FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 0-10181
ELJER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2270874
(State of Incorporation) (I.R.S. Employer I.D. No.)
17120 Dallas Parkway, Dallas, Texas 75248
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 407-2600
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 _____
At November 8, 1996 there were 7,153,532 shares of registrant's common stock
outstanding.
<PAGE>
ELJER INDUSTRIES, INC.
FORM 10-Q
September 29, 1996
INDEX
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income for the nine
months ended September 29, 1996 and October 1, 1995
Condensed Consolidated Statements of Income for the three
months ended September 29, 1996 and October 1, 1995
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Cash Flows
Notes to Unaudited Condensed Consolidated Financial Statements
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II--OTHER INFORMATION
ITEM 1--LEGAL PROCEEDINGS
ITEM 2--CHANGES IN SECURITIES
ITEM 3--DEFAULTS UPON SENIOR SECURITIES
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5--OTHER INFORMATION
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
1
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Nine Months Ended
September October
29, 1996 1, 1995
-------- --------
<S> <C> <C>
NET SALES $ 290,370 $ 294,223
COST OF SALES 213,124 219,279
--------- ---------
GROSS PROFIT 77,246 74,944
SELLING & ADMINISTRATIVE EXPENSES 56,373 56,098
LITIGATION COSTS (SETTLEMENTS), net (2,868) 6,362
UNUSUAL ITEM - U.S. BRASS BANKRUPTCY ADJUSTMENT 2,232 (1,894)
--------- ---------
INCOME FROM OPERATIONS 21,509 14,378
OTHER EXPENSE, net 418 1,252
INTEREST INCOME (1,047) (1,361)
INTEREST EXPENSE 9,231 11,467
--------- ---------
INCOME BEFORE INCOME TAXES 12,907 3,020
INCOME TAX EXPENSE 2,579 586
--------- ---------
NET INCOME $ 10,328 $ 2,434
========= =========
EARNINGS PER SHARE $ 1.43 $ 0.34
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,206 7,132
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
2
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months Ended
September October
29, 1996 1, 1995
--------- ---------
<S> <C> <C>
NET SALES $ 103,973 $ 102,752
COST OF SALES 73,138 74,016
--------- ---------
GROSS PROFIT 30,835 28,736
SELLING & ADMINISTRATIVE EXPENSES 18,744 17,679
LITIGATION COSTS 299 1,869
UNUSUAL ITEM - U.S. BRASS BANKRUPTCY ADJUSTMENT 1,380 348
--------- ---------
INCOME FROM OPERATIONS 10,412 8,840
OTHER EXPENSE, net 186 321
INTEREST INCOME (341) (367)
INTEREST EXPENSE 2,562 3,808
--------- ---------
INCOME BEFORE INCOME TAXES 8,005 5,078
INCOME TAX EXPENSE 615 556
--------- ---------
NET INCOME $ 7,390 $ 4,522
========= =========
EARNINGS PER SHARE $ 1.03 $ 0.63
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,204 7,137
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September December
A S S E T S 29, 1996 31, 1995
----------- ------------ ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash & temporary cash investments $ 6,712 $ 22,957
Restricted cash 14,613 13,777
Trade accounts receivable, net of
reserves of $7,466 and $6,908 73,500 69,038
Inventories 65,689 64,565
Other current assets 3,817 4,344
-------- --------
Total current assets 164,331 174,681
PROPERTIES & EQUIPMENT, net of accumulated
depreciation of $114,736 and $108,777 61,028 64,283
COST IN EXCESS OF NET TANGIBLE ASSETS
ACQUIRED, net 10,556 10,874
OTHER RESTRICTED CASH 5,650 --
OTHER ASSETS 2,552 2,449
-------- --------
$244,117 $252,287
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September December
LIABILITIES AND SHAREHOLDERS' EQUITY 29, 1996 31, 1995
- ------------------------------------ ------------- -----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term debt and current maturities
of long-term debt $ 22,231 $ 35,907
Trade accounts payable 21,117 17,112
Prepetition liabilities subject to compromise 33,377 31,209
Accrued expenses 65,104 49,965
--------- ---------
Total current liabilities 141,829 134,193
LONG-TERM DEBT 63,164 85,024
POSTRETIREMENT BENEFITS 36,201 39,409
OTHER LIABILITIES 25,995 26,499
DEFERRED INCOME TAXES 1,627 1,620
--------- ---------
Total liabilities 268,816 286,745
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par value,
50,000,000 shares authorized;
7,153,407 and 7,136,652 shares outstanding 7,186 7,186
Additional capital 79,123 78,965
Accumulated deficit (104,253) (114,581)
Foreign currency translation adjustments (6,712) (5,978)
Treasury stock (43) (50)
--------- ---------
Total shareholders' equity (deficit) (24,699) (34,458)
--------- ---------
$ 244,117 $ 252,287
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
September October
29, 1996 1, 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,328 $ 2,434
Adjustments to reconcile net income to net
cash provided by (used in) operating activities-
Depreciation and amortization 6,942 7,047
Loss on disposition of fixed assets 222 73
Changes in assets and liabilities-
Trade accounts receivable (4,641) (11,999)
Inventories (1,318) 2,108
Trade accounts payable and accrued
expenses 20,781 (5,998)
Other assets 473 1,036
Other, net (3,792) (1,138)
-------- --------
Net cash provided by (used in)
operating activities 28,995 (6,437)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in properties and equipment (3,468) (10,256)
Proceeds from disposition of properties
and equipment 90 424
-------- --------
Net cash used in investing activities (3,378) (9,832)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt (6,667) 793
Repayment of long-term debt (28,720) (3,499)
(Increase) decrease in restricted cash (6,486) 15
-------- --------
Net cash used in financing activities (41,873) (2,691)
-------- --------
EFFECTS OF EXCHANGE RATES ON CASH 11 551
-------- --------
NET DECREASE IN CASH & TEMPORARY
CASH INVESTMENTS (16,245) (18,409)
CASH & TEMPORARY CASH INVESTMENTS,
BEGINNING OF PERIOD 22,957 26,109
-------- --------
CASH & TEMPORARY CASH INVESTMENTS, $ 6,712 $ 7,700
END OF PERIOD ======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
The condensed consolidated financial statements include the accounts of
Eljer Industries, Inc. ("Eljer Industries") and its wholly-owned subsidiaries
(collectively, the "Company") after the elimination of intercompany transactions
and balances.
Accounting policies used in the preparation of the quarterly condensed
consolidated financial statements are consistent in all material respects with
the accounting policies described in the notes to financial statements appearing
in the Company's Annual Report on Form 10-K for the year ended December 31,
1995, as filed with the Securities and Exchange Commission (the "Company's 1995
Form 10-K"). In the opinion of management, the interim financial statements
reflect all adjustments which are necessary for a fair presentation of the
Company's financial position, results of operations and cash flows for the
interim periods presented. The results for such interim periods are not neces
sarily indicative of results for the full year. These financial statements
should be read in conjunction with the consolidated financial statements and the
accompanying notes to consolidated financial statements included in the
Company's 1995 Form 10-K.
Certain reclassifications have been made to the prior year financial
statements to conform to the 1996 presentation.
(2) HOUSEHOLD SETTLEMENT:
On May 31, 1996, Eljer Industries and Eljer Manufacturing, Inc. ("Eljer
Manufacturing") settled the pending litigation with their former parent
Household International, Inc. ("Household"). Under the terms of the settlement,
Household paid approximately $27.2 million, which includes settlement of
counterclaims that Household had against the Company. From the settlement
proceeds, the Company paid additional legal fees of $2.7 million and received
$24.5 million.
As part of the tentative settlement reached in connection with the
Cox-Spencer cases discussed in Note (3) below, the Company expects to pay $14.4
million, or 75% of the net Household settlement proceeds after all legal fees
and expenses, into a trust to be created as part of a U.S. Brass reorganization
plan. The net favorable impact of $10.1 million on income from operations
includes a $5.3 million recoupment of past legal fees and expenses, and is
reflected in litigation costs (settlements), net on the condensed consolidated
statements of income for the nine-months ended September 29, 1996.
(3) BANKRUPTCY OF UNITED STATES BRASS CORPORATION:
On May 23, 1994 (the "Petition Date"), Eljer Industries' 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 "Qest polybutylene system") and related litigation and to
seek confirmation of a plan of reorganization ("Plan") which, among other
things, provides for the payment, satisfaction and discharge of all claims
against U.S. Brass involving the Qest polybutylene 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. See the Company's 1995 Form 10-K for a discussion of
the U.S. Brass bankruptcy, including discussion of the Qest polybutylene system
7
<PAGE>
litigation, related insurance coverage, claims filed in the U.S. Brass
bankruptcy proceeding and claims against the Company.
In November 1995, Eljer Industries, Eljer Manufacturing and U.S. Brass
entered into a tentative settlement in connection with 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 Cases"). The tentative settlement is contingent upon finalization
of an agreement with the parties to the Cox-Spencer Cases and confirming a plan
of reorganization in the U.S. Brass bankruptcy embodying the terms of the
tentative settlement. 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 $14.4 million, which is 75
percent of the net proceeds of the Household litigation (see Note (2) "Household
Settlement" for further discussion); $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
Qest polybutylene system sales to date and U.S. Brass will remain an indirect,
wholly-owned subsidiary of Eljer Industries. In addition, Eljer Industries,
Eljer Manufacturing and U.S. Brass have agreed to pay $6 million they had
planned to pay for notice to creditors and administrative costs in the
bankruptcy into the trust expected to be created as a result of confirmation of
a plan of reorganization. The trust will then be responsible for paying for
notice and administrative fees and any excess remaining will be used to pay
claims of creditors not previously dealt with in the November 1995, tentative
settlement. The Company believes it has previously made adequate accruals for
the terms of this settlement.
As previously disclosed, on April 8, 1996, the Bankruptcy Court
approved the Second Amended Plan of Reorganization (the "Amended Brass Plan")
and the Second Amended Disclosure Statement filed by Eljer Industries, Eljer
Manufacturing and U.S. Brass. At the same time, the Bankruptcy Court approved
the proposed plan of reorganization and proposed disclosure statement filed by
the Official Polybutylene Claimants Committee (the "PB Committee"). On October
8, 1996, the Bankruptcy Court ordered that amendments or supplements to previous
plans, new disclosure statements or proposed new plans be filed with the court
on or before November 29, 1996. The Bankruptcy Court further ordered that
objections to new or supplemental filings must be filed by December 31, 1996,
and a disclosure statement hearing will be held on January 22, 1997. Eljer
Industries, Eljer Manufacturing and U.S. Brass are currently preparing a Third
Amended Plan of Reorganization (the "Third Amended Plan") and Third Amended
Disclosure Statement embodying the terms of the tentative settlement reached in
connection with the Cox-Spencer Cases. No assurances can be given that, when
filed, the Third Amended Plan will be consensual with all parties or that the
Third Amended Plan will be confirmed. Until the Third Amended Plan is filed, the
Amended Brass Plan discussed above remains pending with the Bankruptcy Court.
On October 31, 1996, the Company received a Motion to Convert the
Debtor's Chapter 11 Case to a Case Under Chapter 7 of the Bankruptcy Code filed
by the PB Committee. The Motion states that the PB Committee desires the Court
consider converting the case to Chapter 7 if the Court refuses to confirm "an
Eljer plan" and "does not confirm the plan of reorganization proposed by the
Committee". Accordingly, it is not clear that the Committee intends to have the
Motion considered immediately. If the Motion is granted, U.S. Brass would be
removed from Eljer Manufacturing, its current owner, and liquidated. No action
will be taken on the PB Committee's Motion prior to a hearing and no hearing has
been set on the Motion. U.S. Brass, Eljer Manufacturing and Eljer Industries
will oppose the Motion.
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 Condensed
Consolidated Balance Sheets. Additional claims may arise subsequent to the
Petition Date resulting from rejection of executory contracts or unexpired
leases,
8
<PAGE>
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 September 29, 1996, U.S. Brass had a net
affiliate receivable of approximately $532,000.
As a result of the uncertainties related to the availability of
insurance coverage and the ultimate outcome of the bankruptcy proceeding, U.S.
Brass continues to adjust its litigation reserves to maintain an equity balance
of zero. Accordingly, for the nine-month period ended September 29, 1996, U.S.
Brass increased its litigation reserves by approximately $2.2 million and for
the comparable period of 1995, U.S. Brass reduced its litigation reserves by
$1.9 million.
Selected financial data for U.S. Brass are as follows (in thousands):
<TABLE>
<CAPTION>
For the Nine For the Three
Months Ended Months Ended
September October September October
29, 1996 1, 1995 29, 1996 1, 1995
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net Sales to Nonaffiliate Customers $ 61,156 $ 59,212 $ 20,477 $ 19,568
Sales to Affiliates ................ 12,666 14,321 3,526 5,121
Reorganization Expenses ............ 500 2,050 100 350
Litigation Reserve Adjustment ...... 2,232 (1,894) 1,380 348
Income from Operations ............. 981 1,101 252 399
Income (Loss) Before Income Taxes .. -- -- -- --
Net Income ......................... -- -- -- --
Cash Provided by (Used in) Operating
Activities ....................... 2,727 (1,836)
Cash Used in Investing Activities .. (414) (1,133)
Cash Provided by (Used in) Financing
Activities ....................... (2,507) 3,292
Total Cash Flow, net ............... (194) 323
</TABLE>
<TABLE>
<CAPTION>
As of September As of December
29, 1996 31, 1995
--------------- --------------
<S> <C> <C>
Total Current Assets ......................... $36,918 $36,826
Total Assets ................................. 52,311 53,210
Total Liabilities ............................ 52,311 53,210
Total Shareholders' Equity ................... -- --
</TABLE>
Cash payments of reorganization items made during the nine months ended
September 29, 1996 and October 1, 1995, were $2.1 million and $1.4 million,
respectively.
9
<PAGE>
(4) INVENTORIES:
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
September December
29, 1996 31, 1995
--------- ---------
<S> <C> <C>
Finished goods $33,175 $32,887
Work in process 8,558 9,201
Raw materials 23,956 22,477
------- -------
Total inventories $65,689 $64,565
======= =======
</TABLE>
(5) LIQUIDITY AND CAPITAL RESOURCES:
During the first nine months of 1996, Eljer Manufacturing paid its U.S.
term debt lenders a total of $32.5 million for principal reduction and the
collateralization of letters of credit held by certain of the lenders. Of the
total payment amount, $24.5 million was paid as a result of the Household
settlement. At September 29, 1996, the Company had outstanding U.S. term debt of
$50.9 million. In October 1996, the Company amended its U.S. term debt agreement
to extend the maturity date one year to January 1998. Under the terms of the
amendment, principal payments of $2.0 million and $3.0 million are scheduled for
September 1997 and December 1997, respectively, with the remaining balance
becoming due on the January 1998 maturity date. The Company paid a fee of
approximately 1% of the outstanding term debt balance to execute the amendment.
In addition, during the first nine months of 1996, the Company reduced its
short-term and other debt by $7.5 million. In total, debt service and related
payments were $40.0 million during the first nine months of 1996.
(6) CONTINGENCIES:
Eljer Industries and certain of its subsidiaries are involved in
litigation related to the Qest polybutylene system, environmental matters and
other matters which, if determined adversely to the Company, may have a material
adverse effect on its financial condition or results of operations. Reference is
made to Note (2) "Bankruptcy of United States Brass Corporation" and Note (13)
"Contingencies" to the Consolidated Financial Statements in the Company's 1995
Form 10-K, which is incorporated herein, for additional discussion of
contingencies and legal matters involving the Company.
During the second quarter of 1996, Eljer Industries and Eljer
Manufacturing reached a settlement in the previously disclosed litigation with
Household, their former parent. See Note (2) "Household Settlement" for a
detailed discussion of the settlement terms.
In response to the Company's previously submitted plan for closure of
the hazardous waste management unit at its Salem, Ohio facility, in the second
quarter, the Ohio EPA proposed new closure requirements which may increase the
estimated cost for implementing the closure plan from $2.0 million to $3.2
million. In addition, a previously submitted proposal from the Company to
establish the cost of post-closure care at $1.0 million was recently accepted by
the Ohio EPA, bringing the current total estimated cost to implement both
closure and post-closure to $4.2 million. The Company believes it has adequate
reserves established to cover the estimated closure and post-closure costs.
Eljer Manufacturing finalized its previously disclosed settlement in
Ybarra, et al. v. Eljer Manufacturing, Inc. Under the terms of the settlement,
each plaintiff will receive an average of less than $40,000. Additionally, the
United States Equal Employment Opportunity Commission (the "EEOC") was allowed
to intervene in the case and Eljer Manufacturing agreed to the entry of a
10
<PAGE>
Consent Decree that, among other things, enjoins any employment practice that
unlawfully discriminates against applicants or employees on the basis of
national origin. The Consent Decree will be in effect until approximately
January 2000 during which time Eljer Manufacturing will be required to provide
semiannual reports to the EEOC concerning its compliance with the Consent
Decree.
As previously disclosed, Eljer Manufacturing's Selkirk Metalbestos
division ("Selkirk") has been engaged in negotiations with the Consumer Product
Safety Commission ("CPSC") over the recall and retrofit of Selkirk's high
temperature plastic vent pipe made from Ultem resin ("Sel-Vent I") with a new
product manufactured from Radel resin ("Sel-Vent II"). The CPSC has approved the
proposed recall and retrofit campaign and, pursuant to agreement reached with
the CPSC, the campaign to notify consumers who have Sel- Vent I systems has
begun. To date, Selkirk has received minimal requests for replacement of a
Sel-Vent I system with a Sel-Vent II system, but the campaign is in its early
stages and Selkirk expects to replace between 1,000 and 1,700 installations at a
cost ranging from $200 to $250 per installation, depending on the size of the
installation. In Canada, Selkirk offers a similar recall and retrofit campaign.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net sales of $104.0 million for the three-month period ended September
29, 1996, increased $1.2 million compared to the same 1995 period. Net sales for
the three months ended September 29, 1996, were favorably impacted by improved
U.S. housing starts, cross-marketing of products into existing retail channels
and new product offerings, partially offset by the lingering impact of the
eleven week strike at the Company's cast iron plant earlier this year. Net sales
for the first nine months of 1996 decreased $3.9 million to $290.4 million,
compared to the same 1995 period. The decrease was primarily attributable to the
harsh weather conditions experienced in early 1996 and lost sales during the
cast iron plant strike offset by strengthened housing starts in the second and
third quarters of 1996 and other factors noted above.
Gross profit margin increased to 29.7% and 26.6%, respectively, for the
three and nine months ended September 29, 1996, from 28.0% and 25.5%,
respectively, for the comparable 1995 periods. The increase resulted from a
stable raw material market and price increases implemented last year in response
to the significant raw material cost increases in early 1995. The results for
third quarter of 1995 included a nonrecurring gain totaling $2.7 million
resulting from pension plan amendments a portion of which is recorded in selling
and administrative expenses.
Litigation costs for the three months ended September 29, 1996
decreased $1.6 million compared to the same period in 1995 due to reduced legal
activity partially resulting from the settlement reached with Household in the
second quarter (discussed below).
On May 31, 1996, Eljer Industries and Eljer Manufacturing settled the
pending litigation with their former parent, Household. Under the terms of the
settlement, Household paid approximately $27.2 million, which includes
settlement of counterclaims that Household had against the Company. From the
settlement proceeds, the Company paid additional legal fees of $2.7 million and
received $24.5 million, which was used to reduce U.S. term debt and provide
collateral for related letters of credit. As part of the tentative settlement
reached in connection with the Cox-Spencer Cases discussed in Note (3)
"Bankruptcy of United States Brass Corporation" to the Condensed Financial
Statements in Part 1, Item 1, the Company expects to ultimately pay $14.4
million of the Household settlement proceeds into a trust to be created as part
of a U.S. Brass reorganization plan, which represents 75% of the net proceeds
after recoupment of $5.3 million in past legal fees and expenses. Including the
$5.3 million recoupment of past legal fees and expenses, the net impact on
11
<PAGE>
income from operations of the Household settlement was $10.1 million, which was
recorded in the second quarter of 1996.
As a result of the uncertainties related to the availability of
insurance coverage and the ultimate outcome of the bankruptcy proceeding, U.S.
Brass continues to adjust its litigation reserves to maintain an equity balance
of zero. Accordingly, for the three-month period ended September 29, 1996, the
U.S. Brass adjustment was an unfavorable $1.4 million compared to $348,000 in
the same period of 1995. For the first nine months of 1996 the adjustment was an
unfavorable $2.2 million compared to a favorable $1.9 million in the same period
of 1995. In the first nine months of 1995, this adjustment was favorable as a
result of this subsidiary's net loss due to bankruptcy related legal fees and
lower gross profit margins resulting from the significant increase in raw
material prices. The 1996 adjustments were unfavorable as U.S. Brass experienced
improved gross profit margins due to stabilized raw material prices, success of
its new products and lower bankruptcy related legal costs. See Note (3)
"Bankruptcy of United States Brass Corporation" to the Condensed Consolidated
Financial Statements in Part I, Item 1 for additional discussion.
Interest expense decreased $2.2 million and $1.2 million, respectively,
in the nine and three months ended September 29, 1996, over the same periods in
1995, which is attributable to lower debt levels in the first nine months of
1996 compared to the comparable 1995 period.
Liquidity and Capital Resources
The net cash provided by operating activities for the nine months ended
September 29, 1996, was $29.0 million compared to net cash used in operating
activities of $6.4 million for the comparable 1995 period. This favorable
operating cash flow was primarily due to the settlement of the Household
litigation, with net proceeds of $24.5 million, as well as improved operating
performance in 1996.
The Company has begun a broad based financial and business analysis of
strategic alternatives in order to make recommendations to its Board of
Directors on ways to maximize shareholder value. Accordingly, Bear Stearns &
Company, Inc. has been engaged to assist the Company in this regard.
During the first nine months of 1996, Eljer Manufacturing paid its U.S.
term debt lenders a total of $32.5 million for principal reduction and the
collateralization of letters of credit held by certain of the lenders. Of the
total payment amount, $24.5 million was paid as a result of the Household
settlement. At September 29, 1996, the Company had outstanding U.S. term debt of
$50.9 million. In October 1996, the Company amended its U.S. term debt agreement
to extend the maturity date one year to January 1998. Under the terms of the
amendment, principal payments of $2.0 million and $3.0 million are scheduled for
September 1997 and December 1997, respectively, with the remaining balance
becoming due on the January 1998 maturity date. The Company paid a fee of
approximately 1% of the outstanding term debt balance to execute the amendment.
In addition, during the first nine months of 1996, the Company reduced its
short-term and other debt by $7.5 million. In total, debt service and related
payments were $40.0 million during the first nine months of 1996.
In accordance with a settlement agreement with the Ohio Attorney
General, the Company is required to deposit a total of $8.5 million to a trust
account, which will be used to pay for implementation of a closure plan for the
Marysville, Ohio, site. In the first nine months of 1996, the Company has made
two deposits totaling $5.5 million to the trust account.
As previously reported, U.S. Brass filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code. The purpose of the
filing is to resolve systematically the issues resulting from the Qest
polybutylene 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.
12
<PAGE>
Brass involving the Qest polybutylene system. In November 1995, U.S. Brass,
Eljer Industries and Eljer Manufacturing tentatively agreed to participate in a
global settlement related to the two certified national class actions 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.
Eljer Manufacturing'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
Cox Spencer Cases. Under the terms of the proposed agreement, Eljer
Manufacturing and U.S. Brass will contribute an amount equal to the proceeds it
receives from certain insurance coverage; $14.4 million, which is 75% of the net
proceeds from the litigation with its former parent, Household; $3.0 million in
cash; a non-interest bearing note for $20.0 million payable over 10 years; and
17.5 percent of the equity of Eljer Industries. In addition, Eljer Industries,
Eljer Manufacturing and U.S. Brass have agreed to pay $6 million they had
planned to pay for notice to creditors and administrative costs in the
bankruptcy into the trust expected to be created as a result of confirmation of
a Plan of Reorganization. The trust will then be responsible for paying for
notice and administrative fees and any excess remaining will be used to pay
claims of creditors not previously dealt with in the November 1995, tentative
settlement. The Company believes it has previously made adequate accruals for
the terms of this settlement.
There have been two proposed Plans filed with the Bankruptcy Court,
which are discussed more fully in Note (3) "Bankruptcy of United States Brass
Corporation" to the Condensed Consolidated Financial Statements in Part I, Item
1. Eljer Industries, Eljer Manufacturing and U.S. Brass are currently preparing
a Third Amended Plan and Third Amended Disclosure Statement embodying the terms
of the tentative settlement discussed above. No assurances can be given that,
when filed, the Third Amended Plan will be consensual with all parties or that
the Third Amended Plan will be confirmed. Until the Third Amended Plan is filed,
the Amended Brass Plan remains pending with the Bankruptcy Court.
No assurances can be given that the proposed settlement will be
finalized and a related plan of reorganization 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.
Further, if the proposed agreement is ultimately finalized, the Company will
need to arrange financing for the portion of the pledged Household proceeds as
the net proceeds were used initially to repay U.S. term debt pursuant to the
term debt agreement.
13
<PAGE>
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
See Note (3) "Bankruptcy of United States Brass Corporation" and Note
(6) "Contingencies" to the Condensed Consolidated Financial Statements in Part
I, Item 1 of this report and Note (2) "Bankruptcy of United States Brass
Corporation", and Note (13) "Contingencies" to the Consolidated Financial
Statements in the Company's 1995 Form 10-K, which are made a part hereof by this
reference.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Description
4A Form of Fourth Amendment to Amended
and Restated Credit Agreement dated as
of April 30, 1996
4B Form of Fifth Amendment to Amended
and Restated Credit Agreement dated as
of October 30, 1996
10A Form of Employment Agreement with
Scott G. Arbuckle
10B Form of Employment Agreement with James A.
Harris, Brooks F. Sherman, James F. Thomason,
George W. Hanthorn, Nancy J. Duricic, Steven
M. Rodman and Gerald J. Morris
11 Calculation of Primary and
Fully Diluted Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE>
SIGNATURES:
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ELJER INDUSTRIES, INC.
Date: November 13, 1996 By:/s/Brooks F. Sherman
------------------------- --------------------
Brooks F. Sherman
Vice President - Finance, Chief
Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
15
FOURTH AMENDMENT
THIS FOURTH AMENDMENT (this "Amendment") is entered into as of April
30, 1996, among the undersigned. Terms not defined in this Amendment have the
respective meanings given such terms in the Credit Agreement defined below.
RECITALS
A. Reference is made to that certain AMENDED AND RESTATED CREDIT
AGREEMENT (as amended, supplemented, or replaced, the "Credit Agreement") dated
as of December 11, 1992, executed by ELJER MANUFACTURING, INC., a Delaware
corporation (the "Borrower"); ELJER INDUSTRIES, INC., a Delaware corporation
(the "Parent Guarantor"); the financial institutions from time to time parties
thereto; NATIONSBANK OF TEXAS, N.A., ("NationsBank"), as a Bank and a co-agent
and the administrative agent for itself and the other Banks; and MORGAN GUARANTY
TRUST COMPANY OF NEW YORK ("Morgan Guaranty"), as a Bank and a co-agent for
itself and the other Banks.
B. The undersigned desire to amend the Credit Agreement.
NOW THEREFORE, the undersigned agree as follows:
1. Definitions. Unless otherwise defined herein, all capitalized terms
shall have the same meanings as in the Credit Agreement.
2. Permitted Debt. Paragraph 6 on Schedule 5.15 (Permitted Debt) is
hereby amended in its entirety to read as follows:
6. (a) One or more credit facilities of Selkirk Manufacturing
Limited, the aggregate principal amount of which cannot exceed
$25,000,000, (b) one or more credit facilities of Selkirk
Schornsteintechnik GmbH, the aggregate principal amount of which cannot
exceed $7,500,000; and (c) one or more credit facilities of Selkirk
S.R.L., the aggregate principal amount of which can not exceed
$1,000,000; provided that (i) the principal debt outstanding under all
of the foregoing credit facilities may not exceed $25,000,000 in the
aggregate at any time, (ii) no Related Company may be an obligor on the
indebtedness described in clause (a) other than Selkirk Manufacturing
Limited and Eljer Industries Limited, (iii) no Related Company may be
an obligor on the indebtedness described in clause (b) other than
Selkirk Schornsteintechnik GmbH, and (iv) no Related Company may be an
obligor on the indebtedness described in clause (b) other than Selkirk
S.R.L.
3. Use of Funds in Restricted Account. Notwithstanding anything in the
Restricted Account Agreement to the contrary, Borrower may use funds in the
Restricted Account for the purpose of paying to the Banks the mandatory
prepayment of the Obligation in an amount sufficient to reduce the Principal
Debt outstanding on May 1, 1996, by $3,000,000.
<PAGE>
4. Representations and Warranties. The Borrower and the Parent
Guarantor jointly and severally represent and warrant to each Agent and to each
Bank that as of this date:
(a) the execution and delivery of this Amendment have been
authorized by all requisite corporate action and will not violate its
organizational documents;
(b) except for matters heretofore disclosed in writing by any
Related Company, the representations and warranties in each Loan Paper
(as affected by this Amendment) to which it is a party are true and
correct in all material respects on and as of the date hereof as though
made on and as of the date hereof (except to the extent that (i) such
representations and warranties speak to a specific date or (ii) the
facts on which such representations and warranties are based have been
changed by transactions contemplated by the Credit Agreement); and
(c) no Default or Event of Default exists.
5. Conditions. This Fourth Amendment shall not become effective
unless:
(a) The Administrative Agent shall have received a certificate
from a Responsible Officer certifying, based on due inquiry, that all
of the representations and warranties in paragraph 4, above, are true
and correct;
(b) Administrative Agent shall have received executed
counterparts of this Fourth Amendment from the Borrower, the Parent
Guarantor, and all Banks, and a certificate from a Responsible Officer
of each of the Borrower and Parent Guarantor certifying as to (i) the
due incumbency of its officers authorized to execute this Fourth
Amendment, (ii) resolutions duly adopted by its directors approving and
authorizing execution of this Fourth Amendment, and (iii) any changes
to its corporate charter or bylaws since August 15, 1995;
6. Release. In consideration of the agreement of the parties hereto to
enter into this Amendment, (a) the Parent Guarantor and the Borrower each
release the Administrative Agent, each Agent, each Bank, and their respective
parents, subsidiaries, directors, officers, employees, representatives, agents,
successors, assigns, and attorneys from all claims and causes of action existing
on or before the date hereof under or in connection with the Existing Credit
Facilities, the Morgan Guaranty Swap Agreement, or the Existing Letters of
Credit, or arising in connection with the execution, negotiation, and
preparation of this Amendment, the Credit Agreement and the other Loan Papers,
and (b) the Administrative Agent, each Agent, and each Bank each release the
Borrower, the Parent Guarantor, and their respective parents, subsidiaries,
directors, officers, employees, representatives, agents, successors, assigns,
and attorneys from all claims and causes of action existing on or before the
date hereof under or in connection with the Existing Credit Facilities, the
Morgan Guaranty Swap Agreement, the Existing Letters of Credit or the Loan
Papers, or arising in connection with the execution, negotiation, and
preparation of this
-2-
<PAGE>
Amendment, the Credit Agreement and the other Loan Papers; provided that,
nothing herein shall be deemed to be a waiver of any Default or Event of Default
under the Loan Papers.
7. Miscellaneous. This Amendment is a Loan Paper, and, therefore, this
Amendment is subject to the applicable provisions of Section 11 of the Credit
Agreement, all of which applicable provisions are incorporated herein by
reference the same as if set forth herein verbatim. Except as affected by this
Amendment, the Loan Papers are unchanged and continue in full force and effect.
Borrower and Parent Guarantor each agree that all Loan Papers to which it is a
party remain in full force and effect and continue to evidence its legal, valid,
and binding obligations enforceable in accordance with their terms (as affected
by this Amendment), except as enforceability may be limited by applicable Debtor
Relief Laws and general principles of equity. This Amendment shall be binding
upon and inure to the benefit of each of the undersigned and their respective
successors and permitted assigns.
THE LOAN PAPERS, INCLUDING THIS AMENDMENT, REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
8. Counterparts. This Amendment may be executed in more than one
counterpart, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
[Remainder of page left intentionally blank. Signature pages follow.]
-3-
<PAGE>
EXECUTED as of the date first written above.
ELJER MANUFACTURING, INC.,
as Borrower
By:/s/Brooks F. Sherman
--------------------------------
Name: Brooks F. Sherman
Title: Vice President-Finance
ELJER INDUSTRIES, INC.,
as Parent Guarantor
By:/s/Brooks F. Sherman
--------------------------------
Name: Brooks F. Sherman
Title: Vice President-Finance
NATIONSBANK OF TEXAS, N. A.,
as Administrative Agent, an Agent,
and a Bank
By:/s/William E. Livingstone, IV
--------------------------------
Name: William E. Livingstone,IV
Title:Senior Vice President
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK,
as an Agent and a Bank
By:/s/Michael J. Gibbons
--------------------------------
Name: Michael J. Gibbons
Title: Managing Director
THE FIRST NATIONAL BANK OF CHICAGO,
as a Bank
By:/s/Dennis Saletta
--------------------------------
Name: Dennis Saletta
Title: Vice President
<PAGE>
DK ACQUISITION PARTNERS,
as a Bank
By: M.H. Davidson & Co.,
a general partner
By:/s/Michael J. Leffell
--------------------------------
Name: Michael J. Leffell
Title: General Partner
FOOTHILL CAPITAL CORPORATION,
as a Bank
By:/s/Jeff Nikora
--------------------------------
Name: Jeff Nikora
Title: Vice President
THIRD AVENUE VALUE FUND, INC.,
as a Bank
By:/s/Michael Carney
--------------------------------
Name: Michael Carney
Title: Treasurer, CFO
COMAC PARTNERS
as a Bank
By:/s/Christopher M. Mackey
--------------------------------
Name: Christopher M. Mackey
Title: General Partner
FIFTH AMENDMENT
THIS FIFTH AMENDMENT (this "Amendment") is entered into as of October
30, 1996, among the undersigned. Terms not defined in this Amendment have the
respective meanings given such terms in the Credit Agreement defined below.
RECITALS
A. Reference is made to that certain AMENDED AND RESTATED CREDIT
AGREEMENT (as amended, supplemented, or replaced, the "Credit Agreement") dated
as of December 11, 1992, executed by ELJER MANUFACTURING, INC., a Delaware
corporation (the "Borrower"); ELJER INDUSTRIES, INC., a Delaware corporation
(the "Parent Guarantor"); the financial institutions from time to time parties
thereto; NATIONSBANK OF TEXAS, N.A., ("NationsBank"), as a Bank and a co-agent
and the administrative agent for itself and the other Banks; and MORGAN GUARANTY
TRUST COMPANY OF NEW YORK ("Morgan Guaranty"), as a Bank and a co-agent for
itself and the other Banks.
B. The undersigned desire to amend the Credit Agreement.
NOW THEREFORE, the undersigned agree as follows:
1. Definitions. Unless otherwise defined herein, all capitalized
terms shall have the same meanings as in the Credit Agreement.
2. Applicable Margin. The definition of Applicable Margin is hereby
amended in its entirety to read as follows:
Applicable Margin means 5%, which is the margin of interest in
excess of the Prime Rate that is applicable when any interest rate is
determined under this Agreement.
3. Maturity Date. The definition of Maturity Date is hereby amended
in its entiety to read as follows:
Maturity Date means the earlier of (a) January 31, 1998, and
(b) the effective date that the Banks' obligations to extend or
maintain credit hereunder are otherwise canceled in accordance with the
provisions herein.
4. Mandatory Prepayment. Subparagraph (e) of Section 2.5 is hereby
amended in its entirety to read as follows:
(e) On or before September 30, 1997, the Borrower shall pay as a
mandatory prepayment of the Obligation an amount sufficient to reduce
the Principal Debt outstanding on that date by at least $2,000,000.
On or before December 31, 1997, the Borrower shall pay
<PAGE>
as a mandatory prepayment of the Obligation an amount sufficient
to reduce the Principal Debt outstanding on that date by at least
$3,000,000.
5. Financial Covenants. Section 8 is hereby amended in its entirety
to read as follows:
SECTION 8
FINANCIAL COVENANTS
Until the Obligation has been paid and performed in full, and
unless a deviation therefrom is permitted by the Required Banks, the
Parent Guarantor and the Borrower, for themselves and the other Related
Companies, jointly and severally agree as follows:
SECTION 8.1 Capital Expenditures. No Related Company
(including, without limitation, U.S. Brass) will, directly or
indirectly, make expenditures for the acquisition, construction,
improvement, or replacement of land, buildings, equipment, or other
fixed or capital assets or leaseholds (excluding expenditures properly
chargeable to repairs or maintenance), other than expenditures which
are for or related to assets or leaseholds used or useful in the normal
business operations of such Related Company and which, together with
all other such expenditures by any other Related Company, do not exceed
the following limits (which, for calendar year 1997, may be adjusted
upward by the unused amount of the previous year's maximum amount:
Period Maximum Amount
-------- --------------
1996 $12,000,000
1997 $14,000,000
SECTION 8.2 Minimum Adjusted Tangible Net Worth - Parent
Guarantor. At the end of any fiscal quarter listed below, the Adjusted
Tangible Net Worth - Parent Guarantor shall not be less than the
applicable minimum amount set forth below opposite such fiscal quarter:
Fiscal Quarter Minimum
Ending On Or About Amount
------------------ -------------
9/30/96 $(20,446,000)
12/31/96 $(17,091,000)
3/31/97 $ (8,337,000)
6/30/97 $ (9,114,000)
9/30/97 $ (6,613,000)
12/31/97 $ (2,357,000)
-2-
<PAGE>
For purposes of the calculations in this Section 8.2 and in Section
8.3, below, accruals for post-retirement benefits according to
Financial Accounting Standards No. 106 will be reflected after December
31, 1993.
SECTION 8.3 Minimum Adjusted Tangible Net Worth - U.S. Only.
At the end of any fiscal quarter listed below, the Adjusted Tangible
Net Worth - U.S. Only shall not be less than the applicable minimum
amount set forth below opposite such fiscal quarter:
Fiscal Quarter Minimum
Ending On Or About Amount
------------------ --------
9/30/96 $(96,551,000)
12/31/96 $(94,658,000)
3/31/97 $(87,615,000)
6/30/97 $(86,476,000)
9/30/97 $(84,965,000)
12/31/97 $(82,289,000)
SECTION 8.4 Minimum Consolidated Cash Flow From Operating
Activities Parent Guarantor. For the period of four consecutive fiscal
quarters ending with the fiscal quarter listed below, the consolidated
Cash Flow From Operating Activities for the Parent Guarantor and its
Consolidated Subsidiaries (excluding U.S. Brass and any compensation
earned from U.S. Brass under the U.S. Brass - EMI Tax Sharing
Agreement) shall not be less than the applicable minimum amount set
forth below opposite such fiscal quarter:
Fiscal Quarter Minimum
Ending On Or About Amount
------------------ --------
9/30/96 $ 8,000,000
12/31/96 $ 5,000,000
3/31/97 $ 5,000,000
6/30/97 $ 1,000,000
9/30/97 $ 3,000,000
12/31/97 $ 4,000,000
SECTION 8.5 Minimum Consolidated Cash Flow From Operating
Activities - U.S. Only. For the period of four consecutive fiscal
quarters ending with the fiscal quarter listed below, the consolidated
Cash Flow From Operating Activities for the Parent Guarantor and its
Consolidated Subsidiaries (excluding U.S. Brass and any foreign
Subsidiaries, any interest income resulting from the Permitted Debt
described in items 7 and 8 on Schedule 5.15, and any compensation
earned from U.S. Brass under the U.S. Brass - EMI Tax Sharing
Agreement) shall not be less than the applicable minimum amount set
forth below opposite such fiscal quarter:
-3-
<PAGE>
Fiscal Quarter Minimum
Ending On Or About Amount
------------------ --------
9/30/96 $ 5,000,000
12/31/96 $ 500,000
3/31/97 $ 5,000,000
6/30/97 $ 0
9/30/97 $ 0
12/31/97 $ 2,000,000
SECTION 8.6 Minimum Current Ratio - Parent Guarantor. For any
fiscal quarter listed below, the ratio of the consolidated current
assets (excluding any compensation payable by U.S. Brass under the U.S.
Brass - EMI Tax Sharing Agreement) to the consolidated current
liabilities (excluding current maturities of Restricted Debt and any
amounts accrued in connection with the Kowin-Simonds Lawsuit) of the
Parent Guarantor and its Consolidated Subsidiaries (excluding U.S.
Brass) shall not be less than 1.50 to 1.
SECTION 8.7 Fixed Charge Coverage Ratio - Parent Guarantor.
For any fiscal quarter, the Fixed Charges Coverage Ratio for the Parent
Guarantor and its Consolidated Subsidiaries (excluding U.S. Brass) for
the period of four consecutive fiscal quarters ending with such fiscal
quarter shall not be less than 0.85 to 1.
SECTION 8.8 Fixed Charge Coverage Ratio - U.S. Only. For any
fiscal quarter, the Fixed Charges Coverage Ratio for the Parent
Guarantor and its Consolidated Subsidiaries (excluding U.S. Brass and
any foreign Subsidiaries) for the period of four consecutive fiscal
quarters ending with such fiscal quarter shall not be less than 0.65 to
1.
For purposes of the provisions of Sections 8.4, 8.5 and 8.6 of the
Credit Agreement and the calculations on the Financial Report
Certificate with respect to those Sections, the principal amount of
debt outstanding under the Congress Receivables Facility shall be
excluded.
6. Permitted Debt. Schedule 5.15 is hereby amended by adding as item
number 13 the following:
13. $500,000.00, 7-year, 2% loan from the Pennsylvania
Department of Commerce to finance the purchase of a Bricesco Envelope
Kiln for use in Borrower's Ford City, Pennsylvania facility, secured by
such Bricesco Envelope Kiln.
7. Representations and Warranties. The Borrower and the Parent
Guarantor jointly and severally represent and warrant to each Agent and to each
Bank that as of this date:
(a) the execution and delivery of this Amendment have been
authorized by all requisite corporate action and will not violate its
organizational documents;
-4-
<PAGE>
(b) except for matters heretofore disclosed in writing by any
Related Company, the representations and warranties in each Loan Paper
(as affected by this Amendment) to which it is a party are true and
correct in all material respects on and as of the date hereof as though
made on and as of the date hereof (except to the extent that (i) such
representations and warranties speak to a specific date or (ii) the
facts on which such representations and warranties are based have been
changed by transactions contemplated by the Credit Agreement); and
(c) no Default or Event of Default exists.
8. Conditions. This Fifth Amendment shall not become effective unless:
(a) The Administrative Agent shall have received from the
Borrower an amendment fee in the amount of $520,430.77, which is 1% of
the sum of (i) Principal Debt of the Existing Letters of Credit issued
by NationsBank minus $1,996,975.27 (the amount in the Cash Collateral
Account as of the date of this Amendment securing the Existing Letters
of Credit issued by NationsBank) plus (ii) the unpaid principal balance
of the Notes. Such amendment fee shall be for the account of the Banks
other than First Chicago on a pro rata basis according to the amount in
the preceding sentence held by each of them upon which the 1% amendment
fee is being paid.
(b) The Administrative Agent shall have received a certificate
from a Responsible Officer certifying, based on due inquiry, that all
of the representations and warranties in paragraph 7, above, are true
and correct;
(c) Administrative Agent shall have received executed
counterparts of this Fifth Amendment from the Borrower, the Parent
Guarantor, and all Banks, and a certificate from a Responsible Officer
of each of the Borrower and Parent Guarantor certifying as to (i) the
due incumbency of its officers authorized to execute this Fifth
Amendment, (ii) resolutions duly adopted by its directors approving and
authorizing execution of this Fifth Amendment, and (iii) any changes to
its corporate charter or bylaws since April 30, 1996.
9. Release. In consideration of the agreement of the parties hereto to
enter into this Amendment, (a) the Parent Guarantor and the Borrower each
release the Administrative Agent, each Agent, each Bank, and their respective
parents, subsidiaries, directors, officers, employees, representatives, agents,
successors, assigns, and attorneys from all claims and causes of action existing
on or before the date hereof under or in connection with the Existing Credit
Facilities, the Morgan Guaranty Swap Agreement, or the Existing Letters of
Credit, or arising in connection with the execution, negotiation, and
preparation of this Amendment, the Credit Agreement and the other Loan Papers,
and (b) the Administrative Agent, each Agent, and each Bank each release the
Borrower, the Parent Guarantor, and their respective parents, subsidiaries,
directors, officers, employees, representatives, agents, successors, assigns,
and attorneys from all claims and causes of action existing on or before the
date hereof under or in connection with the Existing Credit Facilities,
-5-
<PAGE>
the Morgan Guaranty Swap Agreement, the Existing Letters of Credit or the Loan
Papers, or arising in connection with the execution, negotiation, and
preparation of this Amendment, the Credit Agreement and the other Loan
Papers; provided that, nothing herein shall be deemed to be a waiver of any
Default or Event of Default under the Loan Papers.
10. Ford City Kiln. Each of the parties hereto consents to the
subordination by the Agent of its security interest in the Bricesco Envelope
Kiln used by Borrower in its Ford City, Pennsylvania facility to the security
interest held by the Pennsylvania Department of Commerce to secure its $500,000
loan to Borrower to purchase such kiln.
11. Miscellaneous. This Amendment is a Loan Paper, and, therefore, this
Amendment is subject to the applicable provisions of Section 11 of the Credit
Agreement, all of which applicable provisions are incorporated herein by
reference the same as if set forth herein verbatim. Except as affected by this
Amendment, the Loan Papers are unchanged and continue in full force and effect.
Borrower and Parent Guarantor each agree that all Loan Papers to which it is a
party remain in full force and effect and continue to evidence its legal, valid,
and binding obligations enforceable in accordance with their terms (as affected
by this Amendment), except as enforceability may be limited by applicable Debtor
Relief Laws and general principles of equity. This Amendment shall be binding
upon and inure to the benefit of each of the undersigned and their respective
successors and permitted assigns.
THE LOAN PAPERS, INCLUDING THIS AMENDMENT, REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
12. Counterparts. This Amendment may be executed in more than one
counterpart, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
[Remainder of page left intentionally blank. Signature pages follow.]
-6-
<PAGE>
EXECUTED as of the date first written above.
ELJER MANUFACTURING, INC.,
as Borrower
By:/s/Brooks F. Sherman
------------------------------
Name: Brooks F. Sherman
Title: Vice President-Finance
ELJER INDUSTRIES, INC.,
as Parent Guarantor
By:/s/Brooks F. Sherman
------------------------------
Name: Brooks F. Sherman
Title: Vice Presient-Finance
NATIONSBANK OF TEXAS, N. A.,
as Administrative Agent, an Agent,
and a Bank
By:/s/William E. Livingstone, IV
------------------------------
Name: William E. Livingstone,IV
Title: Senior Vice President
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK,
as an Agent and a Bank
By:/s/Michael J. Gibbons
------------------------------
Name: Michael J. Gibbons
Title: Managing Director
THE FIRST NATIONAL BANK OF CHICAGO,
as a Bank
By:/s/Dennis Saletta
------------------------------
Name: Dennis Saletta
Title: Vice President
<PAGE>
DK ACQUISITION PARTNERS,
as a Bank
By: M.H. Davidson & Co.,
a general partner
By:/s/Michael J. Leffell
------------------------------
Name: Michael J. Leffell
Title: General Partner
FOOTHILL CAPITAL CORPORATION,
as a Bank
By:/s/Jeff Nikora
------------------------------
Name: Jeff Nikora
Title: Vice President
THIRD AVENUE VALUE FUND, INC.,
as a Bank
By:/s/Michael Carney
------------------------------
Name: Michael Carney
Title: Treasurer, CFO
COMAC PARTNERS
as a Bank
By:/s/Christopher M. Mackey
------------------------------
Name: Christopher M. Mackey
Title: General Partner
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") dated as of May 1, 1996, is
between Eljer Industries, Inc., a Delaware corporation (the "Company"), and Mr.
Scott G. Arbuckle ("Executive").
In consideration of the mutual covenants set forth herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Employment. Executive shall enter into the employment of the
Company, and the Company shall employ Executive, on the terms and conditions set
forth in this Agreement. During the term of his employment, Executive shall
devote substantially all of his business time and his best efforts, skills, and
abilities to the performance of his duties as stated in this Agreement and to
the furtherance of the Company's business. Executive's job title will be
Chairman of the Board, President and Chief Executive Officer of the Company, and
his duties will be those customarily performed by persons acting in such
capacity and those designated by the Chief Executive Officer or the Board of
Directors of the Company (the "Board") consistent with the position of Chairman
of the Board, President and Chief Executive Officer of the Company.
2. Compensation.
(a) Base Salary. During the term of Executive's employment
with the Company pursuant to this Agreement, the Company shall pay
Executive for his services a monthly base salary of $_________ payable
in equal semimonthly installments in arrears in accordance with the
Company's normal payroll procedures. Executive's base salary will be
reviewed annually and subject to increase at the discretion of the
Board or an authorized committee or representative thereof. The Company
may reduce Executive's base salary only as part of a general reduction
in the compensation of all executive officers of the Company who have
written employment agreements with the Company (a "General Executive
Compensation Reduction"). Executive's monthly base salary in effect
from time to time, exclusive of any other compensation hereunder, is
hereinafter called the "Monthly Base Salary."
(b) Bonus Plans. Executive will be entitled to participate in
the Company's annual bonus plan for executives and key employees, with
an annual bonus range thereunder of an amount equal to zero to 75% of
Executive's annualized Base Salary and an annual par bonus thereunder
of an amount equal to 50% of Executive's annualized Base Salary. The
"par" bonus is a performance benchmark, and not a guaranteed amount or
a minimum. Executive's receipt of any bonus, and the amount thereof,
will depend upon the achievement of corporate, department, team, or
individual goals set annually by the Compensation Committee of the
Board (the "Compensation Committee"). In addition, Executive will be
considered for participation in any long-term incentive bonus plan of
the Company and, to the extent designated by the Compensation
Committee, will be entitled to participate in any such plan under the
terms of such plan.
(c) Participation in Other Benefit Plans. Executive will also
be entitled to participate in any other pension and profit-sharing
plans, supplemental and excess benefit plans, long-term incentive
compensation plans (other than long-term incentive bonus plans,
addressed in Section 2(b) hereof), and other benefits, plans, or
arrangements provided or available to active salaried employees of the
Company in effect during Executive's employment with the Company
hereunder (collectively, "Benefit Plans"). The Benefit Plans currently
consist of the Eljer Tax Reduction Investment Plan, the Salaried
Pension Plan for
/s/SA /s/WM
----- -----
Initial Initial
<PAGE>
Eljer Manufacturing, Inc., the Eljer Supplemental Benefit Plan, the
Eljer Excess Benefit Plan, the Eljer Manufacturing, Inc. and Affiliates
Health and Welfare Plan, the Personal Accident and Business Travel
Insurance Plan, the Eljer Industries, Inc. Change in Control Severance
Payment Plan, and the Flexible Benefits Plan. Executive's participation
in any or all of the Benefit Plans will be subject to the terms and
conditions of the Benefit Plans as they may hereafter be amended or
restated (or discontinued) by the Company, including the
satisfaction of all applicable eligibility requirements and vesting
provisions of the Benefit Plans. Executive agrees that the
Company shall have no obligation hereunder to continue any or all of
the Benefit Plans. The Company has provided to Executive, and Executive
hereby acknowledges receipt of, correct and complete written plan
materials distributed to participants or prospective participants in
the current Benefit Plans.
(d) Automobile Allowance. The Company will pay Executive a
quarterly automobile allowance of $_____ to be used by Executive to
purchase or lease a vehicle suitable for Executive's use in rendering
services under this Agreement and to compensate for all expenses to
operate, insure, and maintain that vehicle for that business purpose
(the "Automobile Allowance"). The quarterly amount of the Automobile
Allowance will be prorated on a daily basis for any calendar quarter
for which this Agreement is not in effect for the entire quarter. In
addition to the Automobile Allowance, the Company will pay Executive
annually an amount equal to the federal and any state income tax paid
by Executive on the amount of the Automobile Allowance paid to
Executive during the relevant tax year. Also in addition to the
Automobile Allowance, the Company will reimburse Executive for mileage,
at the rate then in effect under the Company's policies, relating to
his business use of a vehicle.
(e) Vacation. Executive will be entitled to paid vacation in
accordance with the applicable vacation policies, practices, and
procedures of the Company in effect from time to time during the term
of his employment under this Agreement.
(f) Tax Preparation and Financial Planning Services. The
Company will arrange for and provide at its expense preparation
services for Executive's personal federal and (if applicable) state and
local annual income tax returns, commencing with his 1996 annual tax
return due in 1997. In addition the Company will arrange for and
provide at its expense, a financial planning service to be determined
by the Company.
(g) Annual Physical Examination. The Company will pay
the reasonable cost of an annual comprehensive physical examination
of Executive, commencing in 1996.
(h) Stock Options. During Executive's employment under this
Agreement, Executive will be eligible to participate in the Eljer
Industries, Inc. Long-Term Executive Incentive Compensation Plan (the
"Stock Option Plan") at a level specified by the Compensation Committee
when the Compensation Committee grants options to employees of the
Company and its subsidiaries. The terms of each option granted to
Executive will be governed by the Stock Option Plan and the written
option agreement entered into between the Company and Executive in
accordance with the Stock Option Plan.
(i) Tax Withholding. The Company has the right to deduct from
any compensation payable to Executive under this Agreement social
security (FICA) taxes and all federal, state, municipal, or other such
taxes or charges as may now be in effect or that may hereafter be
enacted or required.
3. Reimbursable Expenses. Executive shall be entitled to receive
prompt reimbursement from the Company, in accordance with the relevant
policies, practices, and procedures of the
/s/SA /s/WM
----- -----
Initial Initial
<PAGE>
Company, for all reasonable business expenses incurred by Executive in
performing his duties under this Agreement.
4. Term. The term of Executive's employment under this Agreement will
begin on July 3, 1996 and will continue until (but not including) the next May
1st, and for successive one-year periods thereafter, unless the Company notifies
Executive in writing to the contrary at least three months before the May 1st
renewal date.
5. Events of Early Termination. Executive's employment under
this Agreement will terminate (notwithstanding the provisions of
Section 4 hereof) before the expiration of the then effective term upon the
earliest to occur of the following:
(a) Death. The death of Executive.
(b) Disability. The Disability of Executive. "Disability"
means a permanent and total disability within the meaning of Section
22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
that renders Executive unable reasonably to perform his duties
hereunder for six consecutive months. Executive's Disability shall be
determined by the Compensation Committee, in its sole and absolute
discretion, upon receipt of and in reliance on sufficient competent
medical advice from a qualified physician selected by or acceptable to
the Compensation Committee.
(c) Termination by Company. The effective date of the
Company's termination of Executive's employment specified in a written
notice of termination given to Executive, whether for Cause (as defined
in Section 6(a) hereof) or without Cause.
(d) Termination by Executive. The effective date of
Executive's termination of his employment specified in a written notice
of termination given to the Company, whether for Good Reason (as
defined in Section 6(b) hereof) or without Good Reason. Without the
written consent of the Company, the effective date of such employment
cannot be fewer than ten business days after the date on which such
notice is given to the Company.
Upon termination of Executive's employment for any reason described above in
this Section 5, the Company shall pay Executive (or his estate or heirs) the
amount of Base Salary earned but not yet paid through the effective date of
termination (the "Termination Date"), the amount of all bonuses and of all
benefits under applicable bonus plans and Benefit Plans that are earned or
vested and payable to Executive in accordance with the terms of those bonus
plans and Benefit Plans (including all eligibility requirements for such
payments) through the Termination Date, and all reimbursable expenses due to
Employee in accordance with Section 3 hereof. Except as provided in Section 7
hereof, the Company shall have no obligation to pay any other amount to
Executive.
6. Cause or Good Reason for Termination.
(a) Cause. "Cause" for termination of Executive's employment
under this Agreement by the Company, as determined by the Compensation
Committee, means any of the following:
(i) The willful and continued failure of Executive to
substantially or satisfactorily perform his duties under this
Agreement, other than any such failure resulting from a
Disability, after written demand for performance made by the
Company which identifies the manner in which the Company
believes Executive has
/s/SA /s/WM
----- -----
Initial Initial
<PAGE>
not substantially or satisfactorily performed his duties.
The failure of Executive to substantially or
satisfactorily perform will be deemed "willful and
continued" if Executive does not comply with the
Company's demand within a reasonable time, as specified in the
demand or as determined in good faith by the Compensation
Committee.
(ii) The conviction of Executive for committing an act of
fraud, embezzlement, theft, or other act constituting a
felony.
(iii) The willful engagement of Executive in
misconduct, including any violation of Section 8 hereof, that
is demonstrably and materially injurious (monetarily or
otherwise) to the Company. For the purpose of this Section
6(a)(iii), any violation by Executive of Section 8 hereof will
be deemed "willful" if done not in good faith or without
reasonable belief that his conduct (whether an action or an
omission) was in the best interest of the Company.
(b) Good Reason. "Good Reason" for Executive's termination
of his employment under this Agreement means any of the following,
without Executive's written consent and other than in circumstances
in which Executive's employment is subject to termination for Cause:
(i) The Company's assignment of Executive exclusively
to an office or position of lesser authority, status, or
responsibility, or the Company's assignment to Executive
(without a change of office or position) of duties having or
reflecting only materially reduced authority, status, or
responsibility of Executive.
(ii) The Company's reduction of (A) Executive's Base
Salary or the annual or long-term bonus to which Executive may
be entitled or which he has an opportunity to earn under the
terms of any bonus plan of the Company in which he
participates, except as part of a General Executive
Compensation Reduction, or (B) the amount or level at which
Executive participates or may participate in any Benefit Plan,
except as the result of a change in the participation of all
then existing participants or prospective participants in such
Benefit Plan or the discontinuance of such Benefit Plan.
(iii) The Company's permanent reassignment of
Executive's principal job location or office to a place more
than 50 miles from the place of his principal job location or
office on the date of this Agreement.
(iv) The Company's written notification to Executive
that it does not intend to continue this Agreement for a
successive one-year period pursuant to paragraph 4 above, and
does not offer Executive a new Employment Contract with
identical or improved benefits, at least thirty (30) days
prior to the expiration of the current term.
/s/SA /s/WM
----- -----
Initial Initial
<PAGE>
7. Severance Payment on Termination Without Cause or for Good Reason.
(a) Termination Events and Payment. If Executive's employment
is terminated either (i) by the Company without Cause before the
expiration of the then effective term of this Agreement or at the end
of the then effective term of this Agreement in accordance with Section
4 hereof, or (ii) by Executive for Good Reason before the expiration of
the then term of this Agreement, then (notwithstanding the provisions
of Section 4 hereof) the Company shall pay or provide Executive (A) an
amount equal to the Executive's Monthly Base Salary in effect on his
Termination Date, unless Executive has been the subject of a General
Executive Compensation Reduction within the last 24 months, in which
case the Executive shall be paid the Executive's Monthly Base Salary in
effect immediately prior to the General Executive Compensation
Reduction, payable for eighteen consecutive months after the
Termination Date, (B) one and one-half times the annual par bonus for
the calendar year in which the Termination Date occurs, payable at the
same time it would be payable if Executive's employment had not been
terminated, and (C) benefits under certain of the Benefit Plans, or the
economic equivalent thereof, as described in Attachment I to this
Agreement for a period of eighteen months after the Termination Date.
Such continuation of payments or benefits shall not be deemed the
continuation of employment for any purpose, and benefits payable under
any Benefit Plan, or the economic equivalent thereof, will be
determined based on the benefits (if any) that similarly situated
employees of the Company would be entitled to under such Benefit Plan
during the eighteen-month period following the Termination Date, as
such Benefit Plan may thereafter be amended or restated (or
discontinued) by the Company. In the event of such termination without
Cause or for Good Reason (or for any other reason), Executive's right
to exercise the stock options described in Section 2(h) hereof that
have been granted to him (if any) shall be governed solely by the terms
of the Stock Option Plan, as may be in effect at that time.
(b) Change of Control Payments. If the termination of
Executive's employment referred to in the first sentence of Section
7(a) hereof is the result of or in connection with a change of control,
as defined in the separate Executive Severance Agreement between the
Company and Executive dated May 2, 1991, and amended February 22, 1995
(the "Severance Agreement"), Section 7(a) shall not be applicable, but
shall be superseded in its entirety by the terms of the Severance
Agreement. The rights and obligations of Executive and the Company
under those circumstances shall be governed solely by the Severance
Agreement.
(c) Offset. No severance amount payable hereunder will be
subject to reduction as the result of future compensation earned or
received by Executive (including by self-employment), and Executive
shall have no duty to mitigate his damages.
(d) General Release. The payment or provision of any amounts
or benefits pursuant to Section 7(a) hereof shall be conditioned upon
the Company's receipt of a Settlement Agreement, General Release, and
Covenant Not to Sue executed and performed by Executive in
substantially the form of Attachment II to this Agreement.
(e) Compliance with Covenants. The payment or provision of any
amounts or benefits pursuant to Section 7(a) hereof shall be
conditioned upon Executive's compliance with his covenants set forth in
Sections 8 and 9 hereof during the time periods specified in those
Sections. Accordingly, the Company may discontinue or reduce the
amounts or benefits pursuant to Section 7(a) hereof if the Company
reasonably believes, or establishes by arbitration or any legal or
injunctive proceeding described in Section 11 hereof, that there
/s/SA /s/WM
----- -----
Initial Initial
<PAGE>
is or has been any violation by Executive of Section 8 or Section 9
hereof. Any such discontinuance or reduction by the Company will not
preclude it from seeking any arbitration award or injunctive relief
permitted by Section 11 hereof.
8. Ownership of Company Property. All files, records, documents,
information, data, and similar items relating to the business of the Company,
whether prepared by Executive or otherwise coming into his possession, will
remain the exclusive property of the Company and may not be removed from the
premises of the Company under any circumstances without the prior written
consent of the Board (except in the ordinary course of business during
Executive's employment under this Agreement), and in any event must be promptly
delivered to the Company upon termination or cessation of Executive's employment
with the Company for any reason.
9. Nonsolicitation of Employees. For a period of one year after the
termination or cessation of his employment with the Company for any reason,
Executive shall not, on his own behalf or on behalf of any other person, solicit
any employee of the Company (known by Executive to be such) to leave the
employment of the Company, nor shall he use or disclose to any person any
information obtained while employed by the Company concerning the names and
addresses of the Company's employees. Each reference to the "Company" in this
Section 9 shall be deemed to include each subsidiary and affiliate of the
Company.
10. Severability. The parties hereto intend all provisions of Sections
8 and 9 hereof to be enforced to the fullest extent permitted by law.
Accordingly, should a court of competent jurisdiction determine that the scope
of any provision of Section 8 or Section 9 hereof is too broad to be enforced as
written, the parties intend that the court reform the provision to such narrower
scope as it determines to be reasonable and enforceable. The existence of any
claim or cause of action of Executive against the Company, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of any of the covenants of Executive contained in Sections 8 and
9 hereof. If any provision of this Agreement is held to be illegal, invalid, or
unenforceable under present or future laws effective during the term hereof, (i)
such provision shall be fully severable, (ii) this Agreement shall be construed
and enforced as if such illegal, invalid, or unenforceable provision never
constituted a part of this Agreement, and (iii) the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance herefrom.
Furthermore, in lieu of such illegal, invalid, or unenforceable provision, there
shall be added as part of this Agreement a provision as similar in its terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable.
11. Dispute Resolution.
(a) Arbitration. The exclusive remedy or method of resolving
all disputes or questions arising out of or relating to this Agreement
or its expiration or termination shall be arbitration held in Dallas,
Texas. Nevertheless, though disputes or questions arising out of or
relating to Section 8 or Section 9 hereof shall be subject to
arbitration, the Company shall not be precluded from also seeking and
obtaining injunctive relief from any court of proper jurisdiction to
enforce or protect its rights under Section 8 or Section 9 hereof. Any
arbitration may be initiated by either party by written notice to the
other party specifying the subject of the requested arbitration and
appointing that party's arbitrator ("Arbitration Notice").
(b) Arbitrators. Arbitration shall be before three
arbitrators, one to be appointed by the Company, a second to be
appointed by Executive, and a third to be appointed by those two
arbitrators. The third arbitrator shall act as chairman. If (i) the
non-initiating party fails to appoint an arbitrator by written notice
to the initiating party within ten days after the
/s/SA /s/WM
----- -----
Initial Initial
<PAGE>
Arbitration Notice is given, or (ii) the two arbitrators appointed by
the parties herein fail to appoint a third arbitrator within ten days
after the date of the appointment of the second arbitrator, then the
American Arbitration Association in Dallas, Texas, upon application of
the initiating party, shall appoint an arbitrator to fill that
position.
(c) Award and Costs. The arbitration proceeding shall be
conducted in accordance with the rules of the American Arbitration
Association. A determination or award made or approved by at least two
of the arbitrators shall be the valid and binding action of the
arbitrators. The costs of arbitration (including the expense of a party
in obtaining and presenting evidence and attending the arbitration and
of the fees and expense of legal counsel to a party) shall be borne by
the Company. The arbitration determination or award shall be final and
conclusive on the parties, and judgment upon such award may be entered
and enforced in any court of competent jurisdiction.
12. Miscellaneous.
(a) Notices. Any notice, consent, demand, request, approval,
or other communication to be given under this Agreement by either party
to the other must be in writing and must be either (i) personally
delivered, (ii) mailed by registered or certified mail, postage prepaid
with return receipt requested, (iii) delivered by overnight express
delivery service or same-day or overnight local courier service, or
(iv) delivered by facsimile transmission, in any event to the address
or number set forth below or to such other address or number as may be
designated by either or both of the parties from time to time in
accordance with this Section 12(a):
If to the Company: Eljer Industries, Inc.
17120 Dallas Parkway
Dallas, Texas 75248
Attention: General Counsel
Fax No.: (214) 407-7238
With a copy (which
shall not constitute
notice) to: Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Attention: Ronald M.
Gaswirth, Esq.
Fax No.: (214) 999-4667
If to Executive: Mr. Scott G. Arbuckle
17301 Club Hill Drive
Dallas, TX 75248
Notices delivered personally or by overnight express delivery service
or by local courier service shall be deemed given and received as of
actual receipt. Notices mailed as described above shall be deemed given
and received three business days after mailing or upon actual receipt,
whichever is earlier. Notices delivered by facsimile transmission shall
be deemed given and received upon receipt by the sender of the
transmission confirmation.
/s/SA /s/WM
----- -----
Initial Initial
<PAGE>
(b) Entire Agreement. This Agreement, with the Attachments
hereto and the other agreements referred to herein, supersedes any and
all other agreements, either oral or written, between the parties with
respect to the subject matter of this Agreement and contains all of the
covenants and agreements between the parties with respect to the
subject matter of this Agreement.
(c) Modification. Except as stated in the next sentence, no
change or modification of this Agreement will be valid or binding upon
the parties, nor will any waiver of any term or condition be so
binding, unless the change or modification or waiver is in writing and
signed by both parties to this Agreement. The Company may, however,
without the consent or agreement of Executive, change or modify any or
all of the severance benefits described in Attachment I hereto solely
to reflect any (i) additional benefits under any Benefit Plan,
including any Benefit Plan adopted after the date of this Agreement, or
(ii) amendment, restatement, or discontinuance by the Company of any
Benefit Plan; provided, that the Company provides to Executive a copy
of the changed or modified Attachment I hereto.
(d) Governing Law and Venue. This Agreement and the
obligations and undertakings of the parties under this Agreement is
performable in Dallas County, Texas. This Agreement and all matters
related hereto shall be governed by, and construed in accordance with,
the laws of the State of Texas.
(e) Counterparts. This Agreement may be executed in
counterparts, each of which constitutes an original, but all of which
constitute one document.
(f) Gender. Whenever the context requires, words in this
Agreement denoting gender shall include the masculine, feminine, and
neuter.
(g) Estate. If Executive dies during his employment hereunder,
any amounts due him from the Company under this Agreement as of the
date of his death shall be paid to his estate or heirs.
(h) Assignment. The Company shall have the right to assign
this Agreement to its successors or assigns. The terms "successors" and
"assigns" shall include any person that buys all or substantially all
of the Company's assets or all of its stock, or with and into which the
Company merges or consolidates. The rights, duties, and benefits to
Executive hereunder are personal to him, and no such right, duty, or
benefit may be assigned by him.
(i) Binding Effect. This Agreement is binding upon the
parties hereto, together with their respective executors,
administrators, successors, personal representatives, heirs, and
permitted assigns.
(j) Waiver of Breach. Any waiver by the Company or Executive
of a breach of any provision of this Agreement by Executive or the
Company will not operate or be construed as a waiver of any subsequent
breach.
(k) Certain Defined Terms. As used in this Agreement, (i)
"person" means an individual or any corporation, partnership, trust,
unincorporated association, or other legal entity, whether acting in an
individual, fiduciary, or other capacity, and any government, court, or
other governmental agency, (ii) "include" and "including" shall not
denote or signify any limitation, (iii) "herein," "hereof,"
"hereunder," and similar terms are references to this Agreement as a
whole and not to any particular provision of this Agreement, and (iv)
"business day" means any Monday through Friday other than any such
weekday on which
/s/SA /s/WM
----- -----
Initial Initial
<PAGE>
the executive offices of the Company are closed. In addition, the use
herein of "annual" or "monthly" (or similar terms) to indicate a
measurement period shall not itself be deemed to grant rights to
Executive for employment or compensation for such period.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth in the first paragraph.
The Company:
ELJER INDUSTRIES, INC.
By:/s/Walter C. Minnick
--------------------------------
Chairman, Executive Compensation
Committee
Executive:
/s/Scott G. Arbuckle
-----------------------------
/s/SA
----- -----
Initial Initial
<PAGE>
Attachment I
SEVERANCE BENEFITS
(1) An amount, if any, equal to the employer-matching contribution and
profit-sharing contribution that otherwise would have been allocable to
Executive's account in the Eljer Tax Reduction Investment Plan, the
Eljer Supplemental Benefit Plan and the Eljer Excess Benefit Plan
during the twelve consecutive month period following the Termination
Date, payable in a single sum payment on the first anniversary of the
Termination Date.
(2) An amount, if any, equal to the present value of the pension benefit
that Executive otherwise would have accrued under the Salaried Pension
Plan of Eljer Manufacturing, Inc., the Eljer Supplemental Benefit Plan
and the Eljer Excess Benefit Plan during the twelve consecutive month
period following the Termination Date, payable in a single sum payment
on the first anniversary of the Termination Date.
(3) If elected by Executive, continuation of the medical and dental
coverage under the Eljer Manufacturing, Inc. and Associates Health and
Welfare Plan (the "Welfare Plan") as continuation coverage in
accordance with Section 4980B of the Code ("COBRA Coverage"); provided,
however, that Executive's cost for COBRA Coverage during the twelve
consecutive month period following the Termination Date shall be
limited to the cost, as adjusted from time to time, of the applicable
medical and dental coverage under the Welfare Plan for similarly
situated active employees of the Company. Executive's COBRA Coverage
shall be subject to the terms and conditions (including eligibility and
benefit limitations) of the Welfare Plan and shall be reduced or
terminated during the COBRA Coverage period, including the twelve
consecutive month period described above, to the extent of other
coverage or benefits that Executive receives in connection with any
other employment during such period or to the extent the COBRA Coverage
period ends in accordance with the provisions of the Code.
(4) Life insurance and accidental death and dismemberment coverage under
the Welfare Plan in the amount of such coverage in effect as of the
Termination Date for the twelve consecutive month period following the
Termination Date.
<PAGE>
Attachment II
SETTLEMENT AGREEMENT,
GENERAL RELEASE, AND COVENANT NOT TO SUE
This Settlement Agreement, General Release, and Covenant Not to Sue
("Agreement") is made and entered into as of the_____day of __________, 19___,
by and between _____________________ ("Employee") and Eljer Industries, Inc.
("Eljer"), hereinafter collectively referred to as the "parties".
Recitals
WHEREAS, Employee was employed by Eljer as __________________________
under the terms of an Employment Agreement dated as of ____________, 199___ (the
"Employment Agreement");
WHEREAS, Employee's employment under the Employment Agreement shall
terminate effective ____________________ (the "Termination Date"); and
WHEREAS, the parties desire to settle fully and finally, in the manner
set forth herein, all differences between them which have arisen, or which may
arise, prior to, or at the time of, the execution of this Agreement, including,
but in no way limited to, any and all claims and controversies arising out of
the Employment Agreement, the employment relationship between Employee and
Eljer, and the termination thereof;
Agreement
NOW, THEREFORE, in consideration of the Recitals and the mutual
promises, covenants and agreements set forth herein, the parties covenant and
agree as follows:
1. Employee, for himself or herself and on behalf of his or her
attorneys, heirs, assigns, successors, executors, and administrators,
IRREVOCABLY AND UNCONDITIONALLY RELEASES, ACQUITS, AND FOREVER DISCHARGES Eljer,
its current and former parent, subsidiary, affiliated, and related corporations,
firms, associations, partnerships, and entities, their successors and assigns,
and the current and former owners, shareholders, directors, officers, partners,
employees, agents, attorneys, representatives, and insurers of said
corporations, firms, associations, partnerships, and entities, and their
guardians, successors, assigns, heirs, executors, and administrators
(hereinafter collectively referred to as the "Releasees"), from any and all
claims, complaints, grievances, liabilities, obligations, promises, agreements,
damages, causes of action, rights, debts, demands, controversies, costs, losses,
damages, and expenses (including, without limitation, attorneys' fees and
expenses) whatsoever, other than any arising under this Agreement, under any
municipal, local, state, or federal law, common or statutory -- including, but
in no way limited to, claims under the Age Discrimination in Employment Act of
1967, 29 U.S.C. ss. 621, et seq. -- for any actions or omissions whatsoever,
whether known or unknown and whether or not connected with the Employment
Agreement, the employment of Employee by Eljer, or the termination thereof,
which existed or may have existed prior to, or contemporaneously with, the
execution of this Agreement.
2. Employee, for himself or herself and on behalf of his or her
attorneys, heirs, assigns, successors, executors, and administrators, COVENANTS
NOT TO SUE OR OTHERWISE CONSENT TO PARTICIPATE IN ANY ACTION AGAINST, any of
the Releasees based upon any of the claims and other matters released in
paragraph 1 of this Agreement.
3. Employee agrees that he or she will keep the terms, amount, and fact
of this Agreement STRICTLY AND COMPLETELY CONFIDENTIAL and that he or she will
not communicate or other-
<PAGE>
wise disclose to any employee (past, present, or future) of Eljer or any of the
other Releasees or to a member of the general public the terms, amount, or
fact of this Agreement, except as may be required by law or compulsory process.
4. Employee waives and releases forever any right or rights he or she
might have to employment, reemployment, or reinstatement with Eljer or any of
the other Releasees, except as may be provided under the terms of this
Agreement.
5. Upon the expiration of seven (7) days after Employee's execution of
this Agreement, Eljer agrees to pay or provide Employee Severance payments under
the terms and conditions of the Severance Agreement.
6. The parties hereto recognize that, by entering into this Agreement,
Eljer does not admit, and does specifically deny, any violation of any local,
state, or federal law, common or statutory. The parties further recognize that
this Agreement has been entered into in release and compromise of any claims
which might be asserted by Employee in connection with his or her employment by
Eljer, or the termination thereof, and to avoid the expense and burden of any
litigation related thereto.
7. The parties acknowledge and agree that in the event Employee
materially breaches any provision of this Agreement, (a) Employee will indemnify
and hold Eljer harmless from and against any and all resulting damages or loss
incurred by Eljer (including, without limitation, attorneys' fees and expenses),
(b) Employee will immediately repay to Eljer in full any payment made to him or
her under the provisions of this Agreement, and (c) Eljer will be entitled to
file counterclaims against Employee for breach of the covenant not to sue and
may recover from Employee any payment not repaid to Eljer, as required by clause
(b) of this paragraph 7, as well as any and all other resulting actual or
consequential damages.
8. One or more waivers of a breach of any covenant, term, or provision
of this Agreement by either party shall not be construed as a waiver of a
subsequent breach of the same covenant, term, or provision, nor shall it be
considered a waiver of any other then existing or subsequent breach of a
different covenant, term, or provision.
9. If any provision or term of this Agreement is held to be illegal,
invalid, or unenforceable, (a) such provision or term shall be fully severable,
(b) this Agreement shall be construed and enforced as if such illegal, invalid,
or unenforceable provision had never constituted part of this Agreement, and (c)
the remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid, or unenforceable provision or
by its severance from this Agreement. Furthermore, in lieu of each such illegal,
invalid, or unenforceable provision or term there shall be added automatically
as a part of this Agreement another provision or term as similar to the illegal,
invalid, or unenforceable provision as may be possible and that is legal, valid,
and enforceable.
10. The parties agree that should one party sue the other party for a
breach of any provision of this Agreement, the prevailing party shall be
entitled to recover its attorneys' fees and costs of court. Each party shall
have the right to sue for specific performance of this Agreement, and for
declaratory and injunctive relief.
11. Either party may revoke this Agreement, within seven (7) days of
the date of its execution by Employee (the "Revocation Period"), by written
notice to the other party. Employee agrees that if he or she revokes this
Agreement, he or she shall receive none of the benefits provided for under its
terms. Employee further understands and agrees that, unless Eljer receives from
Employee, prior to the expiration of the Revocation Period, written notice of
his or her revocation of this Agreement, this Agreement and all of its terms
shall have full force and effect, and Employee shall have forever waived his or
her right to revoke this Agreement.
<PAGE>
12. This Agreement constitutes the entire agreement of the parties, and
supersedes all prior and contemporaneous negotiations and agreements, oral or
written, between the parties. All prior and contemporaneous negotiations and
agreements are deemed incorporated and merged into this Agreement and are deemed
to have been abandoned if not so incorporated. No representations, oral or
written, are being relied upon by either party in executing this Agreement other
than the express representations of this Agreement. This Agreement cannot be
changed or terminated without the express written consent of the parties.
13. This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas, except where preempted by federal law.
14. By executing this Agreement, Employee acknowledges that (a) this
Agreement has been reviewed with him or her by a representative of Eljer (see
Exhibit "A", which is attached hereto and incorporated herein by reference), (b)
he or she has had at least twenty-one (21) days to consider the terms of the
Agreement (see Exhibit "A"), and has considered its terms for that period of
time or has knowingly and voluntarily waived his or her right to do so, (c) he
or she has been advised by Eljer in writing to consult with an attorney
regarding the terms of the Agreement (see Exhibit "A"), (d) he or she has
consulted with, or has had sufficient opportunity to consult with, an attorney
of his or her own choosing regarding the terms of the Agreement, (e) any and all
questions regarding the terms of this Agreement have been asked and answered to
his or her complete satisfaction, (f) he or she has read this Agreement and
fully understands its terms and their import, (g) except as provided by this
Agreement, he or she has no contractual right or claim to the benefits described
herein, (h) the consideration provided for herein is good and valuable, and (i)
he or she is entering into this Agreement voluntarily, of his or her own free
will, and without any coercion, undue influence, threat, or intimidation of any
kind or type whatsoever.
[The signature pages follow.]
<PAGE>
EXECUTED in _______________, Texas this____day of ________, 19___.
EMPLOYEE:
__________________________
THE STATE OF TEXAS ss.
ss.
COUNTY OF _________ ss.
BEFORE ME, the undersigned, a Notary Public, on this day personally
appeared ___________________________, known to me to be the person whose name is
subscribed to the foregoing instrument and acknowledged to me that he or she
executed the same for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this____day of _________, 19___.
_____________________________
Notary Public, State of Texas
[SEAL]
<PAGE>
EXHIBIT "A"
NOTICE OF RIGHTS
Attached hereto you will find a proposed Settlement Agreement, General
Release, and Covenant Not to Sue ("Agreement") with respect to the termination
of your employment. It is required by law that you be given at least 21 days
from the date of receipt of the proposed Agreement within which to consider its
terms. During this period, please feel free to contact the person listed below
to ask any questions regarding the Agreement including, but not limited to, the
definitions of words which you do not know and the meanings of phrases,
sentences, or paragraphs which you do not understand. It is recommended that you
consult with an attorney regarding your legal rights with respect to the
Agreement during this 21-day period.
ACKNOWLEDGMENT OF RECEIPT
I acknowledge that I received a copy of Eljer Industries, Inc.'s
proposed Settlement Agreement, General Release, and Covenant Not to Sue at
__:__ __.m. this_____day of __________, 19___, and that the Agreement and the
Notice of Rights above have been reviewed with me by the person listed below.
EMPLOYEE:
________________________________
__________________, 19____
(Date)
ELJER INDUSTRIES, INC.
By: ____________________
Its: ____________________
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") dated as of May 1, 1996, is
between Eljer Industries, Inc., a Delaware corporation (the "Company"), and
(Executive) ("Executive").
- -----------
In consideration of the mutual covenants set forth herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Employment. Executive shall enter into the employment of the
Company, and the Company shall employ Executive, on the terms and conditions set
forth in this Agreement. During the term of his employment, Executive shall
devote substantially all of his business time and his best efforts, skills, and
abilities to the performance of his duties as stated in this Agreement and to
the furtherance of the Company's business. Executive's job title will be
_________________ of Eljer Industries, Inc., and (his/her) duties will be those
customarily performed by persons acting in such capacity and those designated
by the Chief Executive Officer or the Board of Directors of the Company (the
"Board") consistent with the position of ________________ of Eljer Industries,
Inc.
2. Compensation.
(a) Base Salary. During the term of Executive's employment
with the Company pursuant to this Agreement, the Company shall pay
Executive for his services a monthly base salary of $_________ payable
in equal semimonthly installments in arrears in accordance with the
Company's normal payroll procedures. Executive's base salary will
be reviewed annually and subject to increase at the discretion of the
Board or an authorized committee or representative thereof. The
Company may reduce Executive's base salary only as part of a general
reduction in the compensation of all executive officers of the
Company who have written employment agreements with the Company
(a "General Executive Compensation Reduction"). Executive's
monthly base salary in effect from time to time, exclusive of any
other compensation hereunder, is hereinafter called the "Monthly Base
Salary."
(b) Bonus Plans. Executive will be entitled to participate in
the Company's annual bonus plan for executives and key employees, with
an annual bonus range thereunder of an amount equal to zero to 60% of
Executive's annualized Base Salary and an annual par bonus thereunder
of an amount equal to 40% of Executive's annualized Base Salary. The
"par" bonus is a performance benchmark, and not a guaranteed amount or
a minimum. Executive's receipt of any bonus, and the amount thereof,
will depend upon the achievement of corporate, department, team, or
individual goals set annually by the Compensation Committee of the
Board (the "Compensation Committee"). In addition, Executive will be
considered for participation in any long-term incentive bonus plan of
the Company and, to the extent designated by the Compensation
Committee, will be entitled to participate in any such plan under the
terms of such plan.
(c) Participation in Other Benefit Plans. Executive will also
be entitled to participate in any other pension and profit-sharing
plans, supplemental and excess benefit plans, long-term incentive
compensation plans (other than long-term incentive bonus plans,
addressed in Section 2(b) hereof), and other benefits, plans, or
arrangements provided or available to active salaried employees of the
Company in effect during Executive's
1
<PAGE>
employment with the Company hereunder (collectively, "Benefit
Plans"). The Benefit Plans currently consist of the Eljer Tax
Reduction Investment Plan, the Salaried Pension Plan for Eljer
Manufacturing, Inc., the Eljer Supplemental Benefit Plan, the Eljer
Excess Benefit Plan, the Eljer Manufacturing, Inc. and Affiliates
Health and Welfare Plan, the Personal Accident and Business Travel
Insurance Plan, the Eljer Industries, Inc. Change in Control
Severance Payment Plan, and the Flexible Benefits Plan.
Executive's participation in any or all of the Benefit Plans will be
subject to the terms and conditions of the Benefit Plans as they may
hereafter be amended or restated (or discontinued) by the Company,
including the satisfaction of all applicable eligibility requirements
and vesting provisions of the Benefit Plans. Executive agrees that the
Company shall have no obligation hereunder to continue any or all of
the Benefit Plans. The Company has provided to Executive, and Executive
hereby acknowledges receipt of, correct and complete written plan
materials distributed to participants or prospective participants in
the current Benefit Plans.
(d) Automobile Allowance. The Company will pay Executive
a quarterly automobile allowance of $__________to be used by Executive
to purchase or lease a vehicle suitable for Executive's use in
rendering services under this Agreement and to compensate for all
expenses to operate, insure, and maintain that vehicle for that
business purpose (the "Automobile Allowance"). The quarterly
amount of the Automobile Allowance will be prorated on a daily
basis for any calendar quarter for which this Agreement is not in
effect for the entire quarter. In addition to the Automobile
Allowance, the Company will pay Executive annually an amount equal to
the federal and any state income tax paid by Executive on the
amount of the Automobile Allowance paid to Executive during the
relevant tax year. Also in addition to the Automobile Allowance,
the Company will reimburse Executive for mileage, at the rate then in
effect under the Company's policies, relating to his business use of
a vehicle.
(e) Vacation. Executive will be entitled to paid vacation in
accordance with the applicable vacation policies, practices, and
procedures of the Company in effect from time to time during the term
of his employment under this Agreement.
(f) Tax Preparation and Financial Planning Services. The
Company will arrange for and provide at its expense preparation
services for Executive's personal federal and (if applicable) state and
local annual income tax returns, commencing with his 1996 annual tax
return due in 1997. In addition, the Company will arrange for and
provide at its expense, a financial planning service to be determined
by the Company.
(g) Annual Physical Examination. The Company will pay
the reasonable cost of an annual comprehensive physical
examination of Executive, commencing in 1996.
(h) Stock Options. During Executive's employment under this
Agreement, Executive will be eligible to participate in the Eljer
Industries, Inc. Long-Term Executive Incentive Compensation Plan (the
"Stock Option Plan") at a level specified by the Compensation Committee
when the Compensation Committee grants options to employees of the
Company and its subsidiaries. The terms of each option granted to
Executive will be governed by the Stock Option Plan and the written
option agreement entered into between the Company and Executive in
accordance with the Stock Option Plan.
(i) Tax Withholding. The Company has the right to deduct from
any compensation payable to Executive under this Agreement social
security (FICA) taxes and all federal, state,
2
<PAGE>
municipal, or other such taxes or charges as may now be in effect
or that may hereafter be enacted or required.
3. Reimbursable Expenses. Executive shall be entitled to receive
prompt reimbursement from the Company, in accordance with the relevant
policies, practices, and procedures of the Company, for all reasonable
business expenses incurred by Executive in performing his duties under this
Agreement.
4. Term. The term of Executive's employment under this Agreement will
begin on May 1, 1996 and will continue until (but not including) the next May
1st and for successive one-year periods thereafter, unless the Company notifies
Executive in writing to the contrary at least three months before the May 1st
renewal date, in which case Executive's employment will terminate at the end of
that term.
5. Events of Early Termination. Executive's employment under
this Agreement will terminate (notwithstanding the provisions of Section
4 hereof) before the expiration of the then effective term upon the earliest
to occur of the following:
(a) Death. The death of Executive.
(b) Disability. The Disability of Executive. "Disability"
means a permanent and total disability within the meaning of Section
22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
that renders Executive unable reasonably to perform his duties
hereunder for six consecutive months. Executive's Disability shall be
determined by the Compensation Committee, in its sole and absolute
discretion, upon receipt of and in reliance on sufficient competent
medical advice from a qualified physician selected by or acceptable to
the Compensation Committee.
(c) Termination by Company. The effective date of the
Company's termination of Executive's employment specified in a written
notice of termination given to Executive, whether for Cause (as defined
in Section 6(a) hereof) or without Cause.
(d) Termination by Executive. The effective date of
Executive's termination of his employment specified in a written notice
of termination given to the Company, whether for Good Reason (as
defined in Section 6(b) hereof) or without Good Reason. Without the
written consent of the Company, the effective date of such employment
cannot be fewer than ten business days after the date on which such
notice is given to the Company.
Upon termination of Executive's employment for any reason described above in
this Section 5, the Company shall pay Executive (or his estate or heirs) the
amount of Base Salary earned but not yet paid through the effective date of
termination (the "Termination Date"), the amount of all bonuses and of all
benefits under applicable bonus plans and Benefit Plans that are earned or
vested and payable to Executive in accordance with the terms of those bonus
plans and Benefit Plans (including all eligibility requirements for such
payments) through the Termination Date, and all reimbursable expenses due to
Employee in accordance with Section 3 hereof. Except as provided in Section 7
hereof, and notwithstanding the provisions of Section 4 hereof, the Company
shall have no obligation to pay any other amount to Executive.
3
<PAGE>
6. Cause or Good Reason for Termination.
(a) Cause. "Cause" for termination of Executive's employment
under this Agreement by the Company, as determined by the Compensation
Committee, means any of the following:
(i) The willful and continued failure of Executive to
substantially or satisfactorily perform his duties under this
Agreement, other than any such failure resulting from a
Disability, after written demand for performance made by the
Company which identifies the manner in which the Company
believes Executive has not substantially or satisfactorily
performed his duties. The failure of Executive to
substantially or satisfactorily perform will be deemed
"willful and continued" if Executive does not comply with the
Company's demand within a reasonable time, as specified in the
demand or as determined in good faith by the Compensation
Committee.
(ii) The conviction of Executive for committing an act of
fraud, embezzlement, theft, or other act constituting a
felony.
(iii) The willful engagement of Executive in
misconduct, including any violation of Section 8 hereof, that
is demonstrably and materially injurious (monetarily or
otherwise) to the Company. For the purpose of this Section
6(a)(iii), any violation by Executive of Section 8 hereof will
be deemed "willful" if done not in good faith or without
reasonable belief that his conduct (whether an action or an
omission) was in the best interest of the Company.
(b) Good Reason. "Good Reason" for Executive's termination
of his employment under this Agreement means any of the following, without
Executive's written consent and other than in circumstances in which Executive's
employment is subject to termination for Cause:
(i) The Company's assignment of Executive exclusively
to an office or position of lesser authority, status, or
responsibility, or the Company's assignment to Executive
(without a change of office or position) of duties having or
reflecting only materially reduced authority, status, or
responsibility of Executive.
(ii) The Company's reduction of (A) Executive's Base
Salary or the annual or long-term bonus to which Executive may
be entitled or which he has an opportunity to earn under the
terms of any bonus plan of the Company in which he
participates, except as part of a General Executive
Compensation Reduction, or (B) the amount or level at which
Executive participates or may participate in any Benefit Plan,
except as the result of a change in the participation of all
then existing participants or prospective participants in such
Benefit Plan or the discontinuance of such Benefit Plan.
(iii) The Company's permanent reassignment of
Executive's principal job location or office to a place more
than 50 miles from the place of his principal job location or
office on the date of this Agreement.
4
<PAGE>
7. Severance Payment on Termination Without Cause or for Good Reason.
(a) Termination Events and Payment. If Executive's employment
is terminated either (i) by the Company without Cause before the
expiration of the then effective term of this Agreement or at the end
of the then effective term of this Agreement in accordance with Section
4 hereof, or (ii) by Executive for Good Reason before the expiration of
the then term of this Agreement, then (notwithstanding the provisions
of Section 4 hereof) the Company shall pay or provide Executive (A) an
amount equal to the Executive's Monthly Base Salary in effect on his
Termination Date, unless Executive has been the subject of a General
Executive Compensation Reduction within the last 24 months, in which
case the Executive shall be paid the Executive's Monthly Base Salary in
effect immediately prior to the General Executive Compensation
Reduction, payable for twelve consecutive months after the Termination
Date, (B) the annual par bonus for the calendar year in which the
Termination Date occurs, payable at the same time it would be payable
if Executive's employment had not been terminated, and (C) benefits
under certain of the Benefit Plans, or the economic equivalent thereof,
as described in Attachment I to this Agreement for a period of twelve
months after the Termination Date. Such continuation of payments or
benefits shall not be deemed the continuation of employment for any
purpose, and benefits payable under any Benefit Plan, or the economic
equivalent thereof, will be determined based on the benefits (if any)
that similarly situated employees of the Company would be entitled to
under such Benefit Plan during the twelve-month period following the
Termination Date, as such Benefit Plan may thereafter be amended or
restated (or discontinued) by the Company. In the event of such
termination without Cause or for Good Reason (or for any other reason),
Executive's right to exercise the stock options described in Section
2(h) hereof that have been granted to him (if any) shall be governed
solely by the terms of the Stock Option Plan, as may be in effect at
that time.
(b) Change of Control Payments. If the termination of
Executive's employment referred to in the first sentence of Section
7(a) hereof is the result of or in connection with a change of control,
as defined in the separate Executive Severance Agreement between the
Company and Executive dated _____________ (the "Severance Agreement"),
Section 7(a) shall not be applicable, but shall be superseded in its
entirety by the terms of the Severance Agreement. The rights and
obligations of Executive and the Company under those circumstances
shall be governed solely by the Severance Agreement.
(c) Offset. No severance amount payable hereunder will be
subject to reduction as the result of future compensation earned or
received by Executive (including by self-employment), and Executive
shall have no duty to mitigate his damages.
(d) General Release. The payment or provision of any amounts
or benefits pursuant to Section 7(a) hereof shall be conditioned upon
the Company's receipt of a Settlement Agreement, General Release, and
Covenant Not to Sue executed and performed by Executive in
substantially the form of Attachment II to this Agreement.
(e) Compliance with Covenants. The payment or provision of any
amounts or benefits pursuant to Section 7(a) hereof shall be
conditioned upon Executive's compliance with his covenants set forth in
Sections 8 and 9 hereof during the time periods specified in those
Sections. Accordingly, the Company may discontinue or reduce the
amounts or benefits pursuant to Section 7(a) hereof if the Company
reasonably believes, or establishes
5
<PAGE>
by arbitration or any legal or injunctive proceeding described in
Section 11 hereof, that there is or has been any violation by
Executive of Section 8 or Section 9 hereof. Any such discontinuance
or reduction by the Company will not preclude it from seeking any
arbitration award or injunctive relief permitted by Section 11 hereof.
8. Ownership of Company Property. All files, records, documents,
information, data, and similar items relating to the business of the Company,
whether prepared by Executive or otherwise coming into his possession, will
remain the exclusive property of the Company and may not be removed from the
premises of the Company under any circumstances without the prior written
consent of the Board (except in the ordinary course of business during
Executive's employment under this Agreement), and in any event must be promptly
delivered to the Company upon termination or cessation of Executive's employment
with the Company for any reason.
9. Nonsolicitation of Employees. For a period of one year after the
termination or cessation of his employment with the Company for any reason,
Executive shall not, on his own behalf or on behalf of any other person, solicit
any employee of the Company (known by Executive to be such) to leave the
employment of the Company, nor shall he use or disclose to any person any
information obtained while employed by the Company concerning the names and
addresses of the Company's employees. Each reference to the "Company" in this
Section 9 shall be deemed to include each subsidiary and affiliate of the
Company.
10. Severability. The parties hereto intend all provisions of Sections
8 and 9 hereof to be enforced to the fullest extent permitted by law.
Accordingly, should a court of competent jurisdiction determine that the scope
of any provision of Section 8 or Section 9 hereof is too broad to be enforced as
written, the parties intend that the court reform the provision to such narrower
scope as it determines to be reasonable and enforceable. The existence of any
claim or cause of action of Executive against the Company, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of any of the covenants of Executive contained in Sections 8 and
9 hereof. If any provision of this Agreement is held to be illegal, invalid, or
unenforceable under present or future laws effective during the term hereof, (i)
such provision shall be fully severable, (ii) this Agreement shall be construed
and enforced as if such illegal, invalid, or unenforceable provision never
constituted a part of this Agreement, and (iii) the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance herefrom.
Furthermore, in lieu of such illegal, invalid, or unenforceable provision, there
shall be added as part of this Agreement a provision as similar in its terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable.
11. Dispute Resolution.
(a) Arbitration. The exclusive remedy or method of resolving
all disputes or questions arising out of or relating to this Agreement
or its expiration or termination shall be arbitration held in Dallas,
Texas. Nevertheless, though disputes or questions arising out of or
relating to Section 8 or Section 9 hereof shall be subject to
arbitration, the Company shall not be precluded from also seeking and
obtaining injunctive relief from any court of proper jurisdiction to
enforce or protect its rights under Section 8 or Section 9 hereof. Any
arbitration may be initiated by either party by written notice to the
other party specifying the subject of the requested arbitration and
appointing that party's arbitrator ("Arbitration Notice").
6
<PAGE>
(b) Arbitrators. Arbitration shall be before three
arbitrators, one to be appointed by the Company, a second to be
appointed by Executive, and a third to be appointed by those two
arbitrators. The third arbitrator shall act as chairman. If (i) the
non-initiating party fails to appoint an arbitrator by written notice
to the initiating party within ten days after the Arbitration Notice is
given, or (ii) the two arbitrators appointed by the parties herein fail
to appoint a third arbitrator within ten days after the date of the
appointment of the second arbitrator, then the American Arbitration
Association in Dallas, Texas, upon application of the initiating party,
shall appoint an arbitrator to fill that position.
(c) Award and Costs. The arbitration proceeding shall be
conducted in accordance with the rules of the American Arbitration
Association. A determination or award made or approved by at least two
of the arbitrators shall be the valid and binding action of the
arbitrators. The costs of arbitration (exclusive of the expense of a
party in obtaining and presenting evidence and attending the
arbitration and of the fees and expense of legal counsel to a party,
all of which shall be borne by that party) shall be borne by the
Company. The arbitration determination or award shall be final and
conclusive on the parties, and judgment upon such award may be entered
and enforced in any court of competent jurisdiction.
12. Miscellaneous.
(a) Notices. Any notice, consent, demand, request, approval,
or other communication to be given under this Agreement by either party
to the other must be in writing and must be either (i) personally
delivered, (ii) mailed by registered or certified mail, postage prepaid
with return receipt requested, (iii) delivered by overnight express
delivery service or same-day or overnight local courier service, or
(iv) delivered by facsimile transmission, in any event to the address
or number set forth below or to such other address or number as may be
designated by either or both of the parties from time to time in
accordance with this Section 12(a):
If to the Company: Eljer Industries, Inc.
17120 Dallas Parkway
Dallas, Texas 75248
Attention: General Counsel
Fax No.: (214) 407-7238
With a copy (which
shall not constitute
notice) to: Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Attention: Ronald M.
Gaswirth, Esq.
Fax No.: (214) 999-4667
If to Executive: (Executive)
(Address)
7
<PAGE>
Notices delivered personally or by overnight express delivery service
or by local courier service shall be deemed given and received as of
actual receipt. Notices mailed as described above shall be deemed given
and received three business days after mailing or upon actual receipt,
whichever is earlier. Notices delivered by facsimile transmission shall
be deemed given and received upon receipt by the sender of the
transmission confirmation.
(b) Entire Agreement. This Agreement, with the Attachments
hereto and the other agreements referred to herein, supersedes any and
all other agreements, either oral or written, between the parties with
respect to the subject matter of this Agreement and contains all of the
covenants and agreements between the parties with respect to the
subject matter of this Agreement.
(c) Modification. Except as stated in the next sentence, no
change or modification of this Agreement will be valid or binding upon
the parties, nor will any waiver of any term or condition be so
binding, unless the change or modification or waiver is in writing and
signed by both parties to this Agreement. The Company may, however,
without the consent or agreement of Executive, change or modify any or
all of the severance benefits described in Attachment I hereto solely
to reflect any (i) additional benefits under any Benefit Plan,
including any Benefit Plan adopted after the date of this Agreement, or
(ii) amendment, restatement, or discontinuance by the Company of any
Benefit Plan; provided, that the Company provides to Executive a copy
of the changed or modified Attachment I hereto.
(d) Governing Law and Venue. This Agreement and the
obligations and undertakings of the parties under this Agreement is
performable in Dallas County, Texas. This Agreement and all matters
related hereto shall be governed by, and construed in accordance with,
the laws of the State of Texas.
(e) Counterparts. This Agreement may be executed in
counterparts, each of which constitutes an original, but all of which
constitute one document.
(f) Gender. Whenever the context requires, words in this
Agreement denoting gender shall include the masculine, feminine, and
neuter.
(g) Estate. If Executive dies during his employment hereunder,
any amounts due him from the Company under this Agreement as of the
date of his death shall be paid to his estate or heirs.
(h) Assignment. The Company shall have the right to assign
this Agreement to its successors or assigns. The terms "successors" and
"assigns" shall include any person that buys all or substantially all
of the Company's assets or all of its stock, or with and into which the
Company merges or consolidates. The rights, duties, and benefits to
Executive hereunder are personal to him, and no such right, duty, or
benefit may be assigned by him.
(i) Binding Effect. This Agreement is binding upon the
parties hereto, together with their respective executors,
administrators, successors, personal representatives, heirs, and
permitted assigns.
(j) Waiver of Breach. Any waiver by the Company or Executive
of a breach of any provision of this Agreement by Executive or the
Company will not operate or be construed as a waiver of any subsequent
breach.
8
<PAGE>
(k) Certain Defined Terms. As used in this Agreement, (i)
"person" means an individual or any corporation, partnership, trust,
unincorporated association, or other legal entity, whether acting in an
individual, fiduciary, or other capacity, and any government, court, or
other governmental agency, (ii) "include" and "including" shall not
denote or signify any limitation, (iii) "herein," "hereof,"
"hereunder," and similar terms are references to this Agreement as a
whole and not to any particular provision of this Agreement, and (iv)
"business day" means any Monday through Friday other than any such
weekday on which the executive offices of the Company are closed. In
addition, the use herein of "annual" or "monthly" (or similar terms) to
indicate a measurement period shall not itself be deemed to grant
rights to Executive for employment or compensation for such period.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth in the first paragraph.
The Company:
ELJER INDUSTRIES, INC.
By:
-----------------------------
Executive:
-----------------------------------
9
EXHIBIT 11
Page 1 of 2
ELJER INDUSTRIES, INC.
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Nine Months Ended
September October
29, 1996 1, 1995
----------- -----------
<S> <C> <C>
Primary Earnings Per Share:
Net Income $10,328,000 $ 2,434,000
----------- -----------
Weighted average common shares outstanding 7,150,197 7,130,051
Dilutive effect of stock options considered
common stock equivalents 56,220 --
----------- -----------
Weighted average number of common and
common equivalent shares 7,206,417 7,130,051
----------- -----------
Primary earnings per share $ 1.43 $ 0.34
=========== ===========
Fully Diluted Earnings Per Share:
Net income $10,328,000 $ 2,434,000
----------- -----------
Weighted average common shares outstanding 7,150,197 7,130,051
Dilutive effect of stock options considered
common stock equivalents 56,220 --
----------- -----------
Weighted average number of common and
common equivalent shares 7,206,417 7,130,051
----------- -----------
Fully diluted earnings per share $ 1.43 $ 0.34
=========== ===========
</TABLE>
<PAGE>
EXHIBIT 11
Page 2 of 2
ELJER INDUSTRIES, INC.
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Three Months Ended
September October
29, 1996 1, 1995
---------- ----------
<S> <C> <C>
Primary Earnings Per Share:
Net Income $7,390,000 $4,522,000
---------- ----------
Weighted average common shares outstanding 7,153,407 7,136,652
Dilutive effect of stock options considered
common stock equivalents 51,087 --
---------- ----------
Weighted average number of common and
common equivalent shares 7,204,494 7,136,652
---------- ----------
Primary earnings per share $ 1.03 $ 0.63
========== ==========
Fully Diluted Earnings Per Share:
Net income $7,390,000 $4,522,000
---------- ----------
Weighted average common shares outstanding 7,153,407 7,136,652
Dilutive effect of stock options considered
common stock equivalents 51,087 --
---------- ----------
Weighted average number of common and
common equivalent shares 7,204,494 7,136,652
---------- ----------
Fully diluted earnings per share $ 1.03 $ 0.63
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 29, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 6,712
<SECURITIES> 0
<RECEIVABLES> 80,966
<ALLOWANCES> (7,466)
<INVENTORY> 65,689
<CURRENT-ASSETS> 164,331
<PP&E> 175,764
<DEPRECIATION> 114,736
<TOTAL-ASSETS> 244,117
<CURRENT-LIABILITIES> 141,829
<BONDS> 63,164
0
0
<COMMON> 7,186
<OTHER-SE> (31,885)
<TOTAL-LIABILITY-AND-EQUITY> 244,117
<SALES> 290,370
<TOTAL-REVENUES> 290,370
<CGS> 213,124
<TOTAL-COSTS> 213,124
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,231
<INCOME-PRETAX> 12,907
<INCOME-TAX> 2,579
<INCOME-CONTINUING> 10,328
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,328
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.43
</TABLE>
