million in January
1996, $3.0 million in August 1996 and $3.0 million in December 1996, with the
balance of $67.5 million due at the maturity date of January 31, 1997. The $3.0
million December 1996 principal payment may be accelerated to April 1996 if
certain conditions related to the U.S. Brass bankruptcy are not met.
The Company intends to explore some manner of debt restructuring or
extension of existing debt prior to the January 1997 term debt maturity date.
Neither the Company nor any of its subsidiaries has any commitment with respect
to restructuring or other sources of financing or extension of existing debt and
there can be no assurance that any such commitment or extension can be obtained
prior to the term debt maturity date. Failure to obtain such a commitment or
extension, or failure to pay the term debt when due, would constitute an event
of default thereunder, and would give the lenders the right, if they elect to do
so, to foreclose on the collateral which constitutes essentially all the
domestic assets of the Company (except that pledged under the Revolver and
assets of U.S. Brass), including a majority of the stock of its foreign
subsidiaries. Failure to pay the term debt when due would also be an event of
default under the Revolver.
At yearend 1995, the Company was in compliance with all covenants
related to its existing debt. See Note 7 to the Consolidated Financial
Statements in Item 8 for additional discussion of debt.
As discussed in "Legal Proceedings" in Item 3 and in Note 13 to the
Consolidated Financial Statements in Item 8, after March 31, 1992, the Company
was unable to demonstrate financial responsibility for closure, post-closure and
third party liability with respect to its Salem, Ohio, facility and its
Marysville, Ohio, site. The U.S. Department of Justice (the "DOJ") sought
payment by the Company related to the Salem site of a cash penalty of $175,000
with an additional fine of $912,000 to be held in abeyance pending completion of
the site closure activities without any further violations
12
<PAGE>
of the Company's financial assurance obligations under Ohio law. The Company
accepted the DOJ offer and approved modification of a prior consent decree
entered in 1990 relating to these issues. The modified consent decree is
currently pending approval by DOJ and entry by the court. The Company believes
it currently meets its financial responsibility requirements regarding the Salem
facility although the Ohio Environmental Protection Agency ("Ohio EPA") has
asserted that the Company has not posted sufficient collateral to cover the cost
of post-closure care. The Company disputes the Ohio EPA's contention and is
currently negotiating the matter with the Ohio EPA.
In addition, the Ohio Attorney General threatened commencement of a
lawsuit for the Company's failure to renew financial assurance obligations for
the Marysville site under Ohio law. On July 7, 1995, the Company was informed
that the Ohio Attorney General intended to assess a $2.5 million civil penalty
for alleged past financial assurance violations for the Marysville site. On
October 5, 1995, the Company agreed to pay a cash penalty of $750,000, with an
additional fine of $500,000 to be suspended pending completion of closure
activities at the Marysville site in accordance with a closure plan approved by
the Ohio EPA. The settlement also requires the Company to begin funding an $8.5
million trust account through the remainder of 1996, which would be used to pay
for implementation of the closure plan at the Marysville site in order to meet
the financial assurance requirements. The Company believes it has adequate
reserves established to provide for the cash penalty and sufficient cash flow
and debt availability to fund the trust account.
As discussed in Note 2 to the Consolidated Financial Statements in Item
8, on May 23, 1994 (the "Petition Date"), U.S. Brass filed a voluntary petition
for reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy
Court. The purpose of the filing is to resolve systematically the issues
resulting from the Qest system and related litigation and to seek confirmation
of a Plan which, among other things, will provide for the payment, satisfaction
and discharge of all claims against U.S. Brass involving the Qest system. On
June 28, 1994, U.S. Brass entered into a debtor-in-possession financing
agreement (the "DIP Financing Agreement") with Congress, who had provided
secured financing for working capital purposes prior to the Petition Date.
Pursuant to the DIP Financing Agreement, Congress agreed to provide loans and
advances in an amount not to exceed $20 million when added to the outstanding
amount of advances made by Congress prior to the Petition Date. At yearend 1995,
the outstanding principal amount of such advances was approximately $10.3
million. The DIP Financing Agreement expires June 1996. If U.S. Brass has not
exited Chapter 11 prior to that time, U.S. Brass will seek an extension of its
existing DIP Financing Agreement, with Bankruptcy Court approval. Congress has
indicated its intent to extend the DIP Financing Agreement for an additional
year, subject to approval by the Bankruptcy Court. There can be no assurance
that such an extension will be granted.
Between 1988 and July 1991 U.S. Brass, Shell Chemical and Hoechst
Celanese participated in a toll-free consumer hotline for homeowners with Qest
system claims. U.S. Brass, Shell Chemical and Hoechst Celanese shared the cost
of repairs and replacements (the "Sharing Agreement") until July 1991 when U.S.
Brass withdrew its participation. Shell Chemical and Hoechst Celanese have
settled and continue to settle cases and repair or replace Qest systems for
which they contend that U.S. Brass was or is partially responsible under the
Sharing Agreement. Shell Chemical and Hoechst Celanese no longer provide U.S.
Brass or the Company with information on the amount they claim they have
expended on settlement of claims on behalf of U.S. Brass under the Sharing
Agreement. The previously reported litigation filed by Hoechst Celanese and
Shell Chemical in New Jersey state court against U.S. Brass, Eljer Manufacturing
and Household relating to the Qest system and the Sharing Agreement remains
pending in the Bankruptcy Court on a motion by Shell Chemical and Hoechst
Celanese to sever the claims against Household and remand the Household claims
back to New Jersey state court. Any claims arising out of the Sharing Agreement
and claims brought in the New Jersey state court against U.S. Brass and Eljer
Manufacturing would be resolved in connection with the proposed settlement
discussed below and further in Note 2 to the Consolidated Financial Statements
in Item 8.
The Official Polybutylene Creditor's Committee (the "PB Committee"),
established in the U.S. Brass bankruptcy case, has alleged that Eljer
Industries, Eljer Manufacturing and Household may be liable for Qest system
claims under principles of alter ego and related theories of liability. On
January 30, 1995, the Bankruptcy Court denied the PB Committee's motion to file
a proposed complaint on behalf of U.S. Brass against the Company to determine
whether the Company should be held liable for certain debts of U.S. Brass based
on alter ego liability. The PB Committee has filed a notice of appeal from that
ruling. Since the filing of U.S. Brass' bankruptcy petition, the PB Committee
and certain co-defendants in the Qest system litigation have asserted that Eljer
Industries and Eljer Manufacturing are also directly liable for damages arising
from the design, manufacture and marketing of the Qest system. However, in one
class
13
<PAGE>
action, a Denver, Colorado District Court dismissed Eljer Industries and Eljer
Manufacturing from the case. The court ruled that there were no facts presented
establishing that Eljer Industries or Eljer Manufacturing directly participated
in the design, manufacture or distribution of the Qest systems.
On November 9, 1995, U.S. Brass, Eljer Industries and Eljer
Manufacturing tentatively agreed to participate in a global polybutylene
settlement related to the two certified national class action lawsuits dealing
with polybutylene claims. As part of the settlement, Shell Oil and Hoechst
Celanese, who were suppliers of the resins used in the manufacture of the
polybutylene plumbing systems, have agreed to make up to $950 million available
to repair such systems. The settlement was approved on November 9, 1995, by the
Chancery Court for Obion County at Union City, Tennessee, the court hearing one
of two national class actions dealing with polybutylene plumbing systems.
Eljer's and U.S. Brass' participation in the settlement is conditioned
on the confirmation of a plan of reorganization in the U.S. Brass bankruptcy
proceeding and finalization of an agreement with the parties to the global
polybutylene settlement. Under the terms of its proposed agreement, the Company
will contribute an amount equal to the proceeds it receives from certain
insurance coverage; 75% of the net proceeds, if any, resulting from the
litigation with its former parent, Household (see Note 14 to the Consolidated
Financial Statements in Item 8 for further discussion); $3.0 million in cash; a
non-interest bearing note for $20.0 million payable over 10 years; and 17.5% of
the equity of Eljer Industries. In addition, U.S. Brass will continue to be an
indirect, wholly-owned subsidiary of Eljer Industries. Following an expected
finalization of an agreement with the parties in the global polybutylene
settlement, a second amended plan of reorganization containing the terms of the
tentative agreement will be filed with the Bankruptcy Court. However, the timing
or likelihood of approval of such an amended plan cannot be predicted. The
Company believes it has previously recorded adequate accruals for the terms of
this agreement based on the average market price of the Company's stock.
No assurances can be given that the proposed agreement will be
finalized and a related plan of reorganization will be confirmed and agreed to
by the Bankruptcy Court and U.S. Brass creditors. As a result, no assurances can
be given that the reorganization of U.S. Brass will successfully be concluded
or, if it is concluded, what the effects to U.S. Brass, Eljer Industries and
Eljer Manufacturing would be. If the proposed agreement is not finalized, the
ultimate resolution of the U.S. Brass bankruptcy could involve the Company
losing its control over U.S. Brass. As previously discussed, the possibility
also exists that settlement of claims against the Company, could, among other
things, result in a change in the Company's equity structure. Until these
matters are further resolved, they continue to create a substantial doubt about
the Company's ability to continue as a going concern in its present consolidated
form.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ELJER INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants.......................... 15
Consolidated Statements of Income................................. 16
Consolidated Balance Sheets....................................... 17
Consolidated Statements of Cash Flows............................. 18
Consolidated Statements of Shareholders' Equity................... 19
Notes to Consolidated Financial Statements........................ 20
</TABLE>
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Eljer Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Eljer
Industries, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and January 1, 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 3 to the accompanying consolidated financial
statements, the Company will be required to make $8 million in term debt
payments throughout 1996 and the remaining $67.5 million in term debt will
become due on January 31, 1997. Management's current projections indicate that
there will not be sufficient cash flows from operations to fund the January 1997
obligation. The Company intends to explore some manner of debt restructuring or
extension of existing debt prior to the January 1997 U.S. Term Debt maturity
date. Neither the Company nor any of its subsidiaries has any commitment with
respect to restructuring or other sources of financing or extension of existing
debt and management has indicated that there can be no assurance that any such
commitment or extension can be obtained prior to the U.S. Term Debt maturity
date.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Eljer Industries,
Inc. and subsidiaries as of December 31, 1995 and January 1, 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed further
in Note 2 to the consolidated financial statements, the Company and its
indirect, wholly-owned subsidiary, United States Brass Corporation ("U.S.
Brass"), are defendants in a number of lawsuits and are the subject of certain
claims which involve the Qest polybutylene plumbing system manufactured and sold
by U.S. Brass. In addition, the nature and extent of the insurance coverage
related to potential losses arising from these claims and lawsuits are currently
being contested by several of the insurance carriers. In order to systematically
resolve these matters, on May 23, 1994, U.S. Brass filed a voluntary petition
for reorganization under Chapter 11 of the Federal Bankruptcy Code. In 1995, a
tentative global polybutylene settlement was reached in which U.S. Brass, Eljer
Manufacturing, Inc. and Eljer Industries have agreed to participate. The
settlement is conditioned upon, among other things, its approval by the court in
the U.S. Brass bankruptcy. No assurances can be given that the proposed
agreement will be finalized and a related plan of reorganization be confirmed
and agreed to by the Bankruptcy Court and U.S. Brass creditors. If the proposed
agreement is not finalized, the ultimate resolution of the U.S. Brass bankruptcy
could involve the Company losing its control over U.S. Brass. The possibility
also exists that settlement of claims against the Company, could, among other
things, result in a change in the Company's equity structure. The ultimate
outcome of these matters is uncertain at this time and could have a material,
adverse impact on the financial position and results of operations of the
Company. These matters create a substantial doubt about the Company's ability to
continue as a going concern in its present consolidated form. Management's plans
in regard to these matters are described in Note 2. The consolidated financial
statements do not include any adjustments or reclassifications that might result
from the outcome of these uncertainties.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 5, 1996
15
<PAGE>
ELJER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net Sales....................................................... $397,386 $406,063 $387,562
Cost of Sales................................................... 295,180 293,365 278,374
-------- -------- --------
Gross Profit.................................................... 102,206 112,698 109,188
Selling & Administrative Expenses............................... 73,670 81,767 80,902
Litigation Costs................................................ 7,950 8,805 7,215
Unusual Item - Adjustment for Polybutylene/Celcon
Claims................................................. (676) 21,857 -
-------- -------- --------
Income From Operations.......................................... 21,262 269 21,071
Other Expense, net.............................................. 1,247 1,687 1,367
Interest Income................................................. 1,722 1,683 1,380
Interest Expense................................................ 14,982 12,662 14,647
-------- -------- --------
Income (Loss) Before Income Taxes............................... 6,755 (12,397) 6,437
Tax on Repatriation of Foreign Earnings and Loss
of Tax Benefit on Indemnified Liabilities.............. 1,142 - 640
Income Tax (Benefit) Expense.................................... 724 (173) 1,899
-------- --------- --------
Net Income (Loss)............................................... $ 4,889 $ (12,224) $ 3,898
======== ========= ========
Net Income (Loss) Per Share..................................... $ .69 $ (1.72) $ .55
======== ========= ========
Weighted Average Number of Common Shares........................ 7,133 7,120 7,085
======== ========= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
16
<PAGE>
ELJER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1995 1994
------ ---- ----
<S> <C> <C>
Current Assets:
Cash & temporary cash investments................................. $ 22,957 $ 26,109
Restricted cash................................................... 10,449 17,266
Trade accounts receivable, net of reserves of $6,908 and $7,696... 69,038 65,332
Inventories....................................................... 64,565 68,249
Other current assets.............................................. 4,344 5,603
-------- --------
Total current assets.......................................... 171,353 182,559
Properties & Equipment, net........................................... 64,283 59,924
Cost in Excess of Net Tangible Assets Acquired, net................... 10,874 11,281
Other Assets.......................................................... 2,449 3,293
-------- --------
$248,959 $257,057
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current maturities of long-term debt........... $ 35,907 $ 43,065
Trade accounts payable............................................. 17,112 17,705
Prepetition liabilities subject to compromise...................... 31,209 32,868
Accrued expenses................................................... 60,927 64,675
-------- --------
Total current liabilities..................................... 145,155 158,313
Long-Term Debt........................................................ 81,696 83,021
Postretirement Benefits............................................... 39,409 40,353
Other Liabilities..................................................... 15,537 14,067
Deferred Income Taxes................................................. 1,620 882
-------- --------
Total liabilities............................................. 283,417 296,636
Shareholders' Equity (Deficit):
Common stock, $1 par value, 50,000,000 shares
authorized; 7,136,652 and 7,129,626 shares outstanding........ 7,186 7,186
Additional capital................................................ 78,965 78,936
Accumulated deficit............................................... (114,581) (119,470)
Foreign currency translation adjustments.......................... (5,978) (6,174)
Treasury stock.................................................... (50) (57)
-------- --------
Total shareholders' deficit................................... (34,458) (39,579)
-------- --------
$248,959 $257,057
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
17
<PAGE>
ELJER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)..................................... $ 4,889 $(12,224) $ 3,898
Adjustments to reconcile net income (loss) to net.....
cash provided by operating activities -
Depreciation and amortization..................... 9,360 9,496 11,245
-------- -------- --------
(Gain) loss on disposition of properties
and equipment.................................... 11 370 (124)
Stock issued as compensation...................... 36 273 180
Increase in deferred taxes........................ 742 - -
Change in assets and liabilities -
Trade accounts receivable..................... (3,532) (2,165) (745)
Inventories................................... 4,104 (7,997) 3,197
Trade accounts payable and accrued expenses... (6,908) 26,582 8,290
Accrued litigation - Kowin Development........ (150) 1,877 (14,021)
Postretirement benefits...................... (944) (390) 92
Other assets.................................. 3,212 4,746 (3,165)
Other, net.................................... 1,511 3,189 (1,515)
Reduction of sale of outstanding trade
accounts receivable........................... - (13,000) -
-------- -------- --------
Net cash provided by operating activities........ 12,331 10,757 7,332
Cash Flows From Investing Activities:
Investment in properties and equipment................ (13,991) (11,511) (7,926)
Proceeds from disposition of properties and equipment. 1,082 459 1,936
-------- -------- --------
Net cash used in investing activities............ (12,909) (11,052) (5,990)
Cash Flows From Financing Activities:
Increase (decrease) in short-term debt................ (4,289) 25,506 (14,481)
Repayments of long-term debt.......................... (4,431) (20,818) (816)
Proceeds from issuance of long-term debt.............. - - 1,068
Collateralization of letters of credit................ 5,708 (1,639) (5,513)
Taxes paid on dividends from foreign subsidiaries..... - - (3,974)
-------- -------- --------
Net cash provided by (used in) financing activities (3,012) 3,049 (23,716)
-------- -------- --------
Effects of Exchange Rates on Cash......................... 438 (84) (995)
-------- -------- --------
Net Increase (Decrease) in Cash & Temporary Cash
Investments............................................ (3,152) 2,670 (23,369)
Cash & Temporary Cash Investments, Beginning of Period ... 26,109 23,439 46,808
-------- -------- --------
Cash & Temporary Cash Investments, End of Period.......... $ 22,957 $ 26,109 $ 23,439
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
18
<PAGE>
ELJER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Foreign Total
Currency Shareholders'
Common Additional Accumulated Translation Treasury Equity
Stock Capital Defici Adjustments Stock (Deficit)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at yearend 1992 ...... $ 7,186 $ 78,544 $(111,144) $ (5,433) $ (118) $ (30,965)
Shares issued to directors/
employees ............... -- 156 -- -- 24 180
--------- --------- --------- --------- --------- ---------
Foreign currency
translation adjustments . -- -- -- (3,233) -- (3,233)
Net income ................ -- -- 3,898 -- -- 3,898
--------- --------- --------- --------- ---------- ---------
Balance at yearend 1993 ...... 7,186 78,700 (107,246) (8,666) (94) (30,120)
Shares issued to directors/
employees ............... -- 236 -- -- 37 273
Foreign currency
translation adjustments . -- -- -- 2,492 -- 2,492
Net loss .................. -- -- (12,224) -- -- (12,224)
--------- --------- --------- --------- ---------- ---------
Balance at yearend 1994 ...... 7,186 78,936 (119,470) (6,174) (57) (39,579)
Shares issued to directors/ -- 29 -- -- 7 36
employees
Foreign currency
translation adjustments . -- -- -- 196 -- 196
Net income ................ -- -- 4,889 -- -- 4,889
--------- --------- -------- --------- ---------- ---------
Balance at yearend 1995 ...... $ 7,186 $ 78,965 $(114,581) $ (5,978) $ (50) $ (34,458)
========= ========= ========= ========= ========== =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
19
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Consolidation
The Consolidated Financial Statements include the assets, liabilities,
revenues and expenses of Eljer Industries, Inc., a Delaware corporation, and all
wholly-owned subsidiaries ("Eljer Industries" or, together with its
subsidiaries, the "Company"). Prior to April 14, 1989 (the "Distribution Date"),
the entities now comprising Eljer Industries were subsidiaries and divisions of
Household Manufacturing, Inc. ("HMI") or Household Manufacturing, Limited,
wholly-owned subsidiaries of Household International, Inc. ("Household"). The
Company operates in a single business segment -- the manufacturing and marketing
of building products for commercial and residential construction and remodeling.
All significant intercompany accounts and transactions have been eliminated.
Use of Estimates
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates
and in some cases, including the contingencies discussed in Note 13, the
differences could be material.
Fiscal Year
The Company reports on a 52-53 week fiscal year ending on the Sunday
nearest to December 31. Fiscal years 1995, 1994 and 1993 each had 52 weeks and
ended on December 31, 1995, January 1, 1995 and January 2, 1994, respectively.
Temporary Cash Investments
Temporary cash investments are primarily bank deposits, commercial
paper, treasury bills and bankers' acceptances, with original maturities of
three months or less. These investments are carried at cost, which approximates
market.
Restricted Cash
Restricted cash is comprised of insurance reimbursements and funds
securing letters of credit which are legally restricted as to use. The
restricted funds are either related to current liabilities or the Company
anticipates that the funds will become unrestricted within a 12-month period.
Inventories
Inventories are stated at the lower of cost or market and include the
appropriate elements of material, labor and manufacturing overhead expenses.
Cost is determined using the last-in, first-out ("LIFO") method for
substantially all domestic inventories and the first-in, first-out ("FIFO")
method for all foreign inventories.
Properties and Equipment
Properties and equipment, including items financed through capital
leases, are recorded at cost and depreciated over their estimated useful lives,
using principally the straight-line method for financial reporting purposes and
accelerated methods for tax reporting purposes. Useful lives range from 20 to 40
years, or lease terms, for buildings and leasehold improvements and from 3 to 12
years, or lease terms, for machinery, fixtures and equipment.
Impairment of Long-Lived Assets
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", effective for
financial statements issued for fiscal years beginning after December 15, 1995.
In accordance with SFAS No. 121, in the event that facts and circumstances
indicate that the carrying amount of an asset may not be recoverable, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine
20
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
if a write-down to market value or discounted cash flow is required. Current
facts and circumstances do not indicate that an impairment has occurred.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments",
requires the disclosure of the fair market value of off- and on-balance-sheet
financial instruments. The carrying value of all financial instruments,
including long-term and short-term debt, cash and temporary cash investments and
restricted cash, approximates their fair value at yearend.
Cost of Businesses Acquired
Cost in excess of net tangible assets acquired ("goodwill") is
amortized using the straight-line method over 40 years. The Company continually
evaluates whether events and circumstances have occurred that indicate the
remaining useful life of goodwill may warrant revision or that the remaining
balance of goodwill may not be recoverable. When factors indicate that goodwill
should be evaluated for possible impairment, the Company uses an estimate of the
related operating income over the remaining life of the goodwill in measuring
whether the goodwill is recoverable. The amortization recorded for 1995, 1994
and 1993 was $433,000, $433,000 and $443,000, respectively. The amount of
accumulated amortization was $6.5 million and $6.0 million at the end of 1995
and 1994, respectively.
Revenue Recognition
The Company recognizes revenues from the sale of products at the time
the products are shipped.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by SFAS No. 105, "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk", consist primarily of
trade accounts receivable and temporary cash investments.
The Company's customer base for plumbing products consists of plumbing
wholesalers and retail chains and outlets primarily in North America. Heating,
ventilating and air conditioning products are sold primarily to regional
distributors, as well as through retail channels of distribution in the United
States, Canada and Europe. As of December 31, 1995, the Company had $10.9
million in receivables with two customers, which represent 16% of the Company's
trade accounts receivable (net of reserves) balance. The Company performs
ongoing credit evaluations of its customers' financial condition but does not
require collateral to support customer receivables. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information. Although the
Company is directly affected by the well-being of the construction and
remodeling and repair industries, and the North American and European economies
in general, management does not believe significant credit risk exists at the
end of 1995.
The Company places its temporary cash investments with financial
institutions it considers creditworthy, and does not believe significant credit
risk exists with respect to these securities at the end of 1995.
Financial Instruments with Off-Balance Sheet Risks
The Company selectively uses derivative financial instruments to manage
its exposure to foreign currency volatility at the transactional level. At
December 31, 1995, the Company had one outstanding forward exchange contract for
$483,000 and there were no outstanding contracts at January 1, 1995. These
contracts relate to major currencies, such as the British pound sterling and
German deutsche mark. The exposure to credit risk is minimal since the counter
parties are major financial institutions. The market risk exposure is
essentially limited to currency rate movements. The gains or losses arising from
these financial instruments are used to offset exchange gains and losses on
related hedge exposures. Realized and unrealized gains or losses from
derivatives in 1995 and 1994 were not material to the Company's results of
operations.
21
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Foreign Currency Translation
The Company has foreign subsidiaries operating primarily in Canada, the
United Kingdom and Germany. Assets and liabilities of the foreign subsidiaries
are translated into United States dollars at the exchange rate prevailing at the
balance sheet date. Revenue and expense accounts for these subsidiaries are
translated using the weighted average exchange rate during the period. These
translation methods give rise to cumulative foreign currency translation
adjustments which are a component of Shareholders' Equity.
In 1995, 1994 and 1993, the Company also had net foreign currency
transaction gains (losses) which approximated $(767,000), $78,000 and
$(120,000), respectively, and which are included in Other Expense, net.
Environmental Matters
The Company records a liability for environmental matters when it is
probable that a liability has been incurred and the amount can be reasonably
estimated. With the exception of applicable amounts representing current
liabilities, these amounts are recorded as Other Liabilities. The amounts
recorded represent the estimated costs of remediation. The Company does not
discount environmental liabilities for a specific clean-up site to reflect the
time value of money unless the aggregate amount of the obligation and the amount
and timing of the cash payments for that site are fixed or reliably determined.
The litigation expenses relating to environmental matters are accrued separately
as incurred. At the time a liability is recorded, amounts recoverable from third
parties, if any, would be recorded as an asset. When required, the Company may
make capital improvements to establish or maintain compliance with environmental
regulations. Such capital expenditures would be subject to the same accounting
policies as all other Properties and Equipment. The costs associated with
investigation and assessment of environmental compliance are expensed as
incurred. See Note 13 for discussion of Environmental Matters.
Prior Year Reclassifications
Certain reclassifications to the prior years' financial statements have
been made to conform to the 1995 presentation.
(2) BANKRUPTCY OF UNITED STATES BRASS CORPORATION:
On May 23, 1994, (the "Petition Date") the Company's indirect,
wholly-owned subsidiary, United States Brass Corporation ("U.S. Brass") filed a
voluntary petition for reorganization under Chapter 11 of the Federal Bankruptcy
Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the
Eastern District of Texas (the "Bankruptcy Court"). The purpose of the filing is
to resolve systematically the issues resulting from the Qest polybutylene
plumbing systems (the "System" or the "Qest system") and related litigation and
to seek confirmation of a plan of reorganization (the "Plan") which, among other
things, provides for the payment, satisfaction and discharge of all claims
against U.S. Brass involving the Qest system. U.S. Brass is conducting its
business and managing its properties as a debtor-in-possession under Section
1108 of the Bankruptcy Code subject to the supervision and orders of the
Bankruptcy Court.
Qest System Litigation
Since 1975, U.S. Brass or its predecessor Qest Products, Inc. has
manufactured and sold Qest systems. U.S. Brass is a defendant (together in some
cases with Eljer Industries, Eljer Manufacturing, Inc. ("Eljer Manufacturing"),
Qest Products , Inc. and Household), in a number of lawsuits arising out of the
manufacture and sale of the Qest system. Eljer Industries or Eljer Manufacturing
has never engaged in the manufacture and sale of the Qest system.
Other defendants in the Qest system lawsuits are Shell Chemical Company
("Shell Chemical"), a subsidiary of Shell Oil Company, the manufacturer of
polybutylene resin from which U.S. Brass extrudes the pipe used in the System,
Celanese Specialty Resins ("Celanese"), a unit of Hoechst Celanese Corporation
("Hoechst Celanese") and the manufacturer of a resin from which U.S. Brass
molded the Celcon acetal fittings formerly used in the System, other pipe and
fittings manufacturers, and builders, developers and plumbing contractors. These
lawsuits allege that the Qest system leaked and seek recovery based on
negligence, breach of warranty, strict tort liability and, in some cases, fraud
or misrepresentation.
22
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
As of the Petition Date, U.S. Brass had judgments against it related to
these lawsuits of approximately $3.2 million, which were covered by previously
established accruals. These accruals remain at the end of 1995 since all Qest
system litigation against U.S. Brass has been stayed pending the outcome of the
bankruptcy proceeding.
U.S. Brass does not know how many Qest systems exist because it sells
components of its Qest system to wholesalers and distributors who sell to
contractors. The contractors use Qest system components, alone or mixed with
components manufactured by others, to construct plumbing systems in homes and
other buildings.
Similarly, data is not currently available to permit U.S. Brass to
estimate accurately the number of installations that have failed or the number
of claims regarding installations that have been settled to date. Settlements
have been entered into by a number of parties, including U.S. Brass. However,
U.S. Brass does not have access to all of the settlement data. Through the
Petition Date, approximately 109 Qest system lawsuits involving approximately
30,000 residential claims, remained pending, not including purported class
members in certain class action lawsuits pending in Arizona, California and
Nevada. Through this same period, U.S. Brass had paid approximately $63 million
in settlements related to its Qest system of which approximately $50 million has
been reimbursed by the Company's primary and excess insurance carriers. Some of
the insurance reimbursements made to U.S. Brass have been paid under a
reservation of rights (see Insurance Coverage below).
Between 1988 and July 1991, U.S. Brass, Shell Chemical and Hoechst
Celanese participated in a toll-free consumer hotline for homeowners with Qest
system claims. U.S. Brass, Shell Chemical and Hoechst Celanese shared the cost
of repairs and replacements (the "Sharing Agreement") until July 1991 when U.S.
Brass withdrew its participation. Shell Chemical and Hoechst Celanese have
settled and continue to settle cases and repair or replace Qest systems for
which they contend that U.S. Brass was or is partially responsible under the
Sharing Agreement. Shell Chemical and Hoechst Celanese no longer provide U.S.
Brass or the Company with information on the amount they claim they have
expended on settlement of claims on behalf of U.S. Brass under the Sharing
Agreement. The previously reported litigation filed by Hoechst Celanese and
Shell Chemical in New Jersey state court against U.S. Brass, Eljer Manufacturing
and Household relating to the Qest system and the Sharing Agreement remains
pending in the Bankruptcy Court on a motion by Shell Chemical and Hoechst
Celanese to sever the claims against Household and remand the Household claims
back to New Jersey state court. Any claims arising out of the Sharing Agreement
and claims brought in the New Jersey state court against U.S. Brass and Eljer
Manufacturing would be resolved in connection with the proposed settlement
discussed below (see Status of U.S. Brass Bankruptcy Proceeding).
As discussed above, an estimate of additional liability related to Qest
system litigation cannot be made. However, as a result of the uncertainties
related to the availability of insurance coverage and the ultimate outcome of
the bankruptcy proceeding, U.S. Brass recorded a $21.9 million unusual charge
against earnings in 1994 which reduced its net book value to zero. In 1995, U.S.
Brass recorded an unusual gain of $676,000 to maintain its net book value at
zero. U.S. Brass incurred a net loss in 1995 as a direct result of $2.1 million
in legal fees associated with the bankruptcy. Additional descriptions of the
insurance coverage, the U.S. Brass bankruptcy and its potential impact on the
Company are discussed below.
Insurance Coverage
Although insurance carriers have paid a substantial portion of the
claims made to date by U.S. Brass, since 1985 the Company has been involved in
litigation with its insurance carriers concerning coverage for Qest system
litigation. In 1992, the United States Court of Appeals for the Seventh Circuit
issued an opinion holding that the policy period of coverage of a Qest system
claim is triggered by the date of installation of the System as opposed to the
date when the leak occurs. The 1992 favorable decision is significant because
most of the Company's insurance policies purchased after 1987 generally exclude
coverage for certain Qest system claims. However, significant insurance coverage
litigation remains pending and the Seventh Circuit opinion is not necessarily
binding on all insurance carriers issuing coverage to the Company. In addition,
some reimbursement of insurance payments may be ultimately required for payments
made under reservations of rights, retrospective premium adjustments or
indemnification agreements. An estimate of this amount cannot be made as it is
dependent on the outcome of the litigation described below.
Various insurance carriers filed state court actions seeking
declaratory relief that they are not obligated to provide insurance coverage for
Qest system litigation. These actions were removed to the Bankruptcy Court for
the Northern District of Illinois (the "Illinois Bankruptcy Court"). Although
the Illinois Bankruptcy Court denied U.S. Brass' motion to transfer venue to the
U.S. District Court for the Eastern District of Texas and granted the insurer's
motion
23
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
to abstain from hearing the case and to remand to the state courts, the Illinois
Bankruptcy Court has suspended the operation of the remand order pending the
resolution of the appeal filed by U.S. Brass. The U.S. District Court for the
Eastern District of Texas has not ruled on U.S. Brass' appeal from the dismissal
of an adversary action filed by U.S. Brass in the Bankruptcy Court against all
insurance companies involved in the Illinois state court actions as well as one
additional carrier. Because this litigation is in the early stages and because
it is not possible to predict the outcome of its appeals, it is not possible to
estimate the amount of insurance proceeds, if any, that U.S. Brass will
ultimately recover for Qest system claims.
Other Litigation
U.S. Brass filed an appeal with the United States Court of Appeals for
the Tenth Circuit of the $1.2 million judgment against U.S. Brass entered in
1993 involving a modified crimping tool used in the installation of the Qest
system. In November 1995, the plaintiffs and U.S. Brass agreed to settle the
litigation and the appeal. The plaintiffs will receive an allowed general
unsecured claim in the amount of $900,000 which will be paid in accordance with
the provisions of the Plan. The settlement is subject to Bankruptcy Court
approval.
Status of U.S. Brass Bankruptcy Proceeding
The filing of its voluntary Chapter 11 petition acted as an automatic
stay of certain litigation and other actions against U.S. Brass or its property.
Among other things, the automatic stay applies to the commencement or
continuation of federal, administrative or other actions or proceedings against
U.S. Brass that were or could have been commenced before the Chapter 11 case was
filed or to recover a claim against U.S. Brass that arose before the case was
filed. Consequently, U.S. Brass' creditors are prohibited from attempting to
collect prepetition debts without the consent of the Bankruptcy Court. Any
creditor may seek relief from the stay by making a motion to the Bankruptcy
Court. U.S. Brass believes the automatic stay extends also to claims made in
those lawsuits filed against Eljer Industries, Eljer Manufacturing and
Household, based upon alter ego and related theories of liability (see Claims
Against the Company discussion below). U.S. Brass contends that under bankruptcy
law, such claims are property of U.S. Brass by reason of its Chapter 11 filing.
On March 22, 1995, Eljer Industries, Eljer Manufacturing, and U.S.
Brass filed with the Bankruptcy Court a proposed Plan for U.S. Brass under
Chapter 11 of the Bankruptcy Code. The Bankruptcy Court rejected the March 22
Plan on the basis that it was not confirmable. Eljer Industries, Eljer
Manufacturing and U.S. Brass have appealed the ruling and the appeal is pending.
Eljer Industries, Eljer Manufacturing and U.S. Brass filed with the Bankruptcy
Court an Amended Plan of Reorganization (the "Amended Brass Plan") and an
Amended Disclosure Statement (the "Amended Brass Disclosure Statement"). The
Amended Brass Plan contains proposed settlements with Eljer Industries, Eljer
Manufacturing and Shell Chemical. A hearing was held on objections filed by
various parties to the Amended Brass Disclosure Statement on August 22, 1995.
The Bankruptcy Court has given no indication of when it will rule on the
objections.
The Official Polybutylene Claimants Committee (the "PB Committee") in
the U.S. Brass Bankruptcy has filed a proposed plan of reorganization and
proposed disclosure statement (the "PB Committee Disclosure Statement"). A
hearing was held on June 20, 1995, by the Bankruptcy Court on objections filed
by various parties to the PB Committee Disclosure Statement, but the Bankruptcy
Court has given no indication of when it will rule on those objections.
In connection with settlements reached by various parties in two
national class actions dealing with polybutylene plumbing systems, Tina Cox et
al. v. Shell Oil Company et al., and Garria Spencer, et al. v. Shell Oil
Company, et al. (the "Cox-Spencer Agreement"), Eljer Industries, Eljer
Manufacturing and U.S. Brass entered into a tentative settlement contingent upon
confirming a plan of reorganization in the U.S. Brass bankruptcy embodying the
terms of the tentative settlement and finalization of an agreement with the
parties to the Cox-Spencer Agreement. The tentative settlement provides that
Eljer Manufacturing and U.S. Brass will contribute an amount equal to any
proceeds of their insurance policies; the Company will contribute 75 percent of
the net proceeds of the Household litigation (subject to approval of the
Company's bank group); $3 million in cash; a non-interest bearing note for $20
million payable over 10 years; and 17.5 percent of the equity of Eljer
Industries in exchange for which Eljer Industries, Eljer Manufacturing and U.S.
Brass will receive relief satisfactory to them from claims arising from
polybutylene sales to date and U.S. Brass will remain an indirect, wholly-owned
subsidiary of Eljer Industries. The Company has provided to the PB Committee,
Shell Chemical and Hoechst Celanese a term sheet for a proposed second amended
Plan which would include the terms of the tentative settlement discussed above.
Although discussions concerning
24
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
the term sheet have taken place, no final agreements have been reached and the
second amended Plan has not been filed. The timing or likelihood of approval of
such a second amended Plan can not be predicted. The Company believes it has
previously made adequate accruals for the terms of this settlement. Until a
second amended Plan is filed, the Amended Brass Plan discussed above, remains
pending with the Bankruptcy Court.
If the tentative settlement reached in connection with the Cox-Spencer
Agreement does not result in a confirmed Plan of Reorganization in the U.S.
Brass bankruptcy on the terms described above, it is not presently possible to
predict the outcome of the U.S. Brass bankruptcy. While under the tentative
settlement Eljer Industries, Eljer Manufacturing, and U.S. Brass would
contribute various assets with known and unknown value and U.S. Brass would
remain a wholly-owned subsidiary of Eljer Manufacturing, if the tentative
settlement does not result in a confirmed Plan of Reorganization, it is not
presently possible to estimate the ultimate number or dollar value of Qest
system claims that may be filed and allowed in the bankruptcy case (see
discussion of Claims Filed in the U.S. Brass Bankruptcy Proceeding below). In
addition, because of the uncertainties related to the insurance litigation, it
is not presently possible to estimate the value of the assets that may be
available to satisfy any claims that may be filed and allowed, absent
finalization of the tentative settlement. There is a possibility that, if the
tentative settlement is not finalized, the Company would lose all or some of its
equity interest in U.S. Brass if the Bankruptcy Court does not determine that
claimants will receive 100% satisfaction of their allowed claims. In the event
the Company loses all or some of its equity interest in U.S. Brass, the Company
might be able to repurchase its equity interest in U.S. Brass through the
payment of additional consideration, although there can be no assurances that
other bidders for U.S. Brass would not emerge or that the Company would have
sufficient resources with which to pay for U.S. Brass. Accordingly, the
resolution of the U.S. Brass bankruptcy could involve the Company losing its
control over U.S. Brass. The possibility also exists that settlement of claims
against the Company (see Claims Against the Company discussion below) could,
among other things, result in a change in the Company's equity structure. These
matters create a substantial doubt about the Company's ability to continue as a
going concern in its present consolidated form.
Claims Filed in the U.S. Brass Bankruptcy Proceeding
In a bankruptcy proceeding, the Bankruptcy Court establishes a date by
which all claims against the debtor must be filed (the "Bar Date"). The Bar Date
for non-Qest system creditors of U.S. Brass was May 15, 1995. U.S. Brass or
other parties may seek extensions of this Bar Date. Under the proposed Plan,
there is no Bar Date for creditors who hold claims relating to the Qest system.
As of February 15, 1996, approximately 1,500 claims had been filed with
the Bankruptcy Court, asserting the aggregate amount of approximately $2.1
billion, consisting primarily of alleged Qest system related damages. Additional
claims may be filed. Many claims are disputed or based on contingencies that
have not occurred. Additional claims have been made which do not specify the
amount of damages. Any party to the bankruptcy, including U.S. Brass, may object
to a filed claim. Following such an objection, the claim will be allowed only in
an amount as determined by the Bankruptcy Court. U.S. Brass has not yet reviewed
all of the claims filed, but expects that it will file objections to many of the
claims. The outcome of such objections cannot be predicted and the number or
value of claims that may be allowed by the Bankruptcy Court cannot be estimated
at this time. As discussed above, an estimate of additional liability related to
Qest system litigation cannot be made.
Claims Against The Company
Certain parties have alleged that claims exist against Eljer
Manufacturing and Eljer Industries relating to the Qest system. Approximately 54
lawsuits representing approximately 30,000 homes have been filed in state or
federal courts in 8 different states that name Eljer Industries and/or Eljer
Manufacturing (or its predecessor HMI), in addition to other parties, as
defendants. These claims include allegations of direct and alter ego liability.
It is not known what effect the Cox-Spencer Agreement will have on these
lawsuits, although it is expected that some of them may be dismissed following
finalization of the Cox-Spencer Agreement. The Company does not believe that
these claims have merit and will vigorously defend such charges, although no
assurances can be given that the Company will prevail if such lawsuits are
ultimately tried. As such, the Company cannot estimate the amount, if any, for
which it may ultimately be liable. The tentative settlement entered into by the
Company described above contemplates the contribution of cash, a note, the
proceeds of certain litigation and 17.5% of the equity of the Company to settle
such claims against Eljer Manufacturing and Eljer Industries and to retain
ownership of U.S. Brass. However, no assurances can be given that the tentative
settlement will become a final agreement nor can estimates be given as to the
value of any additional consideration that might ultimately be offered in an
attempt to settle those claims. If the
25
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Company is not successful in resolving these claims in the U.S. Brass bankruptcy
proceeding, it will be required to litigate those claims in the forums in which
they may be brought.
Selected Financial Data
Under the Bankruptcy Code, claims against U.S. Brass that were or could
have been commenced prior to the Petition Date are stayed while U.S. Brass
continues business operations as a debtor-in-possession. Certain of these claims
are reflected as Prepetition liabilities subject to compromise on the
Consolidated Balance Sheets. Additional claims (liabilities subject to
compromise) may arise subsequent to the Petition Date resulting from rejection
of executory contracts or unexpired leases, and from the determination by the
Bankruptcy Court, or from the agreement of parties in interest, to allow claims
for contingencies and other disputed amounts. U.S. Brass will continue to
evaluate the claims filed in the bankruptcy proceeding and may make adjustments
in Prepetition liabilities subject to compromise. U.S. Brass received approval
from the Bankruptcy Court to pay or otherwise honor certain of its prepetition
obligations, including its secured working capital facility, employee wages,
commissions, sales incentive programs, existing product warranties and
outstanding checks. U.S. Brass participates in various intercompany transactions
with its parent, Eljer Manufacturing and an affiliated Canadian company and, at
the end of 1995, U.S.
Brass had a net affiliate receivable of approximately $2.2 million.
Selected financial data for U.S. Brass are as follows (in thousands):
<TABLE>
<CAPTION>
For the Fiscal Year Ended
December January January
31,1995 1, 1995 2, 1994
-------- -------- -------
<S> <C> <C> <C>
Net Sales to Nonaffiliate Customers..................... $78,060 $83,214 $74,080
Sales to Affiliates..................................... 18,838 16,740 16,688
Reorganization Expenses ................................ 2,050 2,776 --
Income from Operations Before Unusual Items............. 794 1,377 5,457
Income (Loss) from Operations........................... 1,470 (20,480) 5,457
Income (Loss) Before Income Taxes....................... -- (21,628) 4,191
Net Income (Loss)....................................... -- (21,801) 2,472
Cash (Used in) Provided by Operating Activities......... (59) (2,239) 9,131
Cash Used in Investing Activities....................... (1,485) (2,341) (994)
Cash Provided by (Used in) Financing Activities......... 2,466 3,708 (6,767)
Total Cash Flow......................................... 922 (872) 1,370
</TABLE>
<TABLE>
<CAPTION>
As of December As of January
31, 1995 1, 1995
-------------- -------------
<S> <C> <C>
Total Current Assets.................................... 36,826 35,966
Total Assets............................................ 53,210 52,725
Total Liabilities....................................... 53,210 52,725
Total Shareholders' Equity.............................. -- --
</TABLE>
Cash payments of reorganization items made since the Petition Date and during
1995 are $2.1 million and $2.0 million, respectively.
(3) LIQUIDITY AND CAPITAL RESOURCES:
Financing Agreements
On October 17, 1994, Eljer Manufacturing entered into a revolving
credit facility (the "Revolver") with Congress Financial Corp. ("Congress").
Under the terms of the Revolver, Congress may advance up to $35 million to Eljer
Manufacturing based upon a percentage of eligible accounts receivable and
subject to certain criteria. Advances by Congress are secured primarily by the
accounts receivable of Eljer Manufacturing. The expiration date of the Revolver
is October 17, 1997. The Revolver may be renewed annually thereafter.
Approximately $13.0 million of the borrowings from the Revolver was used to
repay all amounts outstanding under the Company's prior accounts receivable sale
program. An additional $7.5 million of the borrowings was used to repay a
portion of the Company's
26
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
U.S. term debt agreement (the "U.S. Term Debt") pursuant to an amendment which
allowed Eljer Manufacturing to enter into the Revolver. Eljer Manufacturing also
was required to accelerate a $4.0 million principal repayment of U.S. Term Debt
which was originally scheduled for December 30, 1994. In August 1995, the
Company again amended its U.S. Term Debt agreement to extend the maturity date
to January 31, 1997. Under the terms of the amendment, a $3.0 million principal
payment was made in August 1995 in addition to a $200,000 extension fee.
Scheduled principal payments are $2.0 million in January 1996, $3.0 million in
August 1996 and $3.0 million in December 1996, with the balance of $67.5 million
due at the maturity date of January 31, 1997. The $3.0 million December 1996
principal payment may be accelerated to April 1996 if certain conditions related
to the U.S. Brass bankruptcy are not met. The U.S. Term Debt balance at the end
of 1995 and 1994 was $75.5 million and $78.5 million, respectively. The interest
rate under the U.S. Term Debt was the prime rate, plus a margin of 4.0% (or
12.5%) at the end of 1995 and will be increased by 0.5% at six month intervals
to maturity.
The Company intends to explore some manner of debt restructuring or
extension of existing debt prior to the January 1997 U.S. Term Debt maturity
date. Neither the Company nor any of its subsidiaries has any commitment with
respect to restructuring or other sources of financing or extension of existing
debt and there can be no assurance that any such commitment or extension can be
obtained prior to the U.S. Term Debt maturity date. Failure to obtain such a
commitment or extension or failure to pay the term debt when due would
constitute an event of default thereunder, and would give the lenders the right,
if they elect to do so, to foreclose on the collateral which constitutes
essentially all the domestic assets of the Company (except that pledged under
the Revolver and assets of U.S. Brass), including a majority of the stock of its
foreign subsidiaries. Failure to pay the U.S. Term Debt when due would also be
an event of default under the Revolver.
U.S. Brass
As discussed extensively in Note 2, on May 23, 1994, U.S. Brass filed a
voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code in
the Bankruptcy Court. On June 28, 1994, U.S. Brass entered into a
debtor-in-possession financing agreement ("the DIP Financing Agreement") with
Congress, who had provided secured financing for working capital purposes prior
to the Petition Date. Pursuant to the DIP Financing Agreement, Congress agreed
to provide loans and advances in an amount not to exceed $20 million when added
to the outstanding amount of advances made by Congress prior to the Petition
Date. At yearend 1995, the outstanding principal amount of such advances was
approximately $10.3 million. Unused availability was approximately $3.3 million
with an additional $2.5 million available for professional fees, payment of
which is subject to Bankruptcy Court approval. The DIP Financing Agreement
expires June 1996. If U.S. Brass has not exited Chapter 11 prior to that time,
U.S. Brass will seek an extension of its existing DIP Financing Agreement, with
Bankruptcy Court approval. Congress has indicated its intent to extend the DIP
Financing Agreement for an additional year, subject to approval by the
Bankruptcy Court. There can be no assurance that such an extension will be
granted.
Restricted Cash
Restricted cash relates to cash that is legally restricted as to its
use. At yearend 1995 and 1994, the Company had several components of restricted
cash. At the end of 1995 and 1994, approximately $6.0 million of the restricted
cash balance relates to the reimbursement, from an insurance carrier under a
reservation of rights, of certain settlement and litigation payments previously
made by or on behalf of U.S. Brass. The cash is restricted as to its use by the
U.S. Term Debt and is only to be used for the payment of settlements, judgments,
appeal bonds and deposits, attorneys' fees, and related expenses in the Qest
system and other litigation. In addition, the Company maintained restricted cash
balances of approximately $4.5 million and $11.3 million at yearend 1995 and
1994, respectively, to secure letters of credit.
27
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(4) INVENTORIES:
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Finished goods....................................... $32,887 $35,105
Work in process...................................... 9,201 9,617
Raw materials........................................ 22,477 23,527
------- -------
Total inventories................................ $64,565 $68,249
======= =======
</TABLE>
Included in finished goods, work in process and raw materials are
inventories valued on the LIFO method of $52.3 million and $57.6 million at the
end of 1995 and 1994, respectively. If inventories valued on the LIFO method had
been valued at their current cost, they would have been $14.2 million and $10.2
million higher at the end of 1995 and 1994, respectively.
In 1995 and 1994, costs of goods sold was increased by $4.0 million and
$1.8 million, respectively, as a result of using the LIFO method as compared to
using the current cost. During 1993, costs of goods sold was decreased
approximately $724,000, as a result of using the LIFO method.
In 1995 and 1993, certain LIFO inventory quantities were reduced, which
resulted in a liquidation of LIFO inventory layers carried at lower costs which
prevailed in prior years. The effect of the liquidations was to decrease cost of
goods sold approximately $393,000 and $732,000 in 1995 and 1993, respectively.
(5) PROPERTIES AND EQUIPMENT:
Properties and equipment, net, consisted of assets owned and leased
under capital lease arrangements and were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Land ............................................. $ 3,417 $ 3,417
Buildings and leasehold improvements ............. 37,340 36,419
Machinery, fixtures and equipment ................ 132,303 121,416
Accumulated depreciation and amortization ........ (108,777) (101,328)
--------- ---------
Properties and equipment, net ................ $ 64,283 $ 59,924
========= =========
</TABLE>
(6) ACCRUED EXPENSES:
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Accrued income taxes ............................... $ 6,640 $ 6,779
Accrued payroll and employee benefits .............. 12,088 14,155
Insurance related accruals ......................... 13,339 12,971
Litigation and related reserves .................... 12,074 9,638
Accrued rebates .................................... 6,640 8,428
Other current liabilities .......................... 10,146 12,704
------- -------
Total accrued expenses ......................... $60,927 $64,675
======= =======
</TABLE>
28
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(7) DEBT:
Short-Term Facilities
Eljer Manufacturing entered into the Revolver with Congress during
1994, for up to $35 million based upon a percentage of accounts receivable,
subject to certain criteria. The expiration date of the Revolver is October 17,
1997. The Revolver requires maintenance of various covenants related to
information requests, additional indebtedness, and other non-financial
requirements. Eljer Manufacturing was in compliance with all such covenants at
yearend 1995. At the end of 1995 and 1994, the outstanding principal amounts of
advances were approximately $15.2 million and $22.1 million, respectively, and
unused availability at yearend 1995 was approximately $6.8 million. Additional
restrictive covenants are placed on the Company if the unused availability
amount falls below $3.5 million. Interest is calculated based upon the beginning
of the month's prime rate per annum plus an additional 1% unless Eljer
Manufacturing elects to convert a portion of the prime rate loans to Eurodollar
rate loans, which have an interest rate of LIBOR plus an additional 3%. Yearend
1995 interest rates were approximately 8.94% on approximately $15.0 million of
Eurodollar rate based loans, and 9.75% on approximately $200,000 of prime rate
based loans, while yearend 1994 interest rates were approximately 9.19% on
approximately $9.0 million of Eurodollar rate based loans, and 9.5% on
approximately $13.1 million of prime rate based loans.
As discussed in Notes 2 and 3, on May 23, 1994, U.S. Brass filed a
voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code,
and on June 28, 1994, entered into the DIP Financing Agreement with Congress for
up to $20 million borrowings based on a percentage of accounts receivable and
inventories and subject to certain criteria. As security for the financing under
the DIP Financing Agreement, which expires in June 1996, the Bankruptcy Court
authorized U.S. Brass to grant first priority liens and security interests to
Congress over certain present and future accounts receivable and inventory of
U.S. Brass generated on and after the Petition Date and certain other assets.
The DIP Financing Agreement requires the maintenance of certain financial
covenants, including tangible net worth, working capital and capital expenditure
requirements. At the end of 1995, U.S. Brass was in compliance with all
covenants under the DIP Financing Agreement. The total principal amounts owed by
U.S. Brass related to the DIP Financing Agreement at yearend 1995 and 1994 were
approximately $10.3 million and $7.9 million, respectively. Interest is
calculated based upon the beginning of the month's prime rate per annum plus an
additional 2%, or 10.75% and 10.5% at yearend 1995 and 1994, respectively. In
addition, $100,000 and $300,000 in facility fees and closing costs were paid in
1995 and 1994, respectively. See Note 3 for additional discussion.
The Company's Selkirk subsidiary in the United Kingdom is party to a
credit agreement with a bank which includes a revolving credit facility whereby
the subsidiary may borrow the British pound sterling or German deutsche mark
equivalent of approximately $8.5 million. The revolver, which expires in
September 1997, is secured by substantially all the Selkirk subsidiary's assets
as defined in the facility agreement between the subsidiary and the bank.
Financial covenants are consistent with the long-term U.K. foreign bank term
debt discussed below. There were no balances outstanding at yearend 1995 and
1994 under this facility. Commitment fees are calculated at 0.75% per annum
payable quarterly and in arrears on any undrawn portion of the revolving credit
facility. In addition, the Company's Selkirk subsidiary in Germany had unsecured
credit lines with German banks totaling approximately $3.8 million, of which
approximately $2.9 million was available at yearend 1995. There are no scheduled
expiration dates on these lines; however they are reviewed annually by the banks
for renewal. The total amount outstanding related to these credit lines at the
end of 1995 and 1994 was approximately $977,000 and $780,000, respectively.
Yearend interest rates on debt outstanding ranged from 7.0% to 8.0% in 1995 and
8.5% to 9.5% in 1994.
At yearend 1995 and 1994, the weighted average interest rates on
outstanding short-term borrowings were approximately 9.6% and 9.7%,
respectively.
29
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Long-Term Facilities
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Domestic:
U.S. Term Debt, secured ................................... $75,513 $78,513
Industrial revenue bonds, secured by letters of
credit and certain fixed assets of the Company,
bearing interest at varying rates between
6.75% and 14.00% ....................................... 9,698 9,755
Capital lease obligations, secured by letters of credit and
certain fixed assets of the Company, bearing interest
at 8.50% ............................................... -- 223
Foreign:
Bank Term Debt, secured ................................... 5,883 6,862
------- -------
Subtotal ...................................................... 91,094 95,353
Less: Current maturities of long-term debt .................... 9,398 12,332
------- -------
$81,696 $83,021
======= =======
</TABLE>
The Company's U.S. Term Debt and related agreements were amended in
August 1995. See Note 3 for discussion.
As discussed above, the Company's Selkirk subsidiary in the United
Kingdom is party to financing arrangements with a European bank which includes a
revolving credit facility (discussed above) and a term debt portion. The term
debt matures on June 30, 1999, and provides for scheduled semiannual principal
payments. This facility bears interest at varying rates based upon LIBOR plus an
additional margin of between 1.5% to 1.75% based upon the ratio of operating
cash flows to debt servicing payments. Borrowings are made in either British
pounds sterling or German deutsche marks and are secured by substantially all
the assets of the Company's subsidiaries in the United Kingdom as defined in the
facility agreement.
Both the foreign and domestic term debt are subject to certain
financial covenants with which the Company was in compliance at yearend 1995.
These covenants include tangible net worth, operating cash flow and various
other debt service, fixed charge and current ratio requirements. In addition,
the Company is restricted by certain covenants from paying shareholder dividends
during the term of its U.S. Term Debt.
Aggregate maturities of long-term debt and capital lease obligations
for each of the next five years and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1996................................................. $ 9,398
1997................................................. 69,960
1998................................................. 1,622
1999................................................. 1,414
2000................................................. --
Thereafter........................................... 8,700
-------
Total............................................ $91,094
=======
</TABLE>
Cash paid for interest during 1995, 1994 and 1993 was $15.0 million,
$14.2 million and $14.2 million, respectively.
(8) EMPLOYEE BENEFIT PLANS:
Substantially all of the Company's employees are covered under various
defined benefit pension plans maintained by the Company and by Household. Plan
benefits are based primarily on years of service. Under a Labor and Benefits
Agreement between Household and the Company, on March 31, 1989, Household
assumed the assets and liabilities in connection with pension plans covering
Company employees prior to that date, and Household is
30
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
responsible for all pension benefits accrued as of and prior to that date. All
employees became 100% vested in the Household plans at that time. The Company
established new employee benefit plans similar to those previously in effect and
is responsible for all funding subsequent to March 31, 1989. The Company's
funding policy is based on an actuarially determined cost method allowable under
Federal tax law. Since Household retained all assets from the previous benefit
plans, the Company has incurred pension expense for the new plans since the
Distribution Date.
The Company's net periodic pension cost includes the following
components (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost during the period .............. $ 3,053 $ 3,273 $ 2,851
Interest cost on projected benefit obligation 2,076 1,833 1,541
Actual return on plan assets ................ (2,661) 611 (2,252)
Net amortization and deferral ............... 1,568 (1,563) 1,507
------- ------- -------
Net periodic pension cost ............... $ 4,036 $ 4,154 $ 3,647
======= ======= =======
</TABLE>
The projected benefit obligations assumed an annual discount rate of
7.25% (U.S. plans) to 8.5% in 1995 and 8.0% (U.S. plans) to 8.5% in 1994. The
annual rate of compensation increase ranged from 4.0% (U.S. plans) to 7.0% in
1995 and 1994. The expected long-term annual rate of return on plan assets,
which consists primarily of mutual funds, was 9.0% to 10.0% in 1995, 8.5% to
9.5% in 1994 and 8.5% to 10.0% in 1993. The amortization period for prior
service cost is 14 to 18 years, depending on the plan, which approximates the
average remaining service period of the employee work force. The funded status
of the plans is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations ....................... $ 19,480 $ 14,577
======== ========
Accumulated benefit obligations .................. $ 22,263 $ 16,745
======== ========
Projected benefit obligations .................... $ 25,420 $ 25,065
Plan assets at fair value ............................ 21,618 18,009
-------- --------
Projected benefit obligations in excess of plan assets 3,802 7,056
Unrecognized net loss ................................ (2,442) (415)
Unrecognized prior service cost ...................... (630) (4,302)
-------- --------
Pension liability included in accrued expenses ....... $ 730 $ 2,339
======== ========
</TABLE>
During 1995, the Company recognized curtailment gains of $3.3 million
resulting from the redesign and amendment of certain domestic retirement plans.
The plans were amended effective December 31, 1995, to freeze compensation for
benefit purposes at 1995 levels. In addition, benefit service for participants
under age 50 as of December 31, 1995, has been frozen; participants age 50 or
over continue to accrue service for benefits purposes. All employees affected by
the curtailment, including those over 50, will be eligible to receive expanded
benefits in the Company's defined contribution plan as of January 1, 1996.
The Company's defined contribution plan is available to certain
domestic employees in which each participant's contribution is matched in part
by the Company up to a maximum of 3% of the participant's compensation. The
Company's matching contributions for this plan were approximately $784,000 in
1995, $742,000 in 1994 and $715,000 in 1993. In lieu of pension benefits,
beginning in 1996 the Company will also make a contribution on behalf of
eligible domestic employees ranging from 2% to 9% of compensation, based on
years of service.
31
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(9) OTHER POSTRETIREMENT BENEFITS:
The Company sponsors a welfare benefit plan which provides for certain
health care and life insurance postretirement benefits to certain retired
employees in the United States. Life insurance and comprehensive medical
benefits are available to certain active employees who, immediately upon
retirement, receive a pension under the Company's retirement plan.
Postretirement benefits are also continued for certain former employees who are
currently receiving Company pension benefits. Generally, the medical program
covers dependents of retirees in addition to former employees. Retiree
contributions are required in the case of medical benefits for most retirees and
their eligible surviving spouses.
The following table sets forth the plan's combined funded status
reconciled with the amount shown in the Company's financial statements at the
end of 1995 and 1994 (in thousands). Since the Company funds the plan on a
"pay-as-you-go" basis, the Company's postretirement health care plan is
underfunded.
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees ................................... $24,429 $25,796
Fully eligible active plan participants .... 3,555 3,467
Other active plan participants ............. 4,192 6,323
------- -------
32,176 35,586
Plan assets at fair value ...................... -- --
------- -------
Accumulated postretirement benefit obligation in
excess of plan assets ................... 32,176 35,586
Unrecognized actuarial gain .................... 1,167 2,831
Unrecognized prior service cost ................ 6,066 1,936
------- -------
Accrued postretirement benefit cost ............ $39,409 $40,353
======= =======
</TABLE>
Net periodic postretirement benefit cost for 1995, 1994 and 1993
included the following components (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost during the period ............ $ 470 $ 626 $ 462
Interest cost on accumulated postretirement
benefit obligation .................... 2,510 2,715 2,900
Amortization of (gains) losses ............ (63) 40 --
Amortization of prior service cost ........ (2,170) (964) (840)
------- ------- -------
Net periodic postretirement benefit cost .. $ 747 $ 2,417 $ 2,522
======= ======= =======
</TABLE>
For measurement purposes, health care cost trend rates for various
services varied from 8.5% in 1995, decreasing gradually to 4.5% by 2007, and
remain at that level thereafter. Increasing the health care cost trend rates by
one percentage point in each year would increase the accumulated postretirement
benefit obligation at the end of 1995 by $4.1 million, and the aggregate of the
service and interest cost components of net postretirement health care cost for
1995 by $439,000. The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation at the end of 1995 and 1994 was
7.25% and 8.25%, respectively. There were no plan assets at yearend.
During 1995, the Company amended certain of its postretirement health
care programs, principally to adjust the cost-sharing provisions. The amendments
resulted in a reduction of the Company's accumulated postretirement benefit
obligation of $6.3 million, which created an unrecognized prior service benefit.
The unrecognized prior service benefits are being amortized over three to six
years, based on the term of the underlying programs.
32
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(10) SHAREHOLDERS' EQUITY:
Common Stock
The Company has 50,000,000 shares of $1 par value common stock
authorized with 7,186,875 shares issued and 7,136,652 shares outstanding at
yearend 1995. Treasury stock totaled 50,223 and 57,249 shares at the end of 1995
and 1994, respectively, and is accounted for under the par value method.
Preferred Stock
The Company has 10,000,000 shares of $1 par value preferred stock
authorized, of which none are issued or outstanding.
Stock Rights
Pursuant to a Stockholder Rights Plan adopted by the Company on the
Distribution Date and amended on July 31, 1989, January 4, 1990 and November 5,
1991, each outstanding share of the Company's common stock carries with it a
common stock purchase right (the "Right"). In the event of an acquisition by a
person or group of 15% or more of the Company's common stock, each Right (other
than Rights owned by the person or group triggering the event, which will become
void) will become exercisable to purchase one share of the Company's common
stock at 50% of its then market value. The Rights will not become exercisable,
however, if the person or group meeting the 15% threshold does so through an
all-cash tender offer in which it becomes the owner of at least 80% of the
Company's stock. The Rights are subject to adjustment in the event of certain
changes in the Company or its common stock, including the merger of the Company
with another entity. If the tentative settlement discussed in Note 2 above
becomes final, the Company expects to amend its Stockholder Rights Plan to
permit the issuance of equity without triggering Rights under the Stockholder
Rights Plan. The Rights will expire on May 1, 1999, unless previously exercised
or redeemed, or unless the Company extends the expiration date.
Stock Options
The Company has a Long-Term Executive Incentive Compensation Plan (the
"Incentive Plan") whereby awards, including stock options (the "Options"), can
be granted to key employees. The Options are exercisable in 25% increments over
a four-year period beginning one year after the date of grant. Options are
generally granted for a term of no more than ten years and one day from the date
of grant. The Options exercise price per share is not less than the fair market
value of the Company's common stock at the date of grant. However, certain
Options were granted in 1989 to employees in exchange for options for Household
common stock which they forfeited as a result of the distribution of the
Company's stock to holders of Household's stock in April 1989 (the "spin-off").
These Options have special terms as to exercisability and purchase prices based
on the value of the Options forfeited.
The following table summarizes the Options activity:
<TABLE>
<CAPTION>
SHARES RANGE OF OPTION PRICES
<S> <C> <C>
Options outstanding at yearend 1992............... 429,527 $ 8.25 - $28.63
Options granted................................... 106,000 $ 8.13 - $ 8.94
Options forfeited................................. (46,695) $ 8.25 - $14.69
--------
Options outstanding at yearend 1993............... 488,832 $ 8.13 - $28.63
Options granted................................... 140,000 $ 7.13 - $ 7.69
Options forfeited................................. (68,925) $ 7.69 - $28.63
--------
Options outstanding at yearend 1994............... 559,907 $ 7.13 - $28.63
Options granted................................... 112,000 $ 5.88
Options forfeited................................. (86,000) $ 5.88 - $28.63
--------
Options outstanding at yearend 1995 .......... 585,907 $ 5.88 - $28.63
========
Options exercisable at yearend 1995............... 363,407
========
</TABLE>
33
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
At the Distribution Date, the Company had reserved 500,000 shares of
common stock to cover grants under the Incentive Plan. During 1993, 350,000
additional shares were made available. As of the end of 1995 there were 214,688
shares available for grant under the Incentive Plan.
Phantom Stock
Under a three-year incentive program beginning in 1995, certain key
employees of the Company are granted phantom shares of the Company's Common
Stock. The value of the phantom shares is a function of the amount, if any, by
which the market value of the Company's Common Stock increases during the
performance period of approximately three years. The increase in the value of
these phantom shares is accrued and expensed over the performance period. During
1995, 338,000 phantom shares were granted to employees and $435,000 was
expensed. The related liability was $435,000 at December 31, 1995.
(11) INCOME TAXES:
Income (Loss) Before Income Taxes and Income Tax (Benefit) Expense in
1995, 1994 and 1993 are shown below (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income (loss) before income taxes:
Domestic operations ........... $ 3,212 $(11,286) $ 1,823
Foreign operations ............ 3,543 (1,111) 4,614
-------- -------- --------
Total consolidated ........ $ 6,755 $(12,397) $ 6,437
======== ======== ========
Income taxes:
Domestic operations
Current ................... $ 471 $ 750 $ 1,236
Deferred .................. -- -- --
-------- -------- --------
Total domestic ........ $ 471 $ 750 $ 1,236
======== ======== ========
Foreign operations
Current ................... $ (485) $ (923) $ 663
Deferred .................. 738 -- --
-------- -------- --------
Total foreign ......... $ 253 $ (923) $ 663
-------- -------- --------
Total consolidated $ 724 $ (173) $ 1,899
======== ======== ========
</TABLE>
Deferred income taxes reflect the impact of "temporary differences"
between amounts of assets and liabilities for financial reporting and tax
purposes as measured using enacted tax rates. Temporary differences and
carryforwards which give rise to a significant portion of deferred tax assets
and liabilities for 1995 and 1994 are as follows:
34
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
Tax Effect
(In thousands)
1995 1994
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization ............... $ 6,095 $ 5,738
Inventory ................................... 4,040 3,749
-------- --------
Total deferred tax liabilities .............. 10,135 9,487
-------- --------
Deferred tax assets:
Sales and product allowances ................ 2,040 2,332
Self insurance .............................. 8,664 8,702
Litigation and legal ........................ 9,214 9,190
Postretirement and pension benefits ......... 13,336 14,489
EPA ......................................... 4,922 4,461
Net operating loss carryforwards ............ 2,576 209
Other ....................................... 2,722 4,264
-------- --------
Total deferred tax assets ................... 43,474 43,647
Valuation allowance ......................... (34,959) (35,042)
-------- --------
Deferred tax assets after valuation allowance 8,515 8,605
-------- --------
Net deferred tax liabilities ..................... $ 1,620 $ 882
======== ========
</TABLE>
At the end of 1995 and 1994, valuation allowances were provided for the
net deferred tax assets as required under SFAS No. 109. The valuation allowance
decreased approximately $83,000 during 1995 and increased $4.1 million during
1994. In the U.S., the Company has established a full valuation allowance for
net deferred tax assets due to the uncertainty of ultimate realization.
The Company had a tax basis alternative minimum tax credit carryforward
of approximately $1.0 million at yearend 1995, which is available to reduce
future federal income taxes and has no expiration. The Company had a net
operating loss carryforward of $7.6 million at yearend 1995 for federal income
tax purposes which will partially expire in year 2009 and the remainder in year
2010.
The difference between the provisions for income taxes and income taxes
computed using the statutory federal income tax rate at yearend were as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Federal Income Tax Expense (Benefit) at Statutory Rate ........... $ 2,297 $(4,215) $ 2,189
Increase (decrease) resulting from:
Effects of valuation allowances on deferred tax assets ...... (1,115) 4,055 674
Excess of expenses for financial reporting purposes over
tax basis caused by permanent differences ............... 524 515 418
Effects of alternative minimum tax .......................... -- (202) (606)
Foreign tax effects ......................................... (951) (545) (130)
Tax effects of distributable earnings in foreign subsidiaries -- -- (776)
Other ....................................................... (31) 219 130
------- ------- -------
Total Income Tax Expense (Benefit) ...................... $ 724 $ (173) $ 1,899
======= ======= =======
</TABLE>
In 1993, the Company provided for $640,000 of tax expense for
repatriating those earnings which are no longer considered permanently
reinvested in foreign subsidiaries. In accordance with the Company's accounting
policy, U.S. deferred taxes have not been provided on approximately $13.3
million of undistributed earnings of foreign subsidiaries at the end of 1995, as
the Company intends to reinvest these earnings permanently in the foreign
operations or to repatriate such earnings only when to do so would be tax
effective. The amount of the unrecognized
35
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
tax liability for these undistributed earnings is not material at the end of
1995 due to the availability of foreign tax credits.
Under an agreement with Household, the Company is entitled to the tax
deduction, if it can be utilized, associated with certain liabilities which are
indemnified by Household. The Company, in turn, contributes an amount equivalent
to the tax benefit of such items when paid, regardless of whether the Company is
in a tax paying position. An estimate of approximately $16.9 million of the
liabilities for which the Company may receive a benefit remain at yearend 1995.
The Company's portion of these liabilities at the end of 1995 approximates $6.5
million. These payments would have no impact on the financial results of the
Company if it were subject to statutory tax rates; however, an impact did occur
due to the Company's alternative minimum tax or taxable loss position in the
years presented. A total of $1.7 million, $1.2 million and $1.3 million of such
payments were made in 1995, 1994 and 1993, respectively. The impact of future
payments will be dependent on the tax paying position of the Company. The
Company recorded expense of $1.1 million in 1995 which included an estimate of
future payments for which the Company will not receive tax benefit.
Net cash refunds related to income taxes in 1995 and 1994 were $517,000
and $4.0 million, respectively. Cash paid for income taxes in 1993 was $3.6
million.
(12) LEASES:
Rental expense under operating leases was $5.6 million, $5.6 million
and $6.2 million in 1995, 1994 and 1993, respectively.
Future minimum lease commitments under noncancelable operating leases
at the end of 1995 were as follows (in thousands):
1996........................................ $ 3,546
1997........................................ 3,076
1998........................................ 2,317
1999........................................ 1,191
2000........................................ 332
Thereafter.................................. 3,900
-------
Total minimum lease commitments......... $14,362
=======
(13) CONTINGENCIES:
Qest System Litigation
The Company is involved in certain litigation related to Qest
polybutylene plumbing systems. See Note 2 for discussion.
Environmental Matters
The Company operates plants that may generate hazardous and
non-hazardous waste, disposal of which is subject to federal and state
regulation. The past disposal of hazardous and non-hazardous waste generated at
the Company's plants may now be subject to the requirements of the federal
Resource Conservation and Recovery Act and comparable state statutes. Several
Company facilities have been required to implement programs to remedy the
effects of past waste disposal. Not all plants have been the focus of
comprehensive environmental studies. Except as described below, the Company is
not aware of any instances of noncompliance with currently applicable safety,
health and environmental laws and regulations which might have a significant
adverse effect on the Company's financial condition or results of operations.
With respect to current operating procedures, the Company believes that it is in
material compliance with such applicable laws and regulations. The Company has
established accruals of approximately $15.1 million at the end of 1995 (see
discussion of individual sites provided below) pertaining to environmental,
health and safety matters which the Company believes are adequate. Although the
timing of the related payments is uncertain, the Company believes that a
substantial portion of the payments will be made over the next three years.
36
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Marysville, Ohio, Facility
(a) Closure Plan.
The Marysville, Ohio, facility operated as a brass foundry and was
closed in 1987. The Company has submitted a closure plan for the facility to the
Ohio Environmental Protection Agency ("Ohio EPA"). The Company's environmental
consultants are working with the Ohio EPA to revise, and obtain final approval
of the closure plan. The Company anticipates submittal of the revised closure
plan later this year.
If approved in its current form, the Company's environmental
consultants estimate that the cost of implementing the closure plan, including
post-closure care, will be approximately $9.4 million. However, the ultimate
cost to complete closure and post-closure activities at the facility will depend
to a large extent on the remediation technology ultimately agreed upon by the
Ohio EPA. The Company has previously established accruals of $9.4 million which
it believes will be adequate to provide for the cost to implement its closure
plan. However, there is no assurance that the plan will be approved without
making additional revisions or modifications. Although no estimate can be made,
in the event the closure plan is not approved, the cost of remediation could
have a material impact on the Company's future operating results or financial
position. The accrual of $9.4 million at yearend 1995 includes total
post-closure costs of $1.4 million discounted over a 20-year period using a
discount rate of 5%. The Company's environmental consultants estimate that the
annual payments associated with these post-closure costs will be approximately
$72,000 per year, over a 20-year period.
(b) Financial Assurance.
In March 1995, the Company was successful in its efforts to obtain
third party liability insurance for the Marysville site. Despite meeting this
aspect of financial assurance requirements, the Company received correspondence
from the Ohio Attorney General threatening commencement of a lawsuit for failure
of the Company to meet the remainder of its financial assurance obligations for
the Marysville site as required by Ohio law. On July 7, 1995, the Attorney
General informed the Company that it intended to assess a $2.5 million civil
penalty for financial assurance violations regarding this site. Although the
Company believes it had legitimate defenses to the Attorney General's claims and
to the threat of imposition of any fines or penalties, it entered into
negotiations with the Attorney General in an effort to avoid the expense and
uncertainty of protracted litigation.
On October 5, 1995, a settlement was negotiated with the Ohio Attorney
General wherein the Company agreed to pay a cash penalty of $750,000, with an
additional fine of $500,000 to be suspended pending completion of closure
activities at the Marysville site in accordance with a closure plan approved by
the Ohio EPA. To meet the Company's remaining financial assurance obligations,
the settlement also requires the Company to fund an $8.5 million trust account
during 1996 to be used to pay for implementation of the Marysville closure plan.
The Company believes it has adequate reserves established to provide for payment
of the cash penalty and sufficient cash flow and debt available to fund the
trust account.
Salem, Ohio, Facility.
(a) Closure Plan.
The Company submitted a plan for closure of the hazardous waste
management unit at its Salem, Ohio, facility to the Ohio EPA on April 30, 1993.
Comments received from the Ohio EPA indicate that the closure plan will require
modifications. The Company's environmental consultants are currently working on
revisions to the closure plan, which may increase the cost to implement the
closure plan excluding post-closure care from $1.3 million to $2.0 million. In
connection with the anticipated closure plan revisions, the Company also
submitted a proposal to the Ohio EPA for the reduction of post-closure care
costs at the Salem facility. If accepted by the Ohio EPA, post-closure costs
could be reduced from $1.9 million to $1.0 million.
37
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Through 1993, the Company paid $1.6 million to complete an interim
closure of the subject area and accruals of approximately $2.5 million for
additional closure and post-closure costs expected in future periods were
recorded at yearend 1995, which the Company believes are adequate. The yearend
1995 accrual includes total post-closure costs of $1.9 million discounted over a
30-year period using a discount rate of 5%. The Company's environmental
consultants estimate that the annual payments associated with these post-closure
costs will range from $60,000 to $105,000 per year, over a 30-year period.
(b) Financial Assurance.
After March 1992 the Company was unable to meet its financial assurance
obligations with respect to the Salem site. The U.S. Department of Justice (the
"DOJ") sought payment by the Company of a cash penalty of $175,000, with an
additional fine of $912,000 to be held in abeyance pending completion of the
site closure activities without any further violations of the Company's
financial assurance obligations under Ohio law. The Company accepted the DOJ's
offer and approved modification of a prior consent decree entered in 1990
relating to these issues. The modified consent decree is currently pending
approval by DOJ and entry by the U.S. District Court for the Northern District
of Ohio. The Company believes that it currently meets its financial assurance
requirements regarding the Salem site and has established accruals for the
$175,000 cash penalty.
On March 20, 1995, the Ohio EPA notified the Company that the Salem
facility was in violation of Ohio's financial assurance laws as a result of the
Company calculating its post-closure care estimate based on present value.
Although the Company disputes Ohio EPA's contention and believes it has complied
with Ohio law, it is currently negotiating the matter with the Ohio EPA and the
Ohio Attorney General. The Company intends to resolve this issue prior to the
entry of the modified consent decree discussed above. Any reduction of the costs
of post- closure care at the Salem site, as discussed above, will directly
reduce the Company's financial assurance obligations for post-closure care.
(c) Clean Water Act.
The Company negotiated a settlement with the DOJ and the U.S.
Environmental Protection Agency (the "U.S. EPA") for alleged past violations of
the Clean Water Act for unpermitted discharge of wastewater streams at the
Salem, Ohio, facility. The settlement called for the payment of a $300,000 cash
penalty and performance of certain remedial work at the facility estimated to
cost approximately $690,000. On December 8, 1995, a Consent Decree was entered
by the U.S. District Court for the Northern District of Ohio, approving the
previously negotiated settlement. On January 8, 1996, the Company paid the
$300,000 civil penalty. The Company's environmental consultants are currently in
the process of initiating implementation of the remedial work at the Salem
facility, which the Company anticipates will be completed later this year. The
Company has previously established accruals which it believes are adequate to
cover these costs.
(d) Clear Air Act.
On April 11, 1995, the Ohio Attorney General initiated an enforcement
action against Eljer Manufacturing's Salem, Ohio, facility for air emissions
violations that allegedly occurred in 1989 and 1990. The Attorney General
threatened to pursue litigation against the Company to impose a permanent
injunction that three identified sources of emissions would remain in compliance
with the Ohio Administrative Code, and to recover civil penalties for past
emission violations. In October 1995, the Company negotiated a settlement with
the Attorney General for the alleged air emission violations. The settlement
calls for the payment of a $75,000 cash penalty and entry of a consent decree
which requires the Salem, Ohio, facility to maintain compliance over the next
two years. On December 8, 1995, a consent decree was entered by the Ohio Court
of Common Pleas, and on January 18, 1996, the Company paid the $75,000 cash
penalty which was accrued at yearend 1995.
38
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Superfund Sites.
The federal Comprehensive Environmental Response, Compensation and
Liability Act (commonly referred to as "Superfund" or the "Superfund Act") and
similar state laws subject certain parties to liability for the clean-up of
contaminated waste treatment or disposal sites. Liability under the Superfund
Act is considered "joint and several", meaning that any one responsible party
theoretically could be liable for all clean-up costs, which are often
substantial. However, the Superfund Act provides for the allocation of liability
in an equitable manner among responsible parties and for contribution among
them.
Certain of the Company's plants may have disposed of waste at sites
which have or may become a part of federal Superfund clean-up efforts. Through
notifications from the U.S. EPA, the Company believes its total liabilities
related to Superfund sites are immaterial (approximately $160,000 at yearend
1995) if liability and contributions are assessed in an equitable manner among
all responsible parties. The Company has established accruals which it believes
are adequate to provide for any liabilities it may have with respect to these
sites.
Atlanta, Georgia, Site.
In October 1991, Eljer Manufacturing sold a facility located in
Atlanta, Georgia, to joint venture partners Toto Ltd., Mitsui & Co., Ltd. and
Mitsui & Co. (USA), Inc. ("Toto and Mitsui"). Toto and Mitsui subsequently
asserted that Eljer Manufacturing is responsible under the indemnification
provisions included in the Purchase and Sale Agreement to remediate alleged
contamination at the sold facility. Under the agreement, Eljer Manufacturing's
liability for remediation costs is limited to $750,000. Eljer Manufacturing has
notified the prior owner of the facility, JP Industries, Inc., ("JP Industries")
that it may be liable to Eljer Manufacturing for indemnity under the provisions
of Eljer Manufacturing's purchase agreement with JP Industries. Eljer
Manufacturing does not believe that any remediation at the Atlanta site is
necessary and no estimate of a liability, if any, can be made at this time. In
addition, no estimate can be made of the amount, if any, that Eljer
Manufacturing may receive from JP Industries.
Wilson, North Carolina, Site.
In anticipation of the 1994 sale of the Company's Wilson, North
Carolina, manufacturing plant, an environmental investigation was performed of
that plant. One monitoring well on the property showed the presence of benzene
and methylene chloride. This finding was reported to the State of North Carolina
and a follow-up investigation was performed. Another well on the property was
found to contain trichloroethene, another hazardous substance. Based on the
location of the well, the direction of groundwater flow and the Company's
understanding that trichloroethene has never been used at the plant, it is
presently the Company's belief that any trichloroethene on the property
originated from off-site sources. The Company does not believe it is responsible
for remediation of any trichloroethene which may be present at the site.
However, the Company retains responsibility under the indemnification provisions
included in the Purchase and Sale Agreement to remediate benzene and methylene
chloride that exceed maximum levels allowed by North Carolina law. The Company
continues to await a response to its comprehensive site assessment submitted in
March 1994. While the cost to comply with the Company's indemnity obligations is
estimated at $509,000 based on the use of traditional remediation methods, the
Company hopes to receive approval from the state of North Carolina to pursue
alternative remediation methods which would substantially reduce these costs.
The Company has established accruals which it believes are adequate to provide
for the costs of investigation and remediation, if any.
39
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Proposition 65.
Eljer Industries, Eljer Manufacturing, U.S. Brass and approximately 15
other manufacturers and sellers of residential and commercial brass faucets were
named as defendants in two lawsuits; one brought by the Attorney General of the
State of California and the other by the Natural Resources Defense Council
("NRDC") and the Environmental Law Foundation ("ELF") alleging violations of
California's Safe Drinking Water and Toxic Enforcement Act of 1986 ("Proposition
65"). The lawsuits alleged that U.S. Brass and Eljer Manufacturing did not label
their faucets in conformity with Proposition 65. The lawsuits further alleged
that U.S. Brass and Eljer Manufacturing knowingly discharged or released lead
into drinking water in violation of Proposition 65. The discharge and exposure
allegedly arose out of leaching of lead into drinking water from leaded brass
faucets manufactured by the defendants. Settlements were reached wherein Eljer
Manufacturing paid $30,000 to the NRDC and ELF, and U.S. Brass agreed to allow
the Attorney General a general, unsecured $30,000 claim in the U.S. Brass
bankruptcy. Both settlements call for the dismissal of Eljer Industries as a
named defendant. Also, over the course of the next four years Eljer
Manufacturing and U.S. Brass will phase out the sale in California of leaded,
brass faucets that exceed specified National Sanitation Foundation ("NSF")
standards, and, in the interim, warning tags will be placed on faucets that
exceed the specified NSF protocol. Under the proposed settlements, neither Eljer
Manufacturing nor U.S. Brass has any affirmative obligation to market
alternative brass faucets.
On October 6, 1995, a motion to approve settlement in the Attorney
General's case was granted and a Consent Judgment documenting the settlement
terms was entered by the court. On October 24, 1995, NRDC and ELF dismissed
their lawsuit against Eljer Manufacturing and U.S. Brass.
Insurance.
The Company has made claims to its applicable insurance carriers under
certain insurance policies for any amounts paid in the past or for which it may
become obligated to pay in the future in connection with various environmental
matters. The Company cannot predict the amount, if any, of insurance proceeds
that may be received as a result of these environmental claims. No receivable
from insurance carriers has been recorded related to environmental matters.
40
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Following is a summary of environmental contingencies (in thousands):
<TABLE>
<CAPTION>
Accrual Charge Against Cash
Estimated Balance 1995 Paid
Contingency Liability @12/31/95 Earnings In 1995
- ----------- ------------ ---------- -------------- ---------
<S> <C> <C> <C> <C>
Marysville closure & post-
closure ............................... $ 9,351 $ 9,351 $ 0 $ 49
Marysville financial
assurance ............................. 750 750 750 0
Salem closure,
post-closure and
financial assurance ................... 2,375 - 2,692 2,692 317 0
Salem Clean Water Act
settlement ............................ 990 990 0 0
All other (individually less
than $1 million)
568 - 2,072 1,327 366 55
----------------- ------- ------- -------
Total ................................. $14,034 - $15,855 $15,110 $ 1,433 $ 104
================= ======= ======= =======
</TABLE>
Kowin and Related Litigation
On June 10, 1994, the United States Supreme Court denied the petition
for certiorari filed by Eljer Manufacturing in the previously disclosed Kowin
Development Company ("Kowin") litigation. The litigation resulted from a failed
manufacturing joint venture in the People's Republic of China (the "PRC Joint
Venture") in which Kowin held a 25% interest. On June 30, 1994, a final judgment
was entered and Kowin was paid approximately $11.6 million of the $13.2 million
cash bond previously posted by Eljer Manufacturing for this litigation.
Approximately $1.6 million of related amounts previously paid, plus interest
thereon, was returned to the Company. The amount of the judgment and related
costs were included in an extraordinary charge against earnings in 1992.
The approximately $1.2 million judgment against Eljer Manufacturing
entered in the People's Republic of China and previously disclosed, remains
subject to an appeal, but is outstanding and unpaid. Based upon advice of
counsel, Eljer Manufacturing continues to believe it has substantial procedural
defenses against any effort to enforce this judgment in the United States. Eljer
Manufacturing believes its $1.2 million accrual is adequate to provide for any
liability ultimately incurred in this matter. Additionally, in 1988, Simonds
Industries, Inc. purchased HMI's interest in the PRC Joint Venture and may have
liability for a portion of the amount awarded; however, no estimate can be made
of the amount, if any, that Eljer Manufacturing may receive from Simonds
Industries, Inc.
On October 24, 1994, Winston and Dorothy Ko, the owners of Kowin and
Croft Investments, Ltd., an affiliate of Kowin in the PRC Joint Venture, filed a
complaint in the Circuit Court of Cook County, Illinois, seeking individual
damages in an action entitled Winston Ko and Dorothy Ko v. Eljer Industries,
Inc., et al. Plaintiffs have claimed approximately $24 million in damages for
alleged losses on their real estate investments, and also seek unspecified
exemplary and punitive damages, and unspecified damages for alleged injury to
their reputations, for emotional distress and for lost profits on their real
estate investments. Eljer Industries, Eljer Manufacturing and related individual
defendants filed a motion to dismiss the complaint which was granted by order on
August 1, 1995. The Circuit Court
41
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
concluded that the action brought by the Kos was time barred and dismissed the
action. The Kos have appealed the ruling. If the case is ultimately litigated,
the Company believes that it has adequate defenses and should prevail.
Accordingly, no additional accrual has been established for this contingency.
Other Matters
High Temperature Plastic Vent ("HTPV") Pipe
The Consumer Product Safety Commission ("CPSC") has initiated an
investigation under Section 15 of the Consumer Product Safety Act (the "Act") as
to whether a HTPV product ("Plexvent") manufactured using Ultem resin from
Chevron Chemical Company's Plexco Performance Pipe Division poses a substantial
product hazard under the Act. The HTPV pipe is used to exhaust combustion gases
from mid-and high-efficiency small water boilers and central heating furnaces.
Eljer Manufacturing's Selkirk Metalbestos division ("Selkirk") distributed the
Plexco HTPV pipe from mid-1990 until the end of 1993. Selkirk began
manufacturing and selling its own Ultem resin HTPV product ("Sel-Vent I") in
January 1994 and discontinued the manufacture of Sel-Vent I in June 1994.
Beginning in September 1994, Selkirk began manufacturing and selling a vent pipe
manufactured from Radel resin ("Sel-Vent II"). Sel-Vent II is not the subject of
the CPSC investigation.
In the U.S., Selkirk has responded to informal requests for information
from the CPSC and has also sent samples, as requested, of Sel-Vent I. By law,
the CPSC may direct repair, replacement or refund of any product that it
believes poses a substantial product hazard. Selkirk has received no reports of
product defects or failures for Sel- Vent I and believes that Sel-Vent I does
not exhibit the same characteristics as the Plexco product because of different
manufacturing process control and joint design. Nevertheless, the Company has
advised the CPSC that it desires to voluntarily conduct a recall and retrofit
program for Sel-Vent I. If the CPSC approves Selkirk's proposal, Selkirk will
replace Sel-Vent I with Sel-Vent II. The Company estimates that, if approved, it
will replace between 1,000 and 1,700 installations in the U.S., at a cost
ranging from $200 to $250 per installation, depending upon the size of the
installation.
In Engel et al. v. Chevron Corporation, Inc., Civil Action No. L-1989,
filed February 16, 1996, Circuit Court for Blount County, Tennessee at
Maryville, plaintiffs purportedly on behalf of a national class, seek damages
and injunctive relief against Chevron Corporation, Inc. allegedly arising out of
Chevron's manufacture of Plexvent. Eljer Industries is listed as an "unnamed
party", but not as a defendant. This matter is in very early stages
substantively and the Company is not currently a party to this litigation.
In Canada, use of Plexvent and similar vent pipe has been prohibited
by provincial authorities pending further investigation. In the Canadian
province of Ontario, homeowners have been ordered to remove HTPV pipe from their
homes. The Ontario Home Warranty Program is expected to reimburse covered home
owners for the replacement cost, although not all affected homeowners are
covered by the Ontario Home Warranty Program. In February 1996, the Company was
informed that it had been named in a purported class action suit in Canada filed
on behalf of the Ontario Home Warranty Program and affected homeowners not
covered by the Ontario Home Warranty Program to recover replacement costs. The
Company has not yet been served with this litigation. The Company believes that
Sel-Vent I was used in approximately 700 to 1,000 Canadian installations, and
that replacement cost ranges from $200 to $1,000 per installation, depending on
the replacement material ultimately used.
Based on the estimates described above, the amount to voluntarily
replace the Sel-Vent I in North America could range from $340,000 to $1,425,000.
The Company has established an accrual of $500,000 for this contingency.
42
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Nampa Employment Litigation
In Ybarra, et al. v. Eljer Manufacturing, Inc., filed July 11, 1995, in
the United States District Court for the District of Idaho, approximately 20
current or former employees at Eljer Manufacturing's Nampa plant allege that
they have been the subject of sexual and racial discrimination. The lawsuit
seeks damages against Eljer Manufacturing, and, in some cases, reinstatement or
promotions. The case is in very early stages of discovery and has been set for
mediation beginning in March 1996. A tentative trial date has been set for
February 1997. Because the case is in early substantive stages, it is impossible
to give any opinion concerning the possible outcome or the likelihood of
success. The Company intends to vigorously defend the litigation.
(14) RELATIONSHIP WITH HOUSEHOLD:
The Company is currently involved in litigation with Household relating
to the spin-off. Household filed an action in the Delaware Chancery Court on
February 5, 1993, against Eljer Industries, Eljer Manufacturing and U.S. Brass
seeking declaratory relief. U.S. Brass has since been dismissed from the case.
Following a finding by the Delaware Chancery Court that it had no subject matter
jurisdiction, that action was transferred to the Delaware Superior Court for
trial on the merits, where it remains pending.
On February 11, 1993, Eljer Industries and Eljer Manufacturing filed a
breach of contract action against Household in the District Court of Dallas
County, Texas, based upon Household's alleged breach of the Reimbursement
Agreement, dated as of April 14, 1989, and the Reorganization and Distribution
Agreement, dated as of March 15, 1989, executed in connection with the spin-off.
On June 19, 1995, the Delaware Chancery Court enjoined the Company and Eljer
Manufacturing from proceeding with litigation against Household in any court
other than the Superior Court in Delaware. As a result, the Company and Eljer
Manufacturing may not proceed with their litigation against Household in Texas
District Court. The Company did not appeal the Delaware Chancery Court ruling.
On July 26, 1995, the Delaware Superior Court heard arguments on
Household's motions for complete and partial summary judgment in the litigation
between Household, the Company and Eljer Manufacturing. On October 16, 1995, the
Delaware Superior Court denied all of Household's motions, except one claim
which the Company elected not to pursue. On January 19, 1996, the Delaware
Superior Court denied Household's motion for summary judgment which sought to
limit damages the Company could recover to approximately $32 million. Household
has filed additional motions for summary judgment on certain claims it has filed
against the Company, but briefing is not complete and the Delaware Superior
Court has not ruled on the motions. Pre-trial discovery is continuing, and trial
is set to begin on May 20, 1996, in Delaware. As disclosed in Note 2, the
Company has entered into a tentative settlement with Qest system claimants
whereby 75% of any proceeds received from Household will be used to fund the
settlement.
43
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(15) GEOGRAPHIC SEGMENTS:
Data on the Company's geographic segments, based on the locations of
the Company's operations, are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Sales to unaffiliated customers-
North America ............. $ 327,637 $ 340,628 $ 313,376
Europe .................... 69,749 65,435 74,186
--------- --------- ---------
Total ................. $ 397,386 $ 406,063 $ 387,562
========= ========= =========
Income (loss) from operations-
North America ............. $ 16,482<F2> 334<F1> $15,765
Europe .................... 4,780 (65) 5,306
--------- --------- ---------
Total ................. $ 21,262<F2> 269<F1> $ 21,071
========= ========= =========
Identifiable assets-
North America ............. $ 199,035 $ 210,207 $ 187,814
Europe .................... 49,924 46,850 47,609
--------- --------- ---------
Total ................. $ 248,959 $ 257,057 $ 235,423
========= ========= =========
<FN>
<F1> This includes a $21.9 million unusual charge related to U.S. Brass (see
Note 2 for additional discussion). Not considering the unusual charge,
North American and Total Income from Operations would have been $22.2
million and $22.1 million, respectively in 1994.
<F2> This includes a $676,000 unusual gain related to U.S. Brass (see Note 2 for
additional discussion). Not considering the unusual gain, North American
and Total Income from Operations would have been $15.8 million and $20.6
million, respectively in 1995.
</FN>
</TABLE>
(16) QUARTERLY FINANCIAL DATA (unaudited and in thousands except per share
amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- -------- --------
<S> <C> <C> <C> <C>
1995
Net sales............................................ $99,055 $92,416 $102,752 $103,163
Gross profit......................................... 23,398 22,810 28,736 27,262
Net income (loss).................................... (882) (1,206) 4,522 2,455
Earnings (loss) per share............................ (.12) (.17) .63 .35
1994
Net sales............................................ $90,875 $103,356 $107,872 $103,960
Gross profit......................................... 24,268 27,435 32,022 28,973
Net income (loss).................................... 360 2,386 4,265 (19,235)
Earnings (loss) per share............................ .05 .34 .60 (2.71)
1993
Net sales............................................ $95,648 $84,507 $102,965 $104,442
Gross profit......................................... 25,860 23,862 29,160 30,306
Net income (loss).................................... 874 (1,446) 3,136 1,334
Earnings (loss) per share............................ .12 (.20) .44 .19
</TABLE>
44
<PAGE>
ELJER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The unaudited quarterly financial data above have been restated from
the Company's previously filed Forms 10-K and 10-Q to reflect certain
reclassifications from cost of sales to selling and administrative costs.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section entitled "Election of Directors" appearing in the
Registrant's proxy statement for the annual meeting of stockholders to be held
on April 16, 1996, sets forth certain information with respect to the directors
of the Registrant and is incorporated herein by reference. Certain information
with respect to persons who are or may be deemed to be executive officers of the
Registrant is set forth under the caption "Executive Officers of the Registrant"
in Part I of this report.
Item 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation and Certain Transactions"
appearing in the Registrant's proxy statement for the annual meeting of
stockholders to be held on April 16, 1996, sets forth certain information with
respect to the compensation of management of the Registrant and is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The sections entitled "Voting Securities and Principal Stockholders"
and "Election of Directors" appearing in the Registrant's proxy statement for
the annual meeting of stockholders to be held on April 16, 1996, set forth
certain information with respect to the ownership of the Registrant's Common
Stock and are incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Executive Compensation and Certain Transactions"
appearing in the Registrant's proxy statement for the annual meeting of
stockholders to be held on April 16, 1996, sets forth certain information with
respect to certain business relationships and transactions between the
Registrant and its directors and officers and is incorporated herein by
reference.
45
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
(1) Financial Statements
The financial statements filed as part of this report are listed on the
Index to Consolidated Statements on page 14.
(2) Financial Statement Schedules
Index to Consolidated Financial Statement Schedules
Page
----
Report of Independent Public Accountants 50
For the three years 1995, 1994 and 1993:
Schedule II -Valuation and Qualifying Accounts 51
All other Schedules have been omitted because the required information
is shown in the consolidated financial statements or notes thereto or they are
not applicable.
46
<PAGE>
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------------ ---------------------------------------------------------------------
<S> <C>
3A(1) Form of Restated Certificate of Incorporation of the Registrant.
3B Form of Amended Bylaws of the Registrant.
4A(1) Form of Restated Certificate of Incorporation of the Registrant (see Exhibit 3A).
4B Form of Amended Bylaws of the Registrant (see Exhibit 3B).
4C(1) Form of Common Stock Certificate.
4D(1) Form of Rights Agreement between the Registrant and Harris Trust & Savings Bank, as
Rights Agent ("Rights Agreement").
4E(1) Amendment and Amendment No. 2 to Rights Agreement dated as of July 31, 1989 and
January 4, 1990, respectively.
4F(3) Amendment No. 3 to Rights Agreement dated as of November 5, 1991.
Instruments with respect to long-term debt which do
not exceed 10 percent of the total assets of the
Registrant and its consolidated subsidiaries have not
been filed. The Registrant agrees to furnish a copy
of such instruments to the Commission upon request.
4G(4) Amended and Restated Credit Agreement dated as of
December 11, 1992 among Eljer Manufacturing, Inc., as
Borrower, Eljer Industries, Inc., as Parent
Guarantor, the Banks listed therein, and NationsBank
of Texas, N.A., as Administrative Agent and Co-Agent,
and Morgan Guaranty Trust Company of New York, as
Co-Agent and, for limited purposes, The First
National Bank of Chicago, as "First Chicago".
4H(6) Form of First Amendment to Amended and Restated Credit Agreement dated as of March
25, 1994.
4I(7) Form of Second Amendment to Amended and Restated Credit Agreement dated as of
October 17, 1994.
4J(9) Form of Third Amendment to Amended and Restated
Credit Agreement dated as of August 15, 1995.
4K(7) Loan and Security Agreement by and among Congress Financial Corporation
(Southwest) as Lender and Eljer Manufacturing, Inc. as Borrower and Eljer Industries, Inc.
as Guarantor dated October 17, 1994.
10A(1) Form of Reorganization and Distribution Agreement.
10B(1) Form of Employee Benefits and Labor Agreement.
10C(1) Form of Tax Sharing Agreement.
10D(1) Form of Transition Management Services Agreement.
10E(1) Form of Standstill Agreement between the Registrant & Household
International, Inc.
10F(2) Form of Employment Agreement with Scott G. Arbuckle.
10G(2) Form of Employment Agreement with James F. Thomason.
10H(2) Form of Employment Agreement with James A. Harris and Brooks F. Sherman.
10I(8) Form of Employment Agreement with George W. Hanthorn.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------------ ---------------------------------------------------------------------
<S> <C>
10J Form of Employment Agreement with Nancy J. Duricic.
10K Form of Employment Agreement with Steven M. Rodman.
10L Form of Employment Agreement with Gerald J. Morris.
10M Salaried Pension Plan for Eljer Manufacturing, Inc.
10N(10) Amendment No. 1 to the Salaried Pension Plan of Eljer Manufacturing, Inc.
10O Tax Reduction Investment Plan.
10P(1) Long-Term Executive Incentive Compensation Plan of the Registrant.
10Q(2) 1991 Long-Term Incentive Plan.
10R 1995 Long-Term Incentive Plan
10S(2) Form of Executive Severance Agreement with Scott G. Arbuckle.
10T(8) Form of Amendment to Executive Severance Agreement with Scott G. Arbuckle.
10U(2) Form of Executive Severance Agreement with James F. Thomason, James A. Harris,
Brooks F. Sherman and George W. Hanthorn.
10V(8) Form of Amendment to Executive Severance Agreement with James F. Thomason,
James A. Harris, Brooks F. Sherman and George W. Hanthorn.
10W Form of Severance Agreement with Nancy J. Duricic and Gerald J. Morris.
10X(3) Eljer Supplemental Benefit Plan.
10Y(3) Eljer Excess Benefit Plan.
10Z(5) Eljer Industries, Inc. Stock Payment Plan for Non-Employee Directors.
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen, LLP, independent certified public accountants.
27 Financial Data Schedule.
- ----------
(1) Incorporated by reference to the Registrant's Registration Statement on Form 10 filed
February 14, 1989, as amended by Forms 8 filed March 14, 1989, March 23, 1989, March
27, 1989, August 3, 1989, January 10, 1990, May 2, 1990 and November 19, 1991 (File
No. 0-10181).
(2) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the
Quarterly Period Ended March 31, 1991 filed May 14, 1991.
(3) Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the Quarterly
Period Ended September 29, 1991 filed November 12,
1991.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the Fiscal
Year Ended January 3, 1993, filed April 1, 1993.
(5) Incorporated by reference to the Registrant's Registration Statement on Form S-8 filed
December 16, 1993 (registration no. 33-51527).
(6) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the Fiscal
Year Ended January 2, 1994, filed March 31, 1994.
</TABLE>
48
<PAGE>
(7) Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the Quarterly
Period Ended October 2, 1994 filed November 16, 1994.
(8) Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the Fiscal Year Ended
January 1, 1995, filed March 29, 1995.
(9) Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the Quarterly
Period Ended July 2, 1995 filed August 16, 1995.
(10) Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the Quarterly
Period Ended October 1, 1995 filed November 15, 1995.
(4) Reports on Form 8-K
None.
49
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Eljer Industries, Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of Eljer Industries, Inc. and
subsidiaries included in this Form 10-K, and have issued our report thereon
dated March 5, 1996. Our report on the consolidated financial statements
includes an explanatory paragraph with respect to the substantial doubt about
the Company's ability to continue as a going concern in its present consolidated
form due to the issues arising from the Qest polybutylene plumbing systems
manufactured and sold by the Company's indirect, wholly-owned subsidiary, United
States Brass Corporation. Our report on the consolidated financial statements
also includes an emphasis of matter paragraph regarding the Company's term debt,
which expires on January 31, 1997. These matters are discussed in Notes 2 and 3
to the consolidated financial statements. Our audits were made for the purpose
of forming an opinion on the basic consolidated financial statements taken as a
whole. The schedule listed in the index to Item 14 is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects, the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 5, 1996
50
<PAGE>
ELJER INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Additions
---------------------------
Balance at Charged to Charged Balance
Beginning Costs/ to Other at End
Description of Period Expenses Accounts Deduction of Period
----------- --------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
1993
Accounts receivable reserves.................... $10,068 $1,378 $ (207) $(2,349)<F1> $8,890
======= ======= ======= ======= ======
Reserve for receivables from
insurance carriers............................ $13,455 $ -- $ -- $(6,005)<F2> $7,450
======= ======= ======= ======= ======
1994
Accounts receivable reserves.................... $ 8,890 $ 61 $ -- $(1,255)<F1> $7,696
======= ======= ======= ======= ======
Reserve for receivables from
insurance carriers............................ $ 7,450 $ -- $(7,198)<F3> $ (252)<F2> $ --
======= ======= ======= ======= ======
1995
Accounts receivable reserves.................... $ 7,696 $ 119 $ -- $ (907)<F1> $6,908
======= ======= ======= ======= ======
<FN>
<F1> Includes primarily write-offs of uncollectible accounts and net customer discounts taken.
<F2> Includes primarily collection of proceeds from insurance carriers.
<F3> Represents write-off against related asset.
</FN>
</TABLE>
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 7, 1996 ELJER INDUSTRIES, INC.
By: /s/Brooks F. Sherman
-----------------------------
Brooks F. Sherman
Vice President-Finance,
Chief Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/Frank J. Morgan Chairman of the Board March 7, 1996
- -------------------------------
Frank J. Morgan
/s/Scott G. Arbuckle Director, President March 7, 1996
- ------------------------------- and Chief Executive Officer
Scott G. Arbuckle (Principal Executive Officer)
/s/Brooks F. Sherman Vice President-Finance, March 7, 1996
- ------------------------------- Chief Financial Officer
Brooks F. Sherman and Treasurer (Principal
Financial and Accounting Officer)
/s/John H. Deininger Director March 7, 1996
- -------------------------------
John H. Deininger
/s/Paul E. Price Director March 7, 1996
- -------------------------------
Paul E. Price
/s/C. A. Rundell, Jr. Director March 7, 1996
- -------------------------------
C. A. Rundell, Jr.
/s/Walter C. Minnick Director March 7, 1996
- -------------------------------
Walter C. Minnick
</TABLE>
52
BYLAWS
OF
ELJER INDUSTRIES, INC.
ARTICLE I
STOCKHOLDERS
Section 1. The annual meeting of the stockholders of the Corporation
shall be be held such date, and at such time and at such place within or without
the State of Delaware, as may be fixed by the Board of Directors, for the
purpose of electing directors and for the transaction of such other business as
may properly be brought before the meeting.
Section 2. (a) Subject to the rights of the holders of any class or
series of stock having a preference over the Common Stock of the Corporation as
to dividends or upon liquidation ("Preferred Stock"), any action required or
permitted to be taken by the stockholders of the Corporation must be effected at
an annual or special meeting of stockholders of the Corporation and may not he
effected by any consent in writing by such stockholders. Subject to the rights
of the holders of any class or series of Preferred Stock, special meetings of
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution adopted by a majority of the Whole Board (as such term
is defined in Article EIGHTH of the Corporation's Restated Certificate of
Incorporation (the "Certificate of Incorporation")).
(b) Special meetings of the stockholders may be held at such time and
at such place within or without the State of Delaware, as may be stated in the
call.
Section 3. Notice of the time and place of every meeting of
stockholders shall be delivered personally or mailed at least ten days and not
more than sixty days prior thereto to each stockholder of record entitled to
vote at his address as it appears on the records of the Corporation. Such
further notice shall be given as may be required by law. Business transacted at
any special meeting shall be confined to the purpose or purposes stated in the
notice of such special meeting. Meetings may be held without notice confined to
the purpose or purposes stated in the notice of such special meeting. Meetings
may be held without notice if all stockholders entitled to vote are present or
if notice is waived by those not present.
Section 4. Except as otherwise provided by law or by the Certificate
of Incorporation, the presence, in person or by proxy, of the holders of record
of shares of capital stock of the Corporation entitling the holders thereof to
cast a majority of the votes entitled to be cast by the holders of shares of
capital stock of the Corporation entitled to vote shall constitute a quorum at
all meetings of the stockholders. The chairman of the meeting or the holders of
record of a majority of such shares so present or represented may adjourn the
meeting from time to time, whether or not there is such a quorum. No notice of
the time and place of adjourned meetings need be given except as required by
law.
Section 5. Election of directors at all meetings of the stockholders
at which directors are to elected shall be by ballot, and, except as otherwise
set forth in any Preferred Stock Designation (as defined in Article FOURTH of
the Certificate of Incorporation) with respect to the right of the holders of
any class or series of Preferred Stock to elect additional directors under
specified circumstances, a plurality of the votes cast thereat shall elect.
Except as otherwise provided by law, the Certificate of Incorporation, any
Preferred Stock Designation, the By-Laws of the Corporation or resolution
adopted by the Whole Board, all matters other than the election of directors
submitted to the stockholders at any meeting shall be decided by a majority of
the votes cast with respect thereto.
Section 6. (a) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting (i) by
or at the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(a). For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered or mailed to and received
at the principal executive offices of the Corporation not less than 30 days
prior to the date of the annual meeting; provided, however, that in the event
that less than 40 days' notice or prior to public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be received not later that the close of business on the l0th day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made. A stockholder's notice to the Secretary
shall set forth as to each matter such stockholder proposes to bring before
the annual meeting ii) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such business, {iii) the class and number
of shares of the Corporation's capital stock that are beneficially owned by
such stockholder and (iv) any material interest of such stockholder in such
business. Notwithstanding anything in the By-Laws to the contrary, no business
shall be brought before or conducted at an annual meeting except in accordance
with the provisions of this Section 6(a). The officer of the Corporation or
other person presiding over the annual meeting shall, if the facts so warrant,
determine and declare to the meeting that business wa not properly brought
before the meeting in accordance with the provisions of this Section 6(a)
and, if he should so determine, he shall so declare to the meeting and any such
business so determined to be not properly brought before the meeting shall not
be transacted.
At any special meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting by or at the
direction of the Board of Directors.
(b) Only persons who are nominated in accordance with the procedures
set forth in these By-Laws shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholder at which directors are to be elected
only (i) by or at the direction of the Board of Directors or (ii) by any
stockholder of the Corporation entitled to vote for the election of directors at
the meeting who complies with the notice procedures set forth in this Section
6(b). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the Corporation not
less than 30 days prior to the date of the meeting; provided, however, that in
the event that less than 40 days' notice or prior disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the l0th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such stockholder's notice shall set forth (i)
as to each person whom such stockholder proposes to nominate for eiection or
re-election as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including such persons's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); and (ii) as to the stockholder giving the notice (x) the
name and address, as they appear on the Corporation's books, of such stockholder
and (y) the class and number of shares of the Corporation's capital stock that
are beneficially owned by such stockholder. At the request of the Board of
Directors any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the provisions of this Section
6(b). The officer of the Corporation or other person presiding at the meeting
shall, if the facts so warrant, determine and declare to the meeting that a
nomination was not made in accordance with such provisions and, if he should so
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded.
Section 7. There shall be appointed, for all meetings of the
stockholders, two inspectors of the vote. Such inspectors shall first take and
subscribe an oath or affirmation faithfully to execute the duties of inspector
at such meeting with strict impartiality and according to the best of their
ability. Unless appointed in advance of any such meeting by the Board of
Directors, such inspectors shall be appointed for the meeting by the person
presiding thereat. No director or candidate for the office of director shall
be appointed as such inspector. Such inspectors shall be responsible for
tallying and certifying the vote taken on any matter at each meeting which is
required to be tallied and certified by them in the resolution of the Board of
Directors appointing them or the appointment of the person presiding at such
meeting, as the case may be.
ARTICLE II
DIRECTORS
Section 1. (a) Subject to the rights of the holders of any class or
series of Preferred Stock to elect directors under specified circumstances, the
number of directors shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the Whole Board. The
directors, other than those who may be elected by the holders of any class or
series of Preferred Stock, shall be divided, with respect to the time for which
they severally hold office, into three classes, with the term of office of the
first class to expire at the 1990 annual meeting of stockholders, the term of
office of the second class to expire at the 1991 annual meeting of stockholders
and the term of office of the third class to expire at the 1992 annual meeting
of stockholders, with each director to hold office until his or her successor
shall have been duly elected and qualified. At each annual meeting of
stockholders, commencing with the 1990 annual meeting, (i) directors elected to
succeed those directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each director to hold office until his or her successor
shall have been duly elected and qualified and (ii), if authorized by a
resolution of the Board of Directors, directors may be elected to fill any
vacancy on the Board of Directors regardless of how such vacancy shall have been
created.
(b) A whole number of directors equal to at least a majority of the
Whole Board shall constitute a quorum for the transaction of business, but if at
any meeting of the Board of Directors there shall be less than a quorum present
a majority of those present may adjourn the meeting from time to time until a
quorum shall have been obtained.
(c) Subject to the rights of the holders of any class or series of
Preferred Stock, and unless the Board of Directors otherwise determines, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resuiting from death,
resignation, retirement, disqualification, removal from office or other cause
may be filled only by a majority vote of the directors then in office, though
less than a quorum, and directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of office of
the class to which they have been elected expires and until such director's
successor shall have been duly elected and qualified. No decrease in the
number of authorized directors constituting the whole Board shall shorten the
term of any incumbent director.
(d) Subject to the rights of the holders of any class or series of
Preferred Stock, any director, or the entire Board of Directors, may be removed
from office at any time, but only for cause and only by the affirmative vote by
the holders of at least a majority of the voting power of all of the
then-outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock"), voting together as
a single class.
Section 2. Meetings of the Board of Directors shall be held at such
place within or without the State of Delaware as may from time to time be fixed
by, or determined in the manner provided by, resolution of the Board, or as may
be specified in the call of any meeting. Regular meetings of the Board of
Directors shall be held at such times as may from time to time be fixed by, or
determined in the manner provided by, resolution of the Board, and special
meetings may be held at any time upon the call of the Executive Committee or the
Chairman of the Board of Directors by oral, telegraphic or written notice, duly
served on or sent or mailed to each director not less than two days before such
meeting. A meeting of the Board may be held without notice immediately after the
annual meeting of stockholders at the same place at which such meeting was held.
Notice need not be given of regular meetings of the Board held at times and
places fixed by resolution of the Board. A meeting may be held at any time
without notice if all the directors are present or if those not present waive
notice of the meeting in writing, either before or after such meeting.
Section 3. The Board of Directors may, in its discretion, by
resolution passed by a majority of the Whole Board, designate an Executive
Committee to consist of the Chairman of the Board of Directors and such number
of other directors as the Board may from time to time determine (not less than
three), which Committee, to the extent provided in said resolution, shall have,
and may exercise, when the Board is not in session, the powers of the Board in
the management of the business and affairs of the Corporation, except the power
to change the membership or to fill vacancies in the Board or said Committee.
The Board shall have the power at any time to change the membership of said
Committee (subject to the requirement that the Chairman of the Board be a member
thereof), to fill vacancies in it, or to dissolve it. The Executive Committee
may make rules for the conduct its of business and may appoint such comnittees
and assistants as it shall from time to time deem necessary.
Section 4. The Board of Directors may from time to time, in its
discretion, by resolution passed by a majority of the Whole Board, designate,
and appoint, from the directors, other committees of one or more persons which
shall have and may exercise such lawfully delegable powers and duties conferred
or authorized by the resolutions of designation and appointment. The Board shall
have power at any time to change the members of any such committee, to fill
vacancies, and to discharge any such committee.
Section 5. Unless the Board shall provide otherwise, the presence of
one-half of the total membership of any committee of the Board shall constitute
a quorum for the transaction of business at any meeting of such committee and
the act of a majority of those present shall be necessary and sufficient for the
taking of any action thereat.
Section 6. The Executive Committee, and any other committee so
designated if the resolution which designates such committee or a supplemental
resolution of the Board shall so provide, may exercise the power and authority
of the Board to declare a dividend, to authorize the issuance of stock or to
adopt a certificate of ownership and merger pursuant to Section 253 of the
Delaware General Corporation Law.
ARTICLE III
OFFICERS
Section 1. The Board of Directors as soon as may be practicable after
the annual meeting of stockholders shall choose a Chairman of the Board of
Directors and a Secretary and from time to time may choose such other officers
(including, without limitation, a President) as it may deem proper. The Chairman
of the Board of Directors shall be chosen from the directors.
Section 2. The term of office of all officers shall be until the next
annual election of officers and until their respective successors are chosen,
but any officer may be removed from office at any time by the affirmative vote
of a majority of the members of the Whole Board.
Section 3. All officers chosen by the Board of Directors shall each
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this ARTICLE III. Such officers shall also
have such powers and duties as from time to time may be conferred by the Board
of Directors or by any committee thereof.
Section 4. The Chairman of the Board of Directors shall preside at
all meetings of stockholders and of the Board. He shall see that all orders and
resolutions of the Board of Directors and of any committee thereof are carried
into effect.
The President shall be the Chief Executive Officer of the corporation
and, subject to the Board of Directors, shall have general management and
oversight of the administration and operation of the Corporation's business and
general supervision of its policies and affairs. During the absence or
disability of the Chairman of the Board of Directors, the President shall have
and exercise all the powers of the Chairman of the Board of Directors.
Each meeting of the stockholders and of the Board of Directors shall
be presided over by the Chairman of the Board of Directors or, in his absence,
the President, or, in his absence, by such officer as has been designated by the
Board of Directors or, in his absence, by such officer or other person as is
chosen at the meeting. The Secretary or, in his absence, the General Counsel of
the Corporation or such officer as has been designated by the Board of Directors
or, in his absence, such officer or other person as is chosen by the person
presiding, shall act as secretary of each such meeting.
ARTICLE IV
CERTIFICATES OF STOCK
The interest of each stockholder of the Corporation shall be
evidenced by certificates for shares of stock in such form as the Board of
Directors may from time to time prescribe. The shares of the stock of the
Corporation shall be transferred on the books of the Corporation by the holder
thereof in person or by his attorney, upon surrender for cancellation of
certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, with such proof of
the authenticity of the signature as the Corporation or its agents may
reasonably require.
The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit all or any of the signatures on such certificates to
be in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate has ceased to
be such officer, transfer agent or registrar before such certificate is issued,
it may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
ARTICLE V
CHECKS, NOTES, ETC.
All checks on the Corporation's bank accounts and all drafts, bills
of exchange and promissory notes, and all acceptances, obligations and other
instruments for the payment of money, shall be signed by such person or persons
as shall be thereunto authorized from time to time by the Board of Directors
or by the committee or officer or officers of the Corporation to whom the Board
shall have delegated the power to authorize such signing; provided, however,
that the signature of any person so authorized on checks and drafts drawn on the
Corporation's dividend and special accounts may be in facsimile if the Board
of Directors or the committee or officer or officers, whichever shall have
authorized such person to sign such checks or drafts, shall have authorized
such person to sign in facsimile; and provided further that in case notes or
other instruments for the payment of money (other than notes, bonds or
debentures issued under a trust instrument of the Corporation) are required
to be signed by two persons, the signature thereon of only one of the persons
signing any such note or other instrument may be in facsimile, and that in the
case of notes, bonds or debentures issued under a trust instrument of the
Corporation and required to be signed by two officers of the Corporation,
the signatures of both such officers may be in facsimile if specifically
authorized and directed by the Board of Directors of the Corporation and
if such notes, bonds or debentures are required to be authenticated by a
corporate trustee which is a party to the trust instrument; and provided further
that in case any person or persons who shall have signed any such note
or other instrument, either manually or in facsimile, shall have ceased to be a
person or persons so authorized to sign any such note or other instrument,
whether because of death or by reason of any other fact or circumstance,
before such note or other instrument shall have been delivered by
the Corporation, such note or other instrument may, nevertheless, be
adopted by the Corporation and be issued and delivered as though the person or
persons who so signed such note or other instrument had not ceased to be such a
person or persons.
ARTICLE VI
OFFICES
The Corporation may have offices outside of the State of Delaware at
such places as shall be determined from time to time by the directors.
ARTICLE VII
AMENDMENTS
These By-Laws may be amended, added to, rescinded or repealed at any
meeting of the Board of Directors or of the stockholders, provided notice of the
proposed change was given in the notice of the meeting or, in the case of a
meeting of the Board of Directors, in a notice given not less than two days
prior to the meeting; provided, however, that with respect to any alteration,
amendment or repeal of any provision of these By-Laws by the stockholders,
notwithstanding any other provisions of these By-Laws or any provision of law
which might otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of the Voting
Stock required by law, the Certificate of Incorporation, any Preferred Stock
Designation or these By-Laws, the affirmative vote of the holders of at least
eighty (80%) percent of the voting power of all the then-outstanding shares of
the Voting Stock voting together as a single class, shall be required for such
an alteration, amendment or repeal by the stockholders.
ARTICLE VIII
EMERGENCY PROVISIONS
During any emergency resulting from an attack on the United States or
on a locality in which the Corporation conducts its business or customarily
holds meetings of its Board of Directors or its stockholders, or during any
nuclear or atomic disaster, or during the existence of any catastrophe, or other
similar emergency condition, as a result of which a quorum of the Board of
Directors of the Corporation or of the Executive Committee of the Board of
Directors cannot readily be convened for action, the following provisions shall
apply, notwithstanding any other provisions of the By-Laws of the Corporation:
1. An emergency meeting or meetings of the Board of Directors or of the
surviving members thereof shall be called by the Chairman of the Board,
if available, or, if he is not available, the Chairman of the Executive
Committee, or, if he is not available, by any other director or
directors; any such meeting to be held at such time and place and upon such
notice, if any, as the person or persons calling the meeting shall deem proper.
The Board may take any action at any such meeting which it deems necessary and
appropriate to meet the emergency.
2. Vacancies in the Board of Directors shall be filled as soon as
practicable in the manner specified in Section 1 of ARTICLE II of these By-Laws.
In filling vacancies, consideration shall be given to senior officers of the
Corporation.
3. The presence of the smallest number of directors permitted by law to
constitute a quorum, but not less than three, shall be sufficient for
the transaction of business at emergency meetings of the Board of Directors,
except that if there are less than three surviving directors, the surviving
director or directors, although less than a quorum, may fill vacancies in the
Board.
4. The By-Laws may be amended by the Board of Directors without notice of
the proposed amendment being given in the notice of the meeting.
5. Without limiting the generality of the foregoing, the Board of Directors
is authorized to make all necessary determinations of fact regarding the extent
and severity of the emergency and the availability of members of the Board of
Directors; to designate and replace officers, agents and a chairman, adopt rules
of procedures and fill vacancies.
6. The emergency powers provided in this ARTICLE VIII shall be in
addition to any powers provided by law.
CERTIFIED RESOLUTIONS OF ELJER INDUSTRIES, INC.
I, Wesley A. Thompson, Secretary of ELJER INDUSTRIES, INC. (the
"Company"), a Delaware corporation, do hereby certify that the following
resolutions were duly adopted by the Board of Directors of the Company on
October 17, 1989, that said resolutions have not been rescinded, amended or
modified, and that said resolutions are in full force and effect on the date
hereof:
RESOLVED, that the first sentence of Section 3, Article II of the
By-Laws shall be amended to read in its entirety as follows:
The Board of Directors may, in its discretion, by resolution passed by a
majority of the Whole Board, designate an Executive Committee to consist of the
Chairman of the Board of Directors and such number of other directors as the
Board may from time to time determine (such number of other directors to be not
less than two), which Committee, to the extent provided in said resolution,
shall have, and may exercise, when the Board is not in session, the powers of
the Board in the management of the business and affairs of the Corporation,
except the power to change the membership or to fill vacancies in the Board or
said Committee.
FURTHER RESOLVED, that all actions of the Executive Committee taken
prior to the amendment of the By-Laws effected by the preceding resolution are
ratified and approved, notwithstanding the fact that the Executive Committee
consisted of two, rather than three, directors in addition to the Chairman of
the Board.
IN WITNESS WHEREOF, I have set my hand as of this 19th day of
December, 1989.
WESLEY A. THOMPSON, SECRETARY
I, George W. Hanthorn, Secretary of ELJER INDUSTRIES, INC. (the
"Company"), a Delaware corporation, do hereby certify that the following
resolution was duly adopted by the Board of Directors of the Company on February
20, 1996, that said resolution has not been rescinded, amended or modified, and
that said resolution is in full force and effect on the date hereof:
RESOLVED, that the first sentence of Section 1, Article III of the
By-laws shall be amended to read in its entirety as follows:
The Board of Directors as soon as possible after the annual
meeting of stockholders shall choose a chairman of the board of
directors and secretary and from time to time may choose such
other officers (including, without limitation, a President) as it
may deem proper. The chairman of the board of directors shall be
chosen from the directors. Nothing in these By-laws shall prevent
the same person from holding more than one office simultaneously.
IN WITNESS WHEREOF, I have set my hand as of this 4th day of March,
1996.
GEORGE W. HANTHORN, SECRETARY
January 16, 1992
PRIVATE AND CONFIDENTIAL
Ms. Nancy J. Duricic
1820 Greenway Drive
Plano, Texas 75075
Re: Employment Agreement
Dear Nancy:
1. This letter confirms your employment by ELJER INDUSTRIES, INC. (the
"Company") as Director-Compensation & Benefits, Eljer Industries. In that
capacity, you are entitled to the following:
a. A minimum annual salary of $75,000;
b. Benefits as described in, and in accordance with, the Company's
benefit plans; and
c. An annual par bonus equal to 15% of your annual salary. The amount
of bonus that you actually receive, if any, will depend on the
achievement of Corporate and your individual goals.
2. During your employment with the Company, you will devote your full time
and energies to the faithful and diligent performance of the duties
inherent in, and implied by, your executive position.
3. In consideration of your continued employment with the Company, it is
mutually agreed that:
a. In the event your employment with the Company is terminated by the
Company during the term of this Agreement, for any reason other
than:
i. "Cause", for this purpose, "cause" shall mean: (a) your
willful and continued failure to substantially perform your
duties hereunder (other than any such failure resulting from a
"disability", as defined herein; or (b) your conviction for
committing an act of fraud, embezzlement, theft, or other act
constituting a felony; or (c) your willful engagement in gross
misconduct which is materially and demonstrably injurious to
the Company; or
ii. Inability, for reasons of "disability", reasonably to perform
your duties for six consecutive calendar months (for purposes
of this Agreement, "disability" shall mean a permanent and
total disability, within the meaning of Internal Revenue Code
Section 22(e)(3), in the exercise of good faith and reasonable
judgment, upon receipt of and in reliance on sufficient
competent medical advice from a qualified physician selected
by the Compensation Committee); or
<PAGE>
Ms. Nancy J. Duricic
Page -2-
January 16, 1992
b. In the event that during the term of this Agreement you resign your
position with the Company because:
i. You are assigned to a position of lesser rank or status; or
ii. Your annual salary, annual par bonus, level of participation
in management incentive plans, or your benefits are reduced;
or
iii. You are reassigned to a geographical area more than 50 miles
from your present residence;
the Company shall be required, and hereby agrees, to continue
paying your then salary, to pay your then annual bonus at par
level, and to provide all pension, profit sharing, deferred
compensation, medical and life insurance benefits under the
Company's benefit plans, or the economic equivalent thereof, for a
period of 6 months from the date of such termination or
resignation. If, pursuant to the terms of a benefit plan, a benefit
would be earned or accrued during such 6-month period but would be
payable on a deferred basis (were you to be employed during such
6-month period) the benefit similarly shall be deferred hereunder;
provided, however, that the Company reserves the right to pay the
present value of such benefit to you in cash at the end of such
6-month period.
4. You are not required to mitigate the amount of any payments to be
made by the Company, pursuant to this Agreement, by seeking other
employment, or otherwise, nor shall the amount of any payments
provided for in this Agreement be reduced by any compensation
earned by you, as the result of self-employment or your employment
by another employer, after the date of termination of your
employment with the Company.
Please acknowledge your acceptance of the terms and provisions of this Agreement
by signing in the space indicated below. We look forward to your continued
contribution to the success of ELJER INDUSTRIES, INC.
Sincerely, ACCEPTED AND AGREED as of
ELJER INDUSTRIES, INC. January 20, 1992
By: /s/Charles R. Wackenhuth /s/ Nancy J. Duricic
----------------------------------- ---------------------------
Charles R. Wackenhuth Nancy J. Duricic
May 22, 1995
PRIVATE AND CONFIDENTIAL
Mr. Steven M. Rodman
4405 Quail Hollow Rd.
Dallas, Texas 75287
Re: Employment Agreement
Dear Steve:
1. This letter confirms your employment by ELJER INDUSTRIES, INC. (the
"Company") as Vice President - Consumer Sales, Eljer Industries. In
that capacity, you are entitled to the following:
a. A minimum annual salary of $93,430;
b. Benefits as described in, and in accordance with, the
Company's benefit plans; and
c. An annual par bonus equal to 25% of your annual salary. The
amount of bonus that you actually receive, if any, will depend
on the achievement of Corporate and your individual goals.
2. During your employment with the Company, you will devote your full time
and energies to the faithful and diligent performance of the duties
inherent in, and implied by, your executive position.
3. In consideration of your continued employment with the Company, it is
mutually agreed that:
a. In the event your employment with the Company is terminated by
the Company during the term of this Agreement, for any reason
other than:
i. "Cause," as determined by the Compensation Committee
of the Board of Directors (for this purpose, "cause"
shall mean: (A) your willful and continued failure to
substantially perform your duties hereunder (other
than any such failure resulting from a "disability,"
as defined herein); or (B) your conviction for
committing an act of fraud,
<PAGE>
Mr. Steven M. Rodman
May 22, 1995
Page 2
embezzlement, theft, or other act constituting a
felony; or (C) your willful engagement in gross
misconduct which is materially and demonstrably
injurious to the Company); or
ii. Inability, for reasons of "disability," reasonably to
perform your duties for six consecutive calendar
months (for purposes of this Agreement, "disability"
shall mean a permanent and total disability, within
the meaning of Internal Revenue Code Section 22(e)
(3), as determined by the Compensation Committee of
the Board of Directors, in the exercise of good faith
and reasonable judgment, upon receipt of and in
reliance on sufficient competent medical advice from
a qualified physician selected by the Compensation
Committee); or
b. In the event that you resign your position with the Company
because:
i. You are assigned to a position of lesser rank or
status; or
ii. Your annual salary, annual par bonus, level of
participation in management incentive plans, or your
benefits are reduced; or
iii. You are reassigned to a geographical area more than
50 miles from your present residence;
the Company shall be required, and hereby agrees, to continue
paying your then annual salary, to pay your then annual bonus
at par level, and to provide all pension, profit sharing,
deferred compensation, medical and life insurance benefits
under the Company's benefit plans, or the economic equivalent
thereof, for a period of 12 months from the date of such
termination or resignation. If, pursuant to the terms of a
benefit plan, a benefit would be earned or accrued during such
12-month period but would be payable on a deferred basis (were
you to be employed during such 12- month period) the benefit
similarly shall be deferred hereunder; provided, however, that
the Company reserves the right to pay the present value of
such benefit to you in cash at the end of such 12-month
period.
4. You are not required to mitigate the amount of any payments to be made
by the Company, pursuant to this Agreement, by seeking other
employment, or otherwise, nor shall the amount of any payments provided
for in this Agreement be reduced by any compensation earned by you, as
the result of self-employment or your
<PAGE>
Mr. Steven M. Rodman
May 22, 1995
Page 3
employment by another employer, after the date of termination of your
employment with the Company.
5. This Agreement supercedes and replaces the agreement dated November 13,
1992, and signed by you on November 17, 1992.
Please acknowledge your acceptance of the terms and provisions of this Agreement
by signing in the space indicated below. We look forward to your contribution to
the success of ELJER INDUSTRIES, INC.
Sincerely, ACCEPTED AND AGREED as of
ELJER INDUSTRIES, INC. May 30, 1995.
By:/s/Charles R. Wackenhuth /s/ Steven M. Rodman
- ---------------------------------- ---------------------------------
Steven M. Rodman
CRW:ld
April 24, 1995
PRIVATE AND CONFIDENTIAL
Mr. Gerry Morris
4609 Courtyard Trail
Plano, Texas 75024
Re: Employment Agreement
Dear Gerry:
1. This letter confirms your employment by ELJER INDUSTRIES, INC. (the
"Company") as Controller-Manufacturing Operations. In that capacity, you
are entitled to the following:
a. A minimum annual salary of $97,400;
b. Benefits as described in, and in accordance with, the Company's
benefit plans; and
c. An annual par bonus equal to 25% of your annual salary. The amount
of bonus that you actually receive, if any, will depend on the
achievement of Corporate and your individual goals, and can range
from 0% to 50%.
2. During your employment with the Company, you will devote your full time
and energies to the faithful and diligent performance of the duties
inherent in, and implied by, your executive position.
3. In consideration of your continued employment with the Company, it is
mutually agreed that:
a. In the event your employment with the Company is terminated by the
Company during the term of this Agreement, for any reason other
than:
i. "Cause", as determined by the Compensation Committee of the
Board of Directors (for this purpose, "cause" shall mean: (a)
your willful and continued failure to substantially perform
your duties hereunder (other than any such failure resulting
from a "disability", as defined herein); or (b) your
conviction for committing an act of fraud, embezzlement,
theft, or other act constituting a felony; or (c) your willful
engagement in gross misconduct which is materially and
demonstrably injurious to the Company); or
ii. Inability, for reasons of "disability", reasonably to perform
your duties for six consecutive calendar months (for purposes
of this Agreement, "disability" shall mean a permanent and
total disability, within the meaning of Internal Revenue Code
Section 22(e)(3), as determined by the Compensation Committee
of the Board of Directors, in the exercise of good faith and
reasonable judgment, upon receipt of and in reliance on
sufficient competent medical advice from a qualified physician
selected by the Compensation Committee); or
<PAGE>
Mr. Gerry Morris
Page -2-
April 24, 1995
b. In the event that during the term of this Agreement you resign your
position with the Company because:
i. You are assigned to a position of lesser rank or status; or
ii. Your annual salary, annual par bonus, level of participation
in management incentive plans, or your benefits are reduced;
or
iii. You are reassigned to a geographical area more than 50 miles
from your present residence;
the Company shall be required, and hereby agrees, to continue
paying your then salary, to pay a prorated portion of your then
annual bonus at par level, and to provide all pension, profit
sharing, deferred compensation, medical and life insurance benefits
under the Company's benefit plans, or the economic equivalent
thereof, for a period of 9 months from the date of such termination
or resignation. If, pursuant to the terms of a benefit plan, a
benefit would be earned or accrued during such 9-month period but
would be payable on a deferred basis (were you to be employed
during such 9-month period) the benefit similarly shall be deferred
hereunder; provided, however, that the Company reserves the right
to pay the present value of such benefit to you in cash at the end
of such 9-month period.
4. You are not required to mitigate the amount of any payments to be
made by the Company, pursuant to this Agreement, by seeking other
employment, or otherwise, nor shall the amount of any payments
provided for in this Agreement be reduced by any compensation
earned by you, as the result of self-employment or your employment
by another employer, after the date of termination of your
employment with the Company.
5. This Agreement will commence on April 24, 1995, and will continue
in effect until May 1, 1996, which shall be the "Expiration Date."
However, at the end of such period and, if extended, at the end of
each additional year thereafter, the term of this Agreement shall
be extended automatically for one additional year, unless the Vice
President-Human Resources delivers written notice three months
prior to the end of such term, or extended term, to you, that this
Agreement will not be extended. In such case, this Agreement will
terminate at the end of the term, or extended term, then in
progress.
The Company's obligation to pay severance benefits upon an
employment termination, within the two-year period following a
"change-in-control" shall be entirely governed by the terms of your
Executive Severance Agreement.
6. If a dispute arises regarding the termination of your employment or
the interpretation or enforcement of this Agreement, and you obtain
a final judgment, in your favor, from a court of competent
jurisdiction, from which no appeal may be taken, whether because
the time to do so has expired, or otherwise, or your claim is
settled by the Company prior to the rendering of such a judgment,
all reasonable legal and other professional fees and expenses
incurred by you in contesting or disputing any such termination, or
in seeking to obtain or enforce any right or benefit provided for
in this Agreement, or in otherwise pursuing your claim, will be
<PAGE>
Mr. Gerry Morris
Page -3-
April 24, 1995
promptly paid by the Company, with interest thereon, at the highest
statutory rate of your state of domicile, for interest on judgments
against private parties, from the date of payment thereof by you to
the date of reimbursement to you by the Company.
Please acknowledge your acceptance of the terms and provisions of this Agreement
by signing in the space indicated below. We look forward to your contribution to
the success of ELJER INDUSTRIES, INC.
Sincerely, ACCEPTED AND AGREED as of
ELJER INDUSTRIES, INC. May 10, 1995
By: /s/ Henry W. Lehnerer /s/ Gerry Morris
------------------------------- ------------------------------
Henry W. Lehnerer Gerry Morris
Vice President-Finance & CFO
SALARIED PENSION PLAN OF
ELJER MANUFACTURING, INC.
As Amended and Restated
Effective as of April 1, 1989
<PAGE>
PREAMBLE
The Salaried Pension Plan of Eljer Manufacturing, Inc. (the "Plan") was
established, effective as of April 1, 1989, for the purpose of providing
retirement income security to eligible salaried employees of Eljer
Manufacturing, Inc. (the "Company") and certain related entities.
Prior to April 1, 1989, the salaried employees of the Employer eligible
to participate in this Plan were participants in the Salaried Pension Plan of
Household Manufacturing, Inc. (the "Prior Plan"). As of April l, 1989, Household
International, Inc. ("HI") spun off portions of Household Manufacturing, Inc.
("HMI") and, in connection therewith, merged, effective March 31, 1989, certain
defined benefit pension plans maintained by HMI and its subsidiaries and
divisions into the Household International, Inc. Retirement Income Plan, which
plan shall provide benefits accrued by such eligible employees under the Prior
Plan as of March 31, 1989. This Plan provides benefits based on all service
taken into account under the Prior Plan and this Plan, which benefits shall be
offset by amounts payable from the Prior Plan.
By this instrument, effective April 1, 1989, the Company hereby amends
and restates the Plan to comply with the applicable requirements of the Tax
Reform Act of 1986, as amended, related legislation, and the regulations
promulgated thereunder.
Retirement benefits payable to employees under this Plan shall be
determined solely by the provisions of the Plan in effect on the date of such
employees' retirement or termination, except as otherwise specifically provided
in the Plan.
<PAGE>
TABLE OF CONTENTS
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ARTICLE l - DEFINITIONS
Section 1.01. "Affiliated Company"........................................................... 1
Section 1.02. "Alternate Payee".............................................................. 1
Section 1.03. "Authorized Leave of Absence".................................................. 1
Section 1.04. "Average Final Compensation"................................................... 1
Section 1.05. "Beneficiary".................................................................. 2
Section 1.06. "Benefit Commencement Date" or "Annuity Starting Date"......................... 2
Section 1.07. "Board of Directors"........................................................... 2
Section 1.08. "Break-in-Service"............................................................. 2
Section 1.09. "Code"......................................................................... 2
Section 1.10. "Committee".................................................................... 2
Section 1.11. "Company"...................................................................... 2
Section 1.12. "Compensation"................................................................. 2
Section 1.13. "Covered Compensation"......................................................... 3
Section 1.14. "Credited Service"............................................................. 4
Section 1.15. "Deferred Vested Pension"...................................................... 4
Section 1.16. "Disability Benefit"........................................................... 4
Section 1.17. "Early Retirement Pension"..................................................... 4
Section 1.18. "Effective Date"............................................................... 4
Section 1.19. "Eligible Retirement Plan"..................................................... 4
Section 1.20. "Employee"..................................................................... 4
Section 1.21. "Employer"..................................................................... 4
Section 1.22. "Equivalent Actuarial Value"................................................... 5
Section 1.23. "ERISA"........................................................................ 5
Section 1.24. "Executive Bonus Program"...................................................... 5
Section 1.25. "Final Average Compensation"................................................... 5
Section 1.26. "Insurance Company"............................................................ 5
Section 1.27. "Member"....................................................................... 5
Section 1.28. "Normal Retirement Age"........................................................ 5
Section 1.29. "Normal Retirement Date"....................................................... 5
Section 1.30. "Normal Retirement Pension".................................................... 6
Section 1.31. "Pension....................................................................... 6
Section 1.32. "Plan"......................................................................... 6
Section 1.33. "Plan Year".................................................................... 6
Section 1.34. "Prior Plan"................................................................... 6
Section 1.35. "Qualified Domestic Relations Order"........................................... 6
Section 1.36. "Required Commencement Date"................................................... 6
Section 1.37. "Retired Member"............................................................... 7
Section 1.38. "Retirement"................................................................... 7
Section 1.39. "Severance from Service Date".................................................. 7
Section 1.40. "Social Security Retirement Age"............................................... 7
Section 1.41. "Spouse"....................................................................... 7
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Section 1.42. "Spousal Consent".............................................................. 7
Section 1.43. "Spouse's Pension"............................................................. 8
Section 1.44. "Taxable Wage Base"............................................................ 8
Section 1.45. "Trust Agreement".............................................................. 8
Section 1.46. "Trust Fund"................................................................... 8
Section 1.47. "Trustee"...................................................................... 8
Section 1.48. "Vesting Service".............................................................. 8
ARTICLE 2 - MEMBERSHIP
Section 2.01. Eligibility.................................................................... 9
Section 2.02. Periods of Membership.......................................................... 9
Section 2.03. Leased Employees............................................................... 9
ARTICLE 3 - SERVICE
Section 3.01. Determination of Vesting Service............................................... 10
Section 3.02. Credited Service............................................................... 11
Section 3.03. Calculation of Vesting Service and Credited Service............................ 12
Section 3.04. Corporate Transactions......................................................... 12
ARTICLE 4 - BENEFITS
Section 4.01. Normal Retirement Pension...................................................... 13
Section 4.02. Early Retirement Pension....................................................... 14
Section 4.03. Deferred Vested Pension........................................................ 14
Section 4.04. Normal Form of Pension......................................................... 15
Section 4.05. Member Pension Elections....................................................... 16
Section 4.06 Optional Forms of Payment................................................... 17
Section 4.07. Lump-Sum Cashout Distribution When Vested
Pension not in Excess of $3,500............................................. 19
Section 4.08. Deemed Distribution to Non-vested Member....................................... 20
Section 4.09. Spouse's Pension............................................................... 20
Section 4.10. Death of Member................................................................ 21
Section 4.11. Qualified Domestic Relations Orders............................................ 21
Section 4.12. Basis of Payment............................................................... 22
Section 4.13. Maximum Benefit Limitation..................................................... 22
Section 4.14. Limitation on Time of Payment.................................................. 26
Section 4.15. Restoration of Retired Member or
Other Former Employee to Service............................................ 27
Section 4.16. Transfers...................................................................... 29
Section 4.17. Special Provisions Applicable to Certain
Former Members in the Prior Plan............................................ 30
Section 4.18. Disability Benefit............................................................. 30
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ARTICLE 5 - CONTRIBUTIONS
Section 5.01. Employer Contributions......................................................... 32
Section 5.02. No Participant Contributions................................................... 33
ARTICLE 6 - ADMINISTRATION OF PLAN
Section 6.01. Appointment of Committee....................................................... 34
Section 6.02. Meetings....................................................................... 34
Section 6.03. Action of Committee............................................................ 34
Section 6.04. Powers and Duties.............................................................. 34
Section 6.05. Expenses....................................................................... 36
Section 6.06. Funding Policy................................................................. 36
Section 6.07. Liability of Committee Members................................................. 36
Section 6.08. Reliance on Reports and Certificates;
Actions Taken in Good Faith................................................. 36
Section 6.09. Member's Own Benefits.......................................................... 37
ARTICLE 7 - MEMBER ADMINISTRATIVE PROVISIONS
Section 7.01. Personal Data to Committee..................................................... 38
Section 7.02. Address for Notification....................................................... 38
Section 7.03. Inalienability of Benefits..................................................... 38
Section 7.04. Litigation Against the Trust................................................... 38
Section 7.05. Information Available.......................................................... 39
Section 7.06. Beneficiary's Right to Information............................................. 39
Section 7.07. Claims Procedure............................................................... 39
Section 7.08. Claims for Benefits............................................................ 39
Section 7.09. Appeal and Review.............................................................. 40
Section 7.10. Service of Legal Process.................................................... 40
Section 7.11. Place of Payment and Proof of Continued Eligibility......................... 40
Section 7.12. No Rights Implied.............................................................. 40
ARTICLE 8 - TRUST FUND
Section 8.01. Purpose and Establishment of Trust Fund........................................ 42
Section 8.02. Exclusive Benefit of Members................................................... 42
Section 8.03. Benefits Supported Only By the Trust Fund
and Insurance Contracts..................................................... 42
ARTICLE 9 - GENERAL PROVISIONS
Section 9.01. No Rights of Employment........................................................ 43
Section 9.02. Certain Pension Reductions..................................................... 43
Section 9.03. Payments in the Event of Death, Illness and Legal Disability................... 43
Section 9.04. Certain Credited Service....................................................... 43
Section 9.05. Merger or Consolidation of Plan................................................ 44
Section 9.06. Merged Plan Pension............................................................ 44
Section 9.07. Payments Only from Trust Fund.................................................. 45
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Section 9.08. Unclaimed Benefits............................................................. 45
ARTICLE 10 - AMENDMENT OR TERMINATION
Section 10.01. Amendment and Duration of the Plan............................................ 46
Section 10.02. Procedure for Amendment....................................................... 47
Section 10.03. Termination of the Plan....................................................... 47
Section 10.04. Corporate Transactions........................................................ 47
Section 10.05. Certain Restrictions on Distributions......................................... 47
ARTICLE 11 - TOP HEAVY PROVISIONS
Section 11.01. Top Heavy Rules Applied....................................................... 49
Section 11.02. Minimum Benefits.............................................................. 49
Section 11.03. Adjustment to Limitation on Benefits.......................................... 50
Section 11.04. Vesting Schedule.............................................................. 51
Section 11.05. Additional Definitions........................................................ 52
ARTICLE 12 - MISCELLANEOUS
Section 12.01. Execution of Receipts and Releases............................................ 55
Section 12.02. No Guarantee of Interests..................................................... 55
Section 12.03. Employer Records.............................................................. 55
Section 12.04. Interpretations and Adjustments............................................... 55
Section 12.05. Errors in Payment: Misstatements.............................................. 55
Section 12.06. Uniform Rules................................................................. 55
Section 12.07. Evidence...................................................................... 55
Section 12.08. Severability.................................................................. 56
Section 12.09. Notice........................................................................ 56
Section 12.10. Waiver of Notice.............................................................. 56
Section 12.11. Successors.................................................................... 56
Section 12.12. Obligations of the Company.................................................... 56
Section 12.13. Headings...................................................................... 56
Section 12.14. Governing Law................................................................. 56
</TABLE>
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<PAGE>
ARTICLE l
DEFINITIONS
The following words and phrases when used in this Plan shall have the
respective meanings set forth below unless the context clearly indicates
otherwise:
Section 1.01. "Affiliated Company" shall mean any company which is a
component member with the Employer of a controlled group of corporations within
the meaning of Section 414(b) of the Internal Revenue Code, a member with the
Employer of a group of trades or businesses (whether or not incorporated) under
common control as determined in accordance with Section 414(c) of the Internal
Revenue Code, a member with the Employer of an affiliated service group as
determined in accordance with Section 414(m) of the Internal Revenue Code, or
any other entity required to be aggregated with the Employer in accordance with
Section 414(o) of the Internal Revenue Code.
Section 1.02. "Alternate Payee" shall mean any spouse, former spouse,
child, or other dependent of a Member who is recognized by a Qualified Domestic
Relations Order as having a right to receive all, or a portion of, the benefits
payable under the Plan with respect to such Member.
Section 1.03. "Authorized Leave of Absence" shall mean any absence
authorized by an Employer. An Authorized Leave of Absence shall be granted by an
Employer for mandatory service in the Armed Forces of the United States and jury
duty, or to comply with the Family and Medical Leave Act of 1993 or the Uniform
Services Employment and Reemployment Rights Act of 1994. An Authorized Leave of
Absence may be granted by an Employer for sickness, accident, vacation, or
disability, or for other reasons under rules established by the Employer and
uniformly applied to all individuals similarly situated.
Section 1.04. "Average Final Compensation" shall mean the average
annual Compensation of a Member during the 60 consecutive months in the last 120
months of his Credited Service affording the highest such average, or during all
the months of his Credited Service if less than 60. In computing Average Final
Compensation, any bonus payment shall be included in the Compensation for the
period in which the payment was received and not the period with respect to
which it was accrued, and any accrued bonus paid after the Member's date of
Retirement or termination of service shall be disregarded. If more than five
bonus payments have been made to a Member under the Executive Bonus Program
during the period included in the computation of such Member's Average Final
Compensation, only the five highest such bonus payments shall be included in the
Member's Compensation for the purpose of such computation. In the case of a
Member who is entitled to Credited Service hereunder with respect to a period
during which he is on an Authorized Leave of Absence or during which he is
entitled to a Disability Benefit pursuant to Section 4.18, his Average Final
Compensation shall be equal to the greater of his Average Final Compensation
determined as of the date of commencement of the Authorized Leave of Absence or
Disability Benefit, as the case may be, or his Average Final Compensation
determined as if, during his Credited Service while on leave of absence or
entitled to a Disability
<PAGE>
Benefit, he had received Compensation at his last rate of base salary prior to
the commencement of the leave or disability.
Section 1.05. "Beneficiary" shall mean any person or fiduciary
designated pursuant to the terms hereof by a Member who is or may become
entitled to receive benefits under the Plan following the death of such Member.
Section 1.06. "Benefit Commencement Date" or "Annuity Starting Date"
shall mean the first day of the first month for which an amount is payable to a
Member as an annuity. In the event that an amount is not payable in the form of
an annuity, the Benefit Commencement Date shall mean the first day on which all
events (including the passing of the day on which benefits are scheduled to
commence) have occurred which entitle the Member to his first benefit payment
from the Plan.
Section 1.07. "Board of Directors" shall mean the Board of Directors of
the Company as constituted from time to time, or any committee appointed by, and
serving at the pleasure of, the Board of Directors to exercise some or all of
the powers of the Board of Directors with respect to the Plan.
Section 1.08. "Break-in-Service" shall mean a period which constitutes
a break in an Employee's Credited Service, as provided in Section 3.01.
Section 1.09. "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any regulations and rulings issued thereunder.
Section 1.10. "Committee" shall mean the Eljer Pension Committee as
constituted from time to time whose members are appointed pursuant to, and have
the responsibilities specified in, Article 6.
Section 1.11. "Company" shall mean Eljer Manufacturing, Inc. or any
successor by merger, purchase or otherwise. Notwithstanding the foregoing, prior
to the Effective Date of the Plan, the terms Employer and Company shall have the
meaning of Company set forth in the Prior Plan.
Section 1.12. "Compensation" shall mean the total remuneration paid to
an Employee for services rendered to the Employer, determined prior to any
reduction pursuant to a Member's election to defer amounts pursuant to a
cafeteria plan as defined in Section 125 of the Code maintained by the Employer
or pursuant to a salary reduction agreement under any other plan described in
Sections 401(k), 403(b) and 408(k) of the Code maintained by the Employer, but
excluding awards under the Long Term Performance Bonus Plan, severance pay,
contributions under this Plan and any other qualified employee benefit plan,
reimbursements or other expense allowances, fringe benefits (cash and non-cash),
moving expenses, deferred compensation, welfare benefits, amounts realized from
the exercise of a non-qualified stock option, amounts realized from the sale,
exchange or other disposition of stock acquired under a qualified stock option,
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<PAGE>
amounts realized when restricted stock becomes freely transferable or is no
longer subject to a substantial risk of forfeiture, and any premiums paid under
any group health, life, accident or other insurance plan.
For (i) any Plan Year (A) beginning on and after the Effective Date and
before January 1, 1994, only the first $200,000 of Compensation shall be taken
into account (or such other amount as the Secretary of the Treasury may
prescribe at the same time and in the same manner as provided under Section
415(d) of the Code for adjusting the dollar limitation in effect under Section
415(b)(1)(A) of the Code) (hereinafter referred to as the "Pre-OBRA `93
Compensation Limitation") and (ii) any Plan Year beginning after December 31,
1993, only the first $150,000 of Compensation shall be taken into account (or,
beginning January 1, 1995, such other amount as may be determined under Section
401(a)(17)(B) of the Code) (hereinafter referred to as the "OBRA `93
Compensation Limitation"). The Pre-OBRA `93 Compensation Limitation and the OBRA
`93 Compensation Limitation are hereinafter sometimes collectively referred to
as the "Compensation Limitation".
In determining the Compensation of each Member who is (i) a more than
five percent owner of the Employer or (ii) a highly compensated employee (within
the meaning of Section 414(q) of the Code) in the group consisting of the ten
highly compensated employees paid the greatest Compensation during the Plan Year
(without regard to this sentence), for purposes of applying the applicable
Compensation Limitation for a Plan Year, the spouse of each such Member and each
of his lineal descendants who have not attained age 19 before the close of the
Plan Year shall not be treated as a separate Employee for that Plan Year and the
Compensation of each such family member shall be aggregated with the
Compensation of the Member as if it were paid to the Member. If, as a result of
the application of the preceding sentence, the applicable Compensation
Limitation (as it may be adjusted) is exceeded, then the applicable Compensation
Limitation shall be prorated among the affected individuals in proportion to
each such individual's Compensation as determined under this Section 1.12 prior
to the application of this limitation.
Notwithstanding the limitations of this Section 1.12 required by
Section 401(a)(17) of the Code, the Pension of a Member shall be the greater of
(i) the Member's Pension determined by using the OBRA `93 Compensation
Limitation for all of the Member's years of Credited Service or (ii) the sum of
(A) the Member's Pension as of December 31, 1993 determined by applying the
Pre-OBRA `93 Compensation Limitation and (B) the Member's Pension for Plan Years
commencing on and after January 1, 1994 determined by applying the OBRA `93
Compensation Limitation. In addition, in accordance with Treasury Regulation
Section 1.401(a)(4)-13(c)(5)(i), the Pension of a Member who is an eligible
Employee and, thus, an active Member shall be increased to reflect increases in
the limitation prescribed by Section 415 of the Code.
Section 1.13. "Covered Compensation" shall mean for any Plan Year, the
average without indexing of the taxable wage bases in effect for each calendar
year during the 35-year period ending with the last day of the calendar year in
which the Member attains Social Security Retirement Age. In determining a
Member's Covered Compensation, the Taxable Wage Base
-3-
<PAGE>
for the current Plan Year and any subsequent Plan Year shall be assumed to be
the same as the Taxable Wage Base in effect as of the beginning of the Plan Year
for which the determination is being made.
Section 1.14. "Credited Service" shall mean service for purposes of
determining the amount of a Pension payable hereunder, recognized under the
Plan, for purposes of determining the amount of a Pension payable hereunder,
determined as provided in Section 3.02.
Section 1.15. "Deferred Vested Pension" shall mean a Pension payable to
a Member who satisfies the requirements of Section 4.03.
Section 1.16. "Disability Benefit" shall mean a benefit to which a
Member who satisfies the requirements of Section 4.18 is entitled.
Section 1.17. "Early Retirement Pension" shall mean a Pension payable
to a Member who satisfies the requirements of Section 4.02.
Section 1.18. "Effective Date" shall mean April l, 1989, except as
otherwise provided herein.
Section 1.19. "Eligible Retirement Plan" shall mean, for a Member or
for an Alternate Payee who is the former Spouse of a Member, 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 plan described in
Section 401(a) of the Code that accepts direct transfers. In the case of a
distribution to the Member's surviving Spouse, an Eligible Retirement Plan shall
mean an individual retirement account or individual retirement annuity.
Section 1.20. "Employee" shall mean any person regularly employed by
the Employer, classified as a salaried employee by the Employer, who receives
regular stated Compensation other than severance pay, retainer or fee under
contract, or who is not currently covered under any other retirement plan
maintained by the Employer, as determined by the Employer. "Employee" shall
include a citizen or resident of the United States who is employed by the
Employer outside the United States, but shall not include any other person
employed by the Employer outside the United States. "Employee" shall also
include a citizen or resident of the United States who is employed by a foreign
affiliate of the Employer, with respect to which the Employer has entered into
an agreement pursuant to Section 3121(1) of the Internal Revenue Code to have
the service of any such person with such affiliate covered by Title II of the
Social Security Act. "Employee" shall include a "leased employee" within the
meaning of Section 414(n)(2) of the Code.
Section 1.21. "Employer" shall mean the Company and any other
Affiliated Company which adopts the Plan by action of its board of directors
with the approval of the Board of Directors.
-4-
<PAGE>
Section 1.22. "Equivalent Actuarial Value" shall mean the equivalent
value, as of the date of commencement of the benefit, of a benefit differing in
time, period or manner of payment from a specified benefit provided under the
Plan. Such value shall be determined using the 1984 Unisex Pension Annuity
Mortality Table and an interest rate of 7%, compounded annually. In no event,
however, shall a single sum payment described in Section 4.06 or Section 4.07
have a lesser value than that produced by using the interest rate structure that
would be used by the Pension Benefit Guaranty Corporation as of the first day of
the Plan Year in which such payment is made for purposes of determining the
present value of a Member's benefit, assuming that the Plan had terminated as of
such date. In the event of any Plan amendment that changes actuarial assumptions
(which, for this purpose, includes a change in the interest rate from 6% to 7%,
adopted by the Committee on September 27, 1990 effective as of October 1, 1990),
the Equivalent Actuarial Value of a Member's total accrued benefit on or after
the date of the change is the greater of (i) the Equivalent Actuarial Value of
the Member's accrued benefit as of the date of the change, computed on the basis
of the assumptions in effect immediately prior to the change, or (ii) the
Equivalent Actuarial Value of the Member's total accrued benefit, computed on
the basis of the assumptions as in effect immediately subsequent to the change.
Section 1.23. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, and any regulations or rulings issued
thereunder.
Section 1.24. "Executive Bonus Program" shall mean the Eljer
Industries, Inc. Long-Term Executive Compensation Plan, as amended from time to
time.
Section 1.25. "Final Average Compensation" shall mean the average
annual Compensation based on the 3 consecutive-calendar year period preceding a
Member's termination of employment with the Employer. In determining Final
Average Compensation, Compensation for any calendar year in excess of the
Taxable Wage Base in effect at the beginning of such year shall not be taken
into account. "Final Average Compensation" shall not exceed Average Final
Compensation.
Section 1.26. "Insurance Company" shall mean the insurance company or
companies by whom the funds of the Plan may be held as provided in Article 8.
Section 1.27. "Member" shall mean any person included in the
membership of the Plan as provided in Article 2.
Section 1.28. "Normal Retirement Age" shall mean the later of (i) the
65th anniversary of the Employee's birth, or (ii) the fifth anniversary of his
commencement of participation in the Plan.
Section 1.29. "Normal Retirement Date" shall mean the first day of the
calendar month coincident with or next following the Employee's Normal
Retirement Age.
-5-
<PAGE>
Section 1.30. "Normal Retirement Pension" shall mean the Pension
payable to a Member who satisfies the requirements of Section 4.01.
Section 1.31. "Pension" shall mean the amount of benefits payable
under the Plan as provided in Article 4.
Section 1.32. "Plan" shall mean the Salaried Pension Plan of Eljer
Manufacturing, Inc., as described herein or as hereafter amended.
Section 1.33. "Plan Year" shall mean the twelve-month period commencing
on any January 1; provided, however, that the first Plan Year shall commence on
April l, 1989 and end on December 31, 1989.
Section 1.34. "Prior Plan" shall mean the Salaried Pension Plan of
Household Manufacturing, Inc., as in effect on March 31, 1989.
Section 1.35. "Qualified Domestic Relations Order" shall mean any
judgment, decree, or order (including approval of a property settlement
agreement) which (i) relates to the provision of child support, alimony
payments, or marital property rights to a spouse, former spouse, child or other
dependent of a Member, (ii) is made pursuant to a state domestic relations law,
(iii) creates or recognizes the existence of an Alternate Payee's right to, or
assigns to an Alternate Payee the right to, receive all or a portion of the
benefits payable with respect to a Member under the Plan and (iv) complies with
the requirements of Section 414(p) of the Code. In the case of any payment
before a Member has terminated his Employment, a domestic relations order will
not be treated as failing to be a Qualified Domestic Relations Order solely
because such order requires the payment of benefits be made to an Alternate
Payee (a) on or after the date on which the Member attains (or would have
attained) his earliest retirement age (within the meaning of Section
414(p)(4)(B) of the Code) under the Plan, (b) as if the Member had retired on
the date on which payment is to commence under such order (taking into account
only the present value of benefits actually accrued as of such date and not
taking into account the present value of any Employer subsidy for early
retirement), and (c) in any form in which such benefits may be paid under the
Plan to the Member (other than in the form of a joint and survivor annuity with
respect to the Alternate Payee and his subsequent spouse).
Section 1.36. "Required Commencement Date" shall mean April 1 of the
calendar year following the calendar year in which the Member attains the age of
seventy and one-half (70-1/2). Notwithstanding the foregoing, the Required
Commencement Date for a Member who is not a five percent (5%) owner within the
meaning of Section 416(i)(1)(B)(i) of the Code, who attained age seventy and
one-half (70-1/2) during 1988, and had not retired by the Effective Date, will
be April 1, 1990. In addition, the Required Commencement Date for a Member who
attained age seventy and one-half (70-1/2) before January 1, 1988, and who was
not a five percent (5%) owner within the meaning of Section 416(i)(1)(B)(i) of
the Code during any Plan Year ending with or within the Plan Year in which he
reached age sixty-six and one-half (66-1/2) or any subsequent year, is the April
1 following the later of the calendar year in which the Member
-6-
<PAGE>
reaches age seventy and one-half (70-1/2) or retires. Lastly, the Required
Commencement Date for a Member who filed a written election pursuant to section
242(b) of the Tax Equity and Fiscal Responsibility Act of 1982 before December
31, 1983, electing to defer the commencement of his benefits shall be the date
specified in such election if the election satisfies all of the applicable
requirements specified by the Internal Revenue Service, as determined by the
Committee.
Section 1.37. "Retired Member" shall mean any retired Employee who is
receiving a Pension except a former Employee who is receiving a Deferred Vested
Pension.
Section 1.38. "Retirement" shall mean the termination of a Member's
employment with the Employer for reasons other than death after a Member has
fulfilled the requirements for a Normal Retirement Pension or an Early
Retirement Pension. Retirement shall be considered as commencing on the first
day immediately following a Member's last day of employment with the Employer.
Section 1.39. "Severance from Service Date" shall mean the earlier of
an Employee's actual date of Retirement, death or other termination of
employment with the Employer or an Affiliated Company, or the first anniversary
of the first day of a period in which he remains absent from service, with or
without pay, with the Employer or an Affiliated Company, for any reason other
than Retirement, death or other termination of employment.
Section 1.40. "Social Security Retirement Age" shall mean age 65 for
Members whose date of birth is prior to 1938; age 66 for Members whose date of
birth occurred during or after 1938 but prior to 1955; or, age 67 for Members
whose date of birth is after 1954.
Section 1.41. "Spouse" shall mean a Member's spouse to whom the Member
has been married throughout the one year period ending on the earlier of (i) the
Member's Benefit Commencement Date or (ii) the date of the Member's death;
provided, however, that if a Member marries within one year before the Benefit
Commencement Date and the Member and the Member's spouse in such marriage have
been married for at least the one year period ending on or before the date of
the Member's death, such Member and such spouse shall be treated as having been
married throughout the one year period ending on the Member's Benefit
Commencement Date.
Section 1.42. "Spousal Consent" shall mean written consent given by a
Member's Spouse to an election made by the Member of a specified form of Pension
or a designation of a specified nonspouse Beneficiary which may not be changed
without Spousal Consent (or the consent of the Spouse expressly permits
designations by the Member without any requirements of further Spousal Consent).
Such consent shall be duly witnessed by a Plan representative or notary public
and shall acknowledge the effect on the Spouse of the Member's election. The
requirement for Spousal Consent may be waived by the Committee to the extent
permitted under applicable law.
-7-
<PAGE>
Section 1.43. "Spouse's Pension" shall mean a benefit payable to the
surviving Spouse of a Member who satisfied the requirements of Section 4.09 and
who had not commenced his Pension prior to his death.
Section 1.44. "Taxable Wage Base" shall mean, with respect to any Plan
Year, the maximum amount of Compensation which may be considered wages for such
Plan Year under Section 3121(a)(1) of the Code, as amended throughout the date
of determination and determined as of the first day of such Plan Year.
Section 1.45. "Trust Agreement" shall mean the agreement between the
Company and the Trustee or any successor Trustee establishing the Trust Fund and
specifying the duties of the Trustee with respect to the assets of the Plan.
Section 1.46. "Trust Fund" means all property of every kind held or
acquired by the Trustee under the Trust Agreement.
Section 1.47. "Trustee" shall mean the persons or entities from time to
time appointed by the Board of Directors to act in the fiduciary capacity of
trustee under the Trust Agreement and hold all or a portion of the Trust Fund as
provided in Article 7.
Section 1.48. "Vesting Service" shall mean service recognized for
purpose of determining eligibility for membership in and eligibility for
benefits under the Plan, determined as provided in Section 3.01.
Word Usage Except when otherwise indicated by the context, any
masculine terminology used herein also includes the feminine and neuter, and
vice versa, and the definition of any term herein in the singular shall also
include the plural, and vice versa. The words "hereof", "herein", "hereunder",
and other similar compounds of the word "here" shall mean and refer to the
entire Plan and not to any particular provision or section. All references to
Sections and Articles shall mean and refer to Sections and Articles contained in
this Plan unless otherwise indicated.
Construction It is the intention of the Employers (i) that the Plan be
qualified under the provisions of Sections 401(a) and 501(a) of the Code and all
provisions hereof shall be construed to that result, and (ii) that the
provisions of the Plan, as amended and restated hereby, shall apply only to a
Member who effectively terminates employment on or after the Effective Date.
End of Article 1
-8-
<PAGE>
ARTICLE 2
MEMBERSHIP
Section 2.01. Eligibility. Every person who becomes an Employee on or
after April 1, 1989 shall become a Member of the Plan on the date he becomes an
Employee.
Section 2.02. Periods of Membership. An Employee's membership in the
Plan shall terminate upon termination of his employment with the Employer or an
Affiliated Company if he is not entitled to either an immediate or a deferred
Pension under the Plan. Membership shall be continued during a period for which
he is accruing Credited Service in accordance with Section 4.18 while entitled
to a Disability Benefit, or during a period while on an Authorized Leave of
Absence from service approved by the Employer or an Affiliated Company, or
during a period while he is not an "Employee" as herein defined but is in the
employ of the Employer or an Affiliated Company, but in the latter two instances
Credited Service for purposes of benefit computation shall be recognized for
such period only as specifically provided in Section 3.02. If any Employee's
membership in the Plan terminates and he again becomes an Employee, he shall be
considered a new Employee for all purposes of the Plan, except as provided in
Section 4.15.
Section 2.03. Leased Employees. Notwithstanding anything in the Plan
to the contrary, "leased employees" within the meaning of Section 414(n) of the
Code shall not be eligible for membership in the Plan.
End of Article 2
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<PAGE>
ARTICLE 3
SERVICE
Section 3.01. Determination of Vesting Service.
(a) Except as hereinafter provided, an Employee's period of employment
with the Employer or an Affiliated Company, whether or not as an "Employee" as
herein defined, shall be Vesting Service for the purposes of the Plan. Vesting
Service shall commence on the date on which the Employee first performs an hour
of service and shall terminate on such Employee's Severance from Service Date.
For purposes of this Section 3.01, an hour of service shall be an hour for which
an Employee is paid, or entitled to payment, for the performance of duties for
the Employer or an Affiliated Company. Except as hereinafter provided, an
Employee's Break-in- Service commences on the Employee's Severance from Service
Date. If an Employee's employment is terminated and he is subsequently
reemployed within 12 months, the period between his Severance from Service Date
and the date of his reemployment shall be included in his Vesting Service,
except that if his employment is terminated during a period of absence from
service for reasons other than Retirement, death, or termination of employment,
Vesting Service shall be recognized for the period from his Severance from
Service Date to the date of his reemployment only if he is reemployed within 12
months of the first day of such absence. A Break-in-Service shall occur if an
Employee is not reemployed within one year after a Severance from Service Date,
provided, however, that if an Employee's employment is terminated or if the
Employee is otherwise absent from work because of the pregnancy of the Employee,
the birth of a child of the employee or the placement of a child with the
Employee in connection with the adoption of such child by such Employee or for
purposes of caring for such child for a period beginning immediately following
such birth or placement, his Severance from Service Date shall be the second
anniversary of the first date of such absence. The period between the first and
second anniversaries of the first date of such absence shall not be Vesting
Service and shall not constitute a Break-in-Service. In the event of a
Break-in-Service, any period prior to the Break- in-Service shall thereafter be
excluded from an Employee's Vesting Service, except as provided in Section 4.15.
(b) With respect to any Employee who was an active or terminated
participant in the Prior Plan on March 31, 1989 and who becomes a participant
under this Plan as of April 1, 1989 or at a later date, for purposes of
determining such Employee's eligibility for benefits under this Plan, Vesting
Service for service rendered prior to April 1, 1989 shall be equal to the
service recognized for that purpose under the Prior Plan as of March 31, 1989.
(c) If an Employee shall have been absent from the service of the
Employer or an Affiliated Company (i) because of service in the Armed Forces of
the United States for which his reemployment rights are protected by the laws of
the United States and if he shall have returned to the service of the Employer
or such Affiliated Company, having applied to return within 90 days (or such
other period as may be required under the Uniform Services Employment
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<PAGE>
and Reemployment Act of 1994) either (A) after having become entitled to release
from active duty in the Armed Forces or (B) after hospitalization continuing
after discharge for a period of not more than one year, (ii) on an Authorized
Leave of Absence under the Family and Medical Leave Act of 1993, or, (iii) on
any other Authorized Leave of Absence with pay (for this purpose, if an Employee
is receiving short-term disability benefits from the Employer or from a plan
maintained by the Employer, such Employee will be considered as being on an
Authorized Leave of Absence with pay), such absence shall not count as a
Break-in-Service and shall be considered as Vesting Service.
(d) A period during which an Employee is on an Authorized Leave of
Absence shall not be considered as a Break-in-Service and, under rules uniformly
applicable to all Employees similarly situated, the Committee may authorize the
inclusion in Vesting Service of any portion of such period of leave which is not
included in Vesting Service under Section 3.01(a) or 3.01(c) for purposes of
determining eligibility for benefits under the Plan.
Section 3.02. Credited Service.
(a) Except as otherwise herein provided, all Vesting Service rendered
as an Employee while a Member or participant shall be Credited Service under the
Plan. Any period between a Severance from Service Date and a reemployment date
which is recognized as Vesting Service under Section 3.01(a) and any period of
absence without pay included in Vesting Service pursuant to Section 3.01(d)
shall be excluded from his Credited Service.
(b) Credited Service shall include any period of service in the Armed
Forces of the United States and any period of service during which a Member is
on an Authorized Leave of Absence under the Family and Medical Leave Act of 1933
or any other Authorized Leave of Absence with pay which is included in a
Member's Vesting Service pursuant to Section 3.01(c). The Compensation for any
such period of absence without pay include in Credited Service pursuant to this
paragraph (b) shall be at the Member's rate of Compensation in effect prior to
the commencement of such period.
(c) Except as otherwise provided in Sections 3.02(b), 4.15, 4.16 and
4.18, the following periods of Vesting Service shall be excluded for the purpose
of computing a Member's Credited Service under the Plan:
(i) Vesting Service during any leave of absence, including
an Authorized Leave of Absence, from an Affiliated
Company.
(ii) Vesting Service in the employ of an Affiliated
Company, unless recognized pursuant to Section 3.04.
(iii) Vesting Service with the Employer other than as an
"Employee" as herein defined.
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<PAGE>
(iv) Any period between a Member's Severance from Service
Date and his date of reemployment which is included
in his Vesting Service pursuant to Section 3.01(a).
Section 3.03. Calculation of Vesting Service and Credited Service.
Vesting Service and Credited Service shall be determined based on years and
fractional years of Vesting Service and Credited Service with one-twelfth of a
year counted for:
(a) Each month in which an Employee receives Compensation for active
employment during such month.
(b) Each month in which an Employee is on leave of absence because of
occupational injury or disease and on account of which he receives Workers'
Compensation for at least one payroll period.
(c) Each month included in Vesting Service, other than a month included
in (b) above, in which the Employee does not receive Compensation.
(d) Each month during which a disabled Member is entitled to
Credited Service under Section 4.18.
No Vesting Service shall be granted after Retirement because of a
compensable Authorized Leave of Absence.
Section 3.04. Corporate Transactions. In the discretion of the Board of
Directors, under rules uniformly applicable to all persons similarly situated
and in accordance with regulations issued by the Secretary of Treasury under
Section 401(a)(4) of the Code, Vesting Service for the purpose of determining
eligibility for benefits and Credited Service for the purpose of computing
benefits under the Plan may be granted for periods of continuous employment
immediately preceding employment by the Employer with an Affiliated Company or
an associated, subsidiary, or predecessor corporation, including a corporation
substantially all of whose assets have been absorbed by the Employer by purchase
of assets, consolidation, merger or otherwise.
End of Article 3
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ARTICLE 4
BENEFITS
Section 4.01. Normal Retirement Pension.
(a) The right of a Member to his Normal Retirement Pension shall be
nonforfeitable upon his attainment of Normal Retirement Age. A Member may retire
from service on a Normal Retirement Pension on the first day of any calendar
month on or after his Normal Retirement Date; however, a Member may defer his
Retirement and remain in service with the Employer after his attainment of
Normal Retirement Age and continue to accrue benefits under the Plan until
actual Retirement.
(b) Except as provided in paragraphs (c), (d) and (e) below, the annual
Normal Retirement Pension payable to a Member upon retirement on or after his
Normal Retirement Date shall be equal to the difference between (i) and (ii)
where: (i) is the amount determined under (A), offset by the lesser of (B) and
(C), and (ii) is the amount equal to the benefit payable as a single life
annuity at Normal Retirement Age under the Prior Plan.
(A) An amount equal to one and one-half percent (1-1/2%) of the
Member's Average Final Compensation, multiplied by the number of years
of his Credited Service.
(B) An amount equal to three quarters of one percent (3/4%) of the
smaller of Average Final Compensation or Covered Compensation,
multiplied by the total number of years of Credited Service not to
exceed 35 years.
(C) An amount equal to (i) 0.555% (if the Social Security Retirement
Age is 65), 0.525% (if the Social Security Retirement Age is 66), or
0.485% (if the Social Security Retirement Age is 67), multiplied by
(ii) the lesser of Final Average Compensation or Covered Compensation,
multiplied by (iii) the total number of years of Credited Service not
to exceed 35 years.
(c) In no event shall the amount of benefit determined in accordance
with Section 4.01(b) above be less than the benefit accrued as of December 31,
1993.
(d) If a Member remains in service after his Normal Retirement Date, no
Retirement Pension shall be payable during such continuance of service. Upon
Retirement, the Normal Retirement Pension payable to the Member shall be the
greater of (i) and (ii) where (i) the amount of his Normal Retirement Pension
payable upon actual Retirement taking into account Credited Service and
Compensation through such actual Retirement Date and (ii) the amount of Pension
payable as of the Member's Late Retirement Date by the Equivalent Actuarial
Value of the amount of his Normal Retirement Pension determined as of his Normal
Retirement Date.
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(e) Notwithstanding any other provision of the Plan to the contrary,
distribution of any Pension to any Member shall commence, in accordance with
regulations issued by the Secretary of the Treasury under Section 401(a)(9) of
the Code, not later than the Member's Required Commencement Date.
Section 4.02. Early Retirement Pension.
(a) A Member in active service may retire on an Early Retirement
Pension on the first day of any month prior to his Normal Retirement Date
coinciding with or following his attainment of age 55 and completion of 10 years
of Vesting Service. Notwithstanding the foregoing, if a Member was a participant
in the Prior Plan, and was eligible to retire on a date which is earlier than
the date described in the preceding sentence, such a Member shall be entitled to
retire on an Early Retirement Pension on the first day of any month prior to his
Normal Retirement Date on which he would have been able to so retire under the
Prior Plan.
(b) (i) If the Member retires after his attainment of age 62 and
completion of 10 years of Vesting Service, his Early Retirement Pension shall be
equal to a Normal Retirement Pension computed in accordance with Section 4.01 on
the basis of his Average Final Compensation and Credited Service at the time of
early Retirement.
(ii) If the Member has completed 10 years of Vesting Service
and retires prior to his attainment of age 62, his Early Retirement Pension
shall be a deferred Pension commencing on the first day of the calendar month
coincident with or next following the 62nd anniversary of the Member's birth and
shall be computed as a Normal Retirement Pension computed in accordance with
Section 4.01 on the basis of his Average Final Compensation and Credited Service
at the time of early Retirement and the Plan provisions in effect at that time.
The Member may, however, elect to have the Early Retirement Pension commence on
the first day of any calendar month prior to his attainment of age 62 following
receipt by the Committee of his written election thereof, in a reduced amount.
Such amount shall be equal to the deferred pension commencing at age 62 reduced
by five-twelfths of one per cent for each month by which the date of
commencement of the Member's Pension precedes the first day of the calendar
month coincident with or next following the 62nd anniversary of his birth.
Section 4.03. Deferred Vested Pension.
(a) A Member who, for reasons other than retirement or death, ceases to
be employed by the Employer or an Affiliated Company, shall be eligible for a
Deferred Vested Pension on application therefor, provided that at the time his
service is terminated be has completed 5 years of Vesting Service.
(b) The Deferred Vested Pension shall be computed as a Normal
Retirement Pension in accordance with Section 4.01 on the basis of his Average
Final Compensation and Credited Service at his date of termination and the Plan
provisions in effect on that date.
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(c) The Deferred Vested Pension payable under this Section 4.03 shall
commence on the later of (i) the Member's Normal Retirement Date or (ii) the
first day of the calendar month next following receipt by the Committee of the
Member's written application for such Pension. If such application is received
after his Normal Retirement Date, the Pension shall be actuarily increased in
the same manner as for late retirements in accordance with Section 4.01(d).
(d) Upon attainment of age 55, a Member who had completed 10 years of
Vesting Service as of his termination of service (or had been provided with
special deferred vested pension benefits under Section 4.03(e) of the Prior
Plan) shall be eligible to receive, upon written application therefor, a
Deferred Vested Pension commencing on the first day of any calendar month
following such Member's attainment of age 55, in a reduced amount which shall be
equal to the Deferred Vested Pension commencing at Normal Retirement Date
reduced by five-twelfths of one per cent for each month by which the date of
commencement of such Pension precedes his Normal Retirement Date.
(e) Notwithstanding the foregoing provisions of this Section 4.03, a
Member whose employment with the Employer terminates as a result of the
cessation of the business operations of (i) the Eljer Plumbingware Atlanta,
Georgia plant, (ii) the GlasTec Middlebury, Valdosta and Gainsville plants and
the Wilson plant and (iii) Design Plus York, Pennsylvania location shall be
deemed to be 100% vested in a Pension based on the number of actual years of
Credited Service performed by such Member.
Section 4.04. Normal Form of Pension.
(a) Qualified Joint and Survivor Annuity. The normal form of Pension
for a Member who is married to a Spouse on his Benefit Commencement Date will be
a qualified joint and survivor annuity. The qualified joint and survivor annuity
shall provide the Member with an annuity based on the Member's Normal, Early or
Deferred Vested Pension, as the case may be, payable for the Member's life, and
upon his death fifty percent of such amount shall be paid to the Member's Spouse
for his life. The annuity payable to the Member shall be reduced to the
Equivalent Actuarial Value of the single life annuity described in Section
4.04(b).
(b) Single Life Annuity. The normal form of Pension for a Member who is
unmarried on the Member's Benefit Commencement Date will be a single life
annuity. The single life annuity will provide a monthly annuity to the Member
for life, in an amount based on the Member's Normal, Early or Deferred Vested
Pension, as the case may be, with no further payment after his death.
(c) Marital Status. The Committee will request each Member to confirm
his marital status, or to indicate any change therein, prior to his Benefit
Commencement Date, and the form of such Member's Pension shall be determined by
his marital status as so stated, in the absence of the election of an optional
form of benefit in accordance with the provisions of Sections 4.05 and 4.06.
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Section 4.05. Member Pension Elections.
(a) Election Not to Take Qualified Joint and Survivor Annuity or Single
Life Annuity. A Member who qualifies for the qualified joint and survivor
annuity or single life annuity described in Section 4.04 may elect to receive
his Pension in one of the optional forms of benefit described in Section 4.06 or
revoke such an election, provided that the Member notifies the Committee in
writing of such election or revocation of election on an appropriate form
supplied by the Committee for this purpose. No election made under this Section
4.05(a) shall be effective without Spousal Consent unless it is established to
the satisfaction of the Committee that the consent of a Spouse cannot be
obtained because the Spouse cannot be located or such other circumstances as the
Secretary of the Treasury may prescribe by regulation exist.
The Committee shall furnish to each Member who is eligible to make an
election under this Section 4.05(a) a written explanation in nontechnical
language of (i) the terms and conditions of the qualified joint and survivor
annuity or single life annuity, (ii) the Member's right to make, and the effect
of, an election to waive the qualified joint and survivor annuity or single life
annuity form of benefit, (iii) the rights of the Member's Spouse under this
Section 4.05(a) with respect to such waiver election, (iv) the right to make,
and the effect of, a revocation of an election to waive the qualified joint and
survivor annuity or single life annuity form of benefit and (v) a special tax
notice issued by the Internal Revenue Service regarding the general tax
consequences of a distribution, including the Member's right, if applicable, to
roll over all or a portion of his Pension to an Eligible Retirement Plan
pursuant to Section 401(a)(31) of the Code.
If such notification is made by mail or personal delivery, it shall be
made by such time as to reasonably assure that it will be received by the Member
at least thirty (30) days and not more than ninety (90) days before the Benefit
Commencement Date. Notice of the election may be given by alternative means,
which must be reasonably calculated to reach the attention of the Member on or
about the time period specified in the preceding sentence and continue to reach
the attention of the Member during the period in which he may make the election
(as, for example, by posting or repeated publication). A Member may make an
election not to take a qualified joint and survivor annuity or single life
annuity in favor of his Pension payable in a form prescribed by Section 4.06
hereof at any time during the ninety (90) day period preceding the Benefit
Commencement Date. Furthermore, a Member may request additional information
regarding the qualified joint and survivor annuity or single life annuity during
the sixty (60) day period following the date the above explanation is mailed or
personally delivered or otherwise communicated to such Member. If the Member
requests additional information, the Member may make an election not to take a
qualified joint and survivor annuity or single life annuity any time during the
sixty (60) day period following the date the original requested information is
mailed or personally delivered to such Member.
Notwithstanding the preceding provisions, in no event shall the period
during which a Member may elect not to take a qualified joint and survivor
annuity or single life annuity in favor of a Pension payable in an optional form
of benefit specified in Section 4.06 hereof or to revoke such election expire
earlier than the Benefit Commencement Date.
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A Member may revoke an election made pursuant to this Section 4.05(a)
during the ninety (90) day period ending on the Benefit Commencement Date, and
the Member may make a new election thereafter if it otherwise complies with this
Section 4.05(a). A Member's election not to take a qualified joint and survivor
annuity or single life annuity, if timely made, is effective on the date the
Member's payment of his Pension is to commence under the Plan. A Member's
revocation of an election not to take a qualified joint and survivor annuity or
single life annuity is effective on the date the Member notifies the Committee
thereof in accordance with this Section 4.05(a). Any such new election or
revocation of any election previously made shall be made in accordance with the
provisions of this Section 4.05(a).
(b) Conditions of Election of Optional Form. The Member shall not make
any election for an optional form of Pension, under which the present value of
the Pension payable solely to the Member will not be greater than fifty percent
of the present value of the total Pension payable to the Member and his
Beneficiaries; provided, however, that if the Member receives his Pension in the
form a qualified joint and survivor annuity described in Section 4.04(a) hereof,
the preceding limitation shall not apply. The Committee shall determine "present
value" as of the date the Trustee is to commence payment of the Pension to the
Member. If the Committee determines to disallow a Member's election, it shall
direct the Trustee in writing to commence payment of the Member's Pension to him
in the normal form specified in Section 4.04. The Committee shall apply the
provisions of this Section 4.05(b) in a nondiscriminatory and uniform manner. If
the Member or, in the case of Options 2, 3 or 4 set forth in Section 4.06, the
Beneficiary designated under the option, dies prior to the Member's Benefit
Commencement Date, the Member's election of the option thereby shall be revoked.
Section 4.06 Optional Forms of Payment. By making the election
described in Section 4.05(a) and by giving written notice to the Committee
during the election period specified in Section 4.05(a), a Member may elect to
receive his Pension, in one of the following optional forms of benefit in lieu
of the normal form provided for in Section 4.04, subject to the provisions of
Section 4.14. The amount of the Member's Pension payable under any of the
optional forms of benefit described in this Section 4.06 shall be the Equivalent
Actuarial Value of the Member's normal form of benefit provided for in Section
4.04.
The optional forms of benefit that a Member may elect are as follows:
Option 1. Single Life Annuity. A Member whose normal form of Pension is
a qualified joint and survivor annuity, as described in Section 4.04(a), may
elect to receive his Pension in the form of a single life annuity payable
monthly during the Member's life, with no Pension payable after his death.
Option 2. Joint and 100% Survivor Annuity. A Member may elect to
receive a modified Pension payable to the Member monthly for life, with one
hundred percent (100%) of such modified Pension payable monthly to and for the
life of his named Beneficiary, if such Beneficiary survives the Member.
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Option 3. Joint and 75% Survivor Annuity. A Member may elect to receive
a modified Pension payable to the Member monthly for life, with seventy-five
percent (75%) of such modified Pension payable monthly to and for the life of
his named Beneficiary, if such Beneficiary survives the Member.
Option 4. Joint and 50% Survivor Annuity. A Member may elect to receive
a modified Pension payable to the Member monthly for life, with fifty percent
(50%) of such modified Pension payable monthly to and for the benefit of his
named Beneficiary, if such Beneficiary survives the Member.
Option 5. Five Year Certain Option. A Member may elect to receive a
modified Pension payable to the Member for life, with the provision that if the
Member dies before receiving a total of sixty (60) monthly payments, payment of
such modified annuity shall be continued to a named Beneficiary, until the
number of payments received by the Member and his Beneficiary equal a total of
sixty (60) payments. If the Beneficiary predeceases the Member, the death of a
Beneficiary shall not increase the amount the Member is entitled to receive but
the Member may designate a new Beneficiary under this option. In the event that
the Beneficiary dies before all of the monthly payments have been paid pursuant
to this option, such payments shall continue to be made to the estate of the
last to die of the Member or Beneficiary until a total of sixty (60) monthly
payments have been received by the Member and such estate.
Option 6. Ten Year Certain Option. A Member may elect to receive a
modified Pension payable to the Member for life, with the provision that if the
Member dies before receiving a total of one hundred twenty (120) monthly
payments, payment of such modified annuity shall be continued to a named
Beneficiary, until the number of payments received by the Member and his
Beneficiary equal a total of one hundred twenty (120) payments. If the
Beneficiary predeceases the Member, the death of a Beneficiary shall not
increase the amount the Member is entitled to receive but the Member may
designate a new Beneficiary under this option. In the event that the Beneficiary
dies before all of the monthly payments have been paid pursuant to this option,
such payments shall continue to be made to the estate of the last to die of the
Member or Beneficiary until a total of one hundred twenty (120) monthly payments
have been received by the Member and such estate.
Option 7. Direct Rollover. Effective for distributions commencing on
and after January 1, 1993, a Member may elect to receive all or a portion of his
Pension in the form of a direct rollover to an Eligible Retirement Plan,
provided that such distribution otherwise qualifies for direct rollover under
Section 401(a)(31) of the Code.
Special Lump Sum Option. In addition to the optional forms of benefit
set forth in this Section 4.06, a Member who terminates employment with the
Employer as a result of the cessation of the business operations of (i) the
Eljer Plumbingware Atlanta, Georgia plan, (ii) the GlasTec Middlebury, Valdosta
and Gainsville plants and the Wilson plant and (iii) Design Plus York,
Pennsylvania location may, by written notice received by the Committee, elect to
receive his Pension in a single sum payment of Equivalent Actuarial Value,
calculated in accordance with
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the provisions of Section 4.04 hereof and payable as soon as administratively
possible following the Member's termination of employment; provided, however,
for any such Pension payable on and after January 1, 1993, such Member may elect
to transfer all or a portion of his Pension to an Eligible Retirement Plan,
provided such Pension exceeds $200 and otherwise qualifies for direct rollover
pursuant to Section 401(a)(31) of the Code. The Committee shall prescribe the
procedures a Member must follow to request a direct rollover of his Pension
pursuant to this Section 4.06.
Section 4.07. Lump-Sum Cashout Distribution When Vested Pension not in
Excess of $3,500. If a Member terminates employment for any reason, including
Retirement, and the present value of such Member's vested Pension payable to him
at his Normal Retirement Date is not greater than $3,500, or if a Member dies
and the present value of the Spouse's Pension payable to his surviving Spouse
under Section 4.09 not greater than $3,500, or if the present value of a Pension
payable to a former Spouse who is an Alternate Payee under a Qualified Domestic
Relations Order is not greater than $3,500 (determined without regard to the
value of the Member's remaining Pension), unless the Member, or if applicable,
the surviving Spouse or former Spouse elects a direct rollover under this
Section 4.07, the Committee shall direct the Trustee to distribute the Member's
vested Pension (or where the Member has died, the Spouse's Pension or, in the
case of a former Spouse, the Pension payable under the Qualified Domestic
Relations Order) in a single sum payment as soon as administratively practicable
following the Member's termination of employment (or where the Member has died,
the date on which the Committee receives notice of the Member's death or, in the
case of a Pension payable to a former Spouse, the date of entry of the Qualified
Domestic Relations Order). No distribution may be made to a Member under this
Section 4.07 after the Member's Benefit Commencement Date without the written
consent of the Member and, if he is married, his Spouse. For the purpose of this
Section 4.07, present value will be the Equivalent Actuarial Value determined
under Section 1.22 of the Member's or, if applicable, former Spouse's Pension
payable in the normal form of payment under Section 4.04 at his Normal
Retirement Date (or where the Member has died, the Spouse's Pension under
Section 4.09). Alternatively, the Member or, if applicable, the surviving Spouse
or former Spouse may elect to transfer all or a portion of his Pension to an
Eligible Retirement Plan, provided that the present value of such Pension
exceeds $200 and otherwise qualifies for direct rollover pursuant to Section
401(a)(31) of the Code. If a Member or a former or surviving Spouse elects a
direct rollover under this Section 4.07, the Committee will direct the Trustee
to roll over all or a portion of the Pension to the Eligible Retirement Plan
specified by the Member or a former or surviving Spouse, as the case may be. If
a Member or a former or surviving Spouse elects to transfer only a portion of
his Pension under this Section 4.07 to an Eligible Retirement Plan, the
remainder of his Pension shall be distributed in a single sum. The Committee
shall prescribe the procedures a Member or a former or surviving Spouse must
follow to request a direct rollover of his Pension pursuant to this Section
4.07.
A Member's Credited Service under the Plan shall be disregarded
following the single sum payment of the full present value of Member's Pension
under this Section 4.07 and under Section 4.06 if the Member subsequently
returns to employment with the Employer and such Member shall not be entitled to
repay such single sum payment upon his reemployment.
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Section 4.08. Deemed Distribution to Non-vested Member. If a Member
terminates employment at a time when such Member's Deferred Vested Pension
equals Zero Dollars ($0), the Member shall be deemed to receive a distribution
of his entire Pension vested as of the day he terminates employment. If such
Member subsequently returns to employment with the Employer prior to the date on
which the Member incurs five consecutive Breaks in Service, upon his
reemployment, the Member shall be credited with his years of Credited Service
credited prior to his termination of employment with the Employer for purposes
of determining any Pension to which he is entitled at any later date.
Section 4.09. Spouse's Pension.
(a) In the event of the death of a Member (whether as an active
Employee or a former Employee) before his Benefit Commencement Date who
satisfied the vesting requirements of Section 4.03 prior to his death and who is
survived by a Spouse, such Spouse shall be entitled to a Spouse's Pension,
determined in accordance with this Section 4.09. The Spouse's Pension shall
commence on the date the Member would have reached his Normal Retirement Date or
on the first day of the month next following the Member's date of death, if
later. However, if the Member's death occurs prior to his Normal Retirement
Date, the Member's Spouse may elect to receive the Spouse's Pension commencing
on the first day of the month immediately following the later of (i) the
Member's date of death or (ii) the earliest date the Member would have been
eligible for benefit commencement under Section 4.03(d).
(b) The Spouse's Pension shall be equal to (i) in the case of a Member
or former Member who dies after he has completed the age and service
requirements for an Early or Normal Retirement Pension, the Pension which would
have been payable to the Spouse under Section 4.04(a) if the Member had retired
on an Early or Normal Retirement Pension, whichever is applicable, beginning on
the first day of the month in which he died as provided in Section 4.01 or
Section 4.02(b), and (ii) in the case of any other Member or former Member, the
Pension which would have been payable to the Spouse, based on the Member's
accrued Plan benefit as of the date of death, if the Member had elected to have
his Pension begin on the earliest date provided in Section 4.03(d), and then had
died on the next following day. In either case, the Spouse's Pension shall be
calculated as follows:
(i) a Pension computed in accordance with Section 4.01 on the
basis of the Member's Compensation and Credited Service as of the first day of
the month preceding his date of death; reduced by
(ii) the appropriate reduction factor for early Retirement as
provided in Section 4.02(b) or for early commencement of a Deferred Vested
Pension as provided in Section 4.03(d), if either reduction is applicable;
multiplied by
(iii) the actuarial equivalent factor for a qualified joint
and survivor annuity Pension with fifty percent (50%) of the Member's Pension
continued after his death to his Spouse, as provided in Section 4.04(a);
multiplied by:
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(iv) fifty percent (50%)
(c) If a Member dies without a surviving Spouse or dies prior to
satisfying the vesting requirements of Section 4.03, no Pension or other benefit
will be payable from the Plan with respect to his participation herein to any
person, except as provided in Section 4.10(b).
Section 4.10. Death of Member.
(a) If a Member dies on or after his Benefit Commencement Date, no
further periodic payments will be made under the Plan to any person with respect
to the deceased Member's Pension, unless the Member had elected an optional form
of benefit pursuant to Section 4.06 that provides for payments to a surviving
co-annuitant or Beneficiary, or an annuity is payable to the Member's surviving
Spouse in accordance with Section 4.09.
(b) Upon receipt of proof, satisfactory to the Committee, of the death
of a Member who retired on or after April 1, 1989 and on or after his attainment
of age 60 and who is not covered under the Company's group life insurance
program at the time of his death, a single sum benefit equal to $3,000 shall be
paid to the person nominated by him by written designation duly acknowledged and
filed with the Committee, if such person survives him, otherwise to the legal
representatives of such deceased Member.
Section 4.11. Qualified Domestic Relations Orders. During any period in
which the issue of whether a domestic relations order is a Qualified Domestic
Relations Order is being determined (by the Committee, by a court of competent
jurisdiction, or otherwise), the Committee shall direct the Trustee to segregate
in a separate account or in an escrow account the amount that would have been
payable to the Alternate Payee during such period if the domestic relations
order is determined to be a Qualified Domestic Relations Order.
If within eighteen (18) months the domestic relations order (or
modification thereof) is determined to be a Qualified Domestic Relations Order,
the Committee shall direct the Trustee to pay the segregated account (and any
earnings or interest thereon) or the balance held in the escrow account, as
applicable, to the person or persons entitled thereto. If within eighteen (18)
months it is determined that the order is not a Qualified Domestic Relations
Order or the issue as to whether such domestic relations order is a Qualified
Domestic Relations Order is not resolved, the Committee shall direct the Trustee
to pay the segregated account (and any earnings or interest thereon) or the
balance of the escrow account, as applicable, to the person or persons who would
have been entitled to such amounts if there had been no domestic relations
order. Any determination that a domestic relations order is a Qualified Domestic
Relations Order which is made after the close of the eighteen (18) month period
shall be applied prospectively only.
The Committee shall establish reasonable procedures for determining
whether a domestic relations order is a Qualified Domestic Relations Order and
to administer distributions under Qualified Domestic Relations Orders. When the
Plan receives a domestic relations order, the Committee shall promptly notify
the appropriate Participant and any other Alternate Payee of the
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receipt of such order and the Committee's procedures for determining whether
such order is a Qualified Domestic Relations Order. The Committee shall
determine whether a domestic relations order is a Qualified Domestic Relations
Order within a reasonable period after receipt of such order, and shall within a
reasonable time after such determination notify the Participant and each
Alternate Payee of such determination.
Payment of amounts awarded to an Alternate Payee shall be made in
accordance with the terms of the Qualified Domestic Relations Order; provided,
however, that if the present value of the Alternate Payee's Pension does not
exceed $3,500, such Pension shall be paid in accordance with Section 4.07.
Section 4.12. Basis of Payment. Except as provided in Sections 4.06 and
4.07, all Pension payments under the Plan shall be paid monthly commencing on
the first day of the month coinciding with or next following Member's Retirement
Date (or the first day of the month designated in Section 4.09 in the case of a
Spouse's Pension) and will continue to be paid on the first of each month
thereafter. No Pension payments which are destined to end with the death of a
person shall be paid after the date on which the person last entitled to payment
dies.
Section 4.13. Maximum Benefit Limitation. Notwithstanding any
provision contained herein to the contrary:
(a) the amount of annual Pension, determined in accordance with this
Section 4.13, payable with respect to a Member under this Plan and any other
defined benefit plan (as described in Section 415(k) of the Code) maintained by
the Employer for any Limitation Year shall not exceed an amount equal to the
lesser of:
(i) $90,000 adjusted for increases in the cost of living
pursuant to Section 415(b)(1)(A) of the Code; or
(ii) 100% of the Member's Average Compensation.
The determination of whether a Member's Pension, payable under
the Plan exceeds the limitations of this Section 4.13 shall be
made by adjusting such Pension, so that it is the Equivalent
Actuarial Value of a straight life annuity with no ancillary
benefits (such adjustment being made in accordance with
regulations promulgated by the Secretary of the Treasury or
its delegate pursuant to Section 415(b)(2)(B) of the Code);
provided, however, that any portion of an annuity that
constitutes a qualified joint and survivor annuity shall not
be taken into account.
(b) In the event a Member has been credited with less than ten years of
participation in the Plan, the $90,000 dollar limitation under Section
4.13(a)(i) shall be reduced by multiplying such limit by a fraction, the
numerator of which is the Member's years of participation (or part thereof) and
the denominator of which is ten. In the event the Member has been credited with
less than ten years of service with the Employer (or part thereof), the
compensation limitation
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under Section 4.13(a)(ii) shall be reduced by multiplying such limit by a
fraction, the numerator of which is the number of years of service credited to
the Member and the denominator of which is ten.
(c) If any Member begins to receive a Pension under this Plan before
such Member attains Social Security Retirement Age, the maximum annual Pension,
that such Member may receive hereunder shall be adjusted so that it is the
Equivalent Actuarial Value of $90,000 per year beginning at Social Security
Retirement Age. If a Member begins to receive a Pension, hereunder after he
attains Social Security Retirement Age, the maximum annual Pension, permitted
hereunder shall be the Equivalent Actuarial Value of $90,000 per year beginning
at Social Security Retirement Age. Any adjustment made pursuant to the foregoing
shall be made in accordance with applicable rules prescribed by the Secretary of
the Treasury. In making an actuarial adjustment to any benefit pursuant to the
terms of this paragraph, no cost of living adjustment to the $90,000 limitation
under Section 415(d)(1) of the Code shall be taken into account before the year
in which such cost of living adjustment is made.
(d) If the benefit the Member would otherwise accrue in a Limitation
Year would produce an annual Pension in excess of the limitation under Section
4.13(a), the rate of accrual will be reduced so that the annual Pension will
equal the limitation under Section 4.13(a).
(e) The limitations in Section 4.13(a) shall not be applied with
respect to any Member whose annual Pension is not more than $1,000 multiplied by
the Member's number of years of service or parts thereof (not to exceed ten)
with the Employer, and the Member has not at any time participated in any
defined contribution plan (as defined in Section 415(k) of the Code) maintained
by the Employer.
(f) If, in any Limitation Year a Member also participates in one or
more qualified defined contribution plans (within the meaning of Section 414(i)
of the Code) maintained by the Employer (whether or not terminated), then for
any Limitation Year, the sum of the Defined Benefit Plan Fraction for such
Limitation Year and the Defined Contribution Plan Fraction for such Limitation
Year shall not exceed 1.0.
(g) If, in any Limitation Year, the sum of the Defined Benefit Plan
Fraction and Defined Contribution Plan Fraction for a Member would exceed 1.0
without adjustment of the amount of the maximum annual Pension that can be paid
to such Member under Section 4.13(a), the sum of the fractions will be reduced
to 1.0 by first reducing any voluntary employee after-tax contributions to this
Plan, then by reducing any voluntary employee after-tax contributions to the
defined contribution plans, and then by reducing the amount of the maximum
annual Pension that can be paid to such Member under Section 4.13(a) to the
extent necessary to reduce the sum of the Defined Benefit Plan Fraction and
Defined Contribution Plan Fraction for such Member to 1.0. In addition,
Committee may take such other action consistent with section 415 of the Code to
cause the sum to equal 1.0 or less.
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(h) Definitions:
(i) "Average Compensation" means for purposes of this Section
4.13 the average Annual Compensation during a Member's high
three years of service, which period is the actual number of
consecutive calendar years (or, the actual number of
consecutive years of employment for those Employees who are
employed for less than three consecutive years with the
Employer) during which the Employee had the greatest aggregate
Annual Compensation from the Employer.
(ii) "Employer" means for purposes of this Section 4.13, the
Employer and any Affiliated Company that adopts this Plan;
provided, however, the determination under Section 414(b) and
(c) of the Code shall be made as if the phrase "more than 50
percent" were substituted for the phrase "at least 80 percent"
each place it is incorporated into Section 414(b) and (c) of
the Code.
(iii) "Annual Compensation" means for purposes of this Section
4.13, a Member's earned income, wages, salaries, fees for
professional service and other amounts received (without
regard to whether an amount is paid in cash) for personal
services actually rendered in the course of employment with an
Employer maintaining the Plan to the extent that the amounts
are includable in gross income (including, but not limited to,
commissions paid salesmen, compensation for services on the
basis of a percentage of profits, commissions on insurance
premiums, tips, bonuses, fringe benefits, reimbursements, and
expense allowances) and excluding the following:
(A) Employer contributions to a plan of deferred
compensation to the extent contributions are not
included in gross income of the Employee for the
taxable year in which contributed, or on behalf of an
Employee to a simplified employee pension plan to the
extent such contributions are deductible under
Section 219(b)(2) of the Code, and any distributions
from a plan of deferred compensation whether or not
includable in the gross income of the Employee when
distributed;
(B) amounts realized from the exercise of a
nonqualified stock option, or when restricted stock
(or property) held by an Employee becomes freely
transferable or is no longer subject to a substantial
risk of forfeiture;
(C) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
(D) other amounts which receive special tax benefits,
or contributions made by the Employer (whether or not
under a salary reduction agreement) towards the
purchase of a 403(b) annuity contract under Section
403(b) of the Code (whether or not the contributions
are excludable from the gross
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income of the Employee), contributions made by the
Employer for medical benefits (within the meaning of
Section 401(h) or 419A(f)(2) of the Code) which is
otherwise treated as an Annual Addition, or any
amount otherwise treated as an Annual Addition under
Section 415(l)(1) or 419A(d)(2) of the Code.
For Limitation Years beginning after December 31, 1991, Annual
Compensation for any Limitation Year is the Annual
Compensation actually paid or includable in gross income
during such Limitation Year.
(iv) "Defined Contribution Plan Fraction" means for purposes
of this Section 4.13, for any Limitation Year a fraction:
(A) the numerator of which is the sum of the annual
additions (as defined in Section 415 (c)(2) of the
Code) to the Member's account under the defined
contribution plans maintained by the Employer as of
the close of the Limitation Year; and
(B) the denominator of which is the lesser of:
(1) the product of 1.25, multiplied by the
dollar limitation determined under Sections
415(b) and (d) of the Code in effect under
Section 415(c)(1)(A) of the Code for the
Limitation Year (determined without regard
to Section 415(c)(6) of the Code), or
(2) Thirty-five percent (35%) of the
Member's Annual Compensation for the
Limitation Year and all prior years of
service for the Employer.
The Defined Contribution Plan Fraction shall be calculated by
taking into account special transition rules authorized under
Section 415 of the Code. In addition, the annual addition (as
defined in Section 415(c)(2) of the Code) for any Limitation
Year beginning before January 1, 1987, shall not be recomputed
to treat all Employee contributions as an annual addition.
(v) "Defined Benefit Plan Fraction" means for purposes of this
Section 4.13 for any Limitation Year a fraction:
(A) the projected annual benefit of the Member under
this Plan and any other defined benefit plan (as
defined in Section 415(k) of the Code) maintained by
the Employer determined as of the close of the
Limitation Year; and
(B) the denominator of which is lesser of:
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(1) the product of 1.25, multiplied by the
dollar limitation in effect for the
Limitation Year under Section 415(b)(1)(A)
of the Code; or
(2) 1.4 multiplied by 100% of the Member's
Average Compensation, including any
adjustments under Section 415(b) of the
Code.
(vi) "Limitation Year" means the Plan Year.
(vii) "Social Security Retirement Age" means age 65 in the
case of a Member attaining age 62 before January 1, 2000
(i.e., born before January 1, 1938), age 66 for a Member
attaining age 62 after December 31, 1999, and before January
1, 2017 (i.e., born after December 31, 1937, but before
January 1,1955), and age 67 for a Member attaining age 62
after December 31, 2016 (i.e., born after December 31, 1954).
Section 4.14. Limitation on Time of Payment. Notwithstanding any
provision in this Plan specifying a date for the commencement of benefit
payments from the Plan, distribution of the Member's Pension shall commence,
unless the Member otherwise elects, not later than sixty (60) days after the
Plan Year in which the latest of the following events occurs:
(a) The date the Member attains Normal Retirement Age; or
(b) The date the Member terminates employment with the Employer; or
(c) The tenth anniversary of the last day of the Plan Year in which the
Member commenced participation in the Plan.
Notwithstanding the foregoing, distribution of each Member's Pension
shall commence not later than the Member's Required Commencement Date and the
entire vested Pension of each Member shall be distributed in full to such Member
not later than the Required Commencement Date or shall be distributed,
commencing not later than the Required Commencement Date, in accordance with
regulations over the life of such Member or over the lives of such Member and
his Beneficiary (or over a period not extending beyond the life expectancy of
such Member or the life expectancy of such Member and his Beneficiary).
Further, if a Member has commenced receiving distributions under the
Plan and the Member dies before his entire interest has been distributed to him,
the remaining portion, if any, of such interest that is distributable under this
Plan shall be distributed to the Member's Beneficiary at least as rapidly as
such interest would have been distributed to the Member, commencing not later
than the Member's Required Commencement Date, under the method of distribution
in effect at the Member's death. If the Member dies before the distribution of
his Pension has commenced, the entire interest of the Member shall be
distributed within five years after the death of the Member; provided, however,
if any portion of the Member's interest is payable to or for the benefit of a
Beneficiary and such portion of the Member's undistributed
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interest will be distributed in accordance with regulations over the life of
such Beneficiary or over a period not extending beyond the life expectancy of
such Beneficiary and such distributions commence not later than one year after
the date of the Member's death (or such later date as the Secretary of Treasury
may by regulation prescribe), the deceased Member's interest shall be
distributed in accordance with the method of payment under which the interest
will be distributed over the life of the Beneficiary or over a period not
extending beyond the life expectancy of the Beneficiary.
Notwithstanding the foregoing, if the Beneficiary is the surviving
Spouse of the Member, the deceased Member's interest shall be distributed to
such surviving Spouse on or before the date on which the Member would have
attained age 70-1/2; provided, further, that if the surviving Spouse dies before
the distributions to such spouse commence, the distribution of the interest of
the deceased Member shall begin on or before a date determined as if the
surviving Spouse were the Member. For purposes of this Section 4.14, and
pursuant to regulations prescribed by the Secretary of the Treasury, any amount
paid to a child of the Member shall be treated as if it had been paid to the
surviving Spouse of the Member if such amount will become payable to the
surviving Spouse upon such child's attainment of majority (or other designated
event permitted under regulations prescribed by the Secretary of the Treasury).
For the purposes of this paragraph, the term "Beneficiary" shall include only
individuals.
Nothing in this Section 4.14 shall permit any Member or Beneficiary to
elect any form of distribution not otherwise expressly permitted under this
Plan; but rather, the Committee may at any time modify any form of distribution
elected by a Member or Beneficiary to ensure compliance with this paragraph. In
addition, all distributions from the Plan shall be made in accordance with the
requirements of Section 401(a)(9) of the Code, including the incidental benefit
rules set forth in Prop. Treas. Reg. Section 1.401(a)(9)-2, and any grandfather
or transitional rules issued thereunder. Any distribution provision contained
herein which conflicts with Section 401(a)(9) of the Code will be disregarded
and the provisions of Section 401(a)(9) will govern.
Section 4.15. Restoration of Retired Member or Other Former Employee
to Service.
(a) If any Member in receipt of a Pension is restored to service with
the Employer or an Affiliated Company prior to his Normal Retirement Date, his
Pension shall cease and any election of an optional benefit in effect thereunder
shall become void. Any Credited Service to which he was entitled when he retired
shall be restored to him, and upon subsequent Retirement his Pension shall be
based on his Compensation and Credited Service before and after the period of
prior retirement, provided that, if such Member was in receipt of an Early
Retirement Pension or a Deferred Vested Pension at the time of his restoration
to service, his Pension upon subsequent retirement shall be reduced by an amount
of Equivalent Actuarial Value to the benefits he received prior to his
restoration to service. The part of the Member's Pension upon subsequent
retirement payable with respect to Credited Service rendered before the period
of his previous retirement shall in no event be less than the amount of his
previous Pension modified to reflect any option in effect on his subsequent
retirement.
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(b) If any Member in receipt of a Pension is restored to service with
the Employer or an Affiliated Company on or after his Normal Retirement Date, or
any Member remains employed beyond his Normal Retirement Date, his Pension
payments shall be suspended for each month during the period of reemployment
which constitutes a month of "suspension service" as hereinafter provided. In
the event of his death during such period, the provisions of Section 4.09 shall
be applicable. For purposes of this paragraph (b), a month of "suspension
service" shall be a month in which the Member is entitled to receive payment
from the Employer or an Affiliated Company for at least eight days of service
during such month. Upon subsequent Retirement, his Pension shall be based on his
Compensation and Credited Service before and after the period of prior
retirement, provided that, if such Member was in receipt of an Early Retirement
Pension or a Deferred Vested Pension at the time of his restoration to service,
his Pension upon subsequent Retirement shall be reduced by an amount of
Equivalent Actuarial Value to the benefits he received prior to his Normal
Retirement Date. The part of the Member's Pension upon subsequent Retirement
payable with respect to Credited Service rendered before the period of his
previous Retirement shall in no event be less than the amount of his previous
Pension modified to reflect any option in effect on his subsequent Retirement.
Upon subsequent Retirement, payment of the Member's Pension shall resume no
later than the first day of the third month after the month in which the Member
ceases to be employed in such suspension service, and shall be adjusted, if
necessary, in compliance with Department of Labor Regulation Section 2530.203-3
in a consistent and nondiscriminatory manner.
(c) If any Member or former participant in the Prior Plan who
terminated his service under this Plan or such Prior Plan, as the case may be,
was entitled to but not in receipt of a Pension at the date of such termination
of service, or a former Member of this Plan or a former participant in the Prior
Plan had received a lump sum settlement in lieu of his Pension and is restored
to service prior to the commencement of his Pension, he shall have the Credited
Service to which he was previously entitled restored to him. In the case of a
former participant in the Prior Plan who terminated service prior to the
Effective Date, his Credited Service prior thereto for purposes of determining
his eligibility for benefits and the amount of such benefits shall be equal to
his service recognized under the Prior Plan for those respective purposes.
However, if such Member received a lump sum settlement in lieu of said Pension,
the Credited Service so restored shall be recognized only for the purpose of
determining eligibility for benefits under the Plan and not for the purpose of
computing the amount of any benefit, unless such Member repays the amount of
such lump sum settlement together with interest at the rate determined in
accordance with Section 411(c)(2)(C) of the Code on such amount to the date of
repayment, except that, if such lump sum settlement was equal to the full
present value of his accrued benefit at the time of such termination, he shall
not be permitted to repay such amount and such Credited Service shall not again
be recognized for purposes of computing the amount of any benefit. If any
Employee who was a participant in the Prior Plan terminated his service prior to
the first day of the applicable plan year commencing in 1976 and was entitled to
a deferred vested pension under a plan that was subsequently merged into the
Prior Plan as of December 31, 1983 at the date of such termination of service
and is restored to service, his Credited Service for purposes of determining his
eligibility for benefits and the amount of such benefits shall be equal to his
service recognized for those purposes through the date of such termination of
service under the
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Prior Plan, as in effect on the date of such termination, provided that he did
not receive a lump sum settlement in lieu of said deferred vested benefit. Upon
the Retirement or subsequent termination of a Member who was entitled to a
Deferred Vested Pension at the time of his previous termination of service, who
had his previous Credited Service restored pursuant to this paragraph (c), his
Pension or Deferred Vested Pension shall be based on his Compensation and
Credited Service before and after the period when he was not in the service of
the Employer or an Affiliated Company.
(d) If any former Member or any other former participant in the Prior
Plan becomes an Employee he shall become a Member. If he has not incurred a
Break-in-Service on the date he becomes a Member, his Credited Service as of
such date shall be determined in accordance with Article 3. If he has incurred a
Break-in-Service commencing after January 1, 1989, and the period of such
Break-in-Service did not exceed five years, the Credited Service to which he was
previously entitled shall be restored to him. However, if a Member had a
Break-in-Service commencing on or before January 1, 1989, the break in service
rules as in effect on such date under the Prior Plan shall apply in determining
whether or not such prior service shall be restored. In the case of a former
participant in the Prior Plan who terminated service prior to the Effective
Date, his Credited Service prior thereto for purposes of determining his
eligibility for benefits and the amount of such benefits shall be equal to his
service recognized under the Prior Plan for those respective purposes. Upon the
Retirement or subsequent termination of service of a Member whose previous
Credited Service has been restored pursuant to this paragraph (d), his Pension,
if any, shall be based on his Compensation and Credited Service before and after
the period when he was not in the service of the Employer or an Affiliated
Company.
Section 4.16. Transfers.
(a) If, prior to becoming a Member of this Plan, an Employee was a
participant in any other retirement plan of the Employer or an Affiliated
Company, other than the Prior Plan, designated by the Board of Directors for
transfer of Credited Service for purposes of this Section 4.16, there shall be
included in his Credited Service for purposes of computing the amount of any
benefit payable to him or on his account all service which was recognized under
such other retirement plan for purposes of computing the amount of benefit
thereunder at the time he was transferred from the employment classification
covered by such other plan. Upon Retirement or termination of service, his
Pension payable under this Plan shall be reduced by an amount of Equivalent
Actuarial Value to the benefit payable under such other plan, but such reduction
shall not exceed the portion of his Pension attributable to the period of his
Credited Service for benefit computation purposes recognized under such other
plan. In determining such reduction, in the case of a Member who has previously
been transferred one or more times between plans before becoming a Member of
this Plan, the periods of credited service and amounts of benefit payable from
all other plans shall be combined and for this purpose a previous period of
Credited Service as an Employee recognized for benefit computation purposes
under this Plan shall be treated as if it were a separate period of service
rendered as a participant in another plan. In the case of an employee who, prior
to becoming a Member of the Plan, was employed by the Employer or an Affiliated
Company in an employment classification not eligible for participation in a
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retirement plan of the Employer or an Affiliated Company, the Committee shall,
under rules uniformly applicable to all Employees similarly situated, determine
the extent, if any, to which Credited Service for benefit computation purposes
shall be granted for service in such ineligible classification. In the case of a
transfer between employment classifications which occurred prior to the
Effective Date, this paragraph (a) shall be applicable only in accordance with
the provisions of the Prior Plan except as otherwise specified above.
(b) If a Member of the Plan ceases to be an "Employee" as herein
defined, but continues in the employ of the Employer or an Affiliated Company,
he shall continue to accrue Credited Service only for the purpose of determining
eligibility for benefits and upon termination of employment with the Employer
and its Affiliated Companies his eligibility for benefits under the Plan shall
be determined on the basis of his age and Credited Service to the date of such
termination of employment, but the amount of benefit shall be computed on the
basis of his Compensation and Credited service at the date he ceased to be an
"Employee" as herein defined. Eligibility for benefits and the amount of benefit
shall be determined on the basis of the provisions of the Plan in effect on the
date he ceased to be an Employee as herein defined, except as may otherwise be
required by applicable law. An employee who at the date of termination of
employment is not an Employee as herein defined shall not be eligible for an
Early Retirement Pension pursuant to Section 4.02(b)(i) or (ii) or a Disability
Benefit. The provisions of this paragraph (b) shall not be applicable to any
Member referred to in the last sentence of Section 4.17 of the Prior Plan.
Section 4.17. Special Provisions Applicable to Certain Former Members
in the Prior Plan. In the case of a Member referred to in Section 4.12(b) or (c)
of the Prior Plan (a former King- Seeley Plan participant), such provisions of
the Prior Plan (including the reductions in benefits due to receipt of benefits
under a group annuity contract and the entitlement for certain individuals to
retire upon attainment of age 60 under a Normal Retirement Pension) shall
continue to be applied to such Member upon Retirement from the Plan.
Section 4.18. Disability Benefit.
(a) A Member who has not reached his Normal Retirement Date, but who is
eligible for and in receipt of disability insurance benefits under the Social
Security Act and who, at the time of discontinuance of active employment on
account of disability had completed 5 years of Credited Service, shall have the
period during which he is in receipt of the Social Security disability insurance
benefit included in his Credited Service, provided that such Member applied for
a Social Security disability benefit within 12 months from the date he ceased to
be an active Employee due to his disability.
(b) In the event a Member described in paragraph (a) recovers from
disability and returns to employment with the Employer, he will continue to
accrue Credited Service according to Section 3.02. In the event he recovers from
disability and he does not return to employment with the Employer, he will not
be entitled to any Credited Service for periods commencing on and after the date
of his recovery from disability.
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(c) Once each year, the Committee may require any Member receiving
Credited Service under this Section 4.18 who has not reached his Normal
Retirement Date to provide satisfactory evidence of his continued eligibility
for disability insurance benefits under the Social Security Act. Should any such
Member refuse to provide such evidence, he will not be entitled to any
additional Credited Service until his withdrawal of such refusal and, should his
refusal continue for a year, all rights to additional Credited Service under
this Section 4.18 shall cease. If the Committee finds that the Member has ceased
to be eligible for disability insurance benefits under the Social Security Act,
additional Credited Service under this Section 4.18 shall be discontinued.
(d) Credited Service under this Section 4.18 shall automatically cease
on the first day of the month preceding a Member's Normal Retirement Date.
(e) When the disabled Member reaches his Normal Retirement Date, he
will be entitled to a Normal Retirement Pension computed in accordance with
Section 4.01 on the basis of his Average Final Compensation determined in
accordance with Section 1.04, his Final Average Compensation and Covered
Compensation determined as of the date of commencement of his Disability
Benefit, and his Credited Service at his Normal Retirement Date.
End of Article 4
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ARTICLE 5
CONTRIBUTIONS
Section 5.01. Employer Contributions.
(a) The Employer shall make regular contributions to the Trustee or the
Insurance Company each year in such amounts and at such times as are necessary
to maintain the Plan on a sound actuarial basis and to meet minimum funding
standards as prescribed by any applicable law. The amount of such contributions
shall be paid by the Employer to one or more Trustees, to be held and
administered pursuant to Article 8.
(b) Any forfeitures of accrued rights to a Pension arising from a
Member's termination of Employment or death or for any other reason prior to the
termination of the Plan will be used to reduce any contribution required to be
made by the Employer pursuant to Section 5.01(a) and will not increase the level
of any benefit otherwise payable under the Plan.
(c) All contributions of the Employer for a Plan Year shall be paid by
the Employer no later than the due date for filing its Federal income tax return
(plus extensions) for its fiscal year. If the contribution is on account of the
Employer's preceding fiscal year, the contribution shall be accompanied by the
Employer's notification to the Trustee that payment is on account of such prior
fiscal year. Each contribution made after the end of the fiscal year on account
of the Employer's prior Fiscal Year shall be deemed to have been paid as of the
last day of the Employer's fiscal year to which it relates, if such contribution
is made no later than the time prescribed by law for filing of the Employer's
federal income tax return (including extensions thereof) for such fiscal year.
An Employer may make a contribution to the Plan later than the date prescribed
by law for filing its federal income tax return solely for purposes of complying
with the minimum funding requirements of Section 412 of the Code.
(d) Notwithstanding Sections 5.01(a) and (b), contribution of the
amounts called for thereunder is conditioned upon the continued qualification of
the Plan under Section 401 of the Code, and the continued deductibility of the
amount of such contributions under Section 404 of the Code (as such Sections may
be amended or reenacted). Each Employer intends, but does not guarantee, to make
contributions to the Plan in at least the amount required to satisfy the minimum
funding requirements of Section 412 of the Code, as specified in the valuation
reports for the applicable period of time issued by the Plan's actuary.
Notwithstanding the foregoing, each Employer reserves the right to reduce,
suspend, or discontinue making contributions to the Plan at any time.
(e) Return of Employer Contributions. The Employer will have no right,
title or interest in the contributions made by it under Section 5.01(a) to any
Trustee or Insurance Company, and no monies will revert to the Employer except
that:
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(i) Any residual assets of the Plan may be returned to
the Employer in accordance with Section 10.03;
(ii) Any contribution made by the Employer under a mistake
of fact may be returned to it within one year after the
contribution is made;
(iii) The portion of any contribution which is conditioned
upon its deductibility under Section 404 of the Code may be
returned to the Employer within one year after the deduction
is disallowed; and
(iv) Any amounts otherwise permitted to be repaid to the
Employer by ERISA and the Code may be so repaid.
Section 5.02. No Participant Contributions. Participants will not be
required or permitted to make contributions to the Plan.
End of Article 5
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ARTICLE 6
ADMINISTRATION OF PLAN
Section 6.01. Appointment of Committee. A Committee of not less than
three persons shall be appointed from time to time by, and shall serve at the
pleasure of, the Board of Directors or its designee. The Committee will be
charged with all phases of the administration of the Plan as set forth in this
Article 6 and shall be the Plan Administrator and shall carry out the
administrator's duties as imposed under ERISA. The Board of Directors, or its
designee, may appoint a chairman of the Committee and if it fails to do so, the
members of the Committee shall elect a chairman. The Committee shall elect a
secretary who may, but need not, be one of the members of the Committee who
shall be responsible for maintaining minutes of the Committee meetings and
copies of any reports prepared by the Committee. No member of the Committee will
receive any compensation for his service as such. The members of the Committee
may or may not be participants in the Plan.
Section 6.02. Meetings. The Committee shall hold meetings upon such
notice, at such place or places, and at such time or times as they may from time
to time determine.
Section 6.03. Action of Committee. Any act which the Plan authorizes or
requires the Committee to do may be done by a majority of its members. The
action of such majority expressed from time to time by a vote at a meeting or in
writing without a meeting shall constitute the action of such Committee and
shall have the same effect for all purposes as if assented to by all members of
such Committee at the time in office.
Section 6.04. Powers and Duties. In addition to any implied powers and
duties which may be needed to carry out the provisions of the Plan, the
Committee shall have the following specific powers and duties:
(a) To make and enforce such rules and regulations as it shall
deem necessary or proper for the efficient administration of
the Plan;
(b) To interpret and to construe the Plan and to decide any and
all matters arising hereunder, including the right to remedy
possible ambiguities, inconsistencies or omissions; provided,
however, that all such interpretations and decisions shall be
applied in a uniform and non-discriminatory manner to all
Employees similarly situated and shall be determined in the
sole and absolute discretion of the Committee, which shall be
final and binding on all interested parties;
(c) To compute the amount of any Pension which shall be payable to
any Member, Spouse or Beneficiary in accordance with the
provisions of the Plan;
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(d) To review and render decisions respecting a claim (or denial
of a claim) for a benefit under the Plan in accordance with
the claims procedure described in Article 7;
(e) To authorize disbursements from the Trust Fund (any
instructions of the Committee to the Trustee shall be
evidenced in writing and signed by a member of the Committee
delegated with such authority by a majority of the Committee
members);
(f) To employ such advisors (including, but not limited to
attorneys, independent public accountants, investment
advisors, and actuaries), and such other technical and
clerical personnel as may be required in the Committee's
discretion for the proper administration of the Plan;
(g) To designate by written instrument maintained in the Company's
files, persons to carry out all or part of the
responsibilities of the Committee, and such persons shall have
the authority as may be delegated to them in such instrument;
(h) To review the activities of any person designated to carry out
any of the powers or duties of the Committee and to report to
the Board of Directors at least once each year on the overall
administration of the Plan;
(i) To appoint and remove any Insurance Company or investment
manager (as defined in Section 3(38) of ERISA) by whom assets
of the Trust Fund are held or managed;
(j) To establish asset administration objectives for the Trust
Fund consistent with Plan requirements as determined by the
Committee, and to determine and assign the amount of assets to
be placed under management of each Trustee, Insurance Company
or investment manager and to direct the Trustee as to the
investment of the Trust Fund;
(k) To continuously monitor the adequacy of the funds supporting
the Plan to meet future liabilities and make such
recommendations as needed to assure that the funds available
are adequate to that purpose;
(l) To periodically review the investment performance of the
Trustee, Insurance Company and investment manager;
(m) To supervise at least one audit of the Trust Fund for each
Plan Year and review each Trustee's annual accounting;
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(n) To prepare or collect such financial or related data as the
Committee may request in connection with the formulation of a
funding policy for the Plan or any Plan description, report,
other material or summary thereof.
The duties and responsibilities hereby allocated to the members of the
Board of Directors shall be limited solely to those duties and responsibilities
expressly provided in the Plan and Trust Agreement and the additional duty of
reviewing annually the annual report of the Trustee and the activities relating
to the Plan of the Trustee, any investment manager, Insurance Company and the
Committee. The Board of Directors may by written instrument, delegate to
designated persons the authority to carry out all or part of its
responsibilities.
Section 6.05. Expenses. The reasonable expenses of the Committee and
other reasonable expenses incident to the operation of the Plan, including the
expenses for any bond required under section 412 of ERISA and the compensation
of persons employed pursuant to Section 6.04(f), shall be paid out of the Trust
Fund, but the Employer in its discretion may elect at any time to pay part or
all thereof directly, and any such election shall not bind the Employer as to
its right to elect, with respect to the same or other expenses at any other
time, to have such compensation paid from the Fund.
Section 6.06. Funding Policy. The Committee, with the assistance of the
Plan's actuary, shall adopt, review and, if necessary, revise a funding policy
and method consistent with the objectives of the Plan.
Section 6.07. Liability of Committee Members. No member of the
Committee will be liable for any action or failure to act with respect to the
Plan except as expressly provided by ERISA.
Section 6.08. Reliance on Reports and Certificates; Actions Taken in
Good Faith. The members of the Committee, the Company and its directors,
officers and employees shall be entitled to rely conclusively upon all tables,
valuations, certifications, opinions and reports which may be furnished by any
actuary, accountant, controller, counsel or other person who is employed or
engaged for such purposes. In addition, such parties shall be entitled to rely
upon information furnished by a Member or Beneficiary, the Company or the legal
counsel for the Company.
The members of the Committee, the Company and its directors, officers
and employees shall be fully protected with respect to any action taken or
suffered by them in good faith and in the absence of gross negligence or willful
misconduct in reliance upon any such tables, valuations, certificates, reports
or other advice of any such actuary, accountant, Trustee or investment manager
or upon any such information furnished by a Member or Beneficiary, the Company
or legal counsel for the Company.
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Section 6.09. Member's Own Benefits. No member of the Committee may
act, vote or otherwise influence a decision of the Committee specifically
relating to his own benefits under the Plan.
End of Article 6
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ARTICLE 7
MEMBER ADMINISTRATIVE PROVISIONS
Section 7.01. Personal Data to Committee. Each Member and Beneficiary
shall furnish to the Committee evidence, data, or information as the Committee
considers necessary or desirable for the purpose of administering the Plan. The
provisions of this Plan are effective for the benefit of each Member upon the
condition precedent that each Member will promptly furnish full, true, and
complete evidence, data, and information when requested to do so by the
Committee, provided the Committee shall advise each Member of the effect of his
failure to comply with its request.
Section 7.02. Address for Notification. Each Member and each
Beneficiary of a deceased Member shall file with the Committee, in writing, his
post office address, and each subsequent change of such post office address. Any
payment or distribution made hereunder, and any communication addressed to a
Member or his Beneficiary, at the last address filed with the Committee, or if
no such address has been filed, then at the last address shown by the records of
the Employer, shall be deemed to have been delivered to the Member or his
Beneficiary on the date that such distribution or communication is deposited in
the United States Mail, postage prepaid, to be forwarded to such address.
Section 7.03. Inalienability of Benefits. Except as provided in a
Qualified Domestic Relations Order or as permitted by the Code and ERISA, no
benefit payment under the Plan, and no right or claim thereto, shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge and any attempt to do so shall be void and have no effect.
Likewise, no benefit payment under the Plan, or right or claim thereto, be in
any way liable for or subject to the debts, contracts, liabilities, engagements
or torts of any individual or institution entitled to or possessing such right
or claim. If any Member, Beneficiary or other person entitled to receive any
benefit hereunder is adjudicated bankrupt or if any attempt is made to
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any
such benefit or claim or right thereto, except as specifically provided in the
Plan, then the Employer shall not honor any such attempt and any such benefit or
any remaining portion thereof shall be paid or held, after such adjudication or
attempt, for the benefit of the Member or Beneficiary, as the case may be, and
paid in accordance with the provisions of the Plan.
Section 7.04. Litigation Against the Trust. If any legal action filed
against the Trustee, the Board of Directors, the Employer, the Committee, or
against any member or members of the Committee or Board of Directors, by or on
behalf of any Member or Beneficiary, results adversely to the Member or to the
Beneficiary, the Trustee shall reimburse itself, the Board of Directors, the
Employer, the Committee, and any member or members of the Committee or Board of
Directors, for all costs and fees expended by it or them by surcharging all
costs and fees against the sums payable under the Plan to the Member or to the
Beneficiary, but only to the
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extent a court of competent jurisdiction specifically authorizes and directs any
such surcharges and then only to the extent permitted under Section 401(a)(13)
of the Code.
Section 7.05. Information Available. Any Member in the Plan or any
Beneficiary may examine copies of the Plan's latest annual report, this Plan,
the Trust Agreement, and any contract, or other instrument under which the Plan
was established or is operated. The Company will maintain all of the items
listed in this Section 7.05 for examination during reasonable business hours in
its office, or in such other place or places as it may designate from time to
time in order to comply with the regulations issued under ERISA. Upon the
written request of a Member or Beneficiary, the Company shall furnish him with a
copy of any item listed in this Section 7.05. The Company may make a reasonable
charge to the person requesting the copy so furnished.
Section 7.06. Beneficiary's Right to Information. A Beneficiary's right
to (and the Company's or Trustee's duty to provide to the Beneficiary)
information or data concerning the Plan shall not arise until he first becomes
entitled to receive a benefit under the Plan.
Section 7.07. Claims Procedure.
(a) General. Upon termination of employment (except in the case of
early Retirement), prior to or upon becoming entitled to receive a benefit
hereunder, a Member or Beneficiary shall file a claim for such benefit with the
Committee at the time and in the manner prescribed by the Committee.
Notwithstanding the immediately preceding sentence, the Committee may direct the
Trustee to commence payment of a Member's or Beneficiary's benefits hereunder
without requiring the filing of a claim therefor if the Committee has knowledge
of such Member's or Beneficiary's whereabouts and sufficient facts to
substantiate his entitlement to a benefit.
(b) Early Retirement Pension. A Member who is eligible to apply for an
Early Early Retirement Pension under Section 4.02 and elects to do so shall file
an application therefore with the Committee at the time and in the manner
prescribed by the Committee.
Section 7.08. Claims for Benefits. Except as otherwise provided in this
Article 7, any claim relating to benefits under the Plan shall be submitted in
writing to the Committee in such manner as it may direct. If the Committee
determines that any applicant is not entitled to receive all or part of the
benefits claimed, it will mail or deliver written notice to such applicant of
(a) its determination and the reasons therefor, with appropriate references to
pertinent Plan provisions, and (b) the procedure for review of its
determination. Such notice shall, if appropriate, also explain how a claimant
may perfect his claim and why submission of additional information is necessary
to do so. Such notice shall be provided within ninety (90) days of submission of
a denied claim unless the Committee provides the claimant with notice in writing
before the end of such ninety (90) day period that special circumstances require
an extension of time (of no more than a single additional ninety (90) day
period) for processing such claim, together with a statement of the reasons for
such extension and an indication of the date on which
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a decision on such claim is expected to be rendered, in which case the decision
of the Committee shall be rendered no later than the end of such extended
period.
Section 7.09. Appeal and Review. An applicant for benefits whose claim
is submitted pursuant to Section 7.08 has been denied in whole or in part, or
the duly authorized representative of such applicant, may within ninety (90)
days after receipt of written notice of such denial request a review thereof and
submit to the Committee in writing such further information as will, in such
person's opinion, establish the applicant's right to such benefits. If, upon
receipt of this further information, the Committee determines that the applicant
is not entitled to the benefits claimed, it will afford the applicant, or his
duly authorized representative, a reasonable opportunity to submit issues and
comments in writing and to review pertinent Plan documents. The Committee will
then render its final decision with the specific reasons therefor (including
references to pertinent Plan provisions) in writing and will transmit such
written decision to the applicant within sixty (60) days after the submission of
such request for review unless (i) the time for such decision is postponed by
agreement, or (ii) the Committee notifies the applicant in writing that special
circumstances require an extension (for no more than a single additional sixty
(60) day period) of the period for review of such claims, in which case such
decision will be transmitted to the applicant no later than the end of such
extended period.
Section 7.10. Service of Legal Process. The Committee shall be the
agent of the Plan for the service of legal notice or process.
Section 7.11. Place of Payment and Proof of Continued Eligibility. As
required by Section 7.02, each Member and Beneficiary shall file with the
Committee from time to time in writing his post office address and each change
of post office address. Any check representing payment hereunder and any
communication addressed to a Member or Beneficiary at his last address filed
with the Committee, or if no such address has been filed, then at his last
address as shown by the records of the Employer, shall be deemed to have been
delivered to such person on the date on which such check or communication is
deposited in the United States mail. If the Committee, for any reason, is in
doubt as to whether Pension payments are being received by the person entitled
thereto, it shall, by registered mail addressed to the person concerned, at his
address last known to the Committee, notify such person that all unmailed and
future Pension payments shall be henceforth withheld until he provides the
Committee with evidence of his entitlement to such benefit and his proper
mailing address.
Section 7.12. No Rights Implied. Nothing contained in this Plan, or
with respect to the establishment of the Trust Fund, or any modification or
amendment to the Plan or Trust Agreement, or in the creation of any account, or
the payment of any benefit, shall give any Employee, Member, or Beneficiary any
right to continued employment with an Employer or any legal or equitable right
against an Employer or any officer, director, or Employee of an
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Employer, or against the Trustee, or its agents or employees, except as
expressly provided by the Plan, the Trust Agreement, or ERISA.
End of Article 7
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ARTICLE 8
TRUST FUND
Section 8.01. Purpose and Establishment of Trust Fund. All of the funds
of the Plan shall be held by a Trustee or Trustees or by an Insurance Company
appointed from time to time by the Board of Directors of Eljer Industries, Inc.,
in trust under a Trust Agreement or in accordance with the provisions of an
insurance or annuity contract, adopted, or as amended, by the Board of Directors
of Eljer Industries, Inc. for use in providing the benefits of the Plan and
paying its expenses not paid directly by the Employer.
Section 8.02. Exclusive Benefit of Members. Subject to Sections 5.01(e)
and 10.03, the Trust Fund and the assets of the Plan invested in or through
insurance contracts or policies shall be used and applied only in accordance
with the provisions of the Plan to provide the benefits thereof, and no part of
the corpus or income of the Trust Fund or such insurance contracts or policies,
shall be used for or diverted to purposes other than exclusively benefiting the
Members and their Beneficiaries and with respect to expenses of administration.
Notwithstanding the preceding sentence, as provided in Section 10.03, the
Employer reserves the right to recover any residual amounts as may remain in the
Trust Fund, or remain under such insurance contracts or policies, after their
termination and the satisfaction of all liabilities of the Plan arising out of
any variations between actual requirements and expected actuarial requirements.
Section 8.03. Benefits Supported Only By the Trust Fund and Insurance
Contracts. Any person having any claim under the Plan shall look solely to the
assets of the Trust Fund and insurance contracts or policies in or through which
assets of the Plan have been invested for satisfaction, and no Employer shall
have any liability to any Member or Beneficiary beyond the amount of its
contributions to the Plan.
End of Article 8
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ARTICLE 9
GENERAL PROVISIONS
Section 9.01. No Rights of Employment. The establishment of the Plan
shall not be construed as conferring any legal rights upon any employee or other
person for continuation of employment, nor shall it interfere with the rights of
the Employer to discharge any Employee and to treat him without regard to the
effect which such treatment might have upon him as a Member of the Plan.
Section 9.02. Certain Pension Reductions. The Committee shall, upon
direction of the Board of Directors uniformly applicable to all Employees
similarly situated, deduct from any Pension under the Plan all or part of any
amount paid or payable to or on account of any Member under the provisions of
any present or future law, pension or benefit scheme of any sovereign
government, or any political subdivision thereof, on account of which
contributions have been made or premiums or taxes paid by any Employer with
respect thereto; provided that benefits payable under Title II of the Social
Security Act are not to be used to reduce the benefits otherwise provided under
this Plan, except as specifically provided in Article 4. Prior to making any
offset under this Section 9.02, the Employer shall notify the Internal Revenue
Service by certified mail that such offset is to be made, and no such offset
shall be made unless the Internal Revenue Service shall have approved said
offset.
Section 9.03. Payments in the Event of Death, Illness and Legal
Disability. In the event of the death of a Member or beneficiary not survived by
a person designated to receive any payment then due, or in the event that the
Committee shall find that a Member or other person entitled to a benefit is
unable to care for his affairs because of illness or accident or is a minor or
under other legal incompetency, the Committee may, in such event, in its sole
discretion, direct that any benefit payment due him, be paid to his spouse, a
child, a parent or other blood relative, or to a person with whom he resides,
unless claim shall have been made therefor by a duly appointed legal
representative. Any payment made pursuant to the power herein conferred on the
Committee shall operate as a complete discharge of all obligations of the Plan,
the Employer, the Committee and the Trustee, to the extent of the payments so
made.
Section 9.04. Certain Credited Service.
(a) If any persons become employees of the Employer as the result of
merger or consolidation or as the result of acquisition of all or part of the
assets or business of another company, the Board of Directors may, by
appropriate resolution adopted prior to the date of such merger, consolidation
or acquisition, exclude all or a specified class of said Employees from
participation in the Plan. In the absence of such a resolution, the Board of
Directors shall determine to what extent, if any, credit and benefits shall be
granted for previous service with such other company. The foregoing actions of
the Board of Directors shall be subject to the
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continued qualification of the trust for the Plan as tax-exempt under the Code
and shall be subject to Section 401(a)(4) of the Code.
(b) If any company is now or hereafter becomes a subsidiary or
associated company of the Company, the Board of Directors may, in accordance
with Section 401(a)(4) of the Code, include the employees of such subsidiary or
associated company in the membership of the Plan upon appropriate action by such
company necessary to adopt the Plan. In such event, the Board of Directors shall
determine to what extent, if any, credit and benefits shall be granted for
previous service with such subsidiary or associated company, but subject to the
continued qualification of the trust for the Plan as tax-exempt under the Code.
Any such subsidiary or associated company may terminate its participation in the
Plan upon appropriate action by it. The funds of the Plan held on account of
Members in the employ of such company not yet retired, after provision in full
for all Members who have retired from the employ of such company, shall be
determined by the Committee on the basis of actuarial valuation, and shall be
applied as provided in Article 10 in the manner there provided if the Plan
should be terminated, or shall be segregated by the Trustee or the Insurance
Company as a separate trust or fund, pursuant to certification to the Trustee or
the Insurance Company by the Committee, continuing the Plan as a separate Plan
for employees of such company under which the board of directors of such company
shall succeed to all the powers and duties of the Board of Directors of the
Company, including the appointment of the members of the Committee.
Section 9.05. Merger or Consolidation of Plan. The Plan may not be
merged or consolidated with, nor may its assets or liabilities be transferred
to, any other plan unless each Member, Spouse, retired Member or Beneficiary
under the Plan would, if the resulting plan were then terminated, receive a
benefit immediately after the merger, consolidation, or transfer which is equal
to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation, or transfer if the Plan had then
terminated.
Section 9.06. Merged Plan Pension. The Company, by action of its Board
of Directors, may authorize the merger of any retirement plan (the "Merged
Plan") that is qualified under Section 401(a) of the Code and that is maintained
by an Affiliated Company with and into the Plan. Any such merger shall be deemed
to be an amendment and restatement of the Merged Plan in the form of the Plan;
provided, however, that benefits of participants accrued in the Merged Plan
prior to the effective date of the merger shall be protected under the Plan to
the extent required pursuant to Section 411(d)(6) of the Code. A participant in
the Merged Plan shall be entitled to a Pension payable from the Plan in an
amount equal to the benefit such participant was entitled to under the terms of
the Merged Plan as of the effective date of the merger, plus any benefit the
participant may become entitled to under the Plan, if he is in a classification
of employment eligible to participate in the Plan. In connection with a merger
described in this Section 9.06, the Company shall attach an Appendix to this
Plan, or take such other action as it deems appropriate, to identify the
benefits and options of the Merged Plan protected under the Plan and shall cause
the Plan's actuary to prepare a special schedule of benefits, as described in
Treasury Regulation Section 1.414(l)-1(f)(3), or maintain data sufficient to
create such a schedule, as described in Treasury Regulation Section
1.414(l)-1(i).
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Section 9.07. Payments Only from Trust Fund. All benefits of the Plan
shall be payable solely from the Trust Fund and neither the Employer, the
Committee or the Trustee shall have any liability or responsibility therefor
except as expressly provided herein.
Section 9.08. Unclaimed Benefits. Neither the Trustee nor the Committee
shall be obliged to search for, or ascertain the whereabouts of, any Member or
Beneficiary. The Committee, by certified or registered mail addressed to his
last known address of record with the Committee or the Employer, shall notify
any Member or Beneficiary that he is entitled to a distribution under this Plan,
and the notice shall quote the relevant provisions of this Section 9.08. If the
Member or Beneficiary fails to claim his benefits or make his whereabouts known
in writing to the Committee within a reasonable period of time after the date of
notification, the Committee shall notify the Social Security Administration of
the Member's (or Beneficiary's) failure to claim the distribution to which he is
entitled. The Committee shall request the Social Security Administration to
notify the Member (or Beneficiary) in accordance with the procedures it has
established for such purpose. If the Committee or the Trustee, with the
assistance of the Committee, cannot make payment of any amount to a Member or
Beneficiary within three years after such amount becomes payable because the
identity or whereabouts of such Member or Beneficiary cannot be ascertained, the
Committee, at the end of such three-year period will direct that all unpaid
amounts which would have been payable to such Member or Beneficiary be treated
as a forfeiture hereunder; provided, however, that if such individual is
subsequently located, benefits shall thereupon become payable in the same amount
as would otherwise have been payable at the Normal Retirement Date or earlier
date of death of the Member.
End of Article 9
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ARTICLE 10
AMENDMENT OR TERMINATION
Section 10.01. Amendment and Duration of the Plan.
(a) Amendment and Termination of the Plan. The Company expects to
continue the Plan indefinitely but it necessarily reserves the right to amend
the Plan, in whole or in part, at any time or from time to time, under the
procedure described in Section 10.02, and to suspend or terminate the Plan, in
whole or in part, at any time, by action of the Board of Directors.
(b) Limitation on Amendment and Termination of the Plan. No amendment,
suspension or termination of the Plan otherwise permitted will deprive any
Member, Beneficiary or other person of his right to any benefits (in the case of
termination, to the extent such benefits are funded) to which any such person is
entitled on the date such amendment, suspension or termination becomes
effective. In addition, no such action will operate to recapture for the Company
any part of the Trust Fund, except as permitted hereunder, or, except to the
extent necessary to meet the requirements of the Internal Revenue Service or any
other governmental authority.
(c) Effect of Termination. If the Plan is completely terminated, no
further contributions will be required to be made by the Employer. If the
Employer's contributions to the Plan are suspended and the Plan is thereafter
completely terminated before the resumption of such contributions, then, to the
extent permitted by Section 4044 of ERISA, Section 10.3 shall be applied to all
Members whose employment with the Employer terminates during the period for
which such contributions were suspended as if the date of termination of the
Plan had been the date on which such suspension of Employer contributions became
effective.
(d) Vesting on Termination. Notwithstanding any other provision of the
Plan to the contrary, upon the date of full or partial termination of the Plan
an affected Member's right to his Pension shall become one hundred percent
vested. The value of such Pension shall be determined on the date the Pension
becomes fully vested. The Committee shall interpret and administer this Section
10.1 in accordance with the intent and scope of the regulations issued under
Section 411(d)(3) of the Code.
(e) Amendment to Vesting Schedule. Although the Company reserves the
right to amend the vesting provisions of the Plan at any time, the Company shall
not amend the vesting provisions of Section 4.03 (and no amendment shall be
effective) if the amendment would reduce the vested percentage of any Member's
Pension (determined as of the later of the date the Company adopts the
amendment, or the date the amendment becomes effective) to a percentage less
than the vested percentage computed under the Plan without regard to the
amendment.
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In the event the vesting provisions of the Plan are amended or any
other amendment to the Plan is adopted which directly or indirectly affects the
computation of the vested percentage of a Member's Pension, the vested Pension
of any Member who has completed at least three (3) years of Credited Service
shall be computed under the vesting schedule, original or amended, which will
result in the greatest vested percentage being credited to the affected Member.
Section 10.02. Procedure for Amendment. Any amendment which is required
to be made to the Plan by the Code or ERISA, or by any regulations or
interpretations issued by the Department of Labor or the Internal Revenue
Service with respect to the requirements of ERISA, as well as all other
amendments to the Plan, shall be made by action of the Board of Directors, or by
such person or persons, including the Committee, as may be designated, by the
Board of Directors to exercise the authority of the Company to amend the Plan.
Section 10.03. Termination of the Plan. In the event of a complete or
partial termination of the Plan by the Company which affects the Trust Fund or
any right to any benefits payable from the Trust Fund, the assets of the Trust
Fund will be allocated, subject to provision for expense of administration of
liquidation, in the manner required by Section 4044 of ERISA, as modified
pursuant to Treasury Regulation Section 1.414(l)-1(f) following a merger
described in Section 9.06. To the extent funded, the rights of all Members
affected thereby to benefits payable from the Trust Fund accrued as of the date
of termination will be fully vested and nonforfeitable. Any residual assets of
the Trust Fund attributable to contributions of the Employer remaining after the
above allocation will be distributed to the Company provided all liabilities of
the Trust Fund to all Members, their Beneficiaries and other persons entitled to
benefits payable from the Trust Fund under the Plan have been satisfied.
Section 10.04. Corporate Transactions. The Plan shall not automatically
be terminated by the Employer's acquisition by or merger into any other company
or as a result of a similar corporate transaction, but the Plan shall be
continued after such transaction provided the successor company agrees to
continue the Plan. All rights to amend, modify, suspend, or terminate the Plan
shall be transferred to the successor company, effective as of the date of the
transaction.
Section 10.05. Certain Restrictions on Distributions. Upon the
termination of the Plan, the annual Pension payments to a Member who is among
the twenty-five (25) highest highly compensated employees (as defined in Section
414(q) of the Code) and the twenty-five (25) highest former highly compensated
employees shall be restricted to an amount equal to the payments that would be
made on behalf of the Member under a single life annuity that is the Equivalent
Actuarial Value of the Member's Pension under the Plan. The foregoing
restrictions will not apply, however, if one of the following conditions are
satisfied:
(a) After payment to a Member described in the preceding paragraph of
all of his benefits under the Plan, the value of the Plan assets equals or
exceeds 110% of the value of current liabilities, as defined in Section
412(l)(7) of the Code, or
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(b) The value of "benefits" for a Member described in the
preceding paragraph is less than 1% of the value of current liabilities, or
(c) The value of benefits payable to the Member under the Plan does not
exceed the amount described in Section 411(a)(11)(A) of the Code regarding the
restrictions on mandatory lump sum distributions of less than $3,500.
The term "benefits" for purposes of this Section 10.5 includes any
periodic income, any withdrawal values payable to a living Member, and any death
benefits not provided for by insurance on the Member's life.
Notwithstanding the foregoing provisions of this Section 10.5, upon the
termination of the Plan the Pensions payable to highly compensated employees (as
defined in Section 414(q) of the Code) shall be limited to an amount which is
nondiscriminatory within the meaning of Section 401(a)(4) of the Code.
End of Article 10
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ARTICLE 11
TOP HEAVY PROVISIONS
Section 11.01. Top Heavy Rules Applied. Notwithstanding any provisions
of this Plan to the contrary, if during any Plan Year, the Plan is a Top Heavy
Plan, the provisions of this Article 11 shall apply.
Section 11.02. Minimum Benefits. During any Plan Year in which the Plan
is a Top Heavy Plan the Pension of each Member who is a Non-Key Employee, when
expressed as an annual retirement benefit, shall not be less than the lesser of:
(a) 2% multiplied by the Member's years of Credited Service (excluding
any such year of Credited Service ending in a plan year under the Prior Plan
beginning before January 1, 1984 and any year of Credited Service that begins
after the close of the last Plan Year in which the Plan was a Top Heavy Plan);
or
(b) 20% of the Member's average Annual Compensation (as defined in
Section 4.13(h)(iii)) during the period of five consecutive Plan Years during
which the Member had the greatest aggregate Annual Compensation.
For the purposes of this Section 11.02, an annual retirement benefit is
a benefit payable annually in the form of a single life annuity (with no
ancillary benefits) beginning at Normal Retirement Age. An Employee who is not a
Key Employee may not fail to accrue a minimum benefit under this Section 11.02
because either (i) such Employee is otherwise excluded from participation (or
accrues no benefit) merely because the Employee's Annual Compensation is less
than a stated amount or (ii) the Employee is otherwise excluded from
participation (or accrued no benefit) merely because of a failure to make
mandatory Employee contributions.
In addition, notwithstanding the preceding provisions of this Section
11.02, the following rules shall apply for purposes of determining whether the
minimum benefit requirements of this Section 11.02 have been satisfied in the
event that during a Plan Year the Employer maintains two or more qualified plans
(within the meaning of Section 1.401-0(b) of the Treasury Regulations) that are
Top Heavy Plans or Super Top Heavy Plans for a Plan Year. If the Employer
maintains during a Plan Year two or more defined benefit plans (within the
meaning of Section 414(j) of the Code), the minimum benefits required by this
Section 11.02 on behalf of a Member who is not a Key Employee and who
participates in both this Plan and such other plans shall, unless provided
otherwise in such other plans, be provided under this Plan to the extent this
Plan provides for a benefit accrual sufficient to satisfy such minimum, and only
to the extent that such minimum is not provided under this Plan shall any
portion of such minimum benefits be provided under such other plans.
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If during a Plan Year, the Employer maintains this Plan and a defined
contribution plan (within the meaning of Section 414(i) of the Code) and a
Member who is not a Key Employee participates in both of such plans, then if
such Member is entitled to accrue a benefit under this Plan with respect to such
Plan Year, and such Member has accrued a benefit equal to or in excess of two
percent (2%) multiplied by his number of years of Credited Service (excluding
years of service accrued during Plan Years, if any, commencing prior to January
1, 1984, and Plan Years during which the Plan was not a Top Heavy Plan)
multiplied by the Member's average Annual Compensation (as defined in Section
4.13(h)(iii)) during the five consecutive year period during which the Member
had the greatest aggregate Annual Compensation from the Employer, the Employer
shall not be required to provide for such Member under such other plan the
minimum benefit otherwise required under Section 416 of the Code, and for
purposes of determining whether the minimum benefit provisions of this Section
11.02 have been satisfied, the minimum benefit accrual under this Plan shall be
offset by the benefits provided under such other plan for such Plan Year as
provided in Section 1.416-1, M-12, of the Treasury Regulations.
If for a Plan Year this Plan is a Top Heavy Plan, but not a Super Top
Heavy Plan, and the Employer makes contributions on behalf of a Member under
both this Plan and a defined contribution plan (within the meaning of Section
414(i) of the Code) and the Employer wishes to use a factor of 1.25 rather than
1.0 as a limitation on the sum of the Defined Contribution Fraction (within the
meaning of Section 4.13(h)(iv)) and the Defined Benefit Fraction (within the
meaning of Section 4.13(h)(v)) for the Limitation Year, then the defined benefit
plan minimum benefit accrual specified above shall be increased by one
percentage point (up to a maximum of ten percentage points) for each year of
Credited Service within which a Plan Year during which this Plan was a Top Heavy
Plan or Super Top Heavy Plan ended, provided that no such year of Credited
Service completed under the Prior Plan during a plan year beginning prior to
January 1, 1984, shall be counted for such purpose. The defined contribution
minimum for such Limitation Year shall be increased to 7-1/2% of compensation.
Nothing in this Section 11.02 shall prohibit the Employer from making
contributions in excess of the minimums stated herein provided such
contributions are otherwise in accordance with the provisions of the Plan or
other plan pursuant to which they are made.
Section 11.03. Adjustment to Limitation on Benefits.
(a) Super Top Heavy Plan Years. If during a Plan Year this Plan is a
Super Top Heavy Plan and a Member also participates in one or more qualified
defined contribution plans (as defined in Section 414(i) of the Code) maintained
by the Employer (as defined in Section 4.13(h)(ii)), Section 4.13 shall be
applied by substituting "1" for "1.25" each place "1.25" appears therein. In
addition, the transition rule of Section 415(e)(6)(B)(i) shall be applied to
Section 11.02, if applicable, by substituting "$41,500" for "$51,875".
(b) Top Heavy Plan Years. In addition, the above limitation shall apply
to this Plan in any Limitation Year that this Plan is a Top Heavy Plan but is
not a Super Top Heavy Plan and the accrued benefit of each Member who is a
non-Key Employee, when expressed as an annual retirement benefit, is less than
3% multiplied by the number of years of Credited Service with
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<PAGE>
the Employer or 20% plus one percentage point for each year for which this Plan
was taken into account under Section 416(h) of the Code (but not by more than
ten percentage points) multiplied by the Member's average compensation during
the period of five consecutive years during which the Member had the greatest
aggregate compensation from the Employer. Years of Credited Service for purposes
of the immediately preceding sentence shall not include any year of Credited
Service under the Prior Plan ending in a plan year beginning before January 1,
1984, and shall not include any year of Credited Service that begins after the
close of the last year in which the Plan was a Top Heavy Plan. For the purposes
of this Section 11.03, an annual retirement benefit is a benefit payable
annually in the form of a single life annuity (with no ancillary benefits)
beginning at Normal Retirement Age.
(c) Special Rule. Notwithstanding the foregoing provisions of this
Section 11.03, if for any Plan Year the Plan is a Top Heavy Plan or Super Top
Heavy Plan, the sum of the Defined Benefit Fraction (within the meaning of
Section 4.13(h)(v)) and the Defined Contribution Fraction (within the meaning of
Section 4.13(h)(iv)) for a Limitation Year may in the case of a Member exceed
1.0 (but not 1.25) if, but only if, there are no further benefit accruals for
that individual under any defined benefit plan (within the meaning of Section
414(j) of the Code) maintained by the Employer (as defined in Section
4.13(h)(ii)) and no further annual additions (within the meaning of Section
415(c)(2) of the Code) for that individual under any defined contribution plan
(within the meaning of Section 414(i) of the Code) maintained by the Employer
(as defined in Section 4.13(h)(ii)) until the sum of such fractions satisfies
the rules of Section 415(e) of the Code using the 1.0 factor for that
individual.
Section 11.04. Vesting Schedule. Notwithstanding the provisions of
Section 4.03, beginning with the first Plan Year beginning after December 31,
1983 in which the Plan is a Top Heavy Plan, the following provisions shall be
applicable in determining the nonforfeitable interest in a Member's Pension
under Section 4.03 of the Plan:
(a) Except as provided in Section 11.03(b) below, each Member whose
employment with the Employer terminates before his Normal Retirement Age shall
be entitled (as a vested interest) to receive a percentage of his Pension
determined in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of
Credited Service Vested Interest
---------------- ---------------
<S> <C>
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 or more 100%
</TABLE>
Notwithstanding any of the foregoing, if during any prior Plan Year the Plan was
a Top Heavy Plan and in any subsequent Plan Year the Plan ceases to be a Top
Heavy Plan, the rights of a Member who had performed at least one hour of
service for the Employer during the period the Plan was a Top Heavy Plan in and
to his Pension shall not be less than his vested rights during
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<PAGE>
the period that the Plan was a Top Heavy Plan. Provided, further, any Member who
has three or more years of Credited Service at the beginning of a Plan Year in
which the Plan ceases to be a Top Heavy Plan shall have the right to elect,
within a reasonable time of the beginning of the Plan Year in which the Plan
ceases to be a Top Heavy Plan, to have his nonforfeitable percentage under this
Plan computed in accordance with the schedule applicable to Plan Years in which
the Plan is a Top Heavy Plan. Any election made under this Section 11.04 shall
be made in the manner specified by Section 10.01(e) as if such change in vesting
schedule had been made by way of an amendment to the Plan.
(b) The schedule in Section 11.04(a) above shall not apply to the
Pension of any Member who does not perform an hour of service after the
Determination Date on which the Plan first became a Top Heavy Plan; any such
Member's vested interest in his Pension shall be determined by applying the
vesting requirements of Section 4.03 of the Plan as applicable to the Plan prior
to the Determination Date on which the Plan first became a Top Heavy Plan.
Section 11.05. Additional Definitions.
(a) Aggregation Employee means any employee of the Aggregation
Employer, including any leased employees (within the meaning of Section 414(n)
of the Code). For this purpose, an individual formerly employed by an
Aggregation Single Employer shall be deemed an Aggregation Employee.
(b) Aggregation Employer means the deemed single employer that includes
the Employer and results from the aggregation of employers that Sections 414(b),
414(c), and 414(m) of the Code require be aggregated and treated as a single
employer.
(c) Aggregation Single Employer means an employer that Sections 414(b),
414(c), and 414(m) of the Code require be aggregated with the Employer and other
employers and treated as a single employer.
(d) Determination Date means with respect to any plan year, the last
day of the preceding plan year, except in the case of the first plan year of a
plan, in which event the Determination Date shall be the last day of such plan
year. Whenever it is necessary to determine the value of accrued benefits as of
a given Determination Date, such value shall be determined as of the valuation
date that coincides with the Determination Date or, if there is no such
valuation date, the most recent valuation date that is within a twelve-month
period ending on the Determination Date.
(e) Key Employee means any Aggregation Employee or former Aggregation
Employee (including any deceased employee) who is an Employee defined in Section
416(i)(1) of the Code.
(f) Non-key Employee means an Employee defined in Section 416(i)(2) of
the Code.
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<PAGE>
(g) Permissive Aggregation Group means a plan or a group of plans that
must be aggregated in the Required Aggregation Group and any other plan or plans
of an Aggregation Employer if the group would continue to satisfy the
requirements of Sections 401(a)(4) and 410 of the Code with such additional plan
being taken into account. Benefits under such plans shall be aggregated by
adding together the present values of the accrued benefits (determined
separately for each plan as of each plan's Determination Date) and adding
together the results for each plan as of the Determination Dates for such plans
that fall within the same calendar year.
(h) Plan. The term "plan" as used in this Section 11.05 means a plan
that satisfies the requirements of Section 401(a) of the Code.
(i) Plan Year. The term "plan year" shall mean the plan year of a
plan of an Aggregation Single Employer.
(j) Required Aggregation Group shall mean a group of plans consisting
of (i) each plan of the Aggregation Employer in which a Key Employee
participates during the plan year containing the Determination Date for such
plan or has participated during any of the immediately preceding four (4) plan
years and (ii) any other plan of the Aggregation Employer that enables any of
such plans to satisfy the requirements of Section 401(a)(4) or 410 of the Code.
Benefits under such plans shall be aggregated by adding together the present
values of the accrued benefits (determined separately for each plan as of each
plan's Determination Date) and adding together the results for each plan as of
the Determination Dates for such plans that fall within the same calendar year.
(k) Top Heavy Plan. If for a given Plan Year the Plan is not a member
of a Required Aggregation Group (because there are no other plans that must be
aggregated with the Plan), the Plan shall be a Top Heavy Plan (herein so called)
if the sum (determined as of the Determination Date for the Plan) of the present
value of the cumulative Accrued Benefits (determined in accordance with Section
1.416-1 of the Treasury Regulations) for Key Employees of the Employer exceeds
60% of a similar sum determined for all Employees. If for a given Plan Year the
Plan is a member of a Required Aggregation Group, the Plan shall be a Top Heavy
Plan for such Plan Year if, as of the Plan's Determination Date for such Plan
Year, both the Required Aggregation Group and the Permissive Aggregation Group
that include the Plan are Top Heavy Groups (herein so called). A "Top Heavy
Group" is any Required Aggregation Group or Permissive Aggregation Group if the
sum (determined as of the Determination Dates for the plans in such group that
fall within the same calendar year) of (i) the present value of the accrued
benefits (determined in accordance with Section 1.416-1 of the Treasury
Regulations based on the 1984 Unisex Pension Annuity Mortality Table and an
interest rate of five percent per annum, compounded annually) for Key Employees
under all defined benefit plans (within the meaning of Section 414(j) of the
Code) included in such group and (ii) the accrued benefits (determined in
accordance with Section 1.416-1 of the Treasury Regulations) of Key Employees
under all defined contribution plans (within the meaning of Section 414(i) of
the Code) included in such group exceeds 60% of a similar sum determined for all
Aggregation Employees. For the purpose of determining the present value of the
accrued benefit of any employee, the present value shall
-53-
<PAGE>
be increased, as required by Section 1.416-1 of the Treasury Regulations, by the
aggregate distributions made with respect to such Employee under the plan during
the five year period ending on the Determination Date for such plan, and under
any terminated plan that, if it had not been terminated, would have been
included in the Required Aggregation Group. Notwithstanding the foregoing
provisions of this Section 11.05(j), if any individual has not performed any
service for any employer maintaining the plan at any time during the five year
period ending on the Determination Date for such plan, any accrued benefit for
such individual (and the account of such individual) shall not be taken into
account.
Except to the extent provided in Regulations of the Secretary of the
Treasury, any rollover contribution (or similar transfer) initiated by an
Employee to a plan shall not be taken into account with respect to the
transferee plan for purposes of determining whether such plan is a Top Heavy
Plan (or whether any aggregation group which includes such plan is a Top Heavy
Group). If any individual is not a Key Employee with respect to a plan in the
aggregation group for any plan year, but such individual was a Key Employee with
respect to a plan in the aggregation group for any prior plan year, any accrued
benefit for such Employee and the account of such employee shall not be taken
into consideration in making a determination of the top heavy status of the
plan. Each plan in a Top Heavy Group shall be deemed a Top Heavy Plan.
(l) Super Top Heavy Plan means a Top Heavy Plan if the plan would be a
Top Heavy Plan if "90%" were substituted for "60%" each place it appears in
Section 11.05(j) above.
End of Article 11
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<PAGE>
ARTICLE 12
MISCELLANEOUS
Section 12.01. Execution of Receipts and Releases. Any payment to any
Member, or to his legal representative or Beneficiary, in accordance with the
provisions of the Plan, shall to the extent thereof be in full satisfaction of
all claims hereunder against the Plan and the Trust. The Committee may require
such Member, legal representative, or Beneficiary, as a condition precedent to
such payment, to execute a receipt and release therefor in such form as it shall
determine.
Section 12.02. No Guarantee of Interests. Neither the Trustee, the
Committee, nor any Employer guarantees the Trust Fund from loss or depreciation.
The Employer does not guarantee the payment of any money which may be or become
due to any person from the Trust Fund. The liability of the Committee, the
Trustee and the Employer to make any payment from the Trust Fund is limited to
the then available assets of the Trust Fund, and any insurance contracts or
policies purchased to fund the Trust Fund pursuant to the terms of the Plan.
Section 12.03. Employer Records. Records of an Employer as to an
Employee's or Member's period of employment, termination of employment and the
reason therefor, leaves of absence, re-employment, and Compensation will be
conclusive on all persons, unless determined to be incorrect.
Section 12.04. Interpretations and Adjustments. To the extent permitted
by law, an interpretation of the Plan and a decision on any matter within a
Fiduciary's discretion made in good faith is final, binding and conclusive on
all persons. A misstatement or other mistake of fact shall be corrected when it
becomes known and the person responsible shall make such adjustment on account
thereof as he considers equitable and practicable.
Section 12.05. Errors in Payment: Misstatements. If any error,
including an error resulting from any statement made or omitted to be made by
any Member, surviving Spouse or Beneficiary in any document or other information
required to be submitted in connection with the Plan, shall result in the
payment to any individual or entity of more or less than such person would have
received but for such error, the Committee may correct such error and adjust
payments hereunder as far as possible, in such manner that the Equivalent
Actuarial Value of the benefit to which such person was correctly entitled shall
be paid.
Section 12.06. Uniform Rules. Uniform rules shall be applied in
administering the Plan to all Members similarly situated.
Section 12.07. Evidence. Evidence required of anyone under the Plan may
be given by certificate, affidavit, document, or other information which the
person acting on it considers pertinent and reliable, and signed, made or
presented by the proper party or parties.
-55-
<PAGE>
Section 12.08. Severability. In the event any provision of the Plan
shall be held to be illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining provisions of the Plan, but shall be
fully severable and the Plan shall be construed and enforced as if the illegal
or invalid provision had never been included herein.
Section 12.09. Notice. Any notice required to be given herein by the
Trustee, an Employer, or the Committee, shall be deemed delivered, when (a)
personally delivered, or (b) placed in the United States mails, postage prepaid,
in an envelope addressed to the last known address of the person to whom the
notice is given.
Section 12.10. Waiver of Notice. Any person entitled to notice under
the Plan may waive the notice.
Section 12.11. Successors. The Plan shall be binding upon all persons
entitled to benefits under the Plan, their respective heirs and legal
representatives, and upon the Employer, its successors and assigns, and upon the
Trustee, the Committee, and their successors.
Section 12.12. Obligations of the Company. The obligations of the
Company under the Plan shall be limited to those obligations specifically
assumed by it under the terms hereof, together with such additional obligations,
if any, as may be imposed upon the Company by applicable law.
Section 12.13. Headings. The titles and headings of Articles and
Sections are included for convenience of reference only and are not to be
considered in construing the provisions hereof.
Section 12.14. Governing Law. All questions arising with respect to the
provisions of this Agreement shall be determined by application of the laws of
the State of Texas, except to the extent preempted by ERISA.
End of Article 12
-56-
<PAGE>
IN WITNESS WHEREOF, Eljer Manufacturing, Inc. has executed this Plan on the
29th day of September, 1995, with this amendment and restatement of the Plan
effective as set forth herein.
ELJER MANUFACTURING, INC.
By /s/Brooks F. Sherman
-----------------------------------
97521.4/4
-57-
ELJER
TAX REDUCTION INVESTMENT PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
---------
<S> <C> <C>
ARTICLE I - INTRODUCTION
1.1 Introduction......................................................................... 2
ARTICLE II - DEFINITIONS
2.1 Account.............................................................................. 2
2.2 Administrator........................................................................ 3
2.3 Affiliated Company................................................................... 3
2.4 Allocation Date...................................................................... 3
2.5 Alternate Payee...................................................................... 3
2.6 Annuity Starting Date................................................................ 3
2.7 Beneficiary.......................................................................... 3
2.8 Board of Directors................................................................... 5
2.9 Code................................................................................. 5
2.10 Committee............................................................................ 5
2.11 Company.............................................................................. 5
2.12 Company Stock........................................................................ 5
2.13 Compensation......................................................................... 5
2.14 Disability or Disabled............................................................... 6
2.15 Effective Date....................................................................... 6
2.16 Employee............................................................................. 7
2.17 Employer............................................................................. 7
2.18 Entry Date........................................................................... 7
2.19 ERISA................................................................................ 7
2.20 Family Member........................................................................ 7
2.21 Former Participant................................................................... 8
2.22 Highly Compensated Employee.......................................................... 8
2.23 Highly Compensated Participant....................................................... 10
2.24 Hour of Service...................................................................... 10
2.25 Investment Fund or Fund.............................................................. 10
2.26 Investment Plan Contributions........................................................ 10
2.27 Investment Plan Contribution Account................................................. 11
2.28 Interactive Telephone Communication.................................................. 11
2.29 Key Employee......................................................................... 11
2.30 Leased Employee...................................................................... 12
2.31 Limitation Year...................................................................... 12
2.32 Matching Company Contributions....................................................... 12
2.33 Matching Company Contribution Account................................................ 13
2.34 Named Fiduciary...................................................................... 13
2.35 Non-Highly Compensated Employee...................................................... 13
2.36 Non-Highly Compensated Participant................................................... 13
2.37 Non-Key Employee..................................................................... 13
2.38 Normal Retirement Date............................................................... 13
2.39 Notice............................................................................... 13
2.40 Participant.......................................................................... 13
2.41 Plan................................................................................. 13
2.42 Plan Year............................................................................ 13
2.43 Prior Plan........................................................................... 13
-i-
<PAGE>
2.44 Qualified Domestic Relations Order................................................... 14
2.45 Quarterly Valuation Date............................................................. 14
2.46 Recordkeeper......................................................................... 14
2.47 Rollover Account..................................................................... 14
2.48 Rollover Contribution................................................................ 14
2.49 Tax Reduction Contributions.......................................................... 14
2.50 Tax Reduction Contribution Account................................................... 15
2.51 Trust................................................................................ 15
2.52 Trust Agreement...................................................................... 15
2.53 Trust Fund........................................................................... 15
2.54 Trustee.............................................................................. 15
2.55 Valuation Date....................................................................... 15
2.56 Year of Service...................................................................... 15
ARTICLE III - PARTICIPATION AND YEARS OF SERVICE
3.1 Eligibility to Participate........................................................... 15
3.2 Commencement of Participation........................................................ 16
3.3 Waiver of Participation.............................................................. 16
3.4 Transfers from Eligible Employment................................................... 16
3.5 Hour of Service...................................................................... 17
3.6 Year of Service...................................................................... 17
3.7 Participation and Service Upon Reemployment.......................................... 18
3.8 Predecessor Service.................................................................. 18
ARTICLE IV - CONTRIBUTIONS
4.1 Tax Reduction Contributions.......................................................... 19
4.2 Investment Plan Contributions........................................................ 21
4.3 Matching Company Contributions....................................................... 23
4.4 Employer Qualified Non-Elective Contributions
.................................................................................... 23
4.5 Time of Contributions................................................................ 23
4.6 Maximum Combined Tax Reduction
and Investment Plan Contributions................................................... 24
4.7 Manner of Making Contributions....................................................... 24
4.8 Reduction of Employer Contributions.................................................. 24
4.9 Rollover Contributions............................................................... 24
4.10 Transfers from Other Plans........................................................... 25
ARTICLE V - LIMITATIONS AND RESTRICTIONS ON
TAX REDUCTION CONTRIBUTIONS
5.1 Dollar Limitation.................................................................... 25
5.2 Actual Deferral Percentage Tests..................................................... 28
5.3 Adjustments Required to Satisfy
an Actual Deferral Percentage Test.................................................. 30
5.4 Election of Applicable Correction
Methods By Highly Compensated Employees............................................. 32
5.5 Additional Adjustments of Tax
Reduction Contributions............................................................. 32
5.6 Other Permissible Methods of Testing
and Correction...................................................................... 33
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<PAGE>
ARTICLE VI - LIMITATIONS AND RESTRICTIONS ON INVESTMENT
PLAN CONTRIBUTIONS AND MATCHING
COMPANY CONTRIBUTIONS
6.1 Contribution Percentage Tests........................................................ 33
6.2 Adjustments Required to Satisfy a
Contribution Percentage Test........................................................ 36
6.3 Procedures Applicable to Tax Reduction
Contributions Recharacterized As
Investment Plan Contributions....................................................... 38
6.4 Additional Adjustments and
Prospective Reductions of
Investment Plan Contributions....................................................... 38
6.5 Testing of Tax Reduction Contributions
Under Contribution Percentage Test.................................................. 39
6.6 Other Permissible Methods of
Testing and Corrections............................................................. 39
ARTICLE VII - AGGREGATE LIMIT ON ACTUAL DEFERRAL
AND CONTRIBUTION PERCENTAGES
7.1 General Rules........................................................................ 40
7.2 Multiple Use Limitation.............................................................. 40
7.3 Prospective Reduction of Contributions............................................... 41
ARTICLE VIII - LIMITATION ON ALLOCATIONS
8.1 Limitation on Allocations............................................................ 42
8.2 Definitions.......................................................................... 42
8.3 Excess Annual Additions.............................................................. 45
8.4 Combined Plan Limits................................................................. 46
8.5 Special Rules........................................................................ 47
ARTICLE IX - PARTICIPANT'S ACCOUNTS
9.1 Establishment of Accounts............................................................ 49
9.2 Allocation of Contributions to
Participant's Accounts.............................................................. 49
9.3 Trust Fund Valuation................................................................. 50
9.4 Adjustments to Participant's Accounts................................................ 51
9.5 Participant-Directed Investments..................................................... 52
9.6 Investment of Matching Company
Contributions....................................................................... 55
9.7 Age 50 Diversification Election...................................................... 56
9.8 Special Investment Rules for
1989 Plan Year...................................................................... 57
9.9 Qualified Domestic Relations Orders.................................................. 57
9.10 Special Rules Relating to Transactions
By Certain Officers, Directors
and Shareholders.................................................................... 57
ARTICLE X - PARTICIPANT VESTING
10.1 Vesting of Accounts.................................................................. 58
10.2 Termination of Service Prior to
Normal Retirement Date, Disability
or Death............................................................................ 58
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<PAGE>
10.3 Forfeiture of Non-Vested
Portion of Account.................................................................. 59
10.4 Restoration of Non-Vested Interest................................................... 59
ARTICLE XI - PAYMENT OF BENEFITS
11.1 Withdrawals During Employment........................................................ 60
11.2 Amounts Payable Following
Termination of Service.............................................................. 63
11.3 Time of Payment...................................................................... 63
11.4 Method of Payments................................................................... 67
11.5 Minority or Legal Disability
of Distributee...................................................................... 69
11.6 Additional Requirements Relating
to Benefit Payments................................................................. 69
11.7 Claims Procedure..................................................................... 69
11.8 Committee's Duty to Trustee.......................................................... 71
11.9 Duty to Keep Committee Informed
of Distributee's Current Address.................................................... 71
11.10 Distribution Pursuant to Qualified
Domestic Relations Orders........................................................... 71
11.11 Tax Withholding and Participant's
Direct Rollover Election............................................................ 72
11.12 Application of Forfeitures.................................................................... 73
11.13 Restrictions on Distributions................................................................. 73
ARTICLE XII - NOTICES
12.1 Notice............................................................................... 73
12.2 Modification of Notice............................................................... 74
12.3 Reliance on Notice................................................................... 74
ARTICLE XIII - LOANS
13.1 General Provisions Regarding Loans................................................... 74
13.2 Amount and Limitations
Applicable to Loans................................................................. 74
13.3 Security for Loans................................................................... 75
13.4 Interest Rate for Loans.............................................................. 75
13.5 Repayment of Loans................................................................... 75
13.6 Default on Loans..................................................................... 76
13.7 Acceleration of Loans Upon
Termination of Employment........................................................... 76
13.8 Manner of Making Loans............................................................... 77
13.9 Additional Loan Procedures........................................................... 77
ARTICLE XIV - ADMINISTRATION OF THE PLAN
14.1 Allocation of Responsibilities
Among Fiduciaries................................................................... 77
14.2 Management of Plan Assets............................................................ 78
14.3 Powers and Responsibilities
of the Committee.................................................................... 79
14.4 Operation of Committee............................................................... 81
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<PAGE>
14.5 Compensation and Expenses of
Employees and Directors
Serving as Fiduciaries.............................................................. 81
14.6 Indemnification of Employees
and Directors....................................................................... 81
14.7 Action Taken in Good Faith........................................................... 82
14.8 Expenses of the Plan................................................................. 82
ARTICLE XV - TRUST FUND
15.1 Establishment of Trust Fund.......................................................... 82
15.2 Investments in Company Stock......................................................... 82
15.3 Title of Trust Assets................................................................ 83
ARTICLE XVI - AMENDMENT AND TERMINATION
16.1 Amendment............................................................................ 83
16.2 Termination or Discontinuance
of Contributions.................................................................... 83
16.3 Distribution on Plan Termination..................................................... 84
16.4 Distributions upon Certain Sales..................................................... 85
16.5 Merger or Consolidation of Plan...................................................... 85
16.6 Merger and Other Reorganization
of Employer......................................................................... 85
ARTICLE XVII - MISCELLANEOUS
17.1 No Employment or Compensation
Agreement........................................................................... 85
17.2 Spendthrift Provision................................................................ 86
17.3 Construction......................................................................... 86
17.4 Titles............................................................................... 86
17.5 Texas Law Applicable................................................................. 86
17.6 Successors and Assigns............................................................... 86
17.7 Payments Only from Trust Fund........................................................ 86
17.8 Plan Controls........................................................................ 86
17.9 Effect of Mistakes................................................................... 86
ARTICLE XVIII - TOP HEAVY PROVISIONS
18.1 Application and Purpose.............................................................. 87
18.2 Minimum Allocation Requirements...................................................... 87
18.3 Adjustment to Limitation on Allocations.............................................. 87
18.4 Vesting Schedule..................................................................... 88
18.5 Definitions.......................................................................... 88
</TABLE>
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<PAGE>
ELJER
TAX REDUCTION INVESTMENT PLAN
WHEREAS, effective April 1, 1989, in connection with a transaction in
which Eljer Manufacturing, Inc. (the "Company") ceased to be a subsidiary of
Household International, Inc., the Company established the Eljer Tax Reduction
Investment Plan (hereinafter referred to as the "Plan") as a savings and profit
sharing plan designed to constitute a "qualified plan" within the meaning of
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code");
and
WHEREAS, the Plan was amended, generally effective April 1, 1989, to
incorporate certain changes required by the Internal Revenue Service in
connection with its issuance of a favorable determination letter with respect to
the initial adoption of the Plan and amended further, effective January 1, 1991,
to expand the categories of employees eligible to participate in the Plan; and
WHEREAS, the Company now desires (i) to amend further and restate the
Plan, effective as set forth herein, to bring the Plan into compliance with the
Tax Reform Act of 1986, as amended, as well as all other applicable laws, rules
and regulations enacted or promulgated since the date the Plan last was amended,
(ii) to continue the qualification of the Plan under Sections 401(a) and 401(k)
of the Code, and (iii) to make certain other necessary or desirable changes to
the Plan;
NOW, THEREFORE, the Plan is hereby amended and restated, effective as
provided herein, as follows:
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<PAGE>
ARTICLE I
INTRODUCTION
1.1 Introduction.
The Company, in order to aid Employees accumulate capital for their
retirement, hereby completely amends and restates the Eljer Tax Reduction
Investment Plan (the "Plan"). The assets of the Plan are held, administered and
managed in accordance with the terms and conditions of the Trust Agreement which
is an integral part of the Plan. The Company intends that the Plan continue to
be a plan qualified under Section 401(a) of the Code (as hereinafter defined)
with a cash or deferred arrangement qualified under Section 401(k) of the Code
and a trust exempt from taxation under Section 501(a) of the Code. Pursuant to
the requirements of Section 401(a)(27)(B) of the Code, the Company also intends
that the Plan be a profit-sharing plan.
The Plan may be amended further from time to time. Except as otherwise
provided in the Plan or any amendment to the Plan, the provisions of an
amendment shall apply solely to an Employee, former Employee, Participant or
Former Participant whose employment with an Employer is terminated on or after
the effective date of the amendment. The rights of an Employee, former Employee,
Participant or Former Participant whose employment with an Employer is
terminated prior to the effective date of an amendment shall be determined
solely by the provisions of the Plan as in effect on the date of his termination
of employment.
The benefits payable from this Plan are independent of any benefits the
Employee is or may become entitled to under any other funded pension, profit
sharing or savings plan.
ARTICLE II
DEFINITIONS
The following words and phrases when used in this Plan shall have the
respective meanings set forth below unless the context clearly indicates
otherwise:
2.1 Account means the account or record maintained by the Trustee or
the Recordkeeper reflecting the monetary value of the undivided interest in the
Trust Fund of each Participant, each Former Participant and each Beneficiary and
shall include the Tax Reduction Contribution Account, Investment Plan
Contribution Account, Matching Company Contribution Account, Rollover Account
and such additional Accounts as the Company may establish from time to time.
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2.2 Administrator means, with respect to the administration of the Plan
as herein described, the Committee. However, for purposes of applying the
applicable provisions of ERISA to the Plan, the Company shall be the
"administrator" as described in Section 3(16)(A) of ERISA.
2.3 Affiliated Company means the Company and any other entity which is,
along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses [as defined in Section 414(b) or (c) of
the Code], any entity which along with the Company is included in an affiliated
service group as defined in Section 414(m) of the Code, and any other entity
which is required to be aggregated with the Company pursuant to Section 414(o)
of the Code.
2.4 Allocation Date means the last day of each month; provided,
however, that the Allocation Date for Matching Company Contributions shall be
the last day of each calendar quarter, as provided in Section 9.2(c).
2.5 Alternate Payee means a person defined in Code Section 414(p)(8)
who is entitled to benefits under the Plan pursuant to a Qualified Domestic
Relations Order.
2.6 Annuity Starting Date means (i) the first day of the first period
with respect to which an amount is payable as an annuity, or (ii) in the case of
a benefit not payable in the form of an annuity, the first day on which all
events have occurred that entitle the Participant, Former Participant or
Beneficiary to such benefit in accordance with Article XI.
2.7 Beneficiary means any person or fiduciary designated by a
Participant or Former Participant in accordance with the terms hereof and
Section 401(a)(9) of the Code to receive benefits hereunder following the death
of such Participant or Former Participant. Each Participant and Former
Participant may, from time to time, select one or more Beneficiaries to receive
benefits in the event of the death of such Participant or Former Participant.
Such selection shall be made in writing by Notice to the Committee. Unless the
provisions of this Plan or a Qualified Domestic Relations Order provide
otherwise, the last such selection filed with the Committee prior to the death
of the Participant or Former Participant shall determine to whom Plan benefits
shall be paid.
If the Participant or Former Participant is married at the date of his
death, the Beneficiary shall be his surviving spouse unless the spouse has
consented in writing to the designation of some other Beneficiary, which
designation may not be changed without consent of the spouse unless the
voluntary consent of the spouse (i) expressly permits designations by the
Participant or Former Participant without any requirement of further consent by
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the spouse and (ii) acknowledges that the spouse has the right to limit the
consent to a specific Beneficiary. Such written consent must acknowledge the
effect of the Participant's or Former Participant's Beneficiary selection and
must be witnessed by a Plan representative or a notary public. Spousal consent
is not required if it is established to the satisfaction of the Committee that
the consent may not be obtained (i) because the Participant has no spouse, (ii)
because the spouse cannot be located or (iii) because of such other
circumstances as the Secretary of Treasury may by regulations prescribe.
If the Committee cannot determine readily whether a Participant has a
spouse under the laws of the state in which the Participant resides resulting
from an individual's claim to be a "common law" spouse of a Participant or
similar circumstances, the Committee may request such individual to provide the
Committee with a legal opinion satisfactory to the Committee or other evidence
demonstrating the individual's status as a spouse of a Participant. The
Committee has the sole and absolute authority to determine an individual's
status as a spouse of a Participant and any such determination shall be final,
binding and conclusive on all parties ever claiming an interest in the Plan. Any
consent by a spouse (or establishment that the consent of the spouse may not be
obtained) shall be effective only with respect to that spouse. If a
Participant's or Former Participant's Beneficiary selection is not made in
compliance with these provisions or if all designated persons shall predecease
the Participant or Former Participant, Beneficiary shall mean the first of the
following classes of successive preference beneficiaries then surviving, the
Participant's or Former Participant's: (a) spouse, (b) descendants, per stirpes
(including adopted children), (c) parents, (d) brothers and sisters and (e)
executors or administrators.
If more than one Beneficiary of a particular class (primary or
secondary) is entitled to benefits, payments shall be made in equal shares to
such Beneficiaries, unless some other specific proportions are clearly
designated by the Participant or Former Participant. If more than one
Beneficiary of a particular class (primary or secondary) is named, the interest
of any deceased Beneficiary of that class shall pass to the surviving
Beneficiary or Beneficiaries of that class except to the extent that the
designation provides for payment to any secondary Beneficiary or Beneficiaries
upon the death of a primary Beneficiary. In determining whether any person named
as a Beneficiary is living at the time of a Participant's or Former
Participant's death, if such person and the Participant or Former Participant
die in a common disaster and there is insufficient evidence to determine which
person died first, then it shall be deemed that the Beneficiary died first.
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2.8 Board of Directors means the Board of Directors of the
Company, or any committee of the Board of Directors authorized to
act on its behalf.
2.9 Code means the Internal Revenue Code of 1986, as it may be amended
from time to time. Reference to a section of the Code shall include that
section, applicable Treasury regulations promulgated thereunder and any
comparable section of any future legislation that amends, supplements or
supersedes said section.
2.10 Committee means the Administrative and Investment Committee as
from time to time constituted. The Committee shall consist of at least three
members who will be employees, officers or directors of an Affiliated Company
appointed by the Chief Executive Officer of the Company, and serving at the
pleasure of the Company.
2.11 Company means Eljer Manufacturing, Inc., or any successor
thereto.
2.12 Company Stock means common stock par value $1.00 per
share of Eljer Industries, Inc.
2.13 Compensation means, unless defined otherwise herein:
(a) for purposes of making contributions and allocations
hereunder, the sum of (i) compensation for services performed by an Employee for
an Employer that is required to be reported as wages on the Employee's Form W-2
(or its equivalent) for Federal income tax purposes, and (ii) amounts
contributed by the Employer pursuant to a salary reduction agreement that are
not includible in gross income of the Employee under Sections 125, 402(a)(8),
402(h) or 403(b) of the Code, but less per diem allowances, expense allowances,
moving expense allowances and excess group term life insurance premium costs
includible by the Employee as "PS-58 costs"; provided, however, that
Compensation shall include only amounts actually paid an Employee during the
period he is a Participant for services performed as an Employee;
(b) for purposes of the Actual Deferral Percentage tests under Section
5.2 and the Contribution Percentage tests under Section 6.1, amounts paid to an
Employee for the Plan Year that are required to be reported by the Employer
pursuant to Sections 6041(d) and 6051(a)(3) of the Code, plus Tax Reduction
Contributions and other amounts representing elective contributions by the
Employer on behalf of the Employee that are excluded from an Employee's gross
income by reason of Sections 125, 402(a)(8), 402(h)(1)(B) and/or 403(b) of the
Code; provided, however, that the Committee, in its sole and absolute
discretion, may limit Compensation under this Section 2.13(b) taken into account
for a Plan Year to only that Compensation received with respect to the portion
of the Plan Year during which an Employee is eligible to participate in the Plan
under Article III, provided such limitation
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is applied uniformly to all eligible Employees under the Plan for
such Plan Year; and
(c) for other purposes of the Plan, including determining the limits on
Annual Additions imposed by Section 415 of the Code as set forth in Article
VIII, the special top-heavy rules of Article XVIII and determining the identity
of Highly Compensated Employees, amounts paid to an Employee for the Plan Year
(or Limitation Year for purposes of Article VIII) that are required to be
reported pursuant to Sections 6041(d) and 6051(a)(3) of the Code.
For (i) each Plan Year beginning before January 1, 1994, only the first
$200,000 of an individual's Compensation shall be taken into account for
purposes of the Plan [or such other amount as the Secretary of the Treasury may
prescribe at the same time and in the same manner as provided under Section
415(d) of the Code for adjusting the dollar limitation in effect under Section
415(b)(1)(A) of the Code] and (ii) each Plan Year beginning after December 31,
1993, only the first $150,000 of an individual's Compensation shall be taken
into account for purposes of the Plan [or, beginning January 1, 1995, such
larger amount as may be determined under Section 401(a)(17)(B) of the Code].
Each limitation on Compensation described in the preceding sentence shall be
referred to herein as the "Compensation Limitation". In determining the
Compensation of each Participant who is (i) a more than five percent owner of an
Employer or (ii) a Highly Compensated Employee in the group consisting of the
ten Highly Compensated Employees paid the greatest Compensation during the Plan
Year (without regard to this sentence), for purposes of applying the
Compensation Limitation (as it may be adjusted), the spouse of each such
Participant and each of his lineal descendants who have not attained age 19
before the close of the Plan Year shall not be treated as a separate Employee
for that Plan Year and the Compensation of each such family member shall be
aggregated with the Compensation of the Participant as if it were paid to the
Participant. If, as a result of the application of the preceding sentence, the
Compensation Limitation (as it may be adjusted) is exceeded, then the limitation
shall be prorated among the affected individuals in proportion to each such
individual's Compensation as determined under this Section 2.13 prior to the
application of this limitation.
2.14 Disability or Disabled means the physical or mental incapacity of
a Participant that, in the opinion of the Committee, based on medical evidence
satisfactory to the Committee, renders him unfit to perform any employment for
the Employer.
2.15 Effective Date of this Plan, as amended and restated, shall
generally be April 1, 1989; provided, however, that as necessary to comply with
the effective dates of the applicable provisions of the Tax Reform Act of 1986
and subsequent laws, certain provisions of the Plan shall be effective as of the
dates such provisions are required to be effective with respect to the
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Plan under the Code or, if later, under administrative pronouncements issued by
the Internal Revenue Service or the Treasury Department [subject to the
provisions of Treasury Regulation Sections 1.401(k)-1(h)(3) and
1.401(m)-2(d)(2)]. Notwithstanding the general effective date set forth above,
certain provisions of the Plan shall be effective as of the dates set forth
herein.
2.16 Employee means, for Plan Years beginning before January 1, 1991,
any salaried individual employed by an Employer. Effective for Plan Years
beginning on and after January 1, 1991, the term Employee means any person
employed by the Employer who is included on the Federal Insurance Contributions
Act rolls of the Employer; provided, however, the term Employee shall not
include (i) any individual employed on an hourly basis at the Company's Nampa,
Idaho plant and employees of the Fiberglass Products Division at Wilson, North
Carolina or at the GlasTec Division of the Company and (ii) any employees of an
Affiliated Company who are included in a unit of employees covered by a
collective bargaining agreement. The term Employee includes a Leased Employee
that Section 414(n) of the Code requires the Employer to treat as an employee,
but such Leased Employee shall not be eligible to participate in the Plan.
2.17 Employer means the Company and any other Affiliated Company, with
respect to its Employees, provided such Affiliated Company is designated by the
Committee as an Employer under the Plan and whose designation as such has become
effective and has continued in effect. The designation shall become effective
only when it shall have been accepted by the governing body of the Employer. An
Employer may revoke its acceptance of such designation at any time, but until
such acceptance has been revoked, all of the provisions of the Plan and
amendments thereto shall apply to the Employees of the Employer. In the event
the designation of the Employer as such is revoked by the governing body of the
Employer, such revocation will not be deemed a termination of the Plan. The
Committee shall have the exclusive right to determine whether any Affiliated
Company shall become an Employer for purposes of the Plan.
2.18 Entry Date means the first day of each January, April,
July and October.
2.19 ERISA means the Employee Retirement Income Security Act of 1974,
as it may be amended from time to time, and applicable regulations promulgated
thereunder.
2.20 Family Member means with respect to any Employee, such Employee's
spouse and lineal ascendants or descendants and the spouses of such lineal
ascendants or descendants.
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2.21 Former Participant means any individual who has been a Participant
in the Plan, who is no longer in the employ of an Affiliated Company and who has
not yet received the entire benefit to which he is entitled under the Plan.
2.22 Highly Compensated Employee means any Employee who is
determined to be included in subsection (a) after applying the
special rules in subsection (b):
(a) any Employee who, during the Plan Year for which the determination
is being made or the immediately preceding Plan Year:
(i) was, at any time, a more than five percent owner of
any Employer;
(ii) received Compensation from all Employers in excess
of $75,000;
(iii) received Compensation from all Employers in excess of
$50,000 and was in the top 20% of Employees for the Plan Year
(when ranked on the basis of Compensation for such Plan Year);
or
(iv) was at any time an officer of any Employer and received
Compensation greater than 50% of the dollar limitation in
effect under Section 415(b)(1)(A) of the Code for the Plan
Year.
(b) For purposes of determining the Employees who are to be
included in subsection (a) above, the following special rules shall
apply to this Section 2.22:
(i) Any Employee not described in subsection (a)(ii), (iii) or
(iv) of this Section 2.22 for the Plan Year immediately
preceding the Plan Year of determination shall not be treated
as described in subsection (a)(ii), (iii) or (iv) of this
Section 2.22 for the Plan Year of determination unless, in
addition to meeting the requirements of subsection (a)(ii),
(iii) or (iv) for the Plan Year of determination, such
Employee is a member of the group consisting of the one
hundred Employees paid the highest Compensation during that
Plan Year.
(ii) In determining the top 20% of Employees pursuant to
subsection (a)(iii), Employees who (A) have not completed at
least six months of service, (B) normally work fewer than
17-1/2 hours per week, (C) normally work during not more than
six months during any Plan Year, (D) have not attained age 21
or (E) are covered under a collective bargaining agreement
(except to the extent provided in applicable Treasury
regulations) shall be excluded from such determination.
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(iii) In determining officers under subsection (a)(iv), no
more than fifty (50) Employees (or, if less, the greater of
three Employees or ten percent of the Employees) shall be
treated as officers, and if in such Plan Year no officer is
described in subsection (a)(iv), the highest paid officer of
any Employer during such Plan Year shall be treated as an
officer for purposes of subsection (a)(iv).
(iv) If any Employee is a Family Member of an Employee who is
a more than five percent owner of any Employer or a Highly
Compensated Employee in the group consisting of the ten Highly
Compensated Employees paid the greatest Compensation during
the Plan Year [without regard to this subsection (b)(iv)],
then (A) such Family Member shall not be considered a separate
Employee and (B) any Compensation paid to such Family Member
(and any applicable contribution or benefit on behalf of such
Employee) shall be treated as if it were paid to (or on behalf
of) the Employee who is the five percent owner or one of the
ten Highly Compensated Employees paid the greatest
Compensation during the Plan Year.
(v) A former Employee whose employment terminates prior to the
Plan Year of determination shall be treated as a Highly
Compensated Employee for the Plan Year of determination if
such Employee was a Highly Compensated Employee upon
termination of employment with an Employer, or such Employee
was a Highly Compensated Employee at any time after attaining
age 55.
(vi) "Compensation" for purposes of determining who is a
Highly Compensated Employee shall have the meaning set forth
in Section 2.13(c), but prior to any reduction on account of a
Participant's Tax Reduction Contributions and any other
contributions not treated as taxable income by reasons of
Sections 125, 402(a)(8) or 402(h)(1)(B) of the Code.
(vii) The dollar amounts in subsections (a)(ii) and (iii)
shall be adjusted to such other amount as the Secretary of the
Treasury shall prescribe at the same time and in the same
manner as provided under Section 415(d) of the Code for
adjusting the dollar limitation in effect under Section
415(b)(1)(A) of the Code. (viii) In determining the number of
Employees pursuant to this Section, any Employee who is a
non-resident alien and who receives no earned income [within
the meaning of Section 911(d)(2) of the Code] from any
Employer which constitutes income from sources within the
United States [within the meaning of Section 861(a)(3) of the
Code] shall be excluded from such determination.
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2.23 Highly Compensated Participant means a Highly Compensated
Employee who has met the eligibility requirements in accordance
with Article III.
2.24 Hour of Service means each hour credited to an individual in
accordance with the provisions of Section 3.5.
2.25 Investment Fund or Fund means a fund designated by the Committee
pursuant to Section 9.5 from time to time and maintained for the purpose of
providing a vehicle for the investment of the Trust Fund, in accordance with the
directions of each Participant, Former Participant or Beneficiary with respect
to his Account, until such Investment Fund shall be eliminated by action of the
Committee and shall, effective as set forth below, include the following funds:
(a) Effective as of the Effective Date of the Plan:
(i) Eljer Industries, Inc. Common Stock Fund;
(ii) Household International, Inc. Common Stock
Fund (Frozen Fund);
(iii) Fixed Income Fund; and
(iv) Equity Income Fund (Frozen Fund, effective
June 30, 1991).
(b) Effective as of July 1, 1991:
(i) Eljer Industries, Inc. Common Stock Fund;
(ii) Household International, Inc. Common Stock
Fund (Frozen Fund);
(iii) Fixed Income Fund;
(iv) Equity Income Fund (Frozen Fund); and
(v) Equity Index Fund.
(c) Effective as of January 1, 1992:
(i) Eljer Industries, Inc. Common Stock Fund;
(ii) Household International, Inc. Common Stock
Fund (Frozen Fund);
(iii) Fixed Income Fund;
(iv) Equity Income Fund (Frozen Fund);
(v) Equity Index Fund; and
(vi) Fidelity Intermediate Bond Fund.
(d) Effective as of July 1, 1993:
(i) Eljer Industries, Inc. Common Stock Fund;
(ii) Household International, Inc. Common Stock
Fund (Frozen Fund);
(iii) Fixed Income Fund;
(iv) Equity Fund; and
(v) Balanced Fund.
2.26 Investment Plan Contributions mean contributions paid by the
Participant on an after-tax basis in accordance with Section 4.2 of the Plan and
contributions which were paid on an after-tax
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basis pursuant to the terms of the Plan prior to the amendment and restatement
of the Plan as set forth herein.
2.27 Investment Plan Contribution Account means the portion of the
individual Account maintained by the Trustee or the Recordkeeper for each
Participant, each Former Participant and each Beneficiary, showing the monetary
value of the person's individual interest in the Trust Fund attributable to
Investment Plan Contributions and contributions made on an after-tax basis to
the Prior Plan.
2.28 Interactive Telephone Communication means a communication between
a Participant, Former Participant or Beneficiary and the Recordkeeper pursuant
to a system maintained by the Recordkeeper and communicated to each Participant,
Former Participant and Beneficiary whereby each such individual may make
elections and exercise options as described herein with respect to his Account
through the use of such system and a personal identification number. If a
Participant, Former Participant or Beneficiary in writing (i) consents to
participate in Interactive Telephone Communication procedures adopted by the
Committee and (ii) acknowledges that actions taken by such Participant, Former
Participant or Beneficiary through the use of his personal identification number
pursuant to the Interactive Telephone Communication procedure constitute his
signature for purposes of initiating Investment Fund changes, participant loans
and Plan withdrawals, the Participant, Former Participant or Beneficiary, as the
case might be, will be deemed to have given his written consent and
authorization to any such action resulting from the use of the Interactive
Telephone Communication system by the Participant, Former Participant or
Beneficiary.
2.29 Key Employee means, as of any Determination Date [as defined in
Section 18.5(b)], any Employee or Former Employee (or Beneficiary of such
Employee) who, at any time during the Plan Year that includes the Determination
Date, or during the preceding four Plan Years, is:
(a) an officer of any Employer having Compensation greater
than 50% of the amount in effect under Section 415(b)(1)(A) of the
Code for any such Plan Year;
(b) one of the ten Employees having Compensation from any Employer of
more than the dollar limitation in effect under Section 415(c)(1)(A) of the Code
and owning the largest interests in such Employer;
(c) a more than five percent owner of any Employer; or
(d) a more than one percent owner of any Employer having
Compensation from all Employers of more than $150,000.
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For purposes of this Section 2.29, Compensation shall have the meaning
set forth in Section 2.13(c), but including amounts contributed by the Employer
pursuant to a salary reduction agreement which are excludable from the
Participant's gross income under Sections 125, 402(a)(8), 402(h) or 403(b) of
the Code. For purposes of subsection (a) of this Section, no more than 50
Employees (or, if lesser, the greater of three or ten percent of the Employees)
shall be treated as officers. For purposes of subsection (b) of this Section, if
two Employees have the same interest in an Employer, the Employee having the
greater Compensa tion shall be treated as having the larger interest. The
construc tive ownership rules of Section 318 of the Code (or the principles of
that section, in the case of an unincorporated Employer) will apply to determine
ownership in each Employer.
2.30 Leased Employee means an individual who is not in the employ of an
Employer and who, pursuant to a leasing agreement between an Employer and any
other person ("leasing organization"), has performed services for an Employer
[or for an Employer and any other person related to an Employer within the
meaning of Section 144(a)(3) of the Code] on a substantially full-time basis for
at least one year and who performs services of a type historically performed by
employees in the Employer's business field. Leased Employee shall also include
any individual who is deemed to be an employee of an Employer under Section
414(o) of the Code. Notwithstanding the preceding sentence, if individuals
described in the preceding sentence constitute less than 20% of an Employer's
non-highly compensated work force within the meaning of Section 414(n)(5)(C)(ii)
of the Code, the Plan shall not treat an individual as a Leased Employee if the
leasing organization covers the individual in a money purchase pension plan
providing immediate participation, full and immediate vesting and a
non-integrated contribution formula equal to at least ten percent of the
individual's annual compensation [as defined in Section 415(c)(3) of the Code,
but including amounts contributed by an Employer pursuant to a salary reduction
agreement that are excludable from the individual's gross income under Sections
125, 402(a)(8), 402(h) or 403(b) of the Code]. If any Leased Employee shall be
treated as an Employee of an Employer, however, contributions or benefits
provided by the leasing organization which are attributable to services of the
Leased Employee performed for an Employer shall be treated as provided by the
Employer.
2.31 Limitation Year means the calendar year.
2.32 Matching Company Contributions mean contributions paid to the Plan
on behalf of a Participant in accordance with Section 4.5 based on the
Participant's Tax Reduction Contributions and Investment Plan Contributions made
pursuant to Sections 4.1 and 4.2 of the Plan.
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2.33 Matching Company Contribution Account means the portion of the
individual Account maintained by the Trustee or Recordkeeper for each
Participant, each Former Participant and each Beneficiary, showing the monetary
value of that person's individual interest in the Trust Fund attributable to
Matching Company Contributions and employer matching contributions made to the
Prior Plan.
2.34 Named Fiduciary means the Committee.
2.35 Non-Highly Compensated Employee means any Employee who is neither
a Highly Compensated Employee nor a Family Member who is not treated as a
separate Employee under Section 2.22(b)(iv).
2.36 Non-Highly Compensated Participant means a Participant
who is not a Highly Compensated Participant.
2.37 Non-Key Employee means any Employee who is not a Key
Employee.
2.38 Normal Retirement Date means a Participant's or Former
Participant's 65th birthday.
2.39 Notice means, unless otherwise provided specifically in this Plan,
(i) written Notice on an appropriate form provided by the Committee that is
properly completed and executed by the party giving such Notice and which is
delivered by hand or by mail to the Committee or to such other party designated
by the terms of the Plan or by the Committee to receive the Notice or (ii)
Notice by Interactive Telephone Communication to the Recordkeeper. Notice to the
Committee, the Recordkeeper or to any other person as provided herein shall be
deemed to be given when it is actually received (either physically or by
Interactive Telephone Communication, as the case may be) by the party to whom
such Notice is given.
2.40 Participant means an Employee who has met the eligibility
requirements of the Plan as provided in Article III hereof and who
has begun participating in the Plan.
2.41 Plan means the salary reduction and savings retirement plan and
trust embodied herein, as the same may be amended from time to time, and shall
be known as "Eljer Tax Reduction Investment Plan".
2.42 Plan Year means the twelve (12) month period commencing each
January 1 and ending the following December 31; provided, however, that the
first Plan Year shall be the short year commencing April 1, 1989 and ending
December 31, 1989.
2.43 Prior Plan means the Household International Tax
Reduction Investment Plan.
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2.44 Qualified Domestic Relations Order means any judgment, decree, or
order (including approval of a property settlement agreement) that (i) relates
to the provision of child support, alimony payments, or marital property rights
to a spouse, former spouse, child or other dependent of a Participant or Former
Participant, (ii) is made pursuant to a state domestic relations law, (iii)
creates or recognizes the existence of an Alternate Payee's right to, or assigns
to an Alternate Payee the right to, receive all or a portion of the benefits
payable with respect to a Participant or Former Participant under the Plan and
(iv) complies with the requirements of Code Section 414(p).
2.45 Quarterly Valuation Date means the last day of each
calendar quarter.
2.46 Recordkeeper means any person or entity appointed by the
Committee to perform recordkeeping and other administrative
services on behalf of the Plan.
2.47 Rollover Account means the portion of the Account maintained by
the Trustee or the Recordkeeper for each Employee, each Participant, each Former
Participant and each Beneficiary, showing the monetary value of such person's
individual interest in the Trust Fund attributable to his Rollover Contribution
and amounts contributed as a rollover to the Prior Plan.
2.48 Rollover Contribution means, in addition to a contribu tion
described in the last sentence of this Section 2.48, any amount transferred to
the Plan that would constitute a rollover contribution within the meaning of
Section 402(a)(5), 403(a)(4) or 408(d)(3) of the Code. Any such rollover
contribution must consist of either (i) all or a portion of the property (in
excess of employee contributions) that the Employee received in a distribution
from an employee's trust described in Section 401(a) of the Code which is exempt
from tax under Section 501(a) thereof or an annuity plan described in Section
403(a) of the Code and any earnings thereon (whether such contribution is paid
directly by the Employee, from such other trust or annuity plan, or from an
individual retirement account or individual retirement annuity) or (ii) all or a
portion of the proceeds from the sale of property received in such a
distribution pursuant to Section 402(a)(6)(D) of the Code. Commencing January 1,
1993, a Rollover Contribution shall include an eligible rollover contribution as
described in Code Section 402(c)(4) transferred to the Plan pursuant to an
Employee's election as described in Code Section 401(a)(31)(A).
2.49 Tax Reduction Contributions mean contributions paid to the Plan on
behalf of a Participant on a before-tax basis in accordance with Section 4.1 of
the Plan and contributions which were paid on a before-tax basis pursuant to the
terms of the Plan prior to the amendment and restatement of the Plan as set
forth herein.
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2.50 Tax Reduction Contribution Account means the portion of the
individual Account maintained by the Trustee or the Recordkeeper for each
Participant, each Former Participant and each Beneficiary, showing the monetary
value of that person's individual interest in the Trust Fund attributable to Tax
Reduction Contributions, contributions made by an Employer pursuant to Section
4.4 as "qualified non-elective contributions" within the meaning of Section
401(m)(4)(C) of the Code and contributions made on a before-tax basis to the
Prior Plan.
2.51 Trust means the fund maintained by the Trustee for the investment
of Plan assets in accordance with the terms and conditions of the Trust
Agreement.
2.52 Trust Agreement means the agreement between the Company and the
Trustee under which the assets of the Plan are held, administered and managed by
the Trustee. The provisions of the Trust Agreement shall be considered an
integral part of this Plan as if set forth fully herein.
2.53 Trust Fund means all assets of whatsoever kind and nature from
time to time held by the Trustee pursuant to the terms of the Trust Agreement
without distinction as to income or principal out of which benefits of the Plan
are provided. The Trust Fund shall be divided into Investment Funds as provided
in Section 9.5.
2.54 Trustee means NationsBank of Texas, N.A. or any successor
trustee and any additional trustee or trustees.
2.55 Valuation Date means the close of business on the last day of each
month, or such other date or dates as the Committee shall establish from time to
time.
2.56 Year of Service has the meaning set forth in Section 3.6.
Except as otherwise indicated by the context, any masculine terminology used
herein also includes the feminine and neuter, and vice versa, and the definition
of any term herein in the singular shall also include the plural, and vice
versa.
ARTICLE III
PARTICIPATION AND YEARS OF SERVICE
3.1 Eligibility to Participate.
(a) Prior Plan Participants. An individual who was eligible
to participate in the Prior Plan on March 31, 1989 and who is an
Employee of an Employer on April 1, 1989 shall be eligible to
participate in this Plan as of April 1, 1989.
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(b) Other Employees. Each other Employee shall be eligible
to participate in the Plan on the Entry Date (if he is employed by
the Employer on that date) that coincides with or that next follows
the earlier of:
(i) the date he completes three Years of Service; or
(ii) the date he attains age 21 and completes one Year
of Service.
3.2 Commencement of Participation. Any Employee eligible to participate
in the Plan may elect to become a Participant by executing and filing with his
Employer an enrollment form, in such form and manner as the Committee may
prescribe, on which he (i) authorizes Tax Reduction Contributions pursuant to a
tax reduction agreement as described in Section 4.1(b), or Investment Plan
Contributions pursuant to an investment plan agreement as described in Section
4.2(b), or both, (ii) designates a contribution rate, (iii) designates a
Beneficiary, and (iv) elects the Investment Funds to which his contributions are
to be allocated. Participation in the Plan shall commence on the effective date
of the Employee's agreement in accordance with the provisions of Section 4.1(b)
or Section 4.2(b), whichever date is earlier, and shall continue in effect until
amended or terminated. By signing such an enrollment form, the Employee agrees
to be bound by all terms and conditions of the Plan as then in effect or as
thereafter amended.
3.3 Waiver of Participation. Any Employee eligible to participate in
the Plan who chooses not to participate in the Plan as of the first Entry Date
following the date he becomes eligible to participate shall waive his right to
participate until any subsequent Entry Date.
3.4 Transfers from Eligible Employment. If a Participant is transferred
to a class of employment not eligible for participation in this Plan but
continues to be employed by an Affiliated Company, no further contributions to
the Trust shall be made by or on behalf of the Participant under the Plan with
respect to periods on and after the transfer unless the Participant is
subsequently transferred back to eligible employment and a new enrollment form
containing a tax reduction agreement is executed in accordance with Section
4.1(b) or a new enrollment form containing an investment plan agreement is
executed in accordance with Section 4.2(b). During the period of his employment
in such transferred position:
(a) vesting shall continue in Matching Company Contributions;
and
(b) he may make withdrawals, transfer his Account among the Funds,
apply for loans pursuant to Article XIII, and change Beneficiaries in accordance
with the provisions of the Plan.
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3.5 Hour of Service. An "Hour of Service" means:
(a) Performance of Duties. Each actual hour for which an
individual is paid or entitled to be paid for the performance of
duties for an Affiliated Company;
(b) Nonworking Paid Time. Each hour for which an individual is paid or
entitled to be paid by an Affiliated Company on account of a period of time
during which no duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness, incapacity,
disability, layoff, jury duty, military duty or leave of absence: provided,
however, that no credit shall be given for payments made or due under a plan
maintained solely for the purpose of complying with applicable worker's or
unemployment compensation or disability insurance laws or for payments which
solely reimburse an individual for medical or medically related expenses
incurred by the individual; and
(c) Back Pay. Each hour for which back pay, irrespective of
mitigation or damages, is either awarded or agreed to by an
Affiliated Company.
Notwithstanding any other provision of this Plan to the contrary, an
individual shall not be credited with Hours of Service more than once with
respect to the same period of time.
3.6 Year of Service.
(a) In General. A "Year of Service" means each 365 day period
(disregarding fractional years), measured during the period beginning on the
date on which an employee of an Affiliated Company (whether or not in a class of
employment eligible to participate in the Plan) first completes an Hour of
Service (or the first day of the month in which he is employed and completes an
Hour of Service, if his employment commences on the first regularly scheduled
work day of a month) and ending on the earlier of (i) the date such employee
quits, is discharged, retires or dies or (ii) the first anniversary of the date
such employee is absent from active employment for any other reason including,
but not limited to, short-term disability, vacation, leave of absence or layoff.
The applicable date under (i) or (ii) is such employee's "severance from service
date".
(b) Service Spanning Rules. Notwithstanding the foregoing, if an
employee is severed from service with an Affiliated Company by reason of
quitting, discharge or retirement but returns to employment with an Affiliated
Company and performs an Hour of Service within the 365 day period ending on the
first anniversary of his severance from service date, the interim period shall
count towards the computation of Years of Service. If an employee of an
Affiliated Company is absent for a reason described in (a)(ii) of this Section
3.6 and then quits, is discharged or retires but
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subsequently returns to employment and performs an Hour of Service, the interim
period of absence shall count towards the computation of Years of Service,
provided that the date on which such employee again performs an Hour of Service
occurs within the 365 day period ending on the first anniversary of the date the
employee was first absent from employment for a reason described in (a)(ii) of
this Section 3.6.
(c) Leaves of Absence. In accordance with uniform rules, the Committee
may, in its sole and absolute discretion, count certain periods of absence from
active employment with an Affiliated Company toward the computation of Years of
Service, even if not required pursuant to paragraphs (a) or (b) of this Section
3.6.
3.7 Participation and Service Upon Reemployment. If an individual's
employment with an Affiliated Company is terminated but he is reemployed as an
Employee, the following rules shall apply in determining his eligibility to
participate in the Plan and his Years of Service:
(a) If the reemployed employee was a Participant in the Plan or had
satisfied the service and age requirements of Section 3.1 during his prior
period of employment, he shall be entitled upon reemployment to become a
Participant in the Plan (if he is then included in a class of employment
eligible to participate in the Plan). In order to make contributions, he shall
be required to execute a new enrollment form containing a tax reduction
agreement in accordance with Section 4.1(b) and/or a new investment plan
agreement in accordance with Section 4.2(b).
(b) If the reemployed employee was not a Participant in the Plan or had
not satisfied the service and age requirements of Section 3.1 during his prior
period of employment, such service and age requirements must be satisfied and
the employee must be included in a class of employment eligible to participate
in the Plan before he becomes a Participant upon reemployment; provided,
however, that any Years of Service credited during his prior period of
employment shall be automatically reinstated as of the date of his reemployment.
3.8 Predecessor Service. Credit towards Hours and Years of Service
shall be given for periods of employment with any corporation that is a
predecessor corporation of an Employer, or a corporation merged, consolidated or
liquidated into an Employer or a predecessor of an Employer, or a corporation,
substantially all of the assets of which have been acquired by an Employer, but
only to the extent required by Section 414(a) of the Code; provided, however,
that even if not required by the Code, the Committee on a nondiscriminatory
basis may, in its sole and absolute discretion, grant credit for Hours and Years
of Service with a predecessor corporation. Without limitation of the foregoing,
all service credited to an employee of an Affiliated Company as of March 31,
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1989 for eligibility and vesting purposes under the terms of the Prior Plan
shall be credited as of April 1, 1989 for such purposes hereunder.
ARTICLE IV
CONTRIBUTIONS
4.1 Tax Reduction Contributions.
(a) Amount of Contributions. Any Employee eligible to participate in
the Plan may elect to have the Company make Tax Reduction Contributions to the
Trust on his behalf by executing an enrollment form containing a tax reduction
agreement as described in Section 4.1(b). The amount of Tax Reduction
Contributions made on behalf of a Participant for any payday shall equal that
whole percentage of his Compensation per payday selected by the Participant,
subject to the restrictions and limitations of Section 4.6 and Article V hereof.
(b) Tax Reduction Agreement.
(i) Nature of Agreement. The tax reduction agreement referred
to in Section 4.1(a) shall be a legally binding agreement (on
a form prescribed by the Committee) whereby (A) the
Participant agrees that, as of the effective date of the
agreement, the Compensation otherwise payable to him
thereafter shall be reduced by a whole percentage (as selected
by the Participant) not to exceed the maximum percentage
permitted under Section 4.6, and (B) the Employer agrees to
contribute the total amount of such reduction in Compensation
to the Trust on behalf of the Participant as a Tax Reduction
Contribution under Section 4.1(a). Such contributions may be
made by the Employer to the Trust on a monthly basis, provided
that in no event shall the Company's aggregate contribution on
behalf of the Participant under Section 4.1(a) for any Plan
Year be made to the Trust later than 90 days after the close
of the Plan Year to which such contribution relates or such
later date prescribed by the Code or applicable Treasury or
Department of Labor regulations. Subject to the provisions of
paragraph (v) of this Section 4.1(b) and Article V hereof, a
Participant's tax reduction agreement shall remain in effect
until modified or terminated in accordance with paragraphs
(iii) or (iv) of this Section 4.1(b).
(ii) Effective Date of Agreement. The effective date of
a Participant's tax reduction agreement shall be no
earlier than the first Entry Date commencing at least 30
days after such agreement is received in executed form by
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the Committee (provided such effective date is no earlier than
the date the Participant first becomes eligible to participate
in the Plan).
(iii) Amendment of Agreement.
(A) A Participant may amend his tax reduction agreement
with respect to Compensation not yet paid to
provide a new lower whole percentage to be used to
determine his reduced Compensation amount;
provided, however, the amended tax reduction
agreement shall be effective no earlier than the
first Entry Date commencing at least 30 days after
Notice is received. A Participant may not amend
his tax reduction agreement to lower his percentage
more often than two times in any Plan Year.
(B) A Participant may amend his tax reduction agreement
with respect to Compensation not yet paid to
provide a new higher percentage (within the limits
of Section 4.6) to be used to determine his reduced
Compensation amount. A Participant who is a Non-
Highly Compensated Employee may increase his Tax
Reduction Contributions effective as of any Entry
Date, provided that the Committee has received an
amended tax reduction agreement at least 30 days
prior to such Entry Date. A Participant who is a
Highly Compensated Employee may increase his Tax
Reduction Contributions effective only as of the
first day of a Plan Year, provided that the
Committee has received an amended tax reduction
agreement at least 30 days prior to the first day
of such Plan Year. The Committee may, in its sole
and absolute discretion, shorten the 30-day prior
notice periods required under this paragraph (iii).
(iv) Termination of Agreement. A Participant may terminate his
tax reduction agreement at any time with respect to
Compensation not yet paid. The effective date of termination
shall be as soon as administratively possible after the
Participant's notice of termination is received in executed
form by the Committee. Any Participant who terminates his tax
reduction agreement shall be permitted to execute a new tax
reduction agreement and resume having contributions made to
the Trust on his behalf under Section 4.1(a), provided that
the effective date of such new tax reduction agreement shall
be determined in the same manner as the effective date is
determined for increased Tax Reduction Contributions under
paragraph (iii) of this Section 4.1(b).
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(v) Transfer to Ineligible Employment or Termination of
Employment. A Participant's tax reduction agreement shall
terminate automatically if the Participant transfers to a
class of employment not eligible for participation in this
Plan or if he terminates his employment with the Employer.
Upon return of the Participant to eligible employment, the
Participant shall be permitted to execute a new tax reduction
agreement and resume having contributions made to the Trust on
his behalf under Section 4.1(a), provided that the effective
date of the new tax reduction agreement shall be no earlier
than the later of (A) the first Entry Date commencing at least
30 days after the agreement is received in executed form by
the Committee or (B) the date the Participant resumes eligible
employment. Transfers of Participants to different payroll
systems among the Employers shall be administered by
procedures established by the Committee.
4.2 Investment Plan Contributions.
(a) Amount of Contributions. Any Employee eligible to participate in
the Plan may elect to make Investment Plan Contributions to the Trust by
executing an enrollment form containing an investment plan agreement as
described in Section 4.2(b). The amount of Investment Plan Contributions made by
a Participant for any payday shall equal that whole percentage of his
Compensation per payday selected by the Participant, subject to the restrictions
and limitations contained in Section 4.6 and Article VI hereof.
(b) Investment Plan Agreement.
(i) Nature of Agreement. The investment plan agreement
referred to in Section 4.2(a) shall be a legally binding
agreement (on a form prescribed by the Committee) whereby (A)
the Participant agrees that, as of the effective date of the
agreement, the Compensation otherwise payable to him
thereafter shall be adjusted by a whole percentage (as
selected by the Participant) not to exceed the maximum
percentage permitted under Section 4.6 and (B) the Participant
agrees to contribute the total amount of said adjustment in
Compensation upon each payday to the Trust as an Investment
Plan Contribution under Section 4.2(a). Each Participant's
Investment Plan Contributions shall be paid over to the
Trustee for deposit in the Trust Fund at such time or times as
may be convenient to the Employer but not later than the end
of the month next following the month in which the deduction
is made or such later date prescribed under Department of
Labor regulations. Subject to the provisions of paragraph (v)
of this Section 4.2(b) and Article VI
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hereof, a Participant's investment plan agreement shall remain
in effect until modified or terminated in accordance with
paragraphs (iii) or (iv) of this Section 4.2(b).
(ii) Effective Date of Agreement. The effective date of a
Participant's investment plan agreement shall be no earlier
than the first Entry Date commencing at least 30 days after
such agreement is received in executed form by the Committee
(provided such effective date is no earlier than the date the
Participant first becomes eligible to participate in the
Plan).
(iii) Amendment of Agreement. A Participant may amend his
investment plan agreement at any time with respect to
Compensation not yet paid to increase or to decrease the whole
percentage of his Compensation (within the limits of Section
4.6) to be used to determine his Investment Plan Contribution.
The amended investment plan agreement shall be effective no
earlier than the first Entry Date commencing at least 30 days
after Notice is received. A Participant may not amend his
investment plan agreement under this Section 4.2(b)(iii) more
often than two times in any Plan Year.
(iv) Termination of Agreement. A Participant may terminate his
investment plan agreement at any time with respect to
Compensation not yet paid. The effective date of termination
shall be as soon as administratively possible after the
Participant's notice of termination is received in executed
form by the Committee. Any Participant who terminates his
investment plan agreement shall be permitted to execute a new
investment plan agreement and resume making contributions to
the Trust under Section 4.2(a), provided that the effective
date of such new investment plan agreement shall be no earlier
than a subsequent Entry Date (and, in the case of a Highly
Compensated Participant, the first Entry Date in the following
Plan Year), in any case commencing at least 30 days after the
new investment plan agreement is received in executed form by
the Committee.
(v) Transfer to Ineligible Employment or Termination of
Employment. A Participant's investment plan agreement shall
terminate automatically if the Participant transfers to a
class of employment not eligible for participation in this
Plan or if he terminates his employment with the Employer.
Upon return of the Participant to eligible employment, the
Participant shall be permitted to execute a new investment
plan agreement and resume making contributions to the Trust
under Section 4.2(a), provided that the effective date of the
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new investment plan agreement shall be no earlier than the
later of (A) first Entry Date commencing at least 30 days
after the agreement is received in executed form by the
Committee or (B) the date the Participant resumes eligible
employment. Transfers of Participants to different payroll
systems among the Employers shall be administered by
procedures established by the Committee.
4.3 Matching Company Contributions.
(a) Contributions. In addition to the contributions described in
Sections 4.1, 4.2 and 4.4 hereof, the Employer shall make Matching Company
Contributions to the Trust on behalf of each Participant for each calendar
quarter in the amount, if any, determined by it, in its sole and absolute
discretion, subject to the limitations of Section 6.1; provided, however, that
no Matching Company Contributions will be made with respect to Tax Reduction
Contributions or Investment Plan Contributions that in the aggregate exceed 6%
of a Participant's Compensation.
(b) Timing of Matching Company Contributions. The Matching Company
Contributions made to the Trust under Section 4.3(a) for any Plan Year generally
shall be made quarterly, and in no event later than the date described in
Section 4.5.
(c) Waiver of Matching Contributions. In accordance with rules
prescribed by the Committee, a Participant may waive in advance of any Plan Year
or other prescribed period the allocation of Matching Company Contributions to
his Matching Company Contri bution Account that otherwise would be made thereto.
4.4 Employer Qualified Non-Elective Contributions. To insure that the
Actual Deferral Percentage tests of Section 401(k) of the Code as described in
Section 5.2 hereof or the Contribution Percentage tests of Section 401(m) of the
Code as described in Section 6.1 hereof are met for any Plan Year, an Employer,
under such rules and regulations as the Secretary of the Treasury may prescribe,
may make additional contributions that shall constitute "qualified non-elective
contributions" within the meaning of Section 401(m)(4)(C) of the Code on behalf
of Non-Highly Compensated Employees selected by the Company who are eligible to
make Tax Reduction Contributions or Investment Plan Contributions for the Plan
Year. Each Plan Year an Employer shall designate the portion, if any, of the
qualified non-elective contributions that it made for the Plan Year that shall
be considered under Section 5.2 for the Actual Deferral Percentage tests and the
portion, if any, that shall be considered under Section 6.1 for the Contribution
Percentage test.
4.5 Time of Contributions. In addition to any other require
ments hereunder relating to the timing of contributions, contribu
tions made by an Employer pursuant to Sections 4.1, 4.3 or 4.4 if
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any, for any fiscal year of the Employer shall be paid in full not later than
the time prescribed by law to enable the Employer to obtain a deduction therefor
on its Federal income tax return for said year. Contributions made after the
last day of the Plan Year but within the time for filing an Employer's Federal
income tax return (including extensions thereof) for the fiscal year that ends
with or within the last day of the Plan Year shall be deemed made as of the last
day of that Plan Year if so directed by the Employer, except such contributions
shall not share in increases, decreases, or income to the Trust Fund prior to
the date actually made. Notwithstanding the foregoing, upon an Employer's
request, a contribution that was made upon a mistake of fact or upon
deductibility of the contribution shall be returned to the Employer within one
year after the payment of the contribution or disallowance of the deduction (to
the extent disallowed), as the case may be; provided, however, the amount
returned to an Employer due to mistake of fact or denial of deductibility shall
not be increased by any earnings thereon and shall be reduced by any losses
attributable to such amount.
4.6 Maximum Combined Tax Reduction and Investment Plan Contributions.
Notwithstanding any provision of Sections 4.1 and 4.2 to the contrary, no
Participant may make Tax Reduction Contributions and/or Investment Plan
Contributions in an amount, when combined for any Plan Year, in excess of 15% of
such Participant's Compensation or such other percentage as the Committee shall
determine for purposes of complying with any restriction or limitation imposed
by the Code.
4.7 Manner of Making Contributions. All contributions to the
Trust shall be paid directly to the Trustee. In connection with
each contribution, the Employer shall provide the Recordkeeper with
the following information:
(a) the identity of each Participant on whose behalf the
contribution is being made and the amount thereof; and
(b) whether the amount contributed on behalf of the
Participant is a Tax Reduction Contribution, an Investment Plan Contribution ,or
a Rollover Contribution. The Recordkeeper shall provide the Trustee with any of
the information received by it which is necessary for the Trustee to perform its
duties and obligations with respect to the Trust.
4.8 Reduction of Employer Contributions. The aggregate contributions of
each Employer pursuant to Sections 4.3 and 4.4 in any Plan Year shall be reduced
by the value of Accounts forfeited under the provisions of Sections 5.1, 5.3,
6.2, 8.3, 10.3 and 11.9 after payment of expenses pursuant to Section 14.8.
4.9 Rollover Contributions. Any Participant or Employee
(including an Employee who has not satisfied the eligibility
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requirements of Article III), with the Committee's written consent and after
complying with all applicable laws and filing with the Trustee the form
prescribed by the Committee, may make or have made on his behalf a Rollover
Contribution as described in Section 2.48. The Committee may adopt rollover
procedures and, before permitting a Rollover Contribution, may require an
Employee to furnish such information regarding the amount proposed to be rolled
over as the Committee determines is necessary or appropriate. If a Rollover
Contribution is made by or on behalf of an Employee who has not satisfied the
eligibility requirements of Article III, the provisions of the Plan shall be
generally applicable to such Employee and the Rollover Contribution, unless
expressly provided otherwise herein. The Committee shall allocate and credit a
Rollover Contribution to the contributing party's Rollover Contribution Account
as of the Valuation Date immediately following the date on which the Rollover
Contribution is made. A Rollover Contribution shall be nonforfeitable and the
value thereof shall be paid to the Participant in the manner the Participant
(or, if applicable, the Participant's Beneficiary) elects pursuant to Section
11.4 upon retirement, termination of employment, Disability or death. Rollover
Contributions shall be made in cash and not in stock or other property, unless
otherwise permitted by the Committee. An investment election on a form
prescribed by the Committee shall be submitted with an Employee's Rollover
Contribution and shall direct that such contribution be invested in the
Investment Funds in multiples described in Section 9.5(d). Thereafter, the
Employee may change the investment of his Rollover Contribution in accordance
with Section 9.5(d)(ii).
4.10 Transfers from Other Plans. The Committee, in its discretion, may
accept a direct transfer to the Plan from another plan qualified under Section
401(a) of the Code of all or a portion of the amount credited under such other
plan to an Employee; provided, however, that the Plan shall not accept a
transfer from any plan that is subject to the survivor annuity requirements of
Sections 401(a)(11) or 417 of the Code. The Committee may adopt rules with
respect to any such transfer including, but not limited to, rules with respect
to accounting for, and the investment of, amounts transferred. In the event that
an amount transferred to the Plan pursuant to this Section 4.10 is attributable
to a cash or deferred election that was made pursuant to Section 401(k) of the
Code, such amount shall be subject to the same rules that apply under the Plan
to Tax Reduction Contributions.
ARTICLE V
LIMITATIONS AND RESTRICTIONS ON
TAX REDUCTION CONTRIBUTIONS
5.1 Dollar Limitation. For any taxable year of a Partici
pant, the aggregate amount of (i) contributions made to the Plan
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pursuant to Section 4.1 on behalf the Participant for that taxable year, and
(ii) amounts deferred by the Participant for that taxable year under a salary
reduction agreement under any other plan, contract or agreement described in
Sections 401(k), 403(b) or 408(k) of the Code sponsored by an Affiliated
Company, shall not exceed $7,000 or such other dollar limitation prescribed by
Code Section 402(g) for that taxable year as adjusted by the Secretary of the
Treasury at the same time and in the same manner as provided under Section
415(d) of the Code for adjusting the dollar limitation in effect under Section
415(b)(1)(A) of the Code (such dollar limitation, as adjusted, shall hereinafter
be referred to as the "Annual Deferral Limitation").
If Tax Reduction Contributions made on behalf of a Participant for a
taxable year exceed the Annual Deferral Limitation for that year, the amount of
such excess shall be referred to as "Excess Elective Deferrals." Excess Elective
Deferrals (adjusted for the income or loss attributable to such excess amount)
shall be distributed to the Participant not later than the April 15 immediately
following the taxable year of the Participant for which the Excess Elective
Deferrals were made to the Plan. The Company shall reduce the amount of the
Excess Elective Deferrals under this Section 5.1 by the amount of Excess
Contributions (as determined under Section 5.3), if any, previously distributed
to the Participant for the Plan Year beginning in that taxable year. The Company
shall determine the net income or net loss in the same manner as described in
Section 5.3 for Excess Contributions, except the numerator of the allocation
fraction shall be the amount of the Participant's Excess Elective Deferrals for
the taxable year under this Section 5.1 and the denominator of the allocation
fraction shall be the balance of the Participant's Tax Reduction Contribution
Account attributable to Tax Reduction Contributions as of the end of the taxable
year (without regard to the net income or net loss for the taxable year on that
portion of the Participant's Tax Reduction Contribution Account); provided,
however, if there is a loss attributable to such excess amount, the amount of
the distribution adjusted for such loss shall be limited to an amount which does
not exceed the lesser of (i) the aggregate balance of the Participant's Tax
Reduction Contribution Account or (ii) the Tax Reduction Contributions made on
behalf of the Participant for that taxable year. In adjusting a Participant's
Excess Elective Deferrals for the income or loss attributable to such Excess
Elective Deferrals, the income or loss attributable to such excess contributions
for the "gap period" shall not be considered. For purposes of this Section 5.1,
"gap period" shall mean the period beginning with the first day of the taxable
year next following the taxable year for which the Excess Elective Deferrals
were made on behalf of the Participant and ending on the date of the distribu
tion. If the Excess Elective Deferrals are distributed to a Participant from the
Plan pursuant to this Section 5.1, the Matching Company Contribution, if any, to
which such Excess Elective Deferrals relate (plus any income and minus any loss
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attributable thereto), determined after the application of Section 6.2, shall be
forfeited (whether or not vested) at the time the Excess Elective Deferrals are
distributed, and the forfeitures shall be applied as set forth in Section 11.12.
If the Participant also (i) participates in one or more other qualified
cash or deferred arrangements within the meaning of Section 401(k) of the Code,
(ii) has employer contributions made on his behalf pursuant to a salary
reduction agreement under Section 408(k) of the Code, or (iii) has an employer
contribution made on his behalf pursuant to a salary reduction agreement toward
the purchase of an annuity contract under Section 403(b) of the Code, and the
sum of the elective deferrals [as defined in Section 402(g)(3) of the Code] that
are made for the Participant during a taxable year under such other arrangements
and this Plan exceeds the Annual Deferral Limitation for that taxable year, the
Participant shall, not later than the March 1 following the close of his taxable
year for which the Excess Elective Deferrals have been made, notify the
Committee in writing of the portion of the Excess Elective Deferrals that he
wishes to be allocated to this Plan, if any, and request that the Tax Reduction
Contributions made on his behalf under this Plan be reduced by the allocable
amount specified by the Participant. If all plans, contracts and agreements
described in Sections 401(k), 403(b) and 408(k) of the Code pursuant to which
the Participant is able to defer amounts for a taxable year for which Excess
Elective Deferrals have been made are sponsored by an Affiliated Company, the
Company shall determine to which plan, contract or agreement (including the
Plan) the Excess Elective Deferrals shall be allocated for that taxable year and
if the Excess Elective Deferrals are to be allocated to the Plan, the Company
shall notify the Committee in writing not later than March 1 following the close
of that taxable year. Such notification shall be deemed to be a notification by
the Partici pant to the Committee. The portion of Excess Elective Deferrals that
is allocated to this Plan, if any, shall be adjusted for income and loss in the
same manner as described in Section 5.3 and shall then be distributed to the
Participant no later than the immediately following April 15. If the Tax
Reduction Contributions made on behalf of a Participant for a taxable year do
not exceed the Annual Deferral Limitation for that taxable year and the
Committee has not received any written Notice from the Participant (or deemed to
have received such Notice as described above) by the March 1 immediately
following that taxable year notifying the Committee that the Participant
allocates a portion of the Excess Elective Deferrals, if any, for that taxable
year to the Plan, the Committee may assume that none of the Tax Reduction
Contributions made on behalf of the Participant for that taxable year constitute
Excess Elective Deferrals and that no distribution is required to be made from
the Participant's Tax Reduction Contribution Account pursuant to this Section
5.1. Notwithstanding the fact that Excess Elective Deferrals have been (or will
be) distributed to a Highly Compensated Employee as provided above, the excess
amount of such Tax Reduction Contributions or the portion of such Tax Reduction
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Contributions that are deemed to constitute Excess Elective Deferrals by reason
of the Company's or Participant's written Notice of allocation hereunder shall
still be treated as a Tax Reduction Contribution for purposes of applying the
Actual Deferral Percentage test described in Section 5.2 hereof for the Plan
Year in which such Excess Elective Deferrals were made, except to the extent
provided under rules prescribed by the Secretary of Treasury.
5.2 Actual Deferral Percentage Tests. For each Plan Year, the Employer
shall determine whether the aggregate amount allocated to each Participant's Tax
Reduction Contribution Account attributable to Tax Reduction Contributions, and
qualified nonelective contributions (that are designated under Section 4.4 for
consideration under this Section 5.2) made for that Plan Year shall satisfy one
of the following tests, in addition to the test set forth in Article VII:
(a) the "Actual Deferral Percentage" for the group consisting of all
eligible Highly Compensated Employees (as defined below) shall not exceed the
"Actual Deferral Percentage" for the group consisting of all eligible Non-Highly
Compensated Employees (as defined below) multiplied by 1.25; or
(b) the "Actual Deferral Percentage" for the group consisting of all
eligible Highly Compensated Employees shall not exceed the lesser of (i) 200% of
the "Actual Deferral Percentage" for the group consisting of all eligible
Non-Highly Compensated Employees or (ii) the "Actual Deferral Percentage" for
the group consisting of all eligible Non-Highly Compensated Employees plus two
percentage points or such lesser amount as the Secretary of the Treasury shall
prescribe.
For purposes of this Article V, the following terms shall have the
following meanings:
(a) "Actual Deferral Percentage" for a Plan Year means, with respect to
the group consisting of the eligible Highly Compensated Employees and the group
consisting of the eligible Non-Highly Compensated Employees, the average
(expressed as a percentage) of the ratios, calculated separately for each
Employee in each such group and rounded to the nearest one-hundredth of one
percent, of the amount of Tax Reduction Contributions and qualified non-elective
contributions (which are designated under Section 4.4 for consideration under
this Section 5.2) allocated to each Employee's Tax Reduction Contribution
Account (unreduced in the case of Highly Compensated Employees by distributions
made to such Employee pursuant to Section 5.1 hereof) for such Plan Year to such
Employee's Compensation as defined in Section 2.13(c) for the Plan Year.
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For aggregated Family Members treated as a single Highly Compensated
Employee under Section 2.22(b)(iv), the ratio of the family unit is the greater
of (i) the ratio determined by combining the aggregate Tax Reduction
Contributions and qualified nonelective contributions (described above)
allocated to each Employee's Tax Reduction Contribution Account (unreduced by
distributions made to such Employee pursuant to Section 5.1 hereof) for such
Plan Year and dividing such sum by the Compensation for such Plan Year of the
Family Members who are Highly Compensated Employees without family aggregation
or (ii) the ratio determined by combining the aggregate Tax Reduction
Contributions and qualified non-elective contributions (described above)
allocated to each Employee's Tax Reduction Contribution Account (unreduced by
distributions made to such Employee pursuant to Section 5.1 hereof) for such
Plan Year and dividing such sum by the Compensation for such Plan Year of all
aggregated Family Members. Each Family Member aggregated with a Highly
Compensated Employee for purposes of the preceding sentence shall not be
considered a separate Employee in determining the Actual Deferral Percentage for
either eligible Highly Compensated Employees or eligible Non-Highly Compensated
Employees.
(b) "Actual Deferral Ratio" means each separately calculated
ratio under subparagraph (a) above.
An Employee who is considered a Highly Compensated Employee under
Section 2.22 or a Non-Highly Compensated Employee under Section 2.35 shall be
considered an "eligible Highly Compensated Employee" or an "eligible Non-Highly
Compensated Employee" for purposes of this Section 5.2 for each Plan Year he is
employed by an Employer if he has satisfied the eligibility requirements of
Article III and reached an Entry Date on which he could have become a
Participant, regardless of (i) whether he has elected to have an Employer make a
Tax Reduction Contribution to the Plan on his behalf under Section 4.1 for that
Plan Year, (ii) whether his right to make Tax Reduction Contributions to the
Plan for that Plan Year has been suspended under Section 11.1 due to his receipt
of a hardship distribution, or (iii) he is suspended from further contributions
during the Plan Year due to the limitations of Section 415 of the Code as
described in Article VIII. Consequently, for purposes of this Section 5.2, the
Actual Deferral Ratio for each Highly Compensated Employee and Non-Highly
Compensated Employee who is eligible to, but does not elect to have an Employer
make an Employee Tax Reduction Contribution on his behalf to the Plan for a Plan
Year, shall be zero for that Plan Year, unless the Employer makes a qualified
nonelective contribution to the Plan for a Plan Year to satisfy the Actual
Deferral Percentage tests, in which case the Actual Deferral Ratio for each such
Non-Highly Compensated Employee shall be the ratio of that portion of the
qualified non-elective contribution attributable to contributions made by the
Employer to satisfy the Actual Deferral Percentage tests that is allocated to
his Tax
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Reduction Contribution Account for the Plan Year to his Compensa tion as defined
in Section 2.13(c) for the Plan Year.
If any Employee who is an eligible Highly Compensated Employee is a
participant in two or more cash or deferred arrangements described in Section
401(k) of the Code that are maintained by an Affiliated Company, excluding any
such arrangement that is part of an employee stock ownership plan [as defined in
Section 4975(e)(7) of the Code] for purposes of determining his ratio under this
Section 5.2, all such cash or deferred arrangements shall be treated as one cash
or deferred arrangement to the extent required under Section 401(k) of the Code.
For purposes of this Section 5.2, if two or more plans or arrangements described
in Section 401(k) of the Code are considered one plan for the purposes of
Sections 401(a)(4) or 410(b) of the Code, such arrangements shall be treated as
a single arrangement, and if the plans use different plan years, the Company
shall determine the combined cash or deferred contributions and ratios on the
basis of the plan years ending in the same calendar year. The Committee shall
maintain records to demonstrate compliance with the tests under this Section
5.2, including the extent to which the Plan used qualified nonelective
contributions pursuant to Section 4.4 to satisfy a test.
5.3 Adjustments Required to Satisfy an Actual Deferral Percentage Test.
If Tax Reduction Contributions made for any Plan Year do not satisfy one of the
tests set forth in Section 5.2, the excess amount that would result in a test
being satisfied for that Plan Year if it had not been made to the Plan shall be
referred to as an "Excess Contribution" and the Committee shall, in its sole and
absolute discretion and notwithstanding any other provision of the Plan to the
contrary (but subject to the provisions of Sections 5.4, 5.5 and 5.6), make
appropriate adjustments pursuant to one or more of the following provisions:
(a) Within 2-1/2 months following the close of the Plan Year for which
an Excess Contribution was made, Tax Reduction Contribu tions representing the
Excess Contribution may be recharacterized as Investment Plan Contributions,
subject to the conditions set forth in this Section 5.3;
(b) Within 2-1/2 months following the close of the Plan Year for which
an Excess Contribution was made, if administratively possible, and within 12
months after the close of such Plan Year at the latest, the Excess Contribution
(plus any income and minus any loss attributable thereto) shall be distributed
to the Highly Compensated Employees to whose Tax Reduction Contribution Account
all or a portion of such Excess Contribution was made first from such Highly
Compensated Employees' unmatched Tax Reduction Contributions, and then if
necessary, from the such Highly Compensated Employees' matched Tax Reduction
Contributions; provided, however, that if matched Tax Reduction Contributions
are distributed to correct an Excess Contribution, the Matching Company
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Contributions to which such Excess Contribution relates (plus any income and
minus any loss attributable thereto) shall be forfeited (whether or not vested)
at the time the Excess Contribution is distributed and the forfeiture shall be
applied as set forth in Section 11.12; or
(c) Within the time prescribed by law to enable an Employer to obtain a
deduction for a contribution on its federal income tax return for the Plan Year
for which an Excess Contribution was made, the Employer shall, if the conditions
applicable to qualified nonelective contributions under final Treasury
Regulations issued by the Secretary of the Treasury are satisfied, make a
qualified nonelective contribution pursuant to Section 4.4 on behalf of the
eligible Non-Highly Compensated Employees (as defined in Section 5.2) who meet
the requirements of Section 4.4 in an amount sufficient to satisfy one of the
tests set forth in Section 5.2 [before or after the application of subsections
(a) and/or (b) above].
Tax Reduction Contributions that are recharacterized as Investment Plan
Contributions pursuant to subsection (a) hereof shall be reported to the
Internal Revenue Service and to the affected Highly Compensated Employee as
income for the taxable year in which the Highly Compensated Employee would have
received the recharacterized Tax Reduction Contributions in cash, had he not
elected to have such amounts contributed to the Plan. The recharacterized
amounts shall be treated as Investment Plan Contributions for purposes of
Sections 72, 401(a)(4) and 6047 of the Code and for purposes of applying the
Contribution Percentage tests of Section 6.1 (for the Plan Year when included as
income by the Highly Compensated Employee), but such amounts shall be treated
for all other purposes under the Plan as Tax Reduction Contributions. The
Employer shall notify each affected Highly Compensated Employee of the
recharacterization within 2-1/2 months following the Plan Year to which the
recharacterization occurs.
The amount of the Excess Contributions to be distributed pursuant to
subsection (b) hereof shall be determined by a leveling method, under which the
Actual Deferral Ratio of the Highly Compensated Employee with the highest Actual
Deferral Ratio is reduced to the extent required (i) to enable the Plan to
satisfy one of the Actual Deferral Percentage tests set forth in Section 5.2 or
(ii) to cause such Highly Compensated Employee's Actual Deferral Ratio to equal
the Actual Deferral Ratio of the Highly Compensated Employee with the next
highest Actual Deferral Ratio. This procedure shall be repeated until the Plan
satisfies one of the Actual Deferral Percentage tests set forth in Section 5.2.
Once the Plan satisfies one of the Actual Deferral Percentage tests, the amount
of the Excess Contributions for each Highly Compensated Employee who had his
Actual Deferral Ratio reduced under the preceding sentences shall be determined
for each such Employee by first subtracting from the total Tax Reduction
Contributions made on his behalf (without regard to this
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Section 5.3) the product of such Employee's Actual Deferral Ratio (as reduced
under this Section 5.3) and his Compensation and then subtracting the amount of
Excess Deferrals for the Plan Year, if any, that have been previously
distributed under Section 5.1 to the Employee for the taxable year ending in
that Plan Year.
Excess Contributions of each Highly Compensated Employee subject to the
family member aggregation rules under Section 2.22(b)(iv) shall be allocated
among the Highly Compensated Employee and his aggregated Family Members in
proportion to the Tax Reduction Contributions and qualified non-elective
contributions that are considered under Section 5.2 of the Highly Compensated
Employee and each such Family Member aggregated with him to determine the
combined Actual Deferral Ratio.
The income or loss attributable to the portion of the Excess
Contributions for a Plan Year that are to be distributed to a Highly Compensated
Employee hereunder shall be determined by multiplying the amount of the income
or loss allocable to the Participant's Tax Reduction Contribution Account for
the Plan Year by a fraction, the numerator of which is the portion of the Excess
Contributions for the Plan Year that is to be distributed to that Participant
and the denominator of which is the balance of the Participant's Tax Reduction
Contribution Account on the last day of the Plan Year after adjustment as of
such date under Section 9.4. In adjusting a Participant's Excess Contributions
for the income or loss attributable to such Excess Contributions, the income or
loss attributable to such Excess Contributions for the "gap period" shall not be
considered. For purposes of this Section 5.3, "gap period" shall mean the period
beginning with the fist day of the Plan Year next following the Plan Year for
which the Excess Contributions were made on behalf of the Participant and ending
on the date of the distribution.
5.4 Election of Applicable Correction Methods By Highly Compensated
Employees. For purposes of satisfying the Actual Deferral Percentage tests, the
Committee, in its sole discretion, may permit a Highly Compensated Employee to
elect whether the appropriate method of correcting Excess Contributions shall be
recharacterization pursuant to Section 5.3(a), distribution pursuant to Section
5.3(b) or a combination of both.
5.5 Additional Adjustments of Tax Reduction Contributions. For purposes
of assuring compliance with the Actual Deferral Percentage tests of Section 5.2
hereof, the Committee may, in its sole and absolute discretion, make such
adjustments, reductions or suspensions to Tax Reduction Contribution rates of
Participants who are Highly Compensated Employees at such times and in such
amounts as the Committee shall reasonably deem necessary, including prospective
reductions of Tax Reduction Contributions at any time prior to or within a Plan
Year. The Committee shall make such adjustments, reductions or suspensions based
upon periodic reviews of the Tax Reduction Contribution rates of Highly
Compensated
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Employees during the Plan Year and may make such adjustments, reductions or
suspensions in any amount notwithstanding any other provisions hereof. In
addition, the Committee shall take any other action to assure compliance with
the Actual Deferral Percentage tests as shall be prescribed by the Secretary of
the Treasury.
5.6 Other Permissible Methods of Testing and Correction. The
provisions of this Article V are intended to conform with Sections
401(k) and 402(g) of the Code. In the event that the Committee
determines, based on changes to the Code or interpretations or
guidance issued by the Internal Revenue Service, that the
requirements of such Code sections may be applied in a manner
different from that prescribed in this Article V, the Committee may
make appropriate adjustments to the administration of the Plan to
incorporate such changes to the Code or interpretations or
guidance. If a change to the Code or interpretations or guidance
issued by the Internal Revenue Service results in more than one
additional option in the manner in which this Article V may be
administered, the Committee shall have the limited discretion to
select the option to be used, provided that such option, when
compared to the other option or options, results in the smallest
adjustment to Participant's Accounts.
ARTICLE VI
LIMITATIONS AND RESTRICTIONS ON INVESTMENT PLAN
CONTRIBUTIONS AND MATCHING COMPANY CONTRIBUTIONS
6.1 Contribution Percentage Tests. Subject to the provisions of this
Section 6.1, for each Plan Year, the Employer shall determine, after first
applying the provisions of Section 5.3(b), whether the sum of (i) the amounts
allocated to each Participant's Investment Plan Contribution Account
attributable to Investment Plan Contributions [including Tax Reduction
Contributions recharacterized as Investment Plan Contributions pursuant to
Section 5.3(a)] for that Plan Year, (ii) amounts allocated to each Participant's
Matching Company Contribution Account attributable to Matching Company
Contributions (including Tax Reduction Contributions treated as Matching Company
Contributions pursuant to Section 6.5) for that Plan Year, and (iii) the amount
allocated to each Participant's Tax Reduction Contribution Account attributable
to qualified non-elective contributions (that are designated under Section 4.4
for consideration under this Section 6.1) for that Plan Year shall satisfy one
of the following tests, in addition to the test set forth in Article VII:
(a) the "Contribution Percentage" for the group consisting of all
eligible Highly Compensated Employees (as defined below) shall not exceed the
"Contribution Percentage" for the group consisting of all eligible Non-Highly
Compensated Employees (as defined below) multiplied by 1.25; or
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(b) the "Contribution Percentage" for the group consisting of all
eligible Highly Compensated Employees shall not exceed the lesser of (i) 200% of
the "Contribution Percentage" for the group consisting of all eligible
Non-Highly Compensated Employees or (ii) the "Contribution Percentage" for the
group consisting of all eligible Non-Highly Compensated Employees plus two
percentage points or such lesser amount as the Secretary of the Treasury shall
prescribe.
For purposes of this Article VI, the following terms shall have the
following meanings:
(a) "Contribution Percentage" for a Plan Year means, with respect to
the group consisting of the eligible Highly Compensated Employees and the group
consisting of the eligible Non-Highly Compensated Employees, the average
(expressed as a percentage) of the ratios, calculated separately for each
Employee in each such group, of the sum of (i) the amount of Investment Plan
Contribu tions allocated to each Investment Plan Contribution Account for such
Plan Year, (ii) the amount of Matching Company Contributions allocated to each
Employee's Matching Company Contribution Account for such Plan Year, after
reduction for forfeited matching contributions, if any, under Section 5.3(b) and
(iii) the amount allocated to each Employee's Tax Reduction Contribution Account
attributable to qualified non-elective contributions (which are designated under
Section 4.4 for consideration under this Section 6.1) for such Plan Year to such
Employee's Compensation as defined in Section 2.13(c) for the Plan Year in which
the Employee was an eligible Highly Compensated Employee or eligible Non-Highly
Compensated Employee.
For aggregated Family Members treated as a single Highly Compensated
Employee under Section 2.22(b)(iv), the ratio of the family unit is the greater
of (i) the ratio determined by combining the aggregate Investment Plan
Contributions allocated to each Employee's Investment Plan Contribution Account
for such Plan Year, Matching Company Contributions allocated to each Employee's
Matching Company Contribution Account for such Plan Year and qualified
non-elective contributions (described above) allocated to his Tax Reduction
Contribution Account for such Plan Year and dividing such sum by the
Compensation for such Plan Year of the Family Members who are Highly Compensated
Employees without family aggregation or (ii) the ratio determined by combining
the aggregate Investment Plan Contributions allocated to each Employee's
Investment Plan Contribution Account for such Plan Year, Matching Company
Contributions allocated to each Employee's Matching Company Contribution Account
for such Plan Year and qualified non-elective contributions (described above)
allocated to his Tax Reduction Contribution Account for such Plan Year and
dividing such sum by the Compensation considered in the preceding sentence for
such Plan Year of all aggregated Family Members. Each Family Member aggregated
with a Highly Compensated Employee for purposes of the
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preceding sentence shall not be considered a separate Employee in determining
the Contribution Percentage for either eligible Highly Compensated Employees or
eligible Non-Highly Compensated Employees.
(b) "Actual Contribution Ratio" means each such separately
calculated ratio under paragraph (a) above.
An Employee who is considered a Highly Compensated Employee under
Section 2.22 or a Non-Highly Compensated Employee under Section 2.35 shall be
considered an "eligible Highly Compensated Employee" or an "eligible Non-Highly
Compensated Employee" for purposes of this Section 6.1 for each Plan Year he is
employed by an Employer if he has satisfied the eligibility requirements of
Article III and reached an Entry Date on which he could have become a
Participant, regardless of whether he elected to have an Employer make an
Investment Plan Contribution to the Plan on his behalf under Section 4.2 and is
eligible to receive an allocation of an Investment Plan Contribution or a
Matching Company Contribution for that Plan Year. Consequently, for purposes of
this Section 6.1, the Actual Contribution Ratio for each Highly Compensated
Employee and Non-Highly Compensated Employee who is eligible to, but does not
elect to have an Employer make an Investment Plan Contribution on his behalf to
the Plan for a Plan Year and who does not receive an allocation of a Matching
Company Contribution for the Plan Year, shall be zero for that Plan Year, unless
an Employer makes a qualified non-elective contribution to the Plan for a Plan
Year to satisfy the Contribution Percentage tests, in which case the Actual
Contribution Ratio for each such Non-Highly Compensated Employee shall be the
ratio of that portion of the qualified non-elective contribution attributable to
contributions made by an Employer to satisfy the Contribution Percentage tests
that is allocated to his Tax Reduction Contribution Account for the Plan Year to
his Compensation as defined in Section 2.13(c) for the Plan Year.
For purposes of this Section 6.1, if two or more plans of an Employer
to which matching contributions within the meaning of Section 401(m)(4)(A) of
the Code, employee voluntary after-tax contributions or elective deferrals
within the meaning of Section 401(m)(4)(B) of the Code are made are treated as
one plan for purposes of Section 410(b) of the Code [other than the average
benefit test, and excluding allocations under an employee stock ownership plan
described in Section 4975(e)(7) or 409 of the Code, or the portion of a plan
that constitutes an employee stock ownership plan], such plans shall be treated
as one plan for purposes of this Section 6.1, and, if the plans use different
plan years, the Committee shall determine such combined contributions and the
Actual Contribution Ratios of Highly Compensated Employees eligible to
participate in the Plan on the basis of the plan years ending in the same
calendar year. The Committee shall maintain records to demonstrate compliance
with the tests under this Section 6.1, including the extent to which the Plan
used qualified non-elective contributions pursuant to Section 4.4 to satisfy a
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test. In addition, if any Employee who is an eligible Highly Compensated
Employee participates in two or more plans described in Section 401(a) of the
Code that are maintained by an Affiliated Company to which such contributions
are made, all such contributions shall be aggregated for purposes of this
Section 6.1 to the extent required under Section 401(m) of the Code.
6.2 Adjustments Required to Satisfy a Contribution Percentage Test. If
Investment Plan Contributions and Matching Company Contributions made for any
Plan Year do not satisfy one of the tests set forth in Section 6.1, the excess
amount that would result in a test being satisfied for the Year if it had not
been made to the Plan shall be referred to as an "Excess Aggregate Contribution"
and the Committee shall, in its sole and absolute discretion and notwithstanding
any other provision hereof, make appropriate adjustments in accordance with
Sections 401(a)(4) and 401(m) of the Code (and Treasury regulations thereunder)
pursuant to one or more of the following provisions in the following order,
provided that adjustments under subsection (c) may be made without any
adjustments first being made under subsections (a) or (b):
(a) Any Investment Plan Contributions made by Highly Compensated
Employees during the Plan Year that are not matched by Matching Company
Contributions in accordance with Section 4.3 (plus any income and minus any loss
attributable thereto) shall be distributed (according to the method specified in
this Section 6.2 below) to the Highly Compensated Employees to whose Investment
Plan Contribution Accounts all or a portion of Excess Aggregate Contribution was
made within 2-1/2 months following the close of the Plan Year, if
administratively possible, and within 12 months after the close of such Plan
Year, at the latest until either (i) the limits of Section 6.1 are satisfied or
(ii) all such contributions are distributed.
(b) To the extent that the portion of the Excess Aggregate Contribution
for the Plan Year is allocable to a Matching Company Contribution and Investment
Plan Contributions that are matched in accordance with Section 4.3, the
Committee shall eliminate the Excess Aggregate Contribution by alternately
applying paragraphs (i) and (ii) below [beginning with paragraph (i)], on a pro
rata basis.
(i) If the Matching Company Contribution is fully vested, such
vested portion, plus any income and minus any loss
attributable thereto, shall be distributed to the applicable
Highly Compensated Employees within 2-1/2 months following the
close of that Plan Year, if administratively possible, and
within 12 months after the close of such Plan Year, at the
latest, and if such Matching Company Contribution is not fully
vested, within 2-1/2 months following the close of that Plan
Year, if administratively possible, and within 12-months after
the close of such Plan Year, at the latest, (A) the non-vested
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portion of such Matching Company Contribution, plus any income
and minus any loss attributable thereto, shall be forfeited
from the Matching Company Contribution Accounts of the
applicable Highly Compensated Employees at the time the Excess
Aggregate Contribution is distributed and the forfeitures
shall be applied as set forth in Section 11.12 and (B) the
vested portion of such Matching Company Contribution, plus any
income and minus any loss attributable thereto, shall be
distributed to the applicable Highly Compensated Employees.
(ii) Any Investment Plan Contributions that were matched or
would have been matched but for the application of this
Section 6.2 (plus any income and minus any loss attributable
thereto) shall be distributed (according to the method
specified in this Section 6.2 below) to the applicable Highly
Compensated Employees, within 2-1/2 months following the close
of that Plan Year, if administratively possible, and within 12
months after the close of such Plan Year, at the latest.
(c) Within the time prescribed by law to enable an Employer to obtain a
deduction for a contribution on its federal income tax return for the Plan Year
for which an Excess Aggregate Contribution was made, the Employer shall, if the
conditions applicable to qualified non-elective contributions under final
Treasury Regulations issued by the Secretary of the Treasury are satisfied, make
a qualified nonelective contribution pursuant to Section 4.4 on behalf of the
eligible Non-Highly Compensated Employees (as defined in Section 6.1) who meet
the requirements of Section 4.4 in an amount sufficient to satisfy one of the
tests set forth in Section 6.1 [before or after the application of subsections
(a) and/or (b) above].
The amount of the Excess Aggregate Contributions to be distributed or
forfeited pursuant to subsections (a) and (b) hereof shall be determined by a
leveling method under which the Actual Contribution Ratio of the Highly
Compensated Employee with the highest Actual Contribution Ratio is reduced to
the extent required (i) to enable the Plan to satisfy one of the Contribution
Percentage tests set forth in Section 6.1 or (ii) to cause such Highly
Compensated Employee's Actual Contribution Ratio to equal the Actual
Contribution Ratio of the Highly Compensated Employee with the next highest
Actual Contribution Ratio. This procedure shall be repeated until the Plan
satisfies one of the Contribution Percentage tests set forth in Section 6.1.
Once the Plan satisfies one of the Contribution Percentage tests, the amount of
the Excess Aggregate Contributions for each such Highly Compensated Employee who
had his Actual Contribution Ratio reduced under the preceding sentences shall be
determined for each such Employee by subtracting from the total Investment Plan
Contributions and Matching Company Contributions made on his behalf (without
regard to this Section
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6.2) the product of such Employee's Actual Contribution Ratio (as reduced under
this Section 6.2) and his Compensation.
Excess Aggregate Contributions of each Highly Compensated Employee
subject to the family member aggregation rules of Section 2.22(b)(iv) shall be
allocated among the Highly Compensated Employee and his aggregated Family
Members in proportion to the Investment Plan Contributions and Matching Company
Contributions (and qualified non-elective contributions that are considered
under Section 6.1) of the Highly Compensated Employee and each such Family
Member aggregated with him to determine the combined Actual Contribution Ratio.
The income or loss attributable to the portion of the Excess Aggregate
Contributions for a Plan Year that are to be distributed to a Highly Compensated
Employee or forfeited from his Account shall be determined by multiplying the
amount of the income or loss allocable to the Participant's Matching Company
Contribution Account and his Investment Plan Contribution Account for the Plan
Year by a fraction, the numerator of which is the portion of the Excess
Aggregate Contributions for the Plan Year that are to be distributed to that
Participant and the denominator of which is the balance of the Participant's
Matching Company Contribution Account and Investment Plan Contribution Account
on the last day of the Plan Year after adjustment as of such date under Section
9.4.
In adjusting a Participant's Excess Aggregate Contributions for the
income or loss attributable to such excess contributions, the income or loss
attributable to such excess contributions for the "gap period" shall not be
considered. For purposes of this Section 6.2, "gap period" shall mean the period
beginning with the first day of the Plan Year next following the Plan Year for
which the Excess Aggregate Contributions were made on behalf of the Participant
and ending on the date of the distribution.
6.3 Procedures Applicable to Tax Reduction Contributions
Recharacterized As Investment Plan Contributions. The determination of the
amount of Excess Aggregate Contributions with respect to a Plan Year shall be
made after determining the Excess Contributions, if any, to be treated as
Investment Plan Contributions due to recharacterization pursuant to Section
5.3(a). The income allocable to Excess Aggregate Contributions resulting from
the recharacterization of Tax Reduction Contributions shall be determined and
distributed as if such recharacterized Tax Reduction Contributions had been
distributed pursuant to Section 5.3(b) instead of recharacterized pursuant to
Section 5.3(a).
6.4 Additional Adjustments and Prospective Reductions of Investment
Plan Contributions. In the event that it is determined at any time prior to or
within a Plan Year that the Contribution Percentage tests of Section 6.1 hereof
could be exceeded with respect to such Plan Year, the Committee, in its sole and
absolute
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discretion, may make such adjustments, reductions or suspensions to Investment
Plan Contribution rates of Highly Compensated Participants at such times and in
such amounts as the Committee shall reasonably deem necessary, including
prospective reductions of Investment Plan Contributions at any time prior to or
within a Plan Year. The Committee shall make such adjustments, reductions or
suspensions based upon periodic reviews of the Investment Plan Contribution
rates of Highly Compensated Participants during the Plan Year and may make such
adjustments, reductions or suspensions in any amount notwithstanding any other
provisions hereof. In addition, the Committee shall take any other action to
assure compliance with the Contribution Percentage tests as shall be prescribed
by the Secretary of the Treasury. If the Investment Plan Contributions of Highly
Compensated Participants are reduced, the amount of such reduction shall be
determined by (i) reducing the maximum allowable Investment Plan Contributions
under Section 4.2 to such percentage which will, when applied to all Highly
Compensated Participants (and taking into account any reduction in Matching
Company Contributions as a consequence of a reduction in Tax Reduction
Contributions under Section 5.5 and a reduction in Investment Plan Contributions
hereunder) result in the maximum contribution percentage set forth in Section
6.1 not being exceeded, and (ii) reducing accordingly the Investment Plan
Contributions that may be made in the remainder of the Plan Year in the case of
each Highly Compensated Participant with respect to whom such reduced maximum
percentage is exceeded. Notwithstanding the foregoing, the Committee may round
off or estimate the prospective reductions hereunder. Once a reduction has been
made hereunder, it shall remain in effect unless the Committee determines that
it is no longer necessary in order for the maximum contribution percentage to be
met.
6.5 Testing of Tax Reduction Contributions Under Contribution
Percentage Test. Notwithstanding the foregoing provisions of this Article VI or
of Article V, all or a portion of the Tax Reduction Contributions made on behalf
of eligible Non-Highly Compensated Employees may be treated as Matching Company
Contributions made on behalf of such eligible Non-Highly Compensated Employees
for the purpose of meeting the Contribution Percentage test set forth in Section
6.1, provided that the Actual Deferral Percentage test of Section 5.2 can be
met, both when the Tax Reduction Contributions treated as Matching Company
Contributions hereunder are included in performing such Actual Deferral
Percentage test and when such Tax Reduction Contributions are excluded in
performing such Actual Deferral Percentage test. Except for purposes of meeting
the Contribution Percentage test of Section 6.1 to the extent described
hereunder, any such Tax Reduction Contributions shall continue to be treated as
Tax Reduction Contributions for all other purposes of the Plan.
6.6 Other Permissible Methods of Testing and Corrections.
The provisions of this Article VI are intended to conform with
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Section 401(m) of the Code. In the event that the Committee determines, based on
changes to the Code or interpretations or guidance issued by the Internal
Revenue Service, that the requirements of such Code section may be applied in a
manner different from that prescribed in this Article VI, the Committee may make
appropriate adjustments to the administration of the Plan to incorporate such
changes to the Code or interpretations or guidance. If a change to the Code or
interpretations or guidance issued by the Internal Revenue Service results in
more than one additional option in the manner in which this Article VI may be
administered, the Committee shall have the limited discretion to select the
option to be used, provided that such option, when compared to the other option
or options, results in the smallest adjustment to Participant's Accounts.
ARTICLE VII
AGGREGATE LIMIT ON ACTUAL DEFERRAL
AND CONTRIBUTION PERCENTAGES
7.1 General Rules. If at least one Highly Compensated Employee is
included in the Actual Deferral Percentage test under Section 5.2 and in the
Contribution Percentage test under Section 6.1, in addition to satisfaction of
the Actual Deferral Percentage test and the Contribution Percentage test, the
sum of the Highly Compensated Group's Actual Deferral Percentage under Section
5.2 and Contribution Percentage under Section 6.1 may not exceed the aggregate
limit (the "multiple use limitation") of this Article VII. The multiple use
limitation of this Article VII does not apply, however, unless prior to the
application of the multiple use limitation, the Actual Deferral Percentage and
the Contribution Percentage of the Highly Compensated Group each exceeds 125% of
the respective percentages for the Non-Highly Compensated Group.
7.2 Multiple Use Limitation. The multiple use limitation is
the greater of:
(a) the sum of (i) and (ii), where:
(i) is 1.25 times the greater of:
(A) the Actual Deferral Percentage of the Non-Highly
Compensated Group under Section 5.2 for the Plan Year or
(B) the Contribution Percentage of the Non-Highly Compensated
Group under Section 6.1 for the Plan Year and
(ii) is equal to two percentage points plus the lesser of the
percentage in subsection (i)(A) or (i)(B) above, but not more than
twice the lesser of the percentage in subsection (i)(A) or (i)(B); or
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(b) the sum of (i) and (ii), where:
(i) is equal to 1.25 times the lesser of:
(A) the Actual Deferral Percentage of the Non-Highly Compensated Group
under Section 5.2 for the Plan Year or
(B) the Contribution Percentage of the Non-Highly Compensated
Group under Section 6.1 for the Plan Year and
(ii) is equal to two percentage points plus the greater of the
percentage in subsection (i)(A) or (i)(B) above, but not more than
twice the greater of the percentage in subsection (i)(A) or (i)(B).
The Committee shall determine whether the Plan satisfies the multiple use
limitation after applying the Actual Deferral Percentage test under Section 5.2
and the Contribution Percentage test under Section 6.1 and after any corrective
distributions, the use of qualified non-elective contributions, any
recharacterization of Excess Contributions, or any other adjustments required or
permitted by Articles V and VI. If after applying this Section 7.2, the
Committee determines that the Plan has failed to satisfy the multiple use
limitation, the Committee will correct the failure (i) for Plan Years beginning
before January 1, 1994, by alternately reducing the Investment Plan
Contributions and the Tax Reduction Contributions of Highly Compensated
Employees in whole percentages (or fractional percentages, if applicable) to the
extent necessary to satisfy the multiple use limitation and (ii) for Plan Years
beginning on and after January 1, 1994, by treating the excess amount as Excess
Aggregate Contributions under Section 6.2. For purposes of this Article VII,
"Highly Compensated Group" and "Non- Highly Compensated Group" mean the group of
Employees who are eligible Highly Compensated Employees and eligible Non-Highly
Compensated Employees, respectively, for the year as defined in Sections 5.2 and
6.1.
7.3 Prospective Reduction of Contributions. In the event that it is
determined by the Committee at any time prior to or within a Plan Year that the
aggregate limit prescribed in Section 7.2 could be exceeded with respect to such
Plan Year, then the amount of Tax Reduction Contributions, Investment Plan
Contributions or both (as determined by the Committee in its sole and absolute
discretion) made on behalf of Participants who are Highly Compensated Employees
may be reduced in a manner similar to the procedures described in Sections 5.5
and 6.4.
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ARTICLE VIII
LIMITATION ON ALLOCATIONS
8.1 Limitation on Allocations. Notwithstanding any other
provision of the Plan, the following provisions shall be applicable
to the Plan:
(a) If this Plan is the only plan maintained by an Employer that covers
the class of Employees eligible to participate hereunder and the Participant
does not participate in and has never participated in a Related Plan or a
welfare benefit fund, as defined in Section 419(e) of the Code, maintained by
the Employer, or an individual medical account, as defined in Section 415(l)(2)
of the Code, maintained by the Employer, which provides an Annual Addition as
defined in Section 8.2(a), the Annual Additions that may be allocated under this
Plan to a Participant's Account for a Limitation Year shall not exceed the
lesser of:
(i) the Maximum Permissible Amount; or
(ii) any other limitation contained in this Plan.
(b) If an Employer maintains, in addition to this Plan, (i) a Related
Plan that covers the same class of Employees eligible to participate hereunder,
(ii) a welfare benefit fund, as defined in Section 419(e) of the Code, or (iii)
an individual medical account, as defined in Section 415(l)(2) of the Code,
which provides an Annual Addition, the Annual Additions that may be allocated
under this Plan to a Participant's Account for a Limitation Year shall not
exceed the lesser of:
(A) the Maximum Permissible Amount, reduced by the sum of any
Annual Additions allocated to the Participant's accounts for
the same Limitation Year under this Plan and such other
Related Plan and the welfare plans described in clauses (ii)
and (iii) above; or
(B) any other limitation contained in this Plan.
8.2 Definitions. For purposes of this Article VIII, the
following terms shall have the meanings set forth below:
(a) "Annual Additions" means the sum of the following amounts
allocated to a Participant's Account for a Limitation Year:
(i) all Employer contributions (including contributions
described in Sections 4.1, 4.3 and 4.4, and forfeitures
treated as Matching Company Contributions);
(ii) all forfeitures;
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(iii) all Employee contributions (including contributions
described in Section 4.2); and
(iv) amounts described in Sections 415(l)(1) and 419A(d)(2)
of the Code.
In addition, Annual Additions shall include Excess Elective Deferrals
under Section 5.1 that are not distributed to the Participant before April 15
following the taxable year of deferral, Excess Contributions within the meaning
of Section 5.3 and Excess Aggregate Contributions within the meaning of Section
6.2.
For purposes of this Article VIII, Employee contributions shall be
determined without regard to any (i) rollover contributions within the meaning
of Section 402(a)(5), 403(a)(4) or 408(d)(3) of the Code [or, on or after
January 1, 1993, an eligible rollover contribution as described in Section
402(c)(4) of the Code], (ii) contribution by the Employee to a simplified
employee pension, (iii) contribution to an individual retirement account or
individual retirement annuity, (iv) repayments of loans made to the Participant
from the Plan and (v) direct transfers of Employee contributions from a plan
described in Section 401(a) of the Code to the Plan.
(b) "Maximum Permissible Amount" means for a Limitation Year
with respect to any Participant the lesser of:
(i) $30,000 [or, if greater, one-fourth of the dollar limitation in
effect under Section 415(b)(1)(A) of the Code as it may be adjusted
under Section 415(d)(1) of the Code by the Secretary of the Treasury
for the Limitation Year]; or
(ii) 25% of the Participant's Compensation for the Limitation
Year.
(c) "Excess Amount" means the excess of the Annual Additions allocated
to a Participant's Account for the Limitation Year over the Maximum Permissible
Amount, less administrative charges allocable to such excess.
(d) "Employer" means for purposes of this Article VIII, any Employer
and any Affiliated Company that adopts this Plan; provided, however, the
determination under Sections 414(b) and (c) of the Code shall be made as if the
phrase "more than 50 percent" were substituted for the phrase "at least 80
percent" each place it is incorporated into Sections 414(b) and (c) of the Code.
(e) "Related Plan" means any other defined contribution plan [as
defined in Section 415(k) of the Code] maintained by any Employer as defined in
subparagraph (d) above.
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(f) "Defined Contribution Plan Fraction" means for any
Limitation Year:
(i) the sum of the Annual Additions to the Participant's Account under
this Plan and his accounts under any Related Plan and welfare plans [as
described in Section 8.1(b)(ii) and (iii)] as of the close of the
Limitation Year, divided by:
(ii) the sum of the lesser of the following amounts determined
for the Limitation Year and for each prior year of his service
for an Employer:
(A) the product of 1.25, multiplied by the dollar limitation in
effect under Section 415(c)(1)(A) of the Code for the
Limitation Year [determined without regard to Section
415(c)(6) of the Code], or
(B) the product of 1.4, multiplied by an amount equal to 25% of
the Participant's Compensation for the Limitation Year.
If the Plan satisfied the applicable requirements of Section 415 of the
Code as in effect for all Plan Years beginning before January 1, 1987, an amount
shall be subtracted from the numerator of the Defined Contribution Plan Fraction
(not exceeding such numerator) as prescribed by the Secretary of Treasury so
that the sum of the Defined Benefit Plan Fraction and Defined Contribution Plan
Fraction computed under Section 415(e)(1) of the Code (as revised by this
Article VIII) does not exceed 1.0 for such Plan Year.
(g) "Defined Benefit Plan Fraction" means for any Limitation
Year:
(i) the projected Annual Benefit of the Participant under the
defined benefit plans maintained by an Employer determined as
of the close of the Limitation Year,
divided by:
(ii) the lesser of:
(A) the product of 1.25, multiplied by the dollar limitation
in effect under Section 415(b)(1)(A) of the Code for the
Limitation Year, or
(B) the product of 1.4, multiplied by 100% of the Participant's
Average Compensation.
If the Employee was a Participant as of the first day of the first
Limitation Year beginning after December 31, 1986, in one or more defined
benefit plans maintained by an Employer which were in existence on May 6, 1986,
the denominator of this fraction will not
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be less than 125% of the sum of the annual benefits under such plans which the
Participant had accrued as of the close of the last Limitation Year beginning
before January 1, 1987, disregarding any changes in the terms and conditions of
the plans after May 5, 1986. The preceding sentence applies only if the defined
benefit plans individually and in the aggregate satisfied the requirements of
Section 415 of the Code for all Limitation Years beginning before January 1,
1987.
(h) "Average Compensation" means the average Compensation during a
Participant's high three years of service, which period is the three consecutive
calendar years (or, the actual number of consecutive years of employment for
those Employees who are employed for less than three consecutive years with an
Employer) during which the Employee had the greatest aggregate Annual
Compensation from the Employer, including any adjustments under Section 415(d)
of the Code.
(i) "Annual Benefit" means a benefit payable annually in the form of a
straight life annuity (with no ancillary benefits) under a plan to which
Employees do not contribute and under which no Rollover Contributions are made.
(j) "Compensation" means compensation as defined in Section
2.13(c).
8.3 Excess Annual Additions. In the event that, notwith standing
Section 8.5(a) hereof, the limitations with respect to Annual Additions
prescribed hereunder are exceeded with respect to any Participant for a
Limitation Year and such excess arises as a result of the allocation of
forfeitures, a reasonable error in estimating a Participant's Compensation for
the Plan Year, a reasonable error in determining the amount of Tax Reduction
Contributions that may be made by a Participant under the limits of Section 415
of the Code, or as a result of other facts and circumstances as established by
the Commissioner of the Internal Revenue Service, the Excess Amounts shall not
be deemed Annual Additions in that Limitation Year, to the extent such Excess
Amounts are treated in accordance with any of the following:
(a) Either Tax Reduction Contributions or Investment Plan
Contributions, or both, and earnings thereon shall be distributed to the
Participant to the extent necessary to reduce the Excess Amount as soon as
practicable after the close of the Plan Year. The amounts distributed are
disregarded for purposes of applying Code Section 402(g) and the tests set forth
in Sections 5.2 and 6.1.
(b) The Excess Amounts in the Participant's Account are
allocated and reallocated to other Participants in the Plan.
However, if the allocation or reallocation of the Excess Amounts
pursuant to the provisions of the Plan causes the limitations of
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Section 415 to be exceeded with respect to each Plan Participant for the
Limitation Year, then these amounts must be held unallocated in a suspense
account. If a suspense account is in existence at any time during a particular
Limitation Year, other than the Limitation Year described in the preceding
sentence, all amounts in the suspense account must be allocated and reallocated
to Participants' Accounts (subject to the limitation of Code Section 415) before
any Employer contributions and Employee contributions that would constitute
Annual Additions may be made to the Plan for that Limitation Year.
(c) The Excess Amounts in the Participant's Account are used to reduce
Employer contributions for the next Limitation Year (and succeeding Limitation
Years, as necessary) for that Participant if that Participant is covered by the
Plan as of the end of the Limitation Year. However, if that Participant is not
covered by the Plan as of the end of the Limitation Year, then the Excess
Amounts must be held unallocated in a suspense account for the Limitation Year
and allocated and reallocated in the next Limitation Year to all of the
remaining Participants in the Plan in accordance with the rules set forth in
Section 8.3(b). Furthermore, the Excess Amounts must be used to reduce Employer
contributions for the next Limitation Year (and succeeding Limitation Years, as
necessary) for all of the remaining Participants in the Plan.
8.4 Combined Plan Limits.
(a) If an Employer maintains, or has ever maintained, one or more
defined benefit plans covering an Employee who is also a Participant in this
Plan, the sum of the Defined Contribution Plan Fraction and the Defined Benefit
Plan Fraction, cannot exceed 1.0 for any Limitation Year. The Annual Addition
for any Limitation Year beginning before January 1, 1987 shall not be recomputed
to treat all Employee contributions as an Annual Addition. If the Plan satisfied
the applicable requirements of Section 415 of the Code as in effect for all
Limitation Years beginning before January 1, 1987, an amount shall be subtracted
from the numerator of the Defined Contribution Plan Fraction (not exceeding such
numerator) as prescribed by the Secretary of Treasury so that the sum of the
Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction
computed under Section 415(e)(1) of the Code [as revised by this Section 8.4]
does not exceed 1.0 for such Limitation Year.
(b) For the purpose of this Section 8.4, Employee contri butions to a
defined benefit plan are treated as a separate defined contribution plan. In
addition, any contributions paid or accrued after December 31, 1985 that are
attributable to medical benefits allocated under a welfare benefit fund [as
defined in Section 419(e) of the Code] during Limitation Years ending after
December 31, 1985 to a separate account established for any
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post-retirement medical benefits provided with respect to a Participant, who, at
any time, during the Limitation Year or any preceding Limitation Year, is or was
a Key Employee, shall be treated as Annual Additions to a defined contribution
plan. Further, all defined contribution plans of an Employer are to be treated
as one defined contribution plan and all defined benefit plans of an Employer
are to be treated as one defined benefit plan, whether or not such plans have
been terminated.
(c) If the sum of the Defined Contribution Plan Fraction and
the Defined Benefit Plan Fraction exceeds 1.0, the sum of the
fractions will be reduced to 1.0 as follows:
(i) voluntary nondeductible Employee contributions made by a
Participant to the defined benefit plan that constitute an Annual
Addition to a defined contribution plan, to the extent they would
reduce the sum of the fractions to 1.0, will be returned to the
Participant;
(ii) if additional reductions are required for the sum of the fractions
to equal 1.0, Investment Plan Contributions made by a Participant to
this Plan which constitute an Annual Addition to this Plan, to the
extent they would reduce the sum of the fractions to 1.0, will be
returned to the Participant;
(iii) if additional reductions are required for the sum of the
fractions to equal 1.0, the Annual Benefit of a Participant under the
defined benefit plan will be reduced (but not below zero and not below
the amount of the Participant's accrued benefit to date) to the extent
necessary to prevent the sum of the fractions, computed as of the close
of the Limitation Year from exceeding 1.0; and
(iv) if additional reductions are required for the sum of the
fractions to equal 1.0, the reductions will then be made to
the Annual Additions of this Plan.
8.5 Special Rules.
(a) Notwithstanding any other provision of this Article VIII, an
Employer shall not contribute any amount that would cause an allocation to the
suspense account as of the date the contribution is allocated. In the event the
making of any Investment Plan Contribution, Tax Reduction Contribution or
Matching Company Contribution, or any part thereof, would result in the
limitations set forth in this Article VIII being exceeded, the Committee shall
cause such contributions not to be made. If the contribution is made prior to
the date as of which it is to be allocated, then such contribution shall not
exceed an amount that would cause an allocation to the suspense account if the
date of the contribution were an Allocation Date. The Committee shall maintain
records, showing the contributions to be allocated to the Account of each
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Participant in any Limitation Year. In the event that it is determined prior to
or within any Limitation Year that the foregoing limitations would be exceeded
if the full amount of contributions otherwise allocable would be allocated, the
Annual Additions to this Plan for the remainder of the Limitation Year shall be
adjusted by reducing (i) first, any unmatched Investment Plan Contributions,
(ii) second, any unmatched Tax Reduction Contributions, (iii) third, matched
Investment Plan Contributions and a corresponding share of Matching Company
Contributions, and (iv) fourth, matched Tax Reduction Contributions and a corres
ponding share of Matching Company Contributions but, in each case, only to the
extent necessary to satisfy the limitations.
(b) If the Annual Additions with respect to the Participant under other
Related Plans and welfare plans described in Section 8.1(b)(ii) and (iii) are
less than the Maximum Permissible Amount and the Matching Company Contribution
that otherwise would be contributed or allocated to the Participant's Account
under this Plan would cause the Annual Additions for the Limitation Year to
exceed the limitation of Section 8.1(b), the amount contributed or allocated
will be reduced so that the Annual Additions under all such plans for the
Limitation Year will equal the Maximum Permissible Amount. If the Annual
Additions with respect to the Participant under the Related Plans and welfare
plans described in Section 8.1(b)(ii) and (iii) in the aggregate are equal to or
greater than the Maximum Permissible Amount, no amount will be contributed or
allocated to the Participant's Account under this Plan for the Limitation Year.
If a Participant's Annual Additions under this Plan and all Related Plans result
in an Excess Amount, such Excess Amount shall be deemed to consist of the
amounts last allocated, except that Annual Additions attributable to a welfare
plan described in Section 8.1(b)(ii) or (iii) will be deemed to have been
allocated first regardless of the actual allocation date.
(c) If an Excess Amount was allocated to a Participant on an allocation
date of a Related Plan, the Excess Amount attributed to this Plan will be the
product of:
(i) the total Excess Amount allocated as of such date
[including any amount that would have been allocated but for
the limitations of Section 8.1(b)],
multiplied by:
(ii) the ratio of:
(A) the amount allocated to the Participant as of such date
under this Plan,
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divided by:
(B) the total amount allocated as of such date under this Plan and
all Related Plans [determined without regard to Section
8.1(b)].
(d) Prior to the determination of the Participant's actual Compensation
for a Limitation Year, the Maximum Permissible Amount may be determined on the
basis of the Participant's estimated Compensation for such Limitation Year. Such
estimated Compensation shall be determined on a reasonable basis and shall be
uniformly determined for all Participants similarly situated. Any Employer
contributions (including allocation of forfeitures) based on estimated
Compensation shall be reduced by any Excess Amounts carried over from prior
Years.
(e) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for such Limitation Year shall
be determined on the basis of the Participant's actual Compensation for such
Limitation Year.
ARTICLE IX
PARTICIPANT'S ACCOUNTS
9.1 Establishment of Accounts. The Recordkeeper shall establish and
maintain a separate account as a record of each Participant's and Former
Participant's interest in the Trust Fund with respect to each Account in which a
Participant or Former Participant has an interest, including, as appropriate,
sub- accounts for the Participant's Tax Reduction Contributions, his Investment
Plan Contributions, his Matching Company Contributions and his Rollover
Contributions. Within each such Account, one or more subaccounts shall be
maintained to reflect the Participant's investment elections among the
Investment Funds.
9.2 Allocation of Contributions to Participant's Accounts.
Subject to the limitations of Article VIII, contributions shall be
allocated to the Accounts of Participants as follows:
(a) As of each Allocation Date, but after adjustment of each
Participant's Accounts as provided in Section 9.4, each Participant's Tax
Reduction Contributions and Investment Plan Contributions deposited with the
Trustee since the last Allocation Date shall be allocated, as applicable, to the
Participant's Tax Reduction Contribution Account and Investment Plan
Contribution Account in the amount by which the Participant has elected, in
accordance with Sections 4.1 and 4.2, to defer and/or to contribute a portion of
his Compensation to the Plan during the period since the last Allocation Date;
provided,however, that the amount allocated to the Tax Reduction Contribution
Account and the Investment Plan Contribution Account of a Highly Compensated
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Employee for a Plan Year shall be subject to the limitations of Sections 5.1,
5.2 and 6.1.
(b) As of each Allocation Date, but after adjustment of each
Participant's Accounts as provided in Section 9.4, each Partici pant's Rollover
Contributions deposited with the Trustee since the last Allocation Date shall be
allocated to the Participant's Rollover Account.
(c) As of each Allocation Date ending on the last day of a calendar
quarter, but after adjustment of each Participant's Accounts as provided in
Section 9.4, Matching Company Contributions made on behalf of a Participant who
has authorized Tax Reduction Contributions and/or Investment Plan Contributions
for the period since the last Allocation Date shall be allocated to such
Participant's Matching Company Contribution Account in an amount equal to the
percentage of such Participant's Tax Reduction Contributions and/or Investment
Plan Contributions specified for that Plan Year by the Board of Directors;
provided, however, that the amount allocated to the Matching Company
Contribution Account of a Highly Compensated Employee for a Plan Year shall be
subject to the limitations of Section 6.1 and Article VII. Notwithstanding the
preceding sentence, a Participant who makes an election to receive an early
distribution under Section 11.3(d) in connection with his termination of
employment shall not receive an allocation of a Matching Company Contribution
for the quarterly Allocation Date following his termination of employment.
(d) As of the last day of each Plan Year, but after adjust ment of
Participant's Accounts as provided in Section 9.4, if an Employer made qualified
non-elective contributions for a Plan Year under Section 4.4 on behalf of
Participants who are Non-Highly Compensated Employees in order to insure that
one of the Actual Deferral Percentage tests described in Section 5.2 are met for
such Plan Year or that one of the Contribution Percentage tests described in
Section 6.1 are met for such Plan Year, such qualified non-elective
contributions shall be allocated to the Tax Reduction Contribution Account of
each Non-Highly Compensated Employee eligible to participate in such
contribution pursuant to Section 4.4 in the ratio that such Employee's
Compensation for the Plan Year bears to the Compensation for such Plan Year of
all Employees eligible to participate in such contribution. Notwithstanding the
preceding sentence, for any Plan Year, the Company may designate a specific
dollar amount to be allocated as a qualified non-elective contribution to the
Tax Reduction Contribution Account of each Non-Highly Compensated Employee
eligible to participate in such contribution pursuant to Section 4.4 for such
Plan Year.
9.3 Trust Fund Valuation. The value of each Investment Fund
and of the Trust Fund shall be determined by the Trustee as of the
close of business on each Valuation Date, or as soon thereafter as
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practicable, and shall be the fair market value of all securities or other
property held in the Investment Funds, plus cash and the fair market value of
any other assets held by the Trust Fund, with equitable adjustments for pending
trades.
While it is contemplated that the Trust Fund will be valued by the
Trustee and allocations made only on the Valuation Date, should it be necessary
to make distributions under the provisions hereof, and the Committee, in good
faith determines that, because of: (i) an extraordinary change in general
economic conditions, (ii) the occurrence of some casualty materially affecting
the value of the Trust Fund or a substantial part thereof, or (iii) a
significant fluctuation in the value of the Trust Fund has occurred since the
immediately preceding Allocation Date, the Committee may, in its sole
discretion, to prevent the payee from receiving a substantially greater or
lesser amount than what he would be entitled to, based on current values, cause
a re-valuation of the Trust Fund to be made and a reallocation of the interests
therein as of the date the payee's right of distribution becomes fixed. The
Committee's determination to make such special valuation and the valuation of
the Trust Fund as determined by the Trustee shall be conclusive and binding on
all persons ever interested hereunder.
If the Committee in good faith determines that certain expenses of
administration paid by the Trustee during the Plan Year under consideration are
not general, ordinary, and usual and should not equitably be borne by all
Participants, but should be borne only by one or more Participants, for whom or
because of whom such specific expenses were incurred, the net earnings and
adjustments in value of the Accounts shall be increased by the amounts of such
expenses, and the Committee shall make suitable adjustments by debiting the
particular Account or Accounts of such one or more Participants, Former
Participants, or Beneficiaries; provided, however, that any such adjustment must
be nondiscriminatory and consistent with the provisions of Section 401(a) of the
Code.
9.4 Adjustments to Participant's Accounts. Each Investment Fund shall
be valued at fair market value as of the close of business on each Valuation
Date. As of such Valuation Date, each Participant's interest in an Investment
Fund shall be adjusted for the net earnings, losses, appreciation and
depreciation in such Investment Fund since the immediately preceding Valuation
Date. The portion of the total net earnings, losses, appreciation or
depreciation of an Investment Fund allocated to a Participant's interest in such
Investment Fund shall be the same ratio that the value of the Participant's
interest in such Investment Fund as of the immediately preceding Valuation Date
bears to the total value of all Participants' interests in such Investment Fund
as of the immediately preceding Valuation Date; provided, however, that for this
purpose, the value of a Participant's interest as of the immediately preceding
Valuation Date shall be increased by any transfers to the Investment Fund from
another Investment Fund
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during the period for which the valuation is being made and shall be decreased
by any loans, withdrawals or other distributions to the Participant paid to the
Participant during the period for which the valuation is being made; provided,
however, that for purposes of Section 11.2, distributions other than loans and
withdrawals shall not be taken into account. All contributions and loan
repayments shall be credited as of the last day of the month during which such
contributions and loan repayments are made and shall not be credited until the
foregoing adjustments for earnings, losses, appreciation and depreciation have
been made.
9.5 Participant-Directed Investments.
(a) Investment Funds. Except as provided in Sections 9.6 and 9.7, all
contributions to the Trust that are allocated to the Tax Reduction Contribution
Account, Investment Plan Account, Rollover Account and effective July 1, 1993,
Matching Company Contribution Account of each Participant, Former Participant or
Beneficiary shall be invested in one or more of the Investment Funds (other than
the Household International, Inc. Common Stock Fund and any other Investment
Fund designated by the Committee from time to time as a Fund in which additional
participation is frozen) as directed by the Participant, Former Participant or
Beneficiary by Notice to the Committee or to the Recordkeeper (in the form and
manner prescribed by the Committee) in the minimum percentages set forth in
Section 9.5(d) or in such other minimum percentages or amounts as may be
prescribed by the Committee from time to time. The Committee may change the
Investment Funds set forth in Section 2.25 at such time as it may determine in
its sole and absolute discretion; provided, however, that the Committee shall
maintain, at a minimum, and in addition to the Eljer Industries, Inc. Common
Stock Fund, at least three investment funds representing a broad range of
investment alternatives which provide Participants, Former Participants and
Beneficiaries with a reasonable opportunity to materially affect the potential
return on amounts in their Accounts.
(b) Funding Arrangements. The Committee may use registered mutual
funds, bank-maintained collective investment funds or similar arrangements as
funding vehicles for the Investment Funds, provided that the underlying
investments of any such arrangement are consistent with the investment
objectives of the particular Investment Fund, as established by the Committee.
The Committee, in its sole and absolute discretion, may at any time establish
new Investment Funds or discontinue existing Investment Funds and may at any
time increase or decrease the number of Investment Funds that are offered to
Participants, Former Participants and Beneficiaries under the Plan.
(c) Loan Repayments. A loan to a Participant pursuant to
Article XIII shall be treated as a separate investment option with
respect to such Participant; provided, however, the transfer of
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assets from one Investment Fund to another in order to facilitate a Plan loan to
a Participant shall not constitute an investment election change pursuant to
Section 9.5(d). A loan subaccount shall be established and maintained by the
Recordkeeper and the Participant's balance in the other Investment Funds shall
be reduced in the percentages and from such Funds designated by the Participant
in accordance with rules adopted by the Committee to account for the funding of
the loan or, if the Participant fails to designate which Investment Funds shall
be used to fund his loan, the Participant's balance in the other Investment
Funds shall be reduced on a pro rata basis to account for the funding of the
loan. The Participant's loan subaccount shall be credited with interest at the
loan repayment rate. As the Participant repays the loan, the balance in the loan
subaccount shall be reduced and the Participant's balance in the Investment
Funds then selected by the Participant shall be increased by allocating the
Participant's loan repayments to such Investment Funds. Loan repayments shall be
allocated to Investment Funds in the same proportion as the Participant's
current investment direction election with respect to contributions. If the
Participant is not making current contributions, then loan repayments shall be
allocated to the Investment Funds in the same proportion as the Participant's
most recent investment direction election.
(d) Change of Future Investment Elections and Transfer of Past
Investment Elections. Except as provided in Sections 9.6, 9.8 and 9.10, and
subject to any special rules adopted by the Committee with respect to certain
Investment Funds which, by their nature, require special treatment or are
subject to particular restrictions, a Participant shall be permitted to change
the investment of any future contributions made to the Plan on his behalf
(including loan repayments pursuant to Article XIII) and to transfer
contributions to the Trust Fund previously invested in one Investment Fund and
earnings thereon to one or more other Investment Funds (other than the Household
International, Inc. Common Stock Fund or any other Investment Fund designated by
the Committee from time to time as a frozen Fund) in accordance with the
provisions of this Section 9.5(d). A change of future investment elections or a
transfer of past investment elections from one Investment Fund to another
Investment Fund shall be made in multiples of 25%, or commencing on and after
January 1, 1993, multiples of 10%, or in such other minimum percentages or
amounts as may be prescribed by the Committee from time to time.
(i) Change of Future Investment Elections. A Participant may elect to
change his investment elections for future payroll periods with respect to his
Investment Plan Contributions, his Tax Reduction Contributions, his Rollover
Contributions, his loan repayments pursuant to Article XIII and effective July
1, 1993, his Matching Company Contribution Account, effective no earlier than
the first payroll period occurring on or after the first day of the calendar
quarter commencing at least 30 days after Notice of such
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change is received by the Committee or the Recordkeeper, or commencing on and
after January 1, 1993, effective as of the first payroll period occurring on or
after the first day of any month designated by the Participant following Notice
to the Committee or the Recordkeeper provided that such Notice is received by
the Committee or the Recordkeeper on or before the 25th day of the month
preceding the month for which the change is to be effective or such other date
as may be prescribed by the Committee from time to time. A Participant may
change his future investment elections (i) twice per Plan Year for periods prior
to April 1, 1991, (ii) four times per Plan Year for periods after March 31, 1991
and prior to January 1, 1993 and (iii) for periods commencing on and after
January 1, 1993, monthly, or such other frequency as may be adopted by the
Committee from time to time.
(ii) Transfer of Past Investment Elections.
(A) Contributions Other than Matching Company Contributions.
A Participant, or if applicable, a Former Participant,
Beneficiary or Alternate Payee under a Qualified Domestic
Relations Order, may elect to transfer amounts
attributable to his past investment elections with
respect to contributions made to the Plan on his behalf
(other than Matching Company Contributions), effective no
earlier than as soon as administratively practicable
after the first day of the calendar quarter commencing at
least 30 days after Notice of such change is received by
the Committee or the Recordkeeper, or commencing on and
after January 1, 1993, effective as soon as
administratively practicable after the first day of any
month designated by the Participant (or the Former
Participant or Beneficiary, if applicable) following
Notice to the Committee or the Recordkeeper provided that
such Notice is received by the Committee or the
Recordkeeper on or before the 25th day of the month
preceding the month for which the transfer is to be
effective or such other date as may be prescribed by the
Committee from time to time. A Participant and, if
applicable, a Former Participant or Beneficiary may
transfer their past investment elections (i) twice per
Plan Year for periods prior to April 1, 1991, (ii) four
times per Plan Year for periods after March 31, 1991 and
prior to January 1, 1993 and (iii) for periods commencing
on and after January 1, 1993, monthly, or such other
frequency as may be adopted by the Committee from time to
time.
(B) Matching Company Contributions. Subject to the rules set forth
in Section 9.5(d)(ii)(A) above as to increments, timing and
frequency of investment elections, for periods prior to July
1, 1993, a Participant, or if applicable, a Former
Participant, Beneficiary or Alternate Payee
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under a Qualified Domestic Relations Order may elect to
transfer to the Eljer Industries, Inc. Common Stock Fund
amounts invested in the Household International, Inc. Common
Stock Fund that are attributable to Matching Company
Contributions made to the Prior Plan on his behalf and for
periods commencing on and after July 1, 1993, a Participant,
or if applicable, a Former Participant or Beneficiary may
elect to transfer among the Investment Funds amounts
attributable to Matching Company Contributions made to the
Plan and/or the Prior Plan on his behalf; provided, however
that no such amounts may be transferred into the Household
Fund.
(e) Failure to Provide Investment Instructions. If a Participant or
Former Participant fails to provide instructions to the Committee directing the
investment of any contribution to the Trust or amount held by the Trust for
which the Participant or Former Participant may direct the investment, such
contribution or other amount, pending the Committee's receipt of proper
investment instructions from the Participant or Former Participant, shall be
invested in such Investment Fund or Funds as may be designated by the Committee
from time to time for such purpose. If a Beneficiary of a deceased Participant
or an Alternate Payee under a Qualified Domestic Relations Order fails to
provide instructions to the Committee directing the investment of any amount
held by the Trust for which such Beneficiary or Alternate Payee may direct the
investment, such amount, pending the Committee's receipt of proper investment
instructions from the Beneficiary or Alternate Payee, shall continue to be
invested in the manner last elected by the Participant from whose Account such
amount arose.
(f) Participant Investment Directions. It is intended that the rights
given to Participants to direct the investment of their Accounts, as set forth
in this Section 9.5, satisfy the provisions of Section 404(c)(2) of ERISA and
Department of Labor regulations promulgated thereunder. Accordingly,
notwithstanding any other provisions of the Plan, in no event shall any person
who is otherwise a fiduciary under this Plan be liable for any loss, or by
reason of any breach under ERISA, which results from a Participant's direction
of the investment of his Account.
9.6 Investment of Matching Company Contributions. Except as elected
otherwise by a Participant pursuant to Section 9.7, for periods prior to July 1,
1993, Matching Company Contributions shall be invested in the Eljer Industries,
Inc. Common Stock Fund and may be made in the form of shares of Company Stock or
cash. Although the Trustee shall have the sole discretion to purchase Company
Stock at such times, in such amounts and at such prices as the Trustee deems
appropriate, it is the intent of the Company that all Matching Company
Contributions made to the Plan prior to July 1, 1993 shall be invested in the
Eljer Industries, Inc. Common Stock Fund as soon as administratively practicable
following the date
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such contributions are made. Effective July 1, 1993, Participants may direct the
investment of Matching Company Contributions among the Investment Funds in
accordance with Section 9.5.
9.7 Age 50 Diversification Election. Notwithstanding the provisions of
Section 9.6, effective July 1, 1992, any Participant who has attained age 50 may
elect to transfer all or a portion of his Matching Company Contribution Account
and to change the investment of future Matching Company Contributions from the
Eljer Industries, Inc. Common Stock Fund and, if applicable, the Household
International, Inc. Common Stock Fund to one or more other Investment Funds
(except the Household International, Inc. Common Stock Fund or any other
Investment Fund designated by the Committee from time to time as a frozen Fund)
in accordance with the provisions of this Section 9.7.
(a) Change of Investment of Future Matching Company Contributions. An
election to change the investment of future Matching Company Contributions
pursuant to this Section 9.7 shall be in multiples of 25% of future Matching
Company Contributions made to the Plan on the Participant's behalf, or
commencing on and after January 1, 1993, in multiples of 10% or 25% (or such
other minimum percentages or amounts as may be prescribed by the Committee from
time to time) of future Matching Company Contributions made to the Plan on the
Participant's behalf, and may be made at the time or times authorized by Section
9.5(d)(i) with respect to a change of the Participant's other future investment
elections. Any change of future investment elections with respect to Matching
Company Contributions may be made by a Participant effective no earlier than the
first payroll period occurring on or after the first day of the calendar quarter
commencing at least 30 days after Notice of such change is received by the
Committee or the Recordkeeper, or commencing on and after January 1, 1993,
effective as of the first payroll period occurring on or after the first day of
any month designated by the Participant following Notice to the Committee or the
Recordkeeper provided that such Notice is received by the Committee or the
Recordkeeper on or before the 25th day of the month preceding the month for
which the change is to be effective or such other date as may be prescribed by
the Committee from time to time.
(b) Transfer of Past Matching Contributions. An election to transfer
the investment of past Matching Company Contributions pursuant to this Section
9.7 shall be made in multiples of 25% of the value of the Participant's Matching
Company Contribution Account invested in the Eljer Industries, Inc. Common Stock
Fund and the Household International, Inc. Common Stock Fund, or commencing on
and after January 1, 1993, in multiples of 10% or 25% (or such other minimum
percentages or amounts as may be prescribed by the Committee from time to time)
of the value of the Participant's Matching Company Contribution Account invested
in such Funds, and may be made at the time or times authorized by
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Section 9.5(d)(ii) with respect to a change of the Participant's other past
investment elections. A transfer of the investment of amounts held in a
Participant's Matching Company Contribution Account may be made by a Participant
effective no earlier than as soon as administratively practicable after the
first day of the calendar quarter commencing at least 30 days after Notice of
such change is received by the Committee or the Recordkeeper, or commencing on
and after January 1, 1993, effective as soon as administratively practicable
after the first day of any month designated by the Participant following Notice
to the Committee or the Recordkeeper provided that such Notice is received by
the Committee or the Recordkeeper on or before the 25th day of the month
preceding the month for which the transfer is to be effective or such other date
as may be prescribed by the Committee from time to time.
9.8 Special Investment Rules for 1989 Plan Year.
(a) Notwithstanding any provision of the Plan, the Committee shall
adopt special rules with respect to the investment of Participants' Tax
Reduction Contributions and Investment Plan Contributions for the short Plan
Year that commenced on April 1, 1989. Such special rules shall include, but
shall not be limited to, a rule that precludes the investment of Participants'
contributions made in the 1989 short Plan Year in Company Stock until a
registration statement has been filed with the Securities and Exchange
Commission and such registration statement has become effective with respect to
the Plan.
(b) Within such time period as the Committee deems appropriate, the
Committee shall direct that shares of stock in Schwitzer, Inc. and Scotsman
Industries, Inc. received by the Plan as a consequence of the spinoff of such
companies by Household International, Inc. in April, 1989 be sold or exchanged
and that shares of Company Stock be substituted therefor. Any such sale or
exchange may be made with the Schwitzer Tax Reduction Investment Plan or the
Scotsman Tax Reduction Investment Plan or in the open market but, in all events,
shall be made at fair market value.
9.9 Qualified Domestic Relations Orders. The Committee shall establish
policies and procedures for reviewing domestic relations orders relating to a
Participant's interest in the Plan. The Committee or its delegate shall
determine whether any such domestic relations order is a Qualified Domestic
Relations Order. If an Alternate Payee does not receive an immediate
distribution pursuant to Section 11.10, the Committee shall direct the
Recordkeeper to identify the Alternate Payee's interest in the Trust Fund
pending a distribution to Alternate Payee.
9.10 Special Rules Relating to Transactions By Certain
Officers, Directors and Shareholders. Notwithstanding the
foregoing provisions of this Article IX or any other provision of
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the Plan, the administration of the Plan's provisions regarding investment
elections, investment transfers, contributions and withdrawals, are subject to
all restrictions of any applicable securities laws, including restrictions on
certain officers, directors and shareholders of Affiliated Companies (such
individuals hereinafter referred to as "insiders") with respect to the purchase
and sale of Company Stock or other Employer securities. The Board of Directors,
or if permitted pursuant to applicable securities laws, the Committee, shall
adopt written procedures which shall form a part of the Plan establishing such
rules, restrictions and limitations on insiders' transactions in Employer
securities under the Plan as may be necessary to comply with applicable
securities laws.
ARTICLE X
PARTICIPANT VESTING
10.1 Vesting of Accounts. A Participant shall at all times be fully
vested in all amounts credited to his Tax Reduction Contribution Account,
Investment Plan Contribution Account and his Rollover Account, including any
such contributions made for the Plan Year of the Participant's termination of
employment but not yet allocated. Amounts credited to a Participant's Matching
Company Contribution Account shall become fully vested upon the occurrence,
while employed by an Affiliated Company, of (i) a Participant's attainment of
his Normal Retirement Date, (ii) a Participant's Disability or (iii) a
Participant's death. In addition, the Committee may, in its sole and absolute
discretion, fully vest the Matching Company Contribution Accounts of similarly
situated Participants in special circumstances including, but not limited to, a
sale of stock or assets of an Employer.
10.2 Termination of Service Prior to Normal Retirement Date, Disability
or Death. If a Participant's employment terminates prior to his Normal
Retirement Date for any reason other than Disability, death, or an event
referred to in Section 10.1, the portion of such Participant's Matching Company
Contribution Account, if any, that shall be vested shall be determined according
to the following schedule:
<TABLE>
<CAPTION>
Years of Matching Vested Forfeited
Company Account Percentage Percentage
- ------------------ ---------- ----------
<S> <C> <C>
less than 1 0% 100%
1 but less than 2 20% 80%
2 but less than 3 40% 60%
3 but less than 4 60% 40%
4 or more 100% 0%
</TABLE>
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<PAGE>
For purposes of this Section 10.2, "Years of Matching Company Account" will be
measured in calendar quarters beginning with the calendar quarter with respect
to which the Participant first has Matching Company Contributions allocated to
his account (or, if he was a Participant in the Prior Plan, had such
contributions allocated to his account in the Prior Plan) and ending with the
calendar quarter in which the Participant's employment is terminated.
Notwithstanding the foregoing vesting schedule, a Participant shall be
100% vested in amounts allocated to his Matching Company Contribution Account
after 5 Years of Service, determined in accordance with Article III hereof. The
value of a Participant's vested benefit shall be determined as of the Valuation
Date immediately preceding the Participant's Annuity Starting Date. Such payment
shall be made at such times and in such manner as provided in Article XI.
10.3 Forfeiture of Non-Vested Portion of Account. The portion of a
Participant's Account attributable to Matching Company Contributions in which he
is not vested when his employment with the Company or an Affiliated Company is
terminated shall be forfeited upon the earlier of (i) the date he receives a
distribution of his entire vested interest (including for this purpose, an
annuity contract that represents his right to such vested interest), or (ii) the
fifth anniversary of the Participant's severance from service date, as defined
in Section 3.6. A Participant who does not have any vested interest in the
portion of his Account attributable to Matching Company Contributions as of his
severance from service date shall be deemed to have received a distribution for
purposes of this Section 10.3 as of his severance from service date. The
non-vested portion of a Participant's Account shall be forfeited in accordance
with this Section 10.3 and Section 11.9, and the forfeitures shall be applied as
set forth in Section 11.12.
10.4 Restoration of Non-Vested Interest. If, following his termination
of employment, a Participant received a distribution, or was deemed to have
received a distribution pursuant to Section 10.3, of his entire vested interest
under the Plan and then is re-employed and performs an Hour of Service prior to
the fifth anniversary of the date on which he received (or was deemed to have
received) a distribution, the entire amount forfeited, unadjusted for gains and
losses following the distribution, shall be restored to his Account. At any time
thereafter, the amount in which he is vested shall be determined by applying his
vested percentage against the sum of the distribution and the amount restored;
provided, however, that the amount actually distributed to him upon his
subsequent termination of employment shall be offset by the amount previously
distributed. The amount to be restored shall be credited first against
forfeitures arising for the Plan Year, and if such forfeitures are not
sufficient to satisfy the amount to be
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restored in full, such amount shall be satisfied out of Employer contributions
for the Plan Year, which contributions shall be supplemented for the Plan Year
by an amount equal to such remainder. The amount restored shall not be deemed an
Annual Addition or portion thereof for any Limitation Year.
ARTICLE XI
PAYMENT OF BENEFITS
11.1 Withdrawals During Employment.
(a) A Participant, upon Notice, may, during his employment, elect to
withdraw amounts from his Account pursuant to this Section 11.1 to the extent
vested under Article X; provided, however, that with respect to each withdrawal,
a minimum of $500 (or, if less, the balance of the Participant's Account) must
be withdrawn and a Participant may receive no more than two non-hardship
withdrawals during any Plan Year. The provisions of Category A and Category B
below shall be effective January 1, 1991. A Participant must withdraw all
amounts eligible for withdrawal, if any, in each category below (listed in
descending order) before amounts in the next lower category may be withdrawn:
Category A: All of his Investment Plan Contributions made prior to 1987
under the Prior Plan excluding earnings attributable to such contributions. A
Participant may withdraw amounts from this category no more often than twice in
any Plan Year.
Category B: All of his other Investment Plan Contributions and earnings
attributable to Investment Plan Contributions (including earnings attributable
to pre-1987 Investment Plan Contributions); provided, however, that the most
recent twenty-four months of Investment Plan Contributions that were matched by
Matching Company Contributions and the earnings attributable to such
contributions may not be withdrawn unless a Participant has participated in the
Plan (or the Plan and the Prior Plan) for at least five years. A Participant may
withdraw amounts from this category no more often than twice in any Plan Year.
Category C: In the case of a Participant who has been a Participant in
the Plan (including participation in the Prior Plan) for five or more years, all
or any portion of his Matching Company Contributions (plus earnings thereon) and
all or any portion of the earnings on his Investment Plan Contributions. A
Participant may withdraw amounts from this category no more often than once in
any Plan Year.
Category D: All or any portion of his Rollover Contribution (plus
earnings thereon). A Participant may withdraw amounts from this category no more
often than twice in any Plan Year.
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Category E: All or any portion of his Tax Reduction Contributions (but
only to the extent of the value of the Participant's Tax Reduction Contribution
subaccount in the Prior Plan as of December 31, 1988 plus the amount of his Tax
Reduction Contributions to the Prior Plan and to this Plan thereafter) that is
needed to satisfy a hardship created by an immediate and heavy financial need,
subject to the following rules and procedures:
(i) A withdrawal for hardship may be made only if the
Participant has:
(A) withdrawn the maximum amount available under the
foregoing Categories A-D;
(B) withdrawn the maximum amount available to him under any
other qualified plan maintained by an Affiliated Company;
and
(C) taken out the maximum loan amount pursuant to the provisions
of Article XIII.
(ii) A withdrawal for a hardship may be made only for the
following reasons:
(A) medical expenses described in Section 231(d) of the Code
incurred by the Participant, his spouse or any dependents (as
defined in Section 152 of the Code) or necessary for such
persons to obtain medical care as described in Section 213(d)
of the Code;
(B) costs directly related to the purchase (excluding
mortgage payments) of a principal residence of the
Participant;
(C) payment of tuition and related educational fees for the next
12 months of post-secondary education for the Participant or
his spouse, children or dependents (as defined in Section 152
of the Code); or
(D) payments necessary to prevent eviction of the Participant from
his principal residence or foreclosure on the mortgage of the
Participant's principal residence.
(iii) A withdrawal for a hardship may be made only once during any Plan
Year and may be made only under the following terms and conditions:
(A) the withdrawal shall not exceed the amount of the
hardship;
(B) the Participant may not make any Tax Reduction
Contributions or Investment Plan Contributions under this
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Plan or before-tax or after-tax contributions to any other
pension, profit sharing, deferred compensation or stock
purchase plan maintained by an Affiliated Company (whether
such plan is qualified or nonqualified) but excluding any
health or welfare plan (including a cafete ria plan within the
meaning of Section 125 of the Code) for a period beginning
with the payroll period next following the date he receives
the hardship withdrawal and ending with the last day of the
calendar quarter that is at least 12 months following the
receipt of the hardship withdrawal; and
(C) the Participant may not make Tax Reduction Contributions
to this Plan or before-tax contributions any other pen
sion or profit sharing plan maintained by an Affiliated
Company for the Participant's taxable year immediately
following the taxable year of a hardship distribution in
excess of the applicable limits under Section 402(g) of
the Code for such taxable year less the amount of such
Participant's Tax Reduction Contributions for the taxable
year of the hardship withdrawal.
(iv) The determination of the amount of an immediate and heavy
financial need for purposes of this subsection shall, at the
Participant's election, include any amounts necessary to pay any
federal, state or local income taxes, based on applicable supplemental
withholding tables, and penalties resulting from the withdrawal for a
hardship under this Section 11.1(a).
(b) Any participant who has attained age 59-1/2 may elect once each
Plan Year to withdraw all or a portion of his Tax Reduction Contributions and
the earnings thereon, regardless of whether he meets the hardship requirements
hereof, provided he has first exhausted all amounts eligible for withdrawal in
Categories A through D of Section 11.1(a). All withdrawals under this Section
11.1 shall be made as soon as administratively practicable after the first day
of any month, as elected by the Participant, following the date the
Participant's Notice of withdrawal is received by the Recordkeeper with respect
to withdrawals under Categories A through D of Section 11.1(a) and Section
11.1(b) or the Committee with respect to withdrawals under Category E of Section
11.1(a) specifying the category of the withdrawal and the amount requested to be
withdrawn, if the Recordkeeper or, if applicable, the Committee receives such
Notice on or before the 25th day of the preceding month; provided, however, that
hardship withdrawals shall be made as soon as administratively practicable
following the date Notice is received by the Committee and the Committee
approves the withdrawal. All withdrawals under this Section 11.1 shall be based
on the value of the Participant's Investment Plan Contribution Account, his Tax
Reduction Contribution Account, his Matching Company Contribution Account and
his Rollover Account, as the case might be, as of the Valuation
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Date immediately preceding receipt of the Participant's Notice by the
Recordkeeper or, if applicable, the Committee. Upon approving the amount of any
withdrawal, the Recordkeeper shall furnish the Trustee with written instructions
directing the Trustee to make a single sum payment of the withdrawal. Except as
provided in the following sentence, payments from the Investment Funds shall be
in cash. Payments from the Eljer Industries, Inc. Common Stock Fund and the
Household International, Inc. Common Stock Fund shall be in cash or stock or a
combination of both, as elected by the Participant; provided, however, that (i)
a hardship withdrawal only may be made in cash, (ii) no distribution of less
than twenty (20) shares will be made from either the Eljer Industries, Inc.
Common Stock Fund or the Household International, Inc. Common Stock Fund, and
(iii) partial shares of stock held in the Funds described in (ii) above will be
paid in cash. Withdrawals under this Section 11.1 shall, to the extent required
by the Code, be subject to the provisions of Section 11.11. A Participant may,
subject to any restrictions and limitations imposed on a particular Investment
Fund, direct withdrawals under this Section 11.1 which are less than the full
value of any Account from which an amount is withdrawn to be charged to any one
or more of the Investment Funds in which such Account is invested. Such
direction shall be given by the Participant with his Notice to withdraw and
shall specify the manner in which the withdrawal will be allocated among the
Investment Funds. If a Participant does not specify the manner in which a
withdrawal shall be allocated among Investment Funds, the Committee shall
allocate the withdrawal on a pro rata basis among the Participant's Investment
Fund elections, subject to any restrictions or limitations applicable to a
particular Investment Fund. The Committee or its delegate from time to time may
establish procedures that govern the tax treatment of withdrawals from the Plan,
which procedures shall not necessarily be consistent with the categories of
withdrawals provided under this Article XI. Unless the Committee or its delegate
determines otherwise, however, Categories A and B of Section 11.1(a) shall be
treated as a single contract for Federal income tax purposes.
11.2 Amounts Payable Following Termination of Service. Upon a
Participant's termination of employment, distributions from the Plan shall be
made, to the extent vested under Article X, at the time specified in Section
11.3 (subject to the provisions of Section 11.6) and in the form specified in
Section 11.4.
11.3 Time of Payment.
(a) Retirement. In the event a Participant terminates employment with
the Employer after (i) attaining his Normal Retirement Date or (ii) satisfying
the requirements for early retirement under any defined benefit pension plan
maintained by the Employer in which he participates, unless the Participant
elects to defer payment pursuant to this Section 11.3(a), payment of the
Participant's entire Account shall commence as soon as administratively
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practicable after the Quarterly Valuation Date coinciding with or next following
the Participant's severance from service date, provided that the Committee has
received at least 30 days advance written notice of the Participant's severance
from service date. The amount distributable shall be valued as of such Quarterly
Valuation Date, or such later Valuation Date selected by the Participant in the
event the Participant elects to defer payment as provided herein. A Participant
described in this Section 11.3(a) may, regardless of the value of his Account,
elect to defer payment of his Account to any Valuation Date after his severance
from service date specified by him, but no later than December 31 of the Plan
Year immediately following the later of (i) the Plan Year in which he terminates
employment with the Employer or (ii) the Plan Year in which he attains age 65.
An election of a Participant to defer payment of benefits shall be made by
submitting to the Committee a written statement signed by the Participant,
describing the benefits and the Valuation Date on which the Participant requests
that the payments commence; provided, however, a Participant may not elect to
defer receipt or commencement of receipt of benefits beyond the date required
pursuant to Section 401(a)(9) of the Code. The value of the Participant's
Account shall be determined as of the Valuation Date selected by the Participant
pursuant to his deferral election and payment shall commence as soon as
administratively practicable following such Valuation Date.
(b) Death or Disability. In the case of the death or Disability of a
Participant (whether before or after a Participant's severance from service date
with the Employer), except in the case of a distribution deferred pursuant this
Section 11.3(b) or Section 11.3(e), payment of the Participant's entire Account
shall commence as soon as administratively practicable after the Quarterly
Valuation Date that coincides with or next follows 30 days advance written
notice to the Committee of proof of the Participant's death or, if applicable,
30 days following the determination by the Committee of the Participant's
Disability. The amount distributable shall be valued as of such Quarterly
Valuation Date, or such later Valuation Date in the event the Participant (or
Beneficiary) elects to defer payment as provided herein. Subject to the
provisions of Section 11.6, a Beneficiary of a Participant who was eligible to
receive a distribution pursuant to Section 11.3(a) as of the date of his death,
may elect to defer payment of the Participant's Account to any Valuation Date
specified by the Beneficiary, but not later than December 31 of the Plan Year
immediately following the Plan Year in which the Participant died. An election
by a Beneficiary to defer payment of benefits shall be made by submitting
written notice to the Committee in the same manner described for a Participant
in Section 11.3(a). The value of the Participant's Account shall be determined
as of the Valuation Date selected by the Beneficiary pursuant to his deferral
election and payment shall commence as soon as administratively practicable
following such Valuation Date.
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(c) Other Severance from Service. Subject to the provisions of Sections
11.3(d) and 11.3(e), upon a Participant's termination of employment with the
Employer for any reason other than the Participant's attainment of his Normal
Retirement Date, his death or his Disability, the Participant's vested Account
shall become distributable to him as soon as administratively practicable after
the Quarterly Valuation Date next following the Participant's severance from
service date, provided that the Committee has received at least 30 days advance
written notice of the Participant's severance from service. The amount payable
shall be valued as of such Quarterly Valuation Date. Pending distribution
pursuant to this Section 11.3(c), the Participant's Account shall continue to
share in the earnings and losses of the Trust until the Valuation Date for which
such deferred distribution is made and the Participant's rights with respect to
his Account shall be subject to the provisions of Section 11.3(f).
(d) Earlier Distribution; Waiver of Matching Company Contributions. A
Participant (or Beneficiary) may elect to receive his vested Account as soon as
administratively practicable following a monthly Valuation Date after his
severance from service date (or death) but earlier than the Quarterly Valuation
Date set forth in Sections 11.3(a), (b) and (c) hereof, provided that the
Committee has received at least 30 days advance written notice of the
Participant's severance from service date (or death). The amount distributable
shall be valued as of such earlier monthly Valuation Date. Notwithstanding any
other provision of the Plan, a Participant (or Beneficiary) who makes an
election under this Section 11.3(d) shall not be entitled to any Matching
Company Contributions with respect to the calendar quarter in which the
Valuation Date described hereunder occurs.
(e) Limitation on Involuntary Payment of Benefits and Lump Sum
Cashouts. Notwithstanding any provision of this Article XI to the contrary,
subject to the provisions of Section 11.3(d), if upon termination of a
Participant's employment with an Employer the value of the Participant's vested
Account does not exceed $3,500, the Committee shall direct the Trustee to
distribute the value of the Participant's vested Account to the Participant (or,
in the event of the Participant's death, to the Participant's Beneficiary) or to
an eligible retirement plan as defined in Section 402(c)(8)(B) of the Code
pursuant to the Participant's (or, if applicable, the Participant's spouse's or
former spouse's) direct rollover election described in Section 11.11, in a
single lump sum as soon as administratively practicable after the Quarterly
Valuation Date next following the Participant's severance from service date. If
upon termination of a Participant's employment with an Employer for any reason
other than death the then value of the Participant's vested Account exceeds
$3,500, no distribution of the Participant's vested Account to the Participant
may occur prior to the Participant's Normal Retirement Date unless the
Participant files with the Committee a written request for the payment of his
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vested Account, such request expressly to consent to the payment. If the
Participant files such a request, the Committee shall direct the Trustee to pay
such amount to the Participant as soon as administratively practicable after the
later of (i) the Quarterly Valuation Date following the Participant's separation
from service date or (ii) the Valuation Date next following receipt of said
request. If such a Participant does not consent to a distribution, the Trustee
shall continue to hold the Participant's vested Account in trust and shall
distribute the Participant's vested Account in a single lump sum payment as soon
as administratively practicable following the Valuation Date coinciding with or
next following the date the Participant attains his Normal Retirement Date. In
accordance with rules prescribed by the Committee, a Participant who does not
consent may elect to defer his distribution until a date which is as soon as
administratively practicable following any Valuation Date thereafter, but not
later than the Valuation Date coinciding with or next following the
Participant's Normal Retirement Date, valued as of such later Valuation Date.
Except as provided otherwise herein, no consent to a distribution shall be valid
unless the Participant has received a notice describing the material features,
and an explanation of the relative values, of the forms of benefit available
under the Plan with respect to the distribution and a notice describing the
Participant's direct rollover rights described in Section 11.11 hereof, no less
than 30 days and no more than 90 days before the Annuity Starting Date. If the
distribution is one to which sections 401(a)(11) and 417 of the Code do not
apply, such distribution may commence less than 30 days after the notice
required under section 1.411(a)-11(c) of the Income Tax Regulations is given,
provided that (i) the Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and (ii) the Participant,
after receiving the notice, affirmatively elects a distribution.
(f) Treatment of Accounts in the Case of Deferred Distribution. If a
Participant or Beneficiary elects to defer distribution of the Participant's
vested interest pursuant to Sections 11.3(a), (b), (c) or (e) hereof, the
Participant's Account shall continue to share in the earnings and losses of the
Trust until the applicable Valuation Date under Sections 11.3(a), (b), (c) or
(e). Transfers among Investment Funds shall be permitted until the applicable
Valuation Date. However, except as provided in Section 13.7, loans granted under
Article XIII shall be immediately due and payable upon the Participant's
severance from service date.
(g) Forfeiture of Non-Vested Account Upon Distribution. As
of the date of the distribution of a Participant's vested Account
pursuant to this Section 11.3, the non-vested portion of the
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Participant's Account shall be forfeited, subject to restoration as provided in
Section 10.4.
11.4 Method of Payments.
(a) Except as provided in Section 11.4(b), payments to a Participant,
Former Participant or Beneficiary shall be made in the form of a single lump sum
payment in cash of the total amount due; provided, however, that a Participant
or Former Participant may elect to receive a portion of his lump sum payment
attributable to (i) his interest in the Eljer Industries, Inc. Common Stock
Fund, in the form of shares of Company Stock, (ii) his interest, if any, in the
Household International, Inc. Common Stock Fund, in shares of common stock of
Household International, Inc. and (iii) for a Participant, Former Participant or
Beneficiary who receives a distribution on or before June 30, 1993, his
interest, if any, in the Equity Securities Fund, in shares of the Fidelity
Equity-Income Fund. Notwithstanding the preceding sentence, no distribution of
less than twenty (20) shares shall be made from either the Eljer Industries,
Inc. Common Stock Fund or the Household International, Inc. Common Stock Fund
and partial shares in each such fund will be paid in cash.
(b) Notwithstanding the provisions of Section 11.4(a), subject to
Section 11.6, a Participant, Former Participant or Beneficiary may elect to have
the value of his Accounts paid in one or more of the following manners:
(i) A Participant or Former Participant who became a Participant prior
to July 1, 1989 and who does not have a loan outstanding may elect to
receive his distribution in a single sum, as an immediate annuity
purchased under the group annuity contract or contracts, or as a
combination of both, or in any other form available through a group
annuity contract issued to the Plan by a legal reserve life insurance
company authorized to do business in the State of Texas; provided,
however, that if an annuity form of payment is chosen, then unless
otherwise elected pursuant to Section 11.4(c), a married Participant's
vested Account shall be paid in the form of a Qualified Joint and
Survivor Annuity (as long as the Participant does not die before his
annuity starting date, in which case the Participant's vested Account
shall be paid in the form of a Qualified Preretirement Survivor Annuity
to his surviving spouse. The forms of immediate annuity available under
the group annuity contract or contracts shall include the following:
(A) Qualified Joint and Survivor Annuity. An annuity for the
life of the Participant or Former Participant with a
survivor annuity for the life of such Participant's
spouse which is not less than one-half, or greater than,
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the amount of the annuity payable during the joint lives
of the Participant and such Participant's spouse; and
(B) Annuity Certain and Life. An annuity for the life of the
Participant or Former Participant with a guaranteed minimum
number of monthly payments as specified by the Participant or
Former Participant.
(ii) A Participant, Former Participant or eligible Beneficiary may
elect a direct rollover to an eligible retirement plan as described in
Section 402(c)(8)(B) of the Code pursuant to the provisions of Section
11.11.
Notwithstanding the foregoing provisions, no Participant or Former Participant
may elect to distribution in the form of an annuity unless the annuity payments
will equal or exceed $30 per month.
(c) A Qualified Joint and Survivor Annuity (herein so called) is an
annuity for the life of the Participant with a survivor annuity for the life of
the spouse equal to not less than 50 percent of the amount of the annuity which
is payable during the joint lives of the Participant and his spouse, and which
is the actuarial equivalent of a single life annuity for the life of the
Participant. A Qualified Preretirement Survivor Annuity (herein so called) is an
annuity for the life of the surviving spouse that is actuarially equivalent to
100 percent of the vested Account of the Participant (as of his date of death).
A Participant may elect at any time during the applicable election
period to waive the Qualified Joint and Survivor Annuity in favor of a single
life annuity or another form of distribution available under the Plan, and may
revoke such election at any time during the applicable election period, provided
that, for the election to be effective, (i) the Participant's spouse must
consent in writing to such election, such spouse's consent must acknowledge the
effect of such election, and her signature must be witnessed by a Plan
representative or notary public (or it must be established to the satisfaction
of a Plan representative that the consent may not be obtained because there is
no spouse, because the spouse cannot be located, or because of such other
circumstances as the Secretary of the Treasury may by regulations prescribe);
and (ii) the Plan must provide to each Participant, within a reasonable period
of time before the Annuity Starting Date (and consistent with such regulations
as the Secretary of Treasury may prescribe), a written explanation of the terms
and conditions of the Qualified Joint and Survivor Annuity, the Participant's
right to make, and the effect of, an election to waive the same, the rights of
the Participant's spouse, and the right to make, and the effect of, a revocation
of such election. For purposes of this Section 11.4(c), the "application
election period" is the 90 day period ending on the Annuity Starting Date.
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In the case of a married Participant who elects a life annuity form of
benefit and dies prior to his Annuity Starting Date, such that the Participant's
surviving spouse shall receive a Qualified Preretirement Survivor Annuity
pursuant to Section 11.4(b), the spouse may elect in writing to waive such
survivor annuity in favor of a single lump sum payment equal to the
Participant's vested Account as of his date of death.
(d) Notwithstanding the foregoing provisions of this Section 11.4, the
phrase "single lump sum payment" as used herein shall not include the
distribution of an insurance contract providing for (i) a life annuity to a
Participant, (ii) a joint and survivor annuity to a Participant and his
Beneficiary, or (iii) any other form of payment having the effect of (i) or (ii)
above.
11.5 Minority or Legal Disability of Distributee. During the minority
or legal disability of a person entitled to receive benefits hereunder, the
Committee may, in its sole discretion, direct payment of all or any portion of
such benefits due such person directly to him or to his spouse or a relative or
to any individual or institution having custody of such person. Neither an
Employer, the Committee nor the Trustee shall be required to see to the
application of any payments so made and the receipt of the payee (including the
endorsement of a check or checks) shall be final, binding and conclusive as to
all interested parties. Any payment made pursuant to the power herein conferred
upon the Committee shall operate as a complete discharge of all obligations of
the Trustee and the Committee, to the extent of the distributions so made.
11.6 Additional Requirements Relating to Benefit Payments.
Unless a Participant otherwise elects, payment of benefits
under the Plan to the Participant will begin not later than the 60th day after
the end of the Plan Year in which the latest of the following events occur:
(a) the date on which the Participant attains his Normal
Retirement Age;
(b) the tenth anniversary of the year in which the
Participant commenced participation in the Plan; or
(c) the Participant terminates employment with the Employer.
Notwithstanding any other provisions of the Plan, all distributions required
under this Article XI shall be determined and made in accordance with Section
401(a)(9) of the Code and the Treasury Regulations thereunder, including the
minimum distribution incidental benefit requirements of Treasury Regulation
Section 1.401(a)(9)-2.
11.7 Claims Procedure. The Committee shall make all
determinations as to the right of any person to receive a benefit
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from the Plan. The denial by the Committee of a claim for benefits under the
Plan, including but not limited to, a claim for distribution, loan or
withdrawal, shall be stated in a written instrument signed by the Committee and
delivered to or mailed to the claimant within 60 days after receipt of the claim
by the Committee, unless special circumstances require an extension of time for
processing the claim, in which case a determination shall be made as soon as
possible, but in no event later than 120 days after receipt of the claim.
Written notice of the extension shall be furnished to the claimant prior to the
termination of the initial 60-day period and shall indicate the circumstances
requiring the extension and the date by which the Committee expects to render
its decision. The written decision shall set forth:
(a) the specific reason or reasons for the denial;
(b) a specific reference to the pertinent provisions of the
Plan on which the denial is based;
(c) a description of any additional material or information
necessary for the claimant to perfect a claim and an explanation of
why such material or information is necessary; and
(d) a statement that the claimant may:
(i) request a review upon written application to the
Committee;
(ii) review pertinent plan documents; and
(iii) submit issues and comments in writing.
If notice of the denial is not furnished in accordance with the above procedure,
the claim shall be deemed denied and the claimant shall be permitted to proceed
with the review procedure. A request by the claimant for a review of the denied
claim must be delivered to the Committee within 60 days after receipt by such
claimant of written notification of the denial of such claim. The Committee
shall, not later than 60 days after receipt of a request for a review, make a
determination concerning the claim. If special circumstances require, the
Committee shall notify the claimant that an extension of time for processing,
not in excess of 120 days after receipt of the request for review, is necessary.
A written statement stating the decision on review, the specific reasons for the
decision, and the specific provisions of the Plan on which the decision is based
shall be mailed or delivered to the claimant within such 60 (or 120) day period.
If the decision on review is not furnished within the appropriate time, the
claim shall be deemed denied on review. All communications from the Committee to
the claimant shall be written in a manner calculated to be understood by the
claimant. All interpretations, determinations and decisions by the Committee in
respect of any matter hereunder
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will be final, conclusive, and binding upon the Employer,
Participants, Former Participants, Beneficiaries, and all other
persons claiming an interest in the Plan.
11.8 Committee's Duty to Trustee. The Committee will notify the Trustee
at the appropriate time of all facts which may be necessary hereunder for the
proper allocation of increases, decreases, expenses, and contributions for
Participants, the proper payment or distribution of benefits, or the proper
performance of any other act required of the Trustee hereunder. The Committee
will notify the Trustee of such facts as are needed by the Trustee to perform
its functions under the Plan. The Committee will secure appropriate elections,
directions, and designations for Participants, Former Participants, and
Beneficiaries provided for in the Plan.
11.9 Duty to Keep Committee Informed of Distributee's Current Address.
Each Participant, Former Participant and Beneficiary must file with the
Committee from time to time in writing his mailing address and each change of
mailing address. Any communication, statement or Notice addressed to a
Participant, Former Participant or Beneficiary at his last mailing address filed
with the Committee or if no address is filed with the Committee then at the last
mailing address as shown on an Employer's records, will be binding on the
Participant, Former Participant and their Beneficiaries for all purposes of the
Plan. Neither the Committee nor the Trustee shall be required to search for or
locate a Participant, Former Participant or Beneficiary. In connection with the
payment of any benefits, the Committee shall mail by registered or certified
mail to the Participant, Former Participant or Beneficiary at his last known
address his distribution under the Plan. If the distribution is returned to the
Committee, the unpaid amounts will be invested in an Investment Fund consisting
primarily of fixed income investments. If the Participant, Former Participant or
Beneficiary fails to claim his benefits under the Plan within three years after
the date of the distribution, the Committee will direct that all unpaid amounts
which would have been payable to such Participant, Former Participant or
Beneficiary will be forfeited as of the next Valuation Date and applied to
reduce Matching Company Contributions as provided in Section 4.8. In the event
that the Participant, Former Participant or Beneficiary is subsequently located,
the unpaid amounts as of the date of the forfeiture will be paid to such
Participant, Former Participant or Beneficiary. The funds used to make such
distribution will be paid from forfeitures. In the event the forfeitures are not
adequate to effect the distribution, the Employer shall make such additional
contribution to the Plan as is necessary to make such distribution.
11.10 Distribution Pursuant to Qualified Domestic Rela-
tions Orders. Notwithstanding any other provision of the Plan to
the contrary, if the provisions of a Qualified Domestic Relations
Order provide that distributions shall be made to an Alternate
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Payee prior to the time that the Participant with respect to whom the Alternate
Payee's benefits are derived attains age 50 or would be entitled to a
distribution of assets from the Plan, the Trustee shall commence payments to the
Alternate Payee as soon as administratively practicable following the later of
(i) the receipt of such Qualified Domestic Relations Order by the Committee or
(ii) the date the Committee receives the Alternate Payee's written consent to
such distribution. Unless specified otherwise in a Qualified Domestic Relations
Order, a distribution to an Alternate Payee who is the former spouse of the
Participant shall be based on a pro rata allocation of the Participant's
Investment Plan Contributions as provided in Section 72(m)(10) of the Code and
amounts awarded to the Alternate Payee shall be paid on a pro rata basis from
the Investment Funds in which the Participant is invested at the time of the
distribution to the Alternate Payee. Until such time as payment is made to an
Alternate Payee pursuant to this Section 11.10, the Alternate Payee shall have
no rights under the Plan other than the rights of a Beneficiary and the right to
direct the investment of amounts awarded to Alternate Payee pursuant to the
provisions of Article IX.
11.11 Tax Withholding and Participant's Direct Rollover Election.
Unless provided otherwise in regulations promulgated by the Secretary of the
Treasury, to the extent required under Section 3405 of the Code, the Trustee
shall withhold 20% of the taxable portion of the Plan distribution or withdrawal
made to a Partici pant, Former Participant or Beneficiary after December 31,
1992 which constitutes an eligible rollover distribution within the meaning of
Section 402(c)(4) of the Code. Any amount withheld shall be deposited by the
Trustee with the Internal Revenue Service for the purpose of paying the
distributee's federal income tax liability associated with the distribution or
withdrawal. Notwith standing the foregoing provisions, commencing on and after
January 1, 1993, each Participant, each Former Participant and each spouse (or
former spouse under a Qualified Domestic Relations Order) of a Participant or
Former Participant shall be provided with a notice described in Section 11.3(e)
hereof and given the right to elect [pursuant to Section 401(a)(31) of the Code
and applicable Treasury regulations promulgated thereunder] during the period
described in Section 11.3(e) hereof to rollover all or any portion of the
taxable amount of such person's distribution or withdrawal (subject to
limitations and restrictions, if any, adopted by the Committee in accordance
with applicable Treasury regulations) directly to an eligible retirement plan as
defined in Section 402(c)(8)(B) of the Code as limited by Section 402(c)(9) of
the Code and, to the extent a direct rollover is elected by any such person, the
tax withholding requirements of this Section 11.11 will not apply. If permitted
by the Code or applicable Treasury regulations, a direct rollover as described
in the preceding sentence may be accomplished by delivering a check from the
Plan to the distributee payable to the trustee or custodian of the eligible
retirement plan. Each direct rollover election shall be in writing
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on a form prescribed by the Committee for such purpose and given to the
Participant, Former Participant or spouse within a reasonable period of time
prior to the distribution or withdrawal.
11.12 Application of Forfeitures. As of each Valuation Date forfeitures
under Sections 5.1, 5.3, 6.2, 8.3, 10.3 and 11.9, less any restorations under
Sections 10.4 and 11.9, shall be placed in a Plan forfeiture account and applied
as provided in Section 4.8.
11.13 Restrictions on Distributions. Notwithstanding anything to the
contrary contained in the Plan, a Participant's Tax Reduction Contribution
Account and any earnings thereon, shall not be distributed before the first to
occur of the following events:
(a) the Participant's retirement;
(b) his death;
(c) his permanent disability;
(d) his termination of employment;
(e) his attainment of age 59-1/2;
(f) the termination of the Plan, provided that neither the
Employer nor an Affiliated Company maintains a successor plan;
(g) the disposition, to a corporation that is not an Affiliated Company
of substantially all of the assets [within the meaning of Code section
409(d)(2)] used by the Employer in the trade or business in which the
Participant is employed, provided that the Participant continues employment with
the transferee corporation and the Employer continues to maintain the Plan; or
(h) the disposition, to a corporation that is not an Affiliated Company
of the Employer's interest in a subsidiary in which the Participant is employed,
provided that the Participant continues employment with the subsidiary and the
Employer continues to maintain the Plan. A distribution may be made under (f),
(g) or (h) above only if it constitutes a total distribution of the
Participant's entire balance in all Accounts and the account balances under any
other profit-sharing plans of the Employer or an Affiliated Company.
ARTICLE XII
NOTICES
12.1 Notice. As soon as practicable after a Participant or
Former Participant makes a request for payment or a benefit becomes
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payable to a Beneficiary, the Committee shall notify the Trustee of the
following information and give such directions as are necessary or advisable
under the circumstances:
(a) name and address of the Participant, Former Participant
or Beneficiary, and
(b) amount to be distributed.
In addition to the information described above, for distribu tions and
withdrawals occurring after December 31, 1992, the Committee shall notify the
Trustee, if applicable, as to the identity, address and other pertinent
information of eligible retirement plans as described in Section 402(c)(8)(B) of
the Code to which the payee has elected to rollover directly such distribution
or withdrawal pursuant to Section 11.11 of the Plan.
12.2 Modification of Notice. At any time and from time to time after
giving the notice as provided for in Section 12.1, the Committee may modify such
original notice or any subsequent notice by means of a further notice or notices
to the Trustee but any action taken or payments made by the Trustee pursuant to
a prior notice shall not be affected by a subsequent notice.
12.3 Reliance on Notice. Upon receipt of any notice as provided in this
Article XII, the Trustee shall promptly take whatever action and make whatever
payments are called for therein, it being intended that the Trustee may rely
upon the information and directions in such notice absolutely and without
question.
ARTICLE XIII
LOANS
13.1 General Provisions Regarding Loans. At any time prior to the date
a Participant's benefits are paid, the Committee, in its sole discretion and in
accordance with the policies and procedures set forth in this Article XIII, may
direct the Trustee to make a loan to a Participant (as defined below) if such
loans (a) are made on a reasonably equivalent basis, (b) are not made available
to Highly Compensated Employees, in an amount greater than the amount made
available to other Employees, (c) are adequately secured and (d) bear a
reasonable interest rate. Solely for purposes of this Article XIII, the term
"Participant" shall mean an active Participant, a Former Participant or a
Beneficiary who is a "party in interest" [within the meaning of Section 3(14) of
ERISA].
13.2 Amount and Limitations Applicable to Loans. A Partici pant may
request a loan in an amount which does not exceed (i) 50% of the present value
of the Participant's vested interest in the Plan determined in accordance with
Section 13.8 hereof or, if less, (ii) $50,000 reduced by the highest outstanding
loan balance
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applicable to the Participant from this Plan and any other qualified plan of the
Company or an Affiliated Company during the one year period ending on the day
before the loan date. The minimum amount that may be borrowed from the Plan is
$1,000 and only two loans may be outstanding under the Plan at any one time. It
is intended that loans granted to a Participant under this Article XIII will not
place other Participants at risk with respect to their Accounts. Therefore, each
loan shall be made from the borrower's Account and the income or loss associated
with the loan shall be allocated to the borrower's Account.
A loan to a Participant (and interest thereon) shall be considered a
Plan investment, and repayments shall be credited to an Investment Fund or Funds
in accordance with Article IX as if such repayments were future Tax Reduction
Contributions, Investment Plan Contributions, Matching Company Contributions
and/or Rollover Contributions, as the case might be, made to the Plan on behalf
of the Participant.
13.3 Security for Loans. Any loan to a Participant under this Article
XIII shall be secured by the irrevocable pledge and assign ment of 50% of the
present value, determined at the time the loan is granted based on the most
recently completed Valuation Date, of Participant's vested interest in the
Trust, supported by the execution of a promissory note for the amount of the
loan, including interest, payable to the order of the Trustee. If the loan will
be used to acquire or construct a dwelling unit which is within a reasonable
period of time to be used as the principal residence of the Participant the
Committee may permit or require the Participant to secure such loan with assets
in addition to 50% of the Participant's interest in the Trust.
13.4 Interest Rate for Loans. Each loan shall bear interest at a rate
fixed by the Committee based on rates charged by the financial institutions in
the same geographic location for similar secured personal loans. The loan rate
shall remain fixed for the term of the loan (or the remaining term of a
renegotiated loan). The Committee shall not discriminate among Participants in
the manner of interest rates; but loans granted at different times may bear
different interest rates if, in the opinion of the Committee, the difference in
rates is justified by a change in general economic conditions.
13.5 Repayment of Loans. (a) Any loan to a Participant under
this Article XIII shall be repaid within five years of the date on
which the loan is made, except that loans used to acquire or
construct any dwelling unit which is within a reasonable time to be
used as a principal residence of the Participant may be repaid over
a longer period of time (not to exceed 25 years) as determined by
the Committee; provided, however, that any loan shall be repaid (or
offset against the Participant's Account) on or before the date the
Participant receives his final distribution from the Plan. Loans
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shall be amortized on a level basis and repaid in regular, substantially equal
installments by payroll deduction (or, if the Participant is not receiving pay
from the Employer at any time while a loan is outstanding, by direct payment
from the Participant to the Employer for deposit in the Trust Fund) on a
schedule prescribed by the Committee (with payments made at least as often as
quarterly), which installments shall be applied to reduce the principal as well
as the accrued interest of the loan. Notwithstanding the preceding provisions of
this Section 13.5(a), for periods commencing on and after the date this Plan
document is executed, a Participant shall not be required to make payments on a
level amortization basis during any period the Participant is on leave of
absence from the Employer without pay for up to one year.
(b) Each loan repayment shall be paid to the Trustee, and the Committee
shall provide written instructions to the Recordkeeper regarding such repayment
that:
(i) identify the Participant on whose behalf the repayment is
being made; and
(ii) direct the investment of the loan repayment to the Investment Fund
account in the same proportion as elected by the Participant in Section
9.5 as if the repayment were future contributions.
13.6 Default on Loans. In the event of a default by a Participant on a
loan repayment, all remaining repayments on the loan shall be immediately due
and payable, and the entire amount of the unpaid balance of such loan and
accrued interest thereon shall be considered and treated as having been
distributed in cash under Article XI as of the date of default, and an
appropriate adjustment of his Account shall be made therefor. Notwithstanding
the foregoing, the Committee may use alternative means to pursue payment of a
loan in default if such alternative means are necessary to prevent an actual
distribution from the portion of the Participant's Account that is attributable
to Tax Reduction Contributions and that would contravene Section 401(k) of the
Code; provided, however, that a taxable distribution for purposes of Section
72(p) of the Code shall occur in the event of any default by a Participant on a
loan made under this Article XIII.
13.7 Acceleration of Loans Upon Termination of Employment. All loans
shall be accelerated and immediately due and payable upon a Participant's
termination of employment with the Employer [unless such Participant is a "party
in interest" as defined in Section 3(14) of ERISA or is otherwise mandatorily
eligible for Plan loans under ERISA, the Code or regulations and rulings
promulgated thereunder]. If a Participant does not repay the loan at the time of
acceleration, the Committee shall direct the Recordkeeper to offset the
nonforfeitable portion of the Participant's Accounts by
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the outstanding amount of the loan and such offset shall reduce the amount
payable to the Participant from the Trust Fund.
13.8 Manner of Making Loans. All requests by a Participant for loans
from the Trust shall be made in writing to the Committee and if the request is
received on or before the 25th day of a month, the loan amount shall be paid to
the Participant as soon as administratively practicable after the first day of
the next month, based on the value of the Participant's Account as of the
preceding Valuation Date, adjusted to reflect the value of the Participant's
interest, if any, in the Eljer Industries, Inc. Common Stock Fund and the
Household International, Inc. Common Stock Fund as of the 25th day of the month
immediately following such Valuation Date. Notwithstanding the foregoing
provisions of this Section 13.8, if a Participant repays a loan made to him
pursuant to this Article XIII, he may not apply for another loan from the Trust
prior to the expiration of two months from the date of such repayment. The
Committee shall apply its standards for the approval of loans in a uniform and
consistent manner with respect to all participants and shall approve a loan if
the requirements of this Article XIII are satisfied. If a Participant's request
for a loan is approved by the Committee, the Committee shall furnish the Trustee
with written instructions directing the Trustee to make the loan in a single sum
payment in cash to the Participant. Such payment shall be made by withdrawing as
of the Valuation Date for which the loan is made amounts from the Investment
Funds as designated by the Participant in accordance with rules established by
the Committee from time to time or if the Participant fails to designate
Investment Funds to be used to fund the loan, by withdrawing as of the Valuation
Date for which the loan is made a proportionate amount from the separate
Investment Funds of the Participant under the Plan. No loan shall be granted
hereunder if at the time the loan is to be granted it would be treated as a
distribution under Section 72(p) of the Code.
13.9 Additional Loan Procedures. For purposes of satisfying the
requirements of Section 2550.408b-1(d) of the Labor Regulations, the Committee
may adopt written loan policies and procedures to supplement or, if appropriate,
modify the provisions of this Article XIII. Such policies and procedures, upon
adoption by the Committee, shall be incorporated in the Plan by this reference
as if fully set forth herein. The Committee shall have the power to amend and
modify such policies and procedures at any time in the Committee's sole
discretion.
ARTICLE XIV
ADMINISTRATION OF THE PLAN
14.1 Allocation of Responsibilities Among Fiduciaries. A
fiduciary with respect to the Plan, as described in Section 3(21)
of ERISA, shall have only those specific powers, duties, responsibilities
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and obligations as are explicitly given such fiduciary
under the terms of the Plan and the Trust Agreement or allocated to
such fiduciary pursuant to the procedures set forth herein. In
general, Eljer Manufacturing, Inc., shall have the sole authority
to establish the Plan and Trust and to amend or terminate, in whole
or in part the Plan or the Trust Agreement, subject to the
provisions of Article XVI. The Chief Executive Officer of Eljer
Manufacturing, Inc. shall have the sole authority to appoint and
remove the members of the Committee. The Employer shall have the
sole responsibility for making contributions to the Plan. The
Company shall be the administrator of the Plan as described in
Section 3(16)(A) of ERISA and, except as otherwise provided herein,
the Company shall have all the duties and responsibilities of an
administrator for purposes of ERISA. Except as otherwise provided
herein or subsequently delegated to other persons pursuant to the
provisions hereof, the Committee shall possess general authority to
manage the operation and administration of the Plan. The Committee
may designate one or more individuals or committees of individuals
to carry out any of its fiduciary responsibilities in connection
with the Plan. Any such designation may be made by action of the
Committee or by a member or members duly authorized by the
Committee to make such designation on behalf of the Committee. Any
designation, or revocation thereof, made by the Committee or by
such authorized Committee member shall be made in writing, shall
specify the responsibilities which the designee is to carry out and
shall be filed with the Secretary of the Committee, from whom the
names and Committee assignments, if any, of all individuals so
designated and of any Committee member authorized to make such
designations shall be available. Subject to Participants'
investment directions under Section 9.5, and subject to Committee
directions under Section 14.3, the Trustee shall have the sole
responsibility for the administration of the Trust and the
management of the assets held thereunder, as provided in the Trust
Agreement. It is intended that each fiduciary shall be responsible
only for the proper exercise of his own powers, duties, responsi
bilities and obligations under the Plan and shall not be responsi
ble for any act or failure to act of another fiduciary. A
fiduciary may serve in more than one fiduciary capacity with
respect to the Plan and any fiduciary to the Plan may also be an
Employee. The Committee may employ one or more persons to render
advice to any director, officer or Employee with respect to such
individual's responsibilities under the Plan. No fiduciary of the
Plan guarantees the Trust Fund in any manner against investment
loss or depreciation in asset value.
14.2 Management of Plan Assets. The amounts allocated under this Plan
shall be held in trust pursuant to the terms of the Trust Agreement by a Trustee
or Trustees appointed by the Committee, provided that a portion of such amounts
may be held directly by one or more insurance companies appointed by the
Committee under one or more individual or group insurance contracts. The
aggregate of the amounts so contributed to the Plan and held by the Trustee and
such
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insurance companies as may be acting at any time, together with any income,
gains and profits thereon, less losses, distributions and other permissible
payments therefrom, shall constitute a Trust Fund for the payment of benefits
under the Plan. The Committee shall review the performance of the Trustee from
time to time and the Committee shall determine the form and terms of any
insurance company contract to accomplish the purposes of the Plan. The Committee
may remove any Trustee and may terminate any insurance contract, to the extent
permitted by the terms hereof, the terms of the Trust Agreement and the terms of
the insurance contract.
The Trustee shall have exclusive responsibility for the management and
control of the portion of the Trust Fund held in trust by it, except as provided
in Section 14.3 and except to the extent that the Committee delegates such
responsibility to one or more persons who are "investment managers"[within the
meaning of Section 3(38) of ERISA], each of whom shall be either:
(a) registered as an investment adviser under the Investment
Advisers Act of 1940 (the "Act");
(b) a bank, as defined in the Act; or
(c) an insurance company qualified to perform investment management
services under the laws of more than one state. Any insurance company which
holds a portion of the Trust Fund directly shall have exclusive responsibility
for the management and control of such portion of the Trust Fund. The names of
each Trustee, insurance company and investment manager acting at any time
hereunder shall be available from the Committee.
14.3 Powers and Responsibilities of the Committee. In addition to any
other powers and responsibilities allocated to the Committee pursuant to the
terms of this Plan, the following powers and responsibilities shall be exercised
by the Committee, the members of which shall be appointed by, and serve at the
pleasure of, the Chief Executive Officer of the Company:
(a) To administer the Plan, including but not limited to, the power to
resolve any and all disputes which may arise involving Participants, Former
Participants, Beneficiaries and/or the Trustee. The Committee shall have the
exclusive discretionary authority to interpret and construe the terms of the
Plan and the Trust Agreement and the exclusive discretionary authority to
determine eligibility for all benefits hereunder. Any such determinations or
interpretations of the Plan adopted by the Committee shall be final and
conclusive and shall bind all parties. The Trustee may rely upon the decision of
the Committee with respect to any question concerning the meaning,
interpretation, or application of any provision of the Plan and the Trust
Agreement. The Committee's interpretations and determinations with respect to
the Plan and the Trust Agreement shall be based on such information
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as is reasonably available to the Committee at the time a decision is made. In
addition, in administering the Plan, the Committee may rely conclusively upon an
Affiliated Company's payroll and personnel records maintained in the ordinary
course of business.
(b) To administer the Plan's claims procedure pursuant to
Section 11.7 in a uniform and nondiscriminatory manner.
(c) To adopt such rules, forms and procedures as it shall deem
necessary for the efficient administration of the Plan in accordance with its
terms and the terms of any applicable law.
(d) To prepare and submit to governmental agencies, Participants,
Former Participants and Beneficiaries such Plan descriptions, reports and other
documents, or summaries thereof, as may be required by applicable law or
necessary in the
administration of the Plan.
(e) To remedy possible ambiguities, inconsistencies or omissions in
connection with its power to interpret the Plan; provided, however, that all
such actions and decisions shall be applied in a uniform manner to all Employees
similarly situated.
(f) To authorize disbursements from the Trust, including refunds of
contributions permitted by the Plan (any instructions of the Committee to the
Trustee shall be evidenced in writing and signed by a member of the Committee
delegated with such authority by a majority of the Committee).
(g) To employ such advisors (including but not limited to attorneys,
independent public accountants and investment advisors) and such other technical
and clerical personnel as may be required in the Committee's discretion for the
proper administration of the Plan, and to pay the reasonable expenses of such
persons from the Trust Fund.
(h) To establish and to instruct the Trustee and any investment manager
with respect to asset administration objectives and policies consistent with
Plan requirements and establish Investment Funds in accordance with such
objectives and policies.
(i) To review from time to time, but at least as often as annually, the
investment performance of the Trustee and any insurance company or investment
manager acting with respect to any portion of the Trust Fund. The Committee may
engage the services of such persons it deems appropriate including, investment
managers, to review investments held by the Plan and the financial condition of
insurance companies issuing insurance contracts to the Plan.
(j) To supervise at least one audit of the Plan's assets for each Plan
Year and review the Trustee's annual accounting.
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(k) To exclude Affiliated Companies from participation in the
Plan.
Each of the members of the Committee is hereby authorized to sign
documents relating to the Plan required by the Department of Labor, Internal
Revenue Service or other governmental agencies on behalf of the Company;
provided, however, that the Company shall have the responsibility and duty to
file reports required by any governmental agency with respect to the Plan and to
comply with all other filing and disclosure requirements required by ERISA in
connection with the administration of the Plan. Notwithstanding any other
provisions of this Section 14.3, no member of the Committee shall vote or act
upon any matter involving his own rights, benefits, or participation in the
Plan.
14.4 Operation of Committee. The Committee may act by a majority of its
members present at a meeting at which at least half the members are present or
by a unanimous written decision taken without a meeting. The Chief Executive
Officer of the Company may remove any member of the Committee at any time and a
member may resign by written notice to the Chief Executive Officer of the
Company. If at any time the minimum number of Committee members has not been
designated by the Chief Executive Officer of the Company, then the Committee
member or members designated and acting at such time shall be deemed to
constitute the full membership of the Committee. The Committee may appoint a
chairman, a secretary and such other agents and representatives (who may, but
need not, be members thereof) as it may deem advisable to keep its records or
otherwise to assist it in the performance of its responsibilities. The Committee
may engage agents to assist it and may engage legal counsel who may be legal
counsel for the Company. All reasonable expenses incurred by the Committee may
be paid from the Trust Fund to the extent not paid by the Employer.
14.5 Compensation and Expenses of Employees and Directors Serving as
Fiduciaries. The members of the Committee and employees, officers and directors
of Affiliated Companies who are designated as fiduciaries with respect to the
Plan shall serve without compensation for their services, but all reasonable
expenses of the Committee, the members thereof and such other individuals
incurred in the performance of their duties and responsibilities under the Plan
shall be paid out of the Trust Fund unless paid by the Employer.
14.6 Indemnification of Employees and Directors. The Company hereby
indemnifies each member of the Committee and each employee, officer and director
of an Affiliated Company who are delegated responsibilities under or pursuant to
the Plan against any and all liabilities and expenses, including attorney's
fees, actually and reasonably incurred by them in connection with any
threatened, pending or completed legal action or judicial or administrative
proceeding to which they may be a party, or may be threatened to be
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made a party, by reason of membership on the Committee or other delegation of
responsibilities, except with regard to any matters as to which they shall be
adjudged in such action or proceeding to be liable for gross negligence or
willful misconduct in connection therewith. In addition, the Company may provide
appropriate insurance coverage for the members of the Committee or each such
other individual indemnified pursuant to this Section 14.6 who is not otherwise
appropriately insured.
14.7 Action Taken in Good Faith. To the extent permitted by ERISA, the
members of the Committee and each employee, officer and director of an
Affiliated Company who are fiduciaries with respect to the Plan shall be
entitled to rely upon, and be fully protected with respect to any action taken
or suffered by them in good faith in reliance upon, all tables, valuations,
certificates, reports and opinions furnished by the Recordkeeper, the Trustee,
or any accountant, attorney, insurance company or investment manager acting at
any time hereunder.
14.8 Expenses of the Plan. The expenses of administering the Plan,
other than the compensation of persons on the payroll of an Affiliated Company,
but including fees of the Trustee, counsel, accountants or other experts
appointed under the Plan, at the direction of the Committee may be paid from any
forfeitures which arise under the Plan, and to the extent expenses are not paid
from forfeitures, they shall be paid out of the Trust Fund to the extent not
paid by the Employer.
ARTICLE XV
TRUST FUND
15.1 Establishment of Trust Fund. The Trustee appointed by the Company
shall accept and receipt for all assets transferred to it as Trustee. All assets
so received, together with the income therefrom and any other increment thereon,
as well as assets held in the Trust as of the Effective Date, shall constitute
the Trust Fund and shall be held, managed and administered by the Trustee,
pursuant to the terms of the Trust Agreement. The Trustee shall not be
responsible for the collection of any contributions pursuant to the terms of the
Plan but shall be accountable only for cash or other property actually received
by the Trustee and for the administration thereof in accordance with the terms
of the Trust Agreement.
15.2 Investments in Company Stock. All investments by the Trustee in
shares of Company Stock shall be made in such a manner to comply with all
applicable federal and state securities laws and the provisions of ERISA and the
Code. Up to 100% of the assets of the Trust Fund may be invested in shares of
Company Stock.
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15.3 Title of Trust Assets. The legal and equitable title and ownership
of all assets at any time constituting a part of the Trust Fund shall be and
remain with the Trustee, and neither the Company, or any Employer nor any
Participant, Former Participant or Beneficiary shall ever have any legal or
equitable estate therein, save and except that each Participant, Former
Participant and Beneficiary shall be entitled to receive distributions as and
when lawfully made under the terms of the Plan.
ARTICLE XVI
AMENDMENT AND TERMINATION
16.1 Amendment. The Company, acting through its Board of Directors, may
at any time, and from time to time, modify or amend this Plan in whole or in
part, or discontinue or modify Employer contributions to the Plan; provided,
however, that except to the extent required or permitted by the Code or other
applicable law, the accrued benefit of any Participant, Former Participant or
Beneficiary shall not be affected retroactively by any such action. No amendment
of the Plan shall authorize or permit any part of the Trust Fund to be used for
or diverted to purposes other than for the exclusive benefit of the Participants
or their Beneficiaries, and no amendment shall be made or shall be valid if it
would result in the Plan's disqualification under the applicable provisions of
the Code.
16.2 Termination or Discontinuance of Contributions. The Board of
Directors may at any time terminate or partially terminate this Plan or
permanently discontinue contributions hereunder. Upon termination or partial
termination of the Plan with respect to a group of Participants or complete
discontinuance of contributions to the Plan, any amount of the Trust Fund
previously unallocated, including any amounts in a suspense account established
under Section 8.3, shall be allocated (unless such allocation would violate
Section 8.1), and the Accounts of all affected Participants shall thereupon be
and become fully vested and nonforfeitable to the extent then funded. The
Trustee shall deduct from the Trust Fund all unpaid charges and expenses
including those relating to said termination, except as the same may be paid by
an Employer. The Trustee shall then adjust the balance of all Accounts on the
basis of the net value of the Trust Fund. The Trustee shall distribute the
amount to the credit of each Participant, Former Participant, and Beneficiary
when all appropriate administrative procedures have been completed. If any
amount in a suspense account shall not be allocable because of the provisions of
Section 8.1, such amount shall be returned to the Employer. Upon any complete
discontinuance of contributions by an Employer, the assets of the Trust Fund
shall be held and administered by the Trustee for the benefit of the
Participants employed by such Employer discontinuing contributions in the same
manner and with
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the same powers, rights, duties and privileges herein described until the Trust
Fund with respect to such Employer has been fully distributed.
16.3 Distribution on Plan Termination. Except as provided in the next
sentence, if no other defined contribution plan [other than an employee stock
ownership plan as defined in Section 4975(e)(7) of the Code or a simplified
employee pension plan as defined in Section 408(k) of the Code] is maintained by
the Company or any other Affiliated Company as of the Plan termination date, the
Trustee shall distribute each Participant's entire Account in a single lump sum
distribution to him, or to an eligible retirement plan as defined in Section
402(c)(8)(B) of the Code pursuant to the Participant's direct rollover election
described in Section 11.11, as soon as administratively practicable after the
later of (i) the termination date of the Plan or (ii) the receipt following
application of a favorable determination letter from the Internal Revenue
Service with respect to the termination of the Plan. If the Participant either
fails or refuses to consent in writing to the distribution upon termination of
the Plan, the Trustee shall use the balance of the Participant's Account to
purchase a deferred annuity satisfying the requirements of Article XI and
providing for commencement of the Participant's benefits at age 65 and
distribute such annuity contract to the Participant. If, however, the Company or
any Affiliated Company maintains another defined contribution plan [other than
an employee stock ownership plan as defined in Section 4975(e)(7) of the Code or
a simplified employee pension plan as defined in Section 408(k) of the Code] as
of the Plan termination date, then except as provided in the next sentence, each
Participant's entire Account shall either (i) be transferred by the Trustee,
without the Participant's consent, to such other defined contribution plan;
provided, however, that no such transfer may result in the elimination or
reduction of a Plan benefit of the Participant protected under Section 411(d)(6)
of the Code, unless the transfer satisfies the requirements of Q&A-3(b) of the
Treasury Regulations, or (ii) be used to purchase a deferred annuity satisfying
the requirements of Article XI and providing for commencement of benefits at age
65 and such annuity contract shall be distributed to the Participant. A
Participant may request in writing that the Trustee distribute his Account,
excluding the balance attributable to his Tax Reduction Contribution Account,
unless distribution of such account would be permitted under Section
401(k)(2)(B) of the Code and the applicable Treasury regulations thereunder, in
a single lump sum distribution to him, or to an eligible retirement plan as
defined in Section 402(c)(8)(B) of the Code pursuant to the Participant's direct
rollover election described in Section 11.11, as soon as administratively
practicable after the later of (i) the termination date of the Plan or (ii) the
receipt following application of a favorable determination letter from the
Internal Revenue Service with respect to the termination of the Plan.
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16.4 Distributions upon Certain Sales. A single sum distribu tion may
be made from the Plan to any Participant, or to an eligible retirement plan as
defined in Section 402(c)(8)(B) of the Code pursuant to the Participant's direct
rollover election described in Section 11.11, affected by (i) a disposition by
an Employer of substantially all of the assets used by the Employer in a trade
or business, but only if the Participant continues employment with the
corporation acquiring such assets or (ii) a disposition by an Employer of its
interest in a subsidiary, but only if the Participant continues employment with
such subsidiary.
16.5 Merger or Consolidation of Plan. In the event of any merger or
consolidation of the Plan with, or transfer in whole or in part of the assets
and liabilities of the Trust Fund to, another trust fund held under any other
plan of deferred compensation maintained or to be established for the benefit of
all or some of the Participants in this Plan, the assets of the Trust Fund
applicable to such Participants shall be transferred to the other trust fund
only if:
(a) each Participant would (if either this Plan or the other plan had
then terminated) receive a benefit immediately after the merger, consolidation,
or transfer which is equal to or greater than the benefit he would have been
entitled to receive immediately before the merger, consolidation, or transfer
(if this Plan had then terminated); and
(b) such other plan and trust fund are qualified under Section 401(a)
of the Code and exempt from tax under Section 501(a) of the Code.
16.6 Merger and Other Reorganization of Employer. A merger,
consolidation, similar corporation change, or sale which results in the transfer
of substantially all the assets and Employees of the Company or an Employer to a
successor corporation shall constitute a total or partial termination of the
Plan unless, and except to the extent that the Board of Directors shall adopt a
resolution consenting to the continuance of the Plan and specifying appropriate
amendments and conditions applicable to such continuance.
ARTICLE XVII
MISCELLANEOUS
17.1 No Employment or Compensation Agreement. Nothing contained in the
Plan shall be construed as giving any person or entity any legal or equitable
right against the Company, any Employer, any Affiliated Company, their
stockholders or partners, officers or directors, the Named Fiduciary, or the
Trustee, except as the same shall be specifically provided in the Plan. Nor
shall anything in
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the Plan give any Participant or other Employee the right to be retained in the
service of an Employer. The employment of all persons by an Employer shall
remain subject to termination by such Employer to the same extent as if the Plan
had never been executed.
17.2 Spendthrift Provision. Except as provided under Article XIII with
respect to participant loans, by the terms of a Qualified Domestic Relations
Order, or as permitted pursuant to Section 401(a)(13) of the Code, no
Participant, Former Participant, or Beneficiary shall have the right to assign,
alienate or transfer his interest hereunder, nor shall his interest be subject
to claims of his creditors or others, it being understood that all provisions of
the Plan shall be for the exclusive benefit of those designated herein.
17.3 Construction. It is the intention of each Employer that the Plan
be qualified under Section 401 of the Code and comply with the applicable
provisions of ERISA, and all provisions hereof shall be construed to that
result.
17.4 Titles. Titles of Articles and Sections hereof are for
convenience only and shall not be considered in construing the
Plan.
17.5 Texas Law Applicable. The Plan and each of its provi
sions shall be construed and their validity determined by the laws
of the State of Texas to the extend not preempted by ERISA or other
applicable federal law.
17.6 Successors and Assigns. The Plan shall be binding upon the
successors and assigns of the Company and each Employer and the Trustee and upon
the heirs and personal representatives of those individuals who become
Participants hereunder.
17.7 Payments Only from Trust Fund. All benefits of the Plan shall be
payable solely from the Trust Fund and neither the Employer, the Committee, nor
the Trustee shall have any liability or responsibility therefor except as
expressly provided herein.
17.8 Plan Controls. The Trust Agreement is a part of the Plan. In case
of any inconsistency between the terms of the Plan and the Trust Agreement, the
provisions of the Plan shall control. In the event of any conflict between the
terms of the Plan and any summary thereof or other document relating thereto,
from whatever source, the terms of the Plan shall govern.
17.9 Effect of Mistakes. In the event of a mistake or misstatement as
to the age or eligibility of any person, or the amount of any kind of
contributions, withdrawals or distributions made or to be made to a Participant,
or other person, the Committee shall, to the extent it deems possible, make such
adjustment as will in its judgment afford to such person the credits,
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distributions or other rights to which he is properly entitled
under the Plan.
ARTICLE XVIII
TOP HEAVY PROVISIONS
18.1 Application and Purpose. The following special provisions shall
apply to determine if the Plan is a Top Heavy Plan in accordance with Section
416 of the Code and special rules that will apply based on the Plan's status as
a Top Heavy Plan. In the event that the provisions contained in this Article are
inconsis tent with the terms contained in the remainder of the Plan, the
provisions of this Article shall take precedence over such other terms of the
Plan.
18.2 Minimum Allocation Requirements. For any Plan Year in which the
Plan is a Top Heavy Plan, each Employee who on the last day of such Plan Year
(i) is a Non-Key Employee who has satisfied the eligibility requirements of
Section 3.1 (regardless of whether he will have Tax Reduction Contributions or
Investment Plan Contributions made on his behalf to the Plan for the Plan Year)
and (ii) does not participate in a defined benefit plan maintained by an
Employer or an Affiliated Company that provides that the minimum benefit
applicable to top heavy plans will be satisfied in such other plan, shall
receive a minimum allocation of Employer contributions (excluding, for Plan
Years beginning after December 31, 1988, Tax Reduction Contributions and
Matching Company Contributions that are used to satisfy the Contribution
Percentage tests of Section 6.1) equal to the lesser of (x) three percent of
such Participant's Compensation or (y) the largest percentage of Employer
contributions (including, for Plan Years beginning after December 31, 1988, Tax
Reduction Contributions and Matching Company Contributions) made to the Plan for
the Plan Year, as a percentage of the first $200,000 (or such other amount equal
to the Compensation Limitation as defined in Section 2.13) of the Compensation
of Participants who are Key Employees allocated to any such Participant who is a
Key Employee for that Plan Year; provided, however that if the Plan is part of a
Required Aggregation Group and the Plan enables a defined benefit plan that is
included in the same Required Aggregation Group to meet the requirements of
Sections 401(a)(4) or 410 of the Code, clause (y) above shall not apply.
18.3 Adjustment to Limitation on Allocations. For any Plan Year in
which the Plan is a Top Heavy Plan, the provisions of Article VIII hereof shall
be adjusted in accordance with the provisions of Section 416(h) of the Code
which are by this reference incorporated herein.
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18.4 Vesting Schedule. For any Plan Year in which the Plan is
a Top Heavy Plan, the following provisions shall be applicable to
the Plan:
(a) Except as provided in Section 18.4(b) below, each Participant shall
be entitled (as a vested interest) to receive the greater of the vested interest
calculated pursuant to any other provision of the Plan or a percentage of the
then combined balance to his credit in his Accounts and determined in accordance
with the following schedule:
<TABLE>
<CAPTION>
Years of Service Vested Interest
---------------- ---------------
<S> <C>
Less than 3 0%
3 or more 100%
</TABLE>
(b) The schedule in Section 18.4(a) above shall not apply to the
Account of any Participant who does not perform an Hour of Service after the
Determination Date on which the Plan first becomes a Top Heavy Plan.
18.5 Definitions.
(a) "Top Heavy Plan" means the Plan for a Plan Year if the Plan is the
only plan maintained by an Employer and the top heavy ratio as of the
Determination Date exceeds 60%. The top heavy ratio is a fraction, the numerator
of which is the sum of the present value of the Accounts of all Key Employees as
of the Determination Date, the contributions due as of the Determination Date,
and distributions made within the five-year period immediately preceding the
Determination Date (including distributions under a terminated plan which if it
had not been terminated would have been required to be included in an aggrega
tion group), and the denominator of which is a similar sum determined for all
Employees. The top heavy ratio shall be calculated without regard to (i) the
Account of a Participant who is not a Key Employee but who was a Key Employee in
a prior Plan Year, (ii) the Account of any individual who has not performed any
services for an Employer at any time during the five-year period ending on the
Determination Date, and (iii) voluntary deductible Employee contributions, if
any. The top heavy ratio, including distributions, rollovers and transfers, to
the extent such items must be taken into account, shall be calculated in
accordance with Section 416 of the Code and the regulations thereunder. If an
Employer maintains other qualified plans (including a simplified employee
pension plan) or has ever maintained one or more defined benefit plans which
have covered or could cover a Participant in this Plan, this Plan is top heavy
for a Plan Year only if it is part of the Required Aggregation Group, and the
top heavy ratio for both the Required Aggregation Group and the Permissive
Aggregation Group exceeds 60%. The top heavy ratio shall be calculated as
described above, taking into account all plans within the
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aggregation group and with reference to Determination Dates that fall within the
same calendar year; provided that if a defined benefit plan is included in the
aggregation group, the present value of accrued benefits (instead of account
balances) of participants in that plan shall be computed for purposes of
calculating the top heavy ratio. The accrued benefit under a defined benefit
plan in both the numerator and the denominator of the top heavy ratio are
increased for any distribution of an accrued benefit made in the five-year
period ending on the Determination Date. The accrued benefit of a Participant
other than a Key Employee shall be determined under (i) the method, if any, that
uniformly applies for accrual purposes under all defined benefit plans
maintained by the Employer, or (ii) if there is no such method, as if such
benefit accrued not more rapidly than the slowest accrual rate permitted under
the fractional rule of Section 411(b)(1)(C) of the Code. The value of account
balances and the present value of accrued benefits will be determined as of the
most recent Allocation Date that falls within or ends with the 12-month period
ending on the Determination Date, except as provided in Section 416 of the Code
and the Treasury Regulations thereunder for the first and second plan years of a
defined benefit plan. The actuarial assumptions (interest rate and mortality
only) used by the actuary under the defined benefit plan shall be used to
calculate the present value of accrued benefits from the defined benefit plan.
(b) "Determination Date" means for any Plan Year the last day of the
preceding Plan Year, or in the case of the first Plan Year of the Plan, the last
day of that Plan Year.
(c) "Required Aggregation Group" means (i) each qualified plan of an
Employer in which at least one Key Employee partici pates, and (ii) any other
qualified plan of an Employer which enables a plan described in (i) to meet the
requirements of Sections 401(a)(4) and 410 of the Code.
(d) "Permissive Aggregation Group" means the Required Aggregation Group
plus any other qualified plans maintained by an Employer which, when considered
as a group with the Required Aggregation Group, would continue to satisfy the
requirements of Sections 401(a)(4) and 410 of the Code.
-89-
<PAGE>
IN WITNESS WHEREOF, Eljer Manufacturing, Inc. has caused this Agreement
to be executed this 9th day of September, 1994, effective as set forth herein.
ELJER MANUFACTURING, INC.
By: /s/Charles R. Wackenhuth
--------------------------
Title: Vice President-Human Resources
97525.12;64349/3; 8/94
-90-
1995 Long-Term Incentive Plan
Eljer Industries, Inc.
May 1995
<PAGE>
Contents
- -----------------------------------------------------------------------------
Page
Article 1. Establishment, Purpose, and Duration 1
Article 2. Definitions 1
Article 3. Administration 4
Article 4. Eligibility and Participation 5
Article 5. Establishment of Phantom Stock Units 6
Article 6. Grant of Phantom Stock Units 6
Article 7. Termination of Employment 7
Article 8. Change in Control 8
Article 9. Payout of Phantom Stock Units 8
Article 10. Rights of Participants 8
Article 11. Miscellaneous Provisions 9
Article 12. Requirements of Law 10
<PAGE>
Eljer Industries, Inc.
1995 Long-Term Incentive Plan
Article 1. Establishment, Purpose, and Duration
1.1 Establishment of the Plan. Eljer Industries, Inc., a Delaware
corporation (hereinafter referred to as the "Company"), hereby establishes an
incentive compensation plan to be known as the "Eljer Industries, Inc. 1995
Long-Term Incentive Plan" (hereinafter referred to as the "Plan"), as set forth
in this document.
The Plan shall become effective as of April 18, 1995 (the "Effective
Date"), and shall remain in effect as provided in Section 1.3 herein.
1.2 Purposes. The purposes of the Plan are to promote the achievement of
long-term financial objectives by linking the long-term incentive compensation
of key executives to increases in value of the Company; to attract and retain
executives of outstanding competence; and to encourage teamwork among key
executives.
1.3 Duration of the Plan. The Plan shall commence on the Effective Date, as
described in Section 1.1 herein, and shall remain in effect until terminated by
the Board of Directors pursuant to Section 3.3 herein. Notwithstanding the
foregoing, no Award may be granted under the Plan after December 31, 2005.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meanings set
forth below and, when the meaning is intended, the initial letter of the word is
capitalized:
2.1 "Accrued Value" means the appreciation in the worth of a Phantom Stock
Unit from the date of grant up to and including the Valuation Date, as
determined by the Committee pursuant to a Valuation. The Accrued Value of
Phantom Stock Units shall not include the Initial Value of such Units.
2.2 "Award" means, individually or collectively, a grant of Phantom Stock
Units under the Plan.
2.3 "Award Agreement" means an agreement entered into by and between the
Company and each Participant, setting forth the terms and provisions applicable
to Phantom Stock Units granted under the Plan.
2.4 "Beneficial Owner" shall have the meaning ascribed to such term in Rule
13d-3 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended.
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<PAGE>
2.5 "Board of Directors" or "Board" means the Board of Directors of
the Company.
2.6 "Change in Control" of the Company means and shall be deemed to have
occurred as of the first day that any one or more of the following conditions
shall have been satisfied:
(a) Any Person (other than those Persons in control of the Company as of
the Effective Date, or other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or
a corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company), becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing twenty-five
percent (25%) or more of the combined voting power of the Company's
then outstanding securities; or
(b) During any period of two (2) consecutive years (not including any
period prior to the Effective Date of this Plan), individuals who at
the beginning of such period constitute the Board (and any new
Director, whose election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the Directors then still in
office who either were Directors at the beginning of the period or
whose election or nomination for election was so approved), cease for
any reason to constitute a majority thereof; or
(c) The stockholders of the Company approve: (i) a plan of complete
liquidation of the Company; or (ii) an agreement for the sale or
disposition of all or substantially all the Company's assets; or
(iii) a merger, consolidation, or reorganization of the Company with
or involving any other corporation, other than a merger,
consolidation, or reorganization that would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least
fifty percent (50%) of the combined voting power of the voting
securities of the Company (or such surviving entity) outstanding
immediately after such merger, consolidation, or reorganization.
However, in no event shall a Change in Control be deemed to have
occurred, with respect to a Participant, if such Participant is part of a
purchasing group which consummates the Change-in-Control transaction. A
Participant shall be deemed "part of a purchasing group" for purposes of
the preceding sentence if such Participant is an equity participant in the
purchasing company or group (except for:
2
<PAGE>
(i) passive ownership of less than three percent (3%) of the stock of the
purchasing company; or (ii) ownership of equity participation in the
purchasing company or group which is otherwise not significant, as
determined prior to the Change in Control by a majority of the nonemployee
continuing Directors).
Further, notwithstanding any other provision of this Plan, in no
event shall a Change in Control be deemed to have occurred as a direct
result of the contribution by the Company of common stock of the Company in
the United States Brass Corporation ("U.S. Brass") Chapter 11 bankruptcy
case to settle, defend, release, or otherwise resolve any liability of or
claim against the Company arising in connection with the manuyfacture,
marketing or sale of polybutylene plumbing systems by U.S. Brass, as
determined by the Committee in its sole discretion.
2.7 "Committee" shall mean the Compensation Committee of the Board.
2.8 "Company" means Eljer Industries, Inc., a Delaware corporation
(including any and all subsidiaries), and any successor thereto, as provided in
Section 11.5 hereof.
2.9 "Director" means an individual who is a member of the Board of
Directors of the Company.
2.10 "Disability" means permanent and total disability, within the meaning
of Code Section 22(e)(3), as determined by the Committee in the exercise of good
faith and reasonable judgment, upon receipt of and in reliance on sufficient
competent medical advice from one or more individuals, selected by the
Committee, who are qualified to give professional medical advice.
2.11 "Initial Value" means the value of a Phantom Stock Unit on the date of
grant, as determined by the Committee pursuant to Section 5.2 hereof.
2.12 "Key Employee" means a key officer or selected manager of the Company
who is in a position to directly or indirectly make or influence policy
decisions which materially impact the Company's continued growth and development
and its long-term financial success, as determined by the Committee.
2.13 "Normal Retirement" shall mean the date a Participant attains age 65.
2.14 "Participant" means a Key Employee of the Company who has received an
Award under this Plan.
3
<PAGE>
2.15 "Performance Period" means the time period beginning on the date of
grant of Phantom Stock Units and ending three years following the date of grant,
or such other period specified by the Committee for each Award.
2.16 "Phantom Stock Unit" or "Unit" means an Award granted to a Participant
as a measure of participation under the Plan, and having a value which changes
in direct relation to changes in the value of the Company's common stock, as
determined pursuant to a Valuation.
2.17 "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Securities Exchange Act of 1934, as amended, and used in Section
13(d) and 14(d) thereof, including a "group" as defined in Section 13(d).
2.18 "Plan" means the Eljer Industries, Inc. 1995 Long-Term Incentive Plan,
as set forth herein.
2.19 "Plan Year" means the Company's fiscal year.
2.20 "Valuation" means an appraisal of the worth of a Phantom Stock Unit
based on changes in the value of the Company's common stock, as determined by
the Committee pursuant to Article 5 hereof; provided, however, that for purposes
of conducting a Valuation hereunder, the Value of the Company's common stock
shall be based on the average of the high and the low selling price of shares of
common stock of the Company on the principal securities exchange on which such
shares are publicly traded for the ten (10) trading days immediately preceding
and following the Valuation Date.
2.21 "Valuation Date" means the last day of the Performance Period or such
other date on which the Committee authorizes the Valuation of a Phantom Stock
Unit pursuant to the terms and conditions of this Plan.
Article 3. Administration
3.1 The Committee. The Plan shall be administered by the Committee.
3.2 Authority of the Committee. Subject to the provisions herein, except as
limited by law or by the Company's Articles of Incorporation or Bylaws, the
Committee shall have full power to: (i) select Key Employees to participate in
the Plan; (ii) determine the size and frequency of grants (which need not be the
same for each Participant); (iii) determine the terms and conditions of each
grant in a manner consistent with the provisions of the Plan; (iv) construe and
interpret the Plan and any agreement or instrument entered into under the Plan;
(v) establish, amend, rescind, or waive rules and regulations for the
4
<PAGE>
Plan's administration; and (vi) (subject to the provisions of Section 3.3
herein) amend, modify, and/or terminate the Plan. Further, the Committee shall
have the full power to make all other determinations which may be necessary or
advisable for the administration of the Plan to the extent consistent with the
Plan.
Except as limited by applicable law, the Committee, at its discretion, has
the right to delegate any or all of its administrative duties to any employee or
employees of the Company; and to rely on outside counsel, independent
accountants, or other consultants to render advice and/or assistance in
fulfilling any of its administrative duties hereunder.
3.3 Amendment, Modification, and Termination. The Committee, at its
discretion, without prior notice, at any time and from time to time, may modify,
or amend, in whole or in part, any or all of the provisions of the Plan, or may
suspend or terminate the Plan at any time.
Notwithstanding the foregoing, other than as permitted by the Plan, no such
amendment, modification, suspension, or termination by the Committee or the
Board may materially adversely affect any outstanding Phantom Stock Unit or the
rights attached thereto, without the written consent of the Participant (or a
Participant's beneficiary, as appropriate).
3.4 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive, and binding on
all persons, including the Company, its employees, Participants, and any other
person claiming an interest under the Plan.
Article 4. Eligibility and Participation
4.1 Eligibility. Eligibility for participation in the Plan shall be limited
to Key Employees, as determined by the Committee, at its sole discretion.
4.2 Participation. Subject to the provisions of the Plan, the Chief
Executive Officer of the Company will identify and the Committee shall approve
which, if any, Key Employees shall receive a grant of Phantom Stock Units
hereunder. The Chief Executive Officer may be nominated for participation only
by the Committee Chairperson or a majority of the members of the Committee.
As soon as practicable following selection and approval for participation,
each Participant shall execute an Award Agreement with the Company, as provided
in Section 6.3 herein, which shall contain a description of the number of
Phantom Stock Units granted, and all material terms and conditions to which the
Phantom Stock Units are subject.
5
<PAGE>
Article 5. Establishment of Phantom Stock Units
5.1 Number of Phantom Stock Units Available. The number of Phantom Stock
Units which may be granted in the aggregate under this Plan is four hundred
thousand (400,000). Phantom Stock Units which lapse, expire or terminate for any
reason without payment shall once again become available for grant under the
Plan.
5.2 Value of Phantom Stock Units. Each Phantom Stock Unit shall have an
Initial Value that is equal to the average of the high and the low selling price
of one share of common stock of the Company on the principal securities exchange
on which such Company shares are publicly traded as of the date such Units are
deemed to be granted, or if there is no such sale on the relevant date, then on
the last previous day on which a sale was reported.
Subsequent to such date of grant, the value of each Phantom Stock Unit
shall change in direct relationship to changes in the value of a share of the
Company's common stock as determined by the Committee pursuant to a Valuation.
The Committee, subject to the terms of the Plan, shall establish rules and
procedures which shall govern the determination of the Initial Value and Accrued
Value of Phantom Stock Units granted hereunder.
5.3 Adjustments. In the event of any change in corporate capitalization,
such as a stock split or a corporate transaction such as any merger,
consolidation, separation, including a spin-off or other distribution of stock
or property of the Company, any reorganization (whether or not such
reorganization comes within the definition of such term in Code Section 368) or
any partial or complete liquidation of the Company, such adjustment shall be
made in the number of Phantom Stock Units subject to outstanding Awards granted
under the Plan, as may be determined to be appropriate and equitable by the
Committee, in its sole discretion, to prevent dilution or enlargement of rights;
provided, however, that the Committee, in its sole discretion, may refrain from
making any such adjustment (or may make any adjustment it deems advisable) in
the event such change in corporate capitalization is a direct result of the
contribution by the Company of common stock of the Company in the U.S. Brass
Chapter 11 bankruptcy case to settle, defend, release, or otherwise resolve any
liability of or claim against the Company arising in connection with the
manufacture, marketing or sale of polybutylene plumbing systems by U.S. Brass.
Article 6. Grant of Phantom Stock Units
6.1 Grant of Phantom Stock Units. Subject to the terms of the Plan, Phantom
Stock Units may be granted to eligible key Employees at any time and from time
to time, as shall be determined by the Committee. The Committee shall have
complete discretion in determining the number and frequency of Phantom Stock
Units granted to each Participant.
6
<PAGE>
6.2 Vesting of Phantom Stock Units. Subject to the terms of Articles 7 and
8 herein, a Participant's Phantom Stock Units shall become vested at the end of
the applicable Performance Period or on such other date or dates as determined
by the Committee in its sole discretion.
6.3 Award Agreement. Each grant under the Plan shall be evidenced by an
Award Agreement. Each Award Agreement shall be signed by an officer of the
Company and by the Participant, and shall contain the terms and conditions that
apply to the grant, which shall include, but shall not be limited to, the number
of Phantom Stock Units granted, the Initial Value assigned to each Phantom Stock
Unit, the vesting period of the Phantom Stock Units, and the timing, calculation
of, and conditions to payout of Phantom Stock Units. Except as otherwise
provided by the Plan, the included terms and conditions need not be the same for
each Participant, nor for each grant.
6.4 Phantom Stock Unit Account. A Phantom Stock Unit Account ("the
Account") shall be established and maintained by the Company for each
Participant that receives an Award under the Plan. As the value of each Phantom
Stock Unit changes, the Account established on behalf of each Participant shall
be adjusted accordingly. Each Account shall be the record of the Phantom Stock
Units granted to the Participant under the Plan on each applicable grant date,
is maintained solely for accounting purposes, and shall not require a
segregation of any Company assets.
Article 7. Termination of Employment
7.1 Termination of Employment Due to Death, Disability, or Normal
Retirement. In the event the employment of a Participant is terminated by reason
of death, Disability, or Normal Retirement prior to the end of the Performance
Period, the Participant's Phantom Stock Units shall vest, and shall be paid, in
cash, as soon as practicable following the effective date of such termination of
employment. In such event, the amount of payout of such Phantom Stock Units
shall be determined by the Committee on the terms set forth in the Participant's
Award Agreement and in the Plan. Such terms may include, but are not limited to,
the proration of the amount of payout based on the number of months during the
applicable Performance Period in which the Participant was employed by the
Company.
7.2 Termination of Employment for Other Reasons. In the event the
employment of a Participant is terminated prior to the end of a Performance
Period for any reason other than those reasons set forth in Section 7.1 herein,
all Phantom Stock Units shall be forfeited by the Participant to the Company,
without payment to the Participant, unless provided otherwise by the Committee.
7
<PAGE>
Article 8. Change in Control
In the event of a Change in Control of the Company, the Participant's
Phantom Stock Units shall become immediately vested as of the effective date of
such Change in Control. The Accrued Value of all of a Participant's Phantom
Stock Units shall be paid, in cash, as soon as practicable thereafter, but in no
event later than thirty (30) days following the effective date of the Change in
Control.
Article 9. Payout of Phantom Stock Units
9.1 Amount of Payout. Except as provided otherwise in this Plan, the total
amount payable to a Participant shall be the aggregate Accrued Value of the
Participant's vested Phantom Stock Units, if any, at the end of the Performance
Period, or at such other Valuation Date established by the Committee. The
Accrued Value shall not include the Initial Value of such Phantom Stock Units.
9.2 Timing of Payout. Except as otherwise provided herein, the Accrued
Value of Phantom Stock Units determined pursuant to the terms of the Plan shall
be paid to Participants, in cash, as soon as practicable following the end of
the Performance Period, but in no event later than thirty (30) days following
the end of the Performance Period, as provided herein.
9.3 Deferral of Payout. The Committee may permit a Participant to defer his
or her receipt of cash that would otherwise be due with respect to Phantom Stock
Units granted under the Plan. If such deferral election is permitted, the
Committee shall, in its sole discretion, establish rules and procedures for such
payment deferrals.
Article 10. Rights of Participants
10.1 Employment. Nothing in this Plan shall interfere with, or limit in any
way, the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company.
10.2 Participation. No Participant or other employee shall, at any time,
have a right to be selected for participation in the Plan.
10.3 Nontransferability. No Phantom Stock Unit, right, or interest granted
to a Participant under this Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution.
10.4 Beneficiary Designation. Each Participant under this Plan may, from
time to time, name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any amount under the Plan is to be paid in
case of the Participant's death before receipt of any or all of such amounts.
Each designation shall revoke all prior designations by the same Participant,
shall be in a form prescribed by the Committee, and will be effective only when
filed by the Participant in writing with the Committee during his or her
lifetime. In the absence of any such
8
<PAGE>
designation, amounts remaining unpaid at the Participant's death shall be paid
to the Participant's estate.
10.5 Employee Benefit Plans. Phantom Stock Units and any amounts payable
hereunder shall not be considered part of covered compensation for purposes of
any of the Company's qualified or non-qualified employee benefit plans.
Article 11. Miscellaneous Provisions
11.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
11.2 Severability. In the event that any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
11.3 Costs of the Plan. All costs of the Plan including, but not limited
to, payout of Phantom Stock Units and administrative expenses, shall be incurred
by the Company out of the Company's general assets. Although not prohibited from
doing so, the Company is not required in any way to segregate assets in any
manner or to specifically fund the benefits provided under this Plan.
11.4 Tax Withholding. The Company shall have the right to deduct from any
payments under this Plan any federal, state, or local taxes required by law to
be withheld with respect to such payments.
11.5 Successors. All obligations of the Company under this Plan with
respect to Phantom Stock Units, and the corresponding rights granted hereunder,
shall be binding on any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, merger, consolidation,
or otherwise of all or substantially all of the voting interests, the business
and/or the assets of the Company.
11.6 Indemnification. Each person who is or shall have been a member of the
Committee, or the Board, shall be indemnified and held harmless by the Company
against and from any loss, cost, liability, or expense that may be imposed upon
or reasonably incurred by him or her in connection with or resulting from any
claim, action, suit, or proceeding to which he or she may be a party or in which
he or she may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or
9
<PAGE>
paid by him or her in satisfaction of any judgment in any such action, suit, or
proceeding against him or her, provided he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf.
The foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled through any
authority that the Company may have to indemnify them or hold them harmless, or
by operation of law.
Article 12. Requirements of Law
12.1 Requirements of Law. The granting, administration, and payout of
Phantom Stock Units under this Plan shall be subject to all applicable laws,
rules, and regulations and to such approvals by any governmental agencies or
national securities exchanges as may be required.
12.2 Governing Law. To the extent not preempted by federal law, this
Plan and all agreements hereunder shall be construed in accordance with and
governed by the laws of the state of Texas.
10
EXECUTIVE SEVERANCE AGREEMENT
Eljer Industries, Inc.
July, 1995
<PAGE>
Eljer Industries, Inc.
Executive Severance Agreement
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Section Page
<S> <C> <C> <C>
1 Definitions 2
-----------
2 Severance Benefits
2.1 Right to Severance Benefits 9
2.2 Services During Certain Events 9
2.3 Qualifying Termination 10
2.4 Description of Severance Benefits 10
2.5 Termination for Total and Permanent
Disability 11
2.6 Termination for Retirement or Death 12
2.7 Termination for Cause or by the
Executive Other Than for Good Reason 12
2.8 Notice of Termination 12
3 Form and Timing of Severance Benefits
-------------------------------------
3.1 Form and Timing of Severance Benefits 13
3.2 Withholding of Taxes 13
4 Tax Indemnity
4.1 Limitation on Termination Payment 13
4.2 Subsequent Imposition of Excise Tax 15
5 The Company's Payment Obligation
5.1 Payment Obligations Absolute 16
5.2 Contractual Rights to Benefits 17
6 Term of Agreement 17
-----------------
7 Legal Remedies
<PAGE>
7.1 Payment of Legal Fees 17
7.2 Arbitration 18
8 Successors 18
----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Article Section Page
<S> <C> <C> <C>
9 Miscellaneous
9.1 Employment Status 19
9.2 Beneficiaries 20
9.3 Entire Agreement 20
9.4 Gender and Number 20
9.5 Severability 20
9.6 Modification 20
9.7 Applicable Law 21
</TABLE>
<PAGE>
Eljer Industries, Inc.
Executive Severance Agreement
THIS AGREEMENT is made and entered into as of this 1st day of July,
1995, by and between Eljer Industries, Inc., a Delaware corporation (hereinafter
referred to as the "Company") and [NAME OF OFFICER] (hereinafter referred to as
the "Executive").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company has approved the Company
entering into severance agreements with certain key executives of the Company;
WHEREAS, the Executive is a key executive of the Company;
WHEREAS, should the possibility of a Change-in-Control of the Company
arise, the Board believes it imperative that the Company and the Board should be
able to rely upon the Executive to continue in his position, and that the
Company should be able to receive and rely upon his advice, if it requests it,
as to the best interests of the Company and its shareholders without concern
that he might be distracted by the personal uncertainties and risks created by
the possibility of a Change-in-Control;
WHEREAS, should the possibility of a Change-in-Control arise, in
addition to the Executive's regular duties, he may be called upon to assist in
the assessment of such possible Change-in-Control, advise management and the
Board as to whether such Change-in-Control would be in the best interests of the
Company and its shareholders, and to take such other actions as the Board might
determine to be appropriate; and
WHEREAS, the Executive and the Company desire that the terms of this
Agreement, with the terms of the Eljer Industries, Inc. Long-Term Executive
Incentive Compensation Plan and the Eljer Industries 1991 Long-Term Incentive
Plan, to the extent
- 1 -
<PAGE>
that the Executive has an award under either or both of such plans, shall
constitute the entire understanding of the parties regarding the Executive's
entitlement to payment and benefits following a Change in Control of the
Company;
NOW THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat, or occurrence of a Change-in-Control of
the Company, and to induce the Executive to remain in the employ of the Company,
and for other good and valuable consideration, the Company and the Executive
agree as follows:
Article 1. Definitions
Whenever used in this Agreement, the following terms shall have the
meanings set forth below and, when the meaning is intended, the initial letter
of the word is capitalized:
(a) "Agreement" means this Executive Severance Agreement.
(b) "Base Salary" means the salary of record paid to the Executive
as annual salary, excluding amounts received under incentive
or other bonus plans, whether or not deferred.
(c) "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
(d) "Beneficiary" means the persons or entities designated or
deemed designated by the Executive pursuant to Section 9.2
herein.
(e) "Board" means the Board of Directors of the Company.
- 2 -
<PAGE>
(f) "Cause" shall be determined by the Committee, in exercise of
good faith and reasonable judgment, and shall mean the
occurrence of any one or more of the following:
(i.) The willful and continued failure by the
Executive to substantially perform his
duties (other than any such failure
resulting from the Executive's Disability),
after a written demand for substantial
performance is delivered by the Committee to
the Executive that specifically identifies
the manner in which the Committee believes
that the Executive has not substantially
performed his duties, and the Executive
has failed to remedy the situation within
thirty (30) calendar days of receiving such
notice; or
(ii.) The Executive's conviction for committing an
act of fraud, embezzlement, theft, or other
act constituting a felony; or
(iii.) The willful engaging by the Executive in
gross misconduct materially and demonstrably
injurious to the Company, as determined by
the Committee. However, no act or failure to
act, on the Executive's part shall be
considered "willful" unless done, or omitted
to be done, by the Executive not in good
faith and without reasonable belief that his
action or omission was in the best interest
of the Company.
(g) "Change-in-Control" of the Company shall be deemed to have
occurred as of the first day that any one or more of the
following conditions shall have been satisfied:
- 3 -
<PAGE>
(i.) Any Person (other than those Persons in
control of the Company as of the Effective
Date, or other than a trustee or other
fiduciary holding securities under an
employee benefit plan of the Company, or a
corporation owned directly or indirectly by
the stockholders of the Company in
substantially the same proportions as their
ownership of stock of the Company), becomes
the Beneficial Owner, directly or
indirectly, of securities of the Company
representing twenty-five percent (25%) or
more of the combined voting power of
the Company's then outstanding securities;
or
(ii.) During any period of two (2) consecutive
years (not including any period prior to the
execution of this Agreement), individuals
who at the beginning of such period
constitute the Board (and any new Director,
whose election by the Company's stockholders
was approved by a vote of at least
two-thirds (2/3) of the Directors then
still in office who either were Directors at
the beginning of the period or whose
election or nomination for election was so
approved), cease for any reason to
constitute a majority thereof; or
(iii.) The stockholders of the Company approve:
(A) a plan of complete liquidation of the
Company; or (B) an agreement for the sale
or disposition of all or substantially all
the Company's assets; or (C) a merger,
consolidation, or reorganization of the
Company with or involving any other
corporation, other than a merger,
consolidation, or reorganization that would
result in the voting securities of the
Company outstanding immediately
prior thereto continuing to represent
(either by remaining outstanding or by
being converted into voting securities of
the
- 4 -
<PAGE>
surviving entity), at least fifty percent
(50%) of the combined voting power of the
voting securities of the Company (or such
surviving entity) outstanding immediately
after such merger, consolidation, or
reorganization.
However, in no event shall a Change-in-Control be deemed to
have occurred, with respect to the Executive, if the Executive
is part of a purchasing group which consummates the
Change-in-Control transaction. The Executive shall be deemed
"part of a purchasing group" for purposes of the preceding
sentence if the Executive is an equity participant in the
purchasing company or group (except for: (i) passive ownership
of less than three percent (3%) of the stock of the purchasing
company; or (ii) ownership of equity participation in the
purchasing company or group which is otherwise not
significant, as determined prior to the Change-in-Control by a
majority of the nonemployee continuing Directors).
(h) "Code" means the Internal Revenue Code of 1986, as amended.
(i) "Committee" means the Compensation Committee of the Board, or
any other committee appointed by the Board to perform the
functions of the Compensation Committee.
(j) "Company" means Eljer Industries, Inc., a Delaware corporation
(including any and all subsidiaries), or any successor thereto
as provided in Article 8 herein.
(k) "Disability" means permanent and total disability, within the
meaning of Code Section 22(e)(3), as determined by the
Committee in the exercise of good faith and reasonable
judgment, upon receipt of and in reliance on sufficient
- 5 -
<PAGE>
competent medical advice from one or more individuals,
selected by the Committee, who are qualified to give
professional medical advice.
(l) "Effective Date" means the date this Agreement is approved by
the Board, or such other date as the Board shall designate in
its resolution approving this Agreement.
(m) "Effective Date of Termination" means the date on which a
Qualifying Termination occurs which triggers the payment of
Severance Benefits hereunder.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(o) "Executive" means [NAME OF OFFICER].
(p) "Good Reason" means, without the Executive's express written
consent, the occurrence after a Change-in-Control of the
Company of any one or more of the following:
(i.) The assignment of the Executive to duties
materially inconsistent with the Executive's
authorities, duties, responsibilities, and
status (including offices, titles, and
reporting requirements) as an officer of the
Company, or a reduction or alteration in the
nature or status of the Executive's
authorities, duties, or responsibilities
from those in effect as of ninety (90) days
prior to the Change-in-Control, other than
an insubstantial and inadvertent act that is
remedied by the Company promptly after
receipt of notice thereof given by the
Executive, and other than any such
alteration primarily
- 6 -
<PAGE>
attributable to the fact that the Company
may no longer be a public company;
(ii.) The Company's requiring the Executive to be
based at a location in excess of thirty-five
(35) miles from the location of the
Executive's principal job location or office
immediately prior to the Change-in-Control;
except for required travel on the Company's
business to an extent substantially
consistent with the Executive's present
business obligations;
(iii.) A reduction by the Company of the
Executive's Base Salary as in effect on the
Effective Date, or as the same shall be
increased from time to time.
(iv.) The failure of the Company to continue in
effect any of the Company's short- and/or
long-term incentive compensation plans,
or employee benefit or retirement plans,
policies, practices, or arrangements in
which the Executive participates, or the
failure by the Company to continue the
Executive's participation therein on
substantially the same basis, both in
terms of the amount of benefits provided and
the level of the Executive's participation
relative to other participants, as
existed immediately prior to the Change-in-
Control of the Company;
(v.) The failure of the Company to obtain a
satisfactory agreement from any successor to
the Company to assume and agree to perform
the Company's obligations under this
Agreement, as contemplated in Article 8
herein; and
- 7 -
<PAGE>
(vi.) Any purported termination by the Company of
the Executive's employment that is not
affected pursuant to a Notice of Termination
satisfying the requirements of Section 2.8
herein, and for purposes of this Agreement,
no such purported termination shall be
effective.
The Executive's right to terminate employment for Good Reason
shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued
employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good
Reason herein.
(q) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d)
and 14(d) thereof, including a "group" as defined in Section
13(d).
(r) "Qualifying Termination" means any of the events described in
Section 2.3 herein, the occurrence of which triggers the
payment of Severance Benefits hereunder.
(s) "Severance Benefits" means the payment of severance
compensation as provided in Section 2.4 herein.
Article 2. Severance Benefits
2.1 Right to Severance Benefits. The Executive shall be entitled to
receive from the Company Severance Benefits as described in Section 2.4 herein,
if there has been a Change-in-Control of the Company and if, within twenty-four
(24) calendar months thereafter, the Executive's employment with the Company
shall end for any reason specified in Section 2.3 herein as being a Qualifying
Termination.
- 8 -
<PAGE>
The Executive shall not be entitled to receive Severance Benefits if he
is terminated for Cause, or if his employment with the Company ends due to
death, Disability, retirement (as defined under the then established rules of
the Company's tax-qualified retirement plan), or due to a voluntary termination
of employment by the Executive without Good Reason.
2.2. Services During Certain Events. In the event a Person begins
tender or exchange offer, circulates a proxy to shareholders of the Company, or
takes other steps seeking to effect a Change-in-Control, the Executive agrees
that he will not voluntarily leave the employ of the Company and will render
services until such Person has abandoned or terminated his or its efforts to
effect a Change-in-Control, or until six (6) months after a Change-in-Control
has occurred; provided, however, that the Company may terminate the Executive
for Cause at any time, and the Executive may terminate his employment any time
after the Change-in-Control for Good Reason.
2.3. Qualifying Termination. The occurrence of any one or more of
the following events within twenty-four (24) calendar months after a Change-in-
Control of the Company shall trigger the payment of Severance Benefits to the
Executive under this Agreement:
(a) A termination of the Executive's employment with the Company
for reasons other than death, Disability, normal retirement
(as such term is defined under the then established rules of
the Company's tax-qualified retirement plan), a voluntary
termination of employment by the Executive without Good
Reason, or termination of the Executive's employment by the
Company for Cause;
(b) A successor company fails or refuses to assume the Company's
obligations under this Agreement, as required by Article 8
herein; or
- 9 -
<PAGE>
(c) The Company or any successor company breaches any of the
provisions of this Agreement.
2.4. Description of Severance Benefits. In the event that the Executive
becomes entitled to receive Severance Benefits, as provided in Sections 2.1 and
2.3 herein, and subject to the limits set forth in Article 4 herein, the Company
shall pay to the Executive and provide him with the following:
(a) An amount equal to two (2) times the highest rate of the
Executive's annual Base Salary in effect at any time up to and
including the Effective Date of Termination.
(b) An amount equal to two (2) times the greater of: (i) the
Executive's average annual bonus earned over the last three
(3) years; or (ii) the Executive's target bonus established
for the bonus plan year in which the Executive's Effective
Date of Termination occurs.
(c) An amount equal to the Executive's unpaid Base Salary and
accrued vacation pay through the Effective Date of
Termination.
(d) A continuation of all benefits pursuant to any and all welfare
benefit plans under which the Executive and/or the Executive's
family is eligible to receive benefits and/or coverage as of
the effective date of the Change-in-Control, including, but
not limited to, group life insurance, hospitalization,
disability, medical, dental, pension, and profit sharing.
These benefits shall be provided by the Company to the
Executive immediately upon the Effective Date of Termination
and shall continue to be provided for two (2) full
calendar years from the Effective Date of Termination. Such
benefits shall be provided to the Executive at the same
premium cost, and at the same
- 10 -
<PAGE>
coverage level, as in effect as of the Executive's Effective
Date of Termination.
The welfare benefits described in this Subsection 2.4(d) shall
continue for two (2) full years following the Effective Date
of Termination; provided, however, that such benefits shall be
discontinued prior to the end of the two (2) year period in
the event the Executive receives substantially similar
benefits from a subsequent employer, as determined by the
Committee.
2.5. Termination for Total and Permanent Disability. Following a
Change-in- Control of the Company, if the Executive's employment is terminated
due to Disability, the Executive shall receive his Base Salary through the
Effective Date of Termination, at which point in time the Executive's benefits
shall be determined in accordance with the Company's retirement, insurance, and
other applicable plans and programs then in effect.
2.6. Termination for Retirement or Death. Following a Change-in-Control
of the Company, if the Executive's employment is terminated by reason of his
retirement (as defined under the then established rules of the Company's
tax-qualified retirement plan), or death, the Executive's benefits shall be
determined in accordance with the Company's retirement, survivor's benefits,
insurance, and other applicable programs of the Company then in effect.
2.7. Termination for Cause or by the Executive Other Than for Good
Reason. Following a Change-in-Control of the Company, if the Executive's
employment is terminated either: (i) by the Company for Cause; or (ii) by the
Executive other than for Good Reason, the Company shall pay the Executive his
full Base Salary and accrued vacation through the Effective Date of Termination,
at the rate then in effect, plus all other amounts to which the Executive is
entitled under any compensation plans of the Company, at the time such payments
are due, and the Company shall have no further obligations to the Executive
under this Agreement.
- 11 -
<PAGE>
2.8. Notice of Termination. Any termination by the Company for Cause or
by the Executive for Good Reason shall be communicated by Notice of Termination
to the other party. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon, and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated.
- 12 -
<PAGE>
Article 3. Form and Timing of Severance Benefits
3.1. Form and Timing of Severance Benefits. The Severance Benefits
described in Sections 2.4(a), 2.4(b), and 2.4(c) herein shall be paid in cash to
the Executive in a single lump sum as soon as practicable following the
Effective Date of Termination, but in no event beyond thirty (30) days from such
date.
3.2. Withholding of Taxes. The Company shall withhold from any
amounts payable under this Agreement all federal, state, city, or other taxes as
legally shall be required.
Article 4. Tax Indemnity
4.1. Limitation on Termination Payment.
(a) Determination of Termination Payment Limit.
------------------------------------------
Notwithstanding any other provision of this
Agreement, if any portion of the Severance Benefits
Benefits or any other payment under this Agreement,
or under any other agreement with or plan of the
Company (in the aggregate "Total Payments") would
constitute an "excess parachute payment," then
the payments to be made to the Executive under this
Agreement shall be reduced such that the value of the
aggregate Total Payments that the Executive is
entitled to receive shall be one dollar ($1) less
than the maximum amount which the Executive may
receive without becoming subject to the tax imposed
by Section 4999 of the Code, or which the Company may
pay without loss of deduction under Section
280G(a) of the Code.
However, the payments to be made to the Executive
under this Agreement shall be reduced if and only if
so reducing the payments
- 13 -
<PAGE>
results in the Executive receiving a greater net
benefit than he would have received had a reduction
not occurred and an excise tax been paid pursuant to
Code Section 4999.
For purposes of this Agreement, the terms "excess
parachute payment" and "parachute payments" shall
have the meanings assigned to them in Section 280G of
the Code, and such "parachute payments" shall be
valued as provided therein.
(b) Procedure for Establishing Limitation on Termination
----------------------------------------------------
Payment.
--------
Within sixty (60) days following delivery of the
Notice of Termination (as described in Section 2.8
herein) or notice by the Company to the Executive of
its belief that there is a payment or benefit due the
Executive which will result in an "excess parachute
payment" as defined in Section 280G of the Code, the
Executive and the Company, at the Company's expense,
shall obtain the opinion of such legal counsel, which
need not be unqualified, as the Executive may choose,
which sets forth: (i) the amount of the Executive's
"annualized includible compensation for the base
period" (as defined in Code Section 280G(d)(1));
(ii) the present value of the Total Payments; and
(iii) the amount and present value of any "excess
parachute payment." The opinion of such legal
counsel shall be supported by the opinion of a
certified public accounting firm and, if necessary,
a firm of recognized executive compensation
consultants. Such opinion shall be binding upon the
Company and the Executive.
In the event that such opinion determines that there
would be an "excess parachute payment," the Severance
Benefits hereunder or any other payment determined by
such counsel to be includible in Total Payments shall
be reduced or eliminated as specified by the
- 14 -
<PAGE>
Executive in writing delivered to the Company within
thirty (30) days of his receipt of such opinion, or,
if the Executive fails to so notify the Company, then
as the Company shall reasonably determine, so that
under the basis of calculations set forth in such
opinion, there will be no "excess parachute payment."
The provisions of this Section 4.1(b), including the
calculations, notices, and opinion provided for
herein shall be based upon the conclusive presumption
that: (i) the compensation and benefits provided for
in Section 2.4 herein; and (ii) any other
compensation earned prior to the Effective Date of
Termination by the Executive pursuant to the
Company's compensation programs (if such payments
would have been made in the future in any event, even
though the timing of such payment is triggered by the
Change-in- Control), are reasonable.
4.2. Subsequent Imposition of Excise Tax. If, notwithstanding
compliance with the provisions of Sections 4.1(a), and 4.1(b) herein, it is
ultimately determined by a court or pursuant to a final determination by the
Internal Revenue Service that any portion of the Total Payments is considered to
be a "parachute payment," subject to excise tax under Section 4999 of the Code,
which was not contemplated to be a "parachute payment" at the time of payment
(so as to accurately determine whether a limitation should have been applied to
the Total Payments to maximize the net benefit to the Executive, as provided in
Section 4.1(b) hereof), the Executive shall be entitled to receive a lump sum
cash payment sufficient to place the Executive in the same net after-tax
position, computed by using the "Special Tax Rate" as such term is defined
below, that the Executive would have been in had such payment not been subject
to such excise tax, and had the Executive not incurred any interest charges or
penalties with respect to the imposition of such excise tax. For purposes of
this Agreement, the "Special Tax Rate" shall be the highest effective
- 15 -
<PAGE>
federal and state marginal tax rates applicable to the Executive in the year in
which the payment contemplated under this Section 4.2 is made.
Article 5. The Company's Payment Obligation
5.1. Payment Obligations Absolute. The Company's obligation to make the
payments and the arrangements provided for herein shall be absolute and
unconditional, and shall not be affected by any circumstances, including,
without limitation, any offset, counterclaim, recoupment, defense, or other
right which the Company may have against the Executive or anyone else. All
amounts payable by the Company hereunder shall be paid without notice or demand.
Each and every payment made hereunder by the Company shall be final, and the
Company shall not seek to recover all or any part of such payment from the
Executive or from whomsoever may be entitled thereto, for any reasons
whatsoever.
The Executive shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under any provision of
this Agreement, and the obtaining of any such other employment shall in no event
effect any reduction of the Company's obligations to make the payments and
arrangements required to be made under this Agreement, except to the extent
provided in Section 2.4(d) herein.
5.2. Contractual Rights to Benefits. This Agreement establishes and
vests in the Executive a contractual right to the benefits to which he is
entitled hereunder. However, nothing herein contained shall require or be deemed
to require, or prohibit or be deemed to prohibit, the Company to segregate,
earmark, or otherwise set aside any funds or other assets, in trust or
otherwise, to provide for any payments to be made or required hereunder.
Article 6. Term of Agreement
- 16 -
<PAGE>
This Agreement will commence on the Effective Date and shall continue
in effect for two (2) full calendar years, the last day of which shall be the
"Expiration Date." However, at the end of such two-year period and, if extended,
at the end of each additional year thereafter, the term of this Agreement shall
be extended automatically for one (1) additional year, unless the Committee
delivers written notice three (3) months prior to the end of such term, or
extended term, to the Executive, that the Agreement will not be extended. In
such case, the Agreement will terminate at the end of the term, or extended
term, then in progress.
However, in the event a Change-in-Control occurs during the original or
any extended term, this Agreement will remain in effect for the longer of: (i)
twenty-four (24) months beyond the month in which such Change-in-Control
occurred; or (ii) until all obligations of the Company hereunder have been
fulfilled, and until all benefits required hereunder have been paid to the
Executive.
Article 7. Legal Remedies
7.1. Payment of Legal Fees. To the extent permitted by law, the Company
shall pay all legal fees, costs of litigation, prejudgment interest, and other
expenses incurred in good faith by the Executive as a result of the Company's
refusal to provide the Severance Benefits to which the Executive becomes
entitled under this Agreement, or as a result of the Company's contesting the
validity, enforceability, or interpretation of this Agreement, or as a result of
any conflict between the parties pertaining to this Agreement.
7.2. Arbitration. The Executive shall have the right and option to
elect (in lieu of litigation) to have any dispute or controversy arising under
or in connection with this Agreement settled by arbitration, conducted before a
panel of three (3) arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the location of his job with the Company, in
accordance with the rules of the American Arbitration Association then in
effect.
- 17 -
<PAGE>
Judgment may be entered on the award of the arbitrator in any court
having proper jurisdiction. All expenses of such arbitration, including the fees
and expenses of the counsel for the Executive, shall be borne by the Company.
Article 8. Successors
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) of all or substantially all of
the business and/or assets of the Company or of any division or subsidiary
thereof to expressly assume and agree to perform the Company's obligations under
this Agreement in the same manner and to the same extent that the Company would
be required to perform them if no such succession had taken place. Failure of
the Company to obtain such assumption and agreement prior to the effective date
of any such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the same
terms as he would be entitled to hereunder if he had terminated his employment
with the Company voluntarily for Good Reason. Except for the purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Effective Date of Termination.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If the Executive should
die while any amount would still be payable to him hereunder had he continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement, to the Executive's Beneficiary. If
the Executive has not named a Beneficiary, then such amounts shall be paid to
the Executive's devisee, legatee, or other designee, or if there is no such
designee, to the Executive's estate.
Article 9. Miscellaneous
- 18 -
<PAGE>
9.1. Employment Status. The Executive and the Company acknowledge that,
except as may be provided under any other agreement between the Executive and
the Company, the employment of the Executive by the Company is "at will," and,
prior to the effective date of a Change-in-Control, may be terminated by either
the Executive or the Company at any time. Upon a termination of the Executive's
employment by the Company or the Executive or by reason of the Executive's death
before the occurrence of a Change in Control, there shall be no further rights
under this Agreement; provided, however, that if the Company terminates the
Executive's employment for any reason other than Disability or Cause in
connection with, or in anticipation of, a proposed Change in Control, then the
Executive's rights under this Agreement shall be the same as if the termination
had occurred within twenty-four (24) calendar months after a Change in Control.
9.2. Beneficiaries. The Executive may designate one or more
persons or entities as the primary and/or contingent Beneficiaries of any
Severance Benefits owing to the Executive under this Agreement. Such
designation must be in the form of a signed writing acceptable to the Committee.
The Executive may make or change such designation at any time.
9.3. Entire Agreement. Except as described in the following sentence of
this Section 9.3, this Agreement contains the entire understanding of the
Company and the Executive with respect to the Executive's entitlement to
payments and benefits arising as a result of a Change in Control of the Company.
Nothing in this Agreement shall, however, negate or impair any rights that the
Executive may have under the Eljer Industries, Inc. Long-Term Executive
Incentive Compensation Plan or the Eljer Industries 1991 Long-Term Incentive
Plan, or both, upon the occurrence of a Change in Control of the Company.
9.4. Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular, and the singular shall include the plural.
- 19 -
<PAGE>
9.5. Severability. In the event any provision of this Agreement shall
be held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included. Further, the captions of this Agreement are not part of the provisions
hereof and shall have no force and effect.
9.6. Modification. No provision of this Agreement may be modified,
waived, or discharged unless such modification, waiver, or discharge is agreed
to in writing and signed by the Executive and by an authorized member of the
Committee, or by the respective parties' legal representatives and successors.
9.7. Applicable Law. To the extent not preempted by the laws of
the United States, the laws of the state of Texas shall be the controlling law
in all matters relating to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on this
______ day of August, 1995.
------------------------
Signature
ATTEST:
Eljer Industries, Inc.
(Corporate Seal)
By:
- 20 -
EXHIBIT 21
SUBSIDIARIES OF ELJER INDUSTRIES, INC.
<TABLE>
<CAPTION>
Percentage State/Country of
Ownership Incorporation
-------------- -----------------
<S> <C> <C>
Design Plus, Inc. <F1> 100% Pennsylvania
Eljer FSC Ltd. 100% Virgin Islands
Eljer Industries Limited 100% United Kingdom
Eljer Manufacturing Canada, Inc. <F1> 100% Canada
Eljer Manufacturing, Inc. 100% Delaware
Eljer Plumbingware <F1> 100% Delaware
Eljer Services Corp. 100% Delaware
GlasTec, Inc. <F1> 100% Delaware
Industrias Eljer de Mexico, S.A. de C.V. <F1> 100% Mexico
Selkirk Canada U.S.A., Inc. 100% Delaware
Selkirk Europe U.S.A., Inc. 100% Delaware
Selkirk Manufacturing France S.A.R.L.<F2> 99.95% France
Selkirk Manufacturing Limited <F1> 100% United Kingdom
Selkirk Schornsteintechnik GmbH <F1> 100% Germany
Selkirk S.R.L.<F1> 100% Italy
Selkirk UK, U.S.A. No. 1, Inc. 100% Delaware
Selkirk/Dry, Inc. <F1> 100% Delaware
United States Brass Corporation <F1> 100% Delaware
<FN>
<F1> Indirect, wholly-owned subsidiary of Eljer Industries, Inc.
<F2> 99.95% indirectly owned subsidiary of Eljer Industries, Inc.
</FN>
</TABLE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8 (registration nos.33-29009;
33-31885, as amended by 33-51525; and 33-51527).
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-02-1995
<PERIOD-END> DEC-31-1995
<CASH> 22,957
<SECURITIES> 0
<RECEIVABLES> 75,946
<ALLOWANCES> 6,908
<INVENTORY> 64,565
<CURRENT-ASSETS> 171,353
<PP&E> 173,060
<DEPRECIATION> (108,777)
<TOTAL-ASSETS> 248,959
<CURRENT-LIABILITIES> 145,155
<BONDS> 81,696
0
0
<COMMON> 7,186
<OTHER-SE> (41,644)
<TOTAL-LIABILITY-AND-EQUITY> 248,959
<SALES> 397,386
<TOTAL-REVENUES> 397,386
<CGS> 295,180
<TOTAL-COSTS> 295,180
<OTHER-EXPENSES> 80,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,755
<INCOME-TAX> 724
<INCOME-CONTINUING> 4,889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,889
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
