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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1996 Commission file number: 1-13418
FALCON BUILDING PRODUCTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-3931893
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
TWO NORTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
(Address of Principal Executive Office)
(312) 906-9700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by nonaffiliates
of the Registrant.
$82,570,131
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
20,048,275 shares of Common Stock as of February 7, 1997
Documents Incorporated herein by Reference: None
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FALCON BUILDING PRODUCTS, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I. PAGE
Item 1. Business ................................................................................ 3
Item 2. Properties .............................................................................. 6
Item 3. Legal Proceedings ....................................................................... 6
Item 4. Submission of Matters to a Vote of Security Holders ..................................... 7
PART II.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters ................ 8
Item 6. Selected Financial Information .......................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .. 9
Item 8. Financial Statements and Supplementary Data ............................................. 13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ... 32
PART III.
Item 10. Directors and Executive Officers of the Registrant ..................................... 32
Item 11. Executive Compensation ................................................................. 34
Item 12. Security Ownership of Certain Beneficial Owners and Management ......................... 38
Item 13. Certain Relationships and Related Transactions ......................................... 39
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........................ 39
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Falcon Building Products, Inc. ("Falcon" or the "Company") is a leading
domestic manufacturer and distributor of products for the residential and
commercial construction and home improvement markets. The Company's products
include air distribution products; ceramic, enameled steel and acrylic plumbing
fixtures; and air compressors, electric generators, power washers and OEM
compressors. The products that contributed more than 10% of net sales in 1996,
1995 and 1994 were as follows: residential grilles, registers and diffusers as
a group were 9%, 11% and 11%, respectively; ceramic china bathroom fixtures
were 17%, 22% and 25%, respectively; and air compressors were 23%, 28% and 27%,
respectively. Power washers accounted for 13% of net sales in 1996. The
Company believes that its products are well regarded as being innovative, of
high-quality and competitively priced.
Eagle Industries, Inc. ("Eagle") incorporated the Company in January
1994 as part of a reorganization of all of the entities comprising Eagle's
building products segment. Eagle is a wholly-owned subsidiary of Great
American Management and Investment, Inc., a Delaware corporation ("GAMI"),
which is wholly-owned by Equity Holdings Limited, an Illinois limited
partnership ("EHL"). In November 1994, the Company completed an initial public
offering of 6,000,000 shares of Class A common stock (the "Offering") (New York
Stock Exchange: "FB"). In May 1996, Eagle distributed its ownership of the
Company's Class B common stock (14,000,000 shares) to EHL. Accordingly, Eagle
and GAMI have no continuing ownership in the Company. Pursuant to provisions
in the Company's charter, the transfer of the Class B common stock resulted in
its conversion to Class A common stock.
Air Distribution Products - The Company is a leading supplier of air
distribution products and is the leading manufacturer of residential and light
commercial grilles, registers and diffusers for heating, ventilating and air
conditioning ("HVAC") applications. These products are marketed under the Hart
& Cooley(R), Metlvent(R), Reliable(TM), Tuttle & Bailey(R), Woodwinds(TM) and
Valley(TM) brand names. The Company manufactures more than 8,000 air
distribution items, including metal grilles, registers and diffusers, gas vent
and chimney systems, flexible ducts, louvers, terminal units and electric duct
heaters. Products are generally produced on a high-volume, low-cost basis;
however, the standard product line is supplemented with custom-engineered
products designed to meet specific size or performance requirements.
Plumbing Fixtures - The Company is a leading domestic producer of ceramic
china bathroom fixtures, including toilets and lavatories. The Company also
produces enameled steel bathroom tubs and sinks, and acrylic whirlpool tubs as
well as brass and plastic trim and fittings. These products are primarily sold
to the residential construction market under the Mansfield(R) and Swirl-way(R)
brand names.
Air Power Products - The Company is a leading producer of consumer and
commercial air compressors for home improvement applications. The Company
manufactures a broad line of air compressors in the 3/4 to 10 horsepower range.
These air compressors are electric or gasoline-driven with either
oil-lubricated or oil-free pumps and are marketed under several brand names,
including Air America(R), Charge Air Pro(R), Pro 4000(TM), Pro Air II(TM) and
Steel Driver(R). The Company also manufactures air compressors under
private-label programs, the most significant of which is the Craftsman label
for Sears Roebuck and Co. ("Sears"). In addition, the Company sells a variety
of accessory items such as paint spray guns, nailers and staplers, pneumatic
tools, sanders and air hoses for use in home improvement applications. In
1995, several new product lines were introduced, including electric generators,
power washers and OEM compressors. These new products, as is the case with
compressors, are marketed primarily into retail and home center outlets. In
January 1996, Falcon completed the acquisition of Ex-Cell Manufacturing Co.,
Inc. ("Ex-Cell"). Headquartered in Decatur, Arkansas, Ex-Cell is a leading
manufacturer of power washers, marketed through the retail/home center
distribution channel under the Ex-Cell(R) brand name.
BUILDING PRODUCTS INDUSTRY
The building products industry depends primarily on the residential and
commercial construction markets. The level of activity in the residential
construction market depends on new housing starts and residential alteration
and repair projects, which are generally a function of mortgage rates,
inflation, unemployment, demographic trends, gross
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domestic product growth and consumer confidence. According to the U.S.
Department of Commerce, domestic housing starts declined from approximately 1.8
million in 1986 to approximately 1.0 million in 1991, improving to
approximately 1.5 million in 1996. Domestic housing starts have fluctuated
between 1.3 million and 1.5 million from 1993 to 1996. The decline in
residential housing starts from the mid 1980's to the present has resulted in
pricing pressures in the industry that have not yet been alleviated. However,
according to the U.S. Department of Commerce, residential alteration and repair
expenditures have grown over the same period, from $91 billion in 1986 to a
high of approximately $113 billion in 1995. The Company estimates, based upon
management's industry experience, that the residential alteration and repair
market accounts for approximately 40% of the Company's net sales. The level of
activity of the commercial construction market depends largely on vacancy rates
and general economic conditions. According to the U.S. Department of Commerce,
commercial construction activity declined from 1986 to 1992 and since then has
generally remained flat.
MARKETING AND DISTRIBUTION
The Company markets and distributes its products nationwide through a
variety of distribution channels. Based on 1996 net sales, approximately 52%
of the Company's products are distributed to wholesalers and manufacturers'
representatives who sell to contractors serving the residential and commercial
construction markets. Approximately 48% of the Company's net sales are made to
mass merchandisers and retail chains, which sell to homeowners and contractors.
The Company utilizes a combination of internal sales forces and various
representatives to market and sell its products. The Company markets its
residential and light commercial air distribution products nationwide to HVAC
contractors through over 750 wholesale distributors. The Company provides
sales support to these distributors through a direct field sales staff and a
customer service group. Independent representatives are also used to
supplement the field sales coverage. The Company markets its commercial and
industrial air distribution products nationwide primarily to HVAC contractors
through over 150 commercial representatives. The Company's commercial
representative organization is supported by regional sales managers and a
customer service group. The Company markets its ceramic china, acrylic
whirlpool baths and enameled steel bathroom fixtures and brass fittings
primarily through manufacturers' representatives, who sell to wholesale
distributors. These distributors sell to plumbers, building contractors and
remodelers. The Company also supplies bathroom fixture products to the retail
distribution channel, primarily through Home Depot. The Company markets its
air compressor products primarily through consumer distribution channels.
These consumer distribution channels constitute approximately 95% of the
Company's air compressor sales and include mass merchants, warehouse clubs,
home centers, hardware cooperatives and farm and fleet cooperatives. The
Company services these consumer channels through a direct sales staff and
manufacturers' representatives.
Sears is the Company's largest customer and in 1996 accounted for
approximately 13% of the Company's net sales. The Company is the primary
supplier of air compressors to Sears. Under its Craftsman(R) brand, Sears is
the largest domestic retailer of air compressors for consumer use.
COMPETITION
The Company competes with several national and regional suppliers of
building products in each of its product areas. In HVAC, the Company competes
primarily with one other large HVAC manufacturer and with several national and
regional suppliers of HVAC products. In bathroom fixtures, the Company
competes with three national manufacturers of plumbing products as well as with
several regional producers. In air compressors, the Company is the largest of
the three primary suppliers of consumer and commercial air compressors. In
power washers, the Company competes primarily with two other large
manufacturers and several other smaller producers. Some of the Company's
competitors are larger, have greater financial resources and are less leveraged
than the Company. The Company believes that it competes successfully in its
markets on the basis of quality, service and product differentiation.
PATENTS, TRADEMARKS AND LICENSES
The Company has been issued several patents worldwide. The Company
believes that its patents are important to its business operations; however,
the Company does not believe that the expiration or loss of any of its patents
would have a material adverse effect on the Company.
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The Company owns a number of trademarks, including Hart & Cooley(R),
Metlvent(R), Reliable(TM), Tuttle & Bailey(R), Woodwinds(TM), Valley(TM),
Mansfield(R), Swirl-Way(R), Kilgore(TM), Air America(R), Charge Air Pro(R),
Ex-Cell(R) and Pro Air II(TM). The Company also has several licenses for
various trademarks, including a license to use the DeVilbiss trademark. The
DeVilbiss license has a ten-year term (expiring in April 2000) and may be
renewed at the Company's option for two successive ten-year renewal periods.
The Company believes that its trademarks and its licenses are important to its
business operations, but does not believe that the expiration or loss of any
trademark or license would have a material adverse effect on the Company.
RAW MATERIALS AND SUPPLIERS
The raw materials and component parts used in the Company's operations
include steel, aluminum, clay, mylar and electric motors. Most of the
Company's purchases are sourced domestically and nearly all of the Company's
purchases are readily available through multiple sources. During 1995 a
world-wide shortage of mylar occurred, restricting availability and increasing
cost. By the end of 1995, availability had improved. In the last five years,
the Company has not experienced any other shortages that materially affected
production. Purchases are typically made through blanket order releases that
span a period from several months up to one year. In 1995, double-digit
inflation was encountered in certain of the basic raw materials and components
used in the manufacturing process. The total raw material cost inflation in
1995 added approximately $18 million to Falcon's 1995 cost of sales. During
1996, raw material costs eased and, in some specific items, have declined below
year-end 1995 levels.
BACKLOG
The Company's backlog at December 31, 1996 and 1995 was $22.0 million and
$10.6 million, respectively. The current backlog is expected to be shipped
during the first quarter of 1997.
EMPLOYEES
The Company employed approximately 4,100 persons as of December 31, 1996.
Approximately 2,200 hourly employees are covered by six collective bargaining
agreements expiring through 1999. The Company believes that its labor
relations are satisfactory at all of its facilities.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local laws and
regulations governing, among other things, emissions to air, discharge to
waters, the generation, handling, storage, transportation, treatment and
disposal of waste and other materials and health and safety matters. The
Company believes that its business, operations and facilities have been and are
being operated in compliance in all material respects with applicable
environmental and health and safety laws and regulations, many of which provide
for substantial fines and criminal sanctions for violations. However, the
operation of manufacturing plants entails risks in these areas, and there can
be no assurance that the Company will not incur material costs or liabilities
in the future. In addition, potentially significant expenditures could be
required in order to comply with evolving environmental and health and safety
laws, regulations or requirements that may be adopted or imposed in the future.
The Company is involved in environmental proceedings initiated by state or
local governmental agencies pertaining to two of its facilities. The Company
is currently working with the appropriate agencies on a remedial plan for the
closure of an on-site landfill at the Company's Holland, Michigan facility that
is currently estimated to cost approximately $400,000. The Company is also
working with the appropriate agencies on a remedial plan for the closure of one
on-site and four off-site landfills at or near the Company's Perrysville, Ohio
facility that is currently estimated to cost approximately $1,000,000. In
addition, the Company is in the process of making capital alterations at its
Perrysville, Ohio foundry, in response to an environmental compliance variance.
The Company believes that its reserves are adequate and that its liabilities
for these matters will not have a material adverse effect on the Company's
financial condition, annual results of operations or competitive position;
however, there can be no assurance that the Company will not incur costs or
liabilities in the future that will have a material adverse effect on the
Company. Capital expenditures and expenses (including ordinary course of
business hauling and disposal expenses) in 1996 attributable to environmental
matters were not material in relation to the Company's consolidated financial
position or results of operations.
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REGULATORY
The Company's products are subject to extensive regulation by national,
state, local and foreign authorities. For a current matter involving plastic
venting systems, see Item 3, Legal Proceedings.
ITEM 2. PROPERTIES
The Company believes its manufacturing, warehouse and office facilities
are suitable, adequate and have sufficient manufacturing capacity for its
current requirements. The Company also believes that its facilities are being
utilized consistent with the Company's plans and do not have substantial excess
capacity. The Company's principal facilities consist of the following:
<TABLE>
<CAPTION>
APPROX. SQUARE
LOCATION PRINCIPAL USE FOOTAGE LEASED/OWNED
- -------------------------- ------------------------------------ --------------- ------------
<S> <C> <C> <C>
Holland, Michigan......... Office, Manufacturing 613,000 Owned
Kilgore, Texas............ Office, Manufacturing, Warehouse 544,000 Owned
Perrysville, Ohio......... Office, Manufacturing, Warehouse 494,200 Owned
Walnut, California........ Office, Manufacturing, Warehouse 414,000 Owned
Jackson, Tennessee........ Office, Manufacturing, Warehouse 341,100 Owned
Huntsville, Alabama....... Office, Manufacturing 219,000 Owned
Memphis, Tennessee........ Office, Manufacturing, Warehouse 204,000 Leased
Geneva, Alabama........... Office, Manufacturing 203,000 Owned
Jackson, Tennessee........ Manufacturing, Warehouse 103,000 Leased
Shelby, Ohio.............. Warehouse 171,500 Leased
Sanger, California........ Office, Manufacturing, Warehouse 142,000 Leased
Henderson, Texas.......... Manufacturing, Warehouse 124,600 Owned
Decatur, Arkansas......... Office, Manufacturing, Warehouse 105,980 Owned
Jackson, Tennessee........ Warehouse 90,000 Leased
Sparks, Nevada............ Distribution Center 73,000 Leased
Big Prairie, Ohio......... Manufacturing 60,000 Owned
Gravette, Arkansas........ Warehouse 33,000 Leased
</TABLE>
The Company's facility in Memphis, Tennessee is leased pursuant to a lease
that expires in October 1997, with renewal options to 1998. The Company's
facility in Sparks, Nevada is leased pursuant to a lease that expires in
December 2000. One of the Company's Jackson, Tennessee facilities is leased
pursuant to a lease that expires in August 1998, with renewal options to 1999.
The other leased facility in Jackson, Tennessee is leased pursuant to a lease
that expires in August 1997, with an extension option to November 1997. The
Company's facility in Shelby, Ohio is leased on a month-to-month basis. The
Sanger, California facility is leased through December 1997, with renewal
options for an additional five years. The Company's facility in Gravette,
Arkansas is leased pursuant to a lease that expires in June 1997.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in various legal proceedings and
claims incident to the normal conduct of its business, including the
environmental matters described in Item 1 above. Although it is impossible to
predict the outcome of any pending legal proceeding, the Company believes that
such legal proceedings and claims, individually and in the aggregate, are
either without merit, are covered by insurance or are adequately reserved for,
and will not have a material adverse effect on its financial condition or
results of operations.
In addition to the matters covered by the preceding paragraph, in May
1994, Underwriters' Laboratories of Canada ("ULC") suspended its recognition of
high temperature plastic venting systems for gas appliances, including the
Ultravent system manufactured by the Company. This action resulted from
reports of problems with high temperature plastic venting systems, including
improper installation, cracking, inadequate joint adhesion, and related safety
hazards, including potential for carbon monoxide emission. In June 1994, as a
result of the ULC action, the Ontario Ministry of Consumer and Commercial
Relations ("MCCR") banned sales of these plastic venting systems in the
Province of Ontario. Other provinces of Canada have taken similar action.
Pursuant to an MCCR order, high temperature plastic venting systems in Ontario
have been corrected.
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The Company is a defendant in a suit that has been filed against 24
entities representing heating appliance manufacturers, plastic vent
manufacturers, public utilities and listing agencies by the Ontario New Home
Warranty Program, which is responsible for the cost of replacing vent material
in new home construction in Ontario. This suit seeks damages of Cdn $125
million from all of the defendants. Most gas appliance manufacturers in Canada
and the United States no longer certify these venting systems for use with
their products. The Company is also a defendant in a lawsuit filed by Goodman
Manufacturing, an appliance manufacturer that is replacing its own
installations and has sued three defendants for reimbursement of its costs.
The Company has been named as a defendant in a class action lawsuit which has
been filed in the United States regarding high temperature plastic venting.
The Company is engaged in ongoing discussions with the United States
Consumer Product Safety Commission, ("CPSC") which has been advised of the ULC
action and the actions taken by the MCCR. The CPSC continues to investigate
high temperature plastic venting and has met with all of the manufacturers of
high temperature plastic vents, various appliance manufacturers and other
entities with technical expertise. CPSC concerns focus on the heating
appliance system, the plastic resin used to manufacture the venting, vent
sealant compounds and improper installation. While no definitive action has
been decided upon, the Company is aware that the CPSC is considering a
corrective action program involving plastic venting and it is probable that in
the near term the CPSC will mandate a corrective action program which would
impact heating appliance manufacturers, plastic resin manufacturers, and
plastic venting manufacturers, including the Company. Several appliance
manufacturers have announced their intention to replace plastic vent product
with alternative systems which have been approved by the CPSC. Company sales
of Ultravent products in the United States and Canada in 1995 and 1996 were
minimal.
While it is impossible at this time to give a firm estimate of the
ultimate cost to the Company, management currently believes that the after-tax
cost to the Company of resolving the Ultravent matter could range from a
non-material amount to $20.0 million, after considering reimbursements and
insurance recoveries. With respect to this matter, the Company has filed a
lawsuit against its insurance carriers. Although no assurances can be given,
the Company believes at this time that the ultimate resolution of these matters
will not have a material effect on the Company's financial condition, but may
have a material effect on future results of operations in the period
recognized.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1996 to a vote of
security holders of Falcon through a solicitation of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The following table sets forth for the period indicated the high and low
sales price for a share of the Company's Class A common stock on the New York
Stock Exchange. The Company's Class A common stock is traded under the symbol
"FB".
<TABLE>
<CAPTION>
High Low
-------- -------
1996
- ----
<S> <C> <C>
Quarter Ended December 31, 1996........ $14 3/4 $11 1/8
Quarter Ended September 30, 1996....... 13 1/2 10
Quarter Ended June 30, 1996............ 12 7/8 8 3/4
Quarter Ended March 31, 1996........... 10 1/2 8 1/4
1995
- ----
Quarter Ended December 31, 1995........ $ 9 3/4 $ 7 3/8
Quarter Ended September 30, 1995....... 11 3/4 8 5/8
Quarter Ended June 30, 1995............ 10 5/8 8 1/2
Quarter Ended March 31, 1995........... 11 5/8 9 3/4
</TABLE>
The number of shareholders of record as of December 31, 1996 was 102. No
dividends have been paid to the shareholders since the Offering in November
1994 and no dividends are expected to be declared in the near future. In
addition, the Company's Bank Credit Facility contains covenants that may
restrict the payment of dividends.
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ITEM 6. SELECTED FINANCIAL INFORMATION
The selected financial information presented below has been derived from
the Company's audited Consolidated Financial Statements for the five years in
the period ended December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $633.2 $471.3 $440.7 $372.3 $345.2
Operating income...................... 59.8 45.8 51.7 45.2 42.4
Net income before cumulative effect of
changes in accounting principles.... 30.0 22.1 25.9 22.1 18.7
Net income (a)........................ 30.0 22.1 25.9 18.5 18.7
Per share:
Net income before cumulative effect of
changes in accounting principles.... $ 1.50 $ 1.10 $1.29 $ 1.10 $ 0.93
Net income............................ 1.50 1.10 1.29 0.92 0.93
BALANCE SHEET DATA:
Total assets.......................... $261.7 $210.8 $187.5 $218.9 $212.2
Long-term debt (b).................... 109.1 110.9 103.8 2.7 2.0
Total liabilities (b)................. 233.8 213.0 212.1 145.3 156.6
Stockholders' equity (deficit) (c).... 27.9 (2.2) (24.6) 73.6 55.6
</TABLE>
a) Net income for the year ended December 31, 1993 reflects a charge of
$3.6 million relating to the cumulative effect of changes in the
method of accounting for income taxes and postemployment benefits.
b) A Bank Credit Facility was entered into at the time of the Offering
in November 1994. Historical comparisons are not meaningful as the
debt structure of the Company was altered subsequent to the Offering.
c) The Company's equity structure was altered in connection with the
Offering in November 1994. As a result, historical comparisons are
not meaningful.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RELATIONSHIP TO EAGLE
Eagle incorporated the Company in January 1994 as part of a reorganization
of all the entities comprising Eagle's building products segment. Eagle is a
wholly-owned subsidiary of GAMI, which is wholly-owned by EHL. In May 1996,
Eagle distributed its ownership of the Company's Class B common stock to EHL.
As a result of the transfer, the Class B shares were automatically converted
into Class A shares pursuant to provisions of the Company's charter. EHL
beneficially owns approximately 70% of the Company's outstanding Common Stock.
Pursuant to a corporate services agreement, Eagle provides certain
management, financial and administrative services to the Company. In addition,
certain executive officers of the Company are also executive officers of Eagle
and spend approximately 50% of their time on the business and affairs of Eagle.
Between January 1994 and April 1996, the Company participated in Eagle's asset
securitization program. Due to the number of business divestitures at Eagle
during the first quarter of 1996, Eagle decided to terminate its asset
securitization program. Eagle coordinated the termination of its program with
the Company to allow the Company to establish its own asset securitization
program, which began in May 1996.
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INDUSTRY INFORMATION
Demand for the Company's products depends primarily on the residential
construction market and, to a lesser extent, on the commercial construction
market. The level of activity in the residential construction market depends
on new housing starts and residential alteration and repair projects which are
a function of many factors not within the Company's control, including mortgage
rates, inflation, unemployment, demographic trends, gross domestic product
growth and consumer confidence. The level of activity in the commercial
construction market depends largely on vacancy rates and general economic
conditions. Because the residential and commercial construction markets are
sensitive to cyclical changes in the economy, future downturns in the economy
or lack of substantial improvement in the economy could negatively affect the
Company's operating results. In addition, the Company's operating results have
in the past and could in the future be negatively impacted by increases in raw
material costs, which are not within the control of the Company.
The Company does not believe that the decline in Ultravent sales,
disclosed in Note 13 to the Financial Statements, will have a material adverse
effect on the financial condition or operating results of the Company as
internal growth plans emphasize other, newly developed product lines. See Item
3 above and Note 13 for additional information. This statement is a "forward
looking statement" within the meaning of the safeharbor provisions of the
Private Securities Litigation Reform Act of 1995. The actual results of the
Ultravent proceedings may differ materially from the Company's expectations as
a result of regulatory and legal developments.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1996 1995 1994
------------------- -------------------- --------------------
(IN MILLIONS)
AMOUNT % OF SALES AMOUNT % OF SALES AMOUNT % OF SALES
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales.............. $633.2 100.0% $471.3 100.0% $440.7 100.0%
Gross earnings......... 112.9 17.8% 86.9 18.4% 90.2 20.5%
Operating income....... 59.8 9.4% 45.8 9.7% 51.7 11.7%
</TABLE>
YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales were $633.2 million, an increase of $161.9 million over 1995 net
sales of $471.3 million. In January 1996, the Company acquired Ex-Cell, a
manufacturer of power washers. In addition, in May 1996 the Company acquired a
product line of decorative metal and wooden grilles and registers. Excluding
the impact of acquisitions, net sales increased $54.4 million or 11.5%. This
increase was due to increased sales volume in all product categories resulting,
in part, from an increase in housing starts as well as market penetration
gains. New product sales, primarily electric generators, contributed $16.2
million to the increase. Favorable pricing in air distribution products was
offset by strong price competition in plumbing fixtures.
Gross earnings of $112.9 million increased $26.0 million from 1995 gross
earnings of $86.9 million. This increase was primarily due to increased volume
and the impact of acquisitions. Gross margin declined to 17.8% from 18.4% in
1995 due primarily to lower margins realized on the sales contributed by
acquired businesses and increased sales of lower margin HVAC products.
Operating income of $59.8 million was $14.0 million or 30.3% higher than
in 1995. This increase was primarily due to increased sales volume and the
impact of acquisitions, partially offset by an increase in securitization
expense of $0.8 million and increased selling, general and administrative
expenses of $11.2 million. As a percent of sales, selling, general and
administrative expenses declined slightly to 7.7% from 8.0% in 1995.
Interest expense increased $1.0 million to $11.0 million. This increase
was primarily due to the increased average monthly debt levels resulting from
acquisitions and the establishment of the Company's securitization program.
The income tax provision of 38.4% for the year reflected the effect of
state income taxes and non-deductible expenses, including goodwill
amortization.
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YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales were $471.3 million, an increase of 7.0% over 1994 net sales of
$440.7 million. This increase in sales resulted primarily from growth in
existing product lines, new product introductions in Air Power Products, as
well as the acquisition of the acrylic whirlpool bath business, Swirl-way.
Further sales growth was restricted by a general softness in housing starts,
down 8% from 1994 levels, and inventory destocking programs in both the retail
and the wholesale distribution channels. These factors combined to limit the
Company's flexibility, precluding additional pricing action during the year, as
competitive pressures remained strong.
Gross earnings of $86.9 million for 1995 were $3.3 million, or 3.7% below
comparable 1994 results. The gains recorded in pricing, volume, new products
and acquisitions were not adequate to cover the raw material cost inflation of
approximately $18 million encountered in all three businesses, as double digit
increases were encountered during the year. The resulting decrease in gross
margin was significant, dropping from 20.5% in 1994 to 18.4% in 1995.
Operating income fell from $51.7 million to $45.8 million. Excluding
securitization expense, selling, general and administrative expenses increased
by $1.2 million, or approximately 4% of incremental sales for the year. In
addition, securitization expense increased $1.4 million, reflecting the
accounts receivable activity associated with the sales increases recorded
during the year, as well as higher effective interest rates. The combination
of these gross earnings and operating expense items caused operating margins to
decline from 11.7% in 1994 to 9.7% in the current year.
Interest expense increased $1.7 million in 1995 to $10.0 million. This
was a result of the combination of increased debt levels and higher interest
rates encountered during the year.
The income tax provision of 38.4% for the year reflected the effect of
state income taxes and non-deductible expenses, including goodwill
amortization. The 1994 provision for income tax was 40.4%.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has met its working capital needs and capital
expenditure requirements primarily through operating cash flow. Prior to the
Company's initial public offering in November of 1994, Eagle provided
short-term liquidity to the Company, offered centralized treasury functions and
handled substantially all of the Company's investing and borrowing activities.
Since the Offering, the Company has established third-party credit facilities
and will satisfy its debt service requirements and meet its working capital and
capital expenditure needs through a combination of operating cash flow,
availability under the revolving portion of the Bank Credit Facility and funds
available through the asset securitization program.
Prior to the Offering, the Company was included in GAMI's consolidated
federal income tax returns. In addition, the Company filed certain combined
state tax returns with GAMI until the distribution to EHL in 1996. In December
1996, the Company paid GAMI $4.6 million for a final tax sharing payment for
tax liabilities incurred while it was included in GAMI's income tax returns,
pursuant to the GAMI-Falcon Disaffiliation Tax Sharing Agreement.
Net cash flow from operating activities was $41.1 million for 1996
compared to $19.4 million for 1995. This increase was primarily due to the
increase in net income and a decrease in working capital requirements. The
Company believes that operating cash flow and availability under the Bank
Credit Facility will be adequate to satisfy its debt requirements and to meet
working capital, capital expenditures and acquisition needs in 1997.
CAPITAL EXPENDITURES
Capital expenditures were $20.0 million, $16.4 million and $19.7 million
for 1996, 1995, and 1994, respectively. The Company expects to spend
approximately $24.8 million in 1997 for various capital projects, including
quality enhancement, cost improvement, regulatory compliance, efficiency
improvement, increased capacity and normal maintenance projects. The Company's
commitments for capital expenditures at the end of 1996 were approximately $1.5
million. Capital expenditures attributable to environmental matters were not
material in any of these years, nor does the Company believe that such
expenditures will be material in 1997.
11
<PAGE> 12
SEASONALITY, WORKING CAPITAL AND CYCLICALITY
Sales of certain products of the Company are subject to seasonal
variation. Seasonal factors historically have not had a significant effect on
working capital requirements as the Company has been able to adjust its
production to meet seasonal demands. Due to seasonal factors associated with
the construction industry, sales of products are typically higher during the
second and third quarters than at other times of the year. The residential and
commercial construction markets are sensitive to cyclical changes in the
economy.
INFLATION
Raw material cost inflation had a material impact on 1995 operating
income. Increased raw material costs over 1994 totaled approximately $18.2
million. The effect of inflation on 1996 operating results was not material.
12
<PAGE> 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
Report of Independent Public Accountants.................... 14
Consolidated Balance Sheets................................. 15
Consolidated Statements of Income........................... 16
Consolidated Statements of Stockholders' Equity............. 17
Consolidated Statements of Cash Flows....................... 18
Notes to Consolidated Financial Statements.................. 19
Supplementary Financial Data (Unaudited).................... 31
13
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Falcon Building Products, Inc.:
We have audited the accompanying Consolidated Balance Sheets for Falcon
Building Products, Inc. (a Delaware Corporation) and Subsidiaries as of
December 31, 1996 and 1995, and the related Consolidated Statements of Income,
Stockholders' Equity and Cash Flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the Consolidated Financial Statements referred to above
present fairly, in all material respects, the consolidated financial position
of Falcon Building Products, Inc. and Subsidiaries as of December 31, 1996 and
1995, and the results of their operations and cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 5, 1997
14
<PAGE> 15
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
-------- ------------
(RESTATED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3.9 $ 1.1
Accounts receivable, net.................................. -- 5.1
Inventories, net.......................................... 76.2 56.9
Other current assets...................................... 15.6 9.7
------ ------
Total current assets...................................... 95.7 72.8
Property, plant and equipment, net........................... 97.4 88.7
Goodwill..................................................... 59.1 39.4
Other assets................................................. 9.5 9.9
------ ------
Total assets.............................................. $261.7 $210.8
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion long-term debt............................ $ 15.2 $ 12.7
Accounts payable.......................................... 50.1 37.5
Accrued liabilities....................................... 30.9 27.2
------ ------
Total current liabilities................................. 96.2 77.4
Long-term debt............................................... 109.1 110.9
Accrued employee benefit obligations......................... 8.7 9.0
Other long-term liabilities.................................. 19.8 15.7
------ ------
Total liabilities......................................... 233.8 213.0
------ ------
Stockholders' equity:
Preferred stock, par value $1.00 per share, 10,000,000
shares authorized, none issued and outstanding...... -- --
Class A stock, par value $.01 per share, 30,000,000
shares authorized, 20,070,500 issued and outstanding
at December 31, 1996, 6,070,500 shares issued and
outstanding at December 31, 1995....................... 0.2 0.1
Class B stock, par value $.01 per share, 14,000,000 shares
authorized, none issued and outstanding at December 31,
1996, 14,000,000 shares issued and outstanding at
December 31, 1995...................................... -- 0.1
Additional paid-in capital................................ 18.0 18.0
Retained earnings (deficit)............................... 12.8 (17.2)
Pension liability adjustment.............................. (0.5) (0.4)
Unearned compensation..................................... (0.4) (0.6)
Notes receivable arising from stock purchase plan......... (2.2) (2.2)
------ ------
Total stockholders' equity................................ 27.9 (2.2)
------ ------
Total liabilities and stockholders' equity................ $261.7 $210.8
====== ======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
15
<PAGE> 16
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Net sales...................................... $633.2 $471.3 $440.7
Cost of sales.................................. 520.3 384.4 350.5
------ ------ ------
Gross earnings.............................. 112.9 86.9 90.2
Selling, general and administrative expenses... 49.0 37.8 36.6
Securitization expense......................... 4.1 3.3 1.9
------ ------ ------
Operating income............................ 59.8 45.8 51.7
Net interest expense........................... 11.0 10.0 8.3
------ ------ ------
Income before income taxes..................... 48.8 35.8 43.4
Provision for income taxes..................... 18.8 13.7 17.5
------ ------ ------
Net income.................................. $ 30.0 $ 22.1 $ 25.9
====== ====== ======
Earnings per share:
Net income.................................. $ 1.50 $ 1.10 $ 1.29
====== ====== ======
Shares outstanding for all periods: 20,070,500
SUPPLEMENTARY PRO FORMA INCOME DATA-UNAUDITED (NOTE 3)
Operating income............................... -- -- $ 50.6
Net income..................................... -- -- $ 26.0
Earnings per share common share:
Net income..................................... -- -- $ 1.30
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
16
<PAGE> 17
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
NOTES
ADDITIONAL PENSION FROM STOCK
CLASS A CLASS B PAID-IN RETAINED EARNINGS LIABILITY UNEARNED PURCHASE
STOCK STOCK CAPITAL (DEFICIT) ADJUSTMENT COMPENSATION PLAN
------- ------- ---------- ----------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993..... $ -- $ -- $ 28.2 $ 45.8 $(0.5) $ -- $ --
Net income...................... -- -- -- 25.9 -- -- --
Sales of Class A Stock.......... 0.1 -- 63.4 -- -- -- --
Conversion of Common
Stock to Class B Stock......... -- 0.1 (0.1) -- -- -- --
Stock purchase plan............. -- -- 2.4 -- -- -- (2.2)
Unearned compensation
restricted stock............... -- -- 0.8 -- -- (0.8) --
Assumption of deferred
financing fees from affiliate.. -- -- 3.0 -- -- -- --
Dividends paid to affiliate..... -- -- -- (111.0) -- -- --
Assumption of debt from
affiliate...................... -- -- (114.9) -- -- -- --
Forgiveness of advances from
affiliate...................... -- -- 35.2 -- -- -- --
---- ----- ------- ------- ----- ----- -----
Balance at December 31, 1994.... 0.1 0.1 18.0 (39.3) (0.5) (0.8) (2.2)
Net income..................... -- -- -- 22.1 -- -- --
Other.......................... -- -- -- -- 0.1 0.2 --
---- ----- ------- ------- ----- ----- -----
Balance at December 31, 1995.... 0.1 0.1 18.0 (17.2) (0.4) (0.6) (2.2)
Net income...................... -- -- -- 30.0 -- -- --
Conversion of Class B Stock
to Class A Stock............... 0.1 (0.1) -- -- -- -- --
Other.......................... -- -- -- -- (0.1) 0.2 --
---- ----- ------- ------- ----- ----- -----
Balance at December 31, 1996.... $0.2 $ -- $ 18.0 $ 12.8 $(0.5) $(0.4) $(2.2)
==== ===== ======= ======= ===== ===== =====
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
17
<PAGE> 18
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
YEAR ENDED
DECEMBER 31,
--------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $ 30.0 $ 22.1 $ 25.9
Adjustments to reconcile net income to net cash from operations:
Depreciation........................................................ 13.7 12.9 11.0
Amortization........................................................ 1.8 2.1 1.9
Deferred income tax provision (benefit)............................. (2.9) 0.2 (1.3)
Proceeds from the initial sale of accounts receivable............... -- -- 54.3
Cash effects, excluding acquisitions, of changes in:
Accounts receivable, net of residual interest................... 6.2 0.3 (4.5)
Inventories..................................................... (14.0) (10.2) (5.7)
Other current assets............................................ (1.5) 1.4 1.7
Accounts payable................................................ 10.2 (13.0) 19.6
Accrued liabilities and accrued employee benefit obligations.... (2.4) 3.6 6.0
------ ------ -------
Net cash from operations:........................................... 41.1 19.4 108.9
------ ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses.............................................. (18.8) (10.4) --
Capital expenditures................................................ (20.0) (16.4) (19.7)
Other............................................................... 0.2 (2.2) (0.4)
------ ------ -------
Net cash used in investing activities............................... (38.6) (29.0) (20.1)
------ ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock.......................... -- -- 63.3
Proceeds from bank credit facility.................................. -- -- 115.0
Net payments to affiliate........................................... -- -- (263.7)
Net borrowings (repayments) of debt................................. 0.3 8.5 (2.6)
------ ------ -------
Net cash provided by/(used in) financing activities................. 0.3 8.5 (88.0)
------ ------ -------
CHANGE IN CASH AND CASH EQUIVALENTS................................... 2.8 (1.1) 0.8
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................ 1.1 2.2 1.4
====== ====== =======
CASH AND CASH EQUIVALENTS, END OF PERIOD.............................. $ 3.9 $ 1.1 $ 2.2
====== ====== =======
NET CASH PAID DURING THE PERIOD FOR:
Interest............................................................ $ 11.0 $ 10.3 $ 7.6
Income taxes to affiliate........................................... 4.6 -- 18.8
Income taxes to third parties....................................... 23.5 14.2 1.5
NON-CASH ACTIVITY:
Forgiveness of debt by affiliate.................................... $ -- $ -- $ 35.2
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
18
<PAGE> 19
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) BASIS OF PRESENTATION
Falcon Building Products, Inc. (the "Company") is a manufacturer and
distributor of products for the residential and commercial construction and
home improvement markets.
Pursuant to a reorganization in contemplation of a public offering to sell
common stock, the Company was restructured and recapitalized as an indirect
wholly-owned subsidiary of Eagle Industries, Inc. ("Eagle"). Eagle is a
wholly-owned subsidiary of Great American Management and Investment, Inc.
("GAMI") which is wholly-owned by Equity Holdings Limited, an Illinois limited
partnership ("EHL"). In connection therewith, Eagle contributed to the Company
the stock and certain assets and liabilities of the companies comprising
Eagle's building products segment. This contribution has been accounted for in
a manner similar to that utilized in pooling-of-interest accounting. On
November 9, 1994, the Company completed an initial public offering of 6,000,000
shares (30%) of its Class A common stock (the "Offering"). In May 1996, Eagle
distributed its ownership of the Company's Class B common stock to EHL.
Pursuant to provisions in the Company's charter, the transfer of the Class B
common stock to EHL resulted in its conversion to Class A common stock.
The Company's 1994 financial information included herein is not
necessarily indicative of the results that would have been reported if the
Company had operated as an unaffiliated enterprise. The Consolidated
Statements of Income include a proportional allocation of costs incurred by
Eagle that benefited the Company. Such expenses relate to strategic direction,
operating oversight, legal, finance and administration of benefit and insurance
programs. Management believes that the allocation method is reasonable (see
Note 12). If the Company had not operated as a subsidiary of Eagle, but rather
had operated as an unaffiliated public company, management believes operating
expenses would have been approximately $0.9 million higher in the year ended
December 31, 1994. The increased expenses include additional personnel,
investor relations, director and officer insurance and director fees and
expenses.
(2) SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION:
The accompanying Consolidated Financial Statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain historical data
have been restated to conform to the 1996 presentation.
USE OF ESTIMATES:
These Consolidated Financial Statements have been prepared in accordance
with generally accepted accounting principles and necessarily include amounts
based on estimates and assumptions by management. Actual results could differ
from those amounts.
INVENTORIES:
Inventories are stated at the lower of cost or market. Cost includes raw
materials, labor and manufacturing overhead. The last-in, first-out ("LIFO")
method of inventory valuation is used for 41.1% and 62.4% of inventory at
December 31, 1996 and 1995, respectively. The first-in, first-out ("FIFO")
method of inventory valuation is used for the remaining inventory.
IMPAIRMENT OF LONG-LIVED ASSETS:
Effective January 1, 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No.
121"). SFAS No. 121 prescribes that an impairment loss is recognized in the
event that facts and circumstances indicate that the carrying amount of an
asset may not be recoverable and an estimate of future
19
<PAGE> 20
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
undiscounted cash flows is less than the carrying amount of the asset. There
was no material effect on the financial statements from the adoption of SFAS
No. 121 as the Company's prior impairment recognition practice was consistent
with the major provisions of the statement.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. The straight-line
method is generally used to provide for depreciation over the estimated useful
lives of the assets, which range from 10 to 40 years for buildings and 3 to 12
years for machinery and equipment.
GOODWILL:
Goodwill represents the purchase price associated with acquired businesses
in excess of the fair value of the net assets acquired. Goodwill is amortized
on a straight-line basis, primarily over forty years. Accumulated amortization
was $13.6 million and $11.8 million at December 31, 1996 and 1995,
respectively. The recoverability of goodwill is reassessed periodically to
determine if current operating income is sufficient to recover the current
amortization. When events and circumstances indicate that future operating
income and cash flow may be negatively affected, the recoverability is
evaluated based upon the estimated future operating income and undiscounted
cash flow of the related entity during the remaining period of goodwill
amortization.
REVENUE RECOGNITION:
The Company recognizes revenues as products are shipped to customers.
INCOME TAXES:
The Company was included in GAMI's consolidated U.S. federal income tax
return until the consummation of the Offering in November 1994. In addition,
the Company filed certain combined state tax returns with GAMI until the
distribution to EHL in 1996. Under the terms of the GAMI-Falcon Disaffiliation
Tax Sharing Agreement (the "Tax Sharing Agreement"), the Company computed and
paid to GAMI its liability for U.S. federal income taxes as if the Company
filed a separate U.S. federal income tax return. For periods subsequent to the
Offering, a separate U.S. federal income tax return will be filed for the
Company. The Company files separate U.S. state income tax returns.
EARNINGS PER SHARE:
Earnings per share amounts were calculated based on 20,070,500 shares
outstanding, the number of shares outstanding as a result of the consummation
of the Offering. This does not reflect the Company's historical capital
structure.
(3) PRO FORMA INFORMATION
The supplementary pro forma net income and per share data included in the
Consolidated Statements of Income reflects the results of operations for the
year ended December 31, 1994 adjusted to reflect (i) the sale of 6,000,000
shares of common stock by the Company in the Offering, (ii) incremental
stand-alone costs for operating as a public entity, (iii) costs associated with
the Company's participation in Eagle's asset securitization program (see Note
5), (iv) the change in interest expense associated with the new Bank Credit
Facility (prior to the amendment and restatement in June, 1995), and (v) the
tax effects of these adjustments, as if the Offering (and resulting
adjustments) had been consummated at the beginning of the period presented.
20
<PAGE> 21
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
(4) ACQUISITIONS
On January 2, 1996, the Company acquired the stock of Ex-Cell
Manufacturing Company, Inc. ("Ex-Cell"), a manufacturer of cold-water power
washers. The Company paid $18.8 million in cash for the stock of Ex-Cell and
estimates that it will pay an additional $6.5 million over the next three years
beginning in February 1997. The acquisition was accounted for as a purchase
and resulted in $19.5 million of goodwill.
(5) ACCOUNTS RECEIVABLE
Between January 1994 and April 1996, the Company participated in Eagle's
securitization program, selling its receivables to Eagle, which in turn sold
certain of its receivables, including those acquired from the Company, to a
"Master Trust". Due to the number of business divestitures at Eagle during the
first quarter of 1996, Eagle decided to terminate its securitization program.
Eagle coordinated the termination of its program with the Company to allow the
Company to establish it own securitization program.
In April 1996, the Company entered into receivable sale agreements with a
financial institution and its affiliate (collectively, the "Bank Group")
whereby it will sell, with limited recourse, on a continuous basis, an
undivided interest in all of its accounts receivable for cash, while
maintaining a residual interest in the receivables. Under these agreements,
which expire in 1999, the maximum amount of proceeds which may be accessed at
any one time is $85 million, subject to change based on the level of eligible
receivables. To establish this new securitization program, the Company: (1)
acquired a special purpose company from Eagle to facilitate the establishment
of the Falcon securitization program; (2) acquired from the Master Trust the
receivables it had previously sold to Eagle; (3) immediately sold these
re-acquired receivables through the special purpose company to the Bank Group;
and (4) sold the receivables of two of its subsidiaries, which were not
previously participating in the Eagle securitization program, through the
special purpose company to the Bank Group. The Company paid $69 million to
acquire its receivables from the Master Trust utilizing the $55 million of
proceeds received from selling these receivables to the Bank Group plus a $14
million draw on the Company's revolving credit facility. This $14 million
represented the Company's residual interest in the receivables sold to the Bank
Group. Additionally, the Company received $11 million in cash and retained a
residual interest of $3 million from the initial sale of the receivables from
subsidiaries not previously participating in the Eagle securitization program.
At December 31, 1996, uncollected receivables sold under the agreement
were $75.2 million. Included in the Company's financial statements in other
current assets is a net residual interest of $1.9 million. The expense
incurred on the sale of the receivables under these programs was $4.1 million,
$3.3 million and $1.9 million in years ended December 31, 1996, 1995 and 1994,
respectively.
(6) DEBT
BANK CREDIT FACILITY:
In connection with the Offering, the Company entered into a senior credit
facility with a group of banks. On June 30, 1995, the Company amended and
restated its senior credit facility, increasing it to a $250 million credit
facility (the "Bank Credit Facility"). The Bank Credit Facility consists of a
six year $100.0 million term loan, maturing in June 2001, due in quarterly
installments increasing in amount from $2.5 million at September 30, 1995 to
$6.25 million per quarter beginning in September 2000, and a $150.0 million
revolving credit facility (the "Revolver") that expires in 2001, which may be
extended through 2002. Borrowings under the Bank Credit Facility bear
interest, at management's option, at rates equal to London Interbank Offered
Rates ("LIBOR") plus a margin, or at the prime rate plus a margin. The Bank
Credit Facility is secured by substantially all of the inventory, intangibles,
property, plant, equipment and capital stock of the Company's subsidiaries. At
December 31, 1996, the term loan and revolver loan portions outstanding under
the Bank Credit Facility were $82.5 million and $39.0 million, respectively.
The Bank Credit Facility also allows for $25.0 million to be used in the form
of letters of credit. The use of letters of credit reduces the availability of
funds under the Revolver.
21
<PAGE> 22
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
The Bank Credit Facility contains various covenants pertaining to the
maintenance of certain cash flow and expense coverage ratios, the incurrence of
additional indebtedness and restrictions on the payment of dividends.
In May 1995, the Company entered into a five year interest rate swap
agreement. This agreement, covering $100.0 million of the Company's floating
rate debt, fixed the interest rate at 6.52 percent per annum, plus the then
current applicable margin. The effect on net income of this swap was not
material.
Additional debt of the Company consists of three industrial revenue bonds,
two in the amount of $1.0 million each which bear interest at 7.4% and 7.5% and
another in the amount of $0.3 million which bears interest ranging from 6.2% to
6.7% and a capital lease obligation of $0.5 million. The average monthly debt
during 1996 was $141.2 million, an increase of $13.9 million over the
comparable 1995 average debt. This increase is primarily due to increased
borrowing to fund acquisitions and the establishment of the Company's
securitization program.
(7) EMPLOYEE RETIREMENT AND BENEFIT PLANS
PENSION:
Substantially all hourly employees are covered by Company or union
sponsored defined benefit plans. The Company's salaried and certain hourly
employees participate in a pension plan which provides benefits that are based
on the employee's years of service with the Company and the employee's
compensation. Prior to 1996, this plan was sponsored by Eagle and amounts
presented in the following tables related to this plan for periods prior to
1996 represent the portion of the plan allocated to the Company as calculated
by Eagle's consulting actuary. In January 1996, a separate plan sponsored by
the Company, which mirrored the Eagle plan, was established. For other
employees, pension benefits are provided based on a stated amount for each year
of service. The Company's funding policy for all plans is to make no less than
the minimum annual contributions required by applicable governmental
regulations.
The following table sets forth the funded status for all defined benefit
pension plans and related amounts recognized in the Company's Consolidated
Financial Statements:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------- ---------------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Actuarial present value of:
Accumulated benefit obligation.......... $ 21.1 $ 6.2 $18.6 $ 5.8
====== ===== ===== =====
Vested benefits......................... $ 17.7 $ 6.0 $17.5 $ 5.7
====== ===== ===== =====
Projected benefit obligation.............. $ 21.1 $ 6.2 $18.6 $ 5.8
Plan assets at fair value................. 22.8 5.8 21.2 5.4
------ ----- ----- -----
Plan assets in excess of (less than)
projected benefit obligation............ 1.7 (0.4) 2.6 (0.4)
Net unrecognized (gain) loss.............. 2.7 0.7 2.5 0.6
Net unrecognized prior service costs
(benefits).............................. (0.3) 0.3 (0.5) 0.3
Unrecognized liability at August 1, 1987 -- 0.2 -- 0.2
Additional minimum liability.............. -- (1.2) -- (1.1)
------ ----- ----- -----
Pension asset (liability) recognized
in Consolidated Financial Statements.... $ 4.1 $(0.4) $ 4.6 $(0.4)
====== ===== ===== =====
</TABLE>
Plan assets generally consist of common stocks, fixed income instruments,
and certain purchased annuities.
In accordance with Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions," ("SFAS No. 87") the Company has recorded
an additional minimum pension liability for underfunded plans
22
<PAGE> 23
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
at December 31, 1996 and December 31, 1995, representing the excess of unfunded
accumulated benefit obligations over previously recorded pension cost. A
corresponding amount is recognized as an intangible asset except to the extent
that these additional liabilities exceed related unrecognized prior service
costs and net transition obligations, in which case the increase in liabilities
is charged directly to stockholders' equity. At December 31, 1996 and 1995,
the excess minimum pension liability resulted in a net reduction of equity of
$0.5 million and $0.4 million, respectively.
Net periodic pension cost for defined benefit pension plans reporting
under the provisions of SFAS No. 87 was:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1996 1995 1994
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost................... $ 1.8 $ 1.1 $ 2.1
Interest cost.................. 1.8 1.3 1.9
Actual return on assets........ (2.9) (2.3) (0.5)
Net amortization and deferral 0.6 0.6 (2.7)
----- ----- -----
Net periodic pension cost.... $ 1.3 $ 0.7 $ 0.8
===== ===== =====
</TABLE>
The following assumptions were used in determining the actuarial present
value of the projected benefit obligation for the Company's defined benefit
plans for the years ended December 31, 1996 and 1995: weighted-average discount
rate of 7.5%; rate of increase in future compensation levels of 4.0%; and
expected long-term rate of return on assets of 9.0%.
The Company and its subsidiaries also have several defined contribution
plans for certain employees. Prior to 1995, the Company and its subsidiaries
participated in an Eagle sponsored defined contribution plan for certain
employees. In January 1995, a separate Falcon sponsored plan which mirrored
the Eagle sponsored plan was established. Employer contributions to these
plans were $1.4 million, $1.0 million and $1.0 million in 1996, 1995 and 1994,
respectively. Contributions to this plan by the Company are determined based
on a percentage of the contribution made by the employee.
OTHER POSTRETIREMENT BENEFITS:
The Company provides postretirement life and health-care benefits to
certain of its employees. The Company has four plans which provide these
benefits to employees retiring from the Company. Benefits are determined on
varying formulas based on age at retirement and years of active service. Two
of the plans are non-contributory. The Company has not funded any of this
postretirement benefits liability. Contributions to the postretirement plans
are made by the Company as claims are incurred.
The following table sets forth postretirement benefits recognized in the
Company's Consolidated Balance Sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
---- ----
<S> <C> <C>
(IN MILLIONS)
Accumulated postretirement benefit obligation:
Retirees...................................... $ 6.4 $ 6.6
Other fully eligible participants............. 2.1 2.2
Other active participants..................... 4.0 3.9
----- -----
Subtotal.................................... 12.5 12.7
Unrecognized actuarial loss................... (3.4) (4.0)
Unrecognized prior service cost............... -- (0.1)
----- -----
Postretirement benefit liability recognized in
Consolidated Financial Statements............. $ 9.1 $ 8.6
===== =====
</TABLE>
23
<PAGE> 24
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
Net postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------
1996 1995 1994
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost............................ $0.5 $0.4 $0.3
Interest cost........................... 0.9 0.7 0.6
Net amortization and deferral........... 0.2 0.1 --
---- ---- ----
Net postretirement benefit cost....... $1.6 $1.2 $0.9
==== ==== ====
</TABLE>
The accumulated postretirement benefit obligation was determined using an
assumed discount rate of 8.0% and 7.5% for the years ended December 31, 1996
and 1995, and health care cost trend rates of 10.5% in 1996 and 12.0% in 1995,
decreasing ratably to 6.0% by the year 1998. The effect of a one percent
increase in the health care cost trend rate assumption would increase the
accumulated postretirement benefit obligation, resulting in an increase to the
aggregate annual service cost and interest expense components by approximately
$1.4 million and $0.2 million, respectively.
(8) INCOME TAXES
As further discussed in Note 1, the Company was included in GAMI's
consolidated federal income tax return until the consummation of the Offering
in November 1994. In addition, the Company filed certain combined state
returns with GAMI until the distribution to EHL in 1996. Pursuant to the Tax
Sharing Agreement with GAMI, in December 1996, the Company paid GAMI $4.6
million for tax liabilities it had incurred during these periods.
The Company's Consolidated Financial Statements reflect the following
deferred tax assets and liabilities:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1995
---- ----
(IN MILLIONS)
<S> <C> <C>
Deferred tax assets:
Inventory and receivable reserves...................... $ 4.5 $ 2.6
Accrued employee benefit obligations................... 2.8 2.8
Insurance reserves..................................... 5.5 4.0
Other.................................................. 5.8 5.4
----- -----
$18.6 $14.8
===== =====
Deferred tax liabilities:
Property, plant and equipment basis difference....... $ 8.1 $ 7.3
===== =====
</TABLE>
24
<PAGE> 25
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1996 1995 1994
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Provision (benefit) for income taxes:
Current:
U.S. federal......................... $ 18.1 $ 11.8 $ 17.2
U.S. state........................... 3.6 1.7 1.6
------ ------ ------
Subtotal........................... 21.7 13.5 18.8
------ ------ ------
Deferred:
U.S. federal......................... (2.3) 0.4 (1.4)
U.S. state........................... (0.6) (0.2) 0.1
------ ------ ------
Subtotal........................... (2.9) 0.2 (1.3)
====== ====== ======
Total.............................. $ 18.8 $ 13.7 $ 17.5
====== ====== ======
</TABLE>
Reconciliations of income taxes computed at the U.S. federal statutory
rate to the consolidated provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
U.S. federal statutory rate......................... 35% 35% 35%
Income taxes at U.S. federal statutory rate......... $17.1 $12.5 $15.2
U.S. state income taxes, net of U.S. federal........ 1.9 1.0 1.1
Amortization of intangibles......................... 0.6 0.5 0.5
Other............................................... (0.8) (0.3) 0.7
----- ----- -----
Provision for income taxes........................ $18.8 $13.7 $17.5
===== ===== =====
Effective income tax rate......................... 38.4% 38.4% 40.4%
===== ===== =====
</TABLE>
(9) STOCKHOLDERS' EQUITY
INITIAL PUBLIC OFFERING:
In November 1994, the Company completed an initial public offering of
6,000,000 shares of par value $.0l Class A Common Stock. The net proceeds to
the Company were approximately $63.4 million.
25
<PAGE> 26
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
CAPITAL STOCK:
The Company's Restated Certificate of Incorporation authorized 30,000,000
shares of Class A Common Stock, $.0l par value (the "Class A Stock"),
14,000,000 shares of Class B Common Stock, $.0l par value (the "Class B Stock")
together, the "Common Stock" and 10,000,000 shares of preferred stock. Upon
completion of the Offering, the Company had 6,070,500 shares of Class A Stock
outstanding, including (i) 196,500 shares sold to the Company's management in
the public offering, (ii) 70,500 restricted shares granted to them pursuant to
the Company's 1994 Stock Option and Restricted Share Plan, and 14,000,000
shares of Class B Stock outstanding, which was beneficially owned by Eagle. In
May 1996, Eagle transferred its ownership of the Company's Class B Stock to
EHL. Pursuant to provisions in the Company's charter, the transfer of the
Class B Stock to EHL resulted in its conversion to Class A Stock. Therefore,
at December 31, 1996, there were 20,070,500 Shares of Class A Stock outstanding
and no shares of Class B Stock outstanding. No shares of preferred stock have
been issued.
ADDITIONAL PAID-IN CAPITAL:
In contemplation of the Offering, the Company assumed $114.9 million of
Eagle's outstanding indebtedness in May 1994 through the issuance of unsecured
notes at an interest rate of LIBOR plus 1.75%. These notes were repaid using
the proceeds from the Offering and the Bank Credit Facility. As part of the
Offering, the Company assumed $3.0 million of deferred financing fees of Eagle.
The Company's Class A Stock was issued at $12.00 per share resulting in a
net contribution to Additional paid-in capital of $66.6 million. In addition,
Eagle forgave $35.2 million of advances to affiliate which was treated as
additional paid-in capital.
NOTES RECEIVABLE:
Pursuant to the Company's Senior Executive Stock Purchase Plan (the
"Executive Stock Plan"), certain executive officers of the Company purchased a
total of 196,500 shares of Class A Stock for cash of $0.2 million and notes of
$2.2 million. These notes, which bear interest at 7.5% per annum, are due no
later than December 2001 or upon sale of the shares. These notes have been
classified as a component of Stockholders' equity in the Company's Consolidated
Balance Sheets. The shares cannot be sold prior to November 1997 and have been
pledged to the Company pursuant to the terms of the Executive Stock Plan.
DIVIDENDS PAID:
In May 1994, the Company declared and paid a dividend of $111.0 million
through the issuance of unsecured notes at an interest rate of 7% per annum.
These notes were repaid, in part, through proceeds from the Offering and the
issuance of the Bank Credit Facility. Any remaining obligations under these
notes were forgiven by Eagle.
(10) STOCK OPTION PLAN
In November 1994, the Company adopted the 1994 Stock Option and Restricted
Share Plan (the "1994 Plan"). Pursuant to the 1994 Plan, certain directors,
employees and officers of the Company are given the opportunity to acquire
shares of Class A Stock through the grant of non-qualified and qualified stock
options, stock appreciation rights and restricted shares. Options granted
pursuant to the 1994 Plan are exercisable at no less than the fair market value
of the Class A Stock at the time of grant. Qualified stock options shall
expire no more than ten years after the date of grant. Restricted shares
awarded pursuant to the 1994 Plan shall generally vest in equal portions over a
four year period from the date of award. Upon a change in control, all options
shall become immediately exercisable and all restricted shares shall become
vested. The 1994 Plan also provides for the annual award of 2,000 nonqualified
stock options of Class A Stock to each director who is not an employee of Eagle
or its subsidiaries. A total of 1,700,000 shares of Common Stock is reserved
for issuance under the 1994 Plan. The 1994 Plan is administered by a committee
of the Board of Directors.
26
<PAGE> 27
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
Non-Qualified stock option activity is shown below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING EXERCISABLE OPTIONS
-------------------------- ------------------------------
WEIGHTED WEIGHTED
NUMBER OF AVG. EXERCISE NUMBER OF AVG. EXERCISE
SHARES PRICE SHARES PRICE
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 -- $ --
Granted..................... 196,000 12.00
Exercised................... -- --
Canceled.................... -- --
-------- -------
Balance at December 31, 1994 196,000 12.00 -- $ --
======= ======
Granted..................... 309,500 9.59
Exercised................... -- --
Canceled.................... (6,000) 11.50
-------- -------
Balance at December 31, 1995 499,500 10.51 48,000 12.00
======= ======
Granted..................... 305,600 12.29
Exercised................... -- --
Canceled.................... (6,800) 10.53
-------- -------
Balance at December 31, 1996 798,300 $ 11.19 170,426 10.93
======== ======= ======= ======
</TABLE>
At December 31, 1996, the options outstanding and exercisable options
outstanding had exercise prices ranging from $8.85 to $12.56 and $9.35 to
$12.00, respectively. The weighted average remaining contractual life of the
options outstanding was 9 years. The weighted average fair value of options
granted in 1996 and 1995 was $12.39 and $9.65, respectively.
The Company measures compensation cost using the intrinsic value-based
method of accounting pursuant to the provisions of APB Opinion No. 25. Had
compensation cost been determined on the fair market value-based accounting
method prescribed by Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation" ("SFAS No. 123") for options granted
in 1996, pro forma net income would have been $29.8 million. Pro forma
earnings per share for 1996 would have been $1.48. There would have been no
effect on 1995 results.
For purposes of fair market value disclosures, the fair market value of an
option grant is estimated using the Black-Scholes option pricing model with the
following assumptions:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Risk-Free Interest Rate...................... 6.0% 6.0%
Average Life of Options (years).............. 5 5
Volatility................................... 39.1% 39.6%
Dividend Yield............................... -- --
</TABLE>
As part of the Offering, the Company awarded 70,500 restricted shares of
Class A Stock to certain officers, of which 35,250 shares were vested at
December 31, 1996. The market value of the shares awarded was $0.8 million.
This amount was recorded as unearned compensation and is shown as a separate
component of Stockholders' equity. Unearned compensation is being amortized to
expense over a four year vesting period. This expense amounted to $0.2 million
in 1996 and 1995.
27
<PAGE> 28
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
(11) BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
---- ----
(IN MILLIONS)
<S> <C> <C>
Inventories:
Raw materials and supplies........................... $ 30.9 $ 21.6
Work in process...................................... 12.7 10.0
Finished goods....................................... 32.6 25.3
------ ------
Total............................................. $ 76.2 $ 56.9
====== ======
Excess of replacement cost over LIFO inventory cost.. $ 3.0 $ 3.0
====== ======
Property, plant and equipment:
Land................................................. $ 8.8 $ 8.7
Buildings............................................ 48.0 42.1
Machinery and equipment.............................. 117.0 102.8
Construction in progress............................. 13.2 12.2
Less accumulated depreciation........................ (89.6) (77.1)
------ ------
Total............................................. $ 97.4 $ 88.7
====== ======
</TABLE>
(12) RELATED PARTY TRANSACTIONS
The Company has in the past entered into agreements or arrangements with
affiliates relating to legal services, acquisition services, financing
services, and consulting arrangements which are described below. The fairness
and reasonableness of any compensation paid to such affiliates and any material
transactions between the Company and such affiliates in the future will be
approved by a majority of the independent members of the Board of Directors or
by an independent firm selected by such Board members. The Company believes
that the terms and resulting costs of all related party transactions and
agreements are no less favorable than those which could have been obtained from
non-affiliated parties.
The Company shares management, administrative and other services with
Eagle pursuant to a Corporate Services Agreement which renews annually in the
absence of termination by either party. The fee under this agreement is
intended to cover Eagle's expected costs in providing these services to the
Company and is reviewed annually. Total fees paid under this agreement were
$2.6 million in 1996, $2.3 million in 1995 and $2.4 million in 1994. Prior to
1996, the Company participated in an Eagle sponsored self-insurance program
which included coverage for medical, workers' compensation, product liability
and general liability insurance. The Company reimbursed Eagle for amounts paid
on behalf of the Company. Payments made either to Eagle or directly to the
third party administrator for Falcon's participation in these shared coverages
totaled $17.0 million and $12.0 million in the years ended December 31, 1995
and 1994, respectively.
Prior to the Offering, the Company was included in GAMI's consolidated
federal income tax returns. In addition, the Company filed certain combined
state tax returns with GAMI until the distribution to EHL in 1996. Pursuant to
the Tax Sharing Agreement, the Company paid GAMI $4.6 million in 1996 for tax
liabilities it incurred during the periods it was included in GAMI's federal
and certain combined state tax returns.
The law firm of Rosenberg & Liebentritt, P.C., of which a Company Director
is a member, has rendered legal services to the Company. The Company paid this
law firm $0.1 million in 1996 and $0.4 million in 1995.
Also see Notes 1, 5 and 8 for other information regarding related party
transactions.
28
<PAGE> 29
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
(13) COMMITMENTS AND CONTINGENCIES
The Company conducts manufacturing operations at various leased facilities
and also leases warehouses, manufacturing equipment, office space, computers
and office equipment. Most of the realty leases contain renewal options and
escalation clauses. Total rent expense, including related real estate taxes,
amounted to $4.7 million, $3.9 million and $3.6 million for the years ended
December 31, 1996, 1995, and 1994, respectively.
Future minimum lease payments required as of December 31, 1996 (in
millions):
<TABLE>
<S> <C>
1997 $1.5
1998 1.1
1999 0.8
2000 0.8
2001 and thereafter 1.8
----
$6.0
====
</TABLE>
The Company and certain of its subsidiaries are involved in several
lawsuits and environmental matters arising in the ordinary course of business.
However, it is the opinion of the Company's management, based upon the advice
of legal counsel, that these lawsuits are either without merit, are covered by
insurance, or are adequately reserved for in the Consolidated Balance Sheets,
and the ultimate disposition of pending litigation will not be material in
relation to the Company's consolidated financial position or results of
operations.
In addition to the matters covered by the preceding paragraph, in May
1994, Underwriters' Laboratories of Canada ("ULC") suspended its recognition of
high temperature plastic venting systems for gas appliances, including the
Ultravent system manufactured by the Company. This action resulted from
reports of problems with high temperature plastic venting systems, including
improper installation, cracking, inadequate joint adhesion, and related safety
hazards, including potential for carbon monoxide emission. In June 1994, as a
result of the ULC action, the Ontario Ministry of Consumer and Commercial
Relations ("MCCR") banned sales of these plastic venting systems in the
Province of Ontario. Other provinces of Canada have taken similar action.
Pursuant to an MCCR order, high temperature plastic venting systems in Ontario
have been corrected.
The Company is a defendant in a suit that has been filed against 24
entities representing heating appliance manufacturers, plastic vent
manufacturers, public utilities and listing agencies by the Ontario New Home
Warranty Program, which is responsible for the cost of replacing vent material
in new home construction in Ontario. This suit seeks damages of Cdn $125
million from all of the defendants. Most gas appliance manufacturers in Canada
and the United States no longer certify these venting systems for use with
their products. The Company is also a defendant in a lawsuit filed by Goodman
Manufacturing, an appliance manufacturer that is replacing its own
installations and has sued three defendants for reimbursement of its costs.
The Company has been named as a defendant in a class action lawsuit which has
been filed in the United States regarding high temperature plastic venting.
The Company is engaged in ongoing discussions with the United States
Consumer Product Safety Commission, ("CPSC") which has been advised of the ULC
action and the actions taken by the MCCR. The CPSC continues to investigate
high temperature plastic venting and has met with all of the manufacturers of
high temperature plastic vents, various appliance manufacturers and other
entities with technical expertise. CPSC concerns focus on the heating
appliance system, the plastic resin used to manufacture the venting, vent
sealant compounds and improper installation. While no definitive action has
been decided upon, the Company is aware that the CPSC is considering a
corrective action program involving plastic venting and it is probable that in
the near term the CPSC will mandate a corrective action program which would
impact heating appliance manufacturers, plastic resin manufacturers, and
plastic venting manufacturers, including the Company. Several appliance
manufacturers have announced their intention to replace plastic vent product
with alternative systems which have been approved by the CPSC. Company sales
of Ultravent products in the United States and Canada in 1995 and 1996 were
minimal.
29
<PAGE> 30
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996
While it is impossible at this time to give a firm estimate of the
ultimate cost to the Company, management currently believes that the after-tax
cost to the Company of resolving the Ultravent matter could range from a
non-material amount to $20.0 million, after considering reimbursements and
insurance recoveries. With respect to this matter, the Company has filed a
lawsuit against its insurance carriers. Although no assurances can be given,
the Company believes at this time that the ultimate resolution of these matters
will not have a material effect on the Company's financial condition, but may
have a material effect on future results of operations in the period
recognized.
(14) BUSINESS SEGMENT INFORMATION
The Company's current operations are in one industry segment, building and
construction related products, serving the residential and commercial
construction and home improvement markets. These businesses are influenced
primarily by housing starts, construction and remodeling activity and consumer
spending.
The Company's export sales are less than 10% of total revenues. Sales to
Sears, Roebuck and Co. accounted for 13.3%, 17.7% and 19.3% of total net sales
for the years ended December 31, 1996, 1995 and 1994, respectively. The
Company's revenues and identifiable assets are predominantly related to its
U.S. operations and no one other geographic area accounts for more than 10% of
total revenue or 10% of total assets.
(15) OTHER MATTERS
The Company's Board of Directors is exploring a broad range of strategic
alternatives to enhance shareholder value in the Company. Alternatives under
consideration include the sale of the Company in its entirety. The Company has
retained Merrill Lynch & Co. and Smith Barney, Inc. to assist in this effort.
30
<PAGE> 31
FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA (UNAUDITED)
QUARTERLY FINANCIAL DATA
The following is a summary of the unaudited interim results of operations
for December 31, 1996 and 1995 (in millions).
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------------- ------------- ------------- -------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........ $144.4 $112.9 $168.4 $116.6 $162.7 $120.0 $157.7 $121.8
Gross earnings 25.3 22.7 30.5 23.0 28.8 19.7 28.3 21.5
Net income....... 5.4 6.1 8.1 6.0 8.0 4.4 8.5 5.6
Earnings per
common share:
Net income....... $ 0.27 $ 0.31 $ 0.40 $ 0.30 $ 0.40 $ 0.22 $ 0.42 $ 0.28
</TABLE>
31
<PAGE> 32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the name, age as of February 7, 1997,
position, offices and certain information with respect to the executive
officers of the Company. The term of office of each executive will expire upon
the appointment of his successor by the Board of Directors.
<TABLE>
<S> <C>
William E. Allen, 52....... President of DeVilbiss Air Power Company, a subsidiary of Falcon,
since 1989.
Gus J. Athas, 60........... Senior Vice President, General Counsel and Secretary of Falcon since
1994; Senior Vice President of GAMI since 1995; Senior Vice
President (and prior thereto Vice President), General Counsel, and
Secretary (and prior thereto Assistant Secretary) of Eagle.
Sam A. Cottone, 56......... Senior Vice President-Finance, Treasurer and Chief Financial Officer
of Falcon since 1994; Senior Vice President of GAMI since 1995;
Senior Vice President-Finance, Chief Financial Officer and Director
of Eagle since 1993; Partner with Arthur Andersen LLP from 1973 to
1993.
Rod F. Dammeyer, 56........ Chairman of Falcon since 1996; Director of Falcon since 1994;
Director and President since 1985 and Chief Executive Officer since
1993 of Anixter International, Inc., a provider of networking and
cabling solutions; President and Chief Executive Officer since 1994
and Director since 1992 of GAMI; Managing Director since 1996 of EGI
Corporate Investments, Inc., a diversified management and investment
company; a Managing Director since 1995 of the general partner of
Zell/Chilmark fund, L.P.; Director of Sealy Corporation, ANTEC
Corporation, IMC Global, Inc., Capsure Holdings Corp., Jacor
Communications, Inc., Revco D.S., Inc., TeleTech Holdings, Inc. and
Lukens, Inc.; Trustee of Van Kampen Merritt closed-end mutual funds
and series trusts.
Bradbury Dyer, III, 54..... Director of Falcon since 1994; founder and sole general partner of
Paragon Associates, a private investment partnership; Director of
Capsure Holdings Corp. and Roosevelt Financial Group, Inc.
Daniel G. Ellis, 49........ Vice President-Finance of Falcon since January 1995; Vice
President-Planning and Development ABT Building Products, Inc., a
building products manufacturer from 1992 to 1994; Director of
Financial Administration Masonite Corporation, a building products
manufacturer from 1987 to 1994.
Edward G. Finnegan, Jr., 35 Vice President-Corporate Development of Falcon since January 1996;
Served in various non-executive capacities at Eagle, Equity Group
Investments, Inc., and EGI Corporate Investments, Inc. since 1988.
Paul G. Fischer, 50........ President of Mansfield Plumbing Products, Inc., a subsidiary of
Falcon, since 1988.
William K. Hall, 53........ Director, President and Chief Executive Officer of Falcon since
1994; President since 1988 and Chief Executive Officer and Director
since 1990 of Eagle; Director of GenCorp and A.M. Castle.
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C>
Philip C. Kantz, 53........ Director of Falcon since 1995; President and Chief Executive Officer
of TAB Products Co. since 1997; President and Chief Operating
Officer from 1995 to 1996 of Trans Ocean Ltd, a cargo container
leasing company; President and Chief Executive Officer from 1994 to
1995 of Transcisco Industries, Inc., an industrial services company;
interim President and Chief Executive Officer from 1992 to 1993 of
Genetrix, Inc., a biotechnology services business; President and
Chief Executive Officer from 1988 to 1991 of Itel Container
International Corporation, then a subsidiary of Anixter
International, Inc. engaged in the leasing of intermodal cargo
containers; Director of 3COM Corporation, TAB Products, Co., Parc
Place-Digitalk, Inc., Blue Cross of California and Search Systems
Corporation.
Lawrence B. Lee, 54........ President of Hart & Cooley, Inc., a subsidiary of Falcon, since 1985.
Sheli Z. Rosenberg, 55..... Director of Falcon since 1994; Principal of the law firm of
Rosenberg & Liebentritt, P.C.; President and Chief Executive Officer
since 1994 of Equity Group Investments, Inc. and its subsidiary
Equity Financial and Management Company, both real estate investment
firms, and Director and executive officer for more than the past
five years of these companies; GAMI, Capsure Holdings Corp.,
Anixter International, Inc., Sealy Corporation, American Classic
Voyages Co., Revco D.S., Inc., and Jacor Communications, Inc.;
Trustee of Equity Residential Properties Trust and Manufactured Home
Communities, Inc.; Executive officer and Director until October 4,
1991 of Madison Management Group, Inc., which filed a petition under
the Federal bankruptcy laws in November 1991; Vice President of
First Capital Benefit Administrators, Inc., which filed a petition
under the Federal bankruptcy laws in January 1995.
Richard G. Sim, 52......... Director of Falcon since 1995; Chairman, President and Chief
Executive Officer of Applied Power, Inc., a manufacturer and
distributor of engineered products, tools and consumables, for more
than the past 5 years; Director of IPSCO, Inc.
Robert L. Smialek, 53...... Director of Falcon since 1996; Chairman, President and Chief
Executive Officer of Insilco Corporation since 1993; Director of
Thermalex, Inc. since 1993; Director of Siebe plc from 1992 to 1993;
President and Chief Operating Officer of the Temperature & Appliance
Controls Group of Siebe plc from 1992 to 1993; President and Chief
Operating Officer of Ranco Inc. from 1990 to 1992.
B. Joseph White, 49........ Director of Falcon since 1995; Dean since 1991 and Professor since
1987 at the University of Michigan Business School; Trustee of
Equity Residential Properties Trust; Director of Union Pump Company
and Kelly Services, Inc.
</TABLE>
33
<PAGE> 34
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth information about the compensation of the
chief executive officer and the four other most highly compensated executive
officers of the Company (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
----------------------------------------
RESTRICTED SECURITIES ALL OTHER
ANNUAL COMPENSATION STOCK UNDERLYING COMPEN-
--------------------------- AWARDS OPTIONS SATION
NAME AND PRINCIPAL POSITIONS YEAR SALARY($) BONUS ($) ($)(3) (#) ($)(4)
- ---------------------------- ---- --------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
William K. Hall (1)......................... 1996 250,000 271,200 -- 43,300 6,410
President and Chief Executive Officer 1995 241,551 -- -- 53,300 6,200
1994 234,058 214,500 79,800 40,000 5,938
William E. Allen............................ 1996 186,162 208,157 -- 19,500 11,402
President, DeVilbiss Air Power Co. 1995 171,102 50,117 -- 22,100 12,399
1994 162,537 160,796 198,000 15,000 9,313
Gus J. Athas (1)............................ 1996 144,731 122,040 -- 32,200 6,410
Senior Vice President, General Counsel and 1995 126,174 -- -- 40,000 6,200
Secretary 1994 127,193 91,000 53,400 30,000 5,938
C. Clifford Brake (2)....................... 1996 289,433 235,944 -- -- 12,820
Senior Vice President-Operations 1995 142,164 -- -- -- 6,200
1994 132,500 132,000 53,400 -- 5,938
Sam A. Cottone (1).......................... 1996 144,731 122,040 -- 32,200 6,410
Senior Vice President-Finance, Treasurer 1995 136,048 -- -- 40,000 6,200
and Chief Financial Officer 1994 127,193 91,000 53,400 30,000 5,938
Paul G. Fischer............................. 1996 183,475 82,013 -- 17,350 7,680
President, Mansfield Plumbing Products, Inc. 1995 172,000 -- -- 22,100 13,881
1994 161,250 161,573 198,000 15,000 10,022
Lawrence B. Lee............................. 1996 194,750 73,148 -- 18,450 8,960
President, Hart & Cooley, Inc. 1995 185,562 -- -- 22,100 12,399
1994 173,472 164,764 210,000 15,000 11,876
</TABLE>
(1) The annual and all other compensation shown for Messrs. Hall, Cottone and
Athas represents 50% of such compensation paid to them by a subsidiary of
Eagle and reimbursed by the Company.
(2) The annual and all other compensation shown for Mr. Brake in 1995 and
1994 represents 50% of such compensation paid to him by a subsidiary of
Eagle and reimbursed by the Company.
(3) Value on date of grant, November 3, 1994, of 6,650, 16,500, 4,450, 4,450,
4,450, 16,500 and 17,500 restricted shares of Common Stock granted to the
above named officers, respectively. On December 31, 1996, the remaining
shares of 3,325, 8,250, 2,225, 2,225, 2,225, 8,250 and 8,750 had a value
of $49,044, $121,688, $32,819, $32,819, $32,819, $121,688 and $129,063,
respectively. Subject to forfeiture for non-vesting, the grantees would
be entitled to any dividends declared on these shares. Shares vest at the
rate of 25% over a four year period from date of grant.
(4) Amounts contributed to the Eagle Employee Savings Plan and accrued under
an unfunded Supplemental Plan for Mr. Hall represent 50% of the actual
contributions made by an Eagle subsidiary. Amounts contributed and
accrued for Mr. Brake under these plans represents 100% in 1996 and 50% in
1995 and 1994 of actual contributions made by an Eagle subsidiary.
34
<PAGE> 35
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
----------------------------- ----------------------------
NUMBER OF % OF TOTAL 5% ($) 10% ($)
SECURITIES OPTIONS (ASSUMES (ASSUMES
UNDERLYING GRANTED TO EXERCISE OR $20.46 PRICE $32.58 PRICE
OPTIONS EMPLOYEES IN BASE PRICE DATE OF AT END OF AT END OF
GRANTED(#)(1) FISCAL YEAR ($/SH.) EXPIRATION 10 YEARS)(2) 10 YEARS)(2)
--------------- ------------ ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William K. Hall........... 43,300 14.2% 12.56 11/13/06 342,023 866,754
William E. Allen.......... 19,500 6.4% 12.56 11/13/06 154,029 390,339
Gus J. Athas.............. 32,200 10.5% 12.56 11/13/06 254,345 644,560
Sam A. Cottone............ 32,200 10.5% 12.56 11/13/06 254,345 644,560
Paul G. Fischer........... 17,350 5.7% 12.56 11/13/06 137,046 347,302
Lawrence B. Lee........... 18,450 6.0% 12.56 11/13/06 145,735 369,321
</TABLE>
1. Options are for Class A Stock and vest at the rate of 25% per year over a
four year period from the date of grant.
2. These numbers are for presentation purposes only and are not predictions
of future stock prices.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR,
AND FISCAL YEAR OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END (#) FY-END ($)
SHARES ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
------------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
William K. Hall............... 0 0 33,325/103,275 126,955/365,692
William E. Allen.............. 0 0 13,025/43,575 50,460/152,835
Gus J. Athas.................. 0 0 25,000/77,200 95,250/273,768
C. Clifford Brake............. 0 0 0/0 0/0
Sam A. Cottone................ 0 0 25,000/77,200 95,250/273,768
Paul G. Fischer............... 0 0 13,025/41,425 50,460/148,126
Lawrence B. Lee............... 0 0 13,350/43,500 52,215/155,800
</TABLE>
PENSION PLAN TABLE
The Falcon Cash Balance Pension Plan is a qualified "cash balance" defined
benefit plan that covers eligible salaried and hourly employees of Falcon and
its subsidiaries that adopt the plan. Certain officers of the Company
participate in an Eagle sponsored Cash Balance Plan which mirrors the Falcon
Cash Balance Plan (collectively the "Pension Plans") The normal form of
retirement benefit under the Pension Plans is an annuity payable at age 65 (the
normal retirement age), although, in lieu of an annuity, a participant may
elect to receive a lump sum payment at retirement or other termination of
service. A participant's benefit is based on an account balance, which is the
sum of 5% of the participant's compensation for each of the first 15 years of
service and 6.5% of compensation for each year of service thereafter. The
account balances are further credited with interest. The interest credit is
based on the One Year Treasury Constant Maturities as published in the Federal
Reserve Statistical Release over the one month period ending on the November 30
immediately preceding the applicable plan year. The interest rate for the plan
year ending December 31, 1996 was 5.5%. Covered compensation includes salary,
annual bonus, 401(k) deferrals and overtime, but excludes long-term incentive
compensation.
The estimated annual annuity benefits payable under the Pension Plans at
normal retirement are $12,680, $51,541, $5,984, $18,077, $7,714, $53,066 and
$39,450 for Messrs. Hall, Allen, Athas, Brake, Cottone, Fischer and Lee,
respectively at December 31, 1996. The Company is bearing part of the current
costs of these benefits for Messrs. Hall, Cottone, Athas and Brake pursuant to
the Service Agreement described below.
35
<PAGE> 36
COMPENSATION OF DIRECTORS
The Company pays its directors who are not officers or employees of the
Company or a subsidiary annual retainers of $20,000 and fees of $1,000 for each
board and committee meeting attended. Directors are reimbursed for any
expenses they incur in attending meetings. Each director is granted upon
initial election and at each annual meeting of stockholders thereafter a ten
year option (vesting at the rate of 25% per year) to purchase 2,000 shares of
Class A Stock for its fair market value on the date of grant.
EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
Mr. Ellis has an agreement with the Company which provides certain
benefits in the event that his employment with the Company is terminated, other
than for cause, within two years following a change in control of ownership of
the Company prior to September 30, 1997. Messrs. Allen, Fischer and Lee have
similar agreements with the respective subsidiaries of the Company of which
they are Presidents in the event that their employment with their respective
subsidiaries is terminated, other than for cause, within two years following a
change in control of ownership of their respective businesses or the Company
prior to September 30, 1997. Upon termination, the affected party would be
entitled to receive a payment equal to two times base salary plus par bonus in
effect at the time of their termination, plus continuation of certain benefits.
It has been agreed that the Company will repurchase shares of Class A
Stock purchased by Messrs. Hall (80,000 shares), Cottone (20,000 shares),
Brake (20,000 shares), Athas (16,000 shares), Allen (24,000 shares), Fischer
(24,000 shares), and Lee (12,500 shares) in the public offering of Common Stock
if, prior to November 2, 1997, their employment is terminated coupled with a
change in control as defined below. In the event of a change in control
coupled with a termination of employment for any reason other than voluntary
resignation, the purchase price will be the higher of market value or original
purchase price plus accumulated interest on the related loan by the Company,
see "Certain Relationships and Related Transactions." less any distributions
received on these shares. In the event of a voluntary resignation, the
purchase price will be the lower of these two prices.
Upon a change in control, all options shall become immediately exercisable
and all restricted shares shall become vested. A "change in control" shall be
deemed to occur if (i) any person (other than the Company and its subsidiaries)
acquires 50% or more of the outstanding Common Stock, or (ii) following a
merger or combination of the Company with one or more other entities, 50% or
more of the voting stock of the surviving corporation is held by persons other
than former stockholders of the Company or (iii) 20% or more of the directors
elected by stockholders to the Board of Directors of the Company are persons
who were not nominated by the Board of Directors in the Company's most recent
proxy statement.
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
In 1996, the members of the Compensation Committee were Messrs. Dammeyer,
Kantz and White.
In 1996, the following relationships existed: Mr. Hall, President and
Chief Executive Officer of Falcon was a member of the Board of Directors of
GAMI and the Chief Executive Officer and a director of its subsidiary, Eagle;
Mr. Dammeyer was the Chief Executive Officer and a director of GAMI and
Chairman of the Board of Directors of Eagle. EHL owned approximately 87.9%
(now 100%) of the outstanding common stock of GAMI and GAMI's subsidiary Eagle
held the 14,000,000 shares of Common Stock of the Company now owned by EHL.
EHL's sole general partners were the Samuel Zell Revocable Trust and the Robert
H. and Ann Lurie Trust; Mr. Zell was the trustee of the Zell Trust; Mrs.
Rosenberg and Ms. Lurie were co-trustees of the Robert H. and Ann Lurie Trust;
Messrs. Athas and Cottone were executive officers and directors of the Company
and were executive officers of GAMI and Eagle and in the case of Mr. Cottone, a
director of Eagle. Mr. Dyer was a director of GAMI and the general partner of
partnerships which owned approximately 3.7% of the common stock of GAMI.
The Company shares management, administrative and other services with
Eagle pursuant to a Corporate Services Agreement which renews annually in the
absence of termination by either party. The fee under this agreement is
intended to cover Eagle's expected costs in providing these services to the
Company and is reviewed by the Audit Committee of the Board of Directors of the
Company. The fee paid for 1996 was $2.6 million.
36
<PAGE> 37
The law firm of Rosenberg & Liebentritt, P.C., of which Mrs. Rosenberg is
Principal, provides legal service to the Company and was paid $0.1 million in
1996 for these services.
The Company, until the Offering in November 1994, was included in the
consolidated federal income tax returns of GAMI. In addition, the Company
filed certain combined state tax returns with GAMI until the distribution to
EHL in 1996. The Company has agreed to pay to GAMI amounts equal to the
amounts the Company would have paid had it filed its own income tax returns for
these periods. In December 1996, the Company paid GAMI $4.6 million pursuant
to this agreement.
In connection with the public offering of its Common Stock, the Company
has agreed with the Pension Benefit Guaranty Corporation that for five years it
will remain jointly and severally liable for certain pension liabilities of
GAMI, Eagle and their subsidiaries without regard to whether or not the sale of
the Common Stock to the public was sufficient to remove the Company from the
group having joint and several liability for these pension plan liabilities.
GAMI and Eagle have agreed to hold the Company harmless from any pension plan
liabilities not attributable to the Company's pension plans and the Company has
agreed to hold them harmless from any liabilities attributable to such plans.
The Company and Eagle have agreed to hold each other harmless from certain
liabilities unrelated to the others' business.
The Company and Eagle have entered into a registration rights agreement
under which the Company, under certain circumstances, must register under the
Securities Act shares held by Eagle's subsidiaries for sale to the public and
must indemnify them from certain liabilities in connection therewith.
In 1994, the Company loaned $0.9 million to Mr. Hall, Chief Executive
Officer and a director; $0.2 million to Mr. Cottone, Senior Vice President -
Finance, Treasurer and a director at the time; $0.2 million to Mr. Brake,
Senior Vice President - Operations and a director at the time; $0.2 million to
Mr. Athas, Senior Vice President, General Counsel, Secretary and a director at
the time; $0.3 million to Mr. Allen, President, DeVilbiss Air Power Company, a
subsidiary; $0.3 million to Mr. Fischer, President, Mansfield Plumbing
Products, Inc., a subsidiary; and $0.1 million to Mr. Lee, President, Hart &
Cooley, Inc., a subsidiary. These loans were to enable these officers to
purchase Common Stock in the public offering at $12 per share. The loans
mature in seven years or earlier in certain circumstances and bear interest at
the rate of 7.5% per year, compounded semi-annually payable upon maturity of
the loans. At December 31, 1996, the balances of these loans were $1.04
million, $0.26 million, $0.26 million, $0.21 million, $0.31 million, $0.31
million and $0.16 million, respectively.
37
<PAGE> 38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1996, certain
information with respect to the beneficial ownership of Common Stock of the
Company by (i) each stockholder who is known by the Company to beneficially own
more than 5% of the Common Stock, (ii) each director of the Company, (iii) each
Named Executive Officer and (iv) all directors and executive officers of the
Company as a group. Unless otherwise indicated, each beneficial owner has sole
investment power and sole voting power with respect to the securities
beneficially owned.
<TABLE>
<CAPTION>
SHARES OPTIONS (1) TOTAL % OF CLASS
------ ----------- ----- ----------
<S> <C> <C> <C> <C>
EHL (2)................................................ 14,000,000 -- 14,000,000 69.8%
William E. Allen (3)................................... 50,500 13,025 63,525 *
Gus J. Athas (4)....................................... 23,450 25,000 48,450 *
C. Clifford Brake...................................... 29,450 -- 29,450 *
Sam. A. Cottone........................................ 29,450 25,000 54,450 *
Rod F. Dammeyer (5).................................... 15,000 1,500 16,500 *
Bradbury Dyer III (6).................................. 150,000 1,500 151,500 *
Paul G. Fischer (7).................................... 40,600 13,025 53,625 *
William K. Hall (8).................................... 91,550 33,325 124,875 *
Philip C. Kantz........................................ -- 1,000 1,000 *
Lawrence B. Lee (9).................................... 29,325 13,350 42,675 *
Sheli Z. Rosenberg (2)................................. 2,000 1,500 3,500 *
Richard G. Sim......................................... -- 500 500
B. Joseph White........................................ 1,500 1,000 2,500 *
All directors & executive officers as a group,
including the above-named persons.................... 472,525 145,475 618,000 3.1%
</TABLE>
- --------------------
* Percentage of shares beneficially owned does not exceed one percent.
(1) Shares of stock that are subject to options exercisable within 60 days of
the date of this table.
(2) EHL's general partner are the Samuel Zell Revocable Trust and the Robert
H. and Ann Lurie Trust. Samuel Zell is the trustee of the Zell Trust.
Mrs. Rosenberg and Ms. Lurie are co-trustees of the Robert H. and Ann
Lurie Trust. Mr. Zell and Mesdames Lurie and Rosenberg disclaim
beneficial ownership of the shares of Common Stock beneficially owned by
EHL. The address of EHL, Mr. Zell and Mesdames Lurie and Rosenberg is Two
North Riverside Plaza, Chicago, Illinois, 60606.
(3) Includes 10,000 shares held by Mr. Allen's wife and of which Mr. Allen
disclaims beneficial ownership.
(4) Includes 3,000 shares held by a member of Mr. Athas' family and of which
Mr. Athas disclaims beneficial ownership.
(5) Includes 5,000 shares held by Mr. Dammeyer's wife and of which Mr.
Dammeyer disclaims beneficial ownership.
(6) Includes 150,000 shares owned by Paragon Joint Ventures ("Paragon").
Paragon is a joint venture formed by Paragon Associates and Paragon
Associates II, both Texas partnerships. Mr. Dyer is the sole general
partner of Paragon Associates and Paragon Associates II. Under the terms
of the joint venture agreement of Paragon, each partner has beneficial
ownership in proportion to its respective account in Paragon. Mr. Dyer
does not have full direct ownership; however, as the general partner of
the partners of Paragon, he may be deemed to have beneficial ownership.
(7) Includes 100 shares held by a member of Mr. Fischer's family and of which
Mr. Fischer disclaims beneficial ownership.
(8) Includes 750 shares of the Company held by members of Mr. Hall's family
and of which Mr. Hall disclaims beneficial ownership.
(9) Includes 1,000 shares held by a trust of a member of Mr. Lee's family and
of which Mr. Lee disclaims beneficial ownership.
38
<PAGE> 39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of transactions and relationships between the Company
and its directors, executive officers and more than 5% stockholders, see
"Compensation Committee Interlocks and Insider Participation."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
<TABLE>
<S> <C>
Report of Independent Public Accountants ......... 14
Consolidated Balance Sheets ...................... 15
Consolidated Statements of Income ................ 16
Consolidated Statements of Stockholders' Equity .. 17
Consolidated Statements of Cash Flows ............ 18
Notes to Consolidated Financial Statements ....... 19
</TABLE>
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, or are inapplicable, or the
information called for therein is included elsewhere in the financial
statements or the notes thereto. Accordingly, such schedules have been
omitted.
(b) Reports on Form 8-K
Current report on Form 8-K dated December 2, 1996 relative to the
issuance of a press release announcing the Board of Directors discussion to
explore a broad range of strategic alternatives to enhance shareholder value in
the Company.
(c) Exhibits
Exhibits required by Item 601 of Regulation S-K are listed in the
Index to Exhibits, which is incorporated herein by reference.
39
<PAGE> 40
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
FALCON BUILDING PRODUCTS, INC.
By: /s/ WILLIAM K. HALL
-------------------------------------
William K. Hall
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM K. HALL Director, President and Chief March 20, 1997
- -------------------------- Executive Officer (Principal
(William K. Hall) Executive Officer)
/s/ GUS J. ATHAS Senior Vice President, General March 20, 1997
- -------------------------- Counsel and Secretary
(Gus J. Athas)
/s/ SAM A. COTTONE Senior Vice President-Finance, March 20, 1997
- -------------------------- Treasurer and Chief Financial Officer
(Sam A. Cottone) (Principal Accounting Officer)
/s/ ROD F. DAMMEYER Director and Chairman of the Board March 20, 1997
- -------------------------- of Directors
(Rod F. Dammeyer)
*/s/ BRADBURY DYER III Director March 20, 1997
- --------------------------
(Bradbury Dyer III)
*/s/ PHILIP C. KANTZ Director March 20, 1997
- --------------------------
(Philip C. Kantz)
/s/ SHELI Z. ROSENBERG Director March 20, 1997
- --------------------------
(Sheli Z. Rosenberg)
*/s/ RICHARD G. SIM Director March 20, 1997
- --------------------------
(Richard G. Sim)
*/s/ ROBERT L. SMIALEK Director March 20, 1997
- --------------------------
(Robert L. Smialek)
*/s/ B. JOSEPH WHITE Director March 20, 1997
- --------------------------
(B. Joseph White)
by */s/ DANIEL G. ELLIS as attorney in fact for each person indicated.
-----------------------
(Daniel G. Ellis)
</TABLE>
40
<PAGE> 41
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
3.1 Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 of
Falcon Building Products, Inc. Registration Statement of Form S-1. Registration Number
33-79006, filed May 17, 1994, as amended.)
3.2 By-Laws, as amended to date (Incorporated by reference to Exhibit 3.2 of Falcon Building
Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed
May 17, 1994, as amended.)
4.1 Form of Certificate for Class A Stock (Incorporated by reference to Exhibit 4.1 of Falcon
Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006,
filed May 17, 1994, as amended.)
4.2 Bank Credit Agreement, between the Company and the lenders thereunder. (Incorporated by
reference to Exhibit 4.1 of Falcon Building Products, Inc. Quarterly Report on Form 10-Q
filed December 5, 1994.)
10.1 Corporate Services Agreement, dated June 22, 1994, between the Company and Eagle
(Incorporated by reference to Exhibit 10.1 of Falcon Building Products, Inc. Registration
Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.)
10.2 Disaffiliation Tax Sharing Agreement, dated October 28, 1994, between the Company and GAMI.
10.3 Registration Rights Agreement, between the Company, Eagle and the Selling Stockholders
(Incorporated by reference to Exhibit 10.1 of Falcon Building Products, Inc. Quarterly
Report on Form 10-Q filed December 5, 1994.)
10.4 Trademark License Agreement, dated April 24, 1990, between Illinois Tool Works, Inc. and
DeVilbiss Air Power (Incorporated by reference to Exhibit 10.4 of Falcon Building
Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed
May 17, 1994, as amended.)
10.5 Trademark Licensing Agreement, dated September 28, 1990, between Masco Building Products
Corp. and Kilgore Plumbing Products, Inc. (Incorporated by reference to Exhibit 10.5 of
Falcon Building Products, Inc. Registration Statement of Form S-1. Registration Number
33-79006, filed May 17, 1994, as amended.)
10.6 Falcon Building Products, Inc. 1994 Stock Option and Restricted Share Plan (Incorporated
by reference to Exhibit 10.6 of Falcon Building Products, Inc. Registration Statement of
Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.)
10.7 Falcon Building Products, Inc. Senior Executive Stock Purchase Plan (Incorporated by
reference to Exhibit 10.2 of Falcon Building Products, Inc. Quarterly Report on Form 10-Q
filed December 5, 1994.)
10.8 Eagle Industries, Inc. Supplemental Executive Retirement Plan, as adopted September 15,
1992. (Incorporated by reference to Exhibit 10.9 of Falcon Building Products, Inc.
Registration Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as
amended.)
10.9 Lease, dated December 6, 1991, between The E.T. Hermann and Jane D. Hermann 1978 Living
Trust and Hart & Cooley, Inc. (Incorporated by reference to Exhibit 10.11 of Falcon
Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006,
filed May 17, 1994, as amended.)
10.10 Lease Agreement, dated June 6, 1989, between Belz Investco, L.P. and Hart & Cooley, Inc.,
as amended November 10, 1989. (Incorporated by reference to Exhibit 10.12 of Falcon
Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006,
filed May 17, 1994, as amended.)
10.11 Lease Agreement, dated September 3, 1991, between Jack North and Gerry North and Hart &
Cooley, Inc., as amended. (Incorporated by reference to Exhibit 10.13 of Falcon Building
Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed
May 17, 1994, as amended.)
10.12 Indemnity Agreement, dated as of June 22, 1994, between the Company and Eagle.
(Incorporated by reference to Exhibit 10.15 of Falcon Building Products, Inc. Registration
Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.)
10.13 ERISA Indemnity Agreement, dated October 10, 1994, between the Company, GAMI and Eagle.
(Incorporated by reference to Exhibit 10.16 of Falcon Building Products, Inc. Registration
Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.)
10.14 Agreement, dated October 4, 1994, between the Company, EHL, GAMI and Eagle. (Incorporated
by reference to Exhibit 10.17 of Falcon Building Products, Inc. Registration Statement of
Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.)
10.15 Receivables Purchase Agreement as of May 2, 1996 among Centrally Held Eagle Receivables
Program, Inc., Falcon Building Products, Inc., Market Street Funding Corporation and PNC
Bank, National Association. (Incorporated by reference to Exhibit 10.16 of Falcon Building
Products, Inc. Quarterly Report on Form 10-Q dated June 30, 1996.)
</TABLE>
41
<PAGE> 42
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
10.16 Receivables Purchase Agreement as of May 2, 1996 among Centrally Held Eagle Receivables Program, Inc.,
Falcon Building Products, Inc., Certain Commercial Lending Institutions and PNC Bank, National
Association. (Incorporated by reference to Exhibit 10.17 of Falcon Building Products, Inc. Quarterly
Report on Form 10-Q dated June 30, 1996)
10.17 Falcon Building Products, Inc. Employee Savings Plan as adopted January 1, 1995.
10.18 Falcon Building Products, Inc. Cash Balance Pension Plan as adopted January 1, 1996.
10.19 Termination Benefits Agreement dated December 13, 1996 between Hart & Cooley, Inc. and Lawrence B. Lee.
10.20 Termination Benefits Agreement dated December 18, 1996 between Mansfield Plumbing Products, Inc. and
Paul Fischer.
10.21 Termination Benefits Agreement dated December 31, 1996 between DeVilbiss Air Power Company and William
E. Allen.
10.22 Termination Benefits Agreement dated December 19, 1996 between Falcon Building Products, Inc. and
Daniel G. Ellis.
21.1 Subsidiaries of the Company.
24.1 Power of Attorney of Directors
</TABLE>
42
<PAGE> 1
Exhibit 10.2
GAMI-FALCON DISAFFILIATION
TAX SHARING AGREEMENT
This GAMI-FALCON DISAFFILIATION TAX SHARING AGREEMENT ("Agreement") made
as of October 28, 1994, by and among Great American Management and Investment,
Inc., a Delaware corporation ("GAMI"); Eagle Industrial Products Corporation,
O.D.E. Manufacturing, Inc., and Amerace Corporation, all Delaware corporations
(collectively "Eagle"); and Falcon Building Products, Inc., a Delaware
corporation ("Falcon"),
Witnesseth that:
WHEREAS, GAMI is the common parent corporation of the affiliated group
(as such terms are defined in Section 1504(a) of the Code) (the "Consolidated
Group") of which Eagle is a Member, and of which Falcon is a third tier
subsidiary and of which Falcon's direct and indirect subsidiaries (the "Falcon
Subsidiaries") are members; and
WHEREAS, GAMI, Eagle and Falcon are parties to a Tax Sharing Agreement
made as of the 31st day of January, 1994 (the "Existing Tax Sharing
Agreement"); and WHEREAS, shares of Falcon common stock will be sold pursuant
to a public offering; upon completion of the offering, GAMI and Eagle will not
own enough of the outstanding shares of Falcon stock for Falcon to be a member
of the Consolidated Group (the "Disaffiliation"); and
WHEREAS, upon and after the consummation of the transactions pursuant to
the Disaffiliation, and as a result thereof, Falcon and the Falcon
Subsidiaries will cease to be members of the Consolidated Group (the date of
such cessation being referred to herein as the "Disaffiliation Date"); and
WHEREAS, the parties to this Agreement desire to set forth their
agreement in relation to liability for taxes (including interest and penalties
thereon) that are or may be owed by, or asserted against, Falcon and the
Falcon Subsidiaries;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and conditions hereinafter contained, the parties hereto
agree as follows:
1. General Intent and Third Party Rights-Indemnification
(a) It is the general intent of the parties to this Agreement that:
(1) GAMI and Eagle shall economically bear the burden of
all federal income taxes imposed on the income of the
Consolidated Group excluding Falcon and the Falcon Subsidiaries;
and that Falcon shall economically bear the burden of all federal
income taxes imposed on the income of Falcon or the Falcon
Subsidiaries;
(2) Falcon shall bear the burden of all taxes imposed on
Falcon or the Falcon Subsidiaries by state and local taxing
authorities, including, but not limited to, sales, use,
occupation, franchise, excise, income, or any other tax, fee or
assessment (a "non-Federal tax") imposed on Falcon, it being
acknowledged that Falcon and the Falcon Subsidiaries have at all
times relevant hereto filed
<PAGE> 2
non-Federal tax returns and paid all non-Federal tax amounts
computed on a stand-alone basis without regard to any affiliation
of Falcon with GAMI; and
(3) Falcon shall bear the burden of all foreign income
taxes imposed on Falcon and the Falcon Subsidiaries.
This Agreement shall be construed accordingly. This Agreement
shall not create any rights in any person other than the parties
to this Agreement and the Falcon Subsidiaries.
(b) GAMI and Eagle shall indemnify and hold Falcon harmless from and
against GAMI Taxes, and Falcon shall indemnify and hold GAMI and Eagle
harmless from and against Falcon Taxes.
2. Continuation of Existing Tax Sharing Agreement; Termination of All Other Tax
Sharing Agreements. The Existing Tax Sharing Agreement shall continue to apply
in accordance with its terms, except as modified by this Agreement. To the
extent a provision of the Existing Tax Sharing Agreement is inconsistent with a
provision of this Agreement, the Provision of this Agreement shall apply.
3. Certain Definitions. Capitalized terms not defined elsewhere in this
Agreement or in the Existing Tax Sharing Agreement shall have the following
meanings:
(a) The term "Tax" means any imposed by subtitle A of the Code.
(b) The term "Period" means the period of time under applicable law
for which a Tax is imposed.
(c) The term "Return" means the return or the report, if any, to be
filed with the IRS for a Tax with respect to a Period.
(d) "Old Periods" are Periods ending on or before the Disaffiliation
Date.
(e) The "Stub Period" is the Period of Falcon commencing August 1,
1994 and ending on the date of the interim closing of the books
pursuant to the Disaffiliation as set forth in Section 4(b). The Stub
Period is an Old Period.
(f) "New Periods" are Periods beginning after the Stub Period.
(g) "Falcon Taxes" are Taxes for which Falcon is liable under the
Existing Tax Sharing Agreement and this Agreement, and the related
Periods are "Falcon Periods".
(h) "GAMI Taxes" are all taxes imposed on the Consolidated Group
excluding Falcon Taxes.
(i) "IRS" shall mean the United States Internal Revenue Service.
(j) The "Maximum Applicable Corporate Tax Rate" with respect to a Tax
shall be the maximum marginal corporate tax rate determined without
regard to tax rate or tax benefit make-up provisions such as Section I
l(b)(1) (last sentence) of the Code.
<PAGE> 3
(k) "Final Computation" means the final computation of amounts owing
between the parties with respect to a period as such amount is
determined in the ordinary course of the preparation of the Return
filed with respect to such Period, and shall be deemed to have
occurred on the later of the date on which such Return is filed with
the IRS or the Disaffiliation Date.
(l) The term "Code" means the Internal Revenue Code of 1986, as
amended.
4. Special Rules for Computation and Payment of Taxes for Stub Period.
Stub Period.
(a) Computation and Payment of Taxes. The amount of the Stand Alone
Tax Liability (as such term is defined in Section I of the Existing
Tax Sharing Agreement) for the Stub Period of Falcon shall be
estimated and the amount of such estimate shall be due and payable on
the fifteenth day of the third calendar month following the calendar
month in which the Disaffiliation Date occurs. Actual amounts owing
between the parties with respect to the Stub Period shall be computed
on or before the due date (with extensions) of the GAMI return which
includes the Stub Period, and Falcon shall pay to Eagle any remaining
amounts owing, or Eagle shall refund to Falcon any excess amount paid
by Falcon, as appropriate. Amounts owing between the parties
hereunder which are paid after the fifteenth day of the third calendar
month following the calendar month in which the Disaffiliation Date
occurs shall bear interest from such date until the date paid at an
annual rate of 2 percent (2%) per annum over the prime rate in effect
from time to time at Bank of America Illinois.
(b) Interim Closing of Books. The computation of the Stand Alone Tax
Liability for the Stub Period shall be determined on the basis of an
interim closing of the books for financial reporting purposes for the
month end nearest the Disaffiliation Date. In the event there is not
an interim closing of the books for financial reporting purposes, then
the computation of the Stand Alone Tax Liability for the Stub Period
shall be determined on the basis of the Falcon internal financial
statements for the month end nearest the Disaffiliation Date or on any
other basis agreed to by the parties.
(c) Any item of income or gain included in the income of the
Consolidated Group under Reg.1.1502-19, relating to "excess loss
accounts", by reason of any transactions or events occurring on the
Disaffiliation Date shall not be taken into account in computing the
Stand Alone Tax Liability of Falcon but shall be treated as an item
entering into the computation of Tax economically borne by GAMI and
Eagle.
(d) Elections.
(1) No options otherwise available under Reg. I. 1502-76(b)(5) for the
Stub Period of Falcon shall be exercised without the consent of
both GAMI and Falcon.
<PAGE> 4
(2) With Respect to Falcon, GAMI shall not, and shall not permit
Falcon, to change any existing or adopt any new tax accounting
principle, method of accounting, or tax election, except as
provided herein or as agreed to by Falcon.
5. Adjustments to Taxes Subsequent to Final Computation.
(a) In General. In the event of adjustments to Taxes for an Old
Period Subsequent to the Final Computation thereof, whether such
adjustments arise pursuant to an IRS audit, a court proceeding, a
carryback, an amended Return or otherwise ("Tax Adjustments"), the
allocation of liabilities under the existing Tax Sharing Agreement and
this Agreement shall be recomputed and payments between the parties
shall be made as provided in the existing Tax Sharing Agreement and
this Agreement, subject to the following modifications:
(1) The amount owing by Falcon to GAMI and Eagle shall be
computed within 15 days after the time that GAMI or Eagle has
notified Falcon that it has realized a "Tax Detriment" (such Tax
Detriment being equal to the excess of: (x) the last made
computation of Tax for such Period after taking into account the
Tax Adjustments; over (y) the last made computation of Tax for
such Period determined without taking into account such Tax
Adjustments). GAMI and Eagle are deemed to realize a Tax
Detriment by either a payment of such Tax Detriment to the IRS,
or by an application by the IRS of such Tax Detriment against a
refund, and shall be paid 15 days after the date of such
computation.
(2) If an adjustment results in additional foreign tax imposed on
Falcon, then GAMI and Eagle shall pay Falcon either: (a) 100% of
such amount, if such amount gives rise to a credit against tax,
or (b) the Maximum Applicable Corporate Tax Rate applied to such
amount, if such amount gives rise to a loss or deduction (such
payment being referred to as the "Foreign Tax Refund").
Notwithstanding the foregoing, the maximum amount of any Foreign
Tax Refund under this Section 5(a)(2) from GAMI and Eagle to
Falcon shall not exceed the amount of any tax benefit realized by
GAMI and Eagle as a result of the imposition of such foreign tax
on Falcon. To the extent GAMI and Eagle have paid to Falcon a
Foreign Tax Refund in excess of the maximum amount payable under
this Section 5(a)(2), Falcon shall promptly return such excess
to GAMI and Eagle,
(3) If an adjustment occurs by reason of a carryback of a loss or
deduction with respect to a Falcon Tax from a New Period to an
Old Period, then GAMI shall pay Falcon 100% of such amount,
if such amount is a credit against tax, and the maximum
applicable corporate tax rate applied to such amount, if such
amount is a loss or deduction (such payment being referred to as
the "Carryback Refund"). Notwithstanding the foregoing, the
maximum amount of any carryback refund under this Section 5(a)(3)
from GAMI to Falcon shall not exceed the amount of any tax
benefit realized by GAMI as a result of such carryback. To the
extent GAMI has paid to Falcon a Carryback Refund in excess of
the maximum amount payable under this Section 5(a)(3), Falcon
shall promptly return such excess to GAMI.
<PAGE> 5
(4) Interest and penalties imposed by law on the taxpayer or the
IRS with respect to any Tax (including with respect to the making
and/or filing of the related Return) and reasonable expenses
incurred by the parties in connection with seeking a refund of
Tax or contesting a proposed deficiency of Tax shall be treated
under the principles set forth in this Agreement applicable to
the related Tax and shall relate to the Period to which such Tax
relates. This Section 5(a)(4) shall not be construed to modify
the provisions of the other Sections of this Agreement.
(5) Notwithstanding the foregoing, no payment shall be
required to be made under this Section 5(a) unless a written
claim for such payment, along with all information and
documentation reasonably necessary to support such claim, is
served on the party requested to make such payment prior to the
later of: (x) the fifth anniversary of the date of this
Agreement, or (y) the expiration of the applicable Tax statute of
limitations (including extensions) with respect to such Period to
which such claim relates.
(b) Tax refunds and payments of deficiencies in taxes shall be
treated under the foregoing principles and payments between the
parties shall be made promptly and to the extent necessary to
effectuate such principles.
6. Cooperation/Disagreements.
(a) The parties shall cooperate fully with each other in all matters
relating to Taxes and in the determination of amounts payable
hereunder. If the parties are unable to agree as to the amount of any
Tax owing between them under this Agreement, then the parties shall
select a mutually acceptable "Big 6" accounting firm to determine such
amount. The costs of such determination shall be borne equally by
both parties.
(b) Any party involved in any formal or informal act or proceeding
relating to Tax matters which affects the other party shall promptly
give such other party notice thereof and keep such other party fully
and timely informed of developments. Specifically:
(1) Upon receipt by Falcon of a written notice of any pending or
threatened Tax audits of or assessments against Falcon for Taxes
allocable to GAMI or Eagle, or upon receipt by GAMI or Eagle of a
written notice of any Pending or threatened Tax audits of or
assessments against GAMI or Eagle for Taxes allocable to Falcon
(either, a "Potential Tax Liability"), Falcon (or GAMI or Eagle,
as the case may be) shall promptly give notice thereof to GAMI or
Eagle (or Falcon, as the case may be) (the "Tax Claim Notice").
The Tax Claim Notice shall contain information (to the extent
known to Falcon or GAMI or Eagle, as the case may be) describing
the Potential Tax Liability.
(2) Subject to subparagraph (3) hereof, GAMI shall have the
sole right to represent Falcon's interests in any Tax audit or
administrative or court proceeding relating to a Potential Tax
Liability, to employ counsel of its choice at its expense and to
control the conduct of such audit or proceeding, including
settlement or other disposition thereof. If GAMI elects to so
represent Falcon's interests, it shall within thirty (30) days of
delivery of any Tax Claim Notice (or sooner, if the nature of the
Potential Tax Liability so requires) notify Falcon of its intent
to do
<PAGE> 6
so, and Falcon shall cooperate in the defense against or
compromise of any claim in any such proceeding. In that event,
GAMI shall reasonably and in good faith consult with Falcon with
respect to the defense against or compromise of any such
Potential Tax Liability, and GAMI shall use its best efforts to
vigorously defend Falcon with respect to such Potential Tax
Liability. If GAMI elects not to represent Falcon's interests,
Falcon may pay, compromise or contest such Potential Tax
Liability in such manner as it deems appropriate (in its sole
discretion).
(3) Notwithstanding subparagraph (2) hereof, in respect of
a Potential Tax Liability relating to Returns other than
consolidated, combined or unitary Returns of GAMI or Eagle or
their affiliates which include Falcon, neither GAMI nor Eagle may
settle, compromise or otherwise dispose of any such liability,
without the consent of Falcon (which consent shall not be
unreasonably withheld or delayed), if such settlement, compromise
or other disposition would have an adverse effect on Falcon for
New Periods. In that event, GAMI or Eagle shall permit Falcon,
through counsel of its own choosing and at the sole expense of
Falcon, to participate in the settlement, compromise or other
disposition of such Potential Tax Liability.
7. Miscellaneous Matters
(a) If Falcon and/or any of the Falcon Subsidiaries is required to
file a consolidated, combined, or unitary state, local or foreign
income tax return with GAMI or Eagle, then this Agreement shall apply
with respect to such income tax in a manner similar to its application
hereunder with respect to the federal income tax, taking into account
concepts applicable under the state, local, or foreign tax laws.
(b) Notice of any claim under this Agreement must be received by the
party against whom such claim is made no later than the expiration of
the applicable Tax statute of limitations (if any) with respect to the
Tax matter underlying such claims.
(c) The representations, warranties, covenants and
agreements of the parties set forth in this Agreement shall
survive the Disaffiliation Date indefinitely.
(d) All notices, requests, demands and other
communications which are required or may be given under this
Agreement shall be given to GAMI at:
Great American Management and Investment, Inc.
Two North Riverside Plaza, Suite 600
Chicago, Illinois 60606
ATTN: Arthur A. Greenberg
<PAGE> 7
to Eagle at:
Eagle Industrial Products Corporation
Two North Riverside Plaza, Suite II 00
Chicago, Illinois 60606
ATTN: Sam A. Cottone
to Falcon at:
Falcon Building Products, Inc.
Two North Riverside Plaza, Suite II 00
Chicago, Illinois 60606
ATTN: Sam A. Cottone
(e) In the event that disaffiliation of Falcon from
the affiliated group of which GAMI is the common parent does
not occur as contemplated by this Agreement, then this
Agreement shall be void ab initio.
(f) This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective
successors and assigns.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
<PAGE> 8
GREAT AMERICAN MANAGEMENT AND
INVESTMENT, INC.
By: \s\ Arthur A. Greenberg
--------------------------
Name: Arthur A. Greenberg
Title: Executive Vice President
EAGLE INDUSTRIAL PRODUCTS CORPORATION
O.D.E. MANUFACTURING
AMERACE CORPORATION
By: \s\ Anthony Navitsky
---------------------------
Name: Anthony Navitsky
Title: Vice President-Treasurer
FALCON BUILDING PRODUCTS, INC.
By: \s\ Gus J. Athas
------------------------
Name: Gus J. Athas
Title: Senior Vice-President
<PAGE> 1
Exhibit 10.17
FALCON BUILDING PRODUCTS, INC.
EMPLOYEE SAVINGS PLAN
(EFFECTIVE JANUARY 1, 1995)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - NAME, PURPOSE AND HISTORY OF PLAN 1
ARTICLE II - DEFINITIONS AND CONSTRUCTION 2
Section 2.01. Definitions 2
Section 2.02. Construction 5
ARTICLE III - PARTICIPATION 7
Section 3.01. Eligibility to Participate 7
Section 3.02. Election to Participate 7
ARTICLE IV - CONTRIBUTIONS 8
Section 4.01. Amount of Participant's Contributions 8
Section 4.02. Limitations on Pre-Tax Contributions 8
Section 4.03. Suspension of Contributions 9
Section 4.04. Payment of Elective Contributions to Trustee 9
Section 4.05. Employer Matching Contributions 10
Section 4.06. Limitations on Contributions For
Nondiscrimination Testing Purposes 10
Section 4.07. Maximum Annual Additions 15
Section 4.08. Rollover Contributions 18
ARTICLE V - TRUST AGREEMENT; INVESTMENT FUNDS
AND PARTICIPANT INVESTMENT ELECTIONS 19
Section 5.01. Trust Agreement 19
Section 5.02. Investment Funds 19
Section 5.03. Allocation and Reallocation of Contributions
Among Investment Funds 19
Section 5.04. Fees and Expenses 20
Section 5.05. Exclusive Benefit and Funding Policy 20
ARTICLE VI - PARTICIPANT ACCOUNTS 21
Section 6.01. Establishment of Accounts 21
Section 6.02. Crediting of Accounts 21
Section 6.03. Valuation of Accounts 21
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VII - VESTING; DISTRIBUTION OF ACCOUNTS 22
Section 7.01. Vesting 22
Section 7.02. Distribution Upon Termination of Employment 22
Section 7.03. Designation of Beneficiary 22
Section 7.04. Manner and Timing of Distributions 22
Section 7.05. Special Rules for Interests Derived from
Prior Plans 24
Section 7.06. Disability Retirement Benefit 24
Section 7.07. Direct Rollovers 24
ARTICLE VIII - WITHDRAWALS AND LOANS 26
Section 8.01. Withdrawal of After-Tax Contributions 26
Section 8.02. Withdrawals After Age 59-1/2 26
Section 8.03. Hardship Withdrawals 26
Section 8.05 Payment of Existing Loans from Prior Plans
to Participants. 27
Section 8.06 Withdrawals of Prior Plan Amounts 28
ARTICLE IX - THE COMMITTEE 29
Section 9.01. Benefit Plans Committee 29
Section 9.02. Responsibility and Authority of the Committee 29
Section 9.03. Organization and Procedure. 30
Section 9.04. Delegation of Authority and Responsibility 30
Section 9.05. Use of Professional Services 30
Section 9.06. Fees and Expenses 30
Section 9.07. Claims Procedure 31
ARTICLE X - AMENDMENTS AND TERMINATION 32
Section 10.01. Amendments and Termination 32
ARTICLE XI - MISCELLANEOUS 33
Section 11.01. Non-Guarantee of Employment 33
Section 11.02. Rights to Trust Assets 33
Section 11.03. Non-Recommendation of Investment 33
Section 11.04. Indemnification of Committee 33
Section 11.05. Non-Alienation 34
Section 11.06. Facility of Payment 34
Section 11.07. Board Action 34
Section 11.08. Mergers, Consolidations and Transfer of
Plan Assets 34
Section 11.09. Fiduciaries 35
Section 11.10. Unclaimed Benefits 35
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE XII - TOP-HEAVY PLAN PROVISIONS 36
Section 12.01. Effect of Top-Heavy Status 36
Section 12.02. Additional Definitions 36
Section 12.03. Minimum Benefits 37
Section 12.04. Maximum Benefit Limits 37
</TABLE>
<PAGE> 5
FALCON BUILDING PRODUCTS, INC.
EMPLOYEE SAVINGS PLAN
ARTICLE I
NAME, PURPOSE AND HISTORY OF PLAN
Falcon Building Products, Inc. (the "Company") hereby establishes the
Falcon Building Products, Inc. Employee Savings Plan (the "Plan"), effective
January 1, 1995 (the "Effective Date"), for the benefit of employees of the
Company and its Affiliates that adopt the Plan (the "Employers") and their
beneficiaries. Its purpose is to encourage Employee savings for retirement on
a tax-advantaged basis. Employees of an Employer who were participants in the
Eagle Industries, Inc. Employee Savings Plan immediately before the Effective
Date became Participants under this Plan as of the Effective Date. The Company
intends that this Plan and the related Trust qualify under all applicable
provisions of the Internal Revenue Code of 1986 and the Employee Retirement
Income Security Act of 1974 and that each of the terms of this Plan and the
Trust Agreement shall be so interpreted. This Plan is intended to be a profit
sharing plan with a qualified cash or deferred arrangement meeting the
requirements of Code Sections 401(a) and 401(k).
<PAGE> 6
ARTICLE II
DEFINITIONS AND CONSTRUCTION
SECTION 2.01. DEFINITIONS. For purposes of the Plan, unless the context
clearly or necessarily indicates otherwise, the following words and phrases
shall have the meaning set forth in the definitions below:
(a) "Account" shall mean the separate Account or Accounts to be maintained
under the Plan for each Participant as provided in Section 6.02.
(b) "Affiliate" shall mean (i) each corporation or unincorporated trade or
business which is a member of either a controlled group of corporations, a
group of trades or businesses under common control, (ii) an affiliated service
group within the meaning of Code Sections 414(b), (c) or (m), which includes
the Company, or any other entity required to be aggregated with the Company
pursuant to regulations under Code Section 414(o), and (iii) Eagle Industries,
Inc.
(c) "After-Tax Contributions" shall mean after-tax contributions by the
Participant pursuant to the Participant's authorization to make regular payroll
deductions from his Compensation pursuant to Section 4.01(b).
(d) "Beneficiary" shall mean the person or persons designated on Timely
Notice by a Participant to receive benefits in the event of the Participant's
death, as provided in Section 7.03.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Committee" shall mean the Benefit Plans Committee of the Company,
which is described in Section 9.01 of the Plan.
(h) "Company" shall mean Falcon Building Products, Inc., a Delaware
corporation.
(i) "Compensation" shall mean the compensation reported for a calendar
year on Form W-2 as paid by an Employer to the Participant, exclusive of any
severance pay, moving allowance, car allowance, awards or prizes, or imputed
income under Code Sections 79 or 132 and such other similar payments under the
code and regulations issued thereunder, but inclusive of any before-tax
contributions made under this Plan, any other 401(k) plan or any life insurance
or medical plan maintained by the Company pursuant to Code Section 125.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the
Compensation of each Employee taken into account under the Plan shall not
exceed the Omnibus Budget Reconciliation Act of 1993 ("OBRA '93") annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner of the Internal Revenue Service for increases in
the cost of living in accordance with Code Section 401(a)(17)(B). The
cost-of-living adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over
<PAGE> 7
which Compensation is determined (the "determination period") beginning
in that calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a
fraction, the numerator of which is the number of months in the determination
period, and the denominator of which is 12. Any reference in this Plan to the
limitation under Code Section 401(a)(17) shall mean the OBRA '93 annual
compensation limit set forth in this provision.
In determining the Compensation of an Employee for purposes of this
limitation, the rules of Code Section 414(q)(6) shall apply, except that, in
applying such rules, the term "family" shall include only the spouse of the
Participant and any lineal descendants of the Participant who have not attained
age 19 before the close of the Plan Year. If, as a result of the application
of these rules, the adjusted dollar limitation of Code Section 4.01(a)(17)
applicable to family members is exceeded, then the dollar limitation shall be
prorated among the affected individuals in proportion to each such individual's
Compensation as determined under this subparagraph (k) before applying the
limitation.
(j) "Effective Date" shall mean January 1, 1995.
(k) "Elective Contributions" shall mean amounts contributed under the Plan
by Employers pursuant to a Participant's authorization under Section 401(a).
Employee Elective Contributions shall consist of After-Tax Contributions and
Pre-Tax Contributions.
(l) "Employee" shall mean any individual who is in the employ of an
Employer, except (i) individuals in a unit of employees covered by a collective
bargaining agreement, unless the collective bargaining agreement specifically
provides for such employees to participate in the Plan, (ii) individuals in a
group that has been excluded by the Board from participation in the Plan and
(iii) leased employees (within the meaning of Code Section 414(n)(2)) of an
Employer, unless the participation of leased employees is required as a
condition of the Plan's qualification under Code Section 401(a).
(m) "Employer" shall mean the Company and each other Affiliate, which,
with the approval of the Company (which approval may be given by the President
or a Vice President of the Company), adopts this Plan by resolution of its
board of directors. As of the Effective date, the participating Employers are
those identified on Appendix A to the Plan.
(n) "Employer Matching Contributions" shall mean amounts contributed under
the Plan by Employers as provided in Article IV. The term shall also be deemed
to include forfeitures applied to reduce the amount of an Employer's
contributions otherwise due under the Plan.
(o) "Employment Commencement Date" shall mean the date on which an
Employee first performs an Hour of Service.
(p) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended. Reference to specific provisions of ERISA shall be deemed
to refer to that provision or any successor provision under any amendment to
ERISA.
(q) "Highly Compensated Employee" shall mean an individual within the
meaning of Code Section 414(q), as described in Section 4.06 of this Plan.
<PAGE> 8
(r) "Hour of Service" shall mean:
(i) Each hour for which an Employee is paid or entitled
to payment, for the performance of duties for the Company or
an Affiliate, during the applicable computation period.
These hours shall be credited to the Employee for the
computation period in which the duties were performed;
(ii) Each hour for which the Employee is paid or
entitled to payment by the Company or an Affiliate, either
directly or indirectly, on account of a period of time
during which no duties are performed (irrespective of
whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of
absence), but excluding payments under a plan maintained
solely for the purpose of complying with workmen's
compensation, unemployment compensation, or disability
insurance laws and also excluding payments for medical or
medically related expenses. No more than 501 Hours of
Service shall be credited under this paragraph (ii) for any
single computation period whether or not such period occurs
in a single computation period); and
(iii) Each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to by the
Company or an Affiliate.
The same hours of service shall not be credited under clause (i) or clause
(ii), as the case may be, and under clause (iii). Further, no more than 501
Hours of Service shall be credited for payment of back pay to the extent it is
agreed to or awarded for a period of time during which an Employee did not or
would not have performed duties. These Hours shall be credited to the Employee
for the computation period or periods to which the award or agreement pertains
rather than the computation period in which the award, agreement or payment is
made. For purposes of determining eligibility to participate, an Employee who
is on leave of absence under the Family and Medical Leave Act of 1993 shall be
credited with Hours of Service for the hours the Employee would have worked had
he not taken the leave. Hours of Service shall be computed and credited in
accordance with paragraphs (b) and (c) of Section 2530.200b-2 of the Department
of Labor Regulations.
(s) "Investment Fund" means an unsegregated fund established at the
direction of the Committee pursuant to Section 5.02, and invested in
securities, insurance contracts, mutual fund shares or other property of such
type and characteristics as the Committee shall determine.
(t) "Normal Retirement Age" shall mean the date on which the Participant
attains age 65.
(u) "Participant" shall mean an Employee who has satisfied the
requirements of Section 3.01 and has made Elective Contributions under the
Plan. The term shall also include any other person whose interests derived
from participation in a prior plan are transferred or rolled over into the
Plan. A person who has become a Participant under the Plan shall
<PAGE> 9
continue to be a Participant until his entire Account has been distributed or
forfeited under the Plan.
(v) "Part-Time Employee" shall mean an Employee who is regularly scheduled
to perform less than 20 Hours of Service per week or whose work schedule,
because of its seasonal or temporary nature, is expected to result in
completion of fewer than 1,000 Hours of Service per year.
(w) "Plan" shall mean the Falcon Building Products, Inc. Employee Savings
Plan.
(x) "Plan Year" shall mean the calendar year.
(y) "Pre-Tax Contributions" shall mean amounts contributed by the
Participant's Employer pursuant to the Participant's authorization and
direction under Section 4.01(a) to make such contribution on the Participant's
behalf in lieu of payment of an equal amount directly to the Participant.
(aa) "Timely Notice" shall mean a notice in writing on a form prescribed
by the Committee and filed at such places and at such reasonable times as shall
be required by the rules of the Committee.
(bb) "Trust" shall mean the trust fund established pursuant to the
provisions of this Plan, as it may be amended from time to time.
(cc) "Trustee" shall mean the trustee under the Trust.
(dd) "Valuation Date" shall mean each business day of the Plan Year.
SECTION 2.02. CONSTRUCTION.
(a) Where appearing in this Plan, the masculine shall include the feminine
and the plural shall include the singular, unless the context clearly indicates
otherwise. Titles of articles and sections are for reference purposes only.
(b) The Plan is intended to be a qualified profit sharing plan meeting the
requirements of Code Section 401(a) and to contain a "qualified cash or
deferred arrangement" meeting the requirements of Code Section 401(k). The
Plan shall be interpreted so as to comply with the applicable requirements of
those sections where the requirements are not clearly contrary to the express
terms of the Plan. In all other respects, the Plan shall be construed and its
validity determined according to the laws of the State of Illinois to the
extent those laws are not preempted by federal law. If any provision of this
Plan is held illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining provisions of the Plan, and the Plan shall be
construed and enforced as if the illegal or invalid provisions had not been
included in the Plan.
<PAGE> 10
ARTICLE III
PARTICIPATION
SECTION 3.01. ELIGIBILITY TO PARTICIPATE.
(a) Any Employee or Part-Time Employee who was a participant in the Eagle
Industries, Inc. Employee Savings Plan immediately before the Effective Date
shall be eligible to participate in the Plan as of the Effective Date.
(b) Any other Employee, other than a Part-Time Employee, shall be eligible
to participate in the Plan as of the first January 1 or July 1 that is at least
30 days after his Employment Commencement Date.
(c) Any other Part-Time Employee shall be eligible to participate in the
Plan as of the last day of his "qualifying period." For purposes of this
subsection, the "qualifying period" of a Part-Time Employee is the first
12-consecutive-month period beginning on his Employment Commencement Date, or
any anniversary thereof, during which he completes at least 1,000 Hours of
Service.
(d) A former Participant whose employment has terminated and who is
subsequently reemployed shall reenter the Plan as a Participant on the date of
his reemployment. If a reemployed Employee was not formerly a Participant in
the Plan, he shall be considered a new Employee and required to meet the
requirements of this Section 3.01 to be eligible to participate in the Plan.
SECTION 3.02. ELECTION TO PARTICIPATE. An Employee may elect to
participate in the Plan by filing his election with his Employer on a Timely
Notice to make Basic Contributions on the Participant's behalf, as provided in
Section 4.01. Elections filed by Employees and Part-Time Employees eligible to
participate under Section 3.01(a) of the Plan shall be effective as of the
Effective Date. Elections filed by all other Employees and Part-Time Employees
shall be effective with the January 1 or July 1 that next follows the later of
(i) the filing of the election or (ii) the date as of which he shall have
become eligible to participate in the Plan as determined under Section 3.01(b)
or (c), as applicable. Any such election shall remain in effect so long as the
Participant remains an Employee.
<PAGE> 11
ARTICLE IV
CONTRIBUTIONS
SECTION 4.01. AMOUNT OF PARTICIPANT'S CONTRIBUTIONS.
(a) Elective Contributions. Subject to the limitations described in
Sections 4.02, 4.06 and 4.07, a Participant may elect to make Elective
Contributions at a rate from two to twelve percent of the Participant's
Compensation. Such Elective Contributions may be either Pre-Tax
Contributions, After-Tax Contributions, or both, in any combination. Pre-Tax
Contributions shall be made by the Participant's Employer in lieu of payment of
an equal amount directly to the Participant as current compensation, pursuant
to authorization by the Participant on a form provided by the Committee.
After-Tax Contributions shall be made for the Participant through regular
payroll deductions, pursuant to authorization by the Participant on a form
provided by the Committee. If during a Plan Year a Participant's Pre-Tax
Contributions exceed the limitations of Code Section 402(g), as described in
Section 4.02 of this Plan, all further contributions for the year shall
automatically be made in the form of After-Tax Contributions.
(b) Change in Rate of Contributions. The designated rates of a
Participant's Elective Contributions may be changed as of the first day of any
month following the Company's receipt of Timely Notice, but shall remain in
effect for successive periods of time unless changed.
SECTION 4.02. LIMITATIONS ON PRE-TAX CONTRIBUTIONS.
(a) No Participant shall be permitted to have Pre-Tax Contributions made
under the Plan and any other plan maintained by the Employer during any taxable
year in excess of the dollar limitation contained in Code Section 402(g) as in
effect at the beginning of such taxable year.
(b) Excess Elective Deferrals under this Plan, plus any income and minus
any losses allocable thereto, may be distributed to the Participant no later
than April 15 of the following year or, as soon as practicable thereafter.
(c) Definitions.
(i) "Excess Elective Deferrals" shall mean those
Pre-Tax Contributions that are includable in a Participant's
gross income because the contributions exceed the dollar
limitation of Code Section 402(g) for the taxable year.
Excess Elective Deferrals shall be treated as Annual
Additions under the Plan.
(ii) "Elective Deferrals" shall mean, with respect to any
taxable year, the sum of all employer contributions
(including those of another employer who is not an Employer
who has adopted this Plan) made on behalf of a Participant
pursuant to an election to defer under any qualified cash or
deferred arrangement under Code Section 401(k), any
simplified employee pension cash or deferred arrangement
under Code Section 402(h)(l)(B), any eligible deferred
compensation plan under
<PAGE> 12
Code Section 457 and any plan as described under
Section 501(c)(18), and any employer contributions made
on the behalf of a Participant under a salary reduction
agreement for the purchase of an annuity contract under
Code Section 403(b).
(d) Determination of Income or Loss. Excess Elective Deferrals shall be
adjusted for any income or loss up to the date of distribution using the method
described in this subsection or any other method permitted under Treasury
Regulation Section 1.402(g)-1(e)(5). The income or loss allocable to Excess
Elective Deferrals is the sum of: (i) income or loss allocable to the
Participant's Pre-Tax Contributions for the taxable year multiplied by a
fraction, the numerator of which is the Participant's Excess Elective Deferrals
for the year and the denominator of which is the Participant's Account balance
attributable to Pre-Tax Contributions without regard to any income or loss
occurring during the taxable year; and (ii) ten percent of the amount
determined under (i) multiplied by the number of whole calendar months between
the end of the Participant's taxable year and the date of distribution,
counting the month of distribution if distribution occurs after the 15th of the
month.
SECTION 4.03. SUSPENSION OF CONTRIBUTIONS.
(a) A Participant's Elective Contributions shall be suspended if either of
the following occurs:
(i) the Participant elects, in the form of a Timely
Notice, to suspend all of his Elective Contributions being
made under Section 4.01;
(ii) the Participant receives a hardship withdrawal
under Section 8.03; or
(iii) the Participant fails to qualify as an Employee.
Suspensions shall be effective as soon as practicable following such
occurrence. Participants will not be permitted to make up suspended
contributions. A Participant's Elective Contributions shall be suspended for
the period described in Section 8.03(d) following his receipt of a hardship
withdrawal.
(b) A Participant whose contributions have been suspended for reasons
other than a hardship withdrawal under Section 8.03 may resume making
contributions as of the next January 1 or July 1 following his provision of
Timely Notice; provided, that he is then an Employee as defined in the Plan.
SECTION 4.04. PAYMENT OF ELECTIVE CONTRIBUTIONS TO TRUSTEE. Each Employer
shall periodically (but not less frequently than monthly), remit to the Trustee
(or to the Company, if the Company has remitted to the Trustee) the amounts
withheld from the Compensation of its Employees as Elective Contributions under
the Plan. Such amounts shall be credited to the Accounts of Participants on a
monthly basis.
<PAGE> 13
SECTION 4.05. EMPLOYER MATCHING CONTRIBUTIONS.
(a) Each Employer shall make contributions for each of its eligible
Employees in an amount equal to 50 percent of the Employee's Elective
Contributions to a maximum of six percent of his Compensation. Amounts
forfeited from the Accounts of Employees of the Employer under Section 11.10
shall be applied to reduce the amount of the Employer's Matching Contributions
otherwise payable under the Plan.
(b) Employer Matching Contributions shall be made in cash on or before the
due date of the Employer's tax return for the year.
(c) Employer Matching Contributions under the Plan are conditioned upon
their deductibility under Code Section 404. Notwithstanding any provision
herein to the contrary, to the extent a deduction is disallowed, contributions
may be returned to the Employer within one year after the disallowance.
(d) Employer Matching Contributions shall be forfeited to the extent they
are based on Excess Elective Deferrals under Section 4.02(c), Pre-Tax
Contributions that are Excess Contributions or After-Tax Contributions that are
Excess Aggregate Contributions distributed under Section 4.06(h). Any
forfeitures that occur will be used to reduce Employer Matching Contributions
for the next Plan Year.
SECTION 4.06. LIMITATIONS ON CONTRIBUTIONS FOR NONDISCRIMINATION TESTING
PURPOSES.
(a) Employer Matching Contributions, Pre-Tax Contributions and After-Tax
Contributions allocated to the Accounts of Highly-Compensated Employees shall
not in any Plan Year exceed the limits specified in this Section 4.06. The
Committee may make the adjustments authorized in this Section 4.06 to ensure
that the limits of Subsections (b) (the "Actual Deferral Percentage test") and
(c) (the "Average Contribution Percentage test") are not exceeded, regardless
of whether such adjustments affect some Participants more than others. This
Section shall be administered and interpreted in accordance with Code Sections
401(k) and 401(m).
(b) The Actual Deferral Percentage of the Highly-Compensated Employees
shall not exceed, in any Plan Year, the greater of:
(i) The Actual Deferral Percentage of all other
Participants for the Plan Year multiplied by 1.25; or
(ii) The lesser of the (A) Actual Deferral Percentage
of all other Participants for the Plan Year multiplied by
two (2) and (B) the Actual Deferral Percentage of all other
Participants for the Plan Year plus two (2) percentage
points, or such lesser amount as the Secretary of the
Treasury shall prescribe to prevent the multiple use of this
alternative limitation with respect to any
Highly-Compensated Employee.
(c) The Average Contribution Percentage of the Highly Compensated Employee
shall not exceed, in any Plan Year, the greater of:
<PAGE> 14
(i) The Average Contribution Percentage of all other
Participants for the Plan Year multiplied by 1.25; or
(ii) The lesser of (A) the Average Contribution
Percentage of all other Participants for the Plan Year
multiplied by two (2) and (B) the Average Contribution
Percentage of all other Participants for the Plan Year plus
two (2) percentage points, or such lesser amounts as the
Secretary of the Treasury shall prescribe to prevent the
multiple use of this alternative limitation with respect to
any Highly-Compensated Employee.
(d) The following terms shall have the meanings specified herein for
purposes of this Section 4.06.
(i) Actual Deferral Percentage. The average, for a
specified group of Participants for a Plan Year, of the
ratios (calculated separately for each Participant in the
group) of (1) the amount of Employer contributions actually
paid over to the Trust on behalf of a Participant for the
Plan Year to (2) the Participant's compensation for the Plan
Year, as determined under Treasury Regulation Section
1.401(k)-1(g)(2). For this purpose, Employer contributions
on behalf of any Participant shall include Pre-Tax
Contributions, including amounts in excess of the dollar
limitation contained in Section 4.02(g) of the Code
described in Section 4.02, but excluding Pre-Tax
Contributions that are taken into account in the Average
Contribution Percentage test (provided that the Actual
Deferral Percentage test is satisfied both with and without
exclusion of these Pre-Tax Contributions). For purposes of
computing Actual Deferral Percentages, an Employee who would
be a Participant but for the failure to make Pre-Tax
Contributions shall be treated as a Participant on whose
behalf no Pre-Tax Contributions are made.
(ii) Average Contribution Percentage. The average for
a designated group of Employees of the ratios (calculated
separately for each Employee in the group) of (1) the sum of
(A) the Employer Matching Contributions paid and credited to
the Account of an Employee for a Plan Year, (B) After-Tax
Contributions credited to the Account of the Employee for a
Plan Year and (C) any Pre-Tax Contributions which are to be
taken into account for purposes of the Average Contribution
Percentage Test, to (2) the Employee's compensation for the
Plan Year, as determined under Treasury Regulation Section
1.401(k)-1(g)(2). Participant Pre-Tax Contributions may be
used in the Average Contribution Percentage test provided
that the Actual Deferral Percentage test is met before the
Pre-Tax Contributions are used in the Average Contribution
Percentage test and continues to be met following the
exclusion of those contributions that are used to meet the
Average Contribution Percentage test.
<PAGE> 15
(iii) Highly-Compensated Employee. The term Highly
Compensated Employee shall mean Highly Compensated Active
Employees and Highly Compensated Former Employees.
A Highly Compensated Active Employee includes any
Employee who performs service for the Employer during the
determination year and who, during the look-back year: (i)
received compensation from the Employer in excess of $75,000
(as adjusted under Code Section 415(d)); (ii) received
compensation from the Employer in excess of $50,000 (as
adjusted under Code Section 415(d)) and was a member of the
top paid group for the year; or (iii) was an officer of the
Employer and received compensation during the year that is
greater than 50 percent of the dollar limitation in effect
under Code Section 415(b)(1)(A). The term Highly
Compensated Employee also includes: (i) Employees who are
both described in the preceding sentence if the term
"determination year" is substituted for the term "look-back
year" and the Employee is one of the 100 employees who
received the most compensation from the Employer during the
determination year; and (ii) employees who are five percent
owners at any time during the look-back year or
determination year.
If no officer has satisfied the compensation
requirement of (iii) above during either a determination
year or look-back year, the highest paid officer for the
year shall be treated as a Highly Compensated Employee.
For purposes of this Section, the determination year
shall be the Plan Year. The look-back year shall be the
twelve-month period immediately preceding the determination
year.
A Highly Compensated Former Employee includes any
Employee who separated from service (or was deemed to have
separated) prior to the determination year, performs no
service for the Employer during the determination year, and
was a Highly Compensated Active Employee for either the
separation year or any determination year ending on or after
the Employee's 55th birthday.
If an Employee is, during a determination year or
look-back year, a family member of either a five percent
owner who is an active or former Employee or a Highly
Compensated Employee who is one of the ten most Highly
Compensated Employees ranked on the basis of compensation
paid by the Employer during the year, then the family member
and the five percent owner or top-ten Highly Compensated
Employee shall be aggregated. In such case, the family
member and five percent owner or top-ten Highly Compensated
Employee shall be treated as a single employee receiving
compensation and plan contributions or benefits equal to the
sum of such compensation and contributions or benefits of
the family member and five percent owner or top-ten Highly
Compensated Employee. For
<PAGE> 16
purposes of this Section, family
member includes the spouse, lineal ascendants and
descendants of the Employee or former Employee and the
spouses of such lineal ascendants and descendants.
The determination of who is a Highly Compensated
Employee, including the determinations of the number and
identity of Employees in the top-paid group, the top ten
Employees, the number of Employees treated as officers and
the compensation that is considered, will be made in
accordance with Code Section 414(q) and the regulations
thereunder.
(e) For purposes of determining compliance with the Actual Deferral
Percentage Test and the Average Contribution Percentage test, Pre-Tax
Contributions and Employer Matching Contributions must be made before the last
day of the twelve-month period immediately following the Plan Year to which the
contributions relate.
(f) The Committee shall maintain records sufficient to demonstrate
satisfaction of the Actual Deferral Percentage test and the Average
Contribution Percentage test and the amount of Pre-Tax Contributions, After-Tax
Contributions and Employer Matching Contributions used in the test.
(g) For purposes of determining the Actual Deferral Percentage or Average
Contribution Percentage of a Participant who is a five percent owner or one of
the ten most highly paid Highly Compensated Employees, the Pre-Tax
Contributions, After-Tax Contributions, Employer Matching Contributions and
Compensation of the Participant shall include the Pre-Tax Contributions,
After-Tax Contributions, Employer Matching Contributions and Compensation for
the Plan Year of family members (as defined in Code Section 414(q)(6)). Family
members, with respect to Highly Compensated Employees, shall be disregarded as
separate employees in determining the Actual Deferral Percentages and Average
Contribution Percentages of Participants who are Highly Compensated Employees
and Participants who are not Highly Compensated Employees.
(h) Treatment of Excess Contributions. If Employer Matching
Contributions, After-Tax Contributions or Pre-Tax Contributions exceed any of
the limits specified in Subsections 4.06(b) and (c) for a Plan Year, then the
Plan Administrator shall correct the excess in accordance with the provisions
of this Subsection (h).
(i) Notwithstanding any other provision of this Plan, unless
Pre-Tax Contributions are recharacterized as After-Tax
Contributions under Subsection (iv) below, or Employer
Matching Contributions are treated as Qualified Matching
Contributions as provided under Subsection (v) below, excess
contributions and excess aggregate contributions (as defined
in subsections (ii) and (iii) below), attributable to
Pre-Tax Contributions and After-Tax Contributions plus any
income and minus any loss allocable thereto, such income or
loss determined and allocated in accordance with Treasury
Regulation Section 1.401(k)-1(f)(4)(ii), shall be
distributed no later than the last day of each Plan Year to
Participants to whose accounts such excess contributions and
excess aggregate contributions were allocated for the
<PAGE> 17
preceding Plan Year. Employer Matching Contributions based
on the Pre-Tax Contributions and After-Tax Contributions
distributed as excess contributions and excess aggregate
contributions shall be forfeited as provided under Section
4.05(d). Excess contributions and excess aggregate
contributions shall be allocated to Participants who are
subject to the family member aggregation rules of Code
Section 414(q)(6) in the manner prescribed by the
regulations. If the excess contributions and excess
aggregate contributions are distributed more than 2-1/2
months after the last day of the Plan Year in which the
excess amounts arose, a ten percent excise tax will be
imposed on the Employer maintaining the Plan with respect to
those amounts. Excess contributions and excess aggregate
contributions shall be treated as Annual Additions under the
plan.
(ii) "Excess contributions" shall mean, with respect to any
Plan Year, the excess of:
(A) The aggregate amount of Employer
contributions actually taken into account in computing
the Actual Deferral Percentage of Highly Compensated
Employees for the Plan Year, over
(B) The maximum amount of the contributions
permitted by the Actual Deferral Percentage test
(determined by reducing contributions made on behalf
of Highly Compensated Employees in order of the Actual
Deferral Percentages, beginning with the highest of
such percentages).
(iii) "Excess aggregate contributions" shall mean, with
respect to any Plan Year, the excess of:
(A) The aggregate amount of Employer
contributions taken into account in computing the
numerator of the Average Contribution Percentage
actually made on behalf of Highly Compensated
Employees for the Plan Year, over
(B) The maximum amount of Employer contributions
permitted by the Average Contribution Percentage test
(determined by reducing contributions made on behalf
of Highly Compensated Employees in order of their
Contribution Percentages beginning with the highest of
such percentages).
(iv) A Participant may treat his or her excess contributions
as an amount distributed to the Participant and then
contributed by the Participant to the Plan. Recharacterized
amounts will remain nonforfeitable and subject to the same
distribution rules as Pre-Tax Contributions. Amounts may
not be recharacterized by a Highly Compensated Employee to
the extent that the amount, in combination with an After-Tax
Contribution made by that Employee, would exceed
<PAGE> 18
any stated limit under the Plan as After-Tax
Contributions. Recharacterization must occur no later than
2-1/2 months after the last day of the Plan Year in which
the excess contributions arose, and is deemed to occur no
earlier than the date the last Highly Compensated Employee
is informed in writing of the amount recharacterized and the
consequences thereof. Recharacterized amounts will be
taxable to the Participant for the Participant's tax year in
which the Participant would have received them in cash.
(v) The Plan Administrator may, in its sole discretion,
elect to treat any portion of the Employer Matching
Contributions as Qualified Matching Contributions to be
taken into account for the Actual Deferral Percentage test
to the extent necessary to satisfy the requirements of this
Section 4.06. To the extent Employer Matching Contributions
are treated as Qualified Matching Contributions and taken
into account for the Actual Deferral Percentage test, they
may not be taken into account for the Average Contribution
Percentage test. To the extent Employer Matching
Contributions are treated as Qualified Matching
Contributions they shall be allocated to Participants'
Accounts within the Plan Year to which they relate and shall
be paid to the Trust no later than 12 months after the end
of the Plan Year to which they relate.
SECTION 4.07. MAXIMUM ANNUAL ADDITIONS.
(a) The Annual Addition to the Accounts of any Participant for a
Limitation Year, when added to the Annual Additions to his accounts under all
other defined contribution plans (if any) maintained by the Employer, may not
exceed the Maximum Permissible Amount. In addition, in the case of a
Participant who also participates in a defined benefit plan maintained by the
Employer, the Annual Addition for a Limitation Year will, if necessary, be
further limited so that the sum of the Defined Contribution Plan Fraction and
the Defined Benefit Plan Fraction for the Limitation Year does not exceed 1.0.
(b) Definitions. For purposes of this Article, the following definitions
and rules of interpretation shall apply:
(i) Annual Additions. The sum of the following amounts
credited to a Participant's Account for the Limitation Year:
(A) Employer contributions;
(B) Employee contributions; and
(C) Forfeitures.
Annual additions shall also include (i) any amounts
allocated to an individual medical account, as defined in
Code Section 415(l)(2), which is part of a pension or
annuity plan maintained by an Employer, and (ii) amounts
derived from contributions for post-retirement medical
benefits allocated to the separate account of a
<PAGE> 19
key employee (as defined in Code Section 419A(d)) under
a welfare benefit plan (as defined in Code Section 419(e))
maintained by an Employer.
(ii) Compensation. A Participant's earned income,
wages, salaries and fees for professional services and other
amounts received for personal service actually rendered in
the course of employment with the Employer maintaining the
Plan (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums,
tips and bonuses), and excluding the following:
(A) Employer contributions to a plan of deferred
compensation that are not includable in the Employee's
gross income for the taxable year in which
contributed, Employer contributions under a simplified
employee pension to the extent the contributions are
deductible by the Employee, or any distributions from
a plan of deferred compensation;
(B) Amounts realized from the exercise of a
nonqualified stock option, or when restricted stock
(or property) held by the Employee either becomes
freely transferable or is no longer subject to a
substantial risk of forfeiture;
(C) Amounts realized from the sale, exchange or
other disposition of stock acquired under a qualified
stock option; and
(D) Other amounts that receive special tax
benefits, or contributions made by the Employer
(whether or not under a compensation reduction
agreement) towards the purchase of an annuity
described in Code Section 403(b) (whether or not the
amounts are actually excludable from the gross income
of the Employee).
For purposes of applying the limitations of this
Article, Compensation for a Limitation Year is the
Compensation actually paid or includable in gross income
during the year.
(iii) Defined Benefit Fraction. A fraction, the
numerator of which is the projected annual benefit of the
Participant under all defined benefit plans (whether or not
terminated) maintained by the Employer, and the denominator
of which is the lesser of (i) the product of 1.25 multiplied
by the dollar limitation in effect under Code Section
415(b)(1)(A) for the Plan Year, or (ii) the product of 1.4
multiplied by the amount which may be taken into account
under Code Section 415(b)(1)(B) with respect to the
Participant under the Plan for the Plan Year.
<PAGE> 20
(iv) Defined Contribution Fraction. A fraction, the
numerator of which is the sum of the Annual Additions to the
Participant's accounts under defined contribution plans
(whether or not terminated) maintained by the Employer for
the current and all prior Limitation Years, and the
denominator of which is the sum of the lesser of the
following amounts determined for the limitation Year and all
prior Limitation Years of service with the Employer: (i)
the product of 1.25 multiplied by the dollar limitation in
effect under Code Section 415(c)(1)(A) for the Plan Year
(determined without regard to Code Section 415(c)(6)), or
(ii) the product under Code Section 415(c)(1)(B) (or Code
Section 415(c)(7), if applicable) with respect to the
Participant under the Plan for the Plan Year.
(v) Maximum Permissible Amount. The lesser of thirty
thousand dollars ($30,000) (or, if larger, one-fourth of the
dollar limitation in effect under Code Section 415(b)(1)(A))
or 25 percent of the Participant's Compensation for the
Limitation Year.
(vi) Limitation Year. The Plan Year.
(c) If the rules set forth in Subsections (a) or (b) would otherwise be
violated after making all possible adjustments under the terms of any defined
benefit plans, then the Participant's benefits under this Plan shall be reduced
by returning the Participant's After-Tax Contributions, if any, together with
the earnings thereon, and by forfeiting a pro rata portion of Employer Matching
Contributions made with respect thereto. If the return and forfeiture is not
sufficient to eliminate the violation, then the participant's benefits shall be
further reduced by returning the Participant's After-Tax Contributions, if any,
together with the earnings thereon, and by forfeiting a pro-rata portion of
Employer Matching Contributions made with respect thereto.
SECTION 4.08. ROLLOVER CONTRIBUTIONS. An Employee may roll over a cash
distribution from a qualified plan or conduit individual retirement account to
this Plan, provided that (a) the distribution is (i) received from a qualified
plan as an Eligible Rollover Distribution (as defined in Section 7.07(b)) and
(ii) rolled over directly from the qualified plan or within the 60 days
following the date the Employee received the distribution, or (b) the
distribution is (i) received from a conduit individual retirement account that
has no assets other than assets attributable to an Eligible Rollover
Distribution or a "qualified total distribution," within the meaning of Code
Section 402 as in effect before January 1, 1993, and had been deposited in the
conduit individual retirement account within 60 days of the date the Employee
received the distribution, plus earnings, (ii) eligible for tax free rollover
to a qualified plan, and (iii) rolled over within 60 days following the date
the Employee received the distribution. Before accepting a rollover
contribution, the Trustee may require the Employee to furnish satisfactory
evidence that the proposed transfer is in fact a rollover contribution that the
Code permits an Employee to make to a qualified plan. The foregoing
contributions, which shall be Rollover Contributions, shall be accounted for
separately and shall be credited to an Employee's Rollover Account. An Employee
shall not be permitted to withdraw any portion of his Rollover Account until
such time as the Employee is otherwise eligible to make a withdrawal from or
receive a distribution of his Account except as otherwise provided in Section
8.06. An Employee who has made a Rollover Contribution
<PAGE> 21
shall be deemed to be a Participant with respect to his Rollover
Account even if he is not otherwise a Participant. Notwithstanding the
foregoing, no rollover contribution shall be accepted by the Trustee that would
obligate this Plan to offer or provide a qualified joint and survivor annuity
or qualified preretirement survivor annuity form of benefit to any Participant.
<PAGE> 22
ARTICLE V
TRUST AGREEMENT; INVESTMENT FUNDS
AND PARTICIPANT INVESTMENT ELECTIONS
SECTION 5.01. TRUST AGREEMENT. The Company shall enter into a trust
agreement with a corporate trustee selected by the Board to act as Trustee.
The Trustee shall receive all Elective Contributions and all Employer Matching
Contributions and shall hold, manage, administer and invest the contributions,
reinvest any income, and make distributions in accordance with the provisions
of the Plan and the trust agreement. The trust agreement shall be in such form
and contain such provisions as the Board may deem necessary and appropriate to
effectuate the purposes of the Plan and to qualify the Plan and the Trust under
the Code.
SECTION 5.02. INVESTMENT FUNDS. The Committee shall establish two or
more Investment Funds and shall advise the Trustee in writing of the types of
investments to be made for each Investment Fund. The Committee may direct that
any such Investment Fund will be invested in one or more insurance contracts or
mutual funds selected by the Committee or may appoint one or more investment
managers to direct the investment of any Investment Fund. The Committee may at
any time add, delete or change the investment medium or investment manager of
any Investment Fund; provided, that if the change substantially changes the
characteristics of any Investment Fund, Participants utilizing the Fund shall
be notified and given an opportunity to reallocate their Account balances.
SECTION 5.03. ALLOCATION AND REALLOCATION OF CONTRIBUTIONS AMONG
INVESTMENT FUNDS.
(a) Allocation. On Timely Notice a Participant shall elect to allocate
all of his Elective Contributions and Employer Matching Contributions among
the Investment Funds established under Section 5.02 in whole multiples of one
percent of such Contributions. An election under this subsection may be
changed up to four times in any Plan Year, as of any Valuation Date, but shall
remain in effect for successive periods of time unless changed on Timely
Notice. If a Participant fails to direct the investment of contributions
subject to his direction or fails to replace any directions that may have been
suspended or revoked, then the contributions shall be invested in an Investment
Fund designated by the Committee that invests primarily in securities or other
property providing a fixed or guaranteed rate of return.
(b) Investment Fund Transfers. A Participant may on Timely Notice elect
to transfer his interests in any one or more Investment Funds to other
Investment Funds. Except to the extent that the conditions governing any
Investment Fund (such as a fund investing in guaranteed investment contracts
issued by an insurance company) may limit or prohibit the transfers, the
transfers may be made up to four times in any Plan Year, as of any Valuation
Date. The election shall be in such form as the Committee shall determine.
Any participant who terminates employment with the Company and/or any of its
Affiliates that have adopted the Plan and who has elected to defer distribution
of his Account under the Plan under Section 7.04, shall have his entire Account
invested in a money market fund designated by the Company for that purpose.
SECTION 5.04. FEES AND EXPENSES. Brokerage fees and other direct costs
of investment shall be paid by the Trustee out of that fund of the Trust to
which the cost is
<PAGE> 23
attributable. All other costs and expenses of the Plan including without
limitation the Trustee's fees and transfer taxes shall be paid by the Company.
SECTION 5.05. EXCLUSIVE BENEFIT AND FUNDING POLICY.
(a) All contributions under the Plan shall be paid to the Trust and all
property and funds of the Trust allocable to the Plan, including income from
investments and from all other sources, shall be managed solely in the interest
of Participants and their Beneficiaries and for the exclusive purpose of:
(i) providing benefits to Participants and their
Beneficiaries; and
(ii) defraying the reasonable expenses of administering the
Plan.
(b) To the extent not specifically set forth in the Plan or Trust, the
Trustee shall, after consultation with the Committee, establish the funding
policy for the Plan.
<PAGE> 24
ARTICLE VI
PARTICIPANT ACCOUNTS
SECTION 6.01. ESTABLISHMENT OF ACCOUNTS. A separate Account shall be
established and maintained in the name of each Participant. To the extent
necessary or appropriate to provide for the proper administration of the Plan,
the Account shall include separate balances for interests derived from Pre-tax
and After-tax Contributions and Employer Matching Contributions and such other
separate balances as the Committee shall determine. As soon as practicable
following the end of each Plan Year quarter, each Participant shall be provided
with a statement of his Account.
SECTION 6.02. CREDITING OF ACCOUNTS. The appropriate Account balances
shall be credited with the amounts of the Participant's Contributions as such
Contributions are received by the Trustee. The reallocation of a Participant's
Account among Investment Funds shall be appropriately credited as of the date
immediately following the effective date of the reallocation.
SECTION 6.03. VALUATION OF ACCOUNTS. Each Participant's Account shall be
valued and adjusted on each Valuation Date to preserve each Participant's
proportionate interest in the Investment Funds. As of each Valuation Date and
at the time of any reallocation among Investment Funds, under Section 5.03, the
Account balances of each Participant shall be adjusted to reflect the effect of
income, collected and accrued, realized and unrealized gains and losses,
expenses and all other transactions since the valuation preceding adjustment,
in such manner as the Committee shall determine.
<PAGE> 25
ARTICLE VII
VESTING; DISTRIBUTION OF ACCOUNTS
SECTION 7.01. VESTING. A Participant's right to the balances credited to
his Account shall at all times be fully vested and nonforfeitable.
SECTION 7.02. DISTRIBUTION UPON TERMINATION OF EMPLOYMENT. When a
Participant's employment with the Company and any Affiliates is terminated for
any reason (except an intercompany transfer between the Company or any
Affiliate and another Affiliate), including death, disability or retirement,
the entire balance in the Participant's Account shall be paid at the time and
in the manner specified in Section 7.04. If the termination occurs by reason
of the death of the Participant, or if the Participant dies before the
distribution is completed, distribution shall be made to the Participant's
Beneficiary.
SECTION 7.03. DESIGNATION OF BENEFICIARY. A Participant may designate
any person, trust and/or other entity as Beneficiary. Any such designation
shall be in writing and filed with the Committee on the form and in the manner
prescribed by the Committee, and may be revoked or changed at any time by the
Participant. Notwithstanding the foregoing, if the Participant has a spouse at
the time of his death, the spouse shall be the Participant's Beneficiary unless
(i) the spouse has consented in writing to the Participant's designation of a
different Beneficiary, (ii) the consent acknowledges the effect of the election
and is witnessed by a plan representative appointed by the Committee or by a
notary public, and (iii) the Participant is survived by the designated
Beneficiary designated. Any such consent shall be irrevocable, but shall be
effective only with respect to the specific Beneficiary designation, unless the
consent expressly permits designations by the Participant without any
requirement of further consent. If the Participant is not married at the time
of death and either no valid designation of Beneficiary is on file with the
Committee at the date of death or no designated Beneficiary survives the
Participant, the Participant's estate shall be the Beneficiary.
SECTION 7.04. MANNER AND TIMING OF DISTRIBUTIONS.
(a) All amounts becoming payable under Section 7.02 or Section 7.06 shall
be paid in the form of a lump sum cash distribution.
(b) Distributions under this Section 7.04 and under Section 7.06 shall be
made as soon as practicable after the Valuation Date that next follows the
Participant's termination of employment or date of Total and Permanent
Disability, whichever applies.
(c) Notwithstanding the foregoing, if the value of the Participant's
interests exceeds $3,500, no distribution shall be made before the
Participant's Normal Retirement Age, unless the prior written consent of the
Participant and his spouse, if any (or if either the Participant or the spouse
has died, the survivor) to the distribution has been obtained by the Plan
Administrator within the 90-day period ending on the date payments are to be
made or begin. The Plan Administrator shall notify the Participant of the right
to defer any distribution until the Participant's Normal Retirement Age. The
notification shall include a general description of the material features of,
and an explanation of the relative values of, the optional forms of benefit
under the Plan in a manner that would satisfy the notice requirements of Code
Section 417(a)(3). If the distribution is subject to the requirements of Code
Section 401(a)(11) and 417, the notice shall be provided no less than 30 days
and no
<PAGE> 26
more than 90 days before the date that benefit payments are to be made
or begin. If the distribution is one to which Code Section 401(a)(11) and 417
do not apply, the distribution may begin less than 30 days after the notice is
given; provided, that (i) the Committee clearly informs the Participant that he
has a right to a period of at least 30 days after receiving the notice to
consider the decision of whether to elect a distribution and a particular
distribution option, and (ii) the Participant, after receiving the notice,
affirmatively elects a distribution. If the Participant or Beneficiary do not
consent, distribution shall be made as soon as practicable after the
Participant attains Normal Retirement Age; provided, that distribution shall in
all events be completed not later than five years after the date of the
Participant's death. The Participant may elect to defer distribution past
Normal Retirement Age, but may not defer distribution past the time required by
Section 7.04(d). If the distribution is deferred beyond a Participant's
termination of employment, the Participant's entire Account shall be invested
in the Investment Fund designated by the Company for that purpose under Section
5.03(b).
(d) Notwithstanding any election to the contrary, payment of benefits to a
Participant shall begin no later than the April 1 next following the close of
the calendar year in which he attains age 70-1/2, whether or not the
Participant has retired.
(e) All distributions required under this Section 7.04 shall be determined
and made in accordance with the provisions of Code Section 401(a)(9) and the
regulations issued thereunder, including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the Treasury Regulations.
(f) Pre-Tax Contributions and income allocable thereto shall not be
distributed to Participants or Beneficiaries earlier than upon separation from
service, death or disability, or upon the occurrence of one of the following
events:
(i) The termination of the Plan without the establishment of
a successor defined contribution plan, as defined in Section
1.401(k)-l(d)(3) of the Treasury Regulations.
(ii) The disposition by the Company of substantially all of
the assets (within the meaning of Section
401(k)-l(d)(4)(iv)(A) of the Treasury Regulations) used in
the trade or business of the Company if the Company
continues to maintain this Plan after the disposition, but
only with respect to Employees who continue employment with
the corporation acquiring the assets.
(iii) The disposition by the Company of its interest in a
subsidiary (within the meaning of Section 409(d)(3) of the
Code) to an unrelated entity if the Company continues to
maintain this Plan, but only with respect to Employees who
continue employment with the subsidiary.
(iv) The attainment of age 59-1/2 or, in the case of Pre-Tax
Contributions only, the hardship of the Participant, as
described in Section 8.03.
SECTION 7.05. SPECIAL RULES FOR INTERESTS DERIVED FROM PRIOR PLANS.
Notwithstanding the foregoing, any Participant whose Account includes amounts
derived
<PAGE> 27
from benefits that were ultimately transferred from any predecessor
plan to this Plan may elect to receive a distribution of the benefits derived
from such prior plan (or if separate records showing the amount are not
maintained, then the election may apply to the Participant's entire Account) in
any form of distribution that was available under the prior plan. Further, if
the provisions of this Plan would otherwise result in a reduction of any
Participant's accrued benefits, then the provisions shall not be applied, and
the Participant's benefits accrued under the prior plan shall be preserved.
SECTION 7.06. DISABILITY RETIREMENT BENEFIT. If a Participant becomes
Totally and Permanently Disabled while employed with the Company or any
Affiliate, the Participant may elect to have the entire balance in the
Participant's Account paid at the time and in the manner specified in Section
7.04.
The term "Total and Permanent Disability" means a physical or mental
condition resulting from a bodily injury or disease that entitles the
Participant to receive disability insurance benefits under Title II of the
Federal Social Security Act; provided, that in no event will a Participant be
deemed to be Totally and Permanently Disabled after his attainment of his
Normal Retirement Age. If a Participant who is Totally and Permanently
Disabled ceases to be Totally and Permanently Disabled before his Normal
Retirement Age, his employment will be deemed to be terminated as of the date
he ceases to be Totally and Permanently Disabled, unless he returns to
employment with the Company or an Affiliate within such period as the Committee
may prescribe.
SECTION 7.07. DIRECT ROLLOVERS.
(a) Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this Section 7.07, a Distributee
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any portion of an Eligible Rollover Distribution paid directly to an
Eligible Retirement Plan specified by the Distributee in a Direct Rollover.
(b) An Eligible Rollover Distribution is any distribution of all or any
portion of the balance to the credit of the Distributee, except that an
Eligible Rollover Distribution does not include: (i) any distribution that is
one of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the Distributee or the
joint lives (or joint life expectancies) of the Distributee and the
Distributee's designated beneficiary, or for a specified period of ten years or
more, (ii) any distribution to the extent the distribution is required under
Code Section 401(a)(9) and (iii) the portion of any distribution that is not
includable in gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(c) An Eligible Retirement Plan is (i) an individual retirement account
described in Code Section 408(a), (ii) an individual retirement annuity
described in Code Section 408(b), (iii) an annuity plan described in Code
Section 403(a) or (iv) a qualified trust described in Section 401(a) of the
Code, which accepts the Distributee's Eligible Rollover Distribution. However,
if an Eligible Rollover Distribution is to the surviving spouse, an Eligible
Retirement Plan is an individual retirement account or individual retirement
annuity.
<PAGE> 28
(d) A Distributee includes an Employee or former Employee. In addition,
the Employee's or former Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Code Section 414(p), are
Distributees with regard to the interest of the spouse or former spouse.
(e) A Direct Rollover is a payment by the Plan to the Eligible Retirement
Plan specified by the Distributee.
<PAGE> 29
ARTICLE VIII
WITHDRAWALS AND LOANS
SECTION 8.01. WITHDRAWAL OF AFTER-TAX CONTRIBUTIONS. A Participant may
elect to withdraw, as of any Valuation Date, all or part of any balances
credited to the Participant's Account attributable to After-Tax Contributions.
The minimum withdrawal under this Section shall be $500.
SECTION 8.02. WITHDRAWALS AFTER AGE 59-1/2. A Participant who has
attained age 59-1/2 may elect to withdraw, as of any Valuation Date, all or
part of the balances credited to the Participant's Account. The minimum
withdrawal under this Section shall be $500.
SECTION 8.03. HARDSHIP WITHDRAWALS.
(a) Before the termination of the Participant's employment, upon a
demonstration by the Participant of an immediate and heavy financial need that
cannot be met from other resources that are reasonably available to the
Participant, a Participant shall be permitted, on Timely Notice, to make a
withdrawal of an amount not exceeding the lesser of (i) the amount needed to
satisfy the need, or (ii) 100 percent of all balances in the Participant's
Account that are derived from the Participant's Pre-Tax Contributions.
Notwithstanding the foregoing, (i) amounts derived from Employer Matching
Contributions may not be withdrawn under this Section, and (ii) distributions
may not include any earnings credited on or after January 1, 1989 to the
balance in the Participant's Account derived from Pre-Tax Contributions under
this Plan or any prior plan.
(b) For purposes of this Section, "an immediate and heavy financial need"
shall be deemed to exist if the distribution is on account of:
(i) Unreimbursed medical expenses described in Code
Section 213(d) incurred by the Participant, the
Participant's spouse or any dependent of the Participant (as
defined in Code Section 152) or an amount necessary for
these persons to obtain medical care described in Code
Section 213(d);
(ii) Costs directly related to the purchase of a
principal residence for the Participant (excluding mortgage
payments);
(iii) Payment of tuition and related fees for the next
12 months of post-secondary education for the Participant,
his or her spouse, children or dependents;
(iv) The need to prevent the eviction of the
Participant from his principal residence or foreclosure on
the mortgage on the Participant's principal residence; or
(v) Other events provided for in rulings, notices or
other documents published by the Commissioner of Internal
Revenue. The amount of an immediate and heavy financial
need may include amounts
<PAGE> 30
necessary to pay any federal, state, or local income taxes
or penalties reasonably anticipated to result from the
distribution.
(c) To demonstrate that a need cannot be met from other resources, the
Participant may be required to provide such documents or information as the
Committee may require and to certify that the need cannot be relieved (i)
through reimbursement from insurance, (ii) by reasonable liquidation of assets,
(iii) by cessation of Elective Contributions under the Plan or (iv) by other
withdrawals or loans from this or any other plan or a loan from a commercial
lender, on reasonable terms.
(d) Withdrawals under this Section 8.03 shall be permitted only if the
Participant has first withdrawn all amounts available to him under this or any
other Employer plan and borrowed all amounts available to him under any other
Employer plan. All of the Participant's contributions to this Plan and
contributions to all other plans maintained by the Employer (except
contributions to welfare benefit plans and mandatory employee contributions to
defined benefit plans) shall be suspended for a period of 12 months following
the withdrawal, and the amount which the Participant may contribute as Pre-Tax
Contributions for the Plan Year following the withdrawal shall not exceed the
amount described in Section 4.02(g), reduced by the amount of the Participant's
actual Pre-Tax Contributions for the Plan Year in which the withdrawal
occurred.
(e) Distributions under this Section shall be made as soon as
administratively feasible after the withdrawal is approved.
SECTION 8.04 SOURCE OF FUNDS FOR WITHDRAWALS. A Participant may specify
which of his Accounts should be charged for any withdrawal under this Article.
Distribution will be made out of the Participant's interests in each of the
Investment Funds in accordance with the proportion of the Participant's Account
then invested in such Fund.
SECTION 8.05 PAYMENT OF EXISTING LOANS FROM PRIOR PLANS TO PARTICIPANTS.
(a) This Plan does not permit any Participant to elect to borrow from the
balances in his Account. However, in the case of any Participant whose Account
includes amounts derived from benefits which were ultimately transferred from
any predecessor plan to this Plan and who has an existing loan outstanding from
such amounts, the Participant shall be required to make payments on the loan in
accordance with this Section 8.05.
(b) The Committee may adopt such rules regarding the investment of
principal and interest paid by Participants on outstanding loans as may be
appropriate for the orderly administration of the Plan.
(c) Each loan shall require payments of principal and interest at least as
often as required under the predecessor plan and shall be subject to such other
terms and conditions as the Committee may determine. The terms and conditions
of each loan shall be as incorporated in the promissory note executed by the
borrower, and shall be secured by the borrower's Account.
(d) Outstanding loans under this Section shall not share in the
allocations of Investment Fund earnings under Section 6.02, but shall be
investments solely for the
<PAGE> 31
borrower's Account and shall be treated as a segregated account of the
Trust for the sole benefit of the borrower. All loans shall be secured by the
borrower's segregated loan account which shall consist of the borrower's
indebtedness, including accrued interest. In the event that any payment is
more than ninety (90) days overdue, the loan shall be in default. The
Committee shall notify the borrower in writing of the default. If the borrower
fails to cure the default by making all necessary payments within fifteen days
of the written notice, the Committee may direct the Trustee to debit the total
amount from the vested portion of the borrower's Account, at such time as will
not risk disqualification of the Plan.
(e) Notwithstanding Sections 8.01 through 8.03 hereof, a Participant shall
not be entitled to make any withdrawal under the Plan to the extent the
withdrawal requires the distribution of Account balances then outstanding in
the form of loans. However, on the termination of the Participant's
employment, the note evidencing an outstanding loan may be distributed to the
Participant or Beneficiary in full satisfaction of any remaining indebtedness.
(f) The Committee shall be responsible for the administration of this loan
payment program, and may impose such other rules, requirements or restrictions
relating to loans under this Section as it shall determine to be necessary or
appropriate, including, without limitation, requirements as to the execution of
loan documents and/or payroll deduction authorization. Expenses incurred in
connection with the servicing of a Plan loan shall be charged to the Account of
the borrower.
8.06 WITHDRAWALS OF PRIOR PLAN AMOUNTS. Notwithstanding any provision of
this Article VIII to the contrary, if any tax-qualified retirement plan
maintained by an Affiliate is merged into this Plan, a Participant who
previously participated in the Affiliate's plan shall be entitled to make
withdrawals from that portion of his Account attributable to participation in
the Affiliate's plan to the extent that such withdrawals were permitted under
the terms of the Affiliate's plan immediately before the merger. The withdrawal
provisions of the Affiliate's plan, as in effect immediately before the merger
of the Affiliate's plan into this Plan, are hereby incorporated by reference.
<PAGE> 32
ARTICLE IX
THE COMMITTEE
SECTION 9.01. BENEFIT PLANS COMMITTEE. The Benefit Plans Committee
("Committee") shall be established by the Company and shall be the plan
administrator of the Plan for purposes of ERISA. The Committee shall have the
responsibility for carrying out the provisions of the Plan, except to the
extent such responsibilities are specifically allocated to others under the
Plan. The Committee shall consist of not less than three employees appointed
by the Board and serving at the pleasure of the Board. Members of the
Committee may resign or be removed by the Board, and new members may be
appointed by the Board.
SECTION 9.02. RESPONSIBILITY AND AUTHORITY OF THE COMMITTEE.
(a) The Committee shall be the administrator of the Plan for all purposes
of ERISA and, subject to the direction of the Board and the provisions of the
Plan and Trust, shall have all authority necessary and appropriate to carry out
its duties as such. The duties and authority of the Committee shall include,
but shall not be limited to, the following:
(i) To interpret and apply the provisions of the Plan;
(ii) To prescribe and require the use of appropriate forms;
(iii) To formulate, issue and apply rules and regulations;
(iv) To make appropriate determinations or calculations;
(v) To authorize and direct benefit payments;
(vi) To prepare and file reports, notices and any other documents
relating to the Plan which may be required by law;
(vii) To adopt rules relating to the giving of Timely Notice; and
(viii) To establish the Investment Funds and either select the
appropriate investment vehicle(s) for the Investment Fund or
select an investment manager to manage the Investment Fund.
In addition to the other duties of the Committee, it shall periodically review
the performance of the Trustee and any insurance company or investment manager
in the investment and reinvestment of the assets in the Investment Funds.
(b) The Committee shall have discretionary authority to determine
eligibility for benefits and to construe the terms of the Plan. Any such
determination or construction shall be final and binding on all parties.
SECTION 9.03. ORGANIZATION AND PROCEDURE. The Committee shall select from
its respective members a chairman, a secretary, and such other officers as may
be deemed appropriate. Committee action on any matter shall be taken on the
vote of at least a majority of all members of the Committee at any meeting or
upon unanimous written consent of all members without a meeting. Minutes of
Committee meetings shall be kept and all major
<PAGE> 33
actions of the Committee shall be recorded in the minutes or other
appropriate written form. The Committee shall adopt in writing such bylaws,
procedures and operating rules as it may deem appropriate.
SECTION 9.04. DELEGATION OF AUTHORITY AND RESPONSIBILITY.
(a) The Committee may delegate to any one or more of its members the
authority to execute documents on behalf of the Committee and to represent the
Committee in any matters or dealings involving the Committee. Any such
delegation of authority shall be set forth in writing.
(b) The Committee may delegate certain of its powers to persons who are
not members under such terms and conditions as may be specified by the
Committee. Any such delegation of powers shall be set forth in writing.
(c) Employees of the Company or any Affiliate who are not members of the
Committee may perform such duties and functions relating to the Plan as the
Committee shall direct and supervise. It is expressly provided, however, that
the Committee shall retain full and exclusive authority and responsibility for
and respecting any such activities by other employees, and nothing contained in
this subsection 9.04(c) shall be construed to confer upon any such employee any
discretionary authority or control respecting the administration or operation
of the Plan.
SECTION 9.05. USE OF PROFESSIONAL SERVICES. The Committee may obtain the
services of such attorneys, actuaries, accountants or other persons it may deem
appropriate, any of whom may be the same persons who are providing services to
an Employer. In any case in which the Committee utilizes the services, it
shall retain exclusive discretionary authority and control respecting the
administration and operation of the Plan.
SECTION 9.06. FEES AND EXPENSES. Committee members who are employees of
an Employer shall serve without compensation but shall be reimbursed for all
reasonable expenses incurred in their capacity as Committee members. No
members of the Committee or persons performing services under Section 9.05 who
are employed by an Employer shall receive compensation for their services with
respect to the Plan, but shall be reimbursed for their expenses. All
compensation for services and expenses shall be paid in whole or in part by the
Employers. To the extent that they are not paid by the Employers, such
compensation shall be paid by the Trustee out of the principal or income of the
Trust.
<PAGE> 34
SECTION 9.07. CLAIMS PROCEDURE.
(a) Any Employee or Beneficiary under this Plan who believes he is
entitled to benefits under the Plan in an amount greater than he is receiving
may file a claim with the Committee under this Section. Any such claim shall
be filed in writing stating the nature of the claim, the facts supporting the
claim, the amount claimed and the name and address of the claimant. The
Committee or its designee shall consider the claim and answer it in writing
stating whether the claim is granted or denied. If the claim is denied in
whole or in part, the secretary of the Committee or his designee shall furnish
the claimant a written notice of the denial containing (i) the specific
reason(s) for the denial, (ii) a specific reference to the Plan provisions on
which the denial is based, (iii) a description of any additional material or
information which it is necessary for the claimant to submit and an explanation
of why the material or information is necessary, and (iv) an explanation of the
Plan's review procedure.
(b) If a claimant wishes to appeal the denial of his claim, he must mail a
written notice of appeal to the Committee, certified, return receipt requested,
within 60 days of his receipt of the written denial. In order that the full
Committee may expeditiously decide the appeal, the written notice of appeal
should contain (i) a statement of the grounds for the appeal, (ii) a specific
reference to the Plan provisions on which the appeal is based, (iii) a
statement of the arguments and authority (if any), supporting the grounds for
appeal, and (iv) any other pertinent documents or comments that the appellant
desires to submit in support of his appeal. The Committee will meet and decide
the appellant's appeal within 60 days of its receipt of the appeal. The
Committee's written decision shall contain the reasons for the decision and the
Plan provisions on which the decision is based. A copy of the Committee's
decision shall be mailed promptly to the appellant.
<PAGE> 35
ARTICLE X
AMENDMENTS AND TERMINATION
SECTION 10.01. AMENDMENTS AND TERMINATION. While it is intended that the
Plan shall continue in effect indefinitely, the Company, by action of its
President or any Vice President, may from time to time modify, alter or amend
the Plan or Trust; provided, that any amendments that increase benefits
provided under the Plan must be approved by the Compensation Committee of the
Board. The Board may at any time suspend or discontinue Employer contributions
under the Plan, or may terminate in whole or in part the Plan and Trust. Any
such suspension, discontinuance or termination shall be made effective by the
Board, or any duly authorized Board committee, by formal resolution in a
regularly or specially constituted meeting of the Board or such committee, or
by resolution without a meeting. Notwithstanding the foregoing, the following
shall apply:
(i) No such action shall make it possible for any part of the
Trust assets (except such part as is used for the payment of
expenses) to be used for or diverted to any purpose other than for
the exclusive benefit of Participants or their Beneficiaries and the
defraying of the reasonable expenses of administering and winding up
the Plan;
(ii) No such action will adversely affect the rights or interests
of Participants that have vested under the Plan, decrease a
Participant's accrued benefits or vesting percentage in accrued
benefits or eliminate an optional form of distribution for a
previously accrued benefit;
(iii) In the event of termination of the Plan or complete discontinuance
of employer contributions under the Plan, all rights and interests
of Participants that have not vested shall become vested as of the
date of the termination or complete discontinuance. In the event
of a partial termination of the Plan, the rights and interests of
the Participants affected thereby shall become vested as of the
date of the partial termination. However, nothing in the Plan
shall be construed to prevent any modification, alteration or
amendment of the Plan or of the Trust that is required to comply
with the provision of any law or regulation relating to the
establishment or maintenance of this Plan and Trust, including,
but not limited to, the establishment and maintenance of the Plan
or Trust as a qualified employee plan or trust under the Code, even
though such modification, alteration or amendment, if made
retroactively, adversely affects the rights or interests of a
Participant under the Plan.
<PAGE> 36
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. NON-GUARANTEE OF EMPLOYMENT. Nothing contained in this
Plan shall be construed as a contract of employment between an Employer and a
Participant, or as creating a right of any Participant to be continued in the
employment of any Employer, or as a limitation of the right of an Employer to
discharge any Participant with or without cause.
SECTION 11.02. RIGHTS TO TRUST ASSETS.
(a) No Participant or any other person shall have any right to, or
interest in, any part of the Trust assets upon termination of employment or
otherwise, except as provided from time to time under this Plan, and then only
to the extent of the amounts due and payable to such person out of the assets
of the Trust. All payments as provided for in this Plan shall be made solely
out of the assets of the Trust and neither the Employers, the Trustee, nor any
member of the Committee shall be liable therefor in any manner.
(b) The effectiveness of this Plan is expressly subject to the condition
that the Company shall initially receive a favorable determination letter from
the Internal Revenue Service that the Plan meets the requirements for
qualification under Section 401(a) of the Code and all Employer contributions
under the Plan are conditioned on the continued qualification of the Plan under
that Code Section and the deductibility of the contributions under Code Section
404. If the Internal Revenue Service initially fails to issue a favorable
determination letter, the Company may, at its option, terminate the Plan, in
which case all amounts in the Trust attributable to Employer contributions
shall be refunded to the Employers and all amounts attributable to Participant
contributions shall be distributed to Participants. If the Committee
determines that a contribution has been made as the result of a good faith
mistake of fact, then the Committee may direct that any nondeductible Employer
contribution, or any other contribution made as the result of a mistake of
fact, shall be refunded to the Employer or Participant in accordance with
applicable provisions of ERISA.
(c) Except as provided in subsection (b) of this Section, the Employers
shall have no beneficial interest of any nature whatsoever in any Employer
Matching Contributions after the contributions have been received by the
Trustee, or in the assets, income or profits of any part of the Trust.
SECTION 11.03. NON-RECOMMENDATION OF INVESTMENT. The decision as to the
choice of Investment Funds under the Plan must be made solely by each
Participant, and no officer or employee of any Employer or the Trustee is
authorized to make any recommendation to any Participant concerning the
allocation or reallocation of contributions among the Investment Funds.
SECTION 11.04. INDEMNIFICATION OF COMMITTEE. The Company shall indemnify
each member of the Committee and the Board and any employee who is a fiduciary
with respect to the Plan and hold each of them harmless from the consequences
of acts or conduct in an official capacity with respect to the Plan, if he
acted in good faith, and with respect to any criminal action or proceeding, if
such person had no reasonable cause to believe his conduct was unlawful. Such
indemnification shall cover any and all attorneys' fees and expenses,
judgments, fines and amounts paid in settlement, but only to the extent that
the amounts are
<PAGE> 37
not paid to such person(s) under the Company's fiduciary
insurance policy and to the extent that the amounts are actually and reasonably
incurred by such person(s).
SECTION 11.05. NON-ALIENATION. Except as otherwise provided in the Plan,
no right or interest of any Participant or Beneficiary in the Plan and the
Trust shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, attachment, garnishment,
execution, levy, bankruptcy or any other disposition of any kind, either
voluntary or involuntary, before actual receipt of payment by the person
entitled to such right or interest under the provisions of the Plan, and any
such disposition or attempted disposition shall be void. Notwithstanding the
foregoing, a qualified domestic relations order relating to child support,
alimony payments or marital property rights shall be recognized and given
effect if the order contains sufficient information to permit the Committee to
determine that it meets the requirements of Code Section 414(p). Except as
otherwise provided by a domestic relations order, the distribution of benefits
to an alternate payee shall be paid or shall begin as soon as is
administratively feasible upon a determination that the domestic relations
order meets the requirements of Code Section 414(q).
SECTION 11.06. FACILITY OF PAYMENT. If the Committee determines that a
Participant or Beneficiary entitled to a distribution under the Plan is
incapable of caring for his own affairs, because of illness or otherwise, it
may direct that any distribution from the Participant's Account may be made, in
such shares as it shall determine, to the spouse, child, parent or other blood
relative of the Participant or his Beneficiary, or any of them, or to such
other persons or persons as the Committee may determine. The Committee shall
be under no obligation to see to the proper application of the distributions so
made to such person or persons and any such distribution shall be a complete
discharge of any liability under the Plan to the Participant or Beneficiary, to
the extent of the distribution.
SECTION 11.07. BOARD ACTION. Any action that is required or permitted to
be taken by the Board under the Plan may be taken by the Executive Committee of
the Board or any other authorized committee of the Board.
SECTION 11.08. MERGERS, CONSOLIDATIONS AND TRANSFER OF PLAN ASSETS. The
Company's President or Vice President of Administration may approve and
implement, in their discretion, any mergers or consolidations of or transfers
of assets and liabilities between the Plan and tax-qualified retirement plans
maintained by the Company and its Affiliates.
(a) In the case of any merger or consolidation with, or transfer of
assets or liabilities to or from any other plan, each Participant in the Plan
must be entitled (if the Plan then terminated) to receive a benefit immediately
after the merger, consolidation or transfer that is equal to or greater than
the benefit the Participant would have been entitled to receive immediately
before the merger, consolidation or transfer (if the Plan had then terminated).
(b) The Company may enter into merger agreements or direct transfer of
assets agreements (or may direct the Trustee to do so) with the trustees of
other retirement plans qualified under Code Section 401(a) and may direct the
Trustee to transfer plan assets under such agreement. The Company may direct
the Trustee to accept the direct transfer of plan assets. Unless a transfer of
assets to this Plan is an elective transfer as defined in Treas. Reg. Section
1.411(d)-4, Q&A-3(b), the Plan will preserve all Code Section 411(d)(6)
protected benefits with respect to those transferred assets.
<PAGE> 38
(c) If the Plan receives a direct transfer (by merger or otherwise) of
elective contributions (or amounts treated as elective contributions) under a
Plan with a Code Section 401(k) arrangement, the distribution restrictions of
Code Section 401(k) will continue to apply to those transferred elective
contributions, unless the transfer was an elective transfer as defined in
Treas. Reg. Section 1.411(d)-4, Q&A-3(b).
(d) Subject to the authority of the Company provided in paragraph (b)
above, an Employee who transfers from a position with an Employer or an
Affiliate that does not permit participation in the Plan to a position that
permits participation in the Plan may elect to transfer his account under any
other defined contribution plan maintained by such Employer or Affiliate (other
than an account in an employer stock ownership plan or a plan that provides for
an annuity form of distribution) to this Plan in a trustee to trustee transfer.
SECTION 11.09. FIDUCIARIES. Any person may serve in more than one
fiduciary capacity with respect to the Plan. Any fiduciary under the Plan, as
an individual, may employ such legal, actuarial, accounting or other assistant
he may deem necessary to fulfill his obligations under the Plan, which
assistants may be those consulted by an Employer, the Trustee, the Plan or
other fiduciaries.
SECTION 11.10. UNCLAIMED BENEFITS. If the Committee is unable to locate
any person who is entitled to benefits under the Plan despite reasonable and
diligent efforts to do so, then the person's benefits shall be automatically
forfeited as of the last day of the Plan Year next following the year in which
the benefits became payable; provided, that if the person subsequently makes a
claim for the forfeited benefits before the termination of the Plan, the
benefits shall be reinstated by means of a special Employer contribution equal
to the amount of the forfeiture or by direct payment by the Company to the
person, as determined by the Committee.
<PAGE> 39
ARTICLE XII
TOP-HEAVY PLAN PROVISIONS
SECTION 12.01. EFFECT OF TOP-HEAVY STATUS. The Plan shall be a "Top-Heavy
Plan" for any Plan Year if either of the following conditions applies:
(i) The Top-Heavy Ratio for the Plan exceeds 60 percent and the
Plan is not part of any Required Aggregation Group or Permissive
Aggregation Group having a Top-Heavy Ratio of 60 percent or less.
(ii) The Plan is part of a Required Aggregation Group Having a
Top-Heavy Ratio which exceeds 60 percent and is not part of a
Permissive Aggregation Group having a Top-Heavy Ratio of 60 percent
or less.
If the Plan is a Top-Heavy Plan in any Plan Year, the provisions of Article
12.03 through 12.05 shall supersede any conflicting provisions of the Plan.
SECTION 12.02. ADDITIONAL DEFINITIONS. Solely for purposes of this
Article, the following terms shall have the meanings set forth below.
(a) "Key Employee" means any employee or former employee (and the
beneficiary of the employee) whose status as an officer or owner of the
Employer makes him a "key employee" as determined in accordance with Code
Section 416(i)(l) and the regulations thereunder.
(b) "Determination Date" means the last day of the preceding Plan Year.
(c) "Top-Heavy Ratio" means a fraction, the numerator of which is the sum
of account balances under any defined contribution plans maintained by the
Employer for all Key Employees and the present value of accrued benefits under
any defined benefit plans maintained by the Employer for all Key Employees, and
the denominator of which is the sum of the account balances under the defined
contribution plans for all employees and the present value of accrued benefits
under the defined benefit plans for all employees disregarding in either case
accrued benefits attributable to employees who have not been employed within
the five year period preceding the Determination Date. Both the numerator and
denominator of the Top-Heavy Ratio shall be adjusted for any distribution of an
account balance on an accrued benefit made in the five year period ending on
the Determination Date and any contribution due but unpaid as of the
Determination Date. For purposes of calculating the Top-Heavy Ratio, (i) the
value of account balances and the present value of accrued benefits shall be
determined as of the most recent Valuation Date that falls within or ends with
the 12 month period ending on the Determination Date, and (ii) the account
balances and present values of accrued benefits of any employees who are not
Key Employees but who were Key Employees in a prior year shall be disregarded.
The calculation of the Top-Heavy Ratio, and the extent to which distributions,
rollovers and transfers are taken into account will be made in accordance with
Code Section 416 and the regulations thereunder. When aggregating plans, the
value of account balances and accrued benefits will be calculated with
reference to the Determination Dates that fall within the same calendar year.
The present value of accrued benefits shall be determined under Code Section
416(g) using a five percent interest
<PAGE> 40
assumption and the UP-1984 Mortality Table. Solely for the purpose of
determining if the Plan, or any other plan included in an aggregation group of
which this Plan is a part, is top-heavy, the accrued benefit of an Employee
other than a Key Employee shall be determined under (i) the method, if any,
that uniformly applies for accrual purposes under all plans maintained by the
Affiliates, or (ii) if there is no such method, as if such benefit accrued not
more rapidly than the slowest accrual rate permitted under the fractional
accrual rate of Code Section 411(b)(1)(C).
(d) "Permissive Aggregation Group" means the Required Aggregation Group of
plans plus any other plan or plans of the Employer which, when considered as a
group with the Required Aggregation Group, would continue to satisfy the
requirements of Code Section 401(a)(4) and 410.
(e) "Required Aggregation Group" means (i) each qualified plan of the
Employer in which at least one Key Employee participates, and (ii) any other
qualified plan of the Employer which enables a plan described in (i) to meet
the requirements of Code Sections 401(a)(4) and 410.
(f) "Valuation Date" means (i) in the case of a defined contribution plan,
the Determination Date, and (ii) in the case of a defined benefit plan, the
date as of which funding calculations are generally made within the 12 month
period ending on the Determination Date.
(g) "Employer" means the employer or employers whose employees are covered
by this Plan and any other employer which must be aggregated with any such
employer under Code Sections 414(b), (c), (m) and (o).
SECTION 12.03. MINIMUM BENEFITS. For any year in which the Plan is a
Top-Heavy Plan, the employer contributions on behalf of each Employee who is
not Key Employee shall at least be equal to three percent of the Employee's
compensation (as defined in Code Section 415) for the Plan Year or the
percentage of compensation allocated on behalf of the Key Employee for which
the allocation was highest, whichever is less, reduced by the amounts allocated
to the Employee under any other defined contribution plans. If the Employee is
also covered under a defined benefit plan of the Affiliates, the Employee will
only be entitled to the defined benefit minimum.
SECTION 12.04. MAXIMUM BENEFIT LIMITS. If the Employer maintains a
defined benefit plan and a defined contribution plan that both cover one or
more of the same Key Employees, and if the Plans are Top-Heavy, then the
limitation stated in a separate provision of this Plan with respect to the Code
Section 415(e) maximum benefit limitations shall be deemed to refer to a 1.0
adjustment on the dollar limitation rather than a 1.25 adjustment. This
provision shall not apply if the Top-Heavy Ratio is less than 90 percent and if
the minimum benefit requirements of Section 12.03 are met when 3 percent is
changed to 4 percent.
<PAGE> 41
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its
duly authorized officers this 12th day of August, 1995.
FALCON BUILDING PRODUCTS, INC.
By: /s/ Gus J. Athas
---------------------------
Name: Gus J. Athas
Title: Senior Vice-President
ATTEST:
By: /s/ Kari L. Yunker
----------------------------
Name: Kari L. Yunker
Title: Assistant Secretary
<PAGE> 42
FALCON BUILDING PRODUCTS, INC.
EMPLOYEE SAVINGS PLAN
APPENDIX A
The Falcon Building Products, Inc. Employee Savings Plan is effective for
the following adopting Employers as of the Effective Date:
1. Devilbiss Air Power Company
2. Hart & Cooley, Inc.
3. Mansfield Plumbing Products, Inc.
<PAGE> 1
Exhibit 10.18
FALCON BUILDING PRODUCTS, INC.
CASH BALANCE PENSION PLAN
Effective January 1, 1996
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
SECTION 1 - DEFINITIONS 1
SECTION 2 - ELIGIBILITY AND PARTICIPATION 6
SECTION 3 - ACCOUNTS AND CREDITS TO ACCOUNTS 8
SECTION 4 - RETIREMENT BENEFITS 10
SECTION 5 - BENEFITS UPON TERMINATION OF EMPLOYMENT 12
SECTION 6 - DEATH BENEFITS 14
SECTION 7 - PAYMENT OF BENEFITS 16
SECTION 8 - CONTRIBUTIONS 20
SECTION 9 - AMENDMENT AND TERMINATION 21
SECTION 10 - LIMITATIONS ON BENEFITS 23
SECTION 11 - ADMINISTRATION 27
SECTION 12 - ADOPTION OF PLAN BY EMPLOYING UNITS 31
SECTION 13 - SUCCESSOR COMPANY 32
SECTION 14 - GENERAL PROVISIONS 33
SECTION 15 - IN EVENT PLAN BECOMES TOP-HEAVY 35
APPENDIX A: Pay Credit Dates of Employing Units
APPENDIX B: Specified Basis for Determination of Actuarial Equivalents
APPENDIX C: Pay-Based Credits to Accounts
</TABLE>
<PAGE> 3
FOREWORD
Falcon Building Products, Inc. (the "Company") hereby establishes the Falcon
Building Products, Inc. Cash Balance Pension Plan (the "Plan") effective
January 1, 1996, (the "Effective Date") for the benefit of eligible employees
of the Company and its affiliates which adopt the Plan (the "Employees") and
their beneficiaries. Eligible employees who were participants in the Eagle
Industries Products Corporation Cash Balance Pension Plan (the "Eagle Cash
Balance Plan") immediately before the Effective Date became Participants under
this Plan as of the Effective Date. The Company intends that this Plan and the
related Trust qualify under all applicable provisions of the Internal Revenue
Code of 1986 and meet the requirements of the Employee Retirement Income
Security Act of 1974, and each of the terms of this Plan and the related Trust
Agreement shall be so interpreted.
<PAGE> 4
SECTION 1
DEFINITIONS
As used herein, unless otherwise defined or required by the context, the
following words and phrases shall have the meanings indicated. Some of the
words and phrases used in the Plan are not defined in this Section 1, but, for
convenience are defined as they are introduced into the text.
1.1 "Account" means the Account established and maintained for each
Participant pursuant to the provisions of Section 3. Such Accounts are
intended to be only bookkeeping accounts and neither the maintenance nor the
making of credits thereto shall be construed as an allocation of assets of the
Plan to, or a segregation of such assets in, any such Account, or otherwise as
creating a right in any person to receive specified assets of the Plan.
Benefits provided under the Plan shall be paid from the general assets of the
Fund in the amounts, in the forms and at the times provided under the terms of
the Plan.
1.2 "Accrued Benefit" means, as of the time of reference, an annual amount
of benefit, payable in the form of a single life annuity, commencing on a
Participant's Normal Retirement Date (or, if later, his Late Retirement Date),
which such single life annuity is the Actuarial Equivalent of the then current
value of his Account.
1.3 "Actuarial Equivalent" with respect to any specified annuity or
benefit means another annuity or benefit, commencing at a different date and/or
payable in a different form than the specified annuity or benefit, but which
has the same present value as the specified annuity or benefit, when measured
on the basis of the interest rate, mortality table and other factors, if any,
applicable to such other annuity or benefit, as specified in Appendix B as in
effect at the date of commencement of such other annuity or benefit, which
Appendix B is attached hereto and made a part hereof. In its approval of any
other actuarially equivalent option to be made available under the Plan, the
Committee shall specify the mortality basis, interest basis, and the basis of
any other factors applicable in the determination of actuarial equivalence
under such options; and such specification shall constitute an addendum to
Appendix B of the Plan.
1.4 "Actuary" means one or more actuaries chosen by the Company to provide
actuarial services in connection with the administration of the Plan and who
shall be enrolled under Subtitle C of Title III of ERISA.
1.5 "Authorized Leave of Absence" means any absence authorized by an
Employing Unit following standard personnel practices applied in a
nondiscriminatory manner, and provided that the Participant returns within the
period specified in the Authorized Leave of Absence.
1.6 "Beneficiary" means the person or persons, or other legal entity, who
has been designated in accordance with Section 6.2 hereof to receive any
benefits payable upon the death of a Participant.
<PAGE> 5
1.7 "Benefit Commencement Date" means, in the case of an annuity form of
distribution, the first day of the first period with respect to which an amount
is received as a benefit pursuant to the Plan; in the case of a lump sum
payment, the date as of which payment is to be made pursuant to the Plan.
1.8 "Board" means the Board of Directors of the Company or its successor
corporation.
1.9 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.10 "Committee" means the Falcon Benefit Plans Committee, which is
described in Section 11.1 of the Plan.
1.11 "Company" means Falcon Building Products, Inc. or any successor
corporation which assumes the obligations of the Company hereunder.
1.12 "Compensation" means the compensation reported for a calendar year on
Form W-2 as paid by an Employing Unit to the Participant, exclusive of any
severance pay, moving allowance, car allowance, awards or prizes, or imputed
income under Code Sections 79 and 132 and such other similar payments under the
Code and regulations thereunder, but inclusive of any before-tax contributions
made under any 401(k) plan or any life insurance or medical plan maintained by
the Company pursuant to Code Section 125.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the annual
Compensation of each Employee taken into account under the Plan shall not
exceed the Omnibus Budget Reconciliation Act of 1993 ("OBRA '93") annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner of the Internal Revenue Service for increases in
the cost of living in accordance with Section 401(a)(17)(B) of the Internal
Revenue Code. The cost-of-living adjustment in effect for a calendar year
applies to any period, not exceeding twelve (12) months, over which
compensation is determined (the "determination period") beginning in that
calendar year. If a determination period consists of fewer than twelve (12)
months, the OBRA '93 annual compensation limit will be multiplied by a
fraction, the numerator of which is the number of months in the determination
period, and the denominator of which is twelve (12). Any reference in this
Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA '93
annual compensation limit set forth in this provision. If Compensation for
any prior determination period is taken into account in determining an
Employee's benefits accruing in the current Plan Year, the Compensation for
that prior determination period is subject to the OBRA '93 annual Compensation
limit in effect for that prior determination period. If Compensation for any
prior Plan Year is taken into account in determining an Employee's benefits for
the current year, the Compensation for such prior year is subject to the
applicable annual Compensation limit in effect for that prior year.
<PAGE> 6
A Participant who is Totally and Permanently Disabled pursuant to Section
4.3(a) shall be deemed for purposes of Section 3.2 to receive Compensation
during such period of Total and Permanent Disability prior to attaining age
sixty-five (65) at the same rate of Compensation as was in effect immediately
prior to the commencement of such Total and Permanent Disability.
1.13 "Eligible Employee" means an Employee of an Employing Unit (other
than a leased employee within the meaning of section 414(n) of the Code) who is
compensated on a salaried basis or any other Employee at a location and/or in a
classification specifically designated by the Board and who is described in
Appendix A attached hereto; provided that in either case such Employee is not
currently an active participant in any other defined benefit pension plan to
which the Employing Unit contributes.
1.14 "Employee" with respect to the Group, means an individual who is
employed by a member of the Group (including a leased employee within the
meaning of section 414(n) of the Code), but shall not include a person employed
at a rate of less than one thousand (1,000) "hours of employment" (as
hereinafter defined) per year unless such person shall have accumulated one
thousand (1,000) or more hours of employment with a member of the Group during
the period from the date such person was first employed by a member of the
Group to the first anniversary of such date, or during any Plan Year commencing
after such date, in which case such person shall be deemed to have first become
an Employee on the last day of such period or calendar year, as applicable, or
on the date such person's regular rate of employment was increased to a rate of
one thousand (1,000) or more hours per year, whichever is the earlier. For
purposes of this Section l.l4, an hour of employment shall be determined in
accordance with Department of Labor Regulations Section 2530.200b-2 and shall
mean an hour for which a person was directly or indirectly paid (including any
back pay award) or entitled to payment by the Group for the performance of
duties, or pursuant to a vacation or sick leave or other plan or pay practice
maintained by a member of the Group to provide compensation for certain hours
in which no duties were performed, provided that no more than five hundred and
one (501) hours are credited for any year in which no duty is performed.
1.15 "Employing Unit" means the Company or any subsidiary or affiliate of
the Company which is a member of the Group and which, with the consent of the
Company, adopts the Plan for the benefit of some or all of its employees. A
list of such Employing Units is set forth in Appendix A, attached hereto.
1.16 "ERISA" means Public Law No. 93-406, the Employee Retirement Income
Security Act of 1974, as amended from time to time.
1.17 "Fiduciary" means the Company, the Committee and the Funding Agent,
but only with respect to the specific responsibilities of each for Plan and
Fund administration, all as described in Section 11.
1.18 "Fund" means all sums of money, insurance or annuity contracts, and
all other property of every kind, from time to time held by the Funding Agent
from which the benefits provided by this Plan will be paid.
<PAGE> 7
1.19 "Funding Agent" means the trustee or trustees and/or insurance
company or companies selected by the Board to hold the funds of the Plan
pursuant to a trust agreement or agreements or an insurance contract or
contracts.
1.20 "Group" means the Company and any other company which is related to
the Company as (i) a member of a controlled group of corporations in accordance
with Section 414(b) of the Code, (ii) a trade or business under common control
in accordance with Section 414(c) of the Code, (iii) an affiliated service
group within the meaning of section 414(m) of the Code, or (iv) entities
required to be aggregated with the Company under Section 414(o) of the code.
For the purposes under the Plan of determining whether or not a person is an
Employee and the period of employment of such person, each such other company
shall be included in the "Group" only for such period or periods during which
such other company is also a member of a controlled group, affiliated service
group or under common control.
1.21 "Late Retirement Date" means the first day of the month coincident
with or next following the date the Participant actually retires after his
Normal Retirement Date pursuant to Section 4.2.
1.22 "Normal Retirement Date" means the first day of the month coincident
with or next following the date on which a Participant attains his sixty-fifth
(65th) birthday.
1.23 "Participant" means an Eligible Employee who has qualified for
participation in accordance with the terms of Section 2 hereof.
1.24 "Pay Credit Date" means January 1, 1996, or, if later, the date of
the Employing Unit's inclusion in the Plan as set forth in Appendix A,
attached.
1.25 "Plan" means the Falcon Building Products, Inc. Cash Balance Pension
Plan as set forth herein or as amended from time to time.
1.26 "Plan Year" means the calendar year.
1.27 "Retirement Benefit" means a lump sum payment or a series of monthly
payments which are payable to an individual who is entitled to receive benefits
under the Plan.
1.28 "Service" means the aggregate of all periods of employment as an
Employee with the Company or any other member of the Group.
Service shall include (i) a period of up to twelve (12) months of absence
from employment for any reason other than because of quit, retirement or
discharge, (ii) the period from the date an Employee quits, retires or is
discharged to the date of his reemployment if he again becomes employed with
the Company or other member of the Group within twelve (12) months of such
quit, retirement or discharge and (iii) for periods on or before January 1,
1996, the aggregate of all "Service" earned under the Eagle Cash Balance Plan.
<PAGE> 8
For purposes of determining Service, an Employee who is on leave of
absence under the Family and Medical Leave Act of 1993 shall be credited
Service for the hours of employment that the Employee would have worked had he
not taken the leave.
Notwithstanding any provision of this Plan to the contrary, contributions,
benefits and service credit with respect to qualified military service will be
provided in accordance with Section 414(u) of the Code.
1.29 "Total and Permanent Disability" means a physical or mental condition
resulting from a bodily injury or disease which entitles the Participant to
receive disability insurance benefits under Title II of the Federal Social
Security Act; provided, however, that in no event will a Participant be deemed
to be Totally and Permanently Disabled after his attainment of his Normal
Retirement Date. If a Participant who is Totally and Permanently Disabled
ceases to be such prior to his Normal Retirement Date, his employment shall be
deemed to be terminated as of the date he so ceases to be Totally and
Permanently Disabled, unless he returns to employment with an Employing Unit
within such period as the Committee shall prescribe.
1.30 "Vested Terminated Participant" means a Participant whose employment
has terminated but who is entitled to a benefit under the Plan in accordance
with the provisions of Section 5.1.
<PAGE> 9
SECTION 2
ELIGIBILITY AND PARTICIPATION
2.1 Participants in the Eagle Cash Balance Plan. Any Employee who was a
participant in the Eagle Cash Balance Plan immediately before the Effective
Date shall be eligible to participate in the Plan as of the Effective Date.
2.2 Eligible Employees on Pay Credit Date. Each Eligible Employee in the
active employment of an Employing Unit on its Pay Credit Date shall become a
Participant in the Plan on such Pay Credit Date.
2.3 Other Eligible Employees. Each other person who becomes an Eligible
Employee after the Pay Credit Date shall become a Participant in the Plan on
the date he becomes an Eligible Employee.
2.4 Authorized Leave of Absence. Any person who is absent from the active
employment of an Employing Unit on the date he would otherwise become a
Participant, by reason of an Authorized Leave of Absence granted by the
Employing Unit or by reason of military service, shall automatically become a
Participant as of the date of his return to active employment as an Eligible
Employee.
2.5 Reemployment. If a Participant who previously terminated his
employment is subsequently reemployed, the following additional rules shall be
applicable.
(a) Such Participant's Service to the date he ceased
employment shall be reinstated upon reemployment.
(b) If the Participant forfeited any percentage of his
Accrued Benefit under Section 5.1, there shall be credited
to his Account upon reemployment an amount equal to the
amount of such forfeiture increased by the interest credits
under Section 3.3 from the date he ceased employment to the
date of reemployment.
(c) If the Participant received a lump sum payment
under Section 5.2(b) in connection with his prior
termination and the Participant forfeited any percentage of
his Accrued Benefit under Section 5.1, there shall be
credited to his Account upon reemployment an amount equal
to the sum of the amount of such lump sum payment plus
interest credits thereon under Section 3.3 from the date
such lump sum payment was made to the date of reemployment.
(d) If the Participant is receiving periodic payments
of his benefit and the Participant forfeited any percentage
of his Accrued Benefit under Section 5.1, such periodic
payments shall cease unless (1) he is reemployed on or
after the April 1 of the
<PAGE> 10
calendar year after the calendar year in which he attained
age seventy and one-half (70-1/2) or (2) he elects not to
have his periodic payments suspended.
In either event, there shall be credited to his
Account upon reemployment the amount necessary to restore
his Account to the amount that would have been in such
Account at the date of reemployment had he not received any
periodic payments (i.e., to the amount that was in such
Account at such termination of employment (after any
forfeiture pursuant to Section 5.1) increased by interest
credits under Section 3.3 from the date he ceased
employment to the date of his reemployment).
(e) When the Participant subsequently terminates
employment, there shall be deducted from his Account (after
any forfeiture under Section 5.1) an amount equal to
(i) that portion of his Account that
is attributable to the amount credited to his Account
at his reemployment under paragraph (c) or (d),
whichever is applicable, increased by the interest
credits thereon under Section 3.3 after his
reemployment, and
(ii) the Actuarial Equivalent amount,
if any, of any periodic benefit payments made to the
Participant after reemployment increased by interest
credits under Section 3.3 from the date of payment.
<PAGE> 11
SECTION 3
ACCOUNTS AND CREDITS TO ACCOUNTS
3.1 Accounts. An Account shall be established and maintained for each
Participant to which credits shall be made pursuant to the provisions of this
Section 3, subject to the limitations of Section 10. Such Accounts are
intended to be only bookkeeping accounts and neither the maintenance nor the
making of credits thereto shall be construed as an allocation of assets of the
Plan to, or a segregation of such assets in, any such Account, or otherwise as
creating a right in any person to receive specific assets of the Plan.
Benefits provided under this Plan shall be paid from the general assets of the
Fund in the amounts, in the forms and at the times provided under the terms of
the Plan.
3.2 Pay-Based Credits To Accounts. Except as is provided in Section 3.1
or Section 3.4, for each calendar month that an individual is both a
Participant and an Eligible Employee on and after the Pay Credit Date and prior
to the Benefit Commencement Date, there shall be credited to his Account an
amount equal to a percentage of his Compensation for such month. The amount of
such percentage, which shall vary depending on the Participant's Employing Unit
and on the number of years of Service standing to the Participant's credit as
of the last day of such month, is set forth in Appendix C, attached.
3.3 Interest Credits to Accounts. Except as is provided in Section 3.1 or
Section 3.4, as of the first day of each "Plan Year Month" (as hereinafter
defined) after the Pay Credit Date and prior to the Benefit Commencement Date,
each Participant's Account shall be increased by a factor equal to one twelfth
of the interest credit percentage for the applicable Plan Year. Interest
credits granted during a Plan Year Month shall be based on a Participant's
Account balance as of the end of the previous Plan Year Month. The interest
credit percentage for the applicable Plan Year shall, except as is hereafter
provided, be equal to the greater of (a) or (b) below:
(a) such percentage with respect to such Plan Year
as the Company may prospectively prescribe and which shall be
specified in the Plan, or
(b) the one (1) month average of One-Year Treasury
Constant Maturities as published in the Federal Reserve
Statistical Release H.15(519) of the Board of Governors of
the Federal Reserve System, over the period from (A) November
1 of the year immediately preceding the applicable Plan Year
to (B) November 30 of the year immediately preceding the
applicable Plan Year.
If the average is not a multiple of 1/4 percent, the closest higher
interest rate which is a multiple of 1/4 percent shall be used.
"Plan Year Month" means each calendar month of the Plan Year.
<PAGE> 12
3.4 Limitation on Credits. Notwithstanding the foregoing provisions of
this Section 3, except as is hereinafter provided, no credits pursuant to the
foregoing provisions of this Section 3 shall be made to the Account of any
Participant on and after the Benefit Commencement Date applicable to such
Participant. However, with respect to any Plan Year that a Participant who is
still employed by an Employing Unit receives benefits by reason of having
attained his "required beginning date" within the meaning of Section 401(a)(9)
of the Code, such Participant shall continue to have amounts credited to his
Account pursuant to Sections 3.2 and 3.3. The additional benefit that
otherwise would have accrued during any such Plan Year by reason of his
continued employment during such Plan Year shall be reduced (but not below
zero) by the Actuarial Equivalent value of the total benefit payments made to
such individual during such Plan Year.
<PAGE> 13
SECTION 4
RETIREMENT BENEFITS
4.1 Normal Retirement Benefit. Each Participant who retires from
employment on his Normal Retirement Date shall be entitled to receive a
Retirement Benefit, commencing on his Normal Retirement Date, equal to his
Accrued Benefit as of his Normal Retirement Date, payable as provided in
Section 7.
4.2 Late Retirement Benefit. If a Participant remains employed beyond his
Normal Retirement Date, he shall be entitled to receive a Retirement Benefit
equal to his Accrued Benefit as of his Late Retirement Date, commencing on his
Late Retirement Date, payable as provided in Section 7.
4.3 Disability Retirement Benefit. In the event a Participant becomes
Totally and Permanently Disabled while in the employ of an Employing Unit prior
to his attainment of his Normal Retirement Date, he may elect either (a) or (b)
below:
(a) he may elect to be deemed for purposes of
Section 3.2 to continue to receive Compensation for the
duration of the period during which he remains Totally and
Permanently Disabled (but in no event after his attainment of
his Normal Retirement Date) at the same rate of Compensation
he was receiving immediately prior to becoming Totally and
Permanently Disabled. Accordingly, an Account shall continue
to be maintained under the Plan on his behalf during such
period of Total and Permanent Disability, and credits to such
Account shall continue to be made for the duration of his
Total and Permanent Disability in accordance with the
applicable provisions of Section 3. Upon such Participant's
attainment of his Normal Retirement Date, he shall be
entitled to receive a Retirement Benefit in accordance with
the provisions of Section 4.1.
(b) he may elect
(i) to have his Benefit Commencement
Date occur as soon as practicable after the date on
which he becomes Totally and Permanently Disabled, in
which case he shall commence to receive a benefit as
of such date, payable as provided in Section 7, which
such benefit shall be the Actuarial Equivalent of his
Accrued Benefit as of the date on which he so became
Totally and Permanently Disabled, or
(ii) to receive the value of his
Account as of such Benefit Commencement Date.
Notwithstanding the foregoing, no such election
pursuant to this subsection 4.3(b)(ii) may be made by
a married Participant unless the Participant's
<PAGE> 14
spouse consents to such election, the spousal consent
acknowledges the effect of such election, and the
consent is witnessed by a Plan representative or a
notary public.
If he elects (b), there will be no further pay credits.
4.4 Early Retirement Benefit. An actively employed Participant who has
attained his fifty-fifth (55th) birthday may elect to retire prior to his
Normal Retirement Date. In such case, he shall receive a Retirement Benefit,
commencing on his Normal Retirement Date, equal to his vested Accrued Benefit,
if any, as of his Normal Retirement Date, payable as provided in Section 7.
In lieu of such Retirement Benefit commencing on his Normal Retirement
Date, the Participant may, at any time on or after his termination of
employment, elect a reduced Retirement Benefit to commence as of the first day
of any month thereafter which is prior to his Normal Retirement Date. In such
case the Participant shall receive a Retirement Benefit which is the Actuarial
Equivalent of his vested Accrued Benefit as of such Benefit Commencement Date,
payable as provided in Section 7.
4.5 Nonduplication of Benefits. The amount of a Participant's Retirement
Benefits shall be reduced by that portion of any retirement income, payable
from any source other than the Fund, to which he is entitled under any
tax-qualified retirement plan maintained by a member of the Group (other than a
profit sharing plan which is qualified under Section 401(a) of the Code) which
is attributable to a period of employment for which he receives a benefit from
this Plan, except that no such reduction shall be made with respect to that
part of such retirement income which is attributable to contributions made by
him. For the purpose of computing the amount of such reduction, any such
retirement income, payment of which is to commence other than at the Employee's
Normal Retirement Date under this Plan, or payment of which is to be made on a
basis other than a retirement income for life, shall be recomputed to its
Actuarial Equivalent value on the basis of a retirement income for life
commencing on such Normal Retirement Date.
<PAGE> 15
SECTION 5
BENEFITS UPON TERMINATION OF EMPLOYMENT
5.1 Benefit on Termination of Employment Prior to Retirement. Except as
is otherwise hereinafter provided, in the event of the termination of
employment of a Participant, for any reason other than death under the Plan,
after completion of three (3) or more years of Service, he shall have a
nonforfeitable right to a percentage of his Accrued Benefit. The percentage of
the Accrued Benefit to which such a Participant shall have a nonforfeitable
right shall be determined from the following table by reference to the
completed years of Service at the date of termination of employment:
<TABLE>
<CAPTION>
Percentage of
Completed Years of Service Accrued Benefit
<S> <C>
- -------------------------------------------
Less than 3 0%
- -------------------------------------------
3 20%
- -------------------------------------------
4 40%
- -------------------------------------------
5 60%
- -------------------------------------------
6 80%
- -------------------------------------------
7 or more 100%
- -------------------------------------------
</TABLE>
Notwithstanding the foregoing, the Accrued Benefit of a Participant shall
be one hundred percent (100%) vested and non-forfeitable upon the first to
occur of his (i) his attainment of age sixty-five (65) while still employed by
an Employing Unit (or other member of the Group), or (ii) his termination of
employment by reason of Total and Permanent Disability. In addition, a
Participant whose termination of employment is by reason of death shall be
treated as being one hundred percent (100%) vested for purposes of Section 6.
5.2 Commencement of Benefits to Vested Terminated Participants. A
Participant whose employment terminates and who is entitled to the benefit
specified in the first paragraph of Section 5.1 above shall hereinafter be
referred to as a "Vested Terminated Participant." Except as is otherwise
hereinafter provided, if a Vested Terminated Participant survives to his Normal
Retirement Date, he shall be entitled to receive a Retirement Benefit,
commencing on his Normal Retirement Date, equal to his vested Accrued Benefit
as of his Normal Retirement Date, payable as provided in Section 7.
Notwithstanding the foregoing,
(a) A Vested Terminated Participant may elect to commence
receiving benefits as of the first day of any month
following the attainment of age fifty-five (55) and prior to
his Normal Retirement Date, in
<PAGE> 16
which event he shall be entitled to a Retirement Benefit
which is the Actuarial Equivalent of his vested Accrued
Benefit as of such Benefit Commencement Date, payable as
provided in Section 7.
(b) (i) If the Actuarial Equivalent present value
of a Vested Terminated Participant's Accrued Benefit (or, if
greater, the vested value of the Vested Terminated
Participant's Account) as of the date of his termination of
employment exceeds three thousand, five hundred dollars
($3,500), the Participant may elect that such benefit shall
be paid to him, commencing as soon as practicable thereafter
in the form provided for in Section 7.2 or Section 7.4, as
applicable, or, subject to the spousal consent requirements
of Section 7.4(c), in a cash lump sum; and
(ii) If the Actuarial Equivalent present value of a Vested
Terminated Participant's Accrued Benefit (or, if greater,
the vested value of a Vested Terminated Participant's
Account) as of the date of his termination of employment
does not exceed three thousand, five hundred dollars
($3,500), such benefit shall be paid to him as soon as
practicable thereafter in a cash lump sum.
<PAGE> 17
SECTION 6
DEATH BENEFITS
6.1 Benefit Payable in the Event of Death Before Retirement Benefit
Commencement Date. If a Participant (other than a Vested Terminated
Participant) dies before the date on which Retirement Benefit payments commence
to be paid to him, a benefit shall be payable to his Beneficiary as follows:
(a) If the Participant's Beneficiary is any person
other than his spouse, there shall be paid to such
Beneficiary as of the first day of the month following the
month in which the Participant's death occurs an amount
equal to the value of his Account as of the last day of the
month in which the death of the Participant occurs.
(b) If the Participant's Beneficiary is his spouse,
such spouse shall be entitled to receive a Retirement
Benefit for her life commencing on the date the Participant
would have attained his Normal Retirement Date if he had
survived to such date. Such benefit to the spouse shall be
a single life annuity, payable monthly, where such annuity
is the Actuarial Equivalent of the Accrued Benefit to which
such Participant would have been entitled had he terminated
employment on his date of death, survived to his Normal
Retirement Date, and commenced to receive a Retirement
Benefit as of such date. Notwithstanding the foregoing,
the spouse of a Participant may elect to commence receiving
a Retirement Benefit for her life in the form of a single
life annuity commencing on the first day of any month on or
after the date the Participant would have attained age
fifty-five if he had survived to such date. The monthly
amount of such benefit to the spouse shall equal the
monthly amount payable under a single life annuity where
such single life annuity is the Actuarial Equivalent of the
Retirement Benefit to which such Participant would have
been entitled had he terminated employment on his date of
death, survived to such commencement date, and commenced to
receive a Retirement Benefit as of such date.
Alternatively, the spouse may request to receive, in lieu
of any other benefits under the Plan to which she would
otherwise be entitled, a distribution of the value of the
Participant's Account as of his date of death, payable as
soon as practicable after the Participant's death.
(c) The foregoing provisions of this Section 6.1 shall
apply in the case of the death of a Vested Terminated
Participant who was less than one hundred percent (100%)
vested on his termination of employment only with respect
to that portion of his Account (or Accrued Benefit) in
which he is so vested on his date of death.
<PAGE> 18
6.2 Beneficiary.
(a) A Participant who has a spouse at the date of his
death shall automatically be deemed to have designated such
spouse as his Beneficiary unless (i) the Participant
designates a different Beneficiary and the spouse of such
Participant consents to such designation in writing, which
consent acknowledges the effect of such designation and
which is witnessed by a notary public or plan
representative, or (ii) it is established to the
satisfaction of the Committee that the consent of the
spouse cannot be obtained because the spouse cannot be
located or because of other special circumstances.
For purposes of this Paragraph (a), the term spouse shall also include an
individual to whom the Participant was previously married to the extent so
required under the terms of a qualified domestic relations order (within the
meaning of Section 414(p) of the Code).
(b) Subject to the provisions of Paragraph (a) above,
a Participant may designate a Beneficiary or Beneficiaries
to receive any death benefit payable under the Plan (other
than amounts which are required to be paid to a surviving
spouse). Any such designation shall be made, and may be
changed or revoked, by filing the appropriate form with the
Committee. If more than one person is designated each
shall have an equal share unless the designation directs
otherwise. Any designation, change or revocation by a
Participant shall be effective only if it is received by
the Committee before the death of such Participant. For
purposes of this Paragraph (b), the term "person" includes
an individual, a trust or an estate. If no Beneficiary
designation is on file with the Committee at the
Participant's death, or if any designation is not effective
for any reason as determined by the Committee the benefit
payable under the Plan shall be paid to such Participant's
executor or administrator.
<PAGE> 19
SECTION 7
PAYMENT OF BENEFITS
7.1 Time of Payment. Payment of any benefit to which a Participant is
entitled pursuant to the Plan shall commence as of such Participant's Benefit
Commencement Date. In no event shall payment of any benefit commence later
than sixty days after the close of the Plan Year during which such Participant
attains, or would have attained, his Normal Retirement Date or, if later,
terminates his employment with the Company or other member of the Group,
provided however, payment must commence no later than April 1st of the calendar
year following the calendar year in which he attains age seventy and one-half
(70-1/2).
7.2 Standard Benefit. Except as is otherwise hereinafter provided in this
Section 7, the normal form of benefit payable to a Participant shall be an
annuity for the life of the Participant.
7.3 Claim for Benefit.
(a) A Participant must file a claim for benefits
before payment of benefits shall commence. The claim for
benefits shall be in writing, in such form as the Committee
shall designate.
(b) The claim for benefits shall specify the date on
which pension payments are to commence, consistent with the
provisions of the Plan with respect to commencement of
benefits in case of normal, early or late retirement, as
the case may be.
(c) The claim for benefits shall include a
certification by the Participant either (i) that the
Participant is not married or (ii) that the Participant is
married and the name and date of birth of the individual to
whom the Participant is married. The certification by the
Participant as to the Participant's marital status shall be
binding upon the Participant.
7.4 Qualified Joint and Survivor Annuity Form
(a) In general
Subject to the conditions set forth in this Section
7.4, if a Participant is married on the Benefit
Commencement Date, the amount of each pension payment which
otherwise would be payable to the Participant, shall be
reduced on an Actuarial Equivalent basis; and if the
Participant's spouse shall survive the Participant, pension
payments shall be payable under the Plan to the
Participant's surviving spouse during the surviving
spouse's remaining lifetime after the Participant's death,
in an amount equal to fifty percent (50%), or, if the
Participant shall so elect, one hundred percent (100%), of
the Participant's reduced pension payment.
<PAGE> 20
(b) Election to Waive the Qualified Joint and Survivor
Annuity Form.
A Participant may elect, during the election period
specified below, to waive the qualified joint and survivor
annuity form, in which case pension payments shall be made
in the normal form as provided in Section 7.2 or under the
optional form as the Participant shall elect in accordance
with Section 7.5.
An election to waive shall not take effect unless the
Participant's spouse gives written consent on a form
provided by the Committee for such purpose, which consent
acknowledges the effect of the election to waive, and which
written consent is witnessed by a notary public (or an
individual designated by the Committee). The Committee, in
its sole discretion, may waive the requirement for consent
of the spouse if the Participant establishes to the
Committee's satisfaction that the spouse cannot be located,
or because of other special circumstances.
An election to waive the qualified joint and survivor
annuity form may be made at any time within the election
period beginning on the date which is the ninetieth (90th)
day preceding the Participant's Benefit Commencement Date
and ending on such Benefit Commencement Date. A
Participant may revoke a waiver of the qualified joint and
survivor annuity form at any time during the election
period.
There is no limit on the number of times during the
election period that a Participant may elect to waive the
qualified joint and survivor annuity form or revoke a
waiver.
(c) Explanation
No earlier than ninety (90) days, and no later than thirty
(30) days, before the Participant's Benefit Commencement
Date, the Committee shall furnish the Participant with a
written explanation of (i) the terms and conditions of the
qualified joint and survivor annuity form, (ii) the
Participant's right to make, and the effect of, an election
to waive the joint and survivor annuity form of benefit,
(iii) the rights of the Participant's spouse to consent, or
refuse to consent, to such waiver, and (iv) the
Participant's right to make, and the effect of, a
revocation of an election to waive.
(d) Termination of Marriage
The spouse to whom the Participant was married at the
Participant's Benefit Commencement Date is entitled to the
survivor annuity upon the death of the Participant after
the Benefit Commencement Date, whether or
<PAGE> 21
not the Participant and such spouse were married at the
date of the Participant's death.
7.5 Optional Forms of Benefit.
(a) The optional forms of benefit provided in this
Section 7.5 (which shall be the Actuarial Equivalent of the
standard form of benefit set forth in Section 7.2 and which
in all cases shall, as a precondition to being available as
optional forms of benefit under the Plan, comply with the
requirements of Section 401(a)(9) of the Code) shall be
available only to (i) a Participant who is not married on
the Benefit Commencement Date and (ii) a Participant who is
married on the Benefit Commencement Date if an election to
waive the qualified joint and survivor annuity form, made
in accordance with Section 7.4(b), is in effect on such
Benefit Commencement Date.
(b) The other optional forms of benefit are:
(i) a single lump sum payment, and
(ii) a reduced lifetime retirement income, and
in the event of the Participant's death prior to
receiving one hundred and twenty (120) monthly
payments, the same amount of retirement income is
continued to his Beneficiary, until a combined total
of one hundred and twenty (120) monthly payments have
been made. If both the Participant and his
Beneficiary shall have died before a total of one
hundred and twenty (120) monthly payments have been
made, the monthly retirement income payments will
continue to the Beneficiary of the last payee for the
remainder of the one hundred and twenty (120) month
period.
7.6 Cash-out of Accrued Benefit. Any other provision of the Plan to the
contrary notwithstanding, if the vested value of a Participant's Account as of
the date of his termination of employment does not exceed three thousand, five
hundred dollars ($3,500), such vested Account value shall be paid to him as
soon as practicable thereafter in a cash lump sum.
7.7 Required Distributions. Subject to Section 1121(d)(4) of the Tax
Reform Act of 1986 and Proposed Treasury Regulation Section 1.401(a)(9)-1, a
Participant who attains age seventy and one-half (70-1/2) after December 31,
1987, or who is a five percent (5%) owner (as defined in Section 416(i) of the
Code) at any time after the attainment of age sixty-six and one-half (66-1/2),
shall commence to receive payment of his retirement income no later than the
April 1 of the calendar year following the calendar year in which such
Participant attains age seventy and one-half (70-1/2).
Any payments under this Plan shall be adjusted to meet the requirements of
Section 401(a)(9) of the Code and the regulations thereunder. Thus, the entire
interest of each Participant shall be distributed, beginning not later than the
required beginning date, in accordance with regulations, over the life of the
Participant or over the life of the Participant and Beneficiary (or
<PAGE> 22
over a period not extending beyond the life expectancy of the Participant or
the life expectancy of the Participant and Beneficiary). A Participant may
make an irrevocable election as to the form of benefit payment, with spousal
consent if applicable, in accordance with the provisions of this Plan, within
the ninety (90) day period ending on the Benefit Commencement Date. A
Participant who fails to make an election, within such ninety (90) day period,
shall have the amount, timing and duration of his benefit payment determined in
accordance with regulations promulgated under Sections 401(a)(9) and
411(b)(1)(H) of the Code, in the form of benefit payment described in Section
7.
A Participant who begins to receive benefit payments in accordance with
this Section 7.7, while remaining an Eligible Employee, shall continue to
accrue benefits in accordance with the applicable provisions of the Plan.
In addition, any distribution required under the incidental death benefit
rule of Section 401(a)(9)(G) of the Code shall be treated as a distribution
required under this Section.
7.8. Direct Rollovers.
(a) Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this Section 7.8, a Distributee
may elect, at the time and in the manner prescribed by the Committee, to have
any portion of an Eligible Rollover Distribution paid directly to an Eligible
Retirement Plan specified by the Distributee in a Direct Rollover.
(b) An Eligible Rollover Distribution is any distribution of all or any
portion of the balance to the credit of the Distributee, except that an
Eligible Rollover Distribution does not include: (i) any distribution that is
one of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the Distributee or the
joint lives (or joint life expectancies) of the Distributee and the
Distributee's designed beneficiary, or for a specified period of ten (10) years
or more, (ii) any distribution to the extent the distribution is required under
Code Section 401(a)(9) and (iii) the portion of any distribution that is not
includable in gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(c) An Eligible Retirement Plan is (i) an individual retirement account
described in Code Section 408(a), (ii) an individual retirement annuity
described in Code Section 408(b), (iii) an annuity plan described in Code
Section 403(a) or (iv) a qualified trust described in Section 401(a) of the
Code, which accepts the Distributee's Eligible Rollover Distribution. However,
if an Eligible Rollover Distribution is to the surviving spouse, an Eligible
Retirement Plan is an individual retirement account or individual retirement
annuity.
(d) A Distributee includes an Employee or former Employee. In addition,
the Employee's or former Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Code Section 414(p), are
Distributees with regard to the interest of the spouse or former spouse.
(e) A Director Rollover is a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
<PAGE> 23
7.9 Rollover Contributions. An Employee may roll over a cash distribution
from a qualified plan or conduit individual retirement account to this Plan,
provided that (a) the distribution is (i) received from a qualified plan as an
Eligible Rollover Distribution (as defined in Section 7.8(b)) and (ii) rolled
over directly from the qualified plan or within the sixty (60) days following
the date the Employee received the distribution, or (b) the distribution is (i)
received from a conduit individual retirement account that has no assets other
than assets attributable to an Eligible Rollover Distribution or a "qualified
total distribution," within the meaning of Code Section 402 as in effect before
January 1, 1993, and had been deposited in the conduit individual retirement
account within sixty (60) days of the date the Employee received the
distribution, plus earnings, (ii) eligible for tax free rollover to a qualified
plan, and (iii) rolled over within sixty (60) days following the date the
Employee received the distribution. Before accepting a rollover contribution,
the Trustee may require the Employee to furnish satisfactory evidence that the
proposed transfer is in fact a rollover contribution that the Code permits an
Employee to make to a qualified plan. The foregoing contributions, which shall
be Rollover Contributions, shall be accounted for separately and shall be
credited to an Employee's Rollover Account. An Employee shall not be permitted
to withdraw any portion of his or her Rollover Account until such time as the
Employee is otherwise eligible to make a withdrawal from or receive a
distribution of his or her Account. An Employee who has made a Rollover
Contribution shall be deemed to be a Participant with respect to his or her
Rollover Account even if he or she is not otherwise a Participant.
<PAGE> 24
SECTION 8
CONTRIBUTIONS
8.1 Contributions by Participants. The entire cost of this Plan shall be
borne by the Company and the Employing Units and no contributions shall be
required or permitted of Participants.
8.2 Contributions by Employing Units. The Company and the Employing Units
intend, but do not guarantee, to make such contributions as are required to
maintain the Fund, established for the purposes of the Plan, on a sound
actuarial basis. Contributions will be in such amounts and made at such times
as determined by their respective boards of directors in accordance with the
funding policy established by the Board and consistent with Plan objectives.
Neither the Company, the Employing Units, nor any of their officers or
Employees, nor any Participant of their boards of directors or agents, nor any
member of the Committee, nor the Funding Agent guarantees, in any manner, the
payments of the benefits hereunder.
All contributions made by the Company and each Employing Unit shall become
a part of the Fund and shall be held by the Funding Agent subject to the terms
and provisions of the Plan.
Forfeitures arising under the Plan because of termination of employment
before a Participant becomes eligible for a Retirement Benefit, or for any
other reason, shall be applied to reduce the cost of the Plan and shall not be
used to increase the benefits otherwise payable hereunder.
No part of the Fund shall be used for, or diverted to, purposes other than
for the exclusive benefit of Employees (and their Beneficiaries), except that
such part of the Fund, if any, which remains therein after the satisfaction of
all liabilities to persons entitled to benefits under the Plan, as described in
Section 9.2 hereof with respect to termination of the Plan, shall be returned
to the Company.
Notwithstanding anything herein to the contrary, upon the request of the
Company or an Employing Unit, a contribution which was made by a mistake of
fact, or conditioned upon qualification of the Plan or any amendment thereof or
upon the deductibility of the contribution under Section 404 of the Code, shall
be returned to the Company or the Employing Unit within one (1) year after the
payment of the contribution, the denial of the qualification or the
disallowance of the deduction (to the extent disallowed), whichever is
applicable. Any obligation of the Company or the Employing Units to make
contributions to the Fund hereby is conditioned upon the continued
qualification of the Plan under Section 401(a) of the Code, the exempt status
of the Fund under Section 501(a) of the Code, and each contribution made by the
Company or an Employing Unit hereby is conditioned upon its deductibility under
Section 404(a)(1) of the Code.
<PAGE> 25
SECTION 9
AMENDMENT AND TERMINATION
9.1 Amendment. While it is intended that the Plan shall continue in
effect indefinitely, the Company may at any time and from time to time modify,
alter or amend the Plan or Trust. Any such modification, alteration or
amendment shall be adopted by the Board, or by any duly authorized Board
committee, by formal resolution in a regularly or specially constituted meeting
of the Board or such committee, or by resolution without a meeting, provided
that no part of the assets of the Plan shall, by reason of any amendment, be
used for or diverted to purposes other than for the exclusive benefit of
Participants and Beneficiaries; and further provided that any amendment adopted
by the Board, or any duly authorized Board committee, that would cause the Plan
and the Fund established under the Plan to cease to meet the requirements of
Section 401(a) of the Code (unless such result shall have been specifically
intended as evidenced by an express statement of such intention in the
resolution of such Board adopting such amendment) shall be null and void; and
any actions taken under the Plan pursuant to such amendment, any benefit
increases (or decreases) accruing under the Plan as a result of such amendment
or any increases (or decreases) in benefit payments under the Plan made as a
result of such amendment, during the period from the date of adoption of such
amendment to the date it is determined that such amendment would so cause the
Plan and the Fund under the Plan to cease to meet such requirements, shall be,
respectively, rectified, nullified, and restored as soon as possible to the
extent necessary to permit the Plan and Fund under the Plan to continue to meet
the requirements of Section 401(a) of the Code. Notwithstanding the foregoing,
any amendment that increases benefits provided under the Plan must be approved
by the Compensation Committee of the Board.
Notwithstanding anything in the Plan to the contrary and subject to the
limitations in the previous paragraph, the Committee may amend the Plan in such
respects as may be necessary or appropriate to maintain the qualified status of
the Plan under Section 401(a) of the Code or to satisfy the requirements of
other applicable laws.
9.2 Right to Terminate. The Company shall have the right, at any time, to
suspend or discontinue its contributions under the Plan, and to terminate at
any time, in whole or in part, this Plan and the Trust. Any such suspension,
discontinuance or termination shall made effective by the Board of Directors of
the Company, or by any duly authorized Committee, by formal resolution in a
regularly or specially constituted meeting of the Board or such Committee or by
formal resolution without a meeting. Written notice of such suspension,
discontinuance or termination shall be given to the Committee and to the
Funding Agent, but only upon condition that such action is taken as shall
render it impossible at any time prior to the satisfaction of all liabilities
with respect to Participants, surviving spouses and Beneficiaries and with
respect to the expenses of the Fund, for any part of the corpus or income of
the Fund to be used for or diverted to purposes other than for the exclusive
benefit of Participants, surviving spouses and Beneficiaries under the Plan and
for the payment of expenses.
9.3 Effect of Termination. Upon termination of the Plan pursuant to
Section 9.2 each Participant's accrued benefit shall become nonforfeitable to
the extent then funded and the Committee shall cause the Fund to be allocated
in a manner approved by the Internal Revenue
<PAGE> 26
Service in accordance with the provisions of, and regulations issued pursuant
to, Section 4044 of the Employee Retirement Income Security Act of 1974.
The total amount so allocated shall be applied either by a cash payment,
by insurance company contract or by the continuance of the Fund and the payment
of retirement income therefrom in such amounts as may be provided by the funds
so allocated, all as the Committee shall determine, subject to the requirements
of applicable law. However, in the event that the assets available for
allocation are less than the value of insured vested benefits, the Pension
Benefit Guaranty Corporation may direct how the allocated amounts are to be
applied.
If any of the assets of the Fund remain after the satisfaction of all
liabilities of the Plan the remaining funds shall be paid by the Funding Agent
to the Company.
9.4 Continuation of Fund. If the Plan is terminated but the Board of
Directors determines that the Fund shall be continued pursuant to its terms and
the provisions of this Section, no further contributions will thereafter be
made by the Company, the rights of each affected Participant to benefits
accrued to the date of termination of the Plan, to the extent then funded,
shall be nonforfeitable but the Fund shall be administered as though the Plan
were otherwise in full force and effect, except that no further benefits will
accrue after the date of termination. If the trust is subsequently terminated,
the Fund shall then be allocated and disbursed in accordance with procedures
set forth in Section 9.3.
9.5 Mergers, Etc.. In the case of any merger or consolidation with, or
transfer of assets or liabilities to, any other plan, each Participant in the
Plan shall in all cases, if the Plan then terminated, receive a benefit
immediately after the merger or consolidation or transfer of assets which is
equal to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer, if the Plan had then
terminated.
9.6 Partial Termination. Upon a partial termination of the Plan, the
rights of all affected Participants to benefits accrued to the date of such
partial termination, to the extent then funded, shall be nonforfeitable.
If a partial termination of the plan shall occur, a terminated group's
share of the Fund shall equal (i) the sum of that part of the fair market value
of the Fund on the Plan's partial termination date which would have been
allocated to each person in the terminated group in accordance with Section 9.3
if the Plan had been terminated on such date as to all Participants in the Plan
minus (ii) the expenses of the Plan and the Fund incurred in connection with
the termination of the Plan as to such group.
<PAGE> 27
SECTION 10
LIMITATIONS ON BENEFITS
10.1 Maximum Limitation. In addition to other limitations set forth in
the Plan and notwithstanding any other provisions of the Plan, the accrued
benefit, including the right to any optional benefits provided in the Plan (and
all other defined benefit plans required to be aggregated with this Plan under
the provisions of section 415 of the Code), shall not increase to an amount in
excess of the amount permitted under section 415 of such Code at any time.
Notwithstanding any provision of this Plan to the contrary, for purposes of the
preceding sentence and for purposes of determining whether benefits of this
Plan exceed the limitations of section 415 of such Code, the term "annual
addition" shall include all employee contributions to the Plan. For purposes
of this paragraph and determining compliance with section 415 of the Code,
compensation shall mean compensation as defined in section 415(b)(3) and the
regulations thereunder.
10.2 Early Termination Provisions.
(a) The purpose of this Section 10.2 is to conform the
Plan to the requirements of Treasury Regulation Section
1.401(c)-1 and Treasury Regulation Section
1.401(a)(4)-5(b).
(i) In the event of the termination of the Plan,
the benefit of any highly compensated employee
(within the meaning of Section 414(q) of the Code)
shall in no event exceed an amount that is
nondiscriminatory under Section 401(a)(4) of the
Code.
(ii) The annual payments to an Employee
described in Section 10.2(a)(iii) may not exceed an
amount equal in each year to the payments that would
be made on behalf of the Employee under a straight
life annuity that is the Actuarial Equivalent value
of the Employee's accrued benefit and the other
benefits to which the Employee is entitled under the
Plan (other than a social security supplement), and
the amount of the payments that the Employee is
entitled to receive under a social security
supplement. Notwithstanding the foregoing, the
restrictions of this subparagraph (ii) do not apply
if any one of the following requirements is
satisfied:
(A) after payment to an Employee
described in Section 10.2(a)(iii) of all
"benefits" described in Section 10.2(a)(iv),
the value of Plan assets equals or exceeds 110
percent of the value of current liabilities,
as defined in Section 412(l)(7) of the Code,
<PAGE> 28
(B) the value of the benefits described
in Section 10.2(a)(iv) for an Employee
described in Section 10.2(a)(iii) is less than
one (1) percent of the value of current
liabilities of the Plan, or
(C) the value of the benefits described
in Section 10.2(a)(iv) for an Employee
described in Section 10.2(a)(iii) does not
exceed three thousand, five hundred dollars
($3,500).
Furthermore, this subparagraph (ii) and
Treasury Regulation Section 401(a)(4)-5(b)(3)
shall not restrict any distribution to a
Participant who agrees, by an adequately
secured written agreement with the Committee
as prescribed by Section 10.2(b) (an
"Agreement") to repay to the Plan and Fund any
amount necessary for the distribution of
assets upon Plan termination to satisfy
Section 401(a)(4) of the Code.
(iii) The Employees whose benefits are
restricted on distribution consist of the twenty-five
(25) highly compensated employees (including former
Employees who were highly compensated employees when
they separated from service and Employees who were
highly compensated employees at any time after
attaining age fifty-five (55)) whose compensation,
within the meaning of Section 414(g) of the Code, was
the highest in the current or any prior Plan Year.
(iv) For purposes of Section 10.2(a)(ii)(A) the
term "benefits" includes, in addition to other
benefits payable under the Plan, loans in excess of
the amounts set forth in Section (72)(p)(2)(A) of the
Code, any periodic income, any withdrawal values
payable to a living Employee, and any death benefits
not provided for by insurance on the Employee's life.
(b) Terms of Agreement
(i) During any Plan Year, the amount that may be
required to be repaid to the Trust Fund pursuant to
an Agreement is the Restricted Amount.
(A) The "Restricted Amount" is the excess
of the Accumulated Amount of distributions
made to the Employee over the Accumulated
Amount of the Employee's Nonrestricted Limit.
(B) The Employee's "Nonrestricted Limit"
is equal to the payments that could
<PAGE> 29
have been distributed to the Employee,
commencing when distribution commenced to the
Employee, had the Employee received payments
in the form described in Treasury Regulations
Sections 1.401(a)(4)-5(b)(3)(i)(A) and (B).
(C) An "Accumulated Amount" is the amount
of a payment, increased by a reasonable amount
of interest from the date the payment was made
(or would have been made) until the date for
the determination of the Restricted Amount.
(ii) Prior to receipt of a distribution under
the terms of an Agreement, an Employee must (A) agree
that upon such distribution the Employee will
promptly deposit in an escrow account (an "Escrow
Account") with a depository acceptable to the
Committee property having a fair market value equal
to at least one hundred and twenty-five percent
(125%) of the Restricted Amount, or (B) post as
collateral a bond or bank letter of credit equal to
at least one hundred percent (100%) of the Restricted
Amount, which bond is furnished by an insurance
company, bonding company, or other surety approved by
the U.S. Treasury Department as an acceptable surety
for federal bonds.
(iii) Amounts in the Escrow Account in excess of
one hundred and twenty-five percent (125%) of the
Restricted Amount may be withdrawn by the Employee.
The Employee's liability under a bond or letter of
credit in excess of one hundred percent (100%) of the
Restricted Amount may be released, where the
Agreement has been secured by a bond or a letter of
credit. If the market value of the property in the
Escrow Account falls below one hundred and ten
percent (110%) of the Restricted Amount, the Employee
is obligated to deposit additional property to bring
the value of the property held by the depository up
to one hundred and twenty-five percent (125%) of the
Restricted Amount. An Employee has the right to
receive any income from the property placed in the
Escrow Account, subject to the foregoing obligation
to maintain the value of the property.
(iv) A depository may not redeliver to an
Employee any property held under an Agreement, other
than amounts in excess of one hundred and twenty-five
percent (125%) of the Restricted Amount, and a surety
or bank may not release any liability on a bond or
letter of credit unless the Committee certifies to
the depository, surety or bank that the Employee (or
the Employee's estate) is no longer obligated to
repay any amount under the Agreement. The Committee
will make such a certification if, any time after the
distribution commences, either
<PAGE> 30
(A) the value of Plan assets equals or exceeds one
hundred and ten percent (110%) of the value of
current liabilities, (B) the value of the Employee's
future Nonrestricted Limit constitutes less than one
percent of the value of current liabilities, (C) the
value of the Employee's future Nonrestricted Limit
does not exceed three thousand, five hundred dollars
($3,500), or (D) the Plan has terminated and the
benefit received by the Employee is
nondiscriminatory. Such a certification by the
Committee shall terminate the Agreement.
(c) In the event that Congress should provide by
statute, or the Internal Revenue Service should provide by
regulation or ruling, that any or all of the conditions set
forth in Sections 10.2(a) and 10.2(b) are no longer
necessary for the Plan to meet the requirements of Section
401 or other applicable provisions of the Code then in
effect, such conditions shall immediately become void and
shall no longer apply, without the necessity of further
amendment to the Plan.
<PAGE> 31
SECTION 11
ADMINISTRATION
11.1 Appointment and Term of Office. The Board shall appoint a committee
of at least three (3) persons to be known as the Benefit Plans Committee
("Committee"), the members of which shall hold office during the pleasure of
the Board. Any person shall be eligible to be appointed a member of the
Committee. Any member may resign at any time by notice in writing filed with
the Board and with the Chairman or Secretary of the Committee. Vacancies shall
be filled promptly by the Board in such manner that the composition shall be as
herein prescribed. The Committee shall be the "administrator" within the
meaning of Section 3(16)(A) of ERISA.
11.2 Organization of the Committee. The Committee shall appoint a
Chairman, who must be a member, and a Secretary, who need not be a member. It
may appoint such agents, who need not be members of the Committee, as it may
deem necessary for the effective performance of its duties, whether ministerial
or discretionary, as the Committee may deem expedient or appropriate. The
compensation of such agents may be fixed by the Committee within limits set by
the Board. The action of the Committee shall be determined by the vote or
other expression of a majority of its members.
The Committee shall hold meetings upon such notice, at such place or
places and at such time or times as the Committee may from time to time
determine. Meetings may be called by the Chairman or any two (2) members. A
majority of the members of the Committee at the time in office shall constitute
a quorum for the transaction of business. Members of the Committee shall serve
without compensation for services as such, but the Company shall pay or
reimburse the Committee for all expenses reasonably incurred by it or its
members.
11.3 Powers of the Committee. The Committee shall have complete control
of the administration of the Plan, subject to the provisions hereof, with all
powers necessary to enable it to properly carry out its duties in that respect.
Not in limitation, but in amplification of the foregoing, the Committee shall
have the uncontrolled discretionary authority and power to interpret and
construe this Plan and to determine all questions that may arise thereunder,
including all questions relating to the eligibility of Employees to participate
in this Plan, and the amount of Retirement Benefit or other benefits to which
any Participant or Beneficiary may become entitled hereunder. The decisions of
the Committee upon all matters within the scope of its authority shall be
final. No member of the Committee shall take part in any action or any matter
solely concerning his own participation in the Plan. The Committee shall
approve forms and establish rules and procedures to be followed by the
Participants or Beneficiaries in filing applications for benefits and in
furnishing and verifying proofs necessary to establish age, service, and any
other matter required in order to establish the right to benefits in accordance
with the Plan.
The Committee shall receive all applications for benefits. Upon receipt
by the Committee of such an application, it shall determine all facts which are
necessary to establish the right of the applicant to benefits under the
provisions of the Plan and shall approve the amount thereof as herein provided.
The Committee shall afford a reasonable opportunity, to any
<PAGE> 32
applicant who gives written notice to the Committee of his request for a
review, for a reconsideration of any finding of fact or determination affecting
his benefits.
The Committee may authorize one or more of its members or any agent, to
execute any instrument or make any payment on its behalf, and all persons
having dealings with the Committee may rely upon the signature of any person so
authorized.
The Committee shall prepare and distribute to the Employees, at the
expense of the Company and in such manner as it shall deem appropriate,
information concerning the Plan.
To enable the Committee to perform its functions, the various Employing
Units shall supply full and timely information to it of all matters relating to
the length of service of all Participants, their retirement, death or other
cause of termination of employment, and such other pertinent facts as the
Committee may require.
The Board shall notify the Funding Agent in writing of the members of the
Committee and any changes therein, and shall certify to the Funding Agent the
signatures of said members. From time to time and as necessary, the Committee
shall advise the Funding Agent of such facts and issue to the Funding Agent
such instructions as may be required by the Funding Agent in the administration
of the Plan.
The Committee shall from time to time adopt the actuarial, financial and
other tables and procedures which shall be used in the various actuarial
calculations required in connection with the Plan, and may modify, change or
revoke any thereof, and substitute a new table or procedure therefor, as it may
see fit. As an aid to the Committee in adopting tables and in determining the
level of contributions to the Fund, the Actuary shall make annual actuarial
valuations of the Plan and shall present to the Committee the tables and
contributions which he recommends.
11.4 Records of the Committee. All acts and determinations of the
Committee shall be duly recorded by the Secretary thereof, or under his
supervision, and all such records, together with such other documents as may be
necessary for the administration of the Plan shall be preserved in the custody
of such Secretary. Such records and documents shall, during normal business
hours, be open for inspection and for the purpose of making copies by any
person designated by the Board.
11.5 Limitation of Fiduciary Liability. A Fiduciary shall be liable for a
breach of fiduciary responsibility of another Fiduciary only in the following
circumstances:
(a) If he participates knowingly in, or knowingly
undertakes to conceal, an act or omission of such other
Fiduciary, knowing such act or omission is a breach;
(b) If, by his failure to comply with Section 11.6 in
the administration of his specific responsibilities which
give rise to his status as a Fiduciary, he has enabled such
other Fiduciary to commit a breach; or
<PAGE> 33
(c) If he has knowledge of a breach by such other
Fiduciary, unless he makes reasonable effort under the
circumstances to remedy the breach.
The Fiduciaries shall be entitled to rely upon all tables, valuations,
certificates and reports furnished by the Actuary, and upon all certificates
and reports made by an accountant selected by the Committee, and upon all
opinions given by any counsel selected by the Committee; and the Fiduciaries
shall be fully protected in respect to any action taken or suffered by them in
good faith in reliance upon the advice or opinion of any such Actuary,
accountant or counsel, and all actions so taken or suffered shall be conclusive
upon each of them and upon all other persons interested in the Plan.
A Fiduciary may designate persons other than named Fiduciaries to carry
out Fiduciary responsibilities under the Plan. Such Fiduciary shall not be
liable for an act or omission of such person in carrying out such
responsibility except to the extent that:
(a) The Fiduciary violated Section 11.6 in making or
continuing such allocation or designation, or
(b) The Fiduciary would otherwise be liable in
accordance with Section 11.6.
11.6 Allocation of Responsibility Among Fiduciaries for Plan and Fund
Administration. The Fiduciaries shall have only those specific powers, duties,
responsibilities and obligations as are specifically given them under this Plan
or the Fund. The Company shall have the sole authority to appoint and remove
the Funding Agent and any investment manager which may be provided for under
the Fund, and to amend or terminate, in whole or in part, this Plan or the
Fund. The Committee shall have the sole responsibility for the administration
of this Plan, which responsibility is specifically described in this Plan and
the Fund. The Funding Agent shall have the sole responsibility for the
administration of the Fund and the management of the assets held under the
Fund, all as specifically provided in the Fund. Each Fiduciary warrants that
any directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan or the Fund, as the case may be,
authorizing or providing for such direction, information or action.
Furthermore, each Fiduciary may rely upon any such direction, information or
action of another Fiduciary as being proper under this Plan or the Fund, and is
not required under this Plan or the Fund to inquire into the propriety of any
such direction, information or action. It is intended under this Plan and the
Fund that each Fiduciary shall be responsible for the proper exercise of its
own powers, duties, responsibilities and obligations under this Plan and the
Fund and shall not be responsible for any act or failure to act of another
Fiduciary. No Fiduciary guarantees the Fund in any manner against investment
loss or depreciation in asset value.
11.7 Claims Procedure. The Committee shall make all determinations as to
the right of any person to a benefit. Any denial by the Committee of the claim
for benefits under the Plan by a Participant or Beneficiary shall be stated in
writing by the Committee and delivered or mailed to the Participant or
Beneficiary; and such notice shall set forth the specific reasons for the
denial, written in a manner that may be understood by the average Participant.
In addition, the
<PAGE> 34
Committee shall afford a reasonable opportunity to any Participant or
Beneficiary whose claim for benefits has been denied for a review of the
decision denying the claim.
11.8 Indemnification of Certain Persons. Each individual who has been
designated to carry out any Fiduciary or administrative responsibility, whether
an Employee, officer or director of the Company shall be indemnified by the
Company against all expenses (including costs and attorney's fees) actually and
necessarily incurred or paid by him in connection with the defense of any
action, suit or proceeding in any ways relating to or arising from the Plan to
which he may be made a part by reason of his being or having been so
designated, or by reason of any action or omission or alleged action or
omission by him in such capacity, and against any amount or amounts which may
be paid by him (other than to the Company) in reasonable settlement of any such
action, suit or proceeding, where it is in the interest of the Company that
such settlement be made. In cases where such action, suit or proceeding shall
proceed to final adjudication, such indemnification shall not extend to matters
as to which it shall be adjudged that such Employee, officer or director is
liable for gross negligence or willful misconduct in the performance of his
duties as such. The right of indemnification herein provided shall not be
exclusive of other rights to which any such Employee, officer or director may
now or hereafter be entitled, shall continue as to a person who has ceased to
be so designated and shall inure to the benefit of the heirs, executors and
administrators of such Employee, officer or director.
<PAGE> 35
SECTION 12
ADOPTION OF PLAN BY EMPLOYING UNITS
12.1 Procedure. Any Employing Unit may adopt this Plan for the benefit of
its Employees, with the consent of the Company, which consent may be given by
the President or a Vice President of the Company. In adopting this Plan the
Employing Unit may, with the consent of the Company, elect to provide for some
benefits to be under a special formula for some or all of its employees. Such
benefit variations will be detailed in addenda which are deemed a part of this
Plan with respect to such Employees. The Employing Unit desiring to adopt the
Plan shall submit a certified copy of the resolution of its board of directors
to the Company, stating its desire to adopt said Plan for its Employees and the
effective date thereof. All contributions made by the Company and each
Employing Unit shall become a part of the Fund and shall be held by the Funding
Agent subject to the terms and provisions of the Plan.
12.2 Effect. In addition to subjecting it to the provisions of this Plan,
the adoption of the Plan and Fund by the Employing Unit's board of directors
shall also constitute the automatic delegation by it to the Company of full
authority to amend, alter or modify the Plan, and any such amendment,
alteration or modification made by the Company shall be binding upon and
effective with respect to each Employing Unit.
12.3 Withdrawal of an Employing Unit. Any Employing Unit shall, upon
ceasing to be an Employing Unit, or may without ceasing to be an Employing
Unit, through the action of its board of directors, withdraw from the Plan.
<PAGE> 36
SECTION 13
SUCCESSOR COMPANY
13.1 Successor Company. In the event of the dissolution, merger,
consolidation or reorganization of the Company, provision may be made by which
the Plan and Fund will be continued by the successor; and, in that event, such
successor shall be substituted for the Company under the Plan. The
substitution of the successor shall constitute an assumption of Plan
liabilities by the successor and the successor shall have all of the powers,
duties and responsibilities of the Company under the Plan.
<PAGE> 37
SECTION 14
GENERAL PROVISIONS
14.1 Construction. In the construction of the Plan the masculine shall
include the feminine and the singular the plural in all cases where such
meanings would be appropriate. The headings and sub-headings in this Plan
(other than in Section 1) have been inserted for convenience of reference only,
and are to be ignored in any construction of the provisions hereof. All
references to specific sections of the Code are references to such sections as
contained in the Internal Revenue Code of 1986 (Title 26 of the United States
Code), and shall be deemed to be references to such sections as they may be
amended or superseded, and to the corresponding sections or provisions, if any,
of any subsequent United States Code, as appropriate at the time of reference.
Except as required by ERISA or any other applicable law of the United States of
America, the Plan and Fund shall be construed, governed, regulated and
administered according to the laws of the State of Illinois.
14.2 Employment. Participation in the Plan shall not give any Employee
the right to be retained in the employ of an Employing Unit, or upon dismissal
or upon his voluntary termination of employment, to have any right, legal or
equitable, under this Plan or in the Fund or any portion thereof, except as
expressly granted by this Plan.
14.3 Benefits Supported Only by Fund. Except as may be otherwise provided
under Title IV of ERISA, any person having any claim under the Plan will look
solely to the assets of the Fund for the satisfaction thereof and the Company,
the Employing Units, the Committee, the Funding Agent, or any of their
stockholders, officers, members of their boards of directors, or agents, shall
not be liable in their individual capacities to any person whomsoever.
14.4 Spendthrift Clause. No benefit under the Plan shall be subject in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any attempt so to anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge the same shall be void, and no
such benefit shall in any manner be liable for or subject to the debts,
liabilities, engagements or torts of the person entitled to such benefit,
except as specifically provided in the Plan. Any other provision of the Plan
to the contrary notwithstanding, however, the creation, assignment, or
recognition of a right to any benefit payable with respect to an Employee
pursuant to a "qualified domestic relations order" (as defined in subsection
414(p) of the Code) shall not be treated as an assignment or alienation
prohibited by this Section 14.4, and if a qualified domestic relations order
requires the distribution of all or part of an Employee's benefits under the
Plan, the establishment or acknowledgment of the alternate payee's right to
benefits under the Plan in accordance with the terms of such qualified domestic
relations order shall in all events be deemed to be consistent with the terms
of the Plan.
14.5 Benefits Payable to Incompetents. If any recipient of benefits is,
in the judgment of the Committee, legally incapable of personally receiving and
giving a valid receipt for any payment due him under the Plan, the Committee
may, unless and until claims shall have been made by a duly appointed guardian
or committee of such person, make such payment or any part thereof to such
person's spouse, children, or other legal entity deemed by the Committee to
have incurred expenses or assumed responsibility for the expenses of such
person. Any payment so made shall be a complete discharge of any liability
under the Plan for such payment.
<PAGE> 38
14.6 Expenses of Administration. The Company and/or the Employing Units
may pay all expenses incurred in the administration of the Plan, including
expenses and fees of the Funding Agent, but they shall not be obligated to do
so. Any such expenses and fees not so paid by the Company and/or the Employing
Units shall be paid from the Fund.
14.7 Non-Discrimination. The Committee shall administer the Plan and Fund
in a uniform and consistent manner with respect to all persons similarly
situated and shall not permit discrimination in favor of highly compensated
employees (within the meaning of section 414(q) of the Code).
14.8 Purchase of Annuity Contracts. Notwithstanding any provision of the
Plan to the contrary, any benefit specified herein may be provided, by
direction from the Committee to the Funding Agent, through the means of an
annuity contract purchased from such life insurance company as the Committee
may direct.
14.9 Failure of Plan to Qualify. No right or interests under the Plan
shall come into existence for an Employing Unit unless and until the Plan is
initially determined by the Internal Revenue Service to be a qualified plan
with respect to such Employing Unit under Section 401(a) of the Code, and that
the Fund is exempt from tax under Section 501(a) thereof, provided however,
that until the Internal Revenue Service reaches a determination respecting the
status of this Plan and Fund with respect to an Employing Unit, persons who
retire, or whose service is otherwise terminated subsequent to the Effective
Date, shall receive their benefits as if the Plan and Fund had been the subject
of a favorable determination.
<PAGE> 39
SECTION 15
IN EVENT PLAN BECOMES TOP-HEAVY
15.1 Special Definitions. For purposes of this Section 15, the following
terms shall have the following meanings:
(a) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(b) "Key Employee" means a Participant or former
Participant who is a "key employee" as defined in Section
416(i) of the Code.
(c) "Determination Date" means, with respect to any
Plan Year, the last day of the preceding Plan Year, except
that the Determination Date with respect to the first Plan
Year shall be the last day of that Plan Year.
(d) "Plan Year" has the meaning set forth in
Section 1.26.
(e) "Present Value of Accrued Benefits" means, as of a
given Determination Date, the present value, as of the most
recent Valuation Date which is within a twelve (12) month
period ending on the Determination Date, of the benefits
accrued under the Plan as of such Valuation Date with
respect to a Participant determined as if such Participant
terminated service as of such Valuation Date. The
determination of the Present Value of Accrued Benefits
shall be based on the actuarial assumptions used by the
Plan's actuary in the actuarial valuation as of such
Valuation Date.
(f) "Required Aggregation Group" means with respect to
a given Plan Year, this Plan and all other plans of the
Group which, in the aggregate, meet the requirements of the
definition contained in Section 416(g)(2)(A)(i) of the
Code.
(g) "Valuation Date" means, with respect to a given
Plan Year, the same valuation date used for computing Plan
costs for minimum funding purposes, regardless of whether a
valuation is performed that year.
(h) "Permissive Aggregation Group" means, with respect
to a given Plan Year, this Plan and all other plans of the
Group which may be aggregated in accordance with Section
416(g)(2)(A)(ii) of the Code.
(i) "Top-Heavy" means, with respect to the Plan for a
Plan Year (1) that the Present Value of Accrued Benefits of
Key Employees exceeds sixty percent (60%) of the Present
Value of Accrued Benefits of all Participants, or (2) the
Plan is part of a Required Aggregation Group
<PAGE> 40
and such Required Aggregation Group is a Top-Heavy Group,
unless the Plan or such Top-Heavy Group is itself part of
the Permissive Aggregation Group which is not a Top-Heavy
Group.
(j) "Top-Heavy Group" means, with respect to a given
Plan Year, a group of Plans of the Group which, in the
aggregate, meet the requirements of the definition
contained in Section 416(g)(2)(B) of the Code.
15.2 Special Top-Heavy Rules. Notwithstanding any other provisions of the
Plan to the contrary, the following provisions of this Section 15.2 shall
automatically become operative and shall supersede any conflicting provisions
of the Plan, if, in any Plan Year, the Plan is Top-Heavy.
(a) The minimum monthly normal retirement income for a
Participant who is not a Key Employee, commencing at his
Normal Retirement Date, shall equal the lesser of (i)
product of (1) two percent (2%) of his average monthly
earnings during his five (5) highest-paid consecutive
calendar years of Service, multiplied by (2) the number of
his years of Service (to a maximum of ten (10) such years),
disregarding for this purpose any such years during which
the Plan is not Top-Heavy.
(b) In the event of the termination of employment
(other than by death or retirement) of a Participant who
had completed at least three (3) years of Service, such
Participant shall be one hundred percent (100%) vested and
shall be entitled to retirement income commencing on his
Normal Retirement Date, determined in accordance with
Section 4.1 (or, if greater subsection (a) above).
(c) For any Plan Year in which the Plan is Top-Heavy,
Compensation shall in no event exceed one hundred and fifty
thousand dollars ($150,000) or such higher amount in effect
in accordance with such applicable provisions of the Code.
(d) If the Plan becomes Top-Heavy and subsequently
ceases to be such, the vesting schedule in subsection (b)
above shall continue to apply in determining the rights to
benefits of any Participant who had at least three (3)
years of Service as of the last day of the last Plan Year
in which the Plan was Top-Heavy. For other Participants,
said schedule shall apply only to their accrued benefits as
of such last day of such Plan Year.
(e) In order to comply with the requirements of
Section 416(h) of the Code, in the case of a Participant
who is or has also participated in a defined contribution
plan of the Company (or any other company required to be
aggregated with the Company in accordance with Section
415(h) of the Code) in any Plan Year in which the Plan is
Top-Heavy there shall be imposed the following limitation
in addition to any limitation which may be imposed in
accordance with Section 10. In any such year, for purposes
<PAGE> 41
of satisfying the aggregate limit on contributions and
benefits imposed by Section 415(e) of the Code, benefits
payable from the Plan shall, except as hereinafter
provided, be reduced so as to comply with a limit
determined in accordance with Section 415(e) of the Code,
but based on the assumption that the number 1.0 is
substituted for the number 1.25 in the definition of the
"defined benefit plan fraction" (as defined in Section
415(e)(2) of the Code) and in the "defined contribution
plan fraction" (as defined in Section 415(e)(3) of the
Code). Notwithstanding the foregoing, if the application
of the additional limitation set forth in this subsection
(e) would result in the reduction of accrued benefits of
any Participant under this Plan, such additional limitation
shall not become operative, so long as (1) no additional
Company contributions, forfeitures or voluntary
nondeductible contributions are allocated to such
Participant's accounts under any defined contribution plan
maintained by the Company and (2) no additional benefits
accrue to such Participant under any defined benefit plan
maintained by the Company, including this Plan.
Accordingly, in any Plan Year that the Plan is Top-Heavy,
no additional benefits shall accrued under this Plan on
behalf of any Participant whose overall benefits under this
Plan would otherwise be reduced in accordance with the
limitation imposed by this subsection (e).
(f) In the event that Congress should provide by
statute, or the Treasury Department should provide by
regulation or ruling, that the limitations provided in this
Section 15 are no longer necessary for the Plan to meet the
requirements of Section 401 or other applicable provisions
of the Internal Revenue Code in effect, such limitations
shall become void and shall no longer apply, without the
necessity of further amendment to the Plan.
<PAGE> 42
IN WITNESS WHEREOF, Falcon Building Products, Inc. has caused this duly
amended and restated Plan to be executed below by its duly authorized officer
or representative on this 2nd day of December 1996 to be effective as of the
Effective Date stated herein.
FALCON BUILDING PRODUCTS, INC.
By: /s/ Sam Cottone
---------------------------
Name: Sam Cottone
Title: Sr. V.P. Finance/CFO
ATTEST:
By: /s/ Gus J. Athas
-----------------------------
Name: Gus J. Athas
Title: Secretary
<PAGE> 43
APPENDIX A
Pay Credit Dates of Employing Units
<TABLE>
<CAPTION>
Pay Credit
Employing Unit Date
<S> <C>
Mansfield Plumbing Products, Inc. 1/1/96
Hart & Cooley, Inc. 1/1/96
Kilgore Plumbing Products, Inc. 1/1/96
Norris Plumbing Products, Inc. 1/1/96
DeVilbiss Air Power Company 1/1/96
</TABLE>
<PAGE> 44
APPENDIX B
Specified Basis for Determination of Actuarial Equivalents
Except as otherwise specified in the Plan, Actuarial Equivalents shall be
determined on the following basis:
1. Mortality Table -- UP 1984.
2. Interest Rate -- the interest rate or rates which would be
used by the Pension Benefit Guaranty Corporation for single-employer
plans terminating as of the beginning of the Plan Year in which such
lump sum is payable to determine the value of the Participant's
benefit.
3. Other Factors -- None.
For the purpose of calculating the forms of benefits described in Sections
7.4 and 7.5, the tables attached to the end of this document shall be used.
<PAGE> 45
APPENDIX C
Pay-Based Credits to Accounts
<TABLE>
<CAPTION>
Percentage of Percentage of
Compensation of a Compensation of a
Participant who has Participant who has
less than 15 years 15 or more years of
Employing Unit of Service Service
- ---------------------------------------------------------------------------
<S> <C> <C>
Mansfield Plumbing 5 6-1/2
- ---------------------------------------------------------------------------
Hart & Cooley, Inc. 5 6-1/2
- ---------------------------------------------------------------------------
Kilgore Plumbing Products, Inc. 5 6-1/2
- ---------------------------------------------------------------------------
Norris Plumbing Products, Inc. 5 6-1/2
- ---------------------------------------------------------------------------
DeVilbiss Air Power Company 5 6-1/2
- ---------------------------------------------------------------------------
</TABLE>
<PAGE> 46
TEN-YEAR CERTAIN AND LIFE ANNUITY FACTOR
Mortality basis - UP1984. Interest rate basis - 8.0%.
The Ten-Year Certain and Life Annuity Factor will be based on the
participant's age on date of annuity commencement (linear interpolation
required) as follows:
<TABLE>
<CAPTION>
Age Factor Age Factor
<S> <C> <C> <C>
20 0.997 50 0.980
21 0.997 51 0.978
22 0.998 52 0.976
23 0.998 53 0.973
24 0.998 54 0.970
25 0.998 55 0.967
26 0.998 56 0.964
27 0.998 57 0.960
28 0.997 58 0.956
29 0.997 59 0.951
30 0.997 60 0.946
31 0.997 61 0.940
32 0.997 62 0.934
33 0.997 63 0.927
34 0.996 64 0.919
35 0.996 65 0.911
36 0.995 66 0.902
37 0.995 67 0.893
38 0.994 68 0.883
39 0.994 69 0.872
40 0.993 70 0.860
41 0.992 71 0.847
42 0.992 72 0.833
43 0.991 73 0.818
44 0.990 74 0.801
45 0.988 75 0.784
46 0.987 76 0.766
47 0.986 77 0.746
48 0.984 78 0.726
49 0.982 79 0.705
</TABLE>
<PAGE> 1
Exhibit 10.19
TERMINATION BENEFITS AGREEMENT
This Termination Benefits Agreement ("Agreement") is entered into as of
the 13th day of December, 1996, by and between Hart & Cooley, Inc., a Delaware
corporation ("Company") and Lawrence B. Lee ("Employee").
WITNESSETH:
WHEREAS, Employee is a key employee of the Company;
WHEREAS, the Company considers that providing Employee with certain
employment termination benefits will operate as an incentive for Employee to
remain employed by the Company during the period that the Company is
negotiating a change in control or ownership of the Company or its parent,
Falcon Building Products, Inc. (Falcon);
WHEREAS, this Agreement is intended to provide benefits only in the event
of a change in control or ownership of the Company or Falcon prior to September
30, 1997 (the "Expiration Date");
NOW THEREFORE, to induce Employee to remain employed by the Company
through the Expiration Date, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and
Employee agree as follows:
1. Definitions.
(a) "Change in Control" shall mean the sale by the
Company or Falcon of all or substantially all of their assets
and business to a person or entity other than a Related Person
or the sale of fifty-one percent (51%) or more of the voting
securities and capital stock of the Company or Falcon to a
person or entity other than a Related Person. "Related
Person" shall mean any person or entity directly or indirectly
owned and controlled by Samuel Zell or Equity Holdings Limited
("EHL").
(b) "Termination Date" shall mean the date of
termination of Employee's employment relationship with the
Company.
(c) "Termination Payments" shall mean any payment or
distribution of compensation or benefits made pursuant to
Section 3 of this Agreement.
(d) "Termination With Cause" shall mean termination
of Employee by the Company for any of the following reasons:
(i) the failure of Employee to render
services to the Company in substantial accordance with
the terms of his employment, which failure amounts to
gross neglect of his duties to the Company;
(ii) any violation of Section 6 of this
Agreement or any employment agreement which Employee may
have with the Company;
1
<PAGE> 2
(iii) taking any role in any buy-out of
the Company or Falcon without the approval of the
Company's majority shareholder; or
(iv) Employee's commission of any act of
fraud, theft or embezzlement against the Company.
(e) "Voluntary Termination" shall mean the voluntary
resignation by Employee of his employment with the Company
other than a voluntary resignation following either:
(i) any reduction in compensation
consisting of base salary and incentive bonus;
(ii) a substantial diminution of his
responsibilities; or
(iii) a relocation by the Company of
Employee's place of employment outside a twenty (20)
mile radius of Employee's current place of employment.
2. Termination of Employee. In the event of Employee's
termination of employment with the Company within two (2) years
immediately following the date on which there was a Change in
Control or ownership of the Company or Falcon, the Company shall
provide Employee with the Termination Payments outlined in Section
3, unless the termination is for any of the following reasons:
(a) Termination With Cause;
(b) Voluntary Termination;
(c) The death of the Employee. Nothing in this
section shall affect any entitlement of Employee's heirs to
the benefits of any life insurance plan; or
(d) Termination as a result of Employee's incapacity
(i.e., if in the reasonable opinion of the Company, Employee
is prevented from properly performing his duties by reason of
any physical or mental incapacity for a period of more than
one hundred twenty (120) days, in the aggregate, in any twelve
(12) month period). Nothing in this section shall affect
Employee's rights under any disability plan in which he is a
participant.
3. Termination Payments. In the event that Employee is entitled
to Termination Payments pursuant to the terms of Section 2:
(a) Compensation. The Company shall pay Employee an
amount equal to two (2) years base salary plus par bonus as of
the Termination Date, without giving effect to any reduction
in base salary or incentive bonus prior to the Termination
Date; payable within thirty (30) days of the Termination Date
following the Change in Control.
(b) Employee Benefits:
(i) Vacation. Any accrued vacation pay
due but not yet taken at the Termination Date shall be
paid to Employee within thirty (30) days following the
Termination Date.
(ii) Health Benefits. If Employee
participated in any health benefit plan in effect
immediately prior to the Termination Date, and if
Employee elects
2
<PAGE> 3
to continue participating in such plan pursuant
to the terms of said plan and the Comprehensive Omnibus
Budget Reconciliation Act ("COBRA"), the Company shall
pay for the costs of Employee's participation in such
plan from the Termination Date until the earlier of:
(a) the date which is twenty-four (24) months following
the Termination Date; or (b) the date of Employee's
eligibility in any health benefit plan offered by
Employee's new employer, if any. Employee shall notify
the Company in writing within thirty (30) days of any
new employment.
(iii) Retirement And Profit-Sharing Plans.
Notwithstanding anything in this Agreement to the
contrary, Employee's rights in any retirement, pension
or profit-sharing plans offered by the Company shall be
governed by the rules of such plans as well as by
applicable law; provided, however, that on the
Termination Date, Employee shall become fully vested in
all pension and 401(k) account balances.
(iv) Outplacement Assistance. The Company
will provide Employee up to one year of employment
outplacement services with a nationally recognized
executive placement company.
4. At-Will Employment. The Company and Employee have, and will
continue to have, an at-will employment relationship. That is,
either party can terminate the employment relationship for any
reason at any time. Nothing contained in this Agreement shall be
interpreted to amend or alter this at-will employment relationship.
5. Limitation of Payment. Notwithstanding anything in this
Agreement to the contrary, if receipt of the Termination Payments
would subject Employee to tax under Section 4999 of the Internal
Revenue Code of 1986, as amended, the Termination Payments shall be
"grossed up" to an amount that would allow the Employee to receive
the net after-tax amount he would have received but for the
application of said Section 4999.
6. Continuing Obligations. In order to induce the Company to
enter into this Agreement, Employee hereby agrees that all
documents, records, techniques, business secrets and other
information which have come into his possession from time to time
during his continued employment by the Company or which may come
into his possession during his employment hereunder, shall be deemed
to be confidential and proprietary to the Company, and Employee
further agrees to retain in confidence any confidential information
known to him concerning the Company and its respective businesses so
long as such information is not publicly disclosed. Employee
further agrees to cooperate fully as requested from time to time by
the controlling shareholder of the Company, the Company's Board of
Directors, or Company Management in connection with any transaction
involving the possible sale of the Company or Falcon. Employee
further agrees not to speak about a possible sale of the Company or
Falcon with or otherwise respond to requests to or from any third
parties involving the possible sale of the Company or Falcon, unless
specifically authorized to do so by the Company or the controlling
shareholder of the Company. The obligations of Employee under this
Section 6 shall be in addition to, and shall not limit, any other
obligation of Employee to the Company with respect to the matters
set forth herein or otherwise.
7. Assignments and Transfers. Employee agrees that he will not
assign, sell, transfer, delegate or otherwise dispose of, whether
voluntarily or involuntarily, or by operation of law, any rights or
obligations under this Agreement, nor shall Employee's rights be
subject to encumbrance or the claims of creditors. Any purported
assignment shall be null and void. This Agreement shall inure to
the benefit of and be enforceable by Employee's
3
<PAGE> 4
personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. This
Agreement shall be binding upon and shall inure to the benefit of
the Company and its successors and assigns, and the Company shall
require any successor or assign to expressly assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession or assignment had taken place, except no assumption shall
be required if this Agreement is automatically assumed by operation
of law. The term "the Company" as used herein shall include such
successors and assigns. The term "successors and assigns" as used
herein shall include a corporation or other entity acquiring at
least 51% of the outstanding shares of the Company or Falcon or all
or substantially all of the assets and business of the Company or
Falcon.
8. Notices. For purposes of this Agreement, notices and all
other communications provided for herein shall be in writing and
shall be deemed to have been duly given and received when delivered
or mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to the Company at:
Hart & Cooley, Inc.
500 East Eighth Street
Holland, Michigan 49423
Attn: President
and to Employee at:
Lawrence B. Lee
3155 N. 168th Avenue
Holland, MI 49424
or such address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
9. Governing Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of
the State of Michigan.
10. Entire Agreement. The terms of this Agreement are intended
by the parties to be the final expression of their agreement with
respect to Employee's termination benefits and may not be
contradicted by evidence of any prior or contemporaneous Agreement.
11. Amendments; Waivers. This Agreement may not be modified,
amended, or terminated except by an instrument in writing, signed by
Employee and by a duly authorized representative of the Company
other than Employee. No failure to exercise and no delay in
exercising any right, remedy, or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, or
power provided herein or by law or in equity.
12. Severability; Enforcement. If any provision of this
Agreement, or the application thereof to any person, place or
circumstance, shall be held by a court of competent jurisdiction to
be invalid, unenforceable, or void, the remainder of this Agreement
and such provisions as applied to other persons, places, and
circumstances shall remain in full force and effect.
13. Arbitration. The parties agree to submit any dispute arising
under this Agreement to arbitration. Arbitration shall be by a
single arbitrator in the Holland, Michigan area
4
<PAGE> 5
experienced in the matters at issue selected by the Company and
Employee in accordance with the commercial arbitration rules of the
American Arbitration Association. The decision of the arbitrator
shall be final and binding as to any manner submitted to him under
this Agreement. All costs and expenses incurred in connection with
any such arbitration proceeding shall be borne by the party against
whom the decision is rendered as provided by the arbitrator.
14. Release.
(a) Employee, on behalf of himself, his heirs,
executors, legal representative, successors and assigns,
hereby fully and forever releases and discharges EHL, Falcon,
the Company, and their respective affiliates, subsidiaries,
parents, predecessors and successors, and each of their
officers, directors, trustees, employees, agents and
attorneys, past and present (the "Releasees"), from any and
all claims, demands or causes of action, whether now known or
unknown, which have existed, which do exist, or which may
exist in the future, arising out of or relating in any way to
Employee's employment with the Company, his employment
compensation, his termination of employment or his employment
arrangement, the sale of the stock or assets of the Company or
Falcon and/or any other occurrence up to and including the
effective date of this Agreement, except those claims
statutorily precluded from waiver or release by private
parties and except those alleging breach of this Agreement.
Without in any way limiting the generality of the foregoing
language, this release includes any claims for relief or
causes of action under the Age Discrimination in Employment
Act, as amended, 29 U.S.C. Section 621, et seq., and any other
federal, state or local statute, ordinance or regulation
dealing in any respect with discrimination in employment, and
in addition thereto, any claims under any Company severance
policy, practice or procedure, and any claims, demands or
actions brought on the basis of alleged wrongful or
retaliatory discharge and/or alleged breach of an implied or
explicit, written or oral employment or other contract or
covenant under the common law of any state, including, but not
limited to, Michigan.
(b) Employee further agrees not to directly or
indirectly pursue or initiate any action or legal proceeding
of any kind against the Releasees arising out of or related to
the claims released in Section 15(a) above, or the sale of the
stock or assets of the Company or Falcon and also waives any
right to recover any relief as a result of any such
proceedings initiated on his behalf.
15. Termination Date. This Agreement shall be null and void in the event
that a Change in Control does not occur on or before the Expiration Date.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year set forth above.
HART & COOLEY, INC., Lawrence B. Lee
a Delaware corporation
/s/ Lawrence B. Lee
-------------------
By: /s/ Gus J. Athas signature
----------------------
Gus J. Athas
Its: Vice-President
5
<PAGE> 1
Exhibit 10.20
TERMINATION BENEFITS AGREEMENT
This Termination Benefits Agreement ("Agreement") is entered into as of
the 18th day of December, 1996, by and between Mansfield Plumbing Products,
Inc., a Delaware corporation ("Company") and Paul Fischer ("Employee").
WITNESSETH:
WHEREAS, Employee is a key employee of the Company;
WHEREAS, the Company considers that providing Employee with certain
employment termination benefits will operate as an incentive for Employee to
remain employed by the Company during the period that the Company is
negotiating a change in control or ownership of the Company or its parent,
Falcon Building Products, Inc. (Falcon);
WHEREAS, this Agreement is intended to provide benefits only in the event
of a change in control or ownership of the Company or Falcon prior to September
30, 1997 (the "Expiration Date");
NOW THEREFORE, to induce Employee to remain employed by the Company
through the Expiration Date, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and
Employee agree as follows:
1. Definitions.
(a) "Change in Control" shall mean the sale by the Company or
Falcon of all or substantially all of their assets and
business to a person or entity other than a Related Person
or the sale of fifty-one percent (51%) or more of the voting
securities and capital stock of the Company or Falcon to a
person or entity other than a Related Person. "Related
Person" shall mean any person or entity directly or indirectly
owned and controlled by Samuel Zell or Equity Holdings Limited
("EHL").
(b) "Termination Date" shall mean the date of termination of
Employee's employment relationship with the Company.
(c) "Termination Payments" shall mean any payment or
distribution of compensation or benefits made pursuant to
Section 3 of this Agreement.
(d) "Termination With Cause" shall mean termination
of Employee by the Company for any of the following reasons:
(i) the failure of Employee to render services to
the Company in substantial accordance with the terms of
his employment, which failure amounts to gross neglect
of his duties to the Company;
(ii) any violation of Section 6 of this Agreement or
any employment agreement which Employee may have with
the Company;
(iii) taking any role in any buy-out of the Company
or Falcon without the approval of the Company's
majority shareholder; or
1
<PAGE> 2
(iv) Employee's commission of any act of fraud,
theft or embezzlement against the Company.
(e) "Voluntary Termination" shall mean the voluntary
resignation by Employee of his employment with the Company
other than a voluntary resignation following either:
(i) any reduction in compensation consisting of base salary
and incentive bonus;
(ii) a substantial diminution of his responsibilities; or
(iii) a relocation by the Company of Employee's place of
employment outside a twenty (20) mile radius of
Employee's current place of employment.
2. Termination of Employee. In the event of Employee's
termination of employment with the Company within two (2) years
immediately following the date on which there was a Change in
Control or ownership of the Company or Falcon, the Company shall
provide Employee with the Termination Payments outlined in Section
3, unless the termination is for any of the following reasons:
(a) Termination With Cause;
(b) Voluntary Termination;
(c) The death of the Employee. Nothing in this section shall
affect any entitlement of Employee's heirs to the benefits of
any life insurance plan; or
(d) Termination as a result of Employee's incapacity (i.e., if in
the reasonable opinion of the Company, Employee is prevented
from properly performing his duties by reason of any physical
or mental incapacity for a period of more than one hundred
twenty (120) days, in the aggregate, in any twelve (12) month
period). Nothing in this section shall affect Employee's
rights under any disability plan in which he is a participant.
3. Termination Payments. In the event that Employee is entitled
to Termination Payments pursuant to the terms of Section 2:
(a) Compensation. The Company shall pay Employee an amount equal
to two (2) years base salary plus par bonus as of the
Termination Date, without giving effect to any reduction
in base salary or incentive bonus prior to the Termination
Date; payable within thirty (30) days of the Termination Date
following the Change in Control.
(b) Employee Benefits:
(i) Vacation. Any accrued vacation pay due but not yet
taken at the Termination Date shall be paid to Employee
within thirty (30) days following the Termination Date.
(ii) Health Benefits. If Employee participated in any
health benefit plan in effect immediately prior to the
Termination Date, and if Employee elects to continue
participating in such plan pursuant to the terms of said
plan and the Comprehensive Omnibus Budget Reconciliation
Act ("COBRA"),
2
<PAGE> 3
the Company shall pay for the costs of Employee's
participation in such plan from the Termination Date
until the earlier of: (a) the date which is twenty-four
(24) months following the Termination Date; or (b) the
date of Employee's eligibility in any health benefit
plan offered by Employee's new employer, if any.
Employee shall notify the Company in writing within
thirty (30) days of any new employment.
(iii) Retirement And Profit-Sharing Plans.
Notwithstanding anything in this Agreement to the
contrary, Employee's rights in any retirement, pension
or profit-sharing plans offered by the Company shall be
governed by the rules of such plans as well as by
applicable law; provided, however, that on the
Termination Date, Employee shall become fully vested in
all pension and 401(k) account balances.
(iv) Outplacement Assistance. The Company will
provide Employee up to one year of employment
outplacement services with a nationally recognized
executive placement company.
4. At-Will Employment. The Company and Employee have, and will
continue to have, an at-will employment relationship. That is,
either party can terminate the employment relationship for any
reason at any time. Nothing contained in this Agreement shall be
interpreted to amend or alter this at-will employment relationship.
5. Limitation of Payment. Notwithstanding anything in this
Agreement to the contrary, if receipt of the Termination Payments
would subject Employee to tax under Section 4999 of the Internal
Revenue Code of 1986, as amended, the Termination Payments shall be
"grossed up" to an amount that would allow the Employee to receive
the net after-tax amount he would have received but for the
application of said Section 4999.
6. Continuing Obligations. In order to induce the Company to
enter into this Agreement, Employee hereby agrees that all
documents, records, techniques, business secrets and other
information which have come into his possession from time to time
during his continued employment by the Company or which may come
into his possession during his employment hereunder, shall be deemed
to be confidential and proprietary to the Company, and Employee
further agrees to retain in confidence any confidential information
known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly
disclosed. Employee further agrees to cooperate fully as requested
from time to time by the controlling shareholder of the Company, the
Company's Board of Directors, or Company Management in connection
with any transaction involving the possible sale of the Company or
Falcon. Employee further agrees not to speak about a possible sale
of the Company or Falcon with or otherwise respond to requests to or
from any third parties involving the possible sale of the Company or
Falcon, unless specifically authorized to do so by the Company or
the controlling shareholder of the Company. The obligations of
Employee under this Section 6 shall be in addition to, and shall not
limit, any other obligation of Employee to the Company with respect
to the matters set forth herein or otherwise.
7. Assignments and Transfers. Employee agrees that he will not
assign, sell, transfer, delegate or otherwise dispose of, whether
voluntarily or involuntarily, or by operation of law, any rights or
obligations under this Agreement, nor shall Employee's rights be
subject to encumbrance or the claims of creditors. Any purported
assignment shall be null and void. This Agreement shall inure to
the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. This Agreement shall be
binding upon and shall inure to the benefit
3
<PAGE> 4
of the Company and its successors and assigns, and the Company
shall require any successor or assign to expressly assume and agree
to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession or assignment had taken place, except no assumption
shall be required if this Agreement is automatically assumed by
operation of law. The term "the Company" as used herein shall
include such successors and assigns. The term "successors and
assigns" as used herein shall include a corporation or other entity
acquiring at least 51% of the outstanding shares of the Company or
Falcon or all or substantially all of the assets and business of
the Company or Falcon.
8. Notices. For purposes of this Agreement, notices and all
other communications provided for herein shall be in writing and
shall be deemed to have been duly given and received when delivered
or mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to the Company at:
Mansfield Plumbing Products, Inc.
150 East First Street
Perrysville, Ohio 44864
Attn: President
and to Employee at:
Paul Fischer
5686 Medallion Dr. - East
Westerville, OH 43082
or such address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
9. Governing Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of
the State of Ohio.
10. Entire Agreement. The terms of this Agreement are intended
by the parties to be the final expression of their agreement with
respect to Employee's termination benefits and may not be
contradicted by evidence of any prior or contemporaneous Agreement.
11. Amendments; Waivers. This Agreement may not be modified,
amended, or terminated except by an instrument in writing, signed by
Employee and by a duly authorized representative of the Company
other than Employee. No failure to exercise and no delay in
exercising any right, remedy, or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, or
power provided herein or by law or in equity.
12. Severability; Enforcement. If any provision of this
Agreement, or the application thereof to any person, place or
circumstance, shall be held by a court of competent jurisdiction to
be invalid, unenforceable, or void, the remainder of this Agreement
and such provisions as applied to other persons, places, and
circumstances shall remain in full force and effect.
13. Arbitration. The parties agree to submit any dispute arising
under this Agreement to arbitration. Arbitration shall be by a
single arbitrator in the Columbus, Ohio area experienced in the
matters at issue selected by the Company and Employee in accordance
with the commercial arbitration rules of the American Arbitration
Association. The
4
<PAGE> 5
decision of the arbitrator shall be final and binding as to any
manner submitted to him under this Agreement. All costs and
expenses incurred in connection with any such arbitration
proceeding shall be borne by the party against whom the decision is
rendered as provided by the arbitrator.
14. Release.
(a) Employee, on behalf of himself, his heirs, executors, legal
representative, successors and assigns, hereby fully and
forever releases and discharges EHL, Falcon, the Company, and
their respective affiliates, subsidiaries, parents,
predecessors and successors, and each of their officers,
directors, trustees, employees, agents and attorneys, past and
present (the "Releasees"), from any and all claims, demands or
causes of action, whether now known or unknown, which have
existed, which do exist, or which may exist in the future,
arising out of or relating in any way to Employee's employment
with the Company, his employment compensation, his termination
of employment or his employment arrangement, the sale of the
stock or assets of the Company or Falcon and/or any other
occurrence up to and including the effective date of this
Agreement, except those claims statutorily precluded from
waiver or release by private parties and except those alleging
breach of this Agreement. Without in any way limiting the
generality of the foregoing language, this release includes
any claims for relief or causes of action under the Age
Discrimination in Employment Act, as amended, 29 U.S.C.
Section 621, et seq., and any other federal, state or local
statute, ordinance or regulation dealing in any respect with
discrimination in employment, and in addition thereto, any
claims under any Company severance policy, practice or
procedure, and any claims, demands or actions brought on the
basis of alleged wrongful or retaliatory discharge and/or
alleged breach of an implied or explicit, written or oral
employment or other contract or covenant under the common law
of any state, including, but not limited to, Ohio.
(b) Employee further agrees not to directly or
indirectly pursue or initiate any action or legal proceeding
of any kind against the Releasees arising out of or related to
the claims released in Section 15(a) above, or the sale of the
stock or assets of the Company or Falcon and also waives any
right to recover any relief as a result of any such
proceedings initiated on his behalf.
15. Termination Date. This Agreement shall be null and void in the event
that a Change in Control does not occur on or before the Expiration Date.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year set forth above.
MANSFIELD PLUMBING PRODUCTS, INC. Paul Fischer
a Delaware corporation
/s/ Paul Fischer
------------------
By: /s/ Gus J. Athas signature
---------------------------------
Gus J. Athas
Its: Vice-President
5
<PAGE> 1
Exhibit 10.21
TERMINATION BENEFITS AGREEMENT
This Termination Benefits Agreement ("Agreement") is entered into as of
the 31st day of December, 1996, by and between DeVilbiss Air Power Company, a
Delaware corporation ("Company") and William E. Allen ("Employee").
WITNESSETH:
WHEREAS, Employee is a key employee of the Company;
WHEREAS, the Company considers that providing Employee with certain
employment termination benefits will operate as an incentive for Employee to
remain employed by the Company during the period that the Company is
negotiating a change in control or ownership of the Company or its parent,
Falcon Building Products, Inc. (Falcon);
WHEREAS, this Agreement is intended to provide benefits only in the event
of a change in control or ownership of the Company or Falcon prior to September
30, 1997 (the "Expiration Date");
NOW THEREFORE, to induce Employee to remain employed by the Company
through the Expiration Date, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and
Employee agree as follows:
1. Definitions.
(a) "Change in Control" shall mean the sale by the Company or Falcon
of all or substantially all of their assets and business to a
person or entity other than a Related Person or the sale of
fifty-one percent (51%) or more of the voting securities and
capital stock of the Company or Falcon to a person or entity other
than a Related Person. "Related Person" shall mean any person or
entity directly or indirectly owned and controlled by Samuel Zell
or Equity Holdings Limited ("EHL").
(b) "Termination Date" shall mean the date of termination of Employee's
employment relationship with the Company.
(c) "Termination Payments" shall mean any payment or distribution of
compensation or benefits made pursuant to Section 3 of this
Agreement.
(d) "Termination With Cause" shall mean termination of Employee by the
Company for any of the following reasons:
(i) the failure of Employee to render services to the Company in
substantial accordance with the terms of his employment,
which failure amounts to gross neglect of his duties to the
Company;
(ii) any violation of Section 6 of this Agreement or any
employment agreement which Employee may have with the
Company;
<PAGE> 2
(iii) taking any role in any buy-out of the Company or Falcon
without the approval of the Company's majority
shareholder; or
(iv) Employee's commission of any act of fraud, theft or
embezzlement against the Company.
(e) "Voluntary Termination" shall mean the voluntary
resignation by Employee of his employment with the Company
other than a voluntary resignation following either:
(i) any reduction in compensation consisting of base salary
and incentive bonus;
(ii) a substantial diminution of his responsibilities; or
(iii) a relocation by the Company of Employee's place of
employment outside a twenty (20) mile radius of
Employee's current place of employment.
2. Termination of Employee. In the event of Employee's
termination of employment with the Company within two (2) years
immediately following the date on which there was a Change in
Control or ownership of the Company or Falcon, the Company shall
provide Employee with the Termination Payments outlined in Section
3, unless the termination is for any of the following reasons:
(a) Termination With Cause;
(b) Voluntary Termination;
(c) The death of the Employee. Nothing in this section shall
affect any entitlement of Employee's heirs to the benefits of
any life insurance plan; or
(d) Termination as a result of Employee's incapacity (i.e., if in
the reasonable opinion of the Company, Employee is prevented
from properly performing his duties by reason of any physical
or mental incapacity for a period of more than one hundred
twenty (120) days, in the aggregate, in any twelve (12) month
period). Nothing in this section shall affect Employee's
rights under any disability plan in which he is a participant.
3. Termination Payments. In the event that Employee is entitled
to Termination Payments pursuant to the terms of Section 2:
(a) Compensation. The Company shall pay Employee an amount equal
to two (2) years base salary plus par bonus as of the
Termination Date, without giving effect to any reduction in
base salary or incentive bonus prior to the Termination Date;
payable within thirty (30) days of the Termination Date
following the Change in Control.
(b) Employee Benefits:
(i) Vacation. Any accrued vacation pay due but not yet taken
at the Termination Date shall be paid to Employee within
thirty (30) days following the Termination Date.
(ii) Health Benefits. If Employee participated in any health
benefit plan in effect immediately prior to the
Termination Date, and if Employee elects to continue
participating in such plan pursuant to the terms of said
plan
2
<PAGE> 3
and the Comprehensive Omnibus Budget Reconciliation
Act ("COBRA"), the Company shall pay for the costs of
Employee's participation in such plan from the
Termination Date until the earlier of: (a) the date
which is twenty-four (24) months following the
Termination Date; or (b) the date of Employee's
eligibility in any health benefit plan offered by
Employee's new employer, if any. Employee shall notify
the Company in writing within thirty (30) days of any
new employment.
(iii) Retirement And Profit-Sharing Plans. Notwithstanding
anything in this Agreement to the contrary, Employee's
rights in any retirement, pension or profit-sharing
plans offered by the Company shall be governed by the
rules of such plans as well as by applicable law;
provided, however, that on the Termination Date,
Employee shall become fully vested in all pension and
401(k) account balances.
(iv) Outplacement Assistance. The Company will provide
Employee up to one year of employment outplacement
services with a nationally recognized executive
placement company.
4. At-Will Employment. The Company and Employee have, and will
continue to have, an at-will employment relationship. That is,
either party can terminate the employment relationship for any
reason at any time. Nothing contained in this Agreement shall be
interpreted to amend or alter this at-will employment relationship.
5. Limitation of Payment. Notwithstanding anything in this
Agreement to the contrary, if receipt of the Termination Payments
would subject Employee to tax under Section 4999 of the Internal
Revenue Code of 1986, as amended, the Termination Payments shall be
"grossed up" to an amount that would allow the Employee to receive
the net after-tax amount he would have received but for the
application of said Section 4999.
6. Continuing Obligations. In order to induce the Company to
enter into this Agreement, Employee hereby agrees that all
documents, records, techniques, business secrets and other
information which have come into his possession from time to time
during his continued employment by the Company or which may come
into his possession during his employment hereunder, shall be deemed
to be confidential and proprietary to the Company, and Employee
further agrees to retain in confidence any confidential information
known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly
disclosed. Employee further agrees to cooperate fully as requested
from time to time by the controlling shareholder of the Company, the
Company's Board of Directors, or Company Management in connection
with any transaction involving the possible sale of the Company or
Falcon. Employee further agrees not to speak about a possible sale
of the Company or Falcon with or otherwise respond to requests to or
from any third parties involving the possible sale of the Company or
Falcon, unless specifically authorized to do so by the Company or
the controlling shareholder of the Company. The obligations of
Employee under this Section 6 shall be in addition to, and shall not
limit, any other obligation of Employee to the Company with respect
to the matters set forth herein or otherwise.
7. Assignments and Transfers. Employee agrees that he will not
assign, sell, transfer, delegate or otherwise dispose of, whether
voluntarily or involuntarily, or by operation of law, any rights or
obligations under this Agreement, nor shall Employee's rights be
subject to encumbrance or the claims of creditors. Any purported
assignment shall be null and void. This Agreement shall inure to
the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. This Agreement shall be
binding upon and shall inure to the benefit
3
<PAGE> 4
of the Company and its successors and assigns, and the Company
shall require any successor or assign to expressly assume and agree
to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession or assignment had taken place, except no assumption shall
be required if this Agreement is automatically assumed by operation
of law. The term "the Company" as used herein shall include such
successors and assigns. The term "successors and assigns" as used
herein shall include a corporation or other entity acquiring at
least 51% of the outstanding shares of the Company or Falcon or all
or substantially all of the assets and business of the Company or
Falcon.
8. Notices. For purposes of this Agreement, notices and all
other communications provided for herein shall be in writing and
shall be deemed to have been duly given and received when delivered
or mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to the Company at:
DeVilbiss Air Power Company
213 Industrial Drive
Jackson, Tennessee 38301
Attn: President
and to Employee at:
William E. Allen
14 Deepwood
Jackson, TN 38305
or such address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
9. Governing Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of
the State of Tennessee.
10. Entire Agreement. The terms of this Agreement are intended
by the parties to be the final expression of their agreement with
respect to Employee's termination benefits and may not be
contradicted by evidence of any prior or contemporaneous Agreement.
11. Amendments; Waivers. This Agreement may not be modified,
amended, or terminated except by an instrument in writing, signed by
Employee and by a duly authorized representative of the Company
other than Employee. No failure to exercise and no delay in
exercising any right, remedy, or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, or
power provided herein or by law or in equity.
12. Severability; Enforcement. If any provision of this
Agreement, or the application thereof to any person, place or
circumstance, shall be held by a court of competent jurisdiction to
be invalid, unenforceable, or void, the remainder of this Agreement
and such provisions as applied to other persons, places, and
circumstances shall remain in full force and effect.
13. Arbitration. The parties agree to submit any dispute arising
under this Agreement to arbitration. Arbitration shall be by a
single arbitrator in the Jackson, Tennessee area experienced in the
matters at issue selected by the Company and Employee in accordance
with the commercial arbitration rules of the American Arbitration
Association. The decision of the arbitrator shall be final and
binding as to any manner submitted to him
4
<PAGE> 5
under this Agreement. All costs and expenses incurred in
connection with any such arbitration proceeding shall be borne by
the party against whom the decision is rendered as provided by the
arbitrator.
14. Release.
(a) Employee, on behalf of himself, his heirs, executors, legal
representative, successors and assigns, hereby fully and
forever releases and discharges EHL, Falcon, the Company, and
their respective affiliates, subsidiaries, parents,
predecessors and successors, and each of their officers,
directors, trustees, employees, agents and attorneys, past and
present (the "Releasees"), from any and all claims, demands or
causes of action, whether now known or unknown, which have
existed, which do exist, or which may exist in the future,
arising out of or relating in any way to Employee's employment
with the Company, his employment compensation, his termination
of employment or his employment arrangement, the sale of the
stock or assets of the Company or Falcon and/or any other
occurrence up to and including the effective date of this
Agreement, except those claims statutorily precluded from
waiver or release by private parties and except those alleging
breach of this Agreement. Without in any way limiting the
generality of the foregoing language, this release includes
any claims for relief or causes of action under the Age
Discrimination in Employment Act, as amended, 29 U.S.C.
Section 621, et seq., and any other federal, state or local
statute, ordinance or regulation dealing in any respect with
discrimination in employment, and in addition thereto, any
claims under any Company severance policy, practice or
procedure, and any claims, demands or actions brought on the
basis of alleged wrongful or retaliatory discharge and/or
alleged breach of an implied or explicit, written or oral
employment or other contract or covenant under the common law
of any state, including, but not limited to, Tennessee.
(b) Employee further agrees not to directly or indirectly pursue or
initiate any action or legal proceeding of any kind against the
Releasees arising out of or related to the claims released in
Section 15(a) above, or the sale of the stock or assets of the
Company or Falcon and also waives any right to recover any
relief as a result of any such proceedings initiated on his
behalf.
15. Termination Date. This Agreement shall be null and void in the
event that a Change in Control does not occur on or before the Expiration Date.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year set forth above.
DEVILBISS AIR POWER COMPANY, William E. Allen
a Delaware corporation
/s/ William E. Allen
----------------------
By: /s/ Gus J. Athas signature
----------------------------
Gus J. Athas
Its: Vice-President
5
<PAGE> 1
Exhibit 10.22
TERMINATION BENEFITS AGREEMENT
This Termination Benefits Agreement ("Agreement") is entered into as of
the 19th day of December, 1996, by and between Falcon Building Products, Inc.,
a Delaware corporation ("Company") and Daniel G. Ellis ("Ellis").
WITNESSETH:
WHEREAS, Ellis is a key member of the Company's management team;
WHEREAS, the Company considers that providing Ellis with certain
termination benefits will operate as an incentive for Ellis to continue
furnishing services to the Company during the period that the Company is
negotiating a change in control or ownership of the Company or any of its
subsidiaries;
WHEREAS, this Agreement is intended to provide benefits only in the event
of a change in control or ownership of the Company or any of its subsidiaries
prior to September 30, 1997 (the "Expiration Date");
NOW THEREFORE, to induce Ellis to continue furnishing services to the
Company through the Expiration Date, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and Ellis agree as follows:
1. Definitions.
(a) "Change in Control" shall mean the sale by the Company of all
or substantially all of its, or any of its subsidiaries,
assets and business to a person or entity other than a Related
Person or the sale of fifty-one percent (51%) or more of the
voting securities and capital stock of the Company or any of
its subsidiaries to a person or entity other than a Related
Person. "Related Person" shall mean any person or entity
directly or indirectly owned and controlled by Samuel Zell or
Equity Holdings Limited ("EHL").
(b) "Termination Date" shall mean the date of termination of
Ellis' relationship with the Company.
(c) "Termination Payments" shall mean any payment or distribution
of compensation or benefits made pursuant to Section 3 of this
Agreement.
(d) "Termination With Cause" shall mean termination of Ellis by
the Company for any of the following reasons:
(i) the failure of Ellis to render services to the Company
in substantial accordance with the terms under which he
was retained, which failure amounts to gross neglect of
his duties to the Company;
(ii) any violation of Section 6 of this Agreement or any
other agreement which Ellis may have with the Company;
(iii) taking any role in any buy-out of the Company or any of
its subsidiaries without the approval of the Company's
majority shareholder; or
1
<PAGE> 2
(iv) Ellis' commission of any act of fraud, theft or
embezzlement against the Company.
(e) "Voluntary Termination" shall mean the voluntary
termination by Ellis of his relationship with the Company
other than a voluntary termination following either:
(i) any reduction in compensation consisting of base salary
and incentive bonus;
(ii) a substantial diminution of his responsibilities; or
(iii) a relocation by the Company of Ellis outside a twenty
(20) mile radius of the place where Ellis currently
perform his services for the Company.
2. Termination of Ellis. In the event of the termination of
Ellis' services arrangement with the Company within two (2) years
immediately following the date on which there was a Change in
Control or ownership of the Company or any of its subsidiaries, the
Company shall provide Ellis with the Termination Payments outlined
in Section 3, unless the termination is for any of the following
reasons:
(a) Termination With Cause;
(b) Voluntary Termination;
(c) The death of Ellis. Nothing in this section shall affect any
entitlement of Ellis' heirs to the benefits of any life
insurance plan; or
(d) Termination as a result of Ellis' incapacity (i.e., if in the
reasonable opinion of the Company, Ellis is prevented from
properly performing his duties by reason of any physical or
mental incapacity for a period of more than one hundred twenty
(120) days, in the aggregate, in any twelve (12) month
period). Nothing in this section shall affect Ellis' rights
under any disability plan in which he is a participant.
3. Termination Payments. In the event that Ellis is entitled to
Termination Payments pursuant to the terms of Section 2:
(a) Compensation. The Company shall pay Ellis an
amount equal to two (2) years base salary plus par bonus as of
the Termination Date, without giving effect to any reduction
in base salary or incentive bonus prior to the Termination
Date; payable within thirty (30) days of the Termination Date
following the Change in Control.
(b) Ellis Benefits:
(i) Vacation. Any accrued vacation pay due but not yet
taken at the Termination Date shall be paid to Ellis
within thirty (30) days following the Termination Date.
(ii) Health Benefits. If Ellis participated in any health
benefit Plan in effect immediately prior to the
Termination Date, and if Ellis elects to continue
participating in such plan pursuant to the terms of
said plan and the Comprehensive Omnibus Budget
Reconciliation Act ("COBRA"), the Company shall pay for
the costs of Ellis' participation in such plan from the
Termination Date until the earlier of: (a) the date
which is twenty-four (24) months following the
Termination Date; or (b) the date of Ellis'
eligibility in any health benefit plan offered by
Ellis' new employer, if any.
2
<PAGE> 3
Ellis shall notify the Company in writing within thirty
(30) days of any new employment.
(iii) Retirement And Profit-Sharing Plans. Notwithstanding
anything in this Agreement to the contrary, Ellis'
rights in any retirement, pension or profit-sharing
plans offered by the Company shall be governed by the
rules of such plans as well as by applicable law;
provided, however, that on the Termination Date, Ellis
shall become fully vested in all pension and 401(k)
account balances.
(iv) Outplacement Assistance. The Company will provide
Ellis up to one year of outplacement services with a
nationally recognized executive placement company.
4. Limitation of Payment. Notwithstanding anything in this
Agreement to the contrary, if receipt of the Termination Payments
would subject Ellis to tax under Section 4999 of the Internal
Revenue Code of 1986, as amended, the Termination Payments shall be
"grossed up" to an amount that would allow the Ellis to receive the
net after-tax amount he would have received but for the application
of said Section 4999.
5. Continuing Obligations. In order to induce the Company to
enter into this Agreement, Ellis hereby agrees that all documents,
records, techniques, business secrets and other information which
have come into his possession from time to time during his
performance of services for the Company or which may come into his
possession during his performance hereunder, shall be deemed to be
confidential and proprietary to the Company, and Ellis further
agrees to retain in confidence any confidential information known to
him concerning the Company and its subsidiaries and their respective
businesses so long as such information is not publicly disclosed.
Ellis further agrees to cooperate fully as requested from time to
time by the controlling shareholder of the Company, the Company's
Board of Directors, or Company Management in connection with any
transaction involving the possible sale of the Company or any of its
subsidiaries. Ellis further agrees not to speak about a possible
sale of the Company or any of its subsidiaries with or otherwise
respond to requests to or from any third parties involving the
possible sale of the Company or any of its subsidiaries, unless
specifically authorized to do so by the Company or the controlling
shareholder of the Company. The obligations of Ellis under this
Section 5 shall be in addition to, and shall not limit, any other
obligation of Ellis to the Company with respect to the matters set
forth herein or otherwise.
6. Assignments and Transfers. Ellis agrees that he will not
assign, sell, transfer, delegate or otherwise dispose of, whether
voluntarily or involuntarily, or by operation of law, any rights or
obligations under this Agreement, nor shall Ellis' rights be subject
to encumbrance or the claims of creditors. Any purported assignment
shall be null and void. This Agreement shall inure to the benefit
of and be enforceable by Ellis' personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees
and legatees. This Agreement shall be binding upon and shall inure
to the benefit of the Company and its successors and assigns, and
the Company shall require any successor or assign to expressly
assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if
no such succession or assignment had taken place, except no
assumption shall be required if this Agreement is automatically
assumed by operation of law. The term "the Company" as used herein
shall include such successors and assigns. The term "successors and
assigns" as used herein shall include a corporation or other entity
acquiring at least 51% of the outstanding shares of the Company or
any of its subsidiaries or all or substantially all of the assets
and business of the Company or any of its subsidiaries.
3
<PAGE> 4
7. Notices. For purposes of this Agreement, notices and all
other communications provided for herein shall be in writing and
shall be deemed to have been duly given and received when delivered
or mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to the Company at:
Falcon Building Products, Inc.
2 North Riverside Plaza, Suite 1100
Chicago, Illinois 60606
Attn: President
and to:
Daniel G. Ellis
21030 Creekside Dr.
Kildeer, IL 60047
or such address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
8. Governing Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of
the State of Illinois.
9. Entire Agreement. The terms of this Agreement are intended
by the parties to be the final expression of their agreement with
respect to Ellis' termination benefits and may not be contradicted
by evidence of any prior or contemporaneous Agreement.
10. Amendments; Waivers. This Agreement may not be modified,
amended, or terminated except by an instrument in writing, signed by
Ellis and by a duly authorized representative of the Company other
than Ellis. No failure to exercise and no delay in exercising any
right, remedy, or power hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, remedy, or
power hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, or power provided herein or
by law or in equity.
11. Severability; Enforcement. If any provision of this
Agreement, or the application thereof to any person, place or
circumstance, shall be held by a court of competent jurisdiction to
be invalid, unenforceable, or void, the remainder of this Agreement
and such provisions as applied to other persons, places, and
circumstances shall remain in full force and effect.
12. Arbitration. The parties agree to submit any dispute arising
under this Agreement to arbitration. Arbitration shall be by a
single arbitrator in the Chicago, Illinois area experienced in the
matters at issue selected by the Company and Ellis in accordance
with the commercial arbitration rules of the American Arbitration
Association. The decision of the arbitrator shall be final and
binding as to any manner submitted to him under this Agreement. All
costs and expenses incurred in connection with any such arbitration
proceeding shall be borne by the party against whom the decision is
rendered as provided by the arbitrator.
13. Release.
(a) Ellis, on behalf of himself, his heirs, executors, legal
representative, successors and assigns, hereby fully and
forever releases and discharges EHL, Company, and their
respective affiliates, subsidiaries, parents, predecessors
and successors, and each of their officers, directors,
trustees, employees, agents and attorneys, past and present
4
<PAGE> 5
(the "Releasees"), from any and all claims, demands or causes
of action, whether now known or unknown, which have existed,
which do exist, or which may exist in the future, arising out
of or relating in any way to Ellis' furnishing of services to
the Company, his compensation, the termination of his
relationship with the Company, the sale of the stock or
assets of the Company or any of its subsidiaries and/or any
other occurrence up to and including the effective date of
this Agreement, except those claims statutorily precluded
from waiver or release by private parties and except those
alleging breach of this Agreement. Without in any way
limiting the generality of the foregoing language, this
release includes any claims for relief or causes of action
under the Age Discrimination in Employment Act, as amended,
29 U.S.C. Section 621, et seq., and any other federal, state
or local statute, ordinance or regulation dealing in any
respect with discrimination in employment, and in addition
thereto, any claims under any Company severance policy,
practice or procedure, and any claims, demands or actions
brought on the basis of alleged wrongful or retaliatory
discharge and/or alleged breach of an implied or explicit,
written or oral employment or other contract or covenant
under the common law of any state, including, but not limited
to, Illinois.
(b) Ellis further agrees not to directly or indirectly pursue or
initiate any action or legal proceeding of any kind against
the Releasees arising out of or related to the claims
released in Section 13(a) above, or the sale of the stock or
assets of the Company or any of its subsidiaries and also
waives any right to recover any relief as a result of any
such proceedings initiated on his behalf.
14. Termination Date. This Agreement shall be null and void in the
event that a Change in Control does not occur on or before the Expiration Date.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year set forth above.
FALCON BUILDING PRODUCTS, INC. Daniel G. Ellis
a Delaware corporation
/s/ Daniel G. Ellis
-------------------
By: /s/ Gus J. Athas signature
------------------------------
Gus J. Athas
Its: Vice-President
5
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Hart & Cooley, Inc.
Mansfield Plumbing Products, Inc.
Falcon Manufacturing, Inc.
DeVilbiss Air Power Company
SWC Industries, Inc.
Ex-Cell Manufacturing Company, Inc.
Centrally Held Eagle Receivable Program, Inc.
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or
director of Falcon Building Products, Inc., a Delaware corporation (the
"Corporation"), which is about to file an annual report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, on Form 10-K
hereby constitutes and appoints Sam A. Cottone, Daniel G. Ellis and Gus J.
Athas, and each of them, his or her true and lawful attorney-in-fact and
agents, with full power and all capacities, to sign the Corporation's Form 10-K
and any or all amendments thereto, and any other documents in connection
therewith, to be filed with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as she or he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto set her or his hand and seal
as of the 12th day of February 1997.
/s/ Bradbury Dyer III
-----------------------
(Bradbury Dyer III)
<PAGE> 2
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or
director of Falcon Building Products, Inc., a Delaware corporation (the
"Corporation"), which is about to file an annual report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, on Form 10-K
hereby constitutes and appoints Sam A. Cottone, Daniel G. Ellis and Gus J.
Athas, and each of them, his or her true and lawful attorney-in-fact and
agents, with full power and all capacities, to sign the Corporation's Form 10-K
and any or all amendments thereto, and any other documents in connection
therewith, to be filed with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as she or he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto set her or his hand and seal
as of the 12th day of February 1997.
/s/ Philip C. Kantz
-----------------------
(Philip C. Kantz)
<PAGE> 3
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or
director of Falcon Building Products, Inc., a Delaware corporation (the
"Corporation"), which is about to file an annual report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, on Form 10-K
hereby constitutes and appoints Sam A. Cottone, Daniel G. Ellis and Gus J.
Athas, and each of them, his or her true and lawful attorney-in-fact and
agents, with full power and all capacities, to sign the Corporation's Form 10-K
and any or all amendments thereto, and any other documents in connection
therewith, to be filed with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as she or he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto set her or his hand and seal
as of the 12th day of February 1997.
/s/ Richard G. Sim
-----------------------
(Richard G. Sim)
<PAGE> 4
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or
director of Falcon Building Products, Inc., a Delaware corporation (the
"Corporation"), which is about to file an annual report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, on Form 10-K
hereby constitutes and appoints Sam A. Cottone, Daniel G. Ellis and Gus J.
Athas, and each of them, his or her true and lawful attorney-in-fact and
agents, with full power and all capacities, to sign the Corporation's Form 10-K
and any or all amendments thereto, and any other documents in connection
therewith, to be filed with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as she or he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto set her or his hand and seal
as of the 12th day of February 1997.
/s/ Robert L. Smialek
-----------------------
(Robert L. Smialek)
<PAGE> 5
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or
director of Falcon Building Products, Inc., a Delaware corporation (the
"Corporation"), which is about to file an annual report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, on Form 10-K
hereby constitutes and appoints Sam A. Cottone, Daniel G. Ellis and Gus J.
Athas, and each of them, his or her true and lawful attorney-in-fact and
agents, with full power and all capacities, to sign the Corporation's Form 10-K
and any or all amendments thereto, and any other documents in connection
therewith, to be filed with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as she or he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto set her or his hand and seal
as of the 12th day of February 1997.
/s/ B. Joseph White
-----------------------
(B. Joseph White)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1996 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 76
<CURRENT-ASSETS> 96
<PP&E> 187
<DEPRECIATION> (90)
<TOTAL-ASSETS> 262
<CURRENT-LIABILITIES> 96
<BONDS> 109
0
0
<COMMON> 0
<OTHER-SE> 28
<TOTAL-LIABILITY-AND-EQUITY> 262
<SALES> 633
<TOTAL-REVENUES> 633
<CGS> 520
<TOTAL-COSTS> 520
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 49
<INCOME-TAX> 19
<INCOME-CONTINUING> 30
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</TABLE>
