-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MwKdjKk4Z0lY5mTkFVb3MkPEKn3ncaRM02U4Pti5POxUJmflo2Ag6KsMDr1WFiEx YW0g0uMHMGOGYIh3aPPUGw== 0000846657-96-000002.txt : 19960308 0000846657-96-000002.hdr.sgml : 19960308 ACCESSION NUMBER: 0000846657-96-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960307 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELJER INDUSTRIES INC CENTRAL INDEX KEY: 0000846657 STANDARD INDUSTRIAL CLASSIFICATION: HEATING EQUIP, EXCEPT ELEC & WARM AIR & PLUMBING FIXTURES [3430] IRS NUMBER: 752270874 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-10181 FILM NUMBER: 96532390 BUSINESS ADDRESS: STREET 1: 17120 DALLAS PKWY CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 2144072600 10-K405 1 ANNUAL REPORT ON FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the Fiscal Year Ended December 31, 1995 OR [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) Commission File No 0-10181 ELJER INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 75-227087 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 17120 Dallas Parkway Dallas, Texas 75248 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (214) 407-2600 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, $1 par value New York Stock Exchange Common Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X As of March 5, 1996, there were outstanding 7,152,252 shares of the registrant's common stock, par value $1, which is the only class of common or voting stock of the registrant. As of that date, the aggregate market value of the shares of common stock held by nonaffiliates of the registrant (based on the closing price for the common stock on the New York Stock Exchange on March 5, 1996) was approximately $76,112,000. Documents Incorporated by Reference The information called for by Part III is incorporated by reference to the definitive Proxy Statement for the Annual Meeting of Stockholders of the Company to be held April 16, 1996, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1995. Item 1. BUSINESS BACKGROUND General Eljer Industries, Inc. through its subsidiaries ("Eljer Industries" or, together with its subsidiaries, the "Company") is a leading manufacturer of high quality building products for residential construction, commercial construction and repair and remodeling markets. The Company manufactures and markets plumbing and heating, ventilating and air conditioning ("HVAC") products in North America and HVAC products in Europe. The Company markets its products through wholesale distribution channels and, in North America, directly to building products retailers. In North America, Eljer Industries is one of three leading full-line suppliers of bath and kitchen fixtures and faucets and is a leading supplier of registers, grilles and venting systems. In Europe, the Company is a leading manufacturer of prefabricated chimneys and venting systems. During fiscal years 1995, 1994 and 1993, revenues from sales of plumbing products comprised approximately 59%, 61% and 59%, respectively, of the Company's net sales, with the balance derived from the sale of HVAC products. o North American Operations Eljer Plumbingware, a division of Eljer Manufacturing, Inc. ("Eljer Manufacturing"), a wholly-owned subsidiary of Eljer Industries, manufactures and markets a full line of plumbing fixtures, including vitreous china toilets and lavatories and enameled cast iron tubs, whirlpools and lavatories. It also markets faucets manufactured by United States Brass Corporation ("U.S. Brass"), a wholly-owned subsidiary of Eljer Manufacturing. U.S. Brass manufactures and markets a full range of faucets, plumbing supplies, connectors and flexible plumbing systems in the United States. On May 23, 1994, U.S. Brass filed a voluntary petition for reorganization under Chapter 11 of the Federal Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Eastern District of Texas (the "Bankruptcy Court"). See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 and Note 2 to the Consolidated Financial Statements in Item 8 for further discussion. Selkirk Metalbestos and Dry Manufacturing, each divisions of Eljer Manufacturing, manufacture and market HVAC products, including registers, grilles, venting systems, prefabricated chimneys, air diffusers and fireplaces. Combined, Selkirk and Dry, along with a Selkirk subsidiary in Canada ("Selkirk/Dry"), are a market leader for registers, grilles and venting systems in North America. In February 1995, the Company formed Industrias Eljer de Mexico, S.A. de C.V., ("Eljer de Mexico") under the laws of Mexico. Eljer de Mexico engages in certain assembly and packaging operations on behalf of the Company in Ojinaga, Chihuahua, Mexico. o European Operations The Company has European subsidiaries operating primarily in the United Kingdom and Germany ("Selkirk Europe"). Selkirk Europe manufactures and markets a full line of prefabricated chimneys and venting systems for both commercial/industrial and residential markets. These products are used in new construction, as well as for repair and replacement uses, including energy conversion. The energy conversion from coal to oil and gas is a major source of demand for Selkirk Europe's venting products. Selkirk Europe is a market leader for these products in Europe, and also sells its products in other markets around the world. 1 History The "Eljer" business name traces its origin to a plumbing supply manufacturing business formed in 1904. The Company's North American HVAC products business originated in 1925, U.S. Brass became a plumbing company in 1962 and the Company's European business dates from 1964. Through various transactions in the 1980's, Household International, Inc. ("Household") acquired the businesses that now make up Eljer Industries. Eljer Industries itself was organized under the laws of the State of Delaware on January 26, 1989, as a wholly-owned subsidiary of Household. Under Household's ownership, various Eljer businesses operated as subsidiaries or as divisions of subsidiaries of Household. On April 14, 1989, all the outstanding shares of common stock of Eljer Industries were distributed to holders of Household common stock (the "spin-off"). The Company has operated as a publicly-held corporation since that date. DESCRIPTION OF BUSINESS Products Plumbing Fixtures. Eljer Plumbingware manufactures and markets enameled cast iron and vitreous china plumbing fixtures, including toilets, lavatories and bathtubs for residential and commercial applications. Eljer Plumbingware also markets faucets and acrylic bathtubs and whirlpools for these applications. Eljer Plumbingware's line of products includes bathroom and kitchen fixtures for new and remodeled construction. Eljer Plumbingware regularly updates its products and colors in response to changing style trends and develops new products as the market demands. Eljer Plumbingware has been a leader in developing and manufacturing low water consumption 1.6 gallon toilets, which are statutorily mandated throughout the United States. Eljer Plumbingware offers a broad line of such products. Cast iron and vitreous china fixtures are sold under the Eljer trademark. The Company manufactures vitreous china fixtures in two domestic plants and imports certain specialized fixtures from Thailand. Enameled cast iron fixtures are manufactured at one domestic plant. See "Properties" in Item 2. Faucets, Plumbing Supplies and Systems. U.S. Brass manufactures a wide range of faucets, plumbing supplies and plumbing systems for residential and commercial construction, remodeling and do-it-yourself applications. U.S. Brass markets these products under the Valley, Eastman and Qest trademarks. The Valley trademark applies to faucets ranging from competitively priced bathroom faucets to high-end luxury models (Valley Plus) and also includes kitchen faucets. Eljer Plumbingware markets, under the Eljer trademark, faucets manufactured by U.S. Brass that complement its fixture line. U.S. Brass also manufactures several private label faucets for large retailers. Eastman plumbing supplies include supply tubes and valves, fittings, air gaps and flexible gas and water connectors. Qest plumbing systems, incorporating polybutylene pipe and metal connective fittings, offer ease of installation, freeze tolerance and cost reduction to builders and plumbing contractors. In 1996, U.S. Brass will begin manufacturing and marketing QestPEX plumbing systems. QestPEX uses pipe extruded from cross-linked polyethylene ("PEX") resin. The Company believes the QestPEX system offers the same favorable attributes as the Qest polybutylene system. The sale of the Qest polybutylene system will be phased out in 1996 as Shell Chemical Company ("Shell Chemical"), a subsidiary of Shell Oil Company, the only supplier of polybutylene resin, has announced it will no longer sell this resin for plumbing applications in the U.S. Polybutylene plumbing systems using acetal fittings (the "Qest system"), manufactured and sold for residential site-built installations from 1979 through 1986, and for other installations from about 1975 through 1990, have been the subject of litigation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7, and Notes 2 and 13 to the Consolidated Financial Statements in Item 8. Heating, Ventilating and Air Conditioning Products. The Company, through Selkirk/Dry and Selkirk Europe, manufactures and markets, in the United States, Canada and Europe, prefabricated chimneys, venting systems, registers, grilles and other related specialty items. The Company believes it is a leading manufacturer of venting systems of its type in North America and in Europe. These venting systems are used in residential, commercial and industrial construction primarily to provide venting of discharge from a furnace, appliance, boiler or diesel engine to the outside. Eljer Industries' 2 brands in North America are sold primarily under the Metalbestos, Airmate, P.S. Chimney and Sel-Vent trademarks and in Europe under the Selkirk, Nova, Supra and Europa trademarks. Selkirk/Dry's products are used primarily in new residential and commercial construction and are marketed in the United States under the Airmate and Sel-Aire trademarks and in Canada under the Lloydaire trademark. They are also sold in the retail market under the Showcase trademark. The Company also manufactures other specialty products, including gas and wood-burning fireplaces. Markets and Distribution Plumbing. The Company markets plumbing products primarily in North America through agents and direct salesmen. The Company also sells plumbing products through wholesale distributors in the Far and Middle East. Eljer Industries supports its product lines with a variety of advertising, including national and trade magazines. Plumbing products are sold domestically primarily through two major channels of distribution: (1) plumbing wholesalers and (2) retail outlets. Sales through retail channels accounted for approximately 39% of net plumbing sales in 1995. Plumbing products sold by the Company are used primarily in new home construction and repair/remodeling; therefore demand for plumbing products is closely related to the rate of new housing starts and fluctuations in remodeling and repair activities. The housing market is cyclical and is affected primarily by interest rates, consumer confidence and the availability of mortgage loans. The repair and remodeling markets are less cyclical, providing a different source of demand for plumbing products and reducing the Company's reliance on new home construction. Both housing starts and the repair and remodeling market experienced declines in 1995, and many published forecasts indicate housing starts will continue at relatively low levels in 1996. The other end use of the Company's plumbing products is the commercial/industrial market, which consists of hotels, health care facilities, educational and penal institutions and office buildings. The markets for plumbing products are highly competitive. Competition is based on brand recognition, design and quality of the product, product performance, price and service, with the relative importance of these factors varying among products and markets. The Company, Kohler Company and American Standard, Inc. are the better recognized companies selling fixtures in the United States. The Company believes that overall it has the third largest market share in the plumbing fixtures market. The Company also is a supplier in the faucet market, in which there are numerous major domestic and import manufacturers, several of which are substantially larger than the Company. HVAC. The Company's HVAC products are used in the residential, industrial and commercial construction markets for new construction and repair and remodeling applications. HVAC products are sold primarily to regional wholesalers and through retailers and contractors. Sales of these products are subject to customer demand and general business conditions in these markets and the North American and European economies. The Company believes that eastern European markets, as they convert to natural gas, represent a strong market potential in the future, depending on the economic environment. In all major HVAC product lines there are a variety of competitors who aggressively compete for market share. Competition is based primarily on brand recognition, product design, product quality, range of product line, price, service and engineering support. The Company believes that it is competitive with respect to each of these factors. Raw Materials The manufacture of plumbing products requires clay, iron, brass, copper and plastic, including polybutylene resin. Other than polybutylene resin, which is currently produced domestically only by Shell Chemical, these materials are, and have been, readily available from several sources. In the past, the Company has not experienced difficulty in obtaining polybutylene resin from Shell Chemical as needed. However, subsequent to yearend, Shell Chemical announced that it will discontinue the sale of polybutylene resin effective April 16, 1996. In 1996, the Company will introduce a new product, QestPEX, utilizing a cross- linked polyethylene ("PEX") resin. PEX resin is readily available from several sources. 3 The major raw materials used in the manufacture of HVAC products are cold-rolled steel, galvanized steel, stainless steel coils and aluminum coils. These materials are readily available from several sources and the Company has experienced no difficulties with respect to availability of these materials. FOREIGN AND DOMESTIC OPERATIONS See Note 15 to the Consolidated Financial Statements in Item 8 for geographic segment financial data. GENERAL Customers. The Company is not dependent upon any single customer, or upon any single group of customers, the loss of which would have a material adverse effect on the Company. Backlog of Orders and Inventory. The backlog of unshipped factory orders at the end of fiscal years 1995 and 1994 was approximately $17.1 million and $19.8 million, respectively. The Company expects that all the orders in backlog at the end of fiscal year 1995 will be shipped during 1996. The Company must carry inventory of certain products to meet rapid delivery requirements of its customers. Employees. The Company employs approximately 3,700 people, approximately 1,600 of whom are covered by collective bargaining agreements with various labor unions. The collective bargaining agreement at the manufacturing plant in Nampa, Idaho, expired July 8, 1991. The plant has been operating without a contract since that date. A new three year agreement was reached at the Company's Ford City, Pennsylvania, plant effective May 27, 1995, without production interruption. This was the only location for which an agreement expired in 1995. The Company's other collective bargaining agreements have expiration dates in 1996 or in 1997. On March 5, 1996, employees at the Company's Salem, Ohio, plant did not approve a new collective bargaining agreement and a strike commenced. While the Company does not have any means to predict the length of the work stopage, it is hopeful an agreement can be reached quickly. In general, relations with employees have been satisfactory. Patents and Trademarks. The Company has a number of United States and foreign patents and also holds a number of patent applications, licenses, trademarks and trade names, including the trademarks mentioned herein. Except for certain trademarks mentioned herein, none of the foregoing is believed to be material to the Company. Other. No material portion of the Company's operations is subject to renegotiation of profits or termination of contracts at the election of the federal government. The Company's operations, taken as a whole, are not significantly seasonal, although many products experience increased sales during the second and third quarters of the year due to larger housing construction activity, and certain HVAC products often experience higher sales in the autumn months. 4 Item 1a. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names, ages, titles with Eljer Industries and principal occupations and employment for the past five years of the executive officers of Eljer Industries.
Name and Age Office and Experience Scott G. Arbuckle, 64.........................President and Chief Executive Officer. Mr. Arbuckle has served in his current position since February 1990. Mr. Arbuckle previously served as Executive Vice President of Eljer Industries and President of the HVAC Group. He joined U.S. Brass in 1963. James A. Harris, 39............................Executive Vice President. Mr. Harris has served in his current position since January 1996 and also serves as the President of Eljer Manufacturing, Inc. Mr. Harris previously served as Vice President-Sales and Marketing of Eljer Industries from January 1992 to December 1995. Prior to January 1992, Mr. Harris served as Vice President-Marketing. Brooks F. Sherman, 35..........................Vice President-Finance, Chief Financial Officer and Treasurer. Mr. Sherman has served in his current position since June 1995. Mr. Sherman previously served as Controller, Treasurer and Assistant Secretary since April 1991 and as Controller and Assistant Secretary since 1989. James F. Thomason, 61..........................Vice President-Manufacturing. Mr. Thomason has served in his current position since April 1991, having previously served as Group President-Selkirk/Dry N.A. from April 1990 to April 1991. Prior to joining Eljer Industries, Mr. Thomason served in various management positions with the Kohler Company, most recently as Vice President-Operations for Plumbing and Specialty Products, International. George W. Hanthorn, 48.........................Vice President-General Counsel and Secretary. Mr. Hanthorn has served in this position since October 1994. Mr. Hanthorn previously served as Senior Vice President-General Counsel and Secretary of Greyhound Lines, Inc., Dallas, Texas, a publicly-held transportation services company, from 1990 to 1994, and as Vice President, General Counsel and Secretary of Greyhound Lines, Inc. from 1987 to 1990. Nancy J. Duricic, 41...........................Vice President-Human Resources. Ms. Duricic has served in her current position since January 1996. Ms. Duricic previously served as Director-Human Resources from June 1995 to December 1995, as Director-Compensation and Benefits from January 1992 to June 1995, and as Manager of Employee Benefits since September 1990. 5 Steven M. Rodman, 41...........................Vice President-Sales and Marketing. Mr. Rodman has served in his current position since January 1996, having previously served as Eljer Manufacturing, Inc.'s Vice President-Consumer Sales since joining the Company in August 1992. Mr. Rodman previously served as Director of Sales for Artesian Plumbing Products, Mansfield, Ohio, a privately-held plumbing fixture manufacturer. Gerald J. Morris, 55...........................Controller and Assistant Secretary. Mr. Morris has served in his current position since June 1995 and has held a variety of division controllership positions since joining the Company in February 1981, most recently as Controller-Manufacturing.
6 Item 2. PROPERTIES The following table sets forth the location, approximate square footage and use of each of the principal manufacturing plants of the Company, separated by the operating unit or subsidiary which operates the facility. Except as indicated in the table, all the plants are owned by the Company.
Approximate Location Square Footage Use Eljer Plumbingware: Ford City, Pennsylvania......... 736,000 Manufacture of vitreous china products. Salem, Ohio..................... 477,000 Foundry-manufacture of enameled cast iron products. Tupelo, Mississippi.......... 422,000 Manufacture of vitreous china products. U.S. Brass: Abilene, Texas.................. 174,000 Manufacture of faucets. Commerce, Texas................. 172,000 Manufacture of flexible plumbing systems and brass and copper gas and water connectors. Plano, Texas.................... 98,000 Manufacture of brass plumbing supplies. Elkhart, Indiana................ 97,000 Manufacture of flexible plumbing systems. Selkirk/Dry: Winters, Texas.................. 337,000 Manufacture of registers, grilles, diffusers and gas vents. Logan, Ohio..................... 194,000 Manufacture of gas vents and chimney systems. Nampa, Idaho.................... 154,000 Manufacture of gas vents and chimney systems. Coleman, Texas.................. 110,000 Manufacture of registers, grilles and fireplaces. Brockville, Ontario, Canada..... 75,000 Manufacture of fireplaces and chimney systems. Mississauga, Ontario, Canada 55,000 Manufacture of registers and grilles. Selkirk Europe: Barnstaple, England............. 92,000 Manufacture of gas vents and chimney systems. Mullicott Cross, England........ 68,000 Manufacture of venting and specialty products. Eljer de Mexico: Ojinaga, Mexico.............. 19,000 Assembly and packaging. - ------------ Leased until 2066 Leased until 1999 Leased until 1998
In general, the manufacturing facilities for plumbing products are in good condition and are operating at capacities which range from approximately 45% to 95%. The manufacturing facilities for gas vents and chimney systems are presently operating at approximately 70% capacity, except the Canadian plant, which is operating at a lower capacity level. The plants which are used to manufacture registers, grilles and other specialty items are presently operating at approximately 90% capacity except the Canadian plant, which is operating at a lower capacity level. Each of these facilities is in good condition. All Selkirk/Dry and Eljer Plumbingware properties, with the exception of the Salem, Ohio, plant, secure the Company's domestic bank term loans. The Commerce, Texas, location secures certain industrial revenue bond obligations. All owned properties in England secure both the revolving credit agreement and the term debt in the United Kingdom. See Notes 3 and 7 to the Consolidated Financial Statements in Item 8 for further discussion. In addition to the foregoing, the Company owns or leases a number of warehouse distribution centers throughout the United States. 7 Item 3. LEGAL PROCEEDINGS U.S. Brass U.S. Brass is involved in significant legal proceedings including a number of claims which involve Qest systems manufactured and sold by U.S. Brass. On May 23, 1994, U.S. Brass filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. See "Liquidity and Capital Resources" in Item 7 and Note 2 to the Consolidated Financial Statements in Item 8 for discussion of the litigation and the related bankruptcy proceeding. Household Litigation The Company is currently involved in litigation with Household relating to the spin-off. See Note 14 to the Consolidated Financial Statements in Item 8 for further discussion. Environmental Proceedings The Company operates plants that may generate hazardous and non-hazardous waste, disposal of which is subject to federal and state regulation. The past disposal of hazardous and non-hazardous waste generated at the Company's plants may now be subject to the requirements of the federal Resource Conservation and Recovery Act and comparable state statutes. Several Company facilities have been required to implement programs to remedy the effects of past waste disposal. Not all plants have been the focus of comprehensive environmental studies. Except as described in Note 13 to the Consolidated Financial Statements in Item 8, the Company is not aware of any instances of noncompliance with currently applicable safety, health and environmental laws and regulations which might have a significant adverse effect on the Company's financial condition or results of operations. With respect to current operating procedures, the Company believes that it is in material compliance with such applicable laws and regulations. The Company has established accruals of approximately $15.1 million at the end of 1995 pertaining to environmental, health and safety matters which the Company believes are adequate. Although the timing of the related payments is uncertain, the Company believes that a substantial portion of the payments will be made over the next three years. See Note 13 to the Consolidated Financial Statements in Item 8 for discussion of individual sites and environmental related litigation. Additional information regarding legal proceedings of the Company is set forth herein in Notes 2, 13 and 14 to the Consolidated Financial Statements in Item 8, and is incorporated herein by these references. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of shareholders of Eljer Industries during the fourth quarter of fiscal year 1995. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Market Information for Common Stock Eljer Industries' common stock is traded principally on the New York Stock Exchange. The following table reflects the range of high and low selling prices of Eljer Industries' common stock by quarter for 1995 and 1994. This information is based on selling prices as reported by the New York Stock Exchange. 8
1995 1994 --------------- ------------------ High Low High Low ------ ------ ------ ------ First Quarter....................$6-3/4 $4-1/8 $9-1/4 $6-5/8 Second Quarter................... 6-1/2 5 8-1/2 5-7/8 Third Quarter.................... 6-1/4 4-5/8 8-1/2 6-1/2 Fourth Quarter................... 12 3-3/4 7-3/4 5-1/8
Holders At March 5, 1996, there were approximately 8,340 holders of record of common stock. Dividends No dividends were declared in fiscal 1995 or 1994. The Board of Directors intends to review its dividend policy regularly with the intent of restoring a cash dividend when appropriate; however, Eljer Industries is currently restricted by certain debt covenants from paying dividends during the term of its U.S. term debt agreement. See Notes 3 and 7 to the Consolidated Financial Statements in Item 8. Item 6. SELECTED FINANCIAL DATA The following table presents selected financial data of Eljer Industries. This historical data should be read in conjunction with the Consolidated Financial Statements and the related notes thereto in Item 8 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7.
1995 1994 1993 1992 1991 ------- ------ ------ ------ ------ (In millions, except per share amounts) Net sales............................................ $397.4 $406.1 $387.6 $397.3 $402.5 Income from operations before unusual items........................................... 20.6 22.1 21.1 23.4 19.0 Income (loss) from operations........................ 21.3 .3 21.1 23.4 (33.9) Income (loss) before income taxes.................... 6.8 (12.4) 6.4 9.4 (47.8) Income (loss) before extraordinary item and cumulative effects of changes in accounting principles........................... 4.9 (12.2) 3.9 (2.1) (59.7) Net income (loss).................................... 4.9 (12.2) 3.9 (57.3) (59.7) Earnings (loss) per share before extraordinary item and cumulative effects of changes in accounting principles...................................... .69 (1.72) .55 (.30) (8.46) Earnings (loss) per share............................ .69 (1.72) .55 (8.11) (8.46) Total assets......................................... 249.0 257.1 235.4 254.4 239.2 Long-term debt....................................... 81.7 83.0 103.1 114.8 87.7 Dividends per common share........................... - - - - - - --------------------- Includes long-term debt subject to restructure, included in Current Liabilities at the end of 1991. Includes an extraordinary charge of $16.0 million ($2.26 per share) and cumulative effects of changes in accounting principles of $39.2 million ($5.55 per share). Includes a $21.9 million unusual charge related to U.S. Brass. See Note 2 to the Consolidated Financial Statements in Item 8 for additional discussion.
9 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Year ended December 31, 1995 ("1995") compared with year ended January 1, 1995 ("1994") Net sales decreased $8.7 million, or 2.1%, for 1995 compared to 1994. The decline is due to an approximate 8% decline in U.S. housing starts. North American sales declined $13.0 million or 3.8%. To offset the decline in traditional sales resulting from the depressed new housing market, the Company increased sales through retail channels approximately $2.1 million by expanding its product line offerings to existing retail accounts. Partially offsetting the North American decline, European operations achieved a $4.3 million increase in net sales. The improved European results were due to multiple programs instituted to increase sales combined with favorable exchange rates. Published forecasts indicate that 1996 U.S. housing starts will not improve significantly over 1995 levels. Eljer will continue to evaluate alternative markets and channels of distribution to balance the demand for its products. Gross profit margins decreased to 25.7% in 1995 compared to 27.8% in 1994. This decline is primarily due to significant increases in raw material costs in both North America and Europe including brass, aluminum, stainless steel, copper and polybutylene resin. In response, the Company implemented price increases on all product lines containing these materials during the first half of 1995. During the last half of 1995 these price increases began to favorably impact results. Subsequent to yearend, the Company was notified by Shell Chemical, the supplier of polybutylene resin used in the manufacture of polybutylene plumbing systems ("Qest"), that effective April 16, 1996, they will discontinue the sale of this resin for pipe applications in the U.S. In 1996, the Company will introduce a new product, QestPEX, utilizing a cross-linked polyethylene ("PEX") resin, in the pipe extrusion. Like the Qest system, QestPEX is a flexible, freeze resistant pipe using metal insert fittings with crimp rings. This system has been used effectively in Europe for many years by other manufacturers. In addition, the gross profit margins were favorably impacted by a curtailment gain recorded in connection with a redesign and amendment of certain of the Company's pension plans covering both salaried and hourly employees. The amendments reflect a change in the Company's approach toward employee retirement plans which includes providing increased benefits under its 401(k) plan in lieu of certain of its pension plans. The total impact of the curtailment gain on gross profit was $2.2 million. Total selling and administrative expenses for 1995 were $8.1 million, or 9.9%, lower than 1994 levels and declined as a percent of sales from 20.1% in 1994 to 18.5% in 1995. The decline is primarily the result of the cost reduction programs instituted in each of the Company's business units which resulted in lower advertising and administrative costs. These reductions were partially offset by severance and related costs associated with several management changes made in mid-1995 to reduce future expenses and strengthen the management team. The Company expects to see the full financial benefit of these changes in 1996. Also, in connection with the redesign and amendment of certain pension plans discussed above, a curtailment gain was recorded favorably impacting selling and administrative expenses by $1.1 million. Conversely, the Company accrued an additional $1.4 million for environmental related liabilities. See Note 13 to the Consolidated Financial Statements in Item 8 for further discussion. Litigation costs decreased approximately $855,000 in 1995 below 1994 levels primarily as a result of management's continued efforts to control these costs in light of the magnitude of the legal matters facing the Company. These costs include legal fees incurred by both Eljer Industries and U.S. Brass in connection with the Chapter 11 bankruptcy proceeding of U.S. Brass, as well as the litigation with Household relating to the spin-off. As a result of the uncertainties related to the availability of insurance coverage and the ultimate outcome of the bankruptcy proceeding, U.S. Brass recorded a $21.9 million unusual charge against earnings in 1994 which reduced its net book value to zero. U.S. Brass intends to maintain an equity balance of zero during the course of the bankruptcy. Accordingly, in 1995 U.S. Brass recorded an unusual gain adjustment of approximately $676,000 to maintain its equity balance at zero. U.S. Brass incurred a net loss in 1995 as a direct result of $2.1 million in legal fees associated with the bankruptcy. See Note 2 to the Consolidated Financial Statements in Item 8 for additional discussion. 10 Interest expense increased $2.3 million in 1995 over 1994 levels. This is due primarily to scheduled rate increases on debt and an amendment to the U.S. term debt agreement effected in late 1994. In addition, prime interest rates were higher in 1995. Income tax expense increased to $1.9 million in 1995 from a benefit of $173,000 in 1994. The tax benefit in 1994 was due to European and Canadian pre-tax losses and the Company's ability to utilize deferred tax benefits in the United States. The Company continues to utilize deferred tax benefits in the United States, but 1995 tax costs were increased by $1.1 million due to payments associated with unrealizable tax benefits on payments made to Household under an indemnification agreement with Household. See Note 11 to the Consolidated Financial Statements in Item 8 for additional discussion. 1994 compared with year ended January 2, 1994 ("1993") Net sales increased 4.8% or $18.5 million over the 1993 level resulting in the strongest sales performance since 1990. The increase was the result of strong performances in substantially all North American markets where the Company continued to benefit from an improved housing economy and penetration of its traditional channels of distribution and retail chains. 1994 sales of products in North America increased $27.3 million or 8.7% over the 1993 level. As anticipated, European sales continued to decline during 1994, dropping $8.8 million or 11.8% despite a $1.6 million favorable exchange rate impact due to the weakening U.S. dollar. Gross profit margins decreased to 27.8% in 1994 compared to 28.2% in 1993. The decline was the result of a significant reduction in the level of sales of higher margin products in Europe, where the market has remained soft, primarily offset by improved margins on the Company's plumbing products due to increased volume and improved product mix. The Company reengineered the European operations to reduce costs and anticipates the benefits of these changes, as well as expected modest economic strengthening, should improve the European results in 1995, although raw material price increases will limit this improvement. The reengineering consisted primarily of the relocation of the Company's operations in Germany to its plants in the United Kingdom. Costs related to the restructuring were approximately $867,000 in 1994 and were covered by accruals established in 1991. Gross profit margins for 1994 improved in North America to 26.5% from 25.6% in 1993. This was primarily attributable to production efficiencies and better cost absorption associated with increased volume. Total selling and administrative expenses for 1994 were $865,000 or 1.1% higher than the 1993 level ($81.8 million in 1994; $80.9 million in 1993) primarily as a result of increased sales incentives and commissions due to higher sales volume, partially offset by lower advertising costs. Litigation costs continued to increase in 1994, rising $1.6 million over the 1993 level. The higher costs related primarily to the Chapter 11 bankruptcy proceeding of U.S. Brass. See Note 2 to the Consolidated Financial Statements in Item 8 for additional discussion. In December 1994, U.S. Brass recorded a $21.9 million unusual charge due to uncertainties related to the availability of insurance coverage related to Qest system claims and its inability to achieve a prompt resolution of the bankruptcy case, reducing its net book value to zero. See additional discussion in Note 2 to the Consolidated Financial Statements in Item 8. Despite the increased litigation costs, and not considering the unusual charge discussed above, 1994 North American operating income increased $6.4 million, or 40.8%, over the 1993 level, more than offsetting the $5.4 million European decline. Interest expense decreased $2.0 million or 13.6% in 1994 from the 1993 level. The decrease was due primarily to the April 1994 expiration of an unfavorable interest rate swap agreement offset somewhat by an increase in interest rates on substantially all North American borrowings primarily due to increases in the prime rate. Interest expense related to the swap agreement was approximately $1.3 million and $4.4 million in 1994 and 1993, respectively. Income tax expense was reduced from $2.5 million in 1993 to a tax benefit of $173,000 in 1994. This was due to benefits realized related to certain European pretax losses in 1994 partially offset by the Company's inability to realize the tax benefit of its loss in the United States, which arose from the unusual charge recorded by U.S. Brass. 11 Without considering the $21.9 million unusual charge discussed above, net income for 1994 would have increased $5.7 million over the 1993 level, resulting in the Company's best performance since its spin-off from Household. As a result of the unusual charge, net income for 1994 decreased $16.1 million from the 1993 level. Liquidity and Capital Resources The net cash provided by operating activities of $12.3 million was $1.6 million more than in 1994. In 1994, the cash flow was negatively impacted by a $13.0 million payment to repay all amounts outstanding under the Company's prior accounts receivable sales program. Offsetting this payment, cash flow from operations in 1994 was favorably impacted by the timing of payments to vendors, timing of payments under sales incentive programs and higher operating earnings. The Company has an unfunded postretirement benefit obligation of $39.4 million at the end of 1995. The Company funds its postretirement benefit obligation on a pay-as-you-go basis. Funding was $1.7 million and $2.9 million in 1995 and 1994, respectively. Capital expenditures in 1995 were $14.0 million and included payments related to a new state-of-the-art kiln and dryers at the Company's Tupelo, Mississippi, chinaware plant; enameling robots at the Company's Salem, Ohio, cast iron plant; and new welded dual wall chimney production equipment at the Company's United Kingdom plants, as well as the replacement and improvement of capital equipment at various other locations. The Company maintains letters of credit securing its casualty insurance program. Prior to October 1995, one of these letters of credit was fully cash collateralized with the financial institution then providing the letter of credit. In October 1995, Congress Financial Corp. ("Congress") began providing this letter of credit and the original financial institution returned the cash that had been used as collateral. These funds were then used to reduce the Company's short-term borrowings. The letter of credit reduces the amount available for borrowing under the revolving credit facility provided by Congress. In total, the Company decreased its short-term borrowings during 1995 by $4.3 million. See Note 7 to the Consolidated Financial Statements in Item 8 for further discussion of the Company's financing agreements. In total, the Company reduced its long-term borrowings by $4.4 million in 1995. These payments were financed primarily with cash generated by operations and cash on hand. In August 1995, the Company amended its U.S. term debt agreement to extend the maturity date to January 31, 1997. Under the terms of the amendment, a $3.0 million principal payment was made in August 1995 in addition to a $200,000 extension fee. Scheduled principal payments are $2.0 million in January 1996, $3.0 million in August 1996 and $3.0 million in December 1996, with the balance of $67.5 million due at the maturity date of January 31, 1997. The $3.0 million December 1996 principal payment may be accelerated to April 1996 if certain conditions related to the U.S. Brass bankruptcy are not met. The Company intends to explore some manner of debt restructuring or extension of existing debt prior to the January 1997 term debt maturity date. Neither the Company nor any of its subsidiaries has any commitment with respect to restructuring or other sources of financing or extension of existing debt and there can be no assurance that any such commitment or extension can be obtained prior to the term debt maturity date. Failure to obtain such a commitment or extension, or failure to pay the term debt when due, would constitute an event of default thereunder, and would give the lenders the right, if they elect to do so, to foreclose on the collateral which constitutes essentially all the domestic assets of the Company (except that pledged under the Revolver and assets of U.S. Brass), including a majority of the stock of its foreign subsidiaries. Failure to pay the term debt when due would also be an event of default under the Revolver. At yearend 1995, the Company was in compliance with all covenants related to its existing debt. See Note 7 to the Consolidated Financial Statements in Item 8 for additional discussion of debt. As discussed in "Legal Proceedings" in Item 3 and in Note 13 to the Consolidated Financial Statements in Item 8, after March 31, 1992, the Company was unable to demonstrate financial responsibility for closure, post-closure and third party liability with respect to its Salem, Ohio, facility and its Marysville, Ohio, site. The U.S. Department of Justice (the "DOJ") sought payment by the Company related to the Salem site of a cash penalty of $175,000 with an additional fine of $912,000 to be held in abeyance pending completion of the site closure activities without any further violations 12 of the Company's financial assurance obligations under Ohio law. The Company accepted the DOJ offer and approved modification of a prior consent decree entered in 1990 relating to these issues. The modified consent decree is currently pending approval by DOJ and entry by the court. The Company believes it currently meets its financial responsibility requirements regarding the Salem facility although the Ohio Environmental Protection Agency ("Ohio EPA") has asserted that the Company has not posted sufficient collateral to cover the cost of post-closure care. The Company disputes the Ohio EPA's contention and is currently negotiating the matter with the Ohio EPA. In addition, the Ohio Attorney General threatened commencement of a lawsuit for the Company's failure to renew financial assurance obligations for the Marysville site under Ohio law. On July 7, 1995, the Company was informed that the Ohio Attorney General intended to assess a $2.5 million civil penalty for alleged past financial assurance violations for the Marysville site. On October 5, 1995, the Company agreed to pay a cash penalty of $750,000, with an additional fine of $500,000 to be suspended pending completion of closure activities at the Marysville site in accordance with a closure plan approved by the Ohio EPA. The settlement also requires the Company to begin funding an $8.5 million trust account through the remainder of 1996, which would be used to pay for implementation of the closure plan at the Marysville site in order to meet the financial assurance requirements. The Company believes it has adequate reserves established to provide for the cash penalty and sufficient cash flow and debt availability to fund the trust account. As discussed in Note 2 to the Consolidated Financial Statements in Item 8, on May 23, 1994 (the "Petition Date"), U.S. Brass filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The purpose of the filing is to resolve systematically the issues resulting from the Qest system and related litigation and to seek confirmation of a Plan which, among other things, will provide for the payment, satisfaction and discharge of all claims against U.S. Brass involving the Qest system. On June 28, 1994, U.S. Brass entered into a debtor-in-possession financing agreement (the "DIP Financing Agreement") with Congress, who had provided secured financing for working capital purposes prior to the Petition Date. Pursuant to the DIP Financing Agreement, Congress agreed to provide loans and advances in an amount not to exceed $20 million when added to the outstanding amount of advances made by Congress prior to the Petition Date. At yearend 1995, the outstanding principal amount of such advances was approximately $10.3 million. The DIP Financing Agreement expires June 1996. If U.S. Brass has not exited Chapter 11 prior to that time, U.S. Brass will seek an extension of its existing DIP Financing Agreement, with Bankruptcy Court approval. Congress has indicated its intent to extend the DIP Financing Agreement for an additional year, subject to approval by the Bankruptcy Court. There can be no assurance that such an extension will be granted. Between 1988 and July 1991 U.S. Brass, Shell Chemical and Hoechst Celanese participated in a toll-free consumer hotline for homeowners with Qest system claims. U.S. Brass, Shell Chemical and Hoechst Celanese shared the cost of repairs and replacements (the "Sharing Agreement") until July 1991 when U.S. Brass withdrew its participation. Shell Chemical and Hoechst Celanese have settled and continue to settle cases and repair or replace Qest systems for which they contend that U.S. Brass was or is partially responsible under the Sharing Agreement. Shell Chemical and Hoechst Celanese no longer provide U.S. Brass or the Company with information on the amount they claim they have expended on settlement of claims on behalf of U.S. Brass under the Sharing Agreement. The previously reported litigation filed by Hoechst Celanese and Shell Chemical in New Jersey state court against U.S. Brass, Eljer Manufacturing and Household relating to the Qest system and the Sharing Agreement remains pending in the Bankruptcy Court on a motion by Shell Chemical and Hoechst Celanese to sever the claims against Household and remand the Household claims back to New Jersey state court. Any claims arising out of the Sharing Agreement and claims brought in the New Jersey state court against U.S. Brass and Eljer Manufacturing would be resolved in connection with the proposed settlement discussed below and further in Note 2 to the Consolidated Financial Statements in Item 8. The Official Polybutylene Creditor's Committee (the "PB Committee"), established in the U.S. Brass bankruptcy case, has alleged that Eljer Industries, Eljer Manufacturing and Household may be liable for Qest system claims under principles of alter ego and related theories of liability. On January 30, 1995, the Bankruptcy Court denied the PB Committee's motion to file a proposed complaint on behalf of U.S. Brass against the Company to determine whether the Company should be held liable for certain debts of U.S. Brass based on alter ego liability. The PB Committee has filed a notice of appeal from that ruling. Since the filing of U.S. Brass' bankruptcy petition, the PB Committee and certain co-defendants in the Qest system litigation have asserted that Eljer Industries and Eljer Manufacturing are also directly liable for damages arising from the design, manufacture and marketing of the Qest system. However, in one class 13 action, a Denver, Colorado District Court dismissed Eljer Industries and Eljer Manufacturing from the case. The court ruled that there were no facts presented establishing that Eljer Industries or Eljer Manufacturing directly participated in the design, manufacture or distribution of the Qest systems. On November 9, 1995, U.S. Brass, Eljer Industries and Eljer Manufacturing tentatively agreed to participate in a global polybutylene settlement related to the two certified national class action lawsuits dealing with polybutylene claims. As part of the settlement, Shell Oil and Hoechst Celanese, who were suppliers of the resins used in the manufacture of the polybutylene plumbing systems, have agreed to make up to $950 million available to repair such systems. The settlement was approved on November 9, 1995, by the Chancery Court for Obion County at Union City, Tennessee, the court hearing one of two national class actions dealing with polybutylene plumbing systems. Eljer's and U.S. Brass' participation in the settlement is conditioned on the confirmation of a plan of reorganization in the U.S. Brass bankruptcy proceeding and finalization of an agreement with the parties to the global polybutylene settlement. Under the terms of its proposed agreement, the Company will contribute an amount equal to the proceeds it receives from certain insurance coverage; 75% of the net proceeds, if any, resulting from the litigation with its former parent, Household (see Note 14 to the Consolidated Financial Statements in Item 8 for further discussion); $3.0 million in cash; a non-interest bearing note for $20.0 million payable over 10 years; and 17.5% of the equity of Eljer Industries. In addition, U.S. Brass will continue to be an indirect, wholly-owned subsidiary of Eljer Industries. Following an expected finalization of an agreement with the parties in the global polybutylene settlement, a second amended plan of reorganization containing the terms of the tentative agreement will be filed with the Bankruptcy Court. However, the timing or likelihood of approval of such an amended plan cannot be predicted. The Company believes it has previously recorded adequate accruals for the terms of this agreement based on the average market price of the Company's stock. No assurances can be given that the proposed agreement will be finalized and a related plan of reorganization will be confirmed and agreed to by the Bankruptcy Court and U.S. Brass creditors. As a result, no assurances can be given that the reorganization of U.S. Brass will successfully be concluded or, if it is concluded, what the effects to U.S. Brass, Eljer Industries and Eljer Manufacturing would be. If the proposed agreement is not finalized, the ultimate resolution of the U.S. Brass bankruptcy could involve the Company losing its control over U.S. Brass. As previously discussed, the possibility also exists that settlement of claims against the Company, could, among other things, result in a change in the Company's equity structure. Until these matters are further resolved, they continue to create a substantial doubt about the Company's ability to continue as a going concern in its present consolidated form. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ELJER INDUSTRIES, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Public Accountants.......................... 15 Consolidated Statements of Income................................. 16 Consolidated Balance Sheets....................................... 17 Consolidated Statements of Cash Flows............................. 18 Consolidated Statements of Shareholders' Equity................... 19 Notes to Consolidated Financial Statements........................ 20
14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Eljer Industries, Inc.: We have audited the accompanying consolidated balance sheets of Eljer Industries, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995 and January 1, 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 3 to the accompanying consolidated financial statements, the Company will be required to make $8 million in term debt payments throughout 1996 and the remaining $67.5 million in term debt will become due on January 31, 1997. Management's current projections indicate that there will not be sufficient cash flows from operations to fund the January 1997 obligation. The Company intends to explore some manner of debt restructuring or extension of existing debt prior to the January 1997 U.S. Term Debt maturity date. Neither the Company nor any of its subsidiaries has any commitment with respect to restructuring or other sources of financing or extension of existing debt and management has indicated that there can be no assurance that any such commitment or extension can be obtained prior to the U.S. Term Debt maturity date. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Eljer Industries, Inc. and subsidiaries as of December 31, 1995 and January 1, 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed further in Note 2 to the consolidated financial statements, the Company and its indirect, wholly-owned subsidiary, United States Brass Corporation ("U.S. Brass"), are defendants in a number of lawsuits and are the subject of certain claims which involve the Qest polybutylene plumbing system manufactured and sold by U.S. Brass. In addition, the nature and extent of the insurance coverage related to potential losses arising from these claims and lawsuits are currently being contested by several of the insurance carriers. In order to systematically resolve these matters, on May 23, 1994, U.S. Brass filed a voluntary petition for reorganization under Chapter 11 of the Federal Bankruptcy Code. In 1995, a tentative global polybutylene settlement was reached in which U.S. Brass, Eljer Manufacturing, Inc. and Eljer Industries have agreed to participate. The settlement is conditioned upon, among other things, its approval by the court in the U.S. Brass bankruptcy. No assurances can be given that the proposed agreement will be finalized and a related plan of reorganization be confirmed and agreed to by the Bankruptcy Court and U.S. Brass creditors. If the proposed agreement is not finalized, the ultimate resolution of the U.S. Brass bankruptcy could involve the Company losing its control over U.S. Brass. The possibility also exists that settlement of claims against the Company, could, among other things, result in a change in the Company's equity structure. The ultimate outcome of these matters is uncertain at this time and could have a material, adverse impact on the financial position and results of operations of the Company. These matters create a substantial doubt about the Company's ability to continue as a going concern in its present consolidated form. Management's plans in regard to these matters are described in Note 2. The consolidated financial statements do not include any adjustments or reclassifications that might result from the outcome of these uncertainties. ARTHUR ANDERSEN LLP Dallas, Texas, March 5, 1996 15 ELJER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data)
1995 1994 1993 -------- -------- -------- Net Sales....................................................... $397,386 $406,063 $387,562 Cost of Sales................................................... 295,180 293,365 278,374 -------- -------- -------- Gross Profit.................................................... 102,206 112,698 109,188 Selling & Administrative Expenses............................... 73,670 81,767 80,902 Litigation Costs................................................ 7,950 8,805 7,215 Unusual Item - Adjustment for Polybutylene/Celcon Claims................................................. (676) 21,857 - -------- -------- -------- Income From Operations.......................................... 21,262 269 21,071 Other Expense, net.............................................. 1,247 1,687 1,367 Interest Income................................................. 1,722 1,683 1,380 Interest Expense................................................ 14,982 12,662 14,647 -------- -------- -------- Income (Loss) Before Income Taxes............................... 6,755 (12,397) 6,437 Tax on Repatriation of Foreign Earnings and Loss of Tax Benefit on Indemnified Liabilities.............. 1,142 - 640 Income Tax (Benefit) Expense.................................... 724 (173) 1,899 -------- --------- -------- Net Income (Loss)............................................... $ 4,889 $ (12,224) $ 3,898 ======== ========= ======== Net Income (Loss) Per Share..................................... $ .69 $ (1.72) $ .55 ======== ========= ======== Weighted Average Number of Common Shares........................ 7,133 7,120 7,085 ======== ========= ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 16 ELJER INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
ASSETS 1995 1994 ------ ---- ---- Current Assets: Cash & temporary cash investments................................. $ 22,957 $ 26,109 Restricted cash................................................... 10,449 17,266 Trade accounts receivable, net of reserves of $6,908 and $7,696... 69,038 65,332 Inventories....................................................... 64,565 68,249 Other current assets.............................................. 4,344 5,603 -------- -------- Total current assets.......................................... 171,353 182,559 Properties & Equipment, net........................................... 64,283 59,924 Cost in Excess of Net Tangible Assets Acquired, net................... 10,874 11,281 Other Assets.......................................................... 2,449 3,293 -------- -------- $248,959 $257,057 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term debt and current maturities of long-term debt........... $ 35,907 $ 43,065 Trade accounts payable............................................. 17,112 17,705 Prepetition liabilities subject to compromise...................... 31,209 32,868 Accrued expenses................................................... 60,927 64,675 -------- -------- Total current liabilities..................................... 145,155 158,313 Long-Term Debt........................................................ 81,696 83,021 Postretirement Benefits............................................... 39,409 40,353 Other Liabilities..................................................... 15,537 14,067 Deferred Income Taxes................................................. 1,620 882 -------- -------- Total liabilities............................................. 283,417 296,636 Shareholders' Equity (Deficit): Common stock, $1 par value, 50,000,000 shares authorized; 7,136,652 and 7,129,626 shares outstanding........ 7,186 7,186 Additional capital................................................ 78,965 78,936 Accumulated deficit............................................... (114,581) (119,470) Foreign currency translation adjustments.......................... (5,978) (6,174) Treasury stock.................................................... (50) (57) -------- -------- Total shareholders' deficit................................... (34,458) (39,579) -------- -------- $248,959 $257,057 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 17 ELJER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
1995 1994 1993 -------- -------- -------- Cash Flows From Operating Activities: Net income (loss)..................................... $ 4,889 $(12,224) $ 3,898 Adjustments to reconcile net income (loss) to net..... cash provided by operating activities - Depreciation and amortization..................... 9,360 9,496 11,245 -------- -------- -------- (Gain) loss on disposition of properties and equipment.................................... 11 370 (124) Stock issued as compensation...................... 36 273 180 Increase in deferred taxes........................ 742 - - Change in assets and liabilities - Trade accounts receivable..................... (3,532) (2,165) (745) Inventories................................... 4,104 (7,997) 3,197 Trade accounts payable and accrued expenses... (6,908) 26,582 8,290 Accrued litigation - Kowin Development........ (150) 1,877 (14,021) Postretirement benefits...................... (944) (390) 92 Other assets.................................. 3,212 4,746 (3,165) Other, net.................................... 1,511 3,189 (1,515) Reduction of sale of outstanding trade accounts receivable........................... - (13,000) - -------- -------- -------- Net cash provided by operating activities........ 12,331 10,757 7,332 Cash Flows From Investing Activities: Investment in properties and equipment................ (13,991) (11,511) (7,926) Proceeds from disposition of properties and equipment. 1,082 459 1,936 -------- -------- -------- Net cash used in investing activities............ (12,909) (11,052) (5,990) Cash Flows From Financing Activities: Increase (decrease) in short-term debt................ (4,289) 25,506 (14,481) Repayments of long-term debt.......................... (4,431) (20,818) (816) Proceeds from issuance of long-term debt.............. - - 1,068 Collateralization of letters of credit................ 5,708 (1,639) (5,513) Taxes paid on dividends from foreign subsidiaries..... - - (3,974) -------- -------- -------- Net cash provided by (used in) financing activities (3,012) 3,049 (23,716) -------- -------- -------- Effects of Exchange Rates on Cash......................... 438 (84) (995) -------- -------- -------- Net Increase (Decrease) in Cash & Temporary Cash Investments............................................ (3,152) 2,670 (23,369) Cash & Temporary Cash Investments, Beginning of Period ... 26,109 23,439 46,808 -------- -------- -------- Cash & Temporary Cash Investments, End of Period.......... $ 22,957 $ 26,109 $ 23,439 ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 18 ELJER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands)
Foreign Total Currency Shareholders' Common Additional Accumulated Translation Treasury Equity Stock Capital Defici Adjustments Stock (Deficit) --------- --------- --------- --------- --------- --------- Balance at yearend 1992 ...... $ 7,186 $ 78,544 $(111,144) $ (5,433) $ (118) $ (30,965) Shares issued to directors/ employees ............... -- 156 -- -- 24 180 --------- --------- --------- --------- --------- --------- Foreign currency translation adjustments . -- -- -- (3,233) -- (3,233) Net income ................ -- -- 3,898 -- -- 3,898 --------- --------- --------- --------- ---------- --------- Balance at yearend 1993 ...... 7,186 78,700 (107,246) (8,666) (94) (30,120) Shares issued to directors/ employees ............... -- 236 -- -- 37 273 Foreign currency translation adjustments . -- -- -- 2,492 -- 2,492 Net loss .................. -- -- (12,224) -- -- (12,224) --------- --------- --------- --------- ---------- --------- Balance at yearend 1994 ...... 7,186 78,936 (119,470) (6,174) (57) (39,579) Shares issued to directors/ -- 29 -- -- 7 36 employees Foreign currency translation adjustments . -- -- -- 196 -- 196 Net income ................ -- -- 4,889 -- -- 4,889 --------- --------- -------- --------- ---------- --------- Balance at yearend 1995 ...... $ 7,186 $ 78,965 $(114,581) $ (5,978) $ (50) $ (34,458) ========= ========= ========= ========= ========== =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 19 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Consolidation The Consolidated Financial Statements include the assets, liabilities, revenues and expenses of Eljer Industries, Inc., a Delaware corporation, and all wholly-owned subsidiaries ("Eljer Industries" or, together with its subsidiaries, the "Company"). Prior to April 14, 1989 (the "Distribution Date"), the entities now comprising Eljer Industries were subsidiaries and divisions of Household Manufacturing, Inc. ("HMI") or Household Manufacturing, Limited, wholly-owned subsidiaries of Household International, Inc. ("Household"). The Company operates in a single business segment -- the manufacturing and marketing of building products for commercial and residential construction and remodeling. All significant intercompany accounts and transactions have been eliminated. Use of Estimates Generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and in some cases, including the contingencies discussed in Note 13, the differences could be material. Fiscal Year The Company reports on a 52-53 week fiscal year ending on the Sunday nearest to December 31. Fiscal years 1995, 1994 and 1993 each had 52 weeks and ended on December 31, 1995, January 1, 1995 and January 2, 1994, respectively. Temporary Cash Investments Temporary cash investments are primarily bank deposits, commercial paper, treasury bills and bankers' acceptances, with original maturities of three months or less. These investments are carried at cost, which approximates market. Restricted Cash Restricted cash is comprised of insurance reimbursements and funds securing letters of credit which are legally restricted as to use. The restricted funds are either related to current liabilities or the Company anticipates that the funds will become unrestricted within a 12-month period. Inventories Inventories are stated at the lower of cost or market and include the appropriate elements of material, labor and manufacturing overhead expenses. Cost is determined using the last-in, first-out ("LIFO") method for substantially all domestic inventories and the first-in, first-out ("FIFO") method for all foreign inventories. Properties and Equipment Properties and equipment, including items financed through capital leases, are recorded at cost and depreciated over their estimated useful lives, using principally the straight-line method for financial reporting purposes and accelerated methods for tax reporting purposes. Useful lives range from 20 to 40 years, or lease terms, for buildings and leasehold improvements and from 3 to 12 years, or lease terms, for machinery, fixtures and equipment. Impairment of Long-Lived Assets The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", effective for financial statements issued for fiscal years beginning after December 15, 1995. In accordance with SFAS No. 121, in the event that facts and circumstances indicate that the carrying amount of an asset may not be recoverable, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine 20 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) if a write-down to market value or discounted cash flow is required. Current facts and circumstances do not indicate that an impairment has occurred. Fair Value of Financial Instruments SFAS No. 107, "Disclosure about Fair Value of Financial Instruments", requires the disclosure of the fair market value of off- and on-balance-sheet financial instruments. The carrying value of all financial instruments, including long-term and short-term debt, cash and temporary cash investments and restricted cash, approximates their fair value at yearend. Cost of Businesses Acquired Cost in excess of net tangible assets acquired ("goodwill") is amortized using the straight-line method over 40 years. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. When factors indicate that goodwill should be evaluated for possible impairment, the Company uses an estimate of the related operating income over the remaining life of the goodwill in measuring whether the goodwill is recoverable. The amortization recorded for 1995, 1994 and 1993 was $433,000, $433,000 and $443,000, respectively. The amount of accumulated amortization was $6.5 million and $6.0 million at the end of 1995 and 1994, respectively. Revenue Recognition The Company recognizes revenues from the sale of products at the time the products are shipped. Concentrations of Credit Risk Financial instruments which potentially expose the Company to concentrations of credit risk, as defined by SFAS No. 105, "Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk", consist primarily of trade accounts receivable and temporary cash investments. The Company's customer base for plumbing products consists of plumbing wholesalers and retail chains and outlets primarily in North America. Heating, ventilating and air conditioning products are sold primarily to regional distributors, as well as through retail channels of distribution in the United States, Canada and Europe. As of December 31, 1995, the Company had $10.9 million in receivables with two customers, which represent 16% of the Company's trade accounts receivable (net of reserves) balance. The Company performs ongoing credit evaluations of its customers' financial condition but does not require collateral to support customer receivables. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Although the Company is directly affected by the well-being of the construction and remodeling and repair industries, and the North American and European economies in general, management does not believe significant credit risk exists at the end of 1995. The Company places its temporary cash investments with financial institutions it considers creditworthy, and does not believe significant credit risk exists with respect to these securities at the end of 1995. Financial Instruments with Off-Balance Sheet Risks The Company selectively uses derivative financial instruments to manage its exposure to foreign currency volatility at the transactional level. At December 31, 1995, the Company had one outstanding forward exchange contract for $483,000 and there were no outstanding contracts at January 1, 1995. These contracts relate to major currencies, such as the British pound sterling and German deutsche mark. The exposure to credit risk is minimal since the counter parties are major financial institutions. The market risk exposure is essentially limited to currency rate movements. The gains or losses arising from these financial instruments are used to offset exchange gains and losses on related hedge exposures. Realized and unrealized gains or losses from derivatives in 1995 and 1994 were not material to the Company's results of operations. 21 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Foreign Currency Translation The Company has foreign subsidiaries operating primarily in Canada, the United Kingdom and Germany. Assets and liabilities of the foreign subsidiaries are translated into United States dollars at the exchange rate prevailing at the balance sheet date. Revenue and expense accounts for these subsidiaries are translated using the weighted average exchange rate during the period. These translation methods give rise to cumulative foreign currency translation adjustments which are a component of Shareholders' Equity. In 1995, 1994 and 1993, the Company also had net foreign currency transaction gains (losses) which approximated $(767,000), $78,000 and $(120,000), respectively, and which are included in Other Expense, net. Environmental Matters The Company records a liability for environmental matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. With the exception of applicable amounts representing current liabilities, these amounts are recorded as Other Liabilities. The amounts recorded represent the estimated costs of remediation. The Company does not discount environmental liabilities for a specific clean-up site to reflect the time value of money unless the aggregate amount of the obligation and the amount and timing of the cash payments for that site are fixed or reliably determined. The litigation expenses relating to environmental matters are accrued separately as incurred. At the time a liability is recorded, amounts recoverable from third parties, if any, would be recorded as an asset. When required, the Company may make capital improvements to establish or maintain compliance with environmental regulations. Such capital expenditures would be subject to the same accounting policies as all other Properties and Equipment. The costs associated with investigation and assessment of environmental compliance are expensed as incurred. See Note 13 for discussion of Environmental Matters. Prior Year Reclassifications Certain reclassifications to the prior years' financial statements have been made to conform to the 1995 presentation. (2) BANKRUPTCY OF UNITED STATES BRASS CORPORATION: On May 23, 1994, (the "Petition Date") the Company's indirect, wholly-owned subsidiary, United States Brass Corporation ("U.S. Brass") filed a voluntary petition for reorganization under Chapter 11 of the Federal Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Eastern District of Texas (the "Bankruptcy Court"). The purpose of the filing is to resolve systematically the issues resulting from the Qest polybutylene plumbing systems (the "System" or the "Qest system") and related litigation and to seek confirmation of a plan of reorganization (the "Plan") which, among other things, provides for the payment, satisfaction and discharge of all claims against U.S. Brass involving the Qest system. U.S. Brass is conducting its business and managing its properties as a debtor-in-possession under Section 1108 of the Bankruptcy Code subject to the supervision and orders of the Bankruptcy Court. Qest System Litigation Since 1975, U.S. Brass or its predecessor Qest Products, Inc. has manufactured and sold Qest systems. U.S. Brass is a defendant (together in some cases with Eljer Industries, Eljer Manufacturing, Inc. ("Eljer Manufacturing"), Qest Products , Inc. and Household), in a number of lawsuits arising out of the manufacture and sale of the Qest system. Eljer Industries or Eljer Manufacturing has never engaged in the manufacture and sale of the Qest system. Other defendants in the Qest system lawsuits are Shell Chemical Company ("Shell Chemical"), a subsidiary of Shell Oil Company, the manufacturer of polybutylene resin from which U.S. Brass extrudes the pipe used in the System, Celanese Specialty Resins ("Celanese"), a unit of Hoechst Celanese Corporation ("Hoechst Celanese") and the manufacturer of a resin from which U.S. Brass molded the Celcon acetal fittings formerly used in the System, other pipe and fittings manufacturers, and builders, developers and plumbing contractors. These lawsuits allege that the Qest system leaked and seek recovery based on negligence, breach of warranty, strict tort liability and, in some cases, fraud or misrepresentation. 22 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) As of the Petition Date, U.S. Brass had judgments against it related to these lawsuits of approximately $3.2 million, which were covered by previously established accruals. These accruals remain at the end of 1995 since all Qest system litigation against U.S. Brass has been stayed pending the outcome of the bankruptcy proceeding. U.S. Brass does not know how many Qest systems exist because it sells components of its Qest system to wholesalers and distributors who sell to contractors. The contractors use Qest system components, alone or mixed with components manufactured by others, to construct plumbing systems in homes and other buildings. Similarly, data is not currently available to permit U.S. Brass to estimate accurately the number of installations that have failed or the number of claims regarding installations that have been settled to date. Settlements have been entered into by a number of parties, including U.S. Brass. However, U.S. Brass does not have access to all of the settlement data. Through the Petition Date, approximately 109 Qest system lawsuits involving approximately 30,000 residential claims, remained pending, not including purported class members in certain class action lawsuits pending in Arizona, California and Nevada. Through this same period, U.S. Brass had paid approximately $63 million in settlements related to its Qest system of which approximately $50 million has been reimbursed by the Company's primary and excess insurance carriers. Some of the insurance reimbursements made to U.S. Brass have been paid under a reservation of rights (see Insurance Coverage below). Between 1988 and July 1991, U.S. Brass, Shell Chemical and Hoechst Celanese participated in a toll-free consumer hotline for homeowners with Qest system claims. U.S. Brass, Shell Chemical and Hoechst Celanese shared the cost of repairs and replacements (the "Sharing Agreement") until July 1991 when U.S. Brass withdrew its participation. Shell Chemical and Hoechst Celanese have settled and continue to settle cases and repair or replace Qest systems for which they contend that U.S. Brass was or is partially responsible under the Sharing Agreement. Shell Chemical and Hoechst Celanese no longer provide U.S. Brass or the Company with information on the amount they claim they have expended on settlement of claims on behalf of U.S. Brass under the Sharing Agreement. The previously reported litigation filed by Hoechst Celanese and Shell Chemical in New Jersey state court against U.S. Brass, Eljer Manufacturing and Household relating to the Qest system and the Sharing Agreement remains pending in the Bankruptcy Court on a motion by Shell Chemical and Hoechst Celanese to sever the claims against Household and remand the Household claims back to New Jersey state court. Any claims arising out of the Sharing Agreement and claims brought in the New Jersey state court against U.S. Brass and Eljer Manufacturing would be resolved in connection with the proposed settlement discussed below (see Status of U.S. Brass Bankruptcy Proceeding). As discussed above, an estimate of additional liability related to Qest system litigation cannot be made. However, as a result of the uncertainties related to the availability of insurance coverage and the ultimate outcome of the bankruptcy proceeding, U.S. Brass recorded a $21.9 million unusual charge against earnings in 1994 which reduced its net book value to zero. In 1995, U.S. Brass recorded an unusual gain of $676,000 to maintain its net book value at zero. U.S. Brass incurred a net loss in 1995 as a direct result of $2.1 million in legal fees associated with the bankruptcy. Additional descriptions of the insurance coverage, the U.S. Brass bankruptcy and its potential impact on the Company are discussed below. Insurance Coverage Although insurance carriers have paid a substantial portion of the claims made to date by U.S. Brass, since 1985 the Company has been involved in litigation with its insurance carriers concerning coverage for Qest system litigation. In 1992, the United States Court of Appeals for the Seventh Circuit issued an opinion holding that the policy period of coverage of a Qest system claim is triggered by the date of installation of the System as opposed to the date when the leak occurs. The 1992 favorable decision is significant because most of the Company's insurance policies purchased after 1987 generally exclude coverage for certain Qest system claims. However, significant insurance coverage litigation remains pending and the Seventh Circuit opinion is not necessarily binding on all insurance carriers issuing coverage to the Company. In addition, some reimbursement of insurance payments may be ultimately required for payments made under reservations of rights, retrospective premium adjustments or indemnification agreements. An estimate of this amount cannot be made as it is dependent on the outcome of the litigation described below. Various insurance carriers filed state court actions seeking declaratory relief that they are not obligated to provide insurance coverage for Qest system litigation. These actions were removed to the Bankruptcy Court for the Northern District of Illinois (the "Illinois Bankruptcy Court"). Although the Illinois Bankruptcy Court denied U.S. Brass' motion to transfer venue to the U.S. District Court for the Eastern District of Texas and granted the insurer's motion 23 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) to abstain from hearing the case and to remand to the state courts, the Illinois Bankruptcy Court has suspended the operation of the remand order pending the resolution of the appeal filed by U.S. Brass. The U.S. District Court for the Eastern District of Texas has not ruled on U.S. Brass' appeal from the dismissal of an adversary action filed by U.S. Brass in the Bankruptcy Court against all insurance companies involved in the Illinois state court actions as well as one additional carrier. Because this litigation is in the early stages and because it is not possible to predict the outcome of its appeals, it is not possible to estimate the amount of insurance proceeds, if any, that U.S. Brass will ultimately recover for Qest system claims. Other Litigation U.S. Brass filed an appeal with the United States Court of Appeals for the Tenth Circuit of the $1.2 million judgment against U.S. Brass entered in 1993 involving a modified crimping tool used in the installation of the Qest system. In November 1995, the plaintiffs and U.S. Brass agreed to settle the litigation and the appeal. The plaintiffs will receive an allowed general unsecured claim in the amount of $900,000 which will be paid in accordance with the provisions of the Plan. The settlement is subject to Bankruptcy Court approval. Status of U.S. Brass Bankruptcy Proceeding The filing of its voluntary Chapter 11 petition acted as an automatic stay of certain litigation and other actions against U.S. Brass or its property. Among other things, the automatic stay applies to the commencement or continuation of federal, administrative or other actions or proceedings against U.S. Brass that were or could have been commenced before the Chapter 11 case was filed or to recover a claim against U.S. Brass that arose before the case was filed. Consequently, U.S. Brass' creditors are prohibited from attempting to collect prepetition debts without the consent of the Bankruptcy Court. Any creditor may seek relief from the stay by making a motion to the Bankruptcy Court. U.S. Brass believes the automatic stay extends also to claims made in those lawsuits filed against Eljer Industries, Eljer Manufacturing and Household, based upon alter ego and related theories of liability (see Claims Against the Company discussion below). U.S. Brass contends that under bankruptcy law, such claims are property of U.S. Brass by reason of its Chapter 11 filing. On March 22, 1995, Eljer Industries, Eljer Manufacturing, and U.S. Brass filed with the Bankruptcy Court a proposed Plan for U.S. Brass under Chapter 11 of the Bankruptcy Code. The Bankruptcy Court rejected the March 22 Plan on the basis that it was not confirmable. Eljer Industries, Eljer Manufacturing and U.S. Brass have appealed the ruling and the appeal is pending. Eljer Industries, Eljer Manufacturing and U.S. Brass filed with the Bankruptcy Court an Amended Plan of Reorganization (the "Amended Brass Plan") and an Amended Disclosure Statement (the "Amended Brass Disclosure Statement"). The Amended Brass Plan contains proposed settlements with Eljer Industries, Eljer Manufacturing and Shell Chemical. A hearing was held on objections filed by various parties to the Amended Brass Disclosure Statement on August 22, 1995. The Bankruptcy Court has given no indication of when it will rule on the objections. The Official Polybutylene Claimants Committee (the "PB Committee") in the U.S. Brass Bankruptcy has filed a proposed plan of reorganization and proposed disclosure statement (the "PB Committee Disclosure Statement"). A hearing was held on June 20, 1995, by the Bankruptcy Court on objections filed by various parties to the PB Committee Disclosure Statement, but the Bankruptcy Court has given no indication of when it will rule on those objections. In connection with settlements reached by various parties in two national class actions dealing with polybutylene plumbing systems, Tina Cox et al. v. Shell Oil Company et al., and Garria Spencer, et al. v. Shell Oil Company, et al. (the "Cox-Spencer Agreement"), Eljer Industries, Eljer Manufacturing and U.S. Brass entered into a tentative settlement contingent upon confirming a plan of reorganization in the U.S. Brass bankruptcy embodying the terms of the tentative settlement and finalization of an agreement with the parties to the Cox-Spencer Agreement. The tentative settlement provides that Eljer Manufacturing and U.S. Brass will contribute an amount equal to any proceeds of their insurance policies; the Company will contribute 75 percent of the net proceeds of the Household litigation (subject to approval of the Company's bank group); $3 million in cash; a non-interest bearing note for $20 million payable over 10 years; and 17.5 percent of the equity of Eljer Industries in exchange for which Eljer Industries, Eljer Manufacturing and U.S. Brass will receive relief satisfactory to them from claims arising from polybutylene sales to date and U.S. Brass will remain an indirect, wholly-owned subsidiary of Eljer Industries. The Company has provided to the PB Committee, Shell Chemical and Hoechst Celanese a term sheet for a proposed second amended Plan which would include the terms of the tentative settlement discussed above. Although discussions concerning 24 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) the term sheet have taken place, no final agreements have been reached and the second amended Plan has not been filed. The timing or likelihood of approval of such a second amended Plan can not be predicted. The Company believes it has previously made adequate accruals for the terms of this settlement. Until a second amended Plan is filed, the Amended Brass Plan discussed above, remains pending with the Bankruptcy Court. If the tentative settlement reached in connection with the Cox-Spencer Agreement does not result in a confirmed Plan of Reorganization in the U.S. Brass bankruptcy on the terms described above, it is not presently possible to predict the outcome of the U.S. Brass bankruptcy. While under the tentative settlement Eljer Industries, Eljer Manufacturing, and U.S. Brass would contribute various assets with known and unknown value and U.S. Brass would remain a wholly-owned subsidiary of Eljer Manufacturing, if the tentative settlement does not result in a confirmed Plan of Reorganization, it is not presently possible to estimate the ultimate number or dollar value of Qest system claims that may be filed and allowed in the bankruptcy case (see discussion of Claims Filed in the U.S. Brass Bankruptcy Proceeding below). In addition, because of the uncertainties related to the insurance litigation, it is not presently possible to estimate the value of the assets that may be available to satisfy any claims that may be filed and allowed, absent finalization of the tentative settlement. There is a possibility that, if the tentative settlement is not finalized, the Company would lose all or some of its equity interest in U.S. Brass if the Bankruptcy Court does not determine that claimants will receive 100% satisfaction of their allowed claims. In the event the Company loses all or some of its equity interest in U.S. Brass, the Company might be able to repurchase its equity interest in U.S. Brass through the payment of additional consideration, although there can be no assurances that other bidders for U.S. Brass would not emerge or that the Company would have sufficient resources with which to pay for U.S. Brass. Accordingly, the resolution of the U.S. Brass bankruptcy could involve the Company losing its control over U.S. Brass. The possibility also exists that settlement of claims against the Company (see Claims Against the Company discussion below) could, among other things, result in a change in the Company's equity structure. These matters create a substantial doubt about the Company's ability to continue as a going concern in its present consolidated form. Claims Filed in the U.S. Brass Bankruptcy Proceeding In a bankruptcy proceeding, the Bankruptcy Court establishes a date by which all claims against the debtor must be filed (the "Bar Date"). The Bar Date for non-Qest system creditors of U.S. Brass was May 15, 1995. U.S. Brass or other parties may seek extensions of this Bar Date. Under the proposed Plan, there is no Bar Date for creditors who hold claims relating to the Qest system. As of February 15, 1996, approximately 1,500 claims had been filed with the Bankruptcy Court, asserting the aggregate amount of approximately $2.1 billion, consisting primarily of alleged Qest system related damages. Additional claims may be filed. Many claims are disputed or based on contingencies that have not occurred. Additional claims have been made which do not specify the amount of damages. Any party to the bankruptcy, including U.S. Brass, may object to a filed claim. Following such an objection, the claim will be allowed only in an amount as determined by the Bankruptcy Court. U.S. Brass has not yet reviewed all of the claims filed, but expects that it will file objections to many of the claims. The outcome of such objections cannot be predicted and the number or value of claims that may be allowed by the Bankruptcy Court cannot be estimated at this time. As discussed above, an estimate of additional liability related to Qest system litigation cannot be made. Claims Against The Company Certain parties have alleged that claims exist against Eljer Manufacturing and Eljer Industries relating to the Qest system. Approximately 54 lawsuits representing approximately 30,000 homes have been filed in state or federal courts in 8 different states that name Eljer Industries and/or Eljer Manufacturing (or its predecessor HMI), in addition to other parties, as defendants. These claims include allegations of direct and alter ego liability. It is not known what effect the Cox-Spencer Agreement will have on these lawsuits, although it is expected that some of them may be dismissed following finalization of the Cox-Spencer Agreement. The Company does not believe that these claims have merit and will vigorously defend such charges, although no assurances can be given that the Company will prevail if such lawsuits are ultimately tried. As such, the Company cannot estimate the amount, if any, for which it may ultimately be liable. The tentative settlement entered into by the Company described above contemplates the contribution of cash, a note, the proceeds of certain litigation and 17.5% of the equity of the Company to settle such claims against Eljer Manufacturing and Eljer Industries and to retain ownership of U.S. Brass. However, no assurances can be given that the tentative settlement will become a final agreement nor can estimates be given as to the value of any additional consideration that might ultimately be offered in an attempt to settle those claims. If the 25 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Company is not successful in resolving these claims in the U.S. Brass bankruptcy proceeding, it will be required to litigate those claims in the forums in which they may be brought. Selected Financial Data Under the Bankruptcy Code, claims against U.S. Brass that were or could have been commenced prior to the Petition Date are stayed while U.S. Brass continues business operations as a debtor-in-possession. Certain of these claims are reflected as Prepetition liabilities subject to compromise on the Consolidated Balance Sheets. Additional claims (liabilities subject to compromise) may arise subsequent to the Petition Date resulting from rejection of executory contracts or unexpired leases, and from the determination by the Bankruptcy Court, or from the agreement of parties in interest, to allow claims for contingencies and other disputed amounts. U.S. Brass will continue to evaluate the claims filed in the bankruptcy proceeding and may make adjustments in Prepetition liabilities subject to compromise. U.S. Brass received approval from the Bankruptcy Court to pay or otherwise honor certain of its prepetition obligations, including its secured working capital facility, employee wages, commissions, sales incentive programs, existing product warranties and outstanding checks. U.S. Brass participates in various intercompany transactions with its parent, Eljer Manufacturing and an affiliated Canadian company and, at the end of 1995, U.S. Brass had a net affiliate receivable of approximately $2.2 million. Selected financial data for U.S. Brass are as follows (in thousands):
For the Fiscal Year Ended December January January 31,1995 1, 1995 2, 1994 -------- -------- ------- Net Sales to Nonaffiliate Customers..................... $78,060 $83,214 $74,080 Sales to Affiliates..................................... 18,838 16,740 16,688 Reorganization Expenses ................................ 2,050 2,776 -- Income from Operations Before Unusual Items............. 794 1,377 5,457 Income (Loss) from Operations........................... 1,470 (20,480) 5,457 Income (Loss) Before Income Taxes....................... -- (21,628) 4,191 Net Income (Loss)....................................... -- (21,801) 2,472 Cash (Used in) Provided by Operating Activities......... (59) (2,239) 9,131 Cash Used in Investing Activities....................... (1,485) (2,341) (994) Cash Provided by (Used in) Financing Activities......... 2,466 3,708 (6,767) Total Cash Flow......................................... 922 (872) 1,370
As of December As of January 31, 1995 1, 1995 -------------- ------------- Total Current Assets.................................... 36,826 35,966 Total Assets............................................ 53,210 52,725 Total Liabilities....................................... 53,210 52,725 Total Shareholders' Equity.............................. -- --
Cash payments of reorganization items made since the Petition Date and during 1995 are $2.1 million and $2.0 million, respectively. (3) LIQUIDITY AND CAPITAL RESOURCES: Financing Agreements On October 17, 1994, Eljer Manufacturing entered into a revolving credit facility (the "Revolver") with Congress Financial Corp. ("Congress"). Under the terms of the Revolver, Congress may advance up to $35 million to Eljer Manufacturing based upon a percentage of eligible accounts receivable and subject to certain criteria. Advances by Congress are secured primarily by the accounts receivable of Eljer Manufacturing. The expiration date of the Revolver is October 17, 1997. The Revolver may be renewed annually thereafter. Approximately $13.0 million of the borrowings from the Revolver was used to repay all amounts outstanding under the Company's prior accounts receivable sale program. An additional $7.5 million of the borrowings was used to repay a portion of the Company's 26 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) U.S. term debt agreement (the "U.S. Term Debt") pursuant to an amendment which allowed Eljer Manufacturing to enter into the Revolver. Eljer Manufacturing also was required to accelerate a $4.0 million principal repayment of U.S. Term Debt which was originally scheduled for December 30, 1994. In August 1995, the Company again amended its U.S. Term Debt agreement to extend the maturity date to January 31, 1997. Under the terms of the amendment, a $3.0 million principal payment was made in August 1995 in addition to a $200,000 extension fee. Scheduled principal payments are $2.0 million in January 1996, $3.0 million in August 1996 and $3.0 million in December 1996, with the balance of $67.5 million due at the maturity date of January 31, 1997. The $3.0 million December 1996 principal payment may be accelerated to April 1996 if certain conditions related to the U.S. Brass bankruptcy are not met. The U.S. Term Debt balance at the end of 1995 and 1994 was $75.5 million and $78.5 million, respectively. The interest rate under the U.S. Term Debt was the prime rate, plus a margin of 4.0% (or 12.5%) at the end of 1995 and will be increased by 0.5% at six month intervals to maturity. The Company intends to explore some manner of debt restructuring or extension of existing debt prior to the January 1997 U.S. Term Debt maturity date. Neither the Company nor any of its subsidiaries has any commitment with respect to restructuring or other sources of financing or extension of existing debt and there can be no assurance that any such commitment or extension can be obtained prior to the U.S. Term Debt maturity date. Failure to obtain such a commitment or extension or failure to pay the term debt when due would constitute an event of default thereunder, and would give the lenders the right, if they elect to do so, to foreclose on the collateral which constitutes essentially all the domestic assets of the Company (except that pledged under the Revolver and assets of U.S. Brass), including a majority of the stock of its foreign subsidiaries. Failure to pay the U.S. Term Debt when due would also be an event of default under the Revolver. U.S. Brass As discussed extensively in Note 2, on May 23, 1994, U.S. Brass filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. On June 28, 1994, U.S. Brass entered into a debtor-in-possession financing agreement ("the DIP Financing Agreement") with Congress, who had provided secured financing for working capital purposes prior to the Petition Date. Pursuant to the DIP Financing Agreement, Congress agreed to provide loans and advances in an amount not to exceed $20 million when added to the outstanding amount of advances made by Congress prior to the Petition Date. At yearend 1995, the outstanding principal amount of such advances was approximately $10.3 million. Unused availability was approximately $3.3 million with an additional $2.5 million available for professional fees, payment of which is subject to Bankruptcy Court approval. The DIP Financing Agreement expires June 1996. If U.S. Brass has not exited Chapter 11 prior to that time, U.S. Brass will seek an extension of its existing DIP Financing Agreement, with Bankruptcy Court approval. Congress has indicated its intent to extend the DIP Financing Agreement for an additional year, subject to approval by the Bankruptcy Court. There can be no assurance that such an extension will be granted. Restricted Cash Restricted cash relates to cash that is legally restricted as to its use. At yearend 1995 and 1994, the Company had several components of restricted cash. At the end of 1995 and 1994, approximately $6.0 million of the restricted cash balance relates to the reimbursement, from an insurance carrier under a reservation of rights, of certain settlement and litigation payments previously made by or on behalf of U.S. Brass. The cash is restricted as to its use by the U.S. Term Debt and is only to be used for the payment of settlements, judgments, appeal bonds and deposits, attorneys' fees, and related expenses in the Qest system and other litigation. In addition, the Company maintained restricted cash balances of approximately $4.5 million and $11.3 million at yearend 1995 and 1994, respectively, to secure letters of credit. 27 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (4) INVENTORIES: Inventories consisted of the following (in thousands):
1995 1994 ------- ------- Finished goods....................................... $32,887 $35,105 Work in process...................................... 9,201 9,617 Raw materials........................................ 22,477 23,527 ------- ------- Total inventories................................ $64,565 $68,249 ======= =======
Included in finished goods, work in process and raw materials are inventories valued on the LIFO method of $52.3 million and $57.6 million at the end of 1995 and 1994, respectively. If inventories valued on the LIFO method had been valued at their current cost, they would have been $14.2 million and $10.2 million higher at the end of 1995 and 1994, respectively. In 1995 and 1994, costs of goods sold was increased by $4.0 million and $1.8 million, respectively, as a result of using the LIFO method as compared to using the current cost. During 1993, costs of goods sold was decreased approximately $724,000, as a result of using the LIFO method. In 1995 and 1993, certain LIFO inventory quantities were reduced, which resulted in a liquidation of LIFO inventory layers carried at lower costs which prevailed in prior years. The effect of the liquidations was to decrease cost of goods sold approximately $393,000 and $732,000 in 1995 and 1993, respectively. (5) PROPERTIES AND EQUIPMENT: Properties and equipment, net, consisted of assets owned and leased under capital lease arrangements and were as follows (in thousands):
1995 1994 --------- --------- Land ............................................. $ 3,417 $ 3,417 Buildings and leasehold improvements ............. 37,340 36,419 Machinery, fixtures and equipment ................ 132,303 121,416 Accumulated depreciation and amortization ........ (108,777) (101,328) --------- --------- Properties and equipment, net ................ $ 64,283 $ 59,924 ========= =========
(6) ACCRUED EXPENSES: Accrued expenses consisted of the following (in thousands):
1995 1994 ------- ------- Accrued income taxes ............................... $ 6,640 $ 6,779 Accrued payroll and employee benefits .............. 12,088 14,155 Insurance related accruals ......................... 13,339 12,971 Litigation and related reserves .................... 12,074 9,638 Accrued rebates .................................... 6,640 8,428 Other current liabilities .......................... 10,146 12,704 ------- ------- Total accrued expenses ......................... $60,927 $64,675 ======= =======
28 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (7) DEBT: Short-Term Facilities Eljer Manufacturing entered into the Revolver with Congress during 1994, for up to $35 million based upon a percentage of accounts receivable, subject to certain criteria. The expiration date of the Revolver is October 17, 1997. The Revolver requires maintenance of various covenants related to information requests, additional indebtedness, and other non-financial requirements. Eljer Manufacturing was in compliance with all such covenants at yearend 1995. At the end of 1995 and 1994, the outstanding principal amounts of advances were approximately $15.2 million and $22.1 million, respectively, and unused availability at yearend 1995 was approximately $6.8 million. Additional restrictive covenants are placed on the Company if the unused availability amount falls below $3.5 million. Interest is calculated based upon the beginning of the month's prime rate per annum plus an additional 1% unless Eljer Manufacturing elects to convert a portion of the prime rate loans to Eurodollar rate loans, which have an interest rate of LIBOR plus an additional 3%. Yearend 1995 interest rates were approximately 8.94% on approximately $15.0 million of Eurodollar rate based loans, and 9.75% on approximately $200,000 of prime rate based loans, while yearend 1994 interest rates were approximately 9.19% on approximately $9.0 million of Eurodollar rate based loans, and 9.5% on approximately $13.1 million of prime rate based loans. As discussed in Notes 2 and 3, on May 23, 1994, U.S. Brass filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code, and on June 28, 1994, entered into the DIP Financing Agreement with Congress for up to $20 million borrowings based on a percentage of accounts receivable and inventories and subject to certain criteria. As security for the financing under the DIP Financing Agreement, which expires in June 1996, the Bankruptcy Court authorized U.S. Brass to grant first priority liens and security interests to Congress over certain present and future accounts receivable and inventory of U.S. Brass generated on and after the Petition Date and certain other assets. The DIP Financing Agreement requires the maintenance of certain financial covenants, including tangible net worth, working capital and capital expenditure requirements. At the end of 1995, U.S. Brass was in compliance with all covenants under the DIP Financing Agreement. The total principal amounts owed by U.S. Brass related to the DIP Financing Agreement at yearend 1995 and 1994 were approximately $10.3 million and $7.9 million, respectively. Interest is calculated based upon the beginning of the month's prime rate per annum plus an additional 2%, or 10.75% and 10.5% at yearend 1995 and 1994, respectively. In addition, $100,000 and $300,000 in facility fees and closing costs were paid in 1995 and 1994, respectively. See Note 3 for additional discussion. The Company's Selkirk subsidiary in the United Kingdom is party to a credit agreement with a bank which includes a revolving credit facility whereby the subsidiary may borrow the British pound sterling or German deutsche mark equivalent of approximately $8.5 million. The revolver, which expires in September 1997, is secured by substantially all the Selkirk subsidiary's assets as defined in the facility agreement between the subsidiary and the bank. Financial covenants are consistent with the long-term U.K. foreign bank term debt discussed below. There were no balances outstanding at yearend 1995 and 1994 under this facility. Commitment fees are calculated at 0.75% per annum payable quarterly and in arrears on any undrawn portion of the revolving credit facility. In addition, the Company's Selkirk subsidiary in Germany had unsecured credit lines with German banks totaling approximately $3.8 million, of which approximately $2.9 million was available at yearend 1995. There are no scheduled expiration dates on these lines; however they are reviewed annually by the banks for renewal. The total amount outstanding related to these credit lines at the end of 1995 and 1994 was approximately $977,000 and $780,000, respectively. Yearend interest rates on debt outstanding ranged from 7.0% to 8.0% in 1995 and 8.5% to 9.5% in 1994. At yearend 1995 and 1994, the weighted average interest rates on outstanding short-term borrowings were approximately 9.6% and 9.7%, respectively. 29 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Long-Term Facilities Long-term debt consisted of the following (in thousands):
1995 1994 ------- ------- Domestic: U.S. Term Debt, secured ................................... $75,513 $78,513 Industrial revenue bonds, secured by letters of credit and certain fixed assets of the Company, bearing interest at varying rates between 6.75% and 14.00% ....................................... 9,698 9,755 Capital lease obligations, secured by letters of credit and certain fixed assets of the Company, bearing interest at 8.50% ............................................... -- 223 Foreign: Bank Term Debt, secured ................................... 5,883 6,862 ------- ------- Subtotal ...................................................... 91,094 95,353 Less: Current maturities of long-term debt .................... 9,398 12,332 ------- ------- $81,696 $83,021 ======= =======
The Company's U.S. Term Debt and related agreements were amended in August 1995. See Note 3 for discussion. As discussed above, the Company's Selkirk subsidiary in the United Kingdom is party to financing arrangements with a European bank which includes a revolving credit facility (discussed above) and a term debt portion. The term debt matures on June 30, 1999, and provides for scheduled semiannual principal payments. This facility bears interest at varying rates based upon LIBOR plus an additional margin of between 1.5% to 1.75% based upon the ratio of operating cash flows to debt servicing payments. Borrowings are made in either British pounds sterling or German deutsche marks and are secured by substantially all the assets of the Company's subsidiaries in the United Kingdom as defined in the facility agreement. Both the foreign and domestic term debt are subject to certain financial covenants with which the Company was in compliance at yearend 1995. These covenants include tangible net worth, operating cash flow and various other debt service, fixed charge and current ratio requirements. In addition, the Company is restricted by certain covenants from paying shareholder dividends during the term of its U.S. Term Debt. Aggregate maturities of long-term debt and capital lease obligations for each of the next five years and thereafter are as follows (in thousands): 1996................................................. $ 9,398 1997................................................. 69,960 1998................................................. 1,622 1999................................................. 1,414 2000................................................. -- Thereafter........................................... 8,700 ------- Total............................................ $91,094 =======
Cash paid for interest during 1995, 1994 and 1993 was $15.0 million, $14.2 million and $14.2 million, respectively. (8) EMPLOYEE BENEFIT PLANS: Substantially all of the Company's employees are covered under various defined benefit pension plans maintained by the Company and by Household. Plan benefits are based primarily on years of service. Under a Labor and Benefits Agreement between Household and the Company, on March 31, 1989, Household assumed the assets and liabilities in connection with pension plans covering Company employees prior to that date, and Household is 30 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) responsible for all pension benefits accrued as of and prior to that date. All employees became 100% vested in the Household plans at that time. The Company established new employee benefit plans similar to those previously in effect and is responsible for all funding subsequent to March 31, 1989. The Company's funding policy is based on an actuarially determined cost method allowable under Federal tax law. Since Household retained all assets from the previous benefit plans, the Company has incurred pension expense for the new plans since the Distribution Date. The Company's net periodic pension cost includes the following components (in thousands):
1995 1994 1993 ------- ------- ------- Service cost during the period .............. $ 3,053 $ 3,273 $ 2,851 Interest cost on projected benefit obligation 2,076 1,833 1,541 Actual return on plan assets ................ (2,661) 611 (2,252) Net amortization and deferral ............... 1,568 (1,563) 1,507 ------- ------- ------- Net periodic pension cost ............... $ 4,036 $ 4,154 $ 3,647 ======= ======= =======
The projected benefit obligations assumed an annual discount rate of 7.25% (U.S. plans) to 8.5% in 1995 and 8.0% (U.S. plans) to 8.5% in 1994. The annual rate of compensation increase ranged from 4.0% (U.S. plans) to 7.0% in 1995 and 1994. The expected long-term annual rate of return on plan assets, which consists primarily of mutual funds, was 9.0% to 10.0% in 1995, 8.5% to 9.5% in 1994 and 8.5% to 10.0% in 1993. The amortization period for prior service cost is 14 to 18 years, depending on the plan, which approximates the average remaining service period of the employee work force. The funded status of the plans is as follows (in thousands):
1995 1994 -------- -------- Actuarial present value of benefit obligations: Vested benefit obligations ....................... $ 19,480 $ 14,577 ======== ======== Accumulated benefit obligations .................. $ 22,263 $ 16,745 ======== ======== Projected benefit obligations .................... $ 25,420 $ 25,065 Plan assets at fair value ............................ 21,618 18,009 -------- -------- Projected benefit obligations in excess of plan assets 3,802 7,056 Unrecognized net loss ................................ (2,442) (415) Unrecognized prior service cost ...................... (630) (4,302) -------- -------- Pension liability included in accrued expenses ....... $ 730 $ 2,339 ======== ========
During 1995, the Company recognized curtailment gains of $3.3 million resulting from the redesign and amendment of certain domestic retirement plans. The plans were amended effective December 31, 1995, to freeze compensation for benefit purposes at 1995 levels. In addition, benefit service for participants under age 50 as of December 31, 1995, has been frozen; participants age 50 or over continue to accrue service for benefits purposes. All employees affected by the curtailment, including those over 50, will be eligible to receive expanded benefits in the Company's defined contribution plan as of January 1, 1996. The Company's defined contribution plan is available to certain domestic employees in which each participant's contribution is matched in part by the Company up to a maximum of 3% of the participant's compensation. The Company's matching contributions for this plan were approximately $784,000 in 1995, $742,000 in 1994 and $715,000 in 1993. In lieu of pension benefits, beginning in 1996 the Company will also make a contribution on behalf of eligible domestic employees ranging from 2% to 9% of compensation, based on years of service. 31 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (9) OTHER POSTRETIREMENT BENEFITS: The Company sponsors a welfare benefit plan which provides for certain health care and life insurance postretirement benefits to certain retired employees in the United States. Life insurance and comprehensive medical benefits are available to certain active employees who, immediately upon retirement, receive a pension under the Company's retirement plan. Postretirement benefits are also continued for certain former employees who are currently receiving Company pension benefits. Generally, the medical program covers dependents of retirees in addition to former employees. Retiree contributions are required in the case of medical benefits for most retirees and their eligible surviving spouses. The following table sets forth the plan's combined funded status reconciled with the amount shown in the Company's financial statements at the end of 1995 and 1994 (in thousands). Since the Company funds the plan on a "pay-as-you-go" basis, the Company's postretirement health care plan is underfunded.
1995 1994 ------- ------- Accumulated postretirement benefit obligation: Retirees ................................... $24,429 $25,796 Fully eligible active plan participants .... 3,555 3,467 Other active plan participants ............. 4,192 6,323 ------- ------- 32,176 35,586 Plan assets at fair value ...................... -- -- ------- ------- Accumulated postretirement benefit obligation in excess of plan assets ................... 32,176 35,586 Unrecognized actuarial gain .................... 1,167 2,831 Unrecognized prior service cost ................ 6,066 1,936 ------- ------- Accrued postretirement benefit cost ............ $39,409 $40,353 ======= =======
Net periodic postretirement benefit cost for 1995, 1994 and 1993 included the following components (in thousands):
1995 1994 1993 ------- ------- ------- Service cost during the period ............ $ 470 $ 626 $ 462 Interest cost on accumulated postretirement benefit obligation .................... 2,510 2,715 2,900 Amortization of (gains) losses ............ (63) 40 -- Amortization of prior service cost ........ (2,170) (964) (840) ------- ------- ------- Net periodic postretirement benefit cost .. $ 747 $ 2,417 $ 2,522 ======= ======= =======
For measurement purposes, health care cost trend rates for various services varied from 8.5% in 1995, decreasing gradually to 4.5% by 2007, and remain at that level thereafter. Increasing the health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation at the end of 1995 by $4.1 million, and the aggregate of the service and interest cost components of net postretirement health care cost for 1995 by $439,000. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation at the end of 1995 and 1994 was 7.25% and 8.25%, respectively. There were no plan assets at yearend. During 1995, the Company amended certain of its postretirement health care programs, principally to adjust the cost-sharing provisions. The amendments resulted in a reduction of the Company's accumulated postretirement benefit obligation of $6.3 million, which created an unrecognized prior service benefit. The unrecognized prior service benefits are being amortized over three to six years, based on the term of the underlying programs. 32 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (10) SHAREHOLDERS' EQUITY: Common Stock The Company has 50,000,000 shares of $1 par value common stock authorized with 7,186,875 shares issued and 7,136,652 shares outstanding at yearend 1995. Treasury stock totaled 50,223 and 57,249 shares at the end of 1995 and 1994, respectively, and is accounted for under the par value method. Preferred Stock The Company has 10,000,000 shares of $1 par value preferred stock authorized, of which none are issued or outstanding. Stock Rights Pursuant to a Stockholder Rights Plan adopted by the Company on the Distribution Date and amended on July 31, 1989, January 4, 1990 and November 5, 1991, each outstanding share of the Company's common stock carries with it a common stock purchase right (the "Right"). In the event of an acquisition by a person or group of 15% or more of the Company's common stock, each Right (other than Rights owned by the person or group triggering the event, which will become void) will become exercisable to purchase one share of the Company's common stock at 50% of its then market value. The Rights will not become exercisable, however, if the person or group meeting the 15% threshold does so through an all-cash tender offer in which it becomes the owner of at least 80% of the Company's stock. The Rights are subject to adjustment in the event of certain changes in the Company or its common stock, including the merger of the Company with another entity. If the tentative settlement discussed in Note 2 above becomes final, the Company expects to amend its Stockholder Rights Plan to permit the issuance of equity without triggering Rights under the Stockholder Rights Plan. The Rights will expire on May 1, 1999, unless previously exercised or redeemed, or unless the Company extends the expiration date. Stock Options The Company has a Long-Term Executive Incentive Compensation Plan (the "Incentive Plan") whereby awards, including stock options (the "Options"), can be granted to key employees. The Options are exercisable in 25% increments over a four-year period beginning one year after the date of grant. Options are generally granted for a term of no more than ten years and one day from the date of grant. The Options exercise price per share is not less than the fair market value of the Company's common stock at the date of grant. However, certain Options were granted in 1989 to employees in exchange for options for Household common stock which they forfeited as a result of the distribution of the Company's stock to holders of Household's stock in April 1989 (the "spin-off"). These Options have special terms as to exercisability and purchase prices based on the value of the Options forfeited. The following table summarizes the Options activity:
SHARES RANGE OF OPTION PRICES Options outstanding at yearend 1992............... 429,527 $ 8.25 - $28.63 Options granted................................... 106,000 $ 8.13 - $ 8.94 Options forfeited................................. (46,695) $ 8.25 - $14.69 -------- Options outstanding at yearend 1993............... 488,832 $ 8.13 - $28.63 Options granted................................... 140,000 $ 7.13 - $ 7.69 Options forfeited................................. (68,925) $ 7.69 - $28.63 -------- Options outstanding at yearend 1994............... 559,907 $ 7.13 - $28.63 Options granted................................... 112,000 $ 5.88 Options forfeited................................. (86,000) $ 5.88 - $28.63 -------- Options outstanding at yearend 1995 .......... 585,907 $ 5.88 - $28.63 ======== Options exercisable at yearend 1995............... 363,407 ========
33 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) At the Distribution Date, the Company had reserved 500,000 shares of common stock to cover grants under the Incentive Plan. During 1993, 350,000 additional shares were made available. As of the end of 1995 there were 214,688 shares available for grant under the Incentive Plan. Phantom Stock Under a three-year incentive program beginning in 1995, certain key employees of the Company are granted phantom shares of the Company's Common Stock. The value of the phantom shares is a function of the amount, if any, by which the market value of the Company's Common Stock increases during the performance period of approximately three years. The increase in the value of these phantom shares is accrued and expensed over the performance period. During 1995, 338,000 phantom shares were granted to employees and $435,000 was expensed. The related liability was $435,000 at December 31, 1995. (11) INCOME TAXES: Income (Loss) Before Income Taxes and Income Tax (Benefit) Expense in 1995, 1994 and 1993 are shown below (in thousands):
1995 1994 1993 -------- -------- -------- Income (loss) before income taxes: Domestic operations ........... $ 3,212 $(11,286) $ 1,823 Foreign operations ............ 3,543 (1,111) 4,614 -------- -------- -------- Total consolidated ........ $ 6,755 $(12,397) $ 6,437 ======== ======== ======== Income taxes: Domestic operations Current ................... $ 471 $ 750 $ 1,236 Deferred .................. -- -- -- -------- -------- -------- Total domestic ........ $ 471 $ 750 $ 1,236 ======== ======== ======== Foreign operations Current ................... $ (485) $ (923) $ 663 Deferred .................. 738 -- -- -------- -------- -------- Total foreign ......... $ 253 $ (923) $ 663 -------- -------- -------- Total consolidated $ 724 $ (173) $ 1,899 ======== ======== ========
Deferred income taxes reflect the impact of "temporary differences" between amounts of assets and liabilities for financial reporting and tax purposes as measured using enacted tax rates. Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities for 1995 and 1994 are as follows: 34 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Tax Effect (In thousands) 1995 1994 -------- -------- Deferred tax liabilities: Depreciation and amortization ............... $ 6,095 $ 5,738 Inventory ................................... 4,040 3,749 -------- -------- Total deferred tax liabilities .............. 10,135 9,487 -------- -------- Deferred tax assets: Sales and product allowances ................ 2,040 2,332 Self insurance .............................. 8,664 8,702 Litigation and legal ........................ 9,214 9,190 Postretirement and pension benefits ......... 13,336 14,489 EPA ......................................... 4,922 4,461 Net operating loss carryforwards ............ 2,576 209 Other ....................................... 2,722 4,264 -------- -------- Total deferred tax assets ................... 43,474 43,647 Valuation allowance ......................... (34,959) (35,042) -------- -------- Deferred tax assets after valuation allowance 8,515 8,605 -------- -------- Net deferred tax liabilities ..................... $ 1,620 $ 882 ======== ========
At the end of 1995 and 1994, valuation allowances were provided for the net deferred tax assets as required under SFAS No. 109. The valuation allowance decreased approximately $83,000 during 1995 and increased $4.1 million during 1994. In the U.S., the Company has established a full valuation allowance for net deferred tax assets due to the uncertainty of ultimate realization. The Company had a tax basis alternative minimum tax credit carryforward of approximately $1.0 million at yearend 1995, which is available to reduce future federal income taxes and has no expiration. The Company had a net operating loss carryforward of $7.6 million at yearend 1995 for federal income tax purposes which will partially expire in year 2009 and the remainder in year 2010. The difference between the provisions for income taxes and income taxes computed using the statutory federal income tax rate at yearend were as follows (in thousands):
1995 1994 1993 ------- ------- ------- Federal Income Tax Expense (Benefit) at Statutory Rate ........... $ 2,297 $(4,215) $ 2,189 Increase (decrease) resulting from: Effects of valuation allowances on deferred tax assets ...... (1,115) 4,055 674 Excess of expenses for financial reporting purposes over tax basis caused by permanent differences ............... 524 515 418 Effects of alternative minimum tax .......................... -- (202) (606) Foreign tax effects ......................................... (951) (545) (130) Tax effects of distributable earnings in foreign subsidiaries -- -- (776) Other ....................................................... (31) 219 130 ------- ------- ------- Total Income Tax Expense (Benefit) ...................... $ 724 $ (173) $ 1,899 ======= ======= =======
In 1993, the Company provided for $640,000 of tax expense for repatriating those earnings which are no longer considered permanently reinvested in foreign subsidiaries. In accordance with the Company's accounting policy, U.S. deferred taxes have not been provided on approximately $13.3 million of undistributed earnings of foreign subsidiaries at the end of 1995, as the Company intends to reinvest these earnings permanently in the foreign operations or to repatriate such earnings only when to do so would be tax effective. The amount of the unrecognized 35 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) tax liability for these undistributed earnings is not material at the end of 1995 due to the availability of foreign tax credits. Under an agreement with Household, the Company is entitled to the tax deduction, if it can be utilized, associated with certain liabilities which are indemnified by Household. The Company, in turn, contributes an amount equivalent to the tax benefit of such items when paid, regardless of whether the Company is in a tax paying position. An estimate of approximately $16.9 million of the liabilities for which the Company may receive a benefit remain at yearend 1995. The Company's portion of these liabilities at the end of 1995 approximates $6.5 million. These payments would have no impact on the financial results of the Company if it were subject to statutory tax rates; however, an impact did occur due to the Company's alternative minimum tax or taxable loss position in the years presented. A total of $1.7 million, $1.2 million and $1.3 million of such payments were made in 1995, 1994 and 1993, respectively. The impact of future payments will be dependent on the tax paying position of the Company. The Company recorded expense of $1.1 million in 1995 which included an estimate of future payments for which the Company will not receive tax benefit. Net cash refunds related to income taxes in 1995 and 1994 were $517,000 and $4.0 million, respectively. Cash paid for income taxes in 1993 was $3.6 million. (12) LEASES: Rental expense under operating leases was $5.6 million, $5.6 million and $6.2 million in 1995, 1994 and 1993, respectively. Future minimum lease commitments under noncancelable operating leases at the end of 1995 were as follows (in thousands): 1996........................................ $ 3,546 1997........................................ 3,076 1998........................................ 2,317 1999........................................ 1,191 2000........................................ 332 Thereafter.................................. 3,900 ------- Total minimum lease commitments......... $14,362 ======= (13) CONTINGENCIES: Qest System Litigation The Company is involved in certain litigation related to Qest polybutylene plumbing systems. See Note 2 for discussion. Environmental Matters The Company operates plants that may generate hazardous and non-hazardous waste, disposal of which is subject to federal and state regulation. The past disposal of hazardous and non-hazardous waste generated at the Company's plants may now be subject to the requirements of the federal Resource Conservation and Recovery Act and comparable state statutes. Several Company facilities have been required to implement programs to remedy the effects of past waste disposal. Not all plants have been the focus of comprehensive environmental studies. Except as described below, the Company is not aware of any instances of noncompliance with currently applicable safety, health and environmental laws and regulations which might have a significant adverse effect on the Company's financial condition or results of operations. With respect to current operating procedures, the Company believes that it is in material compliance with such applicable laws and regulations. The Company has established accruals of approximately $15.1 million at the end of 1995 (see discussion of individual sites provided below) pertaining to environmental, health and safety matters which the Company believes are adequate. Although the timing of the related payments is uncertain, the Company believes that a substantial portion of the payments will be made over the next three years. 36 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Marysville, Ohio, Facility (a) Closure Plan. The Marysville, Ohio, facility operated as a brass foundry and was closed in 1987. The Company has submitted a closure plan for the facility to the Ohio Environmental Protection Agency ("Ohio EPA"). The Company's environmental consultants are working with the Ohio EPA to revise, and obtain final approval of the closure plan. The Company anticipates submittal of the revised closure plan later this year. If approved in its current form, the Company's environmental consultants estimate that the cost of implementing the closure plan, including post-closure care, will be approximately $9.4 million. However, the ultimate cost to complete closure and post-closure activities at the facility will depend to a large extent on the remediation technology ultimately agreed upon by the Ohio EPA. The Company has previously established accruals of $9.4 million which it believes will be adequate to provide for the cost to implement its closure plan. However, there is no assurance that the plan will be approved without making additional revisions or modifications. Although no estimate can be made, in the event the closure plan is not approved, the cost of remediation could have a material impact on the Company's future operating results or financial position. The accrual of $9.4 million at yearend 1995 includes total post-closure costs of $1.4 million discounted over a 20-year period using a discount rate of 5%. The Company's environmental consultants estimate that the annual payments associated with these post-closure costs will be approximately $72,000 per year, over a 20-year period. (b) Financial Assurance. In March 1995, the Company was successful in its efforts to obtain third party liability insurance for the Marysville site. Despite meeting this aspect of financial assurance requirements, the Company received correspondence from the Ohio Attorney General threatening commencement of a lawsuit for failure of the Company to meet the remainder of its financial assurance obligations for the Marysville site as required by Ohio law. On July 7, 1995, the Attorney General informed the Company that it intended to assess a $2.5 million civil penalty for financial assurance violations regarding this site. Although the Company believes it had legitimate defenses to the Attorney General's claims and to the threat of imposition of any fines or penalties, it entered into negotiations with the Attorney General in an effort to avoid the expense and uncertainty of protracted litigation. On October 5, 1995, a settlement was negotiated with the Ohio Attorney General wherein the Company agreed to pay a cash penalty of $750,000, with an additional fine of $500,000 to be suspended pending completion of closure activities at the Marysville site in accordance with a closure plan approved by the Ohio EPA. To meet the Company's remaining financial assurance obligations, the settlement also requires the Company to fund an $8.5 million trust account during 1996 to be used to pay for implementation of the Marysville closure plan. The Company believes it has adequate reserves established to provide for payment of the cash penalty and sufficient cash flow and debt available to fund the trust account. Salem, Ohio, Facility. (a) Closure Plan. The Company submitted a plan for closure of the hazardous waste management unit at its Salem, Ohio, facility to the Ohio EPA on April 30, 1993. Comments received from the Ohio EPA indicate that the closure plan will require modifications. The Company's environmental consultants are currently working on revisions to the closure plan, which may increase the cost to implement the closure plan excluding post-closure care from $1.3 million to $2.0 million. In connection with the anticipated closure plan revisions, the Company also submitted a proposal to the Ohio EPA for the reduction of post-closure care costs at the Salem facility. If accepted by the Ohio EPA, post-closure costs could be reduced from $1.9 million to $1.0 million. 37 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Through 1993, the Company paid $1.6 million to complete an interim closure of the subject area and accruals of approximately $2.5 million for additional closure and post-closure costs expected in future periods were recorded at yearend 1995, which the Company believes are adequate. The yearend 1995 accrual includes total post-closure costs of $1.9 million discounted over a 30-year period using a discount rate of 5%. The Company's environmental consultants estimate that the annual payments associated with these post-closure costs will range from $60,000 to $105,000 per year, over a 30-year period. (b) Financial Assurance. After March 1992 the Company was unable to meet its financial assurance obligations with respect to the Salem site. The U.S. Department of Justice (the "DOJ") sought payment by the Company of a cash penalty of $175,000, with an additional fine of $912,000 to be held in abeyance pending completion of the site closure activities without any further violations of the Company's financial assurance obligations under Ohio law. The Company accepted the DOJ's offer and approved modification of a prior consent decree entered in 1990 relating to these issues. The modified consent decree is currently pending approval by DOJ and entry by the U.S. District Court for the Northern District of Ohio. The Company believes that it currently meets its financial assurance requirements regarding the Salem site and has established accruals for the $175,000 cash penalty. On March 20, 1995, the Ohio EPA notified the Company that the Salem facility was in violation of Ohio's financial assurance laws as a result of the Company calculating its post-closure care estimate based on present value. Although the Company disputes Ohio EPA's contention and believes it has complied with Ohio law, it is currently negotiating the matter with the Ohio EPA and the Ohio Attorney General. The Company intends to resolve this issue prior to the entry of the modified consent decree discussed above. Any reduction of the costs of post- closure care at the Salem site, as discussed above, will directly reduce the Company's financial assurance obligations for post-closure care. (c) Clean Water Act. The Company negotiated a settlement with the DOJ and the U.S. Environmental Protection Agency (the "U.S. EPA") for alleged past violations of the Clean Water Act for unpermitted discharge of wastewater streams at the Salem, Ohio, facility. The settlement called for the payment of a $300,000 cash penalty and performance of certain remedial work at the facility estimated to cost approximately $690,000. On December 8, 1995, a Consent Decree was entered by the U.S. District Court for the Northern District of Ohio, approving the previously negotiated settlement. On January 8, 1996, the Company paid the $300,000 civil penalty. The Company's environmental consultants are currently in the process of initiating implementation of the remedial work at the Salem facility, which the Company anticipates will be completed later this year. The Company has previously established accruals which it believes are adequate to cover these costs. (d) Clear Air Act. On April 11, 1995, the Ohio Attorney General initiated an enforcement action against Eljer Manufacturing's Salem, Ohio, facility for air emissions violations that allegedly occurred in 1989 and 1990. The Attorney General threatened to pursue litigation against the Company to impose a permanent injunction that three identified sources of emissions would remain in compliance with the Ohio Administrative Code, and to recover civil penalties for past emission violations. In October 1995, the Company negotiated a settlement with the Attorney General for the alleged air emission violations. The settlement calls for the payment of a $75,000 cash penalty and entry of a consent decree which requires the Salem, Ohio, facility to maintain compliance over the next two years. On December 8, 1995, a consent decree was entered by the Ohio Court of Common Pleas, and on January 18, 1996, the Company paid the $75,000 cash penalty which was accrued at yearend 1995. 38 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Superfund Sites. The federal Comprehensive Environmental Response, Compensation and Liability Act (commonly referred to as "Superfund" or the "Superfund Act") and similar state laws subject certain parties to liability for the clean-up of contaminated waste treatment or disposal sites. Liability under the Superfund Act is considered "joint and several", meaning that any one responsible party theoretically could be liable for all clean-up costs, which are often substantial. However, the Superfund Act provides for the allocation of liability in an equitable manner among responsible parties and for contribution among them. Certain of the Company's plants may have disposed of waste at sites which have or may become a part of federal Superfund clean-up efforts. Through notifications from the U.S. EPA, the Company believes its total liabilities related to Superfund sites are immaterial (approximately $160,000 at yearend 1995) if liability and contributions are assessed in an equitable manner among all responsible parties. The Company has established accruals which it believes are adequate to provide for any liabilities it may have with respect to these sites. Atlanta, Georgia, Site. In October 1991, Eljer Manufacturing sold a facility located in Atlanta, Georgia, to joint venture partners Toto Ltd., Mitsui & Co., Ltd. and Mitsui & Co. (USA), Inc. ("Toto and Mitsui"). Toto and Mitsui subsequently asserted that Eljer Manufacturing is responsible under the indemnification provisions included in the Purchase and Sale Agreement to remediate alleged contamination at the sold facility. Under the agreement, Eljer Manufacturing's liability for remediation costs is limited to $750,000. Eljer Manufacturing has notified the prior owner of the facility, JP Industries, Inc., ("JP Industries") that it may be liable to Eljer Manufacturing for indemnity under the provisions of Eljer Manufacturing's purchase agreement with JP Industries. Eljer Manufacturing does not believe that any remediation at the Atlanta site is necessary and no estimate of a liability, if any, can be made at this time. In addition, no estimate can be made of the amount, if any, that Eljer Manufacturing may receive from JP Industries. Wilson, North Carolina, Site. In anticipation of the 1994 sale of the Company's Wilson, North Carolina, manufacturing plant, an environmental investigation was performed of that plant. One monitoring well on the property showed the presence of benzene and methylene chloride. This finding was reported to the State of North Carolina and a follow-up investigation was performed. Another well on the property was found to contain trichloroethene, another hazardous substance. Based on the location of the well, the direction of groundwater flow and the Company's understanding that trichloroethene has never been used at the plant, it is presently the Company's belief that any trichloroethene on the property originated from off-site sources. The Company does not believe it is responsible for remediation of any trichloroethene which may be present at the site. However, the Company retains responsibility under the indemnification provisions included in the Purchase and Sale Agreement to remediate benzene and methylene chloride that exceed maximum levels allowed by North Carolina law. The Company continues to await a response to its comprehensive site assessment submitted in March 1994. While the cost to comply with the Company's indemnity obligations is estimated at $509,000 based on the use of traditional remediation methods, the Company hopes to receive approval from the state of North Carolina to pursue alternative remediation methods which would substantially reduce these costs. The Company has established accruals which it believes are adequate to provide for the costs of investigation and remediation, if any. 39 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Proposition 65. Eljer Industries, Eljer Manufacturing, U.S. Brass and approximately 15 other manufacturers and sellers of residential and commercial brass faucets were named as defendants in two lawsuits; one brought by the Attorney General of the State of California and the other by the Natural Resources Defense Council ("NRDC") and the Environmental Law Foundation ("ELF") alleging violations of California's Safe Drinking Water and Toxic Enforcement Act of 1986 ("Proposition 65"). The lawsuits alleged that U.S. Brass and Eljer Manufacturing did not label their faucets in conformity with Proposition 65. The lawsuits further alleged that U.S. Brass and Eljer Manufacturing knowingly discharged or released lead into drinking water in violation of Proposition 65. The discharge and exposure allegedly arose out of leaching of lead into drinking water from leaded brass faucets manufactured by the defendants. Settlements were reached wherein Eljer Manufacturing paid $30,000 to the NRDC and ELF, and U.S. Brass agreed to allow the Attorney General a general, unsecured $30,000 claim in the U.S. Brass bankruptcy. Both settlements call for the dismissal of Eljer Industries as a named defendant. Also, over the course of the next four years Eljer Manufacturing and U.S. Brass will phase out the sale in California of leaded, brass faucets that exceed specified National Sanitation Foundation ("NSF") standards, and, in the interim, warning tags will be placed on faucets that exceed the specified NSF protocol. Under the proposed settlements, neither Eljer Manufacturing nor U.S. Brass has any affirmative obligation to market alternative brass faucets. On October 6, 1995, a motion to approve settlement in the Attorney General's case was granted and a Consent Judgment documenting the settlement terms was entered by the court. On October 24, 1995, NRDC and ELF dismissed their lawsuit against Eljer Manufacturing and U.S. Brass. Insurance. The Company has made claims to its applicable insurance carriers under certain insurance policies for any amounts paid in the past or for which it may become obligated to pay in the future in connection with various environmental matters. The Company cannot predict the amount, if any, of insurance proceeds that may be received as a result of these environmental claims. No receivable from insurance carriers has been recorded related to environmental matters. 40 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Following is a summary of environmental contingencies (in thousands):
Accrual Charge Against Cash Estimated Balance 1995 Paid Contingency Liability @12/31/95 Earnings In 1995 - ----------- ------------ ---------- -------------- --------- Marysville closure & post- closure ............................... $ 9,351 $ 9,351 $ 0 $ 49 Marysville financial assurance ............................. 750 750 750 0 Salem closure, post-closure and financial assurance ................... 2,375 - 2,692 2,692 317 0 Salem Clean Water Act settlement ............................ 990 990 0 0 All other (individually less than $1 million) 568 - 2,072 1,327 366 55 ----------------- ------- ------- ------- Total ................................. $14,034 - $15,855 $15,110 $ 1,433 $ 104 ================= ======= ======= =======
Kowin and Related Litigation On June 10, 1994, the United States Supreme Court denied the petition for certiorari filed by Eljer Manufacturing in the previously disclosed Kowin Development Company ("Kowin") litigation. The litigation resulted from a failed manufacturing joint venture in the People's Republic of China (the "PRC Joint Venture") in which Kowin held a 25% interest. On June 30, 1994, a final judgment was entered and Kowin was paid approximately $11.6 million of the $13.2 million cash bond previously posted by Eljer Manufacturing for this litigation. Approximately $1.6 million of related amounts previously paid, plus interest thereon, was returned to the Company. The amount of the judgment and related costs were included in an extraordinary charge against earnings in 1992. The approximately $1.2 million judgment against Eljer Manufacturing entered in the People's Republic of China and previously disclosed, remains subject to an appeal, but is outstanding and unpaid. Based upon advice of counsel, Eljer Manufacturing continues to believe it has substantial procedural defenses against any effort to enforce this judgment in the United States. Eljer Manufacturing believes its $1.2 million accrual is adequate to provide for any liability ultimately incurred in this matter. Additionally, in 1988, Simonds Industries, Inc. purchased HMI's interest in the PRC Joint Venture and may have liability for a portion of the amount awarded; however, no estimate can be made of the amount, if any, that Eljer Manufacturing may receive from Simonds Industries, Inc. On October 24, 1994, Winston and Dorothy Ko, the owners of Kowin and Croft Investments, Ltd., an affiliate of Kowin in the PRC Joint Venture, filed a complaint in the Circuit Court of Cook County, Illinois, seeking individual damages in an action entitled Winston Ko and Dorothy Ko v. Eljer Industries, Inc., et al. Plaintiffs have claimed approximately $24 million in damages for alleged losses on their real estate investments, and also seek unspecified exemplary and punitive damages, and unspecified damages for alleged injury to their reputations, for emotional distress and for lost profits on their real estate investments. Eljer Industries, Eljer Manufacturing and related individual defendants filed a motion to dismiss the complaint which was granted by order on August 1, 1995. The Circuit Court 41 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) concluded that the action brought by the Kos was time barred and dismissed the action. The Kos have appealed the ruling. If the case is ultimately litigated, the Company believes that it has adequate defenses and should prevail. Accordingly, no additional accrual has been established for this contingency. Other Matters High Temperature Plastic Vent ("HTPV") Pipe The Consumer Product Safety Commission ("CPSC") has initiated an investigation under Section 15 of the Consumer Product Safety Act (the "Act") as to whether a HTPV product ("Plexvent") manufactured using Ultem resin from Chevron Chemical Company's Plexco Performance Pipe Division poses a substantial product hazard under the Act. The HTPV pipe is used to exhaust combustion gases from mid-and high-efficiency small water boilers and central heating furnaces. Eljer Manufacturing's Selkirk Metalbestos division ("Selkirk") distributed the Plexco HTPV pipe from mid-1990 until the end of 1993. Selkirk began manufacturing and selling its own Ultem resin HTPV product ("Sel-Vent I") in January 1994 and discontinued the manufacture of Sel-Vent I in June 1994. Beginning in September 1994, Selkirk began manufacturing and selling a vent pipe manufactured from Radel resin ("Sel-Vent II"). Sel-Vent II is not the subject of the CPSC investigation. In the U.S., Selkirk has responded to informal requests for information from the CPSC and has also sent samples, as requested, of Sel-Vent I. By law, the CPSC may direct repair, replacement or refund of any product that it believes poses a substantial product hazard. Selkirk has received no reports of product defects or failures for Sel- Vent I and believes that Sel-Vent I does not exhibit the same characteristics as the Plexco product because of different manufacturing process control and joint design. Nevertheless, the Company has advised the CPSC that it desires to voluntarily conduct a recall and retrofit program for Sel-Vent I. If the CPSC approves Selkirk's proposal, Selkirk will replace Sel-Vent I with Sel-Vent II. The Company estimates that, if approved, it will replace between 1,000 and 1,700 installations in the U.S., at a cost ranging from $200 to $250 per installation, depending upon the size of the installation. In Engel et al. v. Chevron Corporation, Inc., Civil Action No. L-1989, filed February 16, 1996, Circuit Court for Blount County, Tennessee at Maryville, plaintiffs purportedly on behalf of a national class, seek damages and injunctive relief against Chevron Corporation, Inc. allegedly arising out of Chevron's manufacture of Plexvent. Eljer Industries is listed as an "unnamed party", but not as a defendant. This matter is in very early stages substantively and the Company is not currently a party to this litigation. In Canada, use of Plexvent and similar vent pipe has been prohibited by provincial authorities pending further investigation. In the Canadian province of Ontario, homeowners have been ordered to remove HTPV pipe from their homes. The Ontario Home Warranty Program is expected to reimburse covered home owners for the replacement cost, although not all affected homeowners are covered by the Ontario Home Warranty Program. In February 1996, the Company was informed that it had been named in a purported class action suit in Canada filed on behalf of the Ontario Home Warranty Program and affected homeowners not covered by the Ontario Home Warranty Program to recover replacement costs. The Company has not yet been served with this litigation. The Company believes that Sel-Vent I was used in approximately 700 to 1,000 Canadian installations, and that replacement cost ranges from $200 to $1,000 per installation, depending on the replacement material ultimately used. Based on the estimates described above, the amount to voluntarily replace the Sel-Vent I in North America could range from $340,000 to $1,425,000. The Company has established an accrual of $500,000 for this contingency. 42 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Nampa Employment Litigation In Ybarra, et al. v. Eljer Manufacturing, Inc., filed July 11, 1995, in the United States District Court for the District of Idaho, approximately 20 current or former employees at Eljer Manufacturing's Nampa plant allege that they have been the subject of sexual and racial discrimination. The lawsuit seeks damages against Eljer Manufacturing, and, in some cases, reinstatement or promotions. The case is in very early stages of discovery and has been set for mediation beginning in March 1996. A tentative trial date has been set for February 1997. Because the case is in early substantive stages, it is impossible to give any opinion concerning the possible outcome or the likelihood of success. The Company intends to vigorously defend the litigation. (14) RELATIONSHIP WITH HOUSEHOLD: The Company is currently involved in litigation with Household relating to the spin-off. Household filed an action in the Delaware Chancery Court on February 5, 1993, against Eljer Industries, Eljer Manufacturing and U.S. Brass seeking declaratory relief. U.S. Brass has since been dismissed from the case. Following a finding by the Delaware Chancery Court that it had no subject matter jurisdiction, that action was transferred to the Delaware Superior Court for trial on the merits, where it remains pending. On February 11, 1993, Eljer Industries and Eljer Manufacturing filed a breach of contract action against Household in the District Court of Dallas County, Texas, based upon Household's alleged breach of the Reimbursement Agreement, dated as of April 14, 1989, and the Reorganization and Distribution Agreement, dated as of March 15, 1989, executed in connection with the spin-off. On June 19, 1995, the Delaware Chancery Court enjoined the Company and Eljer Manufacturing from proceeding with litigation against Household in any court other than the Superior Court in Delaware. As a result, the Company and Eljer Manufacturing may not proceed with their litigation against Household in Texas District Court. The Company did not appeal the Delaware Chancery Court ruling. On July 26, 1995, the Delaware Superior Court heard arguments on Household's motions for complete and partial summary judgment in the litigation between Household, the Company and Eljer Manufacturing. On October 16, 1995, the Delaware Superior Court denied all of Household's motions, except one claim which the Company elected not to pursue. On January 19, 1996, the Delaware Superior Court denied Household's motion for summary judgment which sought to limit damages the Company could recover to approximately $32 million. Household has filed additional motions for summary judgment on certain claims it has filed against the Company, but briefing is not complete and the Delaware Superior Court has not ruled on the motions. Pre-trial discovery is continuing, and trial is set to begin on May 20, 1996, in Delaware. As disclosed in Note 2, the Company has entered into a tentative settlement with Qest system claimants whereby 75% of any proceeds received from Household will be used to fund the settlement. 43 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (15) GEOGRAPHIC SEGMENTS: Data on the Company's geographic segments, based on the locations of the Company's operations, are as follows (in thousands):
1995 1994 1993 --------- --------- --------- Sales to unaffiliated customers- North America ............. $ 327,637 $ 340,628 $ 313,376 Europe .................... 69,749 65,435 74,186 --------- --------- --------- Total ................. $ 397,386 $ 406,063 $ 387,562 ========= ========= ========= Income (loss) from operations- North America ............. $ 16,482 334 $15,765 Europe .................... 4,780 (65) 5,306 --------- --------- --------- Total ................. $ 21,262 269 $ 21,071 ========= ========= ========= Identifiable assets- North America ............. $ 199,035 $ 210,207 $ 187,814 Europe .................... 49,924 46,850 47,609 --------- --------- --------- Total ................. $ 248,959 $ 257,057 $ 235,423 ========= ========= ========= This includes a $21.9 million unusual charge related to U.S. Brass (see Note 2 for additional discussion). Not considering the unusual charge, North American and Total Income from Operations would have been $22.2 million and $22.1 million, respectively in 1994. This includes a $676,000 unusual gain related to U.S. Brass (see Note 2 for additional discussion). Not considering the unusual gain, North American and Total Income from Operations would have been $15.8 million and $20.6 million, respectively in 1995.
(16) QUARTERLY FINANCIAL DATA (unaudited and in thousands except per share amounts):
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- -------- -------- 1995 Net sales............................................ $99,055 $92,416 $102,752 $103,163 Gross profit......................................... 23,398 22,810 28,736 27,262 Net income (loss).................................... (882) (1,206) 4,522 2,455 Earnings (loss) per share............................ (.12) (.17) .63 .35 1994 Net sales............................................ $90,875 $103,356 $107,872 $103,960 Gross profit......................................... 24,268 27,435 32,022 28,973 Net income (loss).................................... 360 2,386 4,265 (19,235) Earnings (loss) per share............................ .05 .34 .60 (2.71) 1993 Net sales............................................ $95,648 $84,507 $102,965 $104,442 Gross profit......................................... 25,860 23,862 29,160 30,306 Net income (loss).................................... 874 (1,446) 3,136 1,334 Earnings (loss) per share............................ .12 (.20) .44 .19
44 ELJER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The unaudited quarterly financial data above have been restated from the Company's previously filed Forms 10-K and 10-Q to reflect certain reclassifications from cost of sales to selling and administrative costs. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The section entitled "Election of Directors" appearing in the Registrant's proxy statement for the annual meeting of stockholders to be held on April 16, 1996, sets forth certain information with respect to the directors of the Registrant and is incorporated herein by reference. Certain information with respect to persons who are or may be deemed to be executive officers of the Registrant is set forth under the caption "Executive Officers of the Registrant" in Part I of this report. Item 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation and Certain Transactions" appearing in the Registrant's proxy statement for the annual meeting of stockholders to be held on April 16, 1996, sets forth certain information with respect to the compensation of management of the Registrant and is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The sections entitled "Voting Securities and Principal Stockholders" and "Election of Directors" appearing in the Registrant's proxy statement for the annual meeting of stockholders to be held on April 16, 1996, set forth certain information with respect to the ownership of the Registrant's Common Stock and are incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section entitled "Executive Compensation and Certain Transactions" appearing in the Registrant's proxy statement for the annual meeting of stockholders to be held on April 16, 1996, sets forth certain information with respect to certain business relationships and transactions between the Registrant and its directors and officers and is incorporated herein by reference. 45 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K (1) Financial Statements The financial statements filed as part of this report are listed on the Index to Consolidated Statements on page 14. (2) Financial Statement Schedules Index to Consolidated Financial Statement Schedules Page ---- Report of Independent Public Accountants 50 For the three years 1995, 1994 and 1993: Schedule II -Valuation and Qualifying Accounts 51 All other Schedules have been omitted because the required information is shown in the consolidated financial statements or notes thereto or they are not applicable. 46 (3) Exhibits
Exhibit Number Description - ------------ --------------------------------------------------------------------- 3A(1) Form of Restated Certificate of Incorporation of the Registrant. 3B Form of Amended Bylaws of the Registrant. 4A(1) Form of Restated Certificate of Incorporation of the Registrant (see Exhibit 3A). 4B Form of Amended Bylaws of the Registrant (see Exhibit 3B). 4C(1) Form of Common Stock Certificate. 4D(1) Form of Rights Agreement between the Registrant and Harris Trust & Savings Bank, as Rights Agent ("Rights Agreement"). 4E(1) Amendment and Amendment No. 2 to Rights Agreement dated as of July 31, 1989 and January 4, 1990, respectively. 4F(3) Amendment No. 3 to Rights Agreement dated as of November 5, 1991. Instruments with respect to long-term debt which do not exceed 10 percent of the total assets of the Registrant and its consolidated subsidiaries have not been filed. The Registrant agrees to furnish a copy of such instruments to the Commission upon request. 4G(4) Amended and Restated Credit Agreement dated as of December 11, 1992 among Eljer Manufacturing, Inc., as Borrower, Eljer Industries, Inc., as Parent Guarantor, the Banks listed therein, and NationsBank of Texas, N.A., as Administrative Agent and Co-Agent, and Morgan Guaranty Trust Company of New York, as Co-Agent and, for limited purposes, The First National Bank of Chicago, as "First Chicago". 4H(6) Form of First Amendment to Amended and Restated Credit Agreement dated as of March 25, 1994. 4I(7) Form of Second Amendment to Amended and Restated Credit Agreement dated as of October 17, 1994. 4J(9) Form of Third Amendment to Amended and Restated Credit Agreement dated as of August 15, 1995. 4K(7) Loan and Security Agreement by and among Congress Financial Corporation (Southwest) as Lender and Eljer Manufacturing, Inc. as Borrower and Eljer Industries, Inc. as Guarantor dated October 17, 1994. 10A(1) Form of Reorganization and Distribution Agreement. 10B(1) Form of Employee Benefits and Labor Agreement. 10C(1) Form of Tax Sharing Agreement. 10D(1) Form of Transition Management Services Agreement. 10E(1) Form of Standstill Agreement between the Registrant & Household International, Inc. 10F(2) Form of Employment Agreement with Scott G. Arbuckle. 10G(2) Form of Employment Agreement with James F. Thomason. 10H(2) Form of Employment Agreement with James A. Harris and Brooks F. Sherman. 10I(8) Form of Employment Agreement with George W. Hanthorn.
47
Exhibit Number Description - ------------ --------------------------------------------------------------------- 10J Form of Employment Agreement with Nancy J. Duricic. 10K Form of Employment Agreement with Steven M. Rodman. 10L Form of Employment Agreement with Gerald J. Morris. 10M Salaried Pension Plan for Eljer Manufacturing, Inc. 10N(10) Amendment No. 1 to the Salaried Pension Plan of Eljer Manufacturing, Inc. 10O Tax Reduction Investment Plan. 10P(1) Long-Term Executive Incentive Compensation Plan of the Registrant. 10Q(2) 1991 Long-Term Incentive Plan. 10R 1995 Long-Term Incentive Plan 10S(2) Form of Executive Severance Agreement with Scott G. Arbuckle. 10T(8) Form of Amendment to Executive Severance Agreement with Scott G. Arbuckle. 10U(2) Form of Executive Severance Agreement with James F. Thomason, James A. Harris, Brooks F. Sherman and George W. Hanthorn. 10V(8) Form of Amendment to Executive Severance Agreement with James F. Thomason, James A. Harris, Brooks F. Sherman and George W. Hanthorn. 10W Form of Severance Agreement with Nancy J. Duricic and Gerald J. Morris. 10X(3) Eljer Supplemental Benefit Plan. 10Y(3) Eljer Excess Benefit Plan. 10Z(5) Eljer Industries, Inc. Stock Payment Plan for Non-Employee Directors. 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen, LLP, independent certified public accountants. 27 Financial Data Schedule. - ---------- (1) Incorporated by reference to the Registrant's Registration Statement on Form 10 filed February 14, 1989, as amended by Forms 8 filed March 14, 1989, March 23, 1989, March 27, 1989, August 3, 1989, January 10, 1990, May 2, 1990 and November 19, 1991 (File No. 0-10181). (2) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 1991 filed May 14, 1991. (3) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the Quarterly Period Ended September 29, 1991 filed November 12, 1991. (4) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended January 3, 1993, filed April 1, 1993. (5) Incorporated by reference to the Registrant's Registration Statement on Form S-8 filed December 16, 1993 (registration no. 33-51527). (6) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended January 2, 1994, filed March 31, 1994.
48 (7) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the Quarterly Period Ended October 2, 1994 filed November 16, 1994. (8) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended January 1, 1995, filed March 29, 1995. (9) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the Quarterly Period Ended July 2, 1995 filed August 16, 1995. (10) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the Quarterly Period Ended October 1, 1995 filed November 15, 1995. (4) Reports on Form 8-K None. 49 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Eljer Industries, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of Eljer Industries, Inc. and subsidiaries included in this Form 10-K, and have issued our report thereon dated March 5, 1996. Our report on the consolidated financial statements includes an explanatory paragraph with respect to the substantial doubt about the Company's ability to continue as a going concern in its present consolidated form due to the issues arising from the Qest polybutylene plumbing systems manufactured and sold by the Company's indirect, wholly-owned subsidiary, United States Brass Corporation. Our report on the consolidated financial statements also includes an emphasis of matter paragraph regarding the Company's term debt, which expires on January 31, 1997. These matters are discussed in Notes 2 and 3 to the consolidated financial statements. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in the index to Item 14 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects, the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Dallas, Texas, March 5, 1996 50 ELJER INDUSTRIES, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Additions --------------------------- Balance at Charged to Charged Balance Beginning Costs/ to Other at End Description of Period Expenses Accounts Deduction of Period ----------- --------- ---------- -------- --------- --------- 1993 Accounts receivable reserves.................... $10,068 $1,378 $ (207) $(2,349) $8,890 ======= ======= ======= ======= ====== Reserve for receivables from insurance carriers............................ $13,455 $ -- $ -- $(6,005) $7,450 ======= ======= ======= ======= ====== 1994 Accounts receivable reserves.................... $ 8,890 $ 61 $ -- $(1,255) $7,696 ======= ======= ======= ======= ====== Reserve for receivables from insurance carriers............................ $ 7,450 $ -- $(7,198) $ (252) $ -- ======= ======= ======= ======= ====== 1995 Accounts receivable reserves.................... $ 7,696 $ 119 $ -- $ (907) $6,908 ======= ======= ======= ======= ====== Includes primarily write-offs of uncollectible accounts and net customer discounts taken. Includes primarily collection of proceeds from insurance carriers. Represents write-off against related asset.
51 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 7, 1996 ELJER INDUSTRIES, INC. By: /s/Brooks F. Sherman ----------------------------- Brooks F. Sherman Vice President-Finance, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date /s/Frank J. Morgan Chairman of the Board March 7, 1996 - ------------------------------- Frank J. Morgan /s/Scott G. Arbuckle Director, President March 7, 1996 - ------------------------------- and Chief Executive Officer Scott G. Arbuckle (Principal Executive Officer) /s/Brooks F. Sherman Vice President-Finance, March 7, 1996 - ------------------------------- Chief Financial Officer Brooks F. Sherman and Treasurer (Principal Financial and Accounting Officer) /s/John H. Deininger Director March 7, 1996 - ------------------------------- John H. Deininger /s/Paul E. Price Director March 7, 1996 - ------------------------------- Paul E. Price /s/C. A. Rundell, Jr. Director March 7, 1996 - ------------------------------- C. A. Rundell, Jr. /s/Walter C. Minnick Director March 7, 1996 - ------------------------------- Walter C. Minnick
52 EX-3.B 2 FORM OF AMENDED BYLAWS OF THE REGISTRANT BYLAWS OF ELJER INDUSTRIES, INC. ARTICLE I STOCKHOLDERS Section 1. The annual meeting of the stockholders of the Corporation shall be be held such date, and at such time and at such place within or without the State of Delaware, as may be fixed by the Board of Directors, for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting. Section 2. (a) Subject to the rights of the holders of any class or series of stock having a preference over the Common Stock of the Corporation as to dividends or upon liquidation ("Preferred Stock"), any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not he effected by any consent in writing by such stockholders. Subject to the rights of the holders of any class or series of Preferred Stock, special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the Whole Board (as such term is defined in Article EIGHTH of the Corporation's Restated Certificate of Incorporation (the "Certificate of Incorporation")). (b) Special meetings of the stockholders may be held at such time and at such place within or without the State of Delaware, as may be stated in the call. Section 3. Notice of the time and place of every meeting of stockholders shall be delivered personally or mailed at least ten days and not more than sixty days prior thereto to each stockholder of record entitled to vote at his address as it appears on the records of the Corporation. Such further notice shall be given as may be required by law. Business transacted at any special meeting shall be confined to the purpose or purposes stated in the notice of such special meeting. Meetings may be held without notice confined to the purpose or purposes stated in the notice of such special meeting. Meetings may be held without notice if all stockholders entitled to vote are present or if notice is waived by those not present. Section 4. Except as otherwise provided by law or by the Certificate of Incorporation, the presence, in person or by proxy, of the holders of record of shares of capital stock of the Corporation entitling the holders thereof to cast a majority of the votes entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders. The chairman of the meeting or the holders of record of a majority of such shares so present or represented may adjourn the meeting from time to time, whether or not there is such a quorum. No notice of the time and place of adjourned meetings need be given except as required by law. Section 5. Election of directors at all meetings of the stockholders at which directors are to elected shall be by ballot, and, except as otherwise set forth in any Preferred Stock Designation (as defined in Article FOURTH of the Certificate of Incorporation) with respect to the right of the holders of any class or series of Preferred Stock to elect additional directors under specified circumstances, a plurality of the votes cast thereat shall elect. Except as otherwise provided by law, the Certificate of Incorporation, any Preferred Stock Designation, the By-Laws of the Corporation or resolution adopted by the Whole Board, all matters other than the election of directors submitted to the stockholders at any meeting shall be decided by a majority of the votes cast with respect thereto. Section 6. (a) At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this Section 6(a). For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered or mailed to and received at the principal executive offices of the Corporation not less than 30 days prior to the date of the annual meeting; provided, however, that in the event that less than 40 days' notice or prior to public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received not later that the close of business on the l0th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter such stockholder proposes to bring before the annual meeting ii) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, {iii) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder and (iv) any material interest of such stockholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Section 6(a). The officer of the Corporation or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business wa not properly brought before the meeting in accordance with the provisions of this Section 6(a) and, if he should so determine, he shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted. At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors. (b) Only persons who are nominated in accordance with the procedures set forth in these By-Laws shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholder at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 6(b). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered or mailed to and received at the principal executive offices of the Corporation not less than 30 days prior to the date of the meeting; provided, however, that in the event that less than 40 days' notice or prior disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the l0th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (i) as to each person whom such stockholder proposes to nominate for eiection or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such persons's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the stockholder giving the notice (x) the name and address, as they appear on the Corporation's books, of such stockholder and (y) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the provisions of this Section 6(b). The officer of the Corporation or other person presiding at the meeting shall, if the facts so warrant, determine and declare to the meeting that a nomination was not made in accordance with such provisions and, if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 7. There shall be appointed, for all meetings of the stockholders, two inspectors of the vote. Such inspectors shall first take and subscribe an oath or affirmation faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of their ability. Unless appointed in advance of any such meeting by the Board of Directors, such inspectors shall be appointed for the meeting by the person presiding thereat. No director or candidate for the office of director shall be appointed as such inspector. Such inspectors shall be responsible for tallying and certifying the vote taken on any matter at each meeting which is required to be tallied and certified by them in the resolution of the Board of Directors appointing them or the appointment of the person presiding at such meeting, as the case may be. ARTICLE II DIRECTORS Section 1. (a) Subject to the rights of the holders of any class or series of Preferred Stock to elect directors under specified circumstances, the number of directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the Whole Board. The directors, other than those who may be elected by the holders of any class or series of Preferred Stock, shall be divided, with respect to the time for which they severally hold office, into three classes, with the term of office of the first class to expire at the 1990 annual meeting of stockholders, the term of office of the second class to expire at the 1991 annual meeting of stockholders and the term of office of the third class to expire at the 1992 annual meeting of stockholders, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, commencing with the 1990 annual meeting, (i) directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified and (ii), if authorized by a resolution of the Board of Directors, directors may be elected to fill any vacancy on the Board of Directors regardless of how such vacancy shall have been created. (b) A whole number of directors equal to at least a majority of the Whole Board shall constitute a quorum for the transaction of business, but if at any meeting of the Board of Directors there shall be less than a quorum present a majority of those present may adjourn the meeting from time to time until a quorum shall have been obtained. (c) Subject to the rights of the holders of any class or series of Preferred Stock, and unless the Board of Directors otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resuiting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the whole Board shall shorten the term of any incumbent director. (d) Subject to the rights of the holders of any class or series of Preferred Stock, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote by the holders of at least a majority of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (the "Voting Stock"), voting together as a single class. Section 2. Meetings of the Board of Directors shall be held at such place within or without the State of Delaware as may from time to time be fixed by, or determined in the manner provided by, resolution of the Board, or as may be specified in the call of any meeting. Regular meetings of the Board of Directors shall be held at such times as may from time to time be fixed by, or determined in the manner provided by, resolution of the Board, and special meetings may be held at any time upon the call of the Executive Committee or the Chairman of the Board of Directors by oral, telegraphic or written notice, duly served on or sent or mailed to each director not less than two days before such meeting. A meeting of the Board may be held without notice immediately after the annual meeting of stockholders at the same place at which such meeting was held. Notice need not be given of regular meetings of the Board held at times and places fixed by resolution of the Board. A meeting may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in writing, either before or after such meeting. Section 3. The Board of Directors may, in its discretion, by resolution passed by a majority of the Whole Board, designate an Executive Committee to consist of the Chairman of the Board of Directors and such number of other directors as the Board may from time to time determine (not less than three), which Committee, to the extent provided in said resolution, shall have, and may exercise, when the Board is not in session, the powers of the Board in the management of the business and affairs of the Corporation, except the power to change the membership or to fill vacancies in the Board or said Committee. The Board shall have the power at any time to change the membership of said Committee (subject to the requirement that the Chairman of the Board be a member thereof), to fill vacancies in it, or to dissolve it. The Executive Committee may make rules for the conduct its of business and may appoint such comnittees and assistants as it shall from time to time deem necessary. Section 4. The Board of Directors may from time to time, in its discretion, by resolution passed by a majority of the Whole Board, designate, and appoint, from the directors, other committees of one or more persons which shall have and may exercise such lawfully delegable powers and duties conferred or authorized by the resolutions of designation and appointment. The Board shall have power at any time to change the members of any such committee, to fill vacancies, and to discharge any such committee. Section 5. Unless the Board shall provide otherwise, the presence of one-half of the total membership of any committee of the Board shall constitute a quorum for the transaction of business at any meeting of such committee and the act of a majority of those present shall be necessary and sufficient for the taking of any action thereat. Section 6. The Executive Committee, and any other committee so designated if the resolution which designates such committee or a supplemental resolution of the Board shall so provide, may exercise the power and authority of the Board to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law. ARTICLE III OFFICERS Section 1. The Board of Directors as soon as may be practicable after the annual meeting of stockholders shall choose a Chairman of the Board of Directors and a Secretary and from time to time may choose such other officers (including, without limitation, a President) as it may deem proper. The Chairman of the Board of Directors shall be chosen from the directors. Section 2. The term of office of all officers shall be until the next annual election of officers and until their respective successors are chosen, but any officer may be removed from office at any time by the affirmative vote of a majority of the members of the Whole Board. Section 3. All officers chosen by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this ARTICLE III. Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof. Section 4. The Chairman of the Board of Directors shall preside at all meetings of stockholders and of the Board. He shall see that all orders and resolutions of the Board of Directors and of any committee thereof are carried into effect. The President shall be the Chief Executive Officer of the corporation and, subject to the Board of Directors, shall have general management and oversight of the administration and operation of the Corporation's business and general supervision of its policies and affairs. During the absence or disability of the Chairman of the Board of Directors, the President shall have and exercise all the powers of the Chairman of the Board of Directors. Each meeting of the stockholders and of the Board of Directors shall be presided over by the Chairman of the Board of Directors or, in his absence, the President, or, in his absence, by such officer as has been designated by the Board of Directors or, in his absence, by such officer or other person as is chosen at the meeting. The Secretary or, in his absence, the General Counsel of the Corporation or such officer as has been designated by the Board of Directors or, in his absence, such officer or other person as is chosen by the person presiding, shall act as secretary of each such meeting. ARTICLE IV CERTIFICATES OF STOCK The interest of each stockholder of the Corporation shall be evidenced by certificates for shares of stock in such form as the Board of Directors may from time to time prescribe. The shares of the stock of the Corporation shall be transferred on the books of the Corporation by the holder thereof in person or by his attorney, upon surrender for cancellation of certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. The certificates of stock shall be signed, countersigned and registered in such manner as the Board of Directors may by resolution prescribe, which resolution may permit all or any of the signatures on such certificates to be in facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. ARTICLE V CHECKS, NOTES, ETC. All checks on the Corporation's bank accounts and all drafts, bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be signed by such person or persons as shall be thereunto authorized from time to time by the Board of Directors or by the committee or officer or officers of the Corporation to whom the Board shall have delegated the power to authorize such signing; provided, however, that the signature of any person so authorized on checks and drafts drawn on the Corporation's dividend and special accounts may be in facsimile if the Board of Directors or the committee or officer or officers, whichever shall have authorized such person to sign such checks or drafts, shall have authorized such person to sign in facsimile; and provided further that in case notes or other instruments for the payment of money (other than notes, bonds or debentures issued under a trust instrument of the Corporation) are required to be signed by two persons, the signature thereon of only one of the persons signing any such note or other instrument may be in facsimile, and that in the case of notes, bonds or debentures issued under a trust instrument of the Corporation and required to be signed by two officers of the Corporation, the signatures of both such officers may be in facsimile if specifically authorized and directed by the Board of Directors of the Corporation and if such notes, bonds or debentures are required to be authenticated by a corporate trustee which is a party to the trust instrument; and provided further that in case any person or persons who shall have signed any such note or other instrument, either manually or in facsimile, shall have ceased to be a person or persons so authorized to sign any such note or other instrument, whether because of death or by reason of any other fact or circumstance, before such note or other instrument shall have been delivered by the Corporation, such note or other instrument may, nevertheless, be adopted by the Corporation and be issued and delivered as though the person or persons who so signed such note or other instrument had not ceased to be such a person or persons. ARTICLE VI OFFICES The Corporation may have offices outside of the State of Delaware at such places as shall be determined from time to time by the directors. ARTICLE VII AMENDMENTS These By-Laws may be amended, added to, rescinded or repealed at any meeting of the Board of Directors or of the stockholders, provided notice of the proposed change was given in the notice of the meeting or, in the case of a meeting of the Board of Directors, in a notice given not less than two days prior to the meeting; provided, however, that with respect to any alteration, amendment or repeal of any provision of these By-Laws by the stockholders, notwithstanding any other provisions of these By-Laws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, the Certificate of Incorporation, any Preferred Stock Designation or these By-Laws, the affirmative vote of the holders of at least eighty (80%) percent of the voting power of all the then-outstanding shares of the Voting Stock voting together as a single class, shall be required for such an alteration, amendment or repeal by the stockholders. ARTICLE VIII EMERGENCY PROVISIONS During any emergency resulting from an attack on the United States or on a locality in which the Corporation conducts its business or customarily holds meetings of its Board of Directors or its stockholders, or during any nuclear or atomic disaster, or during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board of Directors of the Corporation or of the Executive Committee of the Board of Directors cannot readily be convened for action, the following provisions shall apply, notwithstanding any other provisions of the By-Laws of the Corporation: 1. An emergency meeting or meetings of the Board of Directors or of the surviving members thereof shall be called by the Chairman of the Board, if available, or, if he is not available, the Chairman of the Executive Committee, or, if he is not available, by any other director or directors; any such meeting to be held at such time and place and upon such notice, if any, as the person or persons calling the meeting shall deem proper. The Board may take any action at any such meeting which it deems necessary and appropriate to meet the emergency. 2. Vacancies in the Board of Directors shall be filled as soon as practicable in the manner specified in Section 1 of ARTICLE II of these By-Laws. In filling vacancies, consideration shall be given to senior officers of the Corporation. 3. The presence of the smallest number of directors permitted by law to constitute a quorum, but not less than three, shall be sufficient for the transaction of business at emergency meetings of the Board of Directors, except that if there are less than three surviving directors, the surviving director or directors, although less than a quorum, may fill vacancies in the Board. 4. The By-Laws may be amended by the Board of Directors without notice of the proposed amendment being given in the notice of the meeting. 5. Without limiting the generality of the foregoing, the Board of Directors is authorized to make all necessary determinations of fact regarding the extent and severity of the emergency and the availability of members of the Board of Directors; to designate and replace officers, agents and a chairman, adopt rules of procedures and fill vacancies. 6. The emergency powers provided in this ARTICLE VIII shall be in addition to any powers provided by law. CERTIFIED RESOLUTIONS OF ELJER INDUSTRIES, INC. I, Wesley A. Thompson, Secretary of ELJER INDUSTRIES, INC. (the "Company"), a Delaware corporation, do hereby certify that the following resolutions were duly adopted by the Board of Directors of the Company on October 17, 1989, that said resolutions have not been rescinded, amended or modified, and that said resolutions are in full force and effect on the date hereof: RESOLVED, that the first sentence of Section 3, Article II of the By-Laws shall be amended to read in its entirety as follows: The Board of Directors may, in its discretion, by resolution passed by a majority of the Whole Board, designate an Executive Committee to consist of the Chairman of the Board of Directors and such number of other directors as the Board may from time to time determine (such number of other directors to be not less than two), which Committee, to the extent provided in said resolution, shall have, and may exercise, when the Board is not in session, the powers of the Board in the management of the business and affairs of the Corporation, except the power to change the membership or to fill vacancies in the Board or said Committee. FURTHER RESOLVED, that all actions of the Executive Committee taken prior to the amendment of the By-Laws effected by the preceding resolution are ratified and approved, notwithstanding the fact that the Executive Committee consisted of two, rather than three, directors in addition to the Chairman of the Board. IN WITNESS WHEREOF, I have set my hand as of this 19th day of December, 1989. WESLEY A. THOMPSON, SECRETARY I, George W. Hanthorn, Secretary of ELJER INDUSTRIES, INC. (the "Company"), a Delaware corporation, do hereby certify that the following resolution was duly adopted by the Board of Directors of the Company on February 20, 1996, that said resolution has not been rescinded, amended or modified, and that said resolution is in full force and effect on the date hereof: RESOLVED, that the first sentence of Section 1, Article III of the By-laws shall be amended to read in its entirety as follows: The Board of Directors as soon as possible after the annual meeting of stockholders shall choose a chairman of the board of directors and secretary and from time to time may choose such other officers (including, without limitation, a President) as it may deem proper. The chairman of the board of directors shall be chosen from the directors. Nothing in these By-laws shall prevent the same person from holding more than one office simultaneously. IN WITNESS WHEREOF, I have set my hand as of this 4th day of March, 1996. GEORGE W. HANTHORN, SECRETARY EX-10.J 3 FORM OF EMPLOYMENT AGREEMENT WITH NANCY J. DURICIC January 16, 1992 PRIVATE AND CONFIDENTIAL Ms. Nancy J. Duricic 1820 Greenway Drive Plano, Texas 75075 Re: Employment Agreement Dear Nancy: 1. This letter confirms your employment by ELJER INDUSTRIES, INC. (the "Company") as Director-Compensation & Benefits, Eljer Industries. In that capacity, you are entitled to the following: a. A minimum annual salary of $75,000; b. Benefits as described in, and in accordance with, the Company's benefit plans; and c. An annual par bonus equal to 15% of your annual salary. The amount of bonus that you actually receive, if any, will depend on the achievement of Corporate and your individual goals. 2. During your employment with the Company, you will devote your full time and energies to the faithful and diligent performance of the duties inherent in, and implied by, your executive position. 3. In consideration of your continued employment with the Company, it is mutually agreed that: a. In the event your employment with the Company is terminated by the Company during the term of this Agreement, for any reason other than: i. "Cause", for this purpose, "cause" shall mean: (a) your willful and continued failure to substantially perform your duties hereunder (other than any such failure resulting from a "disability", as defined herein; or (b) your conviction for committing an act of fraud, embezzlement, theft, or other act constituting a felony; or (c) your willful engagement in gross misconduct which is materially and demonstrably injurious to the Company; or ii. Inability, for reasons of "disability", reasonably to perform your duties for six consecutive calendar months (for purposes of this Agreement, "disability" shall mean a permanent and total disability, within the meaning of Internal Revenue Code Section 22(e)(3), in the exercise of good faith and reasonable judgment, upon receipt of and in reliance on sufficient competent medical advice from a qualified physician selected by the Compensation Committee); or Ms. Nancy J. Duricic Page -2- January 16, 1992 b. In the event that during the term of this Agreement you resign your position with the Company because: i. You are assigned to a position of lesser rank or status; or ii. Your annual salary, annual par bonus, level of participation in management incentive plans, or your benefits are reduced; or iii. You are reassigned to a geographical area more than 50 miles from your present residence; the Company shall be required, and hereby agrees, to continue paying your then salary, to pay your then annual bonus at par level, and to provide all pension, profit sharing, deferred compensation, medical and life insurance benefits under the Company's benefit plans, or the economic equivalent thereof, for a period of 6 months from the date of such termination or resignation. If, pursuant to the terms of a benefit plan, a benefit would be earned or accrued during such 6-month period but would be payable on a deferred basis (were you to be employed during such 6-month period) the benefit similarly shall be deferred hereunder; provided, however, that the Company reserves the right to pay the present value of such benefit to you in cash at the end of such 6-month period. 4. You are not required to mitigate the amount of any payments to be made by the Company, pursuant to this Agreement, by seeking other employment, or otherwise, nor shall the amount of any payments provided for in this Agreement be reduced by any compensation earned by you, as the result of self-employment or your employment by another employer, after the date of termination of your employment with the Company. Please acknowledge your acceptance of the terms and provisions of this Agreement by signing in the space indicated below. We look forward to your continued contribution to the success of ELJER INDUSTRIES, INC. Sincerely, ACCEPTED AND AGREED as of ELJER INDUSTRIES, INC. January 20, 1992 By: /s/Charles R. Wackenhuth /s/ Nancy J. Duricic ----------------------------------- --------------------------- Charles R. Wackenhuth Nancy J. Duricic EX-10.K 4 FORM OF EMPLOYMENT AGREEMENT WITH STEVEN M. RODMAN May 22, 1995 PRIVATE AND CONFIDENTIAL Mr. Steven M. Rodman 4405 Quail Hollow Rd. Dallas, Texas 75287 Re: Employment Agreement Dear Steve: 1. This letter confirms your employment by ELJER INDUSTRIES, INC. (the "Company") as Vice President - Consumer Sales, Eljer Industries. In that capacity, you are entitled to the following: a. A minimum annual salary of $93,430; b. Benefits as described in, and in accordance with, the Company's benefit plans; and c. An annual par bonus equal to 25% of your annual salary. The amount of bonus that you actually receive, if any, will depend on the achievement of Corporate and your individual goals. 2. During your employment with the Company, you will devote your full time and energies to the faithful and diligent performance of the duties inherent in, and implied by, your executive position. 3. In consideration of your continued employment with the Company, it is mutually agreed that: a. In the event your employment with the Company is terminated by the Company during the term of this Agreement, for any reason other than: i. "Cause," as determined by the Compensation Committee of the Board of Directors (for this purpose, "cause" shall mean: (A) your willful and continued failure to substantially perform your duties hereunder (other than any such failure resulting from a "disability," as defined herein); or (B) your conviction for committing an act of fraud, Mr. Steven M. Rodman May 22, 1995 Page 2 embezzlement, theft, or other act constituting a felony; or (C) your willful engagement in gross misconduct which is materially and demonstrably injurious to the Company); or ii. Inability, for reasons of "disability," reasonably to perform your duties for six consecutive calendar months (for purposes of this Agreement, "disability" shall mean a permanent and total disability, within the meaning of Internal Revenue Code Section 22(e) (3), as determined by the Compensation Committee of the Board of Directors, in the exercise of good faith and reasonable judgment, upon receipt of and in reliance on sufficient competent medical advice from a qualified physician selected by the Compensation Committee); or b. In the event that you resign your position with the Company because: i. You are assigned to a position of lesser rank or status; or ii. Your annual salary, annual par bonus, level of participation in management incentive plans, or your benefits are reduced; or iii. You are reassigned to a geographical area more than 50 miles from your present residence; the Company shall be required, and hereby agrees, to continue paying your then annual salary, to pay your then annual bonus at par level, and to provide all pension, profit sharing, deferred compensation, medical and life insurance benefits under the Company's benefit plans, or the economic equivalent thereof, for a period of 12 months from the date of such termination or resignation. If, pursuant to the terms of a benefit plan, a benefit would be earned or accrued during such 12-month period but would be payable on a deferred basis (were you to be employed during such 12- month period) the benefit similarly shall be deferred hereunder; provided, however, that the Company reserves the right to pay the present value of such benefit to you in cash at the end of such 12-month period. 4. You are not required to mitigate the amount of any payments to be made by the Company, pursuant to this Agreement, by seeking other employment, or otherwise, nor shall the amount of any payments provided for in this Agreement be reduced by any compensation earned by you, as the result of self-employment or your Mr. Steven M. Rodman May 22, 1995 Page 3 employment by another employer, after the date of termination of your employment with the Company. 5. This Agreement supercedes and replaces the agreement dated November 13, 1992, and signed by you on November 17, 1992. Please acknowledge your acceptance of the terms and provisions of this Agreement by signing in the space indicated below. We look forward to your contribution to the success of ELJER INDUSTRIES, INC. Sincerely, ACCEPTED AND AGREED as of ELJER INDUSTRIES, INC. May 30, 1995. By:/s/Charles R. Wackenhuth /s/ Steven M. Rodman - ---------------------------------- --------------------------------- Steven M. Rodman CRW:ld EX-10.L 5 FORM OF EMPLOYMENT AGREEMENT WITH GERALD J. MORRIS April 24, 1995 PRIVATE AND CONFIDENTIAL Mr. Gerry Morris 4609 Courtyard Trail Plano, Texas 75024 Re: Employment Agreement Dear Gerry: 1. This letter confirms your employment by ELJER INDUSTRIES, INC. (the "Company") as Controller-Manufacturing Operations. In that capacity, you are entitled to the following: a. A minimum annual salary of $97,400; b. Benefits as described in, and in accordance with, the Company's benefit plans; and c. An annual par bonus equal to 25% of your annual salary. The amount of bonus that you actually receive, if any, will depend on the achievement of Corporate and your individual goals, and can range from 0% to 50%. 2. During your employment with the Company, you will devote your full time and energies to the faithful and diligent performance of the duties inherent in, and implied by, your executive position. 3. In consideration of your continued employment with the Company, it is mutually agreed that: a. In the event your employment with the Company is terminated by the Company during the term of this Agreement, for any reason other than: i. "Cause", as determined by the Compensation Committee of the Board of Directors (for this purpose, "cause" shall mean: (a) your willful and continued failure to substantially perform your duties hereunder (other than any such failure resulting from a "disability", as defined herein); or (b) your conviction for committing an act of fraud, embezzlement, theft, or other act constituting a felony; or (c) your willful engagement in gross misconduct which is materially and demonstrably injurious to the Company); or ii. Inability, for reasons of "disability", reasonably to perform your duties for six consecutive calendar months (for purposes of this Agreement, "disability" shall mean a permanent and total disability, within the meaning of Internal Revenue Code Section 22(e)(3), as determined by the Compensation Committee of the Board of Directors, in the exercise of good faith and reasonable judgment, upon receipt of and in reliance on sufficient competent medical advice from a qualified physician selected by the Compensation Committee); or Mr. Gerry Morris Page -2- April 24, 1995 b. In the event that during the term of this Agreement you resign your position with the Company because: i. You are assigned to a position of lesser rank or status; or ii. Your annual salary, annual par bonus, level of participation in management incentive plans, or your benefits are reduced; or iii. You are reassigned to a geographical area more than 50 miles from your present residence; the Company shall be required, and hereby agrees, to continue paying your then salary, to pay a prorated portion of your then annual bonus at par level, and to provide all pension, profit sharing, deferred compensation, medical and life insurance benefits under the Company's benefit plans, or the economic equivalent thereof, for a period of 9 months from the date of such termination or resignation. If, pursuant to the terms of a benefit plan, a benefit would be earned or accrued during such 9-month period but would be payable on a deferred basis (were you to be employed during such 9-month period) the benefit similarly shall be deferred hereunder; provided, however, that the Company reserves the right to pay the present value of such benefit to you in cash at the end of such 9-month period. 4. You are not required to mitigate the amount of any payments to be made by the Company, pursuant to this Agreement, by seeking other employment, or otherwise, nor shall the amount of any payments provided for in this Agreement be reduced by any compensation earned by you, as the result of self-employment or your employment by another employer, after the date of termination of your employment with the Company. 5. This Agreement will commence on April 24, 1995, and will continue in effect until May 1, 1996, which shall be the "Expiration Date." However, at the end of such period and, if extended, at the end of each additional year thereafter, the term of this Agreement shall be extended automatically for one additional year, unless the Vice President-Human Resources delivers written notice three months prior to the end of such term, or extended term, to you, that this Agreement will not be extended. In such case, this Agreement will terminate at the end of the term, or extended term, then in progress. The Company's obligation to pay severance benefits upon an employment termination, within the two-year period following a "change-in-control" shall be entirely governed by the terms of your Executive Severance Agreement. 6. If a dispute arises regarding the termination of your employment or the interpretation or enforcement of this Agreement, and you obtain a final judgment, in your favor, from a court of competent jurisdiction, from which no appeal may be taken, whether because the time to do so has expired, or otherwise, or your claim is settled by the Company prior to the rendering of such a judgment, all reasonable legal and other professional fees and expenses incurred by you in contesting or disputing any such termination, or in seeking to obtain or enforce any right or benefit provided for in this Agreement, or in otherwise pursuing your claim, will be Mr. Gerry Morris Page -3- April 24, 1995 promptly paid by the Company, with interest thereon, at the highest statutory rate of your state of domicile, for interest on judgments against private parties, from the date of payment thereof by you to the date of reimbursement to you by the Company. Please acknowledge your acceptance of the terms and provisions of this Agreement by signing in the space indicated below. We look forward to your contribution to the success of ELJER INDUSTRIES, INC. Sincerely, ACCEPTED AND AGREED as of ELJER INDUSTRIES, INC. May 10, 1995 By: /s/ Henry W. Lehnerer /s/ Gerry Morris ------------------------------- ------------------------------ Henry W. Lehnerer Gerry Morris Vice President-Finance & CFO EX-10.M 6 SALARIED PENSION PLAN FOR ELJ. MANUFACTURING, INC. SALARIED PENSION PLAN OF ELJER MANUFACTURING, INC. As Amended and Restated Effective as of April 1, 1989 PREAMBLE The Salaried Pension Plan of Eljer Manufacturing, Inc. (the "Plan") was established, effective as of April 1, 1989, for the purpose of providing retirement income security to eligible salaried employees of Eljer Manufacturing, Inc. (the "Company") and certain related entities. Prior to April 1, 1989, the salaried employees of the Employer eligible to participate in this Plan were participants in the Salaried Pension Plan of Household Manufacturing, Inc. (the "Prior Plan"). As of April l, 1989, Household International, Inc. ("HI") spun off portions of Household Manufacturing, Inc. ("HMI") and, in connection therewith, merged, effective March 31, 1989, certain defined benefit pension plans maintained by HMI and its subsidiaries and divisions into the Household International, Inc. Retirement Income Plan, which plan shall provide benefits accrued by such eligible employees under the Prior Plan as of March 31, 1989. This Plan provides benefits based on all service taken into account under the Prior Plan and this Plan, which benefits shall be offset by amounts payable from the Prior Plan. By this instrument, effective April 1, 1989, the Company hereby amends and restates the Plan to comply with the applicable requirements of the Tax Reform Act of 1986, as amended, related legislation, and the regulations promulgated thereunder. Retirement benefits payable to employees under this Plan shall be determined solely by the provisions of the Plan in effect on the date of such employees' retirement or termination, except as otherwise specifically provided in the Plan. TABLE OF CONTENTS ARTICLE l - DEFINITIONS Section 1.01. "Affiliated Company"........................................................... 1 Section 1.02. "Alternate Payee".............................................................. 1 Section 1.03. "Authorized Leave of Absence".................................................. 1 Section 1.04. "Average Final Compensation"................................................... 1 Section 1.05. "Beneficiary".................................................................. 2 Section 1.06. "Benefit Commencement Date" or "Annuity Starting Date"......................... 2 Section 1.07. "Board of Directors"........................................................... 2 Section 1.08. "Break-in-Service"............................................................. 2 Section 1.09. "Code"......................................................................... 2 Section 1.10. "Committee".................................................................... 2 Section 1.11. "Company"...................................................................... 2 Section 1.12. "Compensation"................................................................. 2 Section 1.13. "Covered Compensation"......................................................... 3 Section 1.14. "Credited Service"............................................................. 4 Section 1.15. "Deferred Vested Pension"...................................................... 4 Section 1.16. "Disability Benefit"........................................................... 4 Section 1.17. "Early Retirement Pension"..................................................... 4 Section 1.18. "Effective Date"............................................................... 4 Section 1.19. "Eligible Retirement Plan"..................................................... 4 Section 1.20. "Employee"..................................................................... 4 Section 1.21. "Employer"..................................................................... 4 Section 1.22. "Equivalent Actuarial Value"................................................... 5 Section 1.23. "ERISA"........................................................................ 5 Section 1.24. "Executive Bonus Program"...................................................... 5 Section 1.25. "Final Average Compensation"................................................... 5 Section 1.26. "Insurance Company"............................................................ 5 Section 1.27. "Member"....................................................................... 5 Section 1.28. "Normal Retirement Age"........................................................ 5 Section 1.29. "Normal Retirement Date"....................................................... 5 Section 1.30. "Normal Retirement Pension".................................................... 6 Section 1.31. "Pension....................................................................... 6 Section 1.32. "Plan"......................................................................... 6 Section 1.33. "Plan Year".................................................................... 6 Section 1.34. "Prior Plan"................................................................... 6 Section 1.35. "Qualified Domestic Relations Order"........................................... 6 Section 1.36. "Required Commencement Date"................................................... 6 Section 1.37. "Retired Member"............................................................... 7 Section 1.38. "Retirement"................................................................... 7 Section 1.39. "Severance from Service Date".................................................. 7 Section 1.40. "Social Security Retirement Age"............................................... 7 Section 1.41. "Spouse"....................................................................... 7
-i- Section 1.42. "Spousal Consent".............................................................. 7 Section 1.43. "Spouse's Pension"............................................................. 8 Section 1.44. "Taxable Wage Base"............................................................ 8 Section 1.45. "Trust Agreement".............................................................. 8 Section 1.46. "Trust Fund"................................................................... 8 Section 1.47. "Trustee"...................................................................... 8 Section 1.48. "Vesting Service".............................................................. 8 ARTICLE 2 - MEMBERSHIP Section 2.01. Eligibility.................................................................... 9 Section 2.02. Periods of Membership.......................................................... 9 Section 2.03. Leased Employees............................................................... 9 ARTICLE 3 - SERVICE Section 3.01. Determination of Vesting Service............................................... 10 Section 3.02. Credited Service............................................................... 11 Section 3.03. Calculation of Vesting Service and Credited Service............................ 12 Section 3.04. Corporate Transactions......................................................... 12 ARTICLE 4 - BENEFITS Section 4.01. Normal Retirement Pension...................................................... 13 Section 4.02. Early Retirement Pension....................................................... 14 Section 4.03. Deferred Vested Pension........................................................ 14 Section 4.04. Normal Form of Pension......................................................... 15 Section 4.05. Member Pension Elections....................................................... 16 Section 4.06 Optional Forms of Payment................................................... 17 Section 4.07. Lump-Sum Cashout Distribution When Vested Pension not in Excess of $3,500............................................. 19 Section 4.08. Deemed Distribution to Non-vested Member....................................... 20 Section 4.09. Spouse's Pension............................................................... 20 Section 4.10. Death of Member................................................................ 21 Section 4.11. Qualified Domestic Relations Orders............................................ 21 Section 4.12. Basis of Payment............................................................... 22 Section 4.13. Maximum Benefit Limitation..................................................... 22 Section 4.14. Limitation on Time of Payment.................................................. 26 Section 4.15. Restoration of Retired Member or Other Former Employee to Service............................................ 27 Section 4.16. Transfers...................................................................... 29 Section 4.17. Special Provisions Applicable to Certain Former Members in the Prior Plan............................................ 30 Section 4.18. Disability Benefit............................................................. 30
-ii- ARTICLE 5 - CONTRIBUTIONS Section 5.01. Employer Contributions......................................................... 32 Section 5.02. No Participant Contributions................................................... 33 ARTICLE 6 - ADMINISTRATION OF PLAN Section 6.01. Appointment of Committee....................................................... 34 Section 6.02. Meetings....................................................................... 34 Section 6.03. Action of Committee............................................................ 34 Section 6.04. Powers and Duties.............................................................. 34 Section 6.05. Expenses....................................................................... 36 Section 6.06. Funding Policy................................................................. 36 Section 6.07. Liability of Committee Members................................................. 36 Section 6.08. Reliance on Reports and Certificates; Actions Taken in Good Faith................................................. 36 Section 6.09. Member's Own Benefits.......................................................... 37 ARTICLE 7 - MEMBER ADMINISTRATIVE PROVISIONS Section 7.01. Personal Data to Committee..................................................... 38 Section 7.02. Address for Notification....................................................... 38 Section 7.03. Inalienability of Benefits..................................................... 38 Section 7.04. Litigation Against the Trust................................................... 38 Section 7.05. Information Available.......................................................... 39 Section 7.06. Beneficiary's Right to Information............................................. 39 Section 7.07. Claims Procedure............................................................... 39 Section 7.08. Claims for Benefits............................................................ 39 Section 7.09. Appeal and Review.............................................................. 40 Section 7.10. Service of Legal Process.................................................... 40 Section 7.11. Place of Payment and Proof of Continued Eligibility......................... 40 Section 7.12. No Rights Implied.............................................................. 40 ARTICLE 8 - TRUST FUND Section 8.01. Purpose and Establishment of Trust Fund........................................ 42 Section 8.02. Exclusive Benefit of Members................................................... 42 Section 8.03. Benefits Supported Only By the Trust Fund and Insurance Contracts..................................................... 42 ARTICLE 9 - GENERAL PROVISIONS Section 9.01. No Rights of Employment........................................................ 43 Section 9.02. Certain Pension Reductions..................................................... 43 Section 9.03. Payments in the Event of Death, Illness and Legal Disability................... 43 Section 9.04. Certain Credited Service....................................................... 43 Section 9.05. Merger or Consolidation of Plan................................................ 44 Section 9.06. Merged Plan Pension............................................................ 44 Section 9.07. Payments Only from Trust Fund.................................................. 45
-iii- Section 9.08. Unclaimed Benefits............................................................. 45 ARTICLE 10 - AMENDMENT OR TERMINATION Section 10.01. Amendment and Duration of the Plan............................................ 46 Section 10.02. Procedure for Amendment....................................................... 47 Section 10.03. Termination of the Plan....................................................... 47 Section 10.04. Corporate Transactions........................................................ 47 Section 10.05. Certain Restrictions on Distributions......................................... 47 ARTICLE 11 - TOP HEAVY PROVISIONS Section 11.01. Top Heavy Rules Applied....................................................... 49 Section 11.02. Minimum Benefits.............................................................. 49 Section 11.03. Adjustment to Limitation on Benefits.......................................... 50 Section 11.04. Vesting Schedule.............................................................. 51 Section 11.05. Additional Definitions........................................................ 52 ARTICLE 12 - MISCELLANEOUS Section 12.01. Execution of Receipts and Releases............................................ 55 Section 12.02. No Guarantee of Interests..................................................... 55 Section 12.03. Employer Records.............................................................. 55 Section 12.04. Interpretations and Adjustments............................................... 55 Section 12.05. Errors in Payment: Misstatements.............................................. 55 Section 12.06. Uniform Rules................................................................. 55 Section 12.07. Evidence...................................................................... 55 Section 12.08. Severability.................................................................. 56 Section 12.09. Notice........................................................................ 56 Section 12.10. Waiver of Notice.............................................................. 56 Section 12.11. Successors.................................................................... 56 Section 12.12. Obligations of the Company.................................................... 56 Section 12.13. Headings...................................................................... 56 Section 12.14. Governing Law................................................................. 56
-iv- ARTICLE l DEFINITIONS The following words and phrases when used in this Plan shall have the respective meanings set forth below unless the context clearly indicates otherwise: Section 1.01. "Affiliated Company" shall mean any company which is a component member with the Employer of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code, a member with the Employer of a group of trades or businesses (whether or not incorporated) under common control as determined in accordance with Section 414(c) of the Internal Revenue Code, a member with the Employer of an affiliated service group as determined in accordance with Section 414(m) of the Internal Revenue Code, or any other entity required to be aggregated with the Employer in accordance with Section 414(o) of the Internal Revenue Code. Section 1.02. "Alternate Payee" shall mean any spouse, former spouse, child, or other dependent of a Member who is recognized by a Qualified Domestic Relations Order as having a right to receive all, or a portion of, the benefits payable under the Plan with respect to such Member. Section 1.03. "Authorized Leave of Absence" shall mean any absence authorized by an Employer. An Authorized Leave of Absence shall be granted by an Employer for mandatory service in the Armed Forces of the United States and jury duty, or to comply with the Family and Medical Leave Act of 1993 or the Uniform Services Employment and Reemployment Rights Act of 1994. An Authorized Leave of Absence may be granted by an Employer for sickness, accident, vacation, or disability, or for other reasons under rules established by the Employer and uniformly applied to all individuals similarly situated. Section 1.04. "Average Final Compensation" shall mean the average annual Compensation of a Member during the 60 consecutive months in the last 120 months of his Credited Service affording the highest such average, or during all the months of his Credited Service if less than 60. In computing Average Final Compensation, any bonus payment shall be included in the Compensation for the period in which the payment was received and not the period with respect to which it was accrued, and any accrued bonus paid after the Member's date of Retirement or termination of service shall be disregarded. If more than five bonus payments have been made to a Member under the Executive Bonus Program during the period included in the computation of such Member's Average Final Compensation, only the five highest such bonus payments shall be included in the Member's Compensation for the purpose of such computation. In the case of a Member who is entitled to Credited Service hereunder with respect to a period during which he is on an Authorized Leave of Absence or during which he is entitled to a Disability Benefit pursuant to Section 4.18, his Average Final Compensation shall be equal to the greater of his Average Final Compensation determined as of the date of commencement of the Authorized Leave of Absence or Disability Benefit, as the case may be, or his Average Final Compensation determined as if, during his Credited Service while on leave of absence or entitled to a Disability Benefit, he had received Compensation at his last rate of base salary prior to the commencement of the leave or disability. Section 1.05. "Beneficiary" shall mean any person or fiduciary designated pursuant to the terms hereof by a Member who is or may become entitled to receive benefits under the Plan following the death of such Member. Section 1.06. "Benefit Commencement Date" or "Annuity Starting Date" shall mean the first day of the first month for which an amount is payable to a Member as an annuity. In the event that an amount is not payable in the form of an annuity, the Benefit Commencement Date shall mean the first day on which all events (including the passing of the day on which benefits are scheduled to commence) have occurred which entitle the Member to his first benefit payment from the Plan. Section 1.07. "Board of Directors" shall mean the Board of Directors of the Company as constituted from time to time, or any committee appointed by, and serving at the pleasure of, the Board of Directors to exercise some or all of the powers of the Board of Directors with respect to the Plan. Section 1.08. "Break-in-Service" shall mean a period which constitutes a break in an Employee's Credited Service, as provided in Section 3.01. Section 1.09. "Code" shall mean the Internal Revenue Code of 1986, as amended, and any regulations and rulings issued thereunder. Section 1.10. "Committee" shall mean the Eljer Pension Committee as constituted from time to time whose members are appointed pursuant to, and have the responsibilities specified in, Article 6. Section 1.11. "Company" shall mean Eljer Manufacturing, Inc. or any successor by merger, purchase or otherwise. Notwithstanding the foregoing, prior to the Effective Date of the Plan, the terms Employer and Company shall have the meaning of Company set forth in the Prior Plan. Section 1.12. "Compensation" shall mean the total remuneration paid to an Employee for services rendered to the Employer, determined prior to any reduction pursuant to a Member's election to defer amounts pursuant to a cafeteria plan as defined in Section 125 of the Code maintained by the Employer or pursuant to a salary reduction agreement under any other plan described in Sections 401(k), 403(b) and 408(k) of the Code maintained by the Employer, but excluding awards under the Long Term Performance Bonus Plan, severance pay, contributions under this Plan and any other qualified employee benefit plan, reimbursements or other expense allowances, fringe benefits (cash and non-cash), moving expenses, deferred compensation, welfare benefits, amounts realized from the exercise of a non-qualified stock option, amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option, -2- amounts realized when restricted stock becomes freely transferable or is no longer subject to a substantial risk of forfeiture, and any premiums paid under any group health, life, accident or other insurance plan. For (i) any Plan Year (A) beginning on and after the Effective Date and before January 1, 1994, only the first $200,000 of Compensation shall be taken into account (or such other amount as the Secretary of the Treasury may prescribe at the same time and in the same manner as provided under Section 415(d) of the Code for adjusting the dollar limitation in effect under Section 415(b)(1)(A) of the Code) (hereinafter referred to as the "Pre-OBRA `93 Compensation Limitation") and (ii) any Plan Year beginning after December 31, 1993, only the first $150,000 of Compensation shall be taken into account (or, beginning January 1, 1995, such other amount as may be determined under Section 401(a)(17)(B) of the Code) (hereinafter referred to as the "OBRA `93 Compensation Limitation"). The Pre-OBRA `93 Compensation Limitation and the OBRA `93 Compensation Limitation are hereinafter sometimes collectively referred to as the "Compensation Limitation". In determining the Compensation of each Member who is (i) a more than five percent owner of the Employer or (ii) a highly compensated employee (within the meaning of Section 414(q) of the Code) in the group consisting of the ten highly compensated employees paid the greatest Compensation during the Plan Year (without regard to this sentence), for purposes of applying the applicable Compensation Limitation for a Plan Year, the spouse of each such Member and each of his lineal descendants who have not attained age 19 before the close of the Plan Year shall not be treated as a separate Employee for that Plan Year and the Compensation of each such family member shall be aggregated with the Compensation of the Member as if it were paid to the Member. If, as a result of the application of the preceding sentence, the applicable Compensation Limitation (as it may be adjusted) is exceeded, then the applicable Compensation Limitation shall be prorated among the affected individuals in proportion to each such individual's Compensation as determined under this Section 1.12 prior to the application of this limitation. Notwithstanding the limitations of this Section 1.12 required by Section 401(a)(17) of the Code, the Pension of a Member shall be the greater of (i) the Member's Pension determined by using the OBRA `93 Compensation Limitation for all of the Member's years of Credited Service or (ii) the sum of (A) the Member's Pension as of December 31, 1993 determined by applying the Pre-OBRA `93 Compensation Limitation and (B) the Member's Pension for Plan Years commencing on and after January 1, 1994 determined by applying the OBRA `93 Compensation Limitation. In addition, in accordance with Treasury Regulation Section 1.401(a)(4)-13(c)(5)(i), the Pension of a Member who is an eligible Employee and, thus, an active Member shall be increased to reflect increases in the limitation prescribed by Section 415 of the Code. Section 1.13. "Covered Compensation" shall mean for any Plan Year, the average without indexing of the taxable wage bases in effect for each calendar year during the 35-year period ending with the last day of the calendar year in which the Member attains Social Security Retirement Age. In determining a Member's Covered Compensation, the Taxable Wage Base -3- for the current Plan Year and any subsequent Plan Year shall be assumed to be the same as the Taxable Wage Base in effect as of the beginning of the Plan Year for which the determination is being made. Section 1.14. "Credited Service" shall mean service for purposes of determining the amount of a Pension payable hereunder, recognized under the Plan, for purposes of determining the amount of a Pension payable hereunder, determined as provided in Section 3.02. Section 1.15. "Deferred Vested Pension" shall mean a Pension payable to a Member who satisfies the requirements of Section 4.03. Section 1.16. "Disability Benefit" shall mean a benefit to which a Member who satisfies the requirements of Section 4.18 is entitled. Section 1.17. "Early Retirement Pension" shall mean a Pension payable to a Member who satisfies the requirements of Section 4.02. Section 1.18. "Effective Date" shall mean April l, 1989, except as otherwise provided herein. Section 1.19. "Eligible Retirement Plan" shall mean, for a Member or for an Alternate Payee who is the former Spouse of a Member, an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified plan described in Section 401(a) of the Code that accepts direct transfers. In the case of a distribution to the Member's surviving Spouse, an Eligible Retirement Plan shall mean an individual retirement account or individual retirement annuity. Section 1.20. "Employee" shall mean any person regularly employed by the Employer, classified as a salaried employee by the Employer, who receives regular stated Compensation other than severance pay, retainer or fee under contract, or who is not currently covered under any other retirement plan maintained by the Employer, as determined by the Employer. "Employee" shall include a citizen or resident of the United States who is employed by the Employer outside the United States, but shall not include any other person employed by the Employer outside the United States. "Employee" shall also include a citizen or resident of the United States who is employed by a foreign affiliate of the Employer, with respect to which the Employer has entered into an agreement pursuant to Section 3121(1) of the Internal Revenue Code to have the service of any such person with such affiliate covered by Title II of the Social Security Act. "Employee" shall include a "leased employee" within the meaning of Section 414(n)(2) of the Code. Section 1.21. "Employer" shall mean the Company and any other Affiliated Company which adopts the Plan by action of its board of directors with the approval of the Board of Directors. -4- Section 1.22. "Equivalent Actuarial Value" shall mean the equivalent value, as of the date of commencement of the benefit, of a benefit differing in time, period or manner of payment from a specified benefit provided under the Plan. Such value shall be determined using the 1984 Unisex Pension Annuity Mortality Table and an interest rate of 7%, compounded annually. In no event, however, shall a single sum payment described in Section 4.06 or Section 4.07 have a lesser value than that produced by using the interest rate structure that would be used by the Pension Benefit Guaranty Corporation as of the first day of the Plan Year in which such payment is made for purposes of determining the present value of a Member's benefit, assuming that the Plan had terminated as of such date. In the event of any Plan amendment that changes actuarial assumptions (which, for this purpose, includes a change in the interest rate from 6% to 7%, adopted by the Committee on September 27, 1990 effective as of October 1, 1990), the Equivalent Actuarial Value of a Member's total accrued benefit on or after the date of the change is the greater of (i) the Equivalent Actuarial Value of the Member's accrued benefit as of the date of the change, computed on the basis of the assumptions in effect immediately prior to the change, or (ii) the Equivalent Actuarial Value of the Member's total accrued benefit, computed on the basis of the assumptions as in effect immediately subsequent to the change. Section 1.23. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and any regulations or rulings issued thereunder. Section 1.24. "Executive Bonus Program" shall mean the Eljer Industries, Inc. Long-Term Executive Compensation Plan, as amended from time to time. Section 1.25. "Final Average Compensation" shall mean the average annual Compensation based on the 3 consecutive-calendar year period preceding a Member's termination of employment with the Employer. In determining Final Average Compensation, Compensation for any calendar year in excess of the Taxable Wage Base in effect at the beginning of such year shall not be taken into account. "Final Average Compensation" shall not exceed Average Final Compensation. Section 1.26. "Insurance Company" shall mean the insurance company or companies by whom the funds of the Plan may be held as provided in Article 8. Section 1.27. "Member" shall mean any person included in the membership of the Plan as provided in Article 2. Section 1.28. "Normal Retirement Age" shall mean the later of (i) the 65th anniversary of the Employee's birth, or (ii) the fifth anniversary of his commencement of participation in the Plan. Section 1.29. "Normal Retirement Date" shall mean the first day of the calendar month coincident with or next following the Employee's Normal Retirement Age. -5- Section 1.30. "Normal Retirement Pension" shall mean the Pension payable to a Member who satisfies the requirements of Section 4.01. Section 1.31. "Pension" shall mean the amount of benefits payable under the Plan as provided in Article 4. Section 1.32. "Plan" shall mean the Salaried Pension Plan of Eljer Manufacturing, Inc., as described herein or as hereafter amended. Section 1.33. "Plan Year" shall mean the twelve-month period commencing on any January 1; provided, however, that the first Plan Year shall commence on April l, 1989 and end on December 31, 1989. Section 1.34. "Prior Plan" shall mean the Salaried Pension Plan of Household Manufacturing, Inc., as in effect on March 31, 1989. Section 1.35. "Qualified Domestic Relations Order" shall mean any judgment, decree, or order (including approval of a property settlement agreement) which (i) relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child or other dependent of a Member, (ii) is made pursuant to a state domestic relations law, (iii) creates or recognizes the existence of an Alternate Payee's right to, or assigns to an Alternate Payee the right to, receive all or a portion of the benefits payable with respect to a Member under the Plan and (iv) complies with the requirements of Section 414(p) of the Code. In the case of any payment before a Member has terminated his Employment, a domestic relations order will not be treated as failing to be a Qualified Domestic Relations Order solely because such order requires the payment of benefits be made to an Alternate Payee (a) on or after the date on which the Member attains (or would have attained) his earliest retirement age (within the meaning of Section 414(p)(4)(B) of the Code) under the Plan, (b) as if the Member had retired on the date on which payment is to commence under such order (taking into account only the present value of benefits actually accrued as of such date and not taking into account the present value of any Employer subsidy for early retirement), and (c) in any form in which such benefits may be paid under the Plan to the Member (other than in the form of a joint and survivor annuity with respect to the Alternate Payee and his subsequent spouse). Section 1.36. "Required Commencement Date" shall mean April 1 of the calendar year following the calendar year in which the Member attains the age of seventy and one-half (70-1/2). Notwithstanding the foregoing, the Required Commencement Date for a Member who is not a five percent (5%) owner within the meaning of Section 416(i)(1)(B)(i) of the Code, who attained age seventy and one-half (70-1/2) during 1988, and had not retired by the Effective Date, will be April 1, 1990. In addition, the Required Commencement Date for a Member who attained age seventy and one-half (70-1/2) before January 1, 1988, and who was not a five percent (5%) owner within the meaning of Section 416(i)(1)(B)(i) of the Code during any Plan Year ending with or within the Plan Year in which he reached age sixty-six and one-half (66-1/2) or any subsequent year, is the April 1 following the later of the calendar year in which the Member -6- reaches age seventy and one-half (70-1/2) or retires. Lastly, the Required Commencement Date for a Member who filed a written election pursuant to section 242(b) of the Tax Equity and Fiscal Responsibility Act of 1982 before December 31, 1983, electing to defer the commencement of his benefits shall be the date specified in such election if the election satisfies all of the applicable requirements specified by the Internal Revenue Service, as determined by the Committee. Section 1.37. "Retired Member" shall mean any retired Employee who is receiving a Pension except a former Employee who is receiving a Deferred Vested Pension. Section 1.38. "Retirement" shall mean the termination of a Member's employment with the Employer for reasons other than death after a Member has fulfilled the requirements for a Normal Retirement Pension or an Early Retirement Pension. Retirement shall be considered as commencing on the first day immediately following a Member's last day of employment with the Employer. Section 1.39. "Severance from Service Date" shall mean the earlier of an Employee's actual date of Retirement, death or other termination of employment with the Employer or an Affiliated Company, or the first anniversary of the first day of a period in which he remains absent from service, with or without pay, with the Employer or an Affiliated Company, for any reason other than Retirement, death or other termination of employment. Section 1.40. "Social Security Retirement Age" shall mean age 65 for Members whose date of birth is prior to 1938; age 66 for Members whose date of birth occurred during or after 1938 but prior to 1955; or, age 67 for Members whose date of birth is after 1954. Section 1.41. "Spouse" shall mean a Member's spouse to whom the Member has been married throughout the one year period ending on the earlier of (i) the Member's Benefit Commencement Date or (ii) the date of the Member's death; provided, however, that if a Member marries within one year before the Benefit Commencement Date and the Member and the Member's spouse in such marriage have been married for at least the one year period ending on or before the date of the Member's death, such Member and such spouse shall be treated as having been married throughout the one year period ending on the Member's Benefit Commencement Date. Section 1.42. "Spousal Consent" shall mean written consent given by a Member's Spouse to an election made by the Member of a specified form of Pension or a designation of a specified nonspouse Beneficiary which may not be changed without Spousal Consent (or the consent of the Spouse expressly permits designations by the Member without any requirements of further Spousal Consent). Such consent shall be duly witnessed by a Plan representative or notary public and shall acknowledge the effect on the Spouse of the Member's election. The requirement for Spousal Consent may be waived by the Committee to the extent permitted under applicable law. -7- Section 1.43. "Spouse's Pension" shall mean a benefit payable to the surviving Spouse of a Member who satisfied the requirements of Section 4.09 and who had not commenced his Pension prior to his death. Section 1.44. "Taxable Wage Base" shall mean, with respect to any Plan Year, the maximum amount of Compensation which may be considered wages for such Plan Year under Section 3121(a)(1) of the Code, as amended throughout the date of determination and determined as of the first day of such Plan Year. Section 1.45. "Trust Agreement" shall mean the agreement between the Company and the Trustee or any successor Trustee establishing the Trust Fund and specifying the duties of the Trustee with respect to the assets of the Plan. Section 1.46. "Trust Fund" means all property of every kind held or acquired by the Trustee under the Trust Agreement. Section 1.47. "Trustee" shall mean the persons or entities from time to time appointed by the Board of Directors to act in the fiduciary capacity of trustee under the Trust Agreement and hold all or a portion of the Trust Fund as provided in Article 7. Section 1.48. "Vesting Service" shall mean service recognized for purpose of determining eligibility for membership in and eligibility for benefits under the Plan, determined as provided in Section 3.01. Word Usage Except when otherwise indicated by the context, any masculine terminology used herein also includes the feminine and neuter, and vice versa, and the definition of any term herein in the singular shall also include the plural, and vice versa. The words "hereof", "herein", "hereunder", and other similar compounds of the word "here" shall mean and refer to the entire Plan and not to any particular provision or section. All references to Sections and Articles shall mean and refer to Sections and Articles contained in this Plan unless otherwise indicated. Construction It is the intention of the Employers (i) that the Plan be qualified under the provisions of Sections 401(a) and 501(a) of the Code and all provisions hereof shall be construed to that result, and (ii) that the provisions of the Plan, as amended and restated hereby, shall apply only to a Member who effectively terminates employment on or after the Effective Date. End of Article 1 -8- ARTICLE 2 MEMBERSHIP Section 2.01. Eligibility. Every person who becomes an Employee on or after April 1, 1989 shall become a Member of the Plan on the date he becomes an Employee. Section 2.02. Periods of Membership. An Employee's membership in the Plan shall terminate upon termination of his employment with the Employer or an Affiliated Company if he is not entitled to either an immediate or a deferred Pension under the Plan. Membership shall be continued during a period for which he is accruing Credited Service in accordance with Section 4.18 while entitled to a Disability Benefit, or during a period while on an Authorized Leave of Absence from service approved by the Employer or an Affiliated Company, or during a period while he is not an "Employee" as herein defined but is in the employ of the Employer or an Affiliated Company, but in the latter two instances Credited Service for purposes of benefit computation shall be recognized for such period only as specifically provided in Section 3.02. If any Employee's membership in the Plan terminates and he again becomes an Employee, he shall be considered a new Employee for all purposes of the Plan, except as provided in Section 4.15. Section 2.03. Leased Employees. Notwithstanding anything in the Plan to the contrary, "leased employees" within the meaning of Section 414(n) of the Code shall not be eligible for membership in the Plan. End of Article 2 -9- ARTICLE 3 SERVICE Section 3.01. Determination of Vesting Service. (a) Except as hereinafter provided, an Employee's period of employment with the Employer or an Affiliated Company, whether or not as an "Employee" as herein defined, shall be Vesting Service for the purposes of the Plan. Vesting Service shall commence on the date on which the Employee first performs an hour of service and shall terminate on such Employee's Severance from Service Date. For purposes of this Section 3.01, an hour of service shall be an hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer or an Affiliated Company. Except as hereinafter provided, an Employee's Break-in- Service commences on the Employee's Severance from Service Date. If an Employee's employment is terminated and he is subsequently reemployed within 12 months, the period between his Severance from Service Date and the date of his reemployment shall be included in his Vesting Service, except that if his employment is terminated during a period of absence from service for reasons other than Retirement, death, or termination of employment, Vesting Service shall be recognized for the period from his Severance from Service Date to the date of his reemployment only if he is reemployed within 12 months of the first day of such absence. A Break-in-Service shall occur if an Employee is not reemployed within one year after a Severance from Service Date, provided, however, that if an Employee's employment is terminated or if the Employee is otherwise absent from work because of the pregnancy of the Employee, the birth of a child of the employee or the placement of a child with the Employee in connection with the adoption of such child by such Employee or for purposes of caring for such child for a period beginning immediately following such birth or placement, his Severance from Service Date shall be the second anniversary of the first date of such absence. The period between the first and second anniversaries of the first date of such absence shall not be Vesting Service and shall not constitute a Break-in-Service. In the event of a Break-in-Service, any period prior to the Break- in-Service shall thereafter be excluded from an Employee's Vesting Service, except as provided in Section 4.15. (b) With respect to any Employee who was an active or terminated participant in the Prior Plan on March 31, 1989 and who becomes a participant under this Plan as of April 1, 1989 or at a later date, for purposes of determining such Employee's eligibility for benefits under this Plan, Vesting Service for service rendered prior to April 1, 1989 shall be equal to the service recognized for that purpose under the Prior Plan as of March 31, 1989. (c) If an Employee shall have been absent from the service of the Employer or an Affiliated Company (i) because of service in the Armed Forces of the United States for which his reemployment rights are protected by the laws of the United States and if he shall have returned to the service of the Employer or such Affiliated Company, having applied to return within 90 days (or such other period as may be required under the Uniform Services Employment -10- and Reemployment Act of 1994) either (A) after having become entitled to release from active duty in the Armed Forces or (B) after hospitalization continuing after discharge for a period of not more than one year, (ii) on an Authorized Leave of Absence under the Family and Medical Leave Act of 1993, or, (iii) on any other Authorized Leave of Absence with pay (for this purpose, if an Employee is receiving short-term disability benefits from the Employer or from a plan maintained by the Employer, such Employee will be considered as being on an Authorized Leave of Absence with pay), such absence shall not count as a Break-in-Service and shall be considered as Vesting Service. (d) A period during which an Employee is on an Authorized Leave of Absence shall not be considered as a Break-in-Service and, under rules uniformly applicable to all Employees similarly situated, the Committee may authorize the inclusion in Vesting Service of any portion of such period of leave which is not included in Vesting Service under Section 3.01(a) or 3.01(c) for purposes of determining eligibility for benefits under the Plan. Section 3.02. Credited Service. (a) Except as otherwise herein provided, all Vesting Service rendered as an Employee while a Member or participant shall be Credited Service under the Plan. Any period between a Severance from Service Date and a reemployment date which is recognized as Vesting Service under Section 3.01(a) and any period of absence without pay included in Vesting Service pursuant to Section 3.01(d) shall be excluded from his Credited Service. (b) Credited Service shall include any period of service in the Armed Forces of the United States and any period of service during which a Member is on an Authorized Leave of Absence under the Family and Medical Leave Act of 1933 or any other Authorized Leave of Absence with pay which is included in a Member's Vesting Service pursuant to Section 3.01(c). The Compensation for any such period of absence without pay include in Credited Service pursuant to this paragraph (b) shall be at the Member's rate of Compensation in effect prior to the commencement of such period. (c) Except as otherwise provided in Sections 3.02(b), 4.15, 4.16 and 4.18, the following periods of Vesting Service shall be excluded for the purpose of computing a Member's Credited Service under the Plan: (i) Vesting Service during any leave of absence, including an Authorized Leave of Absence, from an Affiliated Company. (ii) Vesting Service in the employ of an Affiliated Company, unless recognized pursuant to Section 3.04. (iii) Vesting Service with the Employer other than as an "Employee" as herein defined. -11- (iv) Any period between a Member's Severance from Service Date and his date of reemployment which is included in his Vesting Service pursuant to Section 3.01(a). Section 3.03. Calculation of Vesting Service and Credited Service. Vesting Service and Credited Service shall be determined based on years and fractional years of Vesting Service and Credited Service with one-twelfth of a year counted for: (a) Each month in which an Employee receives Compensation for active employment during such month. (b) Each month in which an Employee is on leave of absence because of occupational injury or disease and on account of which he receives Workers' Compensation for at least one payroll period. (c) Each month included in Vesting Service, other than a month included in (b) above, in which the Employee does not receive Compensation. (d) Each month during which a disabled Member is entitled to Credited Service under Section 4.18. No Vesting Service shall be granted after Retirement because of a compensable Authorized Leave of Absence. Section 3.04. Corporate Transactions. In the discretion of the Board of Directors, under rules uniformly applicable to all persons similarly situated and in accordance with regulations issued by the Secretary of Treasury under Section 401(a)(4) of the Code, Vesting Service for the purpose of determining eligibility for benefits and Credited Service for the purpose of computing benefits under the Plan may be granted for periods of continuous employment immediately preceding employment by the Employer with an Affiliated Company or an associated, subsidiary, or predecessor corporation, including a corporation substantially all of whose assets have been absorbed by the Employer by purchase of assets, consolidation, merger or otherwise. End of Article 3 -12- ARTICLE 4 BENEFITS Section 4.01. Normal Retirement Pension. (a) The right of a Member to his Normal Retirement Pension shall be nonforfeitable upon his attainment of Normal Retirement Age. A Member may retire from service on a Normal Retirement Pension on the first day of any calendar month on or after his Normal Retirement Date; however, a Member may defer his Retirement and remain in service with the Employer after his attainment of Normal Retirement Age and continue to accrue benefits under the Plan until actual Retirement. (b) Except as provided in paragraphs (c), (d) and (e) below, the annual Normal Retirement Pension payable to a Member upon retirement on or after his Normal Retirement Date shall be equal to the difference between (i) and (ii) where: (i) is the amount determined under (A), offset by the lesser of (B) and (C), and (ii) is the amount equal to the benefit payable as a single life annuity at Normal Retirement Age under the Prior Plan. (A) An amount equal to one and one-half percent (1-1/2%) of the Member's Average Final Compensation, multiplied by the number of years of his Credited Service. (B) An amount equal to three quarters of one percent (3/4%) of the smaller of Average Final Compensation or Covered Compensation, multiplied by the total number of years of Credited Service not to exceed 35 years. (C) An amount equal to (i) 0.555% (if the Social Security Retirement Age is 65), 0.525% (if the Social Security Retirement Age is 66), or 0.485% (if the Social Security Retirement Age is 67), multiplied by (ii) the lesser of Final Average Compensation or Covered Compensation, multiplied by (iii) the total number of years of Credited Service not to exceed 35 years. (c) In no event shall the amount of benefit determined in accordance with Section 4.01(b) above be less than the benefit accrued as of December 31, 1993. (d) If a Member remains in service after his Normal Retirement Date, no Retirement Pension shall be payable during such continuance of service. Upon Retirement, the Normal Retirement Pension payable to the Member shall be the greater of (i) and (ii) where (i) the amount of his Normal Retirement Pension payable upon actual Retirement taking into account Credited Service and Compensation through such actual Retirement Date and (ii) the amount of Pension payable as of the Member's Late Retirement Date by the Equivalent Actuarial Value of the amount of his Normal Retirement Pension determined as of his Normal Retirement Date. -13- (e) Notwithstanding any other provision of the Plan to the contrary, distribution of any Pension to any Member shall commence, in accordance with regulations issued by the Secretary of the Treasury under Section 401(a)(9) of the Code, not later than the Member's Required Commencement Date. Section 4.02. Early Retirement Pension. (a) A Member in active service may retire on an Early Retirement Pension on the first day of any month prior to his Normal Retirement Date coinciding with or following his attainment of age 55 and completion of 10 years of Vesting Service. Notwithstanding the foregoing, if a Member was a participant in the Prior Plan, and was eligible to retire on a date which is earlier than the date described in the preceding sentence, such a Member shall be entitled to retire on an Early Retirement Pension on the first day of any month prior to his Normal Retirement Date on which he would have been able to so retire under the Prior Plan. (b) (i) If the Member retires after his attainment of age 62 and completion of 10 years of Vesting Service, his Early Retirement Pension shall be equal to a Normal Retirement Pension computed in accordance with Section 4.01 on the basis of his Average Final Compensation and Credited Service at the time of early Retirement. (ii) If the Member has completed 10 years of Vesting Service and retires prior to his attainment of age 62, his Early Retirement Pension shall be a deferred Pension commencing on the first day of the calendar month coincident with or next following the 62nd anniversary of the Member's birth and shall be computed as a Normal Retirement Pension computed in accordance with Section 4.01 on the basis of his Average Final Compensation and Credited Service at the time of early Retirement and the Plan provisions in effect at that time. The Member may, however, elect to have the Early Retirement Pension commence on the first day of any calendar month prior to his attainment of age 62 following receipt by the Committee of his written election thereof, in a reduced amount. Such amount shall be equal to the deferred pension commencing at age 62 reduced by five-twelfths of one per cent for each month by which the date of commencement of the Member's Pension precedes the first day of the calendar month coincident with or next following the 62nd anniversary of his birth. Section 4.03. Deferred Vested Pension. (a) A Member who, for reasons other than retirement or death, ceases to be employed by the Employer or an Affiliated Company, shall be eligible for a Deferred Vested Pension on application therefor, provided that at the time his service is terminated be has completed 5 years of Vesting Service. (b) The Deferred Vested Pension shall be computed as a Normal Retirement Pension in accordance with Section 4.01 on the basis of his Average Final Compensation and Credited Service at his date of termination and the Plan provisions in effect on that date. -14- (c) The Deferred Vested Pension payable under this Section 4.03 shall commence on the later of (i) the Member's Normal Retirement Date or (ii) the first day of the calendar month next following receipt by the Committee of the Member's written application for such Pension. If such application is received after his Normal Retirement Date, the Pension shall be actuarily increased in the same manner as for late retirements in accordance with Section 4.01(d). (d) Upon attainment of age 55, a Member who had completed 10 years of Vesting Service as of his termination of service (or had been provided with special deferred vested pension benefits under Section 4.03(e) of the Prior Plan) shall be eligible to receive, upon written application therefor, a Deferred Vested Pension commencing on the first day of any calendar month following such Member's attainment of age 55, in a reduced amount which shall be equal to the Deferred Vested Pension commencing at Normal Retirement Date reduced by five-twelfths of one per cent for each month by which the date of commencement of such Pension precedes his Normal Retirement Date. (e) Notwithstanding the foregoing provisions of this Section 4.03, a Member whose employment with the Employer terminates as a result of the cessation of the business operations of (i) the Eljer Plumbingware Atlanta, Georgia plant, (ii) the GlasTec Middlebury, Valdosta and Gainsville plants and the Wilson plant and (iii) Design Plus York, Pennsylvania location shall be deemed to be 100% vested in a Pension based on the number of actual years of Credited Service performed by such Member. Section 4.04. Normal Form of Pension. (a) Qualified Joint and Survivor Annuity. The normal form of Pension for a Member who is married to a Spouse on his Benefit Commencement Date will be a qualified joint and survivor annuity. The qualified joint and survivor annuity shall provide the Member with an annuity based on the Member's Normal, Early or Deferred Vested Pension, as the case may be, payable for the Member's life, and upon his death fifty percent of such amount shall be paid to the Member's Spouse for his life. The annuity payable to the Member shall be reduced to the Equivalent Actuarial Value of the single life annuity described in Section 4.04(b). (b) Single Life Annuity. The normal form of Pension for a Member who is unmarried on the Member's Benefit Commencement Date will be a single life annuity. The single life annuity will provide a monthly annuity to the Member for life, in an amount based on the Member's Normal, Early or Deferred Vested Pension, as the case may be, with no further payment after his death. (c) Marital Status. The Committee will request each Member to confirm his marital status, or to indicate any change therein, prior to his Benefit Commencement Date, and the form of such Member's Pension shall be determined by his marital status as so stated, in the absence of the election of an optional form of benefit in accordance with the provisions of Sections 4.05 and 4.06. -15- Section 4.05. Member Pension Elections. (a) Election Not to Take Qualified Joint and Survivor Annuity or Single Life Annuity. A Member who qualifies for the qualified joint and survivor annuity or single life annuity described in Section 4.04 may elect to receive his Pension in one of the optional forms of benefit described in Section 4.06 or revoke such an election, provided that the Member notifies the Committee in writing of such election or revocation of election on an appropriate form supplied by the Committee for this purpose. No election made under this Section 4.05(a) shall be effective without Spousal Consent unless it is established to the satisfaction of the Committee that the consent of a Spouse cannot be obtained because the Spouse cannot be located or such other circumstances as the Secretary of the Treasury may prescribe by regulation exist. The Committee shall furnish to each Member who is eligible to make an election under this Section 4.05(a) a written explanation in nontechnical language of (i) the terms and conditions of the qualified joint and survivor annuity or single life annuity, (ii) the Member's right to make, and the effect of, an election to waive the qualified joint and survivor annuity or single life annuity form of benefit, (iii) the rights of the Member's Spouse under this Section 4.05(a) with respect to such waiver election, (iv) the right to make, and the effect of, a revocation of an election to waive the qualified joint and survivor annuity or single life annuity form of benefit and (v) a special tax notice issued by the Internal Revenue Service regarding the general tax consequences of a distribution, including the Member's right, if applicable, to roll over all or a portion of his Pension to an Eligible Retirement Plan pursuant to Section 401(a)(31) of the Code. If such notification is made by mail or personal delivery, it shall be made by such time as to reasonably assure that it will be received by the Member at least thirty (30) days and not more than ninety (90) days before the Benefit Commencement Date. Notice of the election may be given by alternative means, which must be reasonably calculated to reach the attention of the Member on or about the time period specified in the preceding sentence and continue to reach the attention of the Member during the period in which he may make the election (as, for example, by posting or repeated publication). A Member may make an election not to take a qualified joint and survivor annuity or single life annuity in favor of his Pension payable in a form prescribed by Section 4.06 hereof at any time during the ninety (90) day period preceding the Benefit Commencement Date. Furthermore, a Member may request additional information regarding the qualified joint and survivor annuity or single life annuity during the sixty (60) day period following the date the above explanation is mailed or personally delivered or otherwise communicated to such Member. If the Member requests additional information, the Member may make an election not to take a qualified joint and survivor annuity or single life annuity any time during the sixty (60) day period following the date the original requested information is mailed or personally delivered to such Member. Notwithstanding the preceding provisions, in no event shall the period during which a Member may elect not to take a qualified joint and survivor annuity or single life annuity in favor of a Pension payable in an optional form of benefit specified in Section 4.06 hereof or to revoke such election expire earlier than the Benefit Commencement Date. -16- A Member may revoke an election made pursuant to this Section 4.05(a) during the ninety (90) day period ending on the Benefit Commencement Date, and the Member may make a new election thereafter if it otherwise complies with this Section 4.05(a). A Member's election not to take a qualified joint and survivor annuity or single life annuity, if timely made, is effective on the date the Member's payment of his Pension is to commence under the Plan. A Member's revocation of an election not to take a qualified joint and survivor annuity or single life annuity is effective on the date the Member notifies the Committee thereof in accordance with this Section 4.05(a). Any such new election or revocation of any election previously made shall be made in accordance with the provisions of this Section 4.05(a). (b) Conditions of Election of Optional Form. The Member shall not make any election for an optional form of Pension, under which the present value of the Pension payable solely to the Member will not be greater than fifty percent of the present value of the total Pension payable to the Member and his Beneficiaries; provided, however, that if the Member receives his Pension in the form a qualified joint and survivor annuity described in Section 4.04(a) hereof, the preceding limitation shall not apply. The Committee shall determine "present value" as of the date the Trustee is to commence payment of the Pension to the Member. If the Committee determines to disallow a Member's election, it shall direct the Trustee in writing to commence payment of the Member's Pension to him in the normal form specified in Section 4.04. The Committee shall apply the provisions of this Section 4.05(b) in a nondiscriminatory and uniform manner. If the Member or, in the case of Options 2, 3 or 4 set forth in Section 4.06, the Beneficiary designated under the option, dies prior to the Member's Benefit Commencement Date, the Member's election of the option thereby shall be revoked. Section 4.06 Optional Forms of Payment. By making the election described in Section 4.05(a) and by giving written notice to the Committee during the election period specified in Section 4.05(a), a Member may elect to receive his Pension, in one of the following optional forms of benefit in lieu of the normal form provided for in Section 4.04, subject to the provisions of Section 4.14. The amount of the Member's Pension payable under any of the optional forms of benefit described in this Section 4.06 shall be the Equivalent Actuarial Value of the Member's normal form of benefit provided for in Section 4.04. The optional forms of benefit that a Member may elect are as follows: Option 1. Single Life Annuity. A Member whose normal form of Pension is a qualified joint and survivor annuity, as described in Section 4.04(a), may elect to receive his Pension in the form of a single life annuity payable monthly during the Member's life, with no Pension payable after his death. Option 2. Joint and 100% Survivor Annuity. A Member may elect to receive a modified Pension payable to the Member monthly for life, with one hundred percent (100%) of such modified Pension payable monthly to and for the life of his named Beneficiary, if such Beneficiary survives the Member. -17- Option 3. Joint and 75% Survivor Annuity. A Member may elect to receive a modified Pension payable to the Member monthly for life, with seventy-five percent (75%) of such modified Pension payable monthly to and for the life of his named Beneficiary, if such Beneficiary survives the Member. Option 4. Joint and 50% Survivor Annuity. A Member may elect to receive a modified Pension payable to the Member monthly for life, with fifty percent (50%) of such modified Pension payable monthly to and for the benefit of his named Beneficiary, if such Beneficiary survives the Member. Option 5. Five Year Certain Option. A Member may elect to receive a modified Pension payable to the Member for life, with the provision that if the Member dies before receiving a total of sixty (60) monthly payments, payment of such modified annuity shall be continued to a named Beneficiary, until the number of payments received by the Member and his Beneficiary equal a total of sixty (60) payments. If the Beneficiary predeceases the Member, the death of a Beneficiary shall not increase the amount the Member is entitled to receive but the Member may designate a new Beneficiary under this option. In the event that the Beneficiary dies before all of the monthly payments have been paid pursuant to this option, such payments shall continue to be made to the estate of the last to die of the Member or Beneficiary until a total of sixty (60) monthly payments have been received by the Member and such estate. Option 6. Ten Year Certain Option. A Member may elect to receive a modified Pension payable to the Member for life, with the provision that if the Member dies before receiving a total of one hundred twenty (120) monthly payments, payment of such modified annuity shall be continued to a named Beneficiary, until the number of payments received by the Member and his Beneficiary equal a total of one hundred twenty (120) payments. If the Beneficiary predeceases the Member, the death of a Beneficiary shall not increase the amount the Member is entitled to receive but the Member may designate a new Beneficiary under this option. In the event that the Beneficiary dies before all of the monthly payments have been paid pursuant to this option, such payments shall continue to be made to the estate of the last to die of the Member or Beneficiary until a total of one hundred twenty (120) monthly payments have been received by the Member and such estate. Option 7. Direct Rollover. Effective for distributions commencing on and after January 1, 1993, a Member may elect to receive all or a portion of his Pension in the form of a direct rollover to an Eligible Retirement Plan, provided that such distribution otherwise qualifies for direct rollover under Section 401(a)(31) of the Code. Special Lump Sum Option. In addition to the optional forms of benefit set forth in this Section 4.06, a Member who terminates employment with the Employer as a result of the cessation of the business operations of (i) the Eljer Plumbingware Atlanta, Georgia plan, (ii) the GlasTec Middlebury, Valdosta and Gainsville plants and the Wilson plant and (iii) Design Plus York, Pennsylvania location may, by written notice received by the Committee, elect to receive his Pension in a single sum payment of Equivalent Actuarial Value, calculated in accordance with -18- the provisions of Section 4.04 hereof and payable as soon as administratively possible following the Member's termination of employment; provided, however, for any such Pension payable on and after January 1, 1993, such Member may elect to transfer all or a portion of his Pension to an Eligible Retirement Plan, provided such Pension exceeds $200 and otherwise qualifies for direct rollover pursuant to Section 401(a)(31) of the Code. The Committee shall prescribe the procedures a Member must follow to request a direct rollover of his Pension pursuant to this Section 4.06. Section 4.07. Lump-Sum Cashout Distribution When Vested Pension not in Excess of $3,500. If a Member terminates employment for any reason, including Retirement, and the present value of such Member's vested Pension payable to him at his Normal Retirement Date is not greater than $3,500, or if a Member dies and the present value of the Spouse's Pension payable to his surviving Spouse under Section 4.09 not greater than $3,500, or if the present value of a Pension payable to a former Spouse who is an Alternate Payee under a Qualified Domestic Relations Order is not greater than $3,500 (determined without regard to the value of the Member's remaining Pension), unless the Member, or if applicable, the surviving Spouse or former Spouse elects a direct rollover under this Section 4.07, the Committee shall direct the Trustee to distribute the Member's vested Pension (or where the Member has died, the Spouse's Pension or, in the case of a former Spouse, the Pension payable under the Qualified Domestic Relations Order) in a single sum payment as soon as administratively practicable following the Member's termination of employment (or where the Member has died, the date on which the Committee receives notice of the Member's death or, in the case of a Pension payable to a former Spouse, the date of entry of the Qualified Domestic Relations Order). No distribution may be made to a Member under this Section 4.07 after the Member's Benefit Commencement Date without the written consent of the Member and, if he is married, his Spouse. For the purpose of this Section 4.07, present value will be the Equivalent Actuarial Value determined under Section 1.22 of the Member's or, if applicable, former Spouse's Pension payable in the normal form of payment under Section 4.04 at his Normal Retirement Date (or where the Member has died, the Spouse's Pension under Section 4.09). Alternatively, the Member or, if applicable, the surviving Spouse or former Spouse may elect to transfer all or a portion of his Pension to an Eligible Retirement Plan, provided that the present value of such Pension exceeds $200 and otherwise qualifies for direct rollover pursuant to Section 401(a)(31) of the Code. If a Member or a former or surviving Spouse elects a direct rollover under this Section 4.07, the Committee will direct the Trustee to roll over all or a portion of the Pension to the Eligible Retirement Plan specified by the Member or a former or surviving Spouse, as the case may be. If a Member or a former or surviving Spouse elects to transfer only a portion of his Pension under this Section 4.07 to an Eligible Retirement Plan, the remainder of his Pension shall be distributed in a single sum. The Committee shall prescribe the procedures a Member or a former or surviving Spouse must follow to request a direct rollover of his Pension pursuant to this Section 4.07. A Member's Credited Service under the Plan shall be disregarded following the single sum payment of the full present value of Member's Pension under this Section 4.07 and under Section 4.06 if the Member subsequently returns to employment with the Employer and such Member shall not be entitled to repay such single sum payment upon his reemployment. -19- Section 4.08. Deemed Distribution to Non-vested Member. If a Member terminates employment at a time when such Member's Deferred Vested Pension equals Zero Dollars ($0), the Member shall be deemed to receive a distribution of his entire Pension vested as of the day he terminates employment. If such Member subsequently returns to employment with the Employer prior to the date on which the Member incurs five consecutive Breaks in Service, upon his reemployment, the Member shall be credited with his years of Credited Service credited prior to his termination of employment with the Employer for purposes of determining any Pension to which he is entitled at any later date. Section 4.09. Spouse's Pension. (a) In the event of the death of a Member (whether as an active Employee or a former Employee) before his Benefit Commencement Date who satisfied the vesting requirements of Section 4.03 prior to his death and who is survived by a Spouse, such Spouse shall be entitled to a Spouse's Pension, determined in accordance with this Section 4.09. The Spouse's Pension shall commence on the date the Member would have reached his Normal Retirement Date or on the first day of the month next following the Member's date of death, if later. However, if the Member's death occurs prior to his Normal Retirement Date, the Member's Spouse may elect to receive the Spouse's Pension commencing on the first day of the month immediately following the later of (i) the Member's date of death or (ii) the earliest date the Member would have been eligible for benefit commencement under Section 4.03(d). (b) The Spouse's Pension shall be equal to (i) in the case of a Member or former Member who dies after he has completed the age and service requirements for an Early or Normal Retirement Pension, the Pension which would have been payable to the Spouse under Section 4.04(a) if the Member had retired on an Early or Normal Retirement Pension, whichever is applicable, beginning on the first day of the month in which he died as provided in Section 4.01 or Section 4.02(b), and (ii) in the case of any other Member or former Member, the Pension which would have been payable to the Spouse, based on the Member's accrued Plan benefit as of the date of death, if the Member had elected to have his Pension begin on the earliest date provided in Section 4.03(d), and then had died on the next following day. In either case, the Spouse's Pension shall be calculated as follows: (i) a Pension computed in accordance with Section 4.01 on the basis of the Member's Compensation and Credited Service as of the first day of the month preceding his date of death; reduced by (ii) the appropriate reduction factor for early Retirement as provided in Section 4.02(b) or for early commencement of a Deferred Vested Pension as provided in Section 4.03(d), if either reduction is applicable; multiplied by (iii) the actuarial equivalent factor for a qualified joint and survivor annuity Pension with fifty percent (50%) of the Member's Pension continued after his death to his Spouse, as provided in Section 4.04(a); multiplied by: -20- (iv) fifty percent (50%) (c) If a Member dies without a surviving Spouse or dies prior to satisfying the vesting requirements of Section 4.03, no Pension or other benefit will be payable from the Plan with respect to his participation herein to any person, except as provided in Section 4.10(b). Section 4.10. Death of Member. (a) If a Member dies on or after his Benefit Commencement Date, no further periodic payments will be made under the Plan to any person with respect to the deceased Member's Pension, unless the Member had elected an optional form of benefit pursuant to Section 4.06 that provides for payments to a surviving co-annuitant or Beneficiary, or an annuity is payable to the Member's surviving Spouse in accordance with Section 4.09. (b) Upon receipt of proof, satisfactory to the Committee, of the death of a Member who retired on or after April 1, 1989 and on or after his attainment of age 60 and who is not covered under the Company's group life insurance program at the time of his death, a single sum benefit equal to $3,000 shall be paid to the person nominated by him by written designation duly acknowledged and filed with the Committee, if such person survives him, otherwise to the legal representatives of such deceased Member. Section 4.11. Qualified Domestic Relations Orders. During any period in which the issue of whether a domestic relations order is a Qualified Domestic Relations Order is being determined (by the Committee, by a court of competent jurisdiction, or otherwise), the Committee shall direct the Trustee to segregate in a separate account or in an escrow account the amount that would have been payable to the Alternate Payee during such period if the domestic relations order is determined to be a Qualified Domestic Relations Order. If within eighteen (18) months the domestic relations order (or modification thereof) is determined to be a Qualified Domestic Relations Order, the Committee shall direct the Trustee to pay the segregated account (and any earnings or interest thereon) or the balance held in the escrow account, as applicable, to the person or persons entitled thereto. If within eighteen (18) months it is determined that the order is not a Qualified Domestic Relations Order or the issue as to whether such domestic relations order is a Qualified Domestic Relations Order is not resolved, the Committee shall direct the Trustee to pay the segregated account (and any earnings or interest thereon) or the balance of the escrow account, as applicable, to the person or persons who would have been entitled to such amounts if there had been no domestic relations order. Any determination that a domestic relations order is a Qualified Domestic Relations Order which is made after the close of the eighteen (18) month period shall be applied prospectively only. The Committee shall establish reasonable procedures for determining whether a domestic relations order is a Qualified Domestic Relations Order and to administer distributions under Qualified Domestic Relations Orders. When the Plan receives a domestic relations order, the Committee shall promptly notify the appropriate Participant and any other Alternate Payee of the -21- receipt of such order and the Committee's procedures for determining whether such order is a Qualified Domestic Relations Order. The Committee shall determine whether a domestic relations order is a Qualified Domestic Relations Order within a reasonable period after receipt of such order, and shall within a reasonable time after such determination notify the Participant and each Alternate Payee of such determination. Payment of amounts awarded to an Alternate Payee shall be made in accordance with the terms of the Qualified Domestic Relations Order; provided, however, that if the present value of the Alternate Payee's Pension does not exceed $3,500, such Pension shall be paid in accordance with Section 4.07. Section 4.12. Basis of Payment. Except as provided in Sections 4.06 and 4.07, all Pension payments under the Plan shall be paid monthly commencing on the first day of the month coinciding with or next following Member's Retirement Date (or the first day of the month designated in Section 4.09 in the case of a Spouse's Pension) and will continue to be paid on the first of each month thereafter. No Pension payments which are destined to end with the death of a person shall be paid after the date on which the person last entitled to payment dies. Section 4.13. Maximum Benefit Limitation. Notwithstanding any provision contained herein to the contrary: (a) the amount of annual Pension, determined in accordance with this Section 4.13, payable with respect to a Member under this Plan and any other defined benefit plan (as described in Section 415(k) of the Code) maintained by the Employer for any Limitation Year shall not exceed an amount equal to the lesser of: (i) $90,000 adjusted for increases in the cost of living pursuant to Section 415(b)(1)(A) of the Code; or (ii) 100% of the Member's Average Compensation. The determination of whether a Member's Pension, payable under the Plan exceeds the limitations of this Section 4.13 shall be made by adjusting such Pension, so that it is the Equivalent Actuarial Value of a straight life annuity with no ancillary benefits (such adjustment being made in accordance with regulations promulgated by the Secretary of the Treasury or its delegate pursuant to Section 415(b)(2)(B) of the Code); provided, however, that any portion of an annuity that constitutes a qualified joint and survivor annuity shall not be taken into account. (b) In the event a Member has been credited with less than ten years of participation in the Plan, the $90,000 dollar limitation under Section 4.13(a)(i) shall be reduced by multiplying such limit by a fraction, the numerator of which is the Member's years of participation (or part thereof) and the denominator of which is ten. In the event the Member has been credited with less than ten years of service with the Employer (or part thereof), the compensation limitation -22- under Section 4.13(a)(ii) shall be reduced by multiplying such limit by a fraction, the numerator of which is the number of years of service credited to the Member and the denominator of which is ten. (c) If any Member begins to receive a Pension under this Plan before such Member attains Social Security Retirement Age, the maximum annual Pension, that such Member may receive hereunder shall be adjusted so that it is the Equivalent Actuarial Value of $90,000 per year beginning at Social Security Retirement Age. If a Member begins to receive a Pension, hereunder after he attains Social Security Retirement Age, the maximum annual Pension, permitted hereunder shall be the Equivalent Actuarial Value of $90,000 per year beginning at Social Security Retirement Age. Any adjustment made pursuant to the foregoing shall be made in accordance with applicable rules prescribed by the Secretary of the Treasury. In making an actuarial adjustment to any benefit pursuant to the terms of this paragraph, no cost of living adjustment to the $90,000 limitation under Section 415(d)(1) of the Code shall be taken into account before the year in which such cost of living adjustment is made. (d) If the benefit the Member would otherwise accrue in a Limitation Year would produce an annual Pension in excess of the limitation under Section 4.13(a), the rate of accrual will be reduced so that the annual Pension will equal the limitation under Section 4.13(a). (e) The limitations in Section 4.13(a) shall not be applied with respect to any Member whose annual Pension is not more than $1,000 multiplied by the Member's number of years of service or parts thereof (not to exceed ten) with the Employer, and the Member has not at any time participated in any defined contribution plan (as defined in Section 415(k) of the Code) maintained by the Employer. (f) If, in any Limitation Year a Member also participates in one or more qualified defined contribution plans (within the meaning of Section 414(i) of the Code) maintained by the Employer (whether or not terminated), then for any Limitation Year, the sum of the Defined Benefit Plan Fraction for such Limitation Year and the Defined Contribution Plan Fraction for such Limitation Year shall not exceed 1.0. (g) If, in any Limitation Year, the sum of the Defined Benefit Plan Fraction and Defined Contribution Plan Fraction for a Member would exceed 1.0 without adjustment of the amount of the maximum annual Pension that can be paid to such Member under Section 4.13(a), the sum of the fractions will be reduced to 1.0 by first reducing any voluntary employee after-tax contributions to this Plan, then by reducing any voluntary employee after-tax contributions to the defined contribution plans, and then by reducing the amount of the maximum annual Pension that can be paid to such Member under Section 4.13(a) to the extent necessary to reduce the sum of the Defined Benefit Plan Fraction and Defined Contribution Plan Fraction for such Member to 1.0. In addition, Committee may take such other action consistent with section 415 of the Code to cause the sum to equal 1.0 or less. -23- (h) Definitions: (i) "Average Compensation" means for purposes of this Section 4.13 the average Annual Compensation during a Member's high three years of service, which period is the actual number of consecutive calendar years (or, the actual number of consecutive years of employment for those Employees who are employed for less than three consecutive years with the Employer) during which the Employee had the greatest aggregate Annual Compensation from the Employer. (ii) "Employer" means for purposes of this Section 4.13, the Employer and any Affiliated Company that adopts this Plan; provided, however, the determination under Section 414(b) and (c) of the Code shall be made as if the phrase "more than 50 percent" were substituted for the phrase "at least 80 percent" each place it is incorporated into Section 414(b) and (c) of the Code. (iii) "Annual Compensation" means for purposes of this Section 4.13, a Member's earned income, wages, salaries, fees for professional service and other amounts received (without regard to whether an amount is paid in cash) for personal services actually rendered in the course of employment with an Employer maintaining the Plan to the extent that the amounts are includable in gross income (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, reimbursements, and expense allowances) and excluding the following: (A) Employer contributions to a plan of deferred compensation to the extent contributions are not included in gross income of the Employee for the taxable year in which contributed, or on behalf of an Employee to a simplified employee pension plan to the extent such contributions are deductible under Section 219(b)(2) of the Code, and any distributions from a plan of deferred compensation whether or not includable in the gross income of the Employee when distributed; (B) amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by an Employee becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (C) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (D) other amounts which receive special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of a 403(b) annuity contract under Section 403(b) of the Code (whether or not the contributions are excludable from the gross -24- income of the Employee), contributions made by the Employer for medical benefits (within the meaning of Section 401(h) or 419A(f)(2) of the Code) which is otherwise treated as an Annual Addition, or any amount otherwise treated as an Annual Addition under Section 415(l)(1) or 419A(d)(2) of the Code. For Limitation Years beginning after December 31, 1991, Annual Compensation for any Limitation Year is the Annual Compensation actually paid or includable in gross income during such Limitation Year. (iv) "Defined Contribution Plan Fraction" means for purposes of this Section 4.13, for any Limitation Year a fraction: (A) the numerator of which is the sum of the annual additions (as defined in Section 415 (c)(2) of the Code) to the Member's account under the defined contribution plans maintained by the Employer as of the close of the Limitation Year; and (B) the denominator of which is the lesser of: (1) the product of 1.25, multiplied by the dollar limitation determined under Sections 415(b) and (d) of the Code in effect under Section 415(c)(1)(A) of the Code for the Limitation Year (determined without regard to Section 415(c)(6) of the Code), or (2) Thirty-five percent (35%) of the Member's Annual Compensation for the Limitation Year and all prior years of service for the Employer. The Defined Contribution Plan Fraction shall be calculated by taking into account special transition rules authorized under Section 415 of the Code. In addition, the annual addition (as defined in Section 415(c)(2) of the Code) for any Limitation Year beginning before January 1, 1987, shall not be recomputed to treat all Employee contributions as an annual addition. (v) "Defined Benefit Plan Fraction" means for purposes of this Section 4.13 for any Limitation Year a fraction: (A) the projected annual benefit of the Member under this Plan and any other defined benefit plan (as defined in Section 415(k) of the Code) maintained by the Employer determined as of the close of the Limitation Year; and (B) the denominator of which is lesser of: -25- (1) the product of 1.25, multiplied by the dollar limitation in effect for the Limitation Year under Section 415(b)(1)(A) of the Code; or (2) 1.4 multiplied by 100% of the Member's Average Compensation, including any adjustments under Section 415(b) of the Code. (vi) "Limitation Year" means the Plan Year. (vii) "Social Security Retirement Age" means age 65 in the case of a Member attaining age 62 before January 1, 2000 (i.e., born before January 1, 1938), age 66 for a Member attaining age 62 after December 31, 1999, and before January 1, 2017 (i.e., born after December 31, 1937, but before January 1,1955), and age 67 for a Member attaining age 62 after December 31, 2016 (i.e., born after December 31, 1954). Section 4.14. Limitation on Time of Payment. Notwithstanding any provision in this Plan specifying a date for the commencement of benefit payments from the Plan, distribution of the Member's Pension shall commence, unless the Member otherwise elects, not later than sixty (60) days after the Plan Year in which the latest of the following events occurs: (a) The date the Member attains Normal Retirement Age; or (b) The date the Member terminates employment with the Employer; or (c) The tenth anniversary of the last day of the Plan Year in which the Member commenced participation in the Plan. Notwithstanding the foregoing, distribution of each Member's Pension shall commence not later than the Member's Required Commencement Date and the entire vested Pension of each Member shall be distributed in full to such Member not later than the Required Commencement Date or shall be distributed, commencing not later than the Required Commencement Date, in accordance with regulations over the life of such Member or over the lives of such Member and his Beneficiary (or over a period not extending beyond the life expectancy of such Member or the life expectancy of such Member and his Beneficiary). Further, if a Member has commenced receiving distributions under the Plan and the Member dies before his entire interest has been distributed to him, the remaining portion, if any, of such interest that is distributable under this Plan shall be distributed to the Member's Beneficiary at least as rapidly as such interest would have been distributed to the Member, commencing not later than the Member's Required Commencement Date, under the method of distribution in effect at the Member's death. If the Member dies before the distribution of his Pension has commenced, the entire interest of the Member shall be distributed within five years after the death of the Member; provided, however, if any portion of the Member's interest is payable to or for the benefit of a Beneficiary and such portion of the Member's undistributed -26- interest will be distributed in accordance with regulations over the life of such Beneficiary or over a period not extending beyond the life expectancy of such Beneficiary and such distributions commence not later than one year after the date of the Member's death (or such later date as the Secretary of Treasury may by regulation prescribe), the deceased Member's interest shall be distributed in accordance with the method of payment under which the interest will be distributed over the life of the Beneficiary or over a period not extending beyond the life expectancy of the Beneficiary. Notwithstanding the foregoing, if the Beneficiary is the surviving Spouse of the Member, the deceased Member's interest shall be distributed to such surviving Spouse on or before the date on which the Member would have attained age 70-1/2; provided, further, that if the surviving Spouse dies before the distributions to such spouse commence, the distribution of the interest of the deceased Member shall begin on or before a date determined as if the surviving Spouse were the Member. For purposes of this Section 4.14, and pursuant to regulations prescribed by the Secretary of the Treasury, any amount paid to a child of the Member shall be treated as if it had been paid to the surviving Spouse of the Member if such amount will become payable to the surviving Spouse upon such child's attainment of majority (or other designated event permitted under regulations prescribed by the Secretary of the Treasury). For the purposes of this paragraph, the term "Beneficiary" shall include only individuals. Nothing in this Section 4.14 shall permit any Member or Beneficiary to elect any form of distribution not otherwise expressly permitted under this Plan; but rather, the Committee may at any time modify any form of distribution elected by a Member or Beneficiary to ensure compliance with this paragraph. In addition, all distributions from the Plan shall be made in accordance with the requirements of Section 401(a)(9) of the Code, including the incidental benefit rules set forth in Prop. Treas. Reg. Section 1.401(a)(9)-2, and any grandfather or transitional rules issued thereunder. Any distribution provision contained herein which conflicts with Section 401(a)(9) of the Code will be disregarded and the provisions of Section 401(a)(9) will govern. Section 4.15. Restoration of Retired Member or Other Former Employee to Service. (a) If any Member in receipt of a Pension is restored to service with the Employer or an Affiliated Company prior to his Normal Retirement Date, his Pension shall cease and any election of an optional benefit in effect thereunder shall become void. Any Credited Service to which he was entitled when he retired shall be restored to him, and upon subsequent Retirement his Pension shall be based on his Compensation and Credited Service before and after the period of prior retirement, provided that, if such Member was in receipt of an Early Retirement Pension or a Deferred Vested Pension at the time of his restoration to service, his Pension upon subsequent retirement shall be reduced by an amount of Equivalent Actuarial Value to the benefits he received prior to his restoration to service. The part of the Member's Pension upon subsequent retirement payable with respect to Credited Service rendered before the period of his previous retirement shall in no event be less than the amount of his previous Pension modified to reflect any option in effect on his subsequent retirement. -27- (b) If any Member in receipt of a Pension is restored to service with the Employer or an Affiliated Company on or after his Normal Retirement Date, or any Member remains employed beyond his Normal Retirement Date, his Pension payments shall be suspended for each month during the period of reemployment which constitutes a month of "suspension service" as hereinafter provided. In the event of his death during such period, the provisions of Section 4.09 shall be applicable. For purposes of this paragraph (b), a month of "suspension service" shall be a month in which the Member is entitled to receive payment from the Employer or an Affiliated Company for at least eight days of service during such month. Upon subsequent Retirement, his Pension shall be based on his Compensation and Credited Service before and after the period of prior retirement, provided that, if such Member was in receipt of an Early Retirement Pension or a Deferred Vested Pension at the time of his restoration to service, his Pension upon subsequent Retirement shall be reduced by an amount of Equivalent Actuarial Value to the benefits he received prior to his Normal Retirement Date. The part of the Member's Pension upon subsequent Retirement payable with respect to Credited Service rendered before the period of his previous Retirement shall in no event be less than the amount of his previous Pension modified to reflect any option in effect on his subsequent Retirement. Upon subsequent Retirement, payment of the Member's Pension shall resume no later than the first day of the third month after the month in which the Member ceases to be employed in such suspension service, and shall be adjusted, if necessary, in compliance with Department of Labor Regulation Section 2530.203-3 in a consistent and nondiscriminatory manner. (c) If any Member or former participant in the Prior Plan who terminated his service under this Plan or such Prior Plan, as the case may be, was entitled to but not in receipt of a Pension at the date of such termination of service, or a former Member of this Plan or a former participant in the Prior Plan had received a lump sum settlement in lieu of his Pension and is restored to service prior to the commencement of his Pension, he shall have the Credited Service to which he was previously entitled restored to him. In the case of a former participant in the Prior Plan who terminated service prior to the Effective Date, his Credited Service prior thereto for purposes of determining his eligibility for benefits and the amount of such benefits shall be equal to his service recognized under the Prior Plan for those respective purposes. However, if such Member received a lump sum settlement in lieu of said Pension, the Credited Service so restored shall be recognized only for the purpose of determining eligibility for benefits under the Plan and not for the purpose of computing the amount of any benefit, unless such Member repays the amount of such lump sum settlement together with interest at the rate determined in accordance with Section 411(c)(2)(C) of the Code on such amount to the date of repayment, except that, if such lump sum settlement was equal to the full present value of his accrued benefit at the time of such termination, he shall not be permitted to repay such amount and such Credited Service shall not again be recognized for purposes of computing the amount of any benefit. If any Employee who was a participant in the Prior Plan terminated his service prior to the first day of the applicable plan year commencing in 1976 and was entitled to a deferred vested pension under a plan that was subsequently merged into the Prior Plan as of December 31, 1983 at the date of such termination of service and is restored to service, his Credited Service for purposes of determining his eligibility for benefits and the amount of such benefits shall be equal to his service recognized for those purposes through the date of such termination of service under the -28- Prior Plan, as in effect on the date of such termination, provided that he did not receive a lump sum settlement in lieu of said deferred vested benefit. Upon the Retirement or subsequent termination of a Member who was entitled to a Deferred Vested Pension at the time of his previous termination of service, who had his previous Credited Service restored pursuant to this paragraph (c), his Pension or Deferred Vested Pension shall be based on his Compensation and Credited Service before and after the period when he was not in the service of the Employer or an Affiliated Company. (d) If any former Member or any other former participant in the Prior Plan becomes an Employee he shall become a Member. If he has not incurred a Break-in-Service on the date he becomes a Member, his Credited Service as of such date shall be determined in accordance with Article 3. If he has incurred a Break-in-Service commencing after January 1, 1989, and the period of such Break-in-Service did not exceed five years, the Credited Service to which he was previously entitled shall be restored to him. However, if a Member had a Break-in-Service commencing on or before January 1, 1989, the break in service rules as in effect on such date under the Prior Plan shall apply in determining whether or not such prior service shall be restored. In the case of a former participant in the Prior Plan who terminated service prior to the Effective Date, his Credited Service prior thereto for purposes of determining his eligibility for benefits and the amount of such benefits shall be equal to his service recognized under the Prior Plan for those respective purposes. Upon the Retirement or subsequent termination of service of a Member whose previous Credited Service has been restored pursuant to this paragraph (d), his Pension, if any, shall be based on his Compensation and Credited Service before and after the period when he was not in the service of the Employer or an Affiliated Company. Section 4.16. Transfers. (a) If, prior to becoming a Member of this Plan, an Employee was a participant in any other retirement plan of the Employer or an Affiliated Company, other than the Prior Plan, designated by the Board of Directors for transfer of Credited Service for purposes of this Section 4.16, there shall be included in his Credited Service for purposes of computing the amount of any benefit payable to him or on his account all service which was recognized under such other retirement plan for purposes of computing the amount of benefit thereunder at the time he was transferred from the employment classification covered by such other plan. Upon Retirement or termination of service, his Pension payable under this Plan shall be reduced by an amount of Equivalent Actuarial Value to the benefit payable under such other plan, but such reduction shall not exceed the portion of his Pension attributable to the period of his Credited Service for benefit computation purposes recognized under such other plan. In determining such reduction, in the case of a Member who has previously been transferred one or more times between plans before becoming a Member of this Plan, the periods of credited service and amounts of benefit payable from all other plans shall be combined and for this purpose a previous period of Credited Service as an Employee recognized for benefit computation purposes under this Plan shall be treated as if it were a separate period of service rendered as a participant in another plan. In the case of an employee who, prior to becoming a Member of the Plan, was employed by the Employer or an Affiliated Company in an employment classification not eligible for participation in a -29- retirement plan of the Employer or an Affiliated Company, the Committee shall, under rules uniformly applicable to all Employees similarly situated, determine the extent, if any, to which Credited Service for benefit computation purposes shall be granted for service in such ineligible classification. In the case of a transfer between employment classifications which occurred prior to the Effective Date, this paragraph (a) shall be applicable only in accordance with the provisions of the Prior Plan except as otherwise specified above. (b) If a Member of the Plan ceases to be an "Employee" as herein defined, but continues in the employ of the Employer or an Affiliated Company, he shall continue to accrue Credited Service only for the purpose of determining eligibility for benefits and upon termination of employment with the Employer and its Affiliated Companies his eligibility for benefits under the Plan shall be determined on the basis of his age and Credited Service to the date of such termination of employment, but the amount of benefit shall be computed on the basis of his Compensation and Credited service at the date he ceased to be an "Employee" as herein defined. Eligibility for benefits and the amount of benefit shall be determined on the basis of the provisions of the Plan in effect on the date he ceased to be an Employee as herein defined, except as may otherwise be required by applicable law. An employee who at the date of termination of employment is not an Employee as herein defined shall not be eligible for an Early Retirement Pension pursuant to Section 4.02(b)(i) or (ii) or a Disability Benefit. The provisions of this paragraph (b) shall not be applicable to any Member referred to in the last sentence of Section 4.17 of the Prior Plan. Section 4.17. Special Provisions Applicable to Certain Former Members in the Prior Plan. In the case of a Member referred to in Section 4.12(b) or (c) of the Prior Plan (a former King- Seeley Plan participant), such provisions of the Prior Plan (including the reductions in benefits due to receipt of benefits under a group annuity contract and the entitlement for certain individuals to retire upon attainment of age 60 under a Normal Retirement Pension) shall continue to be applied to such Member upon Retirement from the Plan. Section 4.18. Disability Benefit. (a) A Member who has not reached his Normal Retirement Date, but who is eligible for and in receipt of disability insurance benefits under the Social Security Act and who, at the time of discontinuance of active employment on account of disability had completed 5 years of Credited Service, shall have the period during which he is in receipt of the Social Security disability insurance benefit included in his Credited Service, provided that such Member applied for a Social Security disability benefit within 12 months from the date he ceased to be an active Employee due to his disability. (b) In the event a Member described in paragraph (a) recovers from disability and returns to employment with the Employer, he will continue to accrue Credited Service according to Section 3.02. In the event he recovers from disability and he does not return to employment with the Employer, he will not be entitled to any Credited Service for periods commencing on and after the date of his recovery from disability. -30- (c) Once each year, the Committee may require any Member receiving Credited Service under this Section 4.18 who has not reached his Normal Retirement Date to provide satisfactory evidence of his continued eligibility for disability insurance benefits under the Social Security Act. Should any such Member refuse to provide such evidence, he will not be entitled to any additional Credited Service until his withdrawal of such refusal and, should his refusal continue for a year, all rights to additional Credited Service under this Section 4.18 shall cease. If the Committee finds that the Member has ceased to be eligible for disability insurance benefits under the Social Security Act, additional Credited Service under this Section 4.18 shall be discontinued. (d) Credited Service under this Section 4.18 shall automatically cease on the first day of the month preceding a Member's Normal Retirement Date. (e) When the disabled Member reaches his Normal Retirement Date, he will be entitled to a Normal Retirement Pension computed in accordance with Section 4.01 on the basis of his Average Final Compensation determined in accordance with Section 1.04, his Final Average Compensation and Covered Compensation determined as of the date of commencement of his Disability Benefit, and his Credited Service at his Normal Retirement Date. End of Article 4 -31- ARTICLE 5 CONTRIBUTIONS Section 5.01. Employer Contributions. (a) The Employer shall make regular contributions to the Trustee or the Insurance Company each year in such amounts and at such times as are necessary to maintain the Plan on a sound actuarial basis and to meet minimum funding standards as prescribed by any applicable law. The amount of such contributions shall be paid by the Employer to one or more Trustees, to be held and administered pursuant to Article 8. (b) Any forfeitures of accrued rights to a Pension arising from a Member's termination of Employment or death or for any other reason prior to the termination of the Plan will be used to reduce any contribution required to be made by the Employer pursuant to Section 5.01(a) and will not increase the level of any benefit otherwise payable under the Plan. (c) All contributions of the Employer for a Plan Year shall be paid by the Employer no later than the due date for filing its Federal income tax return (plus extensions) for its fiscal year. If the contribution is on account of the Employer's preceding fiscal year, the contribution shall be accompanied by the Employer's notification to the Trustee that payment is on account of such prior fiscal year. Each contribution made after the end of the fiscal year on account of the Employer's prior Fiscal Year shall be deemed to have been paid as of the last day of the Employer's fiscal year to which it relates, if such contribution is made no later than the time prescribed by law for filing of the Employer's federal income tax return (including extensions thereof) for such fiscal year. An Employer may make a contribution to the Plan later than the date prescribed by law for filing its federal income tax return solely for purposes of complying with the minimum funding requirements of Section 412 of the Code. (d) Notwithstanding Sections 5.01(a) and (b), contribution of the amounts called for thereunder is conditioned upon the continued qualification of the Plan under Section 401 of the Code, and the continued deductibility of the amount of such contributions under Section 404 of the Code (as such Sections may be amended or reenacted). Each Employer intends, but does not guarantee, to make contributions to the Plan in at least the amount required to satisfy the minimum funding requirements of Section 412 of the Code, as specified in the valuation reports for the applicable period of time issued by the Plan's actuary. Notwithstanding the foregoing, each Employer reserves the right to reduce, suspend, or discontinue making contributions to the Plan at any time. (e) Return of Employer Contributions. The Employer will have no right, title or interest in the contributions made by it under Section 5.01(a) to any Trustee or Insurance Company, and no monies will revert to the Employer except that: -32- (i) Any residual assets of the Plan may be returned to the Employer in accordance with Section 10.03; (ii) Any contribution made by the Employer under a mistake of fact may be returned to it within one year after the contribution is made; (iii) The portion of any contribution which is conditioned upon its deductibility under Section 404 of the Code may be returned to the Employer within one year after the deduction is disallowed; and (iv) Any amounts otherwise permitted to be repaid to the Employer by ERISA and the Code may be so repaid. Section 5.02. No Participant Contributions. Participants will not be required or permitted to make contributions to the Plan. End of Article 5 -33- ARTICLE 6 ADMINISTRATION OF PLAN Section 6.01. Appointment of Committee. A Committee of not less than three persons shall be appointed from time to time by, and shall serve at the pleasure of, the Board of Directors or its designee. The Committee will be charged with all phases of the administration of the Plan as set forth in this Article 6 and shall be the Plan Administrator and shall carry out the administrator's duties as imposed under ERISA. The Board of Directors, or its designee, may appoint a chairman of the Committee and if it fails to do so, the members of the Committee shall elect a chairman. The Committee shall elect a secretary who may, but need not, be one of the members of the Committee who shall be responsible for maintaining minutes of the Committee meetings and copies of any reports prepared by the Committee. No member of the Committee will receive any compensation for his service as such. The members of the Committee may or may not be participants in the Plan. Section 6.02. Meetings. The Committee shall hold meetings upon such notice, at such place or places, and at such time or times as they may from time to time determine. Section 6.03. Action of Committee. Any act which the Plan authorizes or requires the Committee to do may be done by a majority of its members. The action of such majority expressed from time to time by a vote at a meeting or in writing without a meeting shall constitute the action of such Committee and shall have the same effect for all purposes as if assented to by all members of such Committee at the time in office. Section 6.04. Powers and Duties. In addition to any implied powers and duties which may be needed to carry out the provisions of the Plan, the Committee shall have the following specific powers and duties: (a) To make and enforce such rules and regulations as it shall deem necessary or proper for the efficient administration of the Plan; (b) To interpret and to construe the Plan and to decide any and all matters arising hereunder, including the right to remedy possible ambiguities, inconsistencies or omissions; provided, however, that all such interpretations and decisions shall be applied in a uniform and non-discriminatory manner to all Employees similarly situated and shall be determined in the sole and absolute discretion of the Committee, which shall be final and binding on all interested parties; (c) To compute the amount of any Pension which shall be payable to any Member, Spouse or Beneficiary in accordance with the provisions of the Plan; -34- (d) To review and render decisions respecting a claim (or denial of a claim) for a benefit under the Plan in accordance with the claims procedure described in Article 7; (e) To authorize disbursements from the Trust Fund (any instructions of the Committee to the Trustee shall be evidenced in writing and signed by a member of the Committee delegated with such authority by a majority of the Committee members); (f) To employ such advisors (including, but not limited to attorneys, independent public accountants, investment advisors, and actuaries), and such other technical and clerical personnel as may be required in the Committee's discretion for the proper administration of the Plan; (g) To designate by written instrument maintained in the Company's files, persons to carry out all or part of the responsibilities of the Committee, and such persons shall have the authority as may be delegated to them in such instrument; (h) To review the activities of any person designated to carry out any of the powers or duties of the Committee and to report to the Board of Directors at least once each year on the overall administration of the Plan; (i) To appoint and remove any Insurance Company or investment manager (as defined in Section 3(38) of ERISA) by whom assets of the Trust Fund are held or managed; (j) To establish asset administration objectives for the Trust Fund consistent with Plan requirements as determined by the Committee, and to determine and assign the amount of assets to be placed under management of each Trustee, Insurance Company or investment manager and to direct the Trustee as to the investment of the Trust Fund; (k) To continuously monitor the adequacy of the funds supporting the Plan to meet future liabilities and make such recommendations as needed to assure that the funds available are adequate to that purpose; (l) To periodically review the investment performance of the Trustee, Insurance Company and investment manager; (m) To supervise at least one audit of the Trust Fund for each Plan Year and review each Trustee's annual accounting; -35- (n) To prepare or collect such financial or related data as the Committee may request in connection with the formulation of a funding policy for the Plan or any Plan description, report, other material or summary thereof. The duties and responsibilities hereby allocated to the members of the Board of Directors shall be limited solely to those duties and responsibilities expressly provided in the Plan and Trust Agreement and the additional duty of reviewing annually the annual report of the Trustee and the activities relating to the Plan of the Trustee, any investment manager, Insurance Company and the Committee. The Board of Directors may by written instrument, delegate to designated persons the authority to carry out all or part of its responsibilities. Section 6.05. Expenses. The reasonable expenses of the Committee and other reasonable expenses incident to the operation of the Plan, including the expenses for any bond required under section 412 of ERISA and the compensation of persons employed pursuant to Section 6.04(f), shall be paid out of the Trust Fund, but the Employer in its discretion may elect at any time to pay part or all thereof directly, and any such election shall not bind the Employer as to its right to elect, with respect to the same or other expenses at any other time, to have such compensation paid from the Fund. Section 6.06. Funding Policy. The Committee, with the assistance of the Plan's actuary, shall adopt, review and, if necessary, revise a funding policy and method consistent with the objectives of the Plan. Section 6.07. Liability of Committee Members. No member of the Committee will be liable for any action or failure to act with respect to the Plan except as expressly provided by ERISA. Section 6.08. Reliance on Reports and Certificates; Actions Taken in Good Faith. The members of the Committee, the Company and its directors, officers and employees shall be entitled to rely conclusively upon all tables, valuations, certifications, opinions and reports which may be furnished by any actuary, accountant, controller, counsel or other person who is employed or engaged for such purposes. In addition, such parties shall be entitled to rely upon information furnished by a Member or Beneficiary, the Company or the legal counsel for the Company. The members of the Committee, the Company and its directors, officers and employees shall be fully protected with respect to any action taken or suffered by them in good faith and in the absence of gross negligence or willful misconduct in reliance upon any such tables, valuations, certificates, reports or other advice of any such actuary, accountant, Trustee or investment manager or upon any such information furnished by a Member or Beneficiary, the Company or legal counsel for the Company. -36- Section 6.09. Member's Own Benefits. No member of the Committee may act, vote or otherwise influence a decision of the Committee specifically relating to his own benefits under the Plan. End of Article 6 -37- ARTICLE 7 MEMBER ADMINISTRATIVE PROVISIONS Section 7.01. Personal Data to Committee. Each Member and Beneficiary shall furnish to the Committee evidence, data, or information as the Committee considers necessary or desirable for the purpose of administering the Plan. The provisions of this Plan are effective for the benefit of each Member upon the condition precedent that each Member will promptly furnish full, true, and complete evidence, data, and information when requested to do so by the Committee, provided the Committee shall advise each Member of the effect of his failure to comply with its request. Section 7.02. Address for Notification. Each Member and each Beneficiary of a deceased Member shall file with the Committee, in writing, his post office address, and each subsequent change of such post office address. Any payment or distribution made hereunder, and any communication addressed to a Member or his Beneficiary, at the last address filed with the Committee, or if no such address has been filed, then at the last address shown by the records of the Employer, shall be deemed to have been delivered to the Member or his Beneficiary on the date that such distribution or communication is deposited in the United States Mail, postage prepaid, to be forwarded to such address. Section 7.03. Inalienability of Benefits. Except as provided in a Qualified Domestic Relations Order or as permitted by the Code and ERISA, no benefit payment under the Plan, and no right or claim thereto, shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge and any attempt to do so shall be void and have no effect. Likewise, no benefit payment under the Plan, or right or claim thereto, be in any way liable for or subject to the debts, contracts, liabilities, engagements or torts of any individual or institution entitled to or possessing such right or claim. If any Member, Beneficiary or other person entitled to receive any benefit hereunder is adjudicated bankrupt or if any attempt is made to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any such benefit or claim or right thereto, except as specifically provided in the Plan, then the Employer shall not honor any such attempt and any such benefit or any remaining portion thereof shall be paid or held, after such adjudication or attempt, for the benefit of the Member or Beneficiary, as the case may be, and paid in accordance with the provisions of the Plan. Section 7.04. Litigation Against the Trust. If any legal action filed against the Trustee, the Board of Directors, the Employer, the Committee, or against any member or members of the Committee or Board of Directors, by or on behalf of any Member or Beneficiary, results adversely to the Member or to the Beneficiary, the Trustee shall reimburse itself, the Board of Directors, the Employer, the Committee, and any member or members of the Committee or Board of Directors, for all costs and fees expended by it or them by surcharging all costs and fees against the sums payable under the Plan to the Member or to the Beneficiary, but only to the -38- extent a court of competent jurisdiction specifically authorizes and directs any such surcharges and then only to the extent permitted under Section 401(a)(13) of the Code. Section 7.05. Information Available. Any Member in the Plan or any Beneficiary may examine copies of the Plan's latest annual report, this Plan, the Trust Agreement, and any contract, or other instrument under which the Plan was established or is operated. The Company will maintain all of the items listed in this Section 7.05 for examination during reasonable business hours in its office, or in such other place or places as it may designate from time to time in order to comply with the regulations issued under ERISA. Upon the written request of a Member or Beneficiary, the Company shall furnish him with a copy of any item listed in this Section 7.05. The Company may make a reasonable charge to the person requesting the copy so furnished. Section 7.06. Beneficiary's Right to Information. A Beneficiary's right to (and the Company's or Trustee's duty to provide to the Beneficiary) information or data concerning the Plan shall not arise until he first becomes entitled to receive a benefit under the Plan. Section 7.07. Claims Procedure. (a) General. Upon termination of employment (except in the case of early Retirement), prior to or upon becoming entitled to receive a benefit hereunder, a Member or Beneficiary shall file a claim for such benefit with the Committee at the time and in the manner prescribed by the Committee. Notwithstanding the immediately preceding sentence, the Committee may direct the Trustee to commence payment of a Member's or Beneficiary's benefits hereunder without requiring the filing of a claim therefor if the Committee has knowledge of such Member's or Beneficiary's whereabouts and sufficient facts to substantiate his entitlement to a benefit. (b) Early Retirement Pension. A Member who is eligible to apply for an Early Early Retirement Pension under Section 4.02 and elects to do so shall file an application therefore with the Committee at the time and in the manner prescribed by the Committee. Section 7.08. Claims for Benefits. Except as otherwise provided in this Article 7, any claim relating to benefits under the Plan shall be submitted in writing to the Committee in such manner as it may direct. If the Committee determines that any applicant is not entitled to receive all or part of the benefits claimed, it will mail or deliver written notice to such applicant of (a) its determination and the reasons therefor, with appropriate references to pertinent Plan provisions, and (b) the procedure for review of its determination. Such notice shall, if appropriate, also explain how a claimant may perfect his claim and why submission of additional information is necessary to do so. Such notice shall be provided within ninety (90) days of submission of a denied claim unless the Committee provides the claimant with notice in writing before the end of such ninety (90) day period that special circumstances require an extension of time (of no more than a single additional ninety (90) day period) for processing such claim, together with a statement of the reasons for such extension and an indication of the date on which -39- a decision on such claim is expected to be rendered, in which case the decision of the Committee shall be rendered no later than the end of such extended period. Section 7.09. Appeal and Review. An applicant for benefits whose claim is submitted pursuant to Section 7.08 has been denied in whole or in part, or the duly authorized representative of such applicant, may within ninety (90) days after receipt of written notice of such denial request a review thereof and submit to the Committee in writing such further information as will, in such person's opinion, establish the applicant's right to such benefits. If, upon receipt of this further information, the Committee determines that the applicant is not entitled to the benefits claimed, it will afford the applicant, or his duly authorized representative, a reasonable opportunity to submit issues and comments in writing and to review pertinent Plan documents. The Committee will then render its final decision with the specific reasons therefor (including references to pertinent Plan provisions) in writing and will transmit such written decision to the applicant within sixty (60) days after the submission of such request for review unless (i) the time for such decision is postponed by agreement, or (ii) the Committee notifies the applicant in writing that special circumstances require an extension (for no more than a single additional sixty (60) day period) of the period for review of such claims, in which case such decision will be transmitted to the applicant no later than the end of such extended period. Section 7.10. Service of Legal Process. The Committee shall be the agent of the Plan for the service of legal notice or process. Section 7.11. Place of Payment and Proof of Continued Eligibility. As required by Section 7.02, each Member and Beneficiary shall file with the Committee from time to time in writing his post office address and each change of post office address. Any check representing payment hereunder and any communication addressed to a Member or Beneficiary at his last address filed with the Committee, or if no such address has been filed, then at his last address as shown by the records of the Employer, shall be deemed to have been delivered to such person on the date on which such check or communication is deposited in the United States mail. If the Committee, for any reason, is in doubt as to whether Pension payments are being received by the person entitled thereto, it shall, by registered mail addressed to the person concerned, at his address last known to the Committee, notify such person that all unmailed and future Pension payments shall be henceforth withheld until he provides the Committee with evidence of his entitlement to such benefit and his proper mailing address. Section 7.12. No Rights Implied. Nothing contained in this Plan, or with respect to the establishment of the Trust Fund, or any modification or amendment to the Plan or Trust Agreement, or in the creation of any account, or the payment of any benefit, shall give any Employee, Member, or Beneficiary any right to continued employment with an Employer or any legal or equitable right against an Employer or any officer, director, or Employee of an -40- Employer, or against the Trustee, or its agents or employees, except as expressly provided by the Plan, the Trust Agreement, or ERISA. End of Article 7 -41- ARTICLE 8 TRUST FUND Section 8.01. Purpose and Establishment of Trust Fund. All of the funds of the Plan shall be held by a Trustee or Trustees or by an Insurance Company appointed from time to time by the Board of Directors of Eljer Industries, Inc., in trust under a Trust Agreement or in accordance with the provisions of an insurance or annuity contract, adopted, or as amended, by the Board of Directors of Eljer Industries, Inc. for use in providing the benefits of the Plan and paying its expenses not paid directly by the Employer. Section 8.02. Exclusive Benefit of Members. Subject to Sections 5.01(e) and 10.03, the Trust Fund and the assets of the Plan invested in or through insurance contracts or policies shall be used and applied only in accordance with the provisions of the Plan to provide the benefits thereof, and no part of the corpus or income of the Trust Fund or such insurance contracts or policies, shall be used for or diverted to purposes other than exclusively benefiting the Members and their Beneficiaries and with respect to expenses of administration. Notwithstanding the preceding sentence, as provided in Section 10.03, the Employer reserves the right to recover any residual amounts as may remain in the Trust Fund, or remain under such insurance contracts or policies, after their termination and the satisfaction of all liabilities of the Plan arising out of any variations between actual requirements and expected actuarial requirements. Section 8.03. Benefits Supported Only By the Trust Fund and Insurance Contracts. Any person having any claim under the Plan shall look solely to the assets of the Trust Fund and insurance contracts or policies in or through which assets of the Plan have been invested for satisfaction, and no Employer shall have any liability to any Member or Beneficiary beyond the amount of its contributions to the Plan. End of Article 8 -42- ARTICLE 9 GENERAL PROVISIONS Section 9.01. No Rights of Employment. The establishment of the Plan shall not be construed as conferring any legal rights upon any employee or other person for continuation of employment, nor shall it interfere with the rights of the Employer to discharge any Employee and to treat him without regard to the effect which such treatment might have upon him as a Member of the Plan. Section 9.02. Certain Pension Reductions. The Committee shall, upon direction of the Board of Directors uniformly applicable to all Employees similarly situated, deduct from any Pension under the Plan all or part of any amount paid or payable to or on account of any Member under the provisions of any present or future law, pension or benefit scheme of any sovereign government, or any political subdivision thereof, on account of which contributions have been made or premiums or taxes paid by any Employer with respect thereto; provided that benefits payable under Title II of the Social Security Act are not to be used to reduce the benefits otherwise provided under this Plan, except as specifically provided in Article 4. Prior to making any offset under this Section 9.02, the Employer shall notify the Internal Revenue Service by certified mail that such offset is to be made, and no such offset shall be made unless the Internal Revenue Service shall have approved said offset. Section 9.03. Payments in the Event of Death, Illness and Legal Disability. In the event of the death of a Member or beneficiary not survived by a person designated to receive any payment then due, or in the event that the Committee shall find that a Member or other person entitled to a benefit is unable to care for his affairs because of illness or accident or is a minor or under other legal incompetency, the Committee may, in such event, in its sole discretion, direct that any benefit payment due him, be paid to his spouse, a child, a parent or other blood relative, or to a person with whom he resides, unless claim shall have been made therefor by a duly appointed legal representative. Any payment made pursuant to the power herein conferred on the Committee shall operate as a complete discharge of all obligations of the Plan, the Employer, the Committee and the Trustee, to the extent of the payments so made. Section 9.04. Certain Credited Service. (a) If any persons become employees of the Employer as the result of merger or consolidation or as the result of acquisition of all or part of the assets or business of another company, the Board of Directors may, by appropriate resolution adopted prior to the date of such merger, consolidation or acquisition, exclude all or a specified class of said Employees from participation in the Plan. In the absence of such a resolution, the Board of Directors shall determine to what extent, if any, credit and benefits shall be granted for previous service with such other company. The foregoing actions of the Board of Directors shall be subject to the -43- continued qualification of the trust for the Plan as tax-exempt under the Code and shall be subject to Section 401(a)(4) of the Code. (b) If any company is now or hereafter becomes a subsidiary or associated company of the Company, the Board of Directors may, in accordance with Section 401(a)(4) of the Code, include the employees of such subsidiary or associated company in the membership of the Plan upon appropriate action by such company necessary to adopt the Plan. In such event, the Board of Directors shall determine to what extent, if any, credit and benefits shall be granted for previous service with such subsidiary or associated company, but subject to the continued qualification of the trust for the Plan as tax-exempt under the Code. Any such subsidiary or associated company may terminate its participation in the Plan upon appropriate action by it. The funds of the Plan held on account of Members in the employ of such company not yet retired, after provision in full for all Members who have retired from the employ of such company, shall be determined by the Committee on the basis of actuarial valuation, and shall be applied as provided in Article 10 in the manner there provided if the Plan should be terminated, or shall be segregated by the Trustee or the Insurance Company as a separate trust or fund, pursuant to certification to the Trustee or the Insurance Company by the Committee, continuing the Plan as a separate Plan for employees of such company under which the board of directors of such company shall succeed to all the powers and duties of the Board of Directors of the Company, including the appointment of the members of the Committee. Section 9.05. Merger or Consolidation of Plan. The Plan may not be merged or consolidated with, nor may its assets or liabilities be transferred to, any other plan unless each Member, Spouse, retired Member or Beneficiary under the Plan would, if the resulting plan were then terminated, receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer if the Plan had then terminated. Section 9.06. Merged Plan Pension. The Company, by action of its Board of Directors, may authorize the merger of any retirement plan (the "Merged Plan") that is qualified under Section 401(a) of the Code and that is maintained by an Affiliated Company with and into the Plan. Any such merger shall be deemed to be an amendment and restatement of the Merged Plan in the form of the Plan; provided, however, that benefits of participants accrued in the Merged Plan prior to the effective date of the merger shall be protected under the Plan to the extent required pursuant to Section 411(d)(6) of the Code. A participant in the Merged Plan shall be entitled to a Pension payable from the Plan in an amount equal to the benefit such participant was entitled to under the terms of the Merged Plan as of the effective date of the merger, plus any benefit the participant may become entitled to under the Plan, if he is in a classification of employment eligible to participate in the Plan. In connection with a merger described in this Section 9.06, the Company shall attach an Appendix to this Plan, or take such other action as it deems appropriate, to identify the benefits and options of the Merged Plan protected under the Plan and shall cause the Plan's actuary to prepare a special schedule of benefits, as described in Treasury Regulation Section 1.414(l)-1(f)(3), or maintain data sufficient to create such a schedule, as described in Treasury Regulation Section 1.414(l)-1(i). -44- Section 9.07. Payments Only from Trust Fund. All benefits of the Plan shall be payable solely from the Trust Fund and neither the Employer, the Committee or the Trustee shall have any liability or responsibility therefor except as expressly provided herein. Section 9.08. Unclaimed Benefits. Neither the Trustee nor the Committee shall be obliged to search for, or ascertain the whereabouts of, any Member or Beneficiary. The Committee, by certified or registered mail addressed to his last known address of record with the Committee or the Employer, shall notify any Member or Beneficiary that he is entitled to a distribution under this Plan, and the notice shall quote the relevant provisions of this Section 9.08. If the Member or Beneficiary fails to claim his benefits or make his whereabouts known in writing to the Committee within a reasonable period of time after the date of notification, the Committee shall notify the Social Security Administration of the Member's (or Beneficiary's) failure to claim the distribution to which he is entitled. The Committee shall request the Social Security Administration to notify the Member (or Beneficiary) in accordance with the procedures it has established for such purpose. If the Committee or the Trustee, with the assistance of the Committee, cannot make payment of any amount to a Member or Beneficiary within three years after such amount becomes payable because the identity or whereabouts of such Member or Beneficiary cannot be ascertained, the Committee, at the end of such three-year period will direct that all unpaid amounts which would have been payable to such Member or Beneficiary be treated as a forfeiture hereunder; provided, however, that if such individual is subsequently located, benefits shall thereupon become payable in the same amount as would otherwise have been payable at the Normal Retirement Date or earlier date of death of the Member. End of Article 9 -45- ARTICLE 10 AMENDMENT OR TERMINATION Section 10.01. Amendment and Duration of the Plan. (a) Amendment and Termination of the Plan. The Company expects to continue the Plan indefinitely but it necessarily reserves the right to amend the Plan, in whole or in part, at any time or from time to time, under the procedure described in Section 10.02, and to suspend or terminate the Plan, in whole or in part, at any time, by action of the Board of Directors. (b) Limitation on Amendment and Termination of the Plan. No amendment, suspension or termination of the Plan otherwise permitted will deprive any Member, Beneficiary or other person of his right to any benefits (in the case of termination, to the extent such benefits are funded) to which any such person is entitled on the date such amendment, suspension or termination becomes effective. In addition, no such action will operate to recapture for the Company any part of the Trust Fund, except as permitted hereunder, or, except to the extent necessary to meet the requirements of the Internal Revenue Service or any other governmental authority. (c) Effect of Termination. If the Plan is completely terminated, no further contributions will be required to be made by the Employer. If the Employer's contributions to the Plan are suspended and the Plan is thereafter completely terminated before the resumption of such contributions, then, to the extent permitted by Section 4044 of ERISA, Section 10.3 shall be applied to all Members whose employment with the Employer terminates during the period for which such contributions were suspended as if the date of termination of the Plan had been the date on which such suspension of Employer contributions became effective. (d) Vesting on Termination. Notwithstanding any other provision of the Plan to the contrary, upon the date of full or partial termination of the Plan an affected Member's right to his Pension shall become one hundred percent vested. The value of such Pension shall be determined on the date the Pension becomes fully vested. The Committee shall interpret and administer this Section 10.1 in accordance with the intent and scope of the regulations issued under Section 411(d)(3) of the Code. (e) Amendment to Vesting Schedule. Although the Company reserves the right to amend the vesting provisions of the Plan at any time, the Company shall not amend the vesting provisions of Section 4.03 (and no amendment shall be effective) if the amendment would reduce the vested percentage of any Member's Pension (determined as of the later of the date the Company adopts the amendment, or the date the amendment becomes effective) to a percentage less than the vested percentage computed under the Plan without regard to the amendment. -46- In the event the vesting provisions of the Plan are amended or any other amendment to the Plan is adopted which directly or indirectly affects the computation of the vested percentage of a Member's Pension, the vested Pension of any Member who has completed at least three (3) years of Credited Service shall be computed under the vesting schedule, original or amended, which will result in the greatest vested percentage being credited to the affected Member. Section 10.02. Procedure for Amendment. Any amendment which is required to be made to the Plan by the Code or ERISA, or by any regulations or interpretations issued by the Department of Labor or the Internal Revenue Service with respect to the requirements of ERISA, as well as all other amendments to the Plan, shall be made by action of the Board of Directors, or by such person or persons, including the Committee, as may be designated, by the Board of Directors to exercise the authority of the Company to amend the Plan. Section 10.03. Termination of the Plan. In the event of a complete or partial termination of the Plan by the Company which affects the Trust Fund or any right to any benefits payable from the Trust Fund, the assets of the Trust Fund will be allocated, subject to provision for expense of administration of liquidation, in the manner required by Section 4044 of ERISA, as modified pursuant to Treasury Regulation Section 1.414(l)-1(f) following a merger described in Section 9.06. To the extent funded, the rights of all Members affected thereby to benefits payable from the Trust Fund accrued as of the date of termination will be fully vested and nonforfeitable. Any residual assets of the Trust Fund attributable to contributions of the Employer remaining after the above allocation will be distributed to the Company provided all liabilities of the Trust Fund to all Members, their Beneficiaries and other persons entitled to benefits payable from the Trust Fund under the Plan have been satisfied. Section 10.04. Corporate Transactions. The Plan shall not automatically be terminated by the Employer's acquisition by or merger into any other company or as a result of a similar corporate transaction, but the Plan shall be continued after such transaction provided the successor company agrees to continue the Plan. All rights to amend, modify, suspend, or terminate the Plan shall be transferred to the successor company, effective as of the date of the transaction. Section 10.05. Certain Restrictions on Distributions. Upon the termination of the Plan, the annual Pension payments to a Member who is among the twenty-five (25) highest highly compensated employees (as defined in Section 414(q) of the Code) and the twenty-five (25) highest former highly compensated employees shall be restricted to an amount equal to the payments that would be made on behalf of the Member under a single life annuity that is the Equivalent Actuarial Value of the Member's Pension under the Plan. The foregoing restrictions will not apply, however, if one of the following conditions are satisfied: (a) After payment to a Member described in the preceding paragraph of all of his benefits under the Plan, the value of the Plan assets equals or exceeds 110% of the value of current liabilities, as defined in Section 412(l)(7) of the Code, or -47- (b) The value of "benefits" for a Member described in the preceding paragraph is less than 1% of the value of current liabilities, or (c) The value of benefits payable to the Member under the Plan does not exceed the amount described in Section 411(a)(11)(A) of the Code regarding the restrictions on mandatory lump sum distributions of less than $3,500. The term "benefits" for purposes of this Section 10.5 includes any periodic income, any withdrawal values payable to a living Member, and any death benefits not provided for by insurance on the Member's life. Notwithstanding the foregoing provisions of this Section 10.5, upon the termination of the Plan the Pensions payable to highly compensated employees (as defined in Section 414(q) of the Code) shall be limited to an amount which is nondiscriminatory within the meaning of Section 401(a)(4) of the Code. End of Article 10 -48- ARTICLE 11 TOP HEAVY PROVISIONS Section 11.01. Top Heavy Rules Applied. Notwithstanding any provisions of this Plan to the contrary, if during any Plan Year, the Plan is a Top Heavy Plan, the provisions of this Article 11 shall apply. Section 11.02. Minimum Benefits. During any Plan Year in which the Plan is a Top Heavy Plan the Pension of each Member who is a Non-Key Employee, when expressed as an annual retirement benefit, shall not be less than the lesser of: (a) 2% multiplied by the Member's years of Credited Service (excluding any such year of Credited Service ending in a plan year under the Prior Plan beginning before January 1, 1984 and any year of Credited Service that begins after the close of the last Plan Year in which the Plan was a Top Heavy Plan); or (b) 20% of the Member's average Annual Compensation (as defined in Section 4.13(h)(iii)) during the period of five consecutive Plan Years during which the Member had the greatest aggregate Annual Compensation. For the purposes of this Section 11.02, an annual retirement benefit is a benefit payable annually in the form of a single life annuity (with no ancillary benefits) beginning at Normal Retirement Age. An Employee who is not a Key Employee may not fail to accrue a minimum benefit under this Section 11.02 because either (i) such Employee is otherwise excluded from participation (or accrues no benefit) merely because the Employee's Annual Compensation is less than a stated amount or (ii) the Employee is otherwise excluded from participation (or accrued no benefit) merely because of a failure to make mandatory Employee contributions. In addition, notwithstanding the preceding provisions of this Section 11.02, the following rules shall apply for purposes of determining whether the minimum benefit requirements of this Section 11.02 have been satisfied in the event that during a Plan Year the Employer maintains two or more qualified plans (within the meaning of Section 1.401-0(b) of the Treasury Regulations) that are Top Heavy Plans or Super Top Heavy Plans for a Plan Year. If the Employer maintains during a Plan Year two or more defined benefit plans (within the meaning of Section 414(j) of the Code), the minimum benefits required by this Section 11.02 on behalf of a Member who is not a Key Employee and who participates in both this Plan and such other plans shall, unless provided otherwise in such other plans, be provided under this Plan to the extent this Plan provides for a benefit accrual sufficient to satisfy such minimum, and only to the extent that such minimum is not provided under this Plan shall any portion of such minimum benefits be provided under such other plans. -49- If during a Plan Year, the Employer maintains this Plan and a defined contribution plan (within the meaning of Section 414(i) of the Code) and a Member who is not a Key Employee participates in both of such plans, then if such Member is entitled to accrue a benefit under this Plan with respect to such Plan Year, and such Member has accrued a benefit equal to or in excess of two percent (2%) multiplied by his number of years of Credited Service (excluding years of service accrued during Plan Years, if any, commencing prior to January 1, 1984, and Plan Years during which the Plan was not a Top Heavy Plan) multiplied by the Member's average Annual Compensation (as defined in Section 4.13(h)(iii)) during the five consecutive year period during which the Member had the greatest aggregate Annual Compensation from the Employer, the Employer shall not be required to provide for such Member under such other plan the minimum benefit otherwise required under Section 416 of the Code, and for purposes of determining whether the minimum benefit provisions of this Section 11.02 have been satisfied, the minimum benefit accrual under this Plan shall be offset by the benefits provided under such other plan for such Plan Year as provided in Section 1.416-1, M-12, of the Treasury Regulations. If for a Plan Year this Plan is a Top Heavy Plan, but not a Super Top Heavy Plan, and the Employer makes contributions on behalf of a Member under both this Plan and a defined contribution plan (within the meaning of Section 414(i) of the Code) and the Employer wishes to use a factor of 1.25 rather than 1.0 as a limitation on the sum of the Defined Contribution Fraction (within the meaning of Section 4.13(h)(iv)) and the Defined Benefit Fraction (within the meaning of Section 4.13(h)(v)) for the Limitation Year, then the defined benefit plan minimum benefit accrual specified above shall be increased by one percentage point (up to a maximum of ten percentage points) for each year of Credited Service within which a Plan Year during which this Plan was a Top Heavy Plan or Super Top Heavy Plan ended, provided that no such year of Credited Service completed under the Prior Plan during a plan year beginning prior to January 1, 1984, shall be counted for such purpose. The defined contribution minimum for such Limitation Year shall be increased to 7-1/2% of compensation. Nothing in this Section 11.02 shall prohibit the Employer from making contributions in excess of the minimums stated herein provided such contributions are otherwise in accordance with the provisions of the Plan or other plan pursuant to which they are made. Section 11.03. Adjustment to Limitation on Benefits. (a) Super Top Heavy Plan Years. If during a Plan Year this Plan is a Super Top Heavy Plan and a Member also participates in one or more qualified defined contribution plans (as defined in Section 414(i) of the Code) maintained by the Employer (as defined in Section 4.13(h)(ii)), Section 4.13 shall be applied by substituting "1" for "1.25" each place "1.25" appears therein. In addition, the transition rule of Section 415(e)(6)(B)(i) shall be applied to Section 11.02, if applicable, by substituting "$41,500" for "$51,875". (b) Top Heavy Plan Years. In addition, the above limitation shall apply to this Plan in any Limitation Year that this Plan is a Top Heavy Plan but is not a Super Top Heavy Plan and the accrued benefit of each Member who is a non-Key Employee, when expressed as an annual retirement benefit, is less than 3% multiplied by the number of years of Credited Service with -50- the Employer or 20% plus one percentage point for each year for which this Plan was taken into account under Section 416(h) of the Code (but not by more than ten percentage points) multiplied by the Member's average compensation during the period of five consecutive years during which the Member had the greatest aggregate compensation from the Employer. Years of Credited Service for purposes of the immediately preceding sentence shall not include any year of Credited Service under the Prior Plan ending in a plan year beginning before January 1, 1984, and shall not include any year of Credited Service that begins after the close of the last year in which the Plan was a Top Heavy Plan. For the purposes of this Section 11.03, an annual retirement benefit is a benefit payable annually in the form of a single life annuity (with no ancillary benefits) beginning at Normal Retirement Age. (c) Special Rule. Notwithstanding the foregoing provisions of this Section 11.03, if for any Plan Year the Plan is a Top Heavy Plan or Super Top Heavy Plan, the sum of the Defined Benefit Fraction (within the meaning of Section 4.13(h)(v)) and the Defined Contribution Fraction (within the meaning of Section 4.13(h)(iv)) for a Limitation Year may in the case of a Member exceed 1.0 (but not 1.25) if, but only if, there are no further benefit accruals for that individual under any defined benefit plan (within the meaning of Section 414(j) of the Code) maintained by the Employer (as defined in Section 4.13(h)(ii)) and no further annual additions (within the meaning of Section 415(c)(2) of the Code) for that individual under any defined contribution plan (within the meaning of Section 414(i) of the Code) maintained by the Employer (as defined in Section 4.13(h)(ii)) until the sum of such fractions satisfies the rules of Section 415(e) of the Code using the 1.0 factor for that individual. Section 11.04. Vesting Schedule. Notwithstanding the provisions of Section 4.03, beginning with the first Plan Year beginning after December 31, 1983 in which the Plan is a Top Heavy Plan, the following provisions shall be applicable in determining the nonforfeitable interest in a Member's Pension under Section 4.03 of the Plan: (a) Except as provided in Section 11.03(b) below, each Member whose employment with the Employer terminates before his Normal Retirement Age shall be entitled (as a vested interest) to receive a percentage of his Pension determined in accordance with the following schedule:
Years of Credited Service Vested Interest ---------------- --------------- Less than 2 0% 2 but less than 3 20% 3 but less than 4 40% 4 but less than 5 60% 5 or more 100%
Notwithstanding any of the foregoing, if during any prior Plan Year the Plan was a Top Heavy Plan and in any subsequent Plan Year the Plan ceases to be a Top Heavy Plan, the rights of a Member who had performed at least one hour of service for the Employer during the period the Plan was a Top Heavy Plan in and to his Pension shall not be less than his vested rights during -51- the period that the Plan was a Top Heavy Plan. Provided, further, any Member who has three or more years of Credited Service at the beginning of a Plan Year in which the Plan ceases to be a Top Heavy Plan shall have the right to elect, within a reasonable time of the beginning of the Plan Year in which the Plan ceases to be a Top Heavy Plan, to have his nonforfeitable percentage under this Plan computed in accordance with the schedule applicable to Plan Years in which the Plan is a Top Heavy Plan. Any election made under this Section 11.04 shall be made in the manner specified by Section 10.01(e) as if such change in vesting schedule had been made by way of an amendment to the Plan. (b) The schedule in Section 11.04(a) above shall not apply to the Pension of any Member who does not perform an hour of service after the Determination Date on which the Plan first became a Top Heavy Plan; any such Member's vested interest in his Pension shall be determined by applying the vesting requirements of Section 4.03 of the Plan as applicable to the Plan prior to the Determination Date on which the Plan first became a Top Heavy Plan. Section 11.05. Additional Definitions. (a) Aggregation Employee means any employee of the Aggregation Employer, including any leased employees (within the meaning of Section 414(n) of the Code). For this purpose, an individual formerly employed by an Aggregation Single Employer shall be deemed an Aggregation Employee. (b) Aggregation Employer means the deemed single employer that includes the Employer and results from the aggregation of employers that Sections 414(b), 414(c), and 414(m) of the Code require be aggregated and treated as a single employer. (c) Aggregation Single Employer means an employer that Sections 414(b), 414(c), and 414(m) of the Code require be aggregated with the Employer and other employers and treated as a single employer. (d) Determination Date means with respect to any plan year, the last day of the preceding plan year, except in the case of the first plan year of a plan, in which event the Determination Date shall be the last day of such plan year. Whenever it is necessary to determine the value of accrued benefits as of a given Determination Date, such value shall be determined as of the valuation date that coincides with the Determination Date or, if there is no such valuation date, the most recent valuation date that is within a twelve-month period ending on the Determination Date. (e) Key Employee means any Aggregation Employee or former Aggregation Employee (including any deceased employee) who is an Employee defined in Section 416(i)(1) of the Code. (f) Non-key Employee means an Employee defined in Section 416(i)(2) of the Code. -52- (g) Permissive Aggregation Group means a plan or a group of plans that must be aggregated in the Required Aggregation Group and any other plan or plans of an Aggregation Employer if the group would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code with such additional plan being taken into account. Benefits under such plans shall be aggregated by adding together the present values of the accrued benefits (determined separately for each plan as of each plan's Determination Date) and adding together the results for each plan as of the Determination Dates for such plans that fall within the same calendar year. (h) Plan. The term "plan" as used in this Section 11.05 means a plan that satisfies the requirements of Section 401(a) of the Code. (i) Plan Year. The term "plan year" shall mean the plan year of a plan of an Aggregation Single Employer. (j) Required Aggregation Group shall mean a group of plans consisting of (i) each plan of the Aggregation Employer in which a Key Employee participates during the plan year containing the Determination Date for such plan or has participated during any of the immediately preceding four (4) plan years and (ii) any other plan of the Aggregation Employer that enables any of such plans to satisfy the requirements of Section 401(a)(4) or 410 of the Code. Benefits under such plans shall be aggregated by adding together the present values of the accrued benefits (determined separately for each plan as of each plan's Determination Date) and adding together the results for each plan as of the Determination Dates for such plans that fall within the same calendar year. (k) Top Heavy Plan. If for a given Plan Year the Plan is not a member of a Required Aggregation Group (because there are no other plans that must be aggregated with the Plan), the Plan shall be a Top Heavy Plan (herein so called) if the sum (determined as of the Determination Date for the Plan) of the present value of the cumulative Accrued Benefits (determined in accordance with Section 1.416-1 of the Treasury Regulations) for Key Employees of the Employer exceeds 60% of a similar sum determined for all Employees. If for a given Plan Year the Plan is a member of a Required Aggregation Group, the Plan shall be a Top Heavy Plan for such Plan Year if, as of the Plan's Determination Date for such Plan Year, both the Required Aggregation Group and the Permissive Aggregation Group that include the Plan are Top Heavy Groups (herein so called). A "Top Heavy Group" is any Required Aggregation Group or Permissive Aggregation Group if the sum (determined as of the Determination Dates for the plans in such group that fall within the same calendar year) of (i) the present value of the accrued benefits (determined in accordance with Section 1.416-1 of the Treasury Regulations based on the 1984 Unisex Pension Annuity Mortality Table and an interest rate of five percent per annum, compounded annually) for Key Employees under all defined benefit plans (within the meaning of Section 414(j) of the Code) included in such group and (ii) the accrued benefits (determined in accordance with Section 1.416-1 of the Treasury Regulations) of Key Employees under all defined contribution plans (within the meaning of Section 414(i) of the Code) included in such group exceeds 60% of a similar sum determined for all Aggregation Employees. For the purpose of determining the present value of the accrued benefit of any employee, the present value shall -53- be increased, as required by Section 1.416-1 of the Treasury Regulations, by the aggregate distributions made with respect to such Employee under the plan during the five year period ending on the Determination Date for such plan, and under any terminated plan that, if it had not been terminated, would have been included in the Required Aggregation Group. Notwithstanding the foregoing provisions of this Section 11.05(j), if any individual has not performed any service for any employer maintaining the plan at any time during the five year period ending on the Determination Date for such plan, any accrued benefit for such individual (and the account of such individual) shall not be taken into account. Except to the extent provided in Regulations of the Secretary of the Treasury, any rollover contribution (or similar transfer) initiated by an Employee to a plan shall not be taken into account with respect to the transferee plan for purposes of determining whether such plan is a Top Heavy Plan (or whether any aggregation group which includes such plan is a Top Heavy Group). If any individual is not a Key Employee with respect to a plan in the aggregation group for any plan year, but such individual was a Key Employee with respect to a plan in the aggregation group for any prior plan year, any accrued benefit for such Employee and the account of such employee shall not be taken into consideration in making a determination of the top heavy status of the plan. Each plan in a Top Heavy Group shall be deemed a Top Heavy Plan. (l) Super Top Heavy Plan means a Top Heavy Plan if the plan would be a Top Heavy Plan if "90%" were substituted for "60%" each place it appears in Section 11.05(j) above. End of Article 11 -54- ARTICLE 12 MISCELLANEOUS Section 12.01. Execution of Receipts and Releases. Any payment to any Member, or to his legal representative or Beneficiary, in accordance with the provisions of the Plan, shall to the extent thereof be in full satisfaction of all claims hereunder against the Plan and the Trust. The Committee may require such Member, legal representative, or Beneficiary, as a condition precedent to such payment, to execute a receipt and release therefor in such form as it shall determine. Section 12.02. No Guarantee of Interests. Neither the Trustee, the Committee, nor any Employer guarantees the Trust Fund from loss or depreciation. The Employer does not guarantee the payment of any money which may be or become due to any person from the Trust Fund. The liability of the Committee, the Trustee and the Employer to make any payment from the Trust Fund is limited to the then available assets of the Trust Fund, and any insurance contracts or policies purchased to fund the Trust Fund pursuant to the terms of the Plan. Section 12.03. Employer Records. Records of an Employer as to an Employee's or Member's period of employment, termination of employment and the reason therefor, leaves of absence, re-employment, and Compensation will be conclusive on all persons, unless determined to be incorrect. Section 12.04. Interpretations and Adjustments. To the extent permitted by law, an interpretation of the Plan and a decision on any matter within a Fiduciary's discretion made in good faith is final, binding and conclusive on all persons. A misstatement or other mistake of fact shall be corrected when it becomes known and the person responsible shall make such adjustment on account thereof as he considers equitable and practicable. Section 12.05. Errors in Payment: Misstatements. If any error, including an error resulting from any statement made or omitted to be made by any Member, surviving Spouse or Beneficiary in any document or other information required to be submitted in connection with the Plan, shall result in the payment to any individual or entity of more or less than such person would have received but for such error, the Committee may correct such error and adjust payments hereunder as far as possible, in such manner that the Equivalent Actuarial Value of the benefit to which such person was correctly entitled shall be paid. Section 12.06. Uniform Rules. Uniform rules shall be applied in administering the Plan to all Members similarly situated. Section 12.07. Evidence. Evidence required of anyone under the Plan may be given by certificate, affidavit, document, or other information which the person acting on it considers pertinent and reliable, and signed, made or presented by the proper party or parties. -55- Section 12.08. Severability. In the event any provision of the Plan shall be held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Plan, but shall be fully severable and the Plan shall be construed and enforced as if the illegal or invalid provision had never been included herein. Section 12.09. Notice. Any notice required to be given herein by the Trustee, an Employer, or the Committee, shall be deemed delivered, when (a) personally delivered, or (b) placed in the United States mails, postage prepaid, in an envelope addressed to the last known address of the person to whom the notice is given. Section 12.10. Waiver of Notice. Any person entitled to notice under the Plan may waive the notice. Section 12.11. Successors. The Plan shall be binding upon all persons entitled to benefits under the Plan, their respective heirs and legal representatives, and upon the Employer, its successors and assigns, and upon the Trustee, the Committee, and their successors. Section 12.12. Obligations of the Company. The obligations of the Company under the Plan shall be limited to those obligations specifically assumed by it under the terms hereof, together with such additional obligations, if any, as may be imposed upon the Company by applicable law. Section 12.13. Headings. The titles and headings of Articles and Sections are included for convenience of reference only and are not to be considered in construing the provisions hereof. Section 12.14. Governing Law. All questions arising with respect to the provisions of this Agreement shall be determined by application of the laws of the State of Texas, except to the extent preempted by ERISA. End of Article 12 -56- IN WITNESS WHEREOF, Eljer Manufacturing, Inc. has executed this Plan on the 29th day of September, 1995, with this amendment and restatement of the Plan effective as set forth herein. ELJER MANUFACTURING, INC. By /s/Brooks F. Sherman ----------------------------------- 97521.4/4 -57- EX-10.O 7 TAX REDUCTION INVESTMENT PLAN ELJER TAX REDUCTION INVESTMENT PLAN TABLE OF CONTENTS
Page No. --------- ARTICLE I - INTRODUCTION 1.1 Introduction......................................................................... 2 ARTICLE II - DEFINITIONS 2.1 Account.............................................................................. 2 2.2 Administrator........................................................................ 3 2.3 Affiliated Company................................................................... 3 2.4 Allocation Date...................................................................... 3 2.5 Alternate Payee...................................................................... 3 2.6 Annuity Starting Date................................................................ 3 2.7 Beneficiary.......................................................................... 3 2.8 Board of Directors................................................................... 5 2.9 Code................................................................................. 5 2.10 Committee............................................................................ 5 2.11 Company.............................................................................. 5 2.12 Company Stock........................................................................ 5 2.13 Compensation......................................................................... 5 2.14 Disability or Disabled............................................................... 6 2.15 Effective Date....................................................................... 6 2.16 Employee............................................................................. 7 2.17 Employer............................................................................. 7 2.18 Entry Date........................................................................... 7 2.19 ERISA................................................................................ 7 2.20 Family Member........................................................................ 7 2.21 Former Participant................................................................... 8 2.22 Highly Compensated Employee.......................................................... 8 2.23 Highly Compensated Participant....................................................... 10 2.24 Hour of Service...................................................................... 10 2.25 Investment Fund or Fund.............................................................. 10 2.26 Investment Plan Contributions........................................................ 10 2.27 Investment Plan Contribution Account................................................. 11 2.28 Interactive Telephone Communication.................................................. 11 2.29 Key Employee......................................................................... 11 2.30 Leased Employee...................................................................... 12 2.31 Limitation Year...................................................................... 12 2.32 Matching Company Contributions....................................................... 12 2.33 Matching Company Contribution Account................................................ 13 2.34 Named Fiduciary...................................................................... 13 2.35 Non-Highly Compensated Employee...................................................... 13 2.36 Non-Highly Compensated Participant................................................... 13 2.37 Non-Key Employee..................................................................... 13 2.38 Normal Retirement Date............................................................... 13 2.39 Notice............................................................................... 13 2.40 Participant.......................................................................... 13 2.41 Plan................................................................................. 13 2.42 Plan Year............................................................................ 13 2.43 Prior Plan........................................................................... 13 -i- 2.44 Qualified Domestic Relations Order................................................... 14 2.45 Quarterly Valuation Date............................................................. 14 2.46 Recordkeeper......................................................................... 14 2.47 Rollover Account..................................................................... 14 2.48 Rollover Contribution................................................................ 14 2.49 Tax Reduction Contributions.......................................................... 14 2.50 Tax Reduction Contribution Account................................................... 15 2.51 Trust................................................................................ 15 2.52 Trust Agreement...................................................................... 15 2.53 Trust Fund........................................................................... 15 2.54 Trustee.............................................................................. 15 2.55 Valuation Date....................................................................... 15 2.56 Year of Service...................................................................... 15 ARTICLE III - PARTICIPATION AND YEARS OF SERVICE 3.1 Eligibility to Participate........................................................... 15 3.2 Commencement of Participation........................................................ 16 3.3 Waiver of Participation.............................................................. 16 3.4 Transfers from Eligible Employment................................................... 16 3.5 Hour of Service...................................................................... 17 3.6 Year of Service...................................................................... 17 3.7 Participation and Service Upon Reemployment.......................................... 18 3.8 Predecessor Service.................................................................. 18 ARTICLE IV - CONTRIBUTIONS 4.1 Tax Reduction Contributions.......................................................... 19 4.2 Investment Plan Contributions........................................................ 21 4.3 Matching Company Contributions....................................................... 23 4.4 Employer Qualified Non-Elective Contributions .................................................................................... 23 4.5 Time of Contributions................................................................ 23 4.6 Maximum Combined Tax Reduction and Investment Plan Contributions................................................... 24 4.7 Manner of Making Contributions....................................................... 24 4.8 Reduction of Employer Contributions.................................................. 24 4.9 Rollover Contributions............................................................... 24 4.10 Transfers from Other Plans........................................................... 25 ARTICLE V - LIMITATIONS AND RESTRICTIONS ON TAX REDUCTION CONTRIBUTIONS 5.1 Dollar Limitation.................................................................... 25 5.2 Actual Deferral Percentage Tests..................................................... 28 5.3 Adjustments Required to Satisfy an Actual Deferral Percentage Test.................................................. 30 5.4 Election of Applicable Correction Methods By Highly Compensated Employees............................................. 32 5.5 Additional Adjustments of Tax Reduction Contributions............................................................. 32 5.6 Other Permissible Methods of Testing and Correction...................................................................... 33 -ii- ARTICLE VI - LIMITATIONS AND RESTRICTIONS ON INVESTMENT PLAN CONTRIBUTIONS AND MATCHING COMPANY CONTRIBUTIONS 6.1 Contribution Percentage Tests........................................................ 33 6.2 Adjustments Required to Satisfy a Contribution Percentage Test........................................................ 36 6.3 Procedures Applicable to Tax Reduction Contributions Recharacterized As Investment Plan Contributions....................................................... 38 6.4 Additional Adjustments and Prospective Reductions of Investment Plan Contributions....................................................... 38 6.5 Testing of Tax Reduction Contributions Under Contribution Percentage Test.................................................. 39 6.6 Other Permissible Methods of Testing and Corrections............................................................. 39 ARTICLE VII - AGGREGATE LIMIT ON ACTUAL DEFERRAL AND CONTRIBUTION PERCENTAGES 7.1 General Rules........................................................................ 40 7.2 Multiple Use Limitation.............................................................. 40 7.3 Prospective Reduction of Contributions............................................... 41 ARTICLE VIII - LIMITATION ON ALLOCATIONS 8.1 Limitation on Allocations............................................................ 42 8.2 Definitions.......................................................................... 42 8.3 Excess Annual Additions.............................................................. 45 8.4 Combined Plan Limits................................................................. 46 8.5 Special Rules........................................................................ 47 ARTICLE IX - PARTICIPANT'S ACCOUNTS 9.1 Establishment of Accounts............................................................ 49 9.2 Allocation of Contributions to Participant's Accounts.............................................................. 49 9.3 Trust Fund Valuation................................................................. 50 9.4 Adjustments to Participant's Accounts................................................ 51 9.5 Participant-Directed Investments..................................................... 52 9.6 Investment of Matching Company Contributions....................................................................... 55 9.7 Age 50 Diversification Election...................................................... 56 9.8 Special Investment Rules for 1989 Plan Year...................................................................... 57 9.9 Qualified Domestic Relations Orders.................................................. 57 9.10 Special Rules Relating to Transactions By Certain Officers, Directors and Shareholders.................................................................... 57 ARTICLE X - PARTICIPANT VESTING 10.1 Vesting of Accounts.................................................................. 58 10.2 Termination of Service Prior to Normal Retirement Date, Disability or Death............................................................................ 58 -iii- 10.3 Forfeiture of Non-Vested Portion of Account.................................................................. 59 10.4 Restoration of Non-Vested Interest................................................... 59 ARTICLE XI - PAYMENT OF BENEFITS 11.1 Withdrawals During Employment........................................................ 60 11.2 Amounts Payable Following Termination of Service.............................................................. 63 11.3 Time of Payment...................................................................... 63 11.4 Method of Payments................................................................... 67 11.5 Minority or Legal Disability of Distributee...................................................................... 69 11.6 Additional Requirements Relating to Benefit Payments................................................................. 69 11.7 Claims Procedure..................................................................... 69 11.8 Committee's Duty to Trustee.......................................................... 71 11.9 Duty to Keep Committee Informed of Distributee's Current Address.................................................... 71 11.10 Distribution Pursuant to Qualified Domestic Relations Orders........................................................... 71 11.11 Tax Withholding and Participant's Direct Rollover Election............................................................ 72 11.12 Application of Forfeitures.................................................................... 73 11.13 Restrictions on Distributions................................................................. 73 ARTICLE XII - NOTICES 12.1 Notice............................................................................... 73 12.2 Modification of Notice............................................................... 74 12.3 Reliance on Notice................................................................... 74 ARTICLE XIII - LOANS 13.1 General Provisions Regarding Loans................................................... 74 13.2 Amount and Limitations Applicable to Loans................................................................. 74 13.3 Security for Loans................................................................... 75 13.4 Interest Rate for Loans.............................................................. 75 13.5 Repayment of Loans................................................................... 75 13.6 Default on Loans..................................................................... 76 13.7 Acceleration of Loans Upon Termination of Employment........................................................... 76 13.8 Manner of Making Loans............................................................... 77 13.9 Additional Loan Procedures........................................................... 77 ARTICLE XIV - ADMINISTRATION OF THE PLAN 14.1 Allocation of Responsibilities Among Fiduciaries................................................................... 77 14.2 Management of Plan Assets............................................................ 78 14.3 Powers and Responsibilities of the Committee.................................................................... 79 14.4 Operation of Committee............................................................... 81 -iv- 14.5 Compensation and Expenses of Employees and Directors Serving as Fiduciaries.............................................................. 81 14.6 Indemnification of Employees and Directors....................................................................... 81 14.7 Action Taken in Good Faith........................................................... 82 14.8 Expenses of the Plan................................................................. 82 ARTICLE XV - TRUST FUND 15.1 Establishment of Trust Fund.......................................................... 82 15.2 Investments in Company Stock......................................................... 82 15.3 Title of Trust Assets................................................................ 83 ARTICLE XVI - AMENDMENT AND TERMINATION 16.1 Amendment............................................................................ 83 16.2 Termination or Discontinuance of Contributions.................................................................... 83 16.3 Distribution on Plan Termination..................................................... 84 16.4 Distributions upon Certain Sales..................................................... 85 16.5 Merger or Consolidation of Plan...................................................... 85 16.6 Merger and Other Reorganization of Employer......................................................................... 85 ARTICLE XVII - MISCELLANEOUS 17.1 No Employment or Compensation Agreement........................................................................... 85 17.2 Spendthrift Provision................................................................ 86 17.3 Construction......................................................................... 86 17.4 Titles............................................................................... 86 17.5 Texas Law Applicable................................................................. 86 17.6 Successors and Assigns............................................................... 86 17.7 Payments Only from Trust Fund........................................................ 86 17.8 Plan Controls........................................................................ 86 17.9 Effect of Mistakes................................................................... 86 ARTICLE XVIII - TOP HEAVY PROVISIONS 18.1 Application and Purpose.............................................................. 87 18.2 Minimum Allocation Requirements...................................................... 87 18.3 Adjustment to Limitation on Allocations.............................................. 87 18.4 Vesting Schedule..................................................................... 88 18.5 Definitions.......................................................................... 88
-v- ELJER TAX REDUCTION INVESTMENT PLAN WHEREAS, effective April 1, 1989, in connection with a transaction in which Eljer Manufacturing, Inc. (the "Company") ceased to be a subsidiary of Household International, Inc., the Company established the Eljer Tax Reduction Investment Plan (hereinafter referred to as the "Plan") as a savings and profit sharing plan designed to constitute a "qualified plan" within the meaning of Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, the Plan was amended, generally effective April 1, 1989, to incorporate certain changes required by the Internal Revenue Service in connection with its issuance of a favorable determination letter with respect to the initial adoption of the Plan and amended further, effective January 1, 1991, to expand the categories of employees eligible to participate in the Plan; and WHEREAS, the Company now desires (i) to amend further and restate the Plan, effective as set forth herein, to bring the Plan into compliance with the Tax Reform Act of 1986, as amended, as well as all other applicable laws, rules and regulations enacted or promulgated since the date the Plan last was amended, (ii) to continue the qualification of the Plan under Sections 401(a) and 401(k) of the Code, and (iii) to make certain other necessary or desirable changes to the Plan; NOW, THEREFORE, the Plan is hereby amended and restated, effective as provided herein, as follows: -vi- ARTICLE I INTRODUCTION 1.1 Introduction. The Company, in order to aid Employees accumulate capital for their retirement, hereby completely amends and restates the Eljer Tax Reduction Investment Plan (the "Plan"). The assets of the Plan are held, administered and managed in accordance with the terms and conditions of the Trust Agreement which is an integral part of the Plan. The Company intends that the Plan continue to be a plan qualified under Section 401(a) of the Code (as hereinafter defined) with a cash or deferred arrangement qualified under Section 401(k) of the Code and a trust exempt from taxation under Section 501(a) of the Code. Pursuant to the requirements of Section 401(a)(27)(B) of the Code, the Company also intends that the Plan be a profit-sharing plan. The Plan may be amended further from time to time. Except as otherwise provided in the Plan or any amendment to the Plan, the provisions of an amendment shall apply solely to an Employee, former Employee, Participant or Former Participant whose employment with an Employer is terminated on or after the effective date of the amendment. The rights of an Employee, former Employee, Participant or Former Participant whose employment with an Employer is terminated prior to the effective date of an amendment shall be determined solely by the provisions of the Plan as in effect on the date of his termination of employment. The benefits payable from this Plan are independent of any benefits the Employee is or may become entitled to under any other funded pension, profit sharing or savings plan. ARTICLE II DEFINITIONS The following words and phrases when used in this Plan shall have the respective meanings set forth below unless the context clearly indicates otherwise: 2.1 Account means the account or record maintained by the Trustee or the Recordkeeper reflecting the monetary value of the undivided interest in the Trust Fund of each Participant, each Former Participant and each Beneficiary and shall include the Tax Reduction Contribution Account, Investment Plan Contribution Account, Matching Company Contribution Account, Rollover Account and such additional Accounts as the Company may establish from time to time. -2- 2.2 Administrator means, with respect to the administration of the Plan as herein described, the Committee. However, for purposes of applying the applicable provisions of ERISA to the Plan, the Company shall be the "administrator" as described in Section 3(16)(A) of ERISA. 2.3 Affiliated Company means the Company and any other entity which is, along with the Company, a member of a controlled group of corporations or a controlled group of trades or businesses [as defined in Section 414(b) or (c) of the Code], any entity which along with the Company is included in an affiliated service group as defined in Section 414(m) of the Code, and any other entity which is required to be aggregated with the Company pursuant to Section 414(o) of the Code. 2.4 Allocation Date means the last day of each month; provided, however, that the Allocation Date for Matching Company Contributions shall be the last day of each calendar quarter, as provided in Section 9.2(c). 2.5 Alternate Payee means a person defined in Code Section 414(p)(8) who is entitled to benefits under the Plan pursuant to a Qualified Domestic Relations Order. 2.6 Annuity Starting Date means (i) the first day of the first period with respect to which an amount is payable as an annuity, or (ii) in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred that entitle the Participant, Former Participant or Beneficiary to such benefit in accordance with Article XI. 2.7 Beneficiary means any person or fiduciary designated by a Participant or Former Participant in accordance with the terms hereof and Section 401(a)(9) of the Code to receive benefits hereunder following the death of such Participant or Former Participant. Each Participant and Former Participant may, from time to time, select one or more Beneficiaries to receive benefits in the event of the death of such Participant or Former Participant. Such selection shall be made in writing by Notice to the Committee. Unless the provisions of this Plan or a Qualified Domestic Relations Order provide otherwise, the last such selection filed with the Committee prior to the death of the Participant or Former Participant shall determine to whom Plan benefits shall be paid. If the Participant or Former Participant is married at the date of his death, the Beneficiary shall be his surviving spouse unless the spouse has consented in writing to the designation of some other Beneficiary, which designation may not be changed without consent of the spouse unless the voluntary consent of the spouse (i) expressly permits designations by the Participant or Former Participant without any requirement of further consent by -3- the spouse and (ii) acknowledges that the spouse has the right to limit the consent to a specific Beneficiary. Such written consent must acknowledge the effect of the Participant's or Former Participant's Beneficiary selection and must be witnessed by a Plan representative or a notary public. Spousal consent is not required if it is established to the satisfaction of the Committee that the consent may not be obtained (i) because the Participant has no spouse, (ii) because the spouse cannot be located or (iii) because of such other circumstances as the Secretary of Treasury may by regulations prescribe. If the Committee cannot determine readily whether a Participant has a spouse under the laws of the state in which the Participant resides resulting from an individual's claim to be a "common law" spouse of a Participant or similar circumstances, the Committee may request such individual to provide the Committee with a legal opinion satisfactory to the Committee or other evidence demonstrating the individual's status as a spouse of a Participant. The Committee has the sole and absolute authority to determine an individual's status as a spouse of a Participant and any such determination shall be final, binding and conclusive on all parties ever claiming an interest in the Plan. Any consent by a spouse (or establishment that the consent of the spouse may not be obtained) shall be effective only with respect to that spouse. If a Participant's or Former Participant's Beneficiary selection is not made in compliance with these provisions or if all designated persons shall predecease the Participant or Former Participant, Beneficiary shall mean the first of the following classes of successive preference beneficiaries then surviving, the Participant's or Former Participant's: (a) spouse, (b) descendants, per stirpes (including adopted children), (c) parents, (d) brothers and sisters and (e) executors or administrators. If more than one Beneficiary of a particular class (primary or secondary) is entitled to benefits, payments shall be made in equal shares to such Beneficiaries, unless some other specific proportions are clearly designated by the Participant or Former Participant. If more than one Beneficiary of a particular class (primary or secondary) is named, the interest of any deceased Beneficiary of that class shall pass to the surviving Beneficiary or Beneficiaries of that class except to the extent that the designation provides for payment to any secondary Beneficiary or Beneficiaries upon the death of a primary Beneficiary. In determining whether any person named as a Beneficiary is living at the time of a Participant's or Former Participant's death, if such person and the Participant or Former Participant die in a common disaster and there is insufficient evidence to determine which person died first, then it shall be deemed that the Beneficiary died first. -4- 2.8 Board of Directors means the Board of Directors of the Company, or any committee of the Board of Directors authorized to act on its behalf. 2.9 Code means the Internal Revenue Code of 1986, as it may be amended from time to time. Reference to a section of the Code shall include that section, applicable Treasury regulations promulgated thereunder and any comparable section of any future legislation that amends, supplements or supersedes said section. 2.10 Committee means the Administrative and Investment Committee as from time to time constituted. The Committee shall consist of at least three members who will be employees, officers or directors of an Affiliated Company appointed by the Chief Executive Officer of the Company, and serving at the pleasure of the Company. 2.11 Company means Eljer Manufacturing, Inc., or any successor thereto. 2.12 Company Stock means common stock par value $1.00 per share of Eljer Industries, Inc. 2.13 Compensation means, unless defined otherwise herein: (a) for purposes of making contributions and allocations hereunder, the sum of (i) compensation for services performed by an Employee for an Employer that is required to be reported as wages on the Employee's Form W-2 (or its equivalent) for Federal income tax purposes, and (ii) amounts contributed by the Employer pursuant to a salary reduction agreement that are not includible in gross income of the Employee under Sections 125, 402(a)(8), 402(h) or 403(b) of the Code, but less per diem allowances, expense allowances, moving expense allowances and excess group term life insurance premium costs includible by the Employee as "PS-58 costs"; provided, however, that Compensation shall include only amounts actually paid an Employee during the period he is a Participant for services performed as an Employee; (b) for purposes of the Actual Deferral Percentage tests under Section 5.2 and the Contribution Percentage tests under Section 6.1, amounts paid to an Employee for the Plan Year that are required to be reported by the Employer pursuant to Sections 6041(d) and 6051(a)(3) of the Code, plus Tax Reduction Contributions and other amounts representing elective contributions by the Employer on behalf of the Employee that are excluded from an Employee's gross income by reason of Sections 125, 402(a)(8), 402(h)(1)(B) and/or 403(b) of the Code; provided, however, that the Committee, in its sole and absolute discretion, may limit Compensation under this Section 2.13(b) taken into account for a Plan Year to only that Compensation received with respect to the portion of the Plan Year during which an Employee is eligible to participate in the Plan under Article III, provided such limitation -5- is applied uniformly to all eligible Employees under the Plan for such Plan Year; and (c) for other purposes of the Plan, including determining the limits on Annual Additions imposed by Section 415 of the Code as set forth in Article VIII, the special top-heavy rules of Article XVIII and determining the identity of Highly Compensated Employees, amounts paid to an Employee for the Plan Year (or Limitation Year for purposes of Article VIII) that are required to be reported pursuant to Sections 6041(d) and 6051(a)(3) of the Code. For (i) each Plan Year beginning before January 1, 1994, only the first $200,000 of an individual's Compensation shall be taken into account for purposes of the Plan [or such other amount as the Secretary of the Treasury may prescribe at the same time and in the same manner as provided under Section 415(d) of the Code for adjusting the dollar limitation in effect under Section 415(b)(1)(A) of the Code] and (ii) each Plan Year beginning after December 31, 1993, only the first $150,000 of an individual's Compensation shall be taken into account for purposes of the Plan [or, beginning January 1, 1995, such larger amount as may be determined under Section 401(a)(17)(B) of the Code]. Each limitation on Compensation described in the preceding sentence shall be referred to herein as the "Compensation Limitation". In determining the Compensation of each Participant who is (i) a more than five percent owner of an Employer or (ii) a Highly Compensated Employee in the group consisting of the ten Highly Compensated Employees paid the greatest Compensation during the Plan Year (without regard to this sentence), for purposes of applying the Compensation Limitation (as it may be adjusted), the spouse of each such Participant and each of his lineal descendants who have not attained age 19 before the close of the Plan Year shall not be treated as a separate Employee for that Plan Year and the Compensation of each such family member shall be aggregated with the Compensation of the Participant as if it were paid to the Participant. If, as a result of the application of the preceding sentence, the Compensation Limitation (as it may be adjusted) is exceeded, then the limitation shall be prorated among the affected individuals in proportion to each such individual's Compensation as determined under this Section 2.13 prior to the application of this limitation. 2.14 Disability or Disabled means the physical or mental incapacity of a Participant that, in the opinion of the Committee, based on medical evidence satisfactory to the Committee, renders him unfit to perform any employment for the Employer. 2.15 Effective Date of this Plan, as amended and restated, shall generally be April 1, 1989; provided, however, that as necessary to comply with the effective dates of the applicable provisions of the Tax Reform Act of 1986 and subsequent laws, certain provisions of the Plan shall be effective as of the dates such provisions are required to be effective with respect to the -6- Plan under the Code or, if later, under administrative pronouncements issued by the Internal Revenue Service or the Treasury Department [subject to the provisions of Treasury Regulation Sections 1.401(k)-1(h)(3) and 1.401(m)-2(d)(2)]. Notwithstanding the general effective date set forth above, certain provisions of the Plan shall be effective as of the dates set forth herein. 2.16 Employee means, for Plan Years beginning before January 1, 1991, any salaried individual employed by an Employer. Effective for Plan Years beginning on and after January 1, 1991, the term Employee means any person employed by the Employer who is included on the Federal Insurance Contributions Act rolls of the Employer; provided, however, the term Employee shall not include (i) any individual employed on an hourly basis at the Company's Nampa, Idaho plant and employees of the Fiberglass Products Division at Wilson, North Carolina or at the GlasTec Division of the Company and (ii) any employees of an Affiliated Company who are included in a unit of employees covered by a collective bargaining agreement. The term Employee includes a Leased Employee that Section 414(n) of the Code requires the Employer to treat as an employee, but such Leased Employee shall not be eligible to participate in the Plan. 2.17 Employer means the Company and any other Affiliated Company, with respect to its Employees, provided such Affiliated Company is designated by the Committee as an Employer under the Plan and whose designation as such has become effective and has continued in effect. The designation shall become effective only when it shall have been accepted by the governing body of the Employer. An Employer may revoke its acceptance of such designation at any time, but until such acceptance has been revoked, all of the provisions of the Plan and amendments thereto shall apply to the Employees of the Employer. In the event the designation of the Employer as such is revoked by the governing body of the Employer, such revocation will not be deemed a termination of the Plan. The Committee shall have the exclusive right to determine whether any Affiliated Company shall become an Employer for purposes of the Plan. 2.18 Entry Date means the first day of each January, April, July and October. 2.19 ERISA means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time, and applicable regulations promulgated thereunder. 2.20 Family Member means with respect to any Employee, such Employee's spouse and lineal ascendants or descendants and the spouses of such lineal ascendants or descendants. -7- 2.21 Former Participant means any individual who has been a Participant in the Plan, who is no longer in the employ of an Affiliated Company and who has not yet received the entire benefit to which he is entitled under the Plan. 2.22 Highly Compensated Employee means any Employee who is determined to be included in subsection (a) after applying the special rules in subsection (b): (a) any Employee who, during the Plan Year for which the determination is being made or the immediately preceding Plan Year: (i) was, at any time, a more than five percent owner of any Employer; (ii) received Compensation from all Employers in excess of $75,000; (iii) received Compensation from all Employers in excess of $50,000 and was in the top 20% of Employees for the Plan Year (when ranked on the basis of Compensation for such Plan Year); or (iv) was at any time an officer of any Employer and received Compensation greater than 50% of the dollar limitation in effect under Section 415(b)(1)(A) of the Code for the Plan Year. (b) For purposes of determining the Employees who are to be included in subsection (a) above, the following special rules shall apply to this Section 2.22: (i) Any Employee not described in subsection (a)(ii), (iii) or (iv) of this Section 2.22 for the Plan Year immediately preceding the Plan Year of determination shall not be treated as described in subsection (a)(ii), (iii) or (iv) of this Section 2.22 for the Plan Year of determination unless, in addition to meeting the requirements of subsection (a)(ii), (iii) or (iv) for the Plan Year of determination, such Employee is a member of the group consisting of the one hundred Employees paid the highest Compensation during that Plan Year. (ii) In determining the top 20% of Employees pursuant to subsection (a)(iii), Employees who (A) have not completed at least six months of service, (B) normally work fewer than 17-1/2 hours per week, (C) normally work during not more than six months during any Plan Year, (D) have not attained age 21 or (E) are covered under a collective bargaining agreement (except to the extent provided in applicable Treasury regulations) shall be excluded from such determination. -8- (iii) In determining officers under subsection (a)(iv), no more than fifty (50) Employees (or, if less, the greater of three Employees or ten percent of the Employees) shall be treated as officers, and if in such Plan Year no officer is described in subsection (a)(iv), the highest paid officer of any Employer during such Plan Year shall be treated as an officer for purposes of subsection (a)(iv). (iv) If any Employee is a Family Member of an Employee who is a more than five percent owner of any Employer or a Highly Compensated Employee in the group consisting of the ten Highly Compensated Employees paid the greatest Compensation during the Plan Year [without regard to this subsection (b)(iv)], then (A) such Family Member shall not be considered a separate Employee and (B) any Compensation paid to such Family Member (and any applicable contribution or benefit on behalf of such Employee) shall be treated as if it were paid to (or on behalf of) the Employee who is the five percent owner or one of the ten Highly Compensated Employees paid the greatest Compensation during the Plan Year. (v) A former Employee whose employment terminates prior to the Plan Year of determination shall be treated as a Highly Compensated Employee for the Plan Year of determination if such Employee was a Highly Compensated Employee upon termination of employment with an Employer, or such Employee was a Highly Compensated Employee at any time after attaining age 55. (vi) "Compensation" for purposes of determining who is a Highly Compensated Employee shall have the meaning set forth in Section 2.13(c), but prior to any reduction on account of a Participant's Tax Reduction Contributions and any other contributions not treated as taxable income by reasons of Sections 125, 402(a)(8) or 402(h)(1)(B) of the Code. (vii) The dollar amounts in subsections (a)(ii) and (iii) shall be adjusted to such other amount as the Secretary of the Treasury shall prescribe at the same time and in the same manner as provided under Section 415(d) of the Code for adjusting the dollar limitation in effect under Section 415(b)(1)(A) of the Code. (viii) In determining the number of Employees pursuant to this Section, any Employee who is a non-resident alien and who receives no earned income [within the meaning of Section 911(d)(2) of the Code] from any Employer which constitutes income from sources within the United States [within the meaning of Section 861(a)(3) of the Code] shall be excluded from such determination. -9- 2.23 Highly Compensated Participant means a Highly Compensated Employee who has met the eligibility requirements in accordance with Article III. 2.24 Hour of Service means each hour credited to an individual in accordance with the provisions of Section 3.5. 2.25 Investment Fund or Fund means a fund designated by the Committee pursuant to Section 9.5 from time to time and maintained for the purpose of providing a vehicle for the investment of the Trust Fund, in accordance with the directions of each Participant, Former Participant or Beneficiary with respect to his Account, until such Investment Fund shall be eliminated by action of the Committee and shall, effective as set forth below, include the following funds: (a) Effective as of the Effective Date of the Plan: (i) Eljer Industries, Inc. Common Stock Fund; (ii) Household International, Inc. Common Stock Fund (Frozen Fund); (iii) Fixed Income Fund; and (iv) Equity Income Fund (Frozen Fund, effective June 30, 1991). (b) Effective as of July 1, 1991: (i) Eljer Industries, Inc. Common Stock Fund; (ii) Household International, Inc. Common Stock Fund (Frozen Fund); (iii) Fixed Income Fund; (iv) Equity Income Fund (Frozen Fund); and (v) Equity Index Fund. (c) Effective as of January 1, 1992: (i) Eljer Industries, Inc. Common Stock Fund; (ii) Household International, Inc. Common Stock Fund (Frozen Fund); (iii) Fixed Income Fund; (iv) Equity Income Fund (Frozen Fund); (v) Equity Index Fund; and (vi) Fidelity Intermediate Bond Fund. (d) Effective as of July 1, 1993: (i) Eljer Industries, Inc. Common Stock Fund; (ii) Household International, Inc. Common Stock Fund (Frozen Fund); (iii) Fixed Income Fund; (iv) Equity Fund; and (v) Balanced Fund. 2.26 Investment Plan Contributions mean contributions paid by the Participant on an after-tax basis in accordance with Section 4.2 of the Plan and contributions which were paid on an after-tax -10- basis pursuant to the terms of the Plan prior to the amendment and restatement of the Plan as set forth herein. 2.27 Investment Plan Contribution Account means the portion of the individual Account maintained by the Trustee or the Recordkeeper for each Participant, each Former Participant and each Beneficiary, showing the monetary value of the person's individual interest in the Trust Fund attributable to Investment Plan Contributions and contributions made on an after-tax basis to the Prior Plan. 2.28 Interactive Telephone Communication means a communication between a Participant, Former Participant or Beneficiary and the Recordkeeper pursuant to a system maintained by the Recordkeeper and communicated to each Participant, Former Participant and Beneficiary whereby each such individual may make elections and exercise options as described herein with respect to his Account through the use of such system and a personal identification number. If a Participant, Former Participant or Beneficiary in writing (i) consents to participate in Interactive Telephone Communication procedures adopted by the Committee and (ii) acknowledges that actions taken by such Participant, Former Participant or Beneficiary through the use of his personal identification number pursuant to the Interactive Telephone Communication procedure constitute his signature for purposes of initiating Investment Fund changes, participant loans and Plan withdrawals, the Participant, Former Participant or Beneficiary, as the case might be, will be deemed to have given his written consent and authorization to any such action resulting from the use of the Interactive Telephone Communication system by the Participant, Former Participant or Beneficiary. 2.29 Key Employee means, as of any Determination Date [as defined in Section 18.5(b)], any Employee or Former Employee (or Beneficiary of such Employee) who, at any time during the Plan Year that includes the Determination Date, or during the preceding four Plan Years, is: (a) an officer of any Employer having Compensation greater than 50% of the amount in effect under Section 415(b)(1)(A) of the Code for any such Plan Year; (b) one of the ten Employees having Compensation from any Employer of more than the dollar limitation in effect under Section 415(c)(1)(A) of the Code and owning the largest interests in such Employer; (c) a more than five percent owner of any Employer; or (d) a more than one percent owner of any Employer having Compensation from all Employers of more than $150,000. -11- For purposes of this Section 2.29, Compensation shall have the meaning set forth in Section 2.13(c), but including amounts contributed by the Employer pursuant to a salary reduction agreement which are excludable from the Participant's gross income under Sections 125, 402(a)(8), 402(h) or 403(b) of the Code. For purposes of subsection (a) of this Section, no more than 50 Employees (or, if lesser, the greater of three or ten percent of the Employees) shall be treated as officers. For purposes of subsection (b) of this Section, if two Employees have the same interest in an Employer, the Employee having the greater Compensa tion shall be treated as having the larger interest. The construc tive ownership rules of Section 318 of the Code (or the principles of that section, in the case of an unincorporated Employer) will apply to determine ownership in each Employer. 2.30 Leased Employee means an individual who is not in the employ of an Employer and who, pursuant to a leasing agreement between an Employer and any other person ("leasing organization"), has performed services for an Employer [or for an Employer and any other person related to an Employer within the meaning of Section 144(a)(3) of the Code] on a substantially full-time basis for at least one year and who performs services of a type historically performed by employees in the Employer's business field. Leased Employee shall also include any individual who is deemed to be an employee of an Employer under Section 414(o) of the Code. Notwithstanding the preceding sentence, if individuals described in the preceding sentence constitute less than 20% of an Employer's non-highly compensated work force within the meaning of Section 414(n)(5)(C)(ii) of the Code, the Plan shall not treat an individual as a Leased Employee if the leasing organization covers the individual in a money purchase pension plan providing immediate participation, full and immediate vesting and a non-integrated contribution formula equal to at least ten percent of the individual's annual compensation [as defined in Section 415(c)(3) of the Code, but including amounts contributed by an Employer pursuant to a salary reduction agreement that are excludable from the individual's gross income under Sections 125, 402(a)(8), 402(h) or 403(b) of the Code]. If any Leased Employee shall be treated as an Employee of an Employer, however, contributions or benefits provided by the leasing organization which are attributable to services of the Leased Employee performed for an Employer shall be treated as provided by the Employer. 2.31 Limitation Year means the calendar year. 2.32 Matching Company Contributions mean contributions paid to the Plan on behalf of a Participant in accordance with Section 4.5 based on the Participant's Tax Reduction Contributions and Investment Plan Contributions made pursuant to Sections 4.1 and 4.2 of the Plan. -12- 2.33 Matching Company Contribution Account means the portion of the individual Account maintained by the Trustee or Recordkeeper for each Participant, each Former Participant and each Beneficiary, showing the monetary value of that person's individual interest in the Trust Fund attributable to Matching Company Contributions and employer matching contributions made to the Prior Plan. 2.34 Named Fiduciary means the Committee. 2.35 Non-Highly Compensated Employee means any Employee who is neither a Highly Compensated Employee nor a Family Member who is not treated as a separate Employee under Section 2.22(b)(iv). 2.36 Non-Highly Compensated Participant means a Participant who is not a Highly Compensated Participant. 2.37 Non-Key Employee means any Employee who is not a Key Employee. 2.38 Normal Retirement Date means a Participant's or Former Participant's 65th birthday. 2.39 Notice means, unless otherwise provided specifically in this Plan, (i) written Notice on an appropriate form provided by the Committee that is properly completed and executed by the party giving such Notice and which is delivered by hand or by mail to the Committee or to such other party designated by the terms of the Plan or by the Committee to receive the Notice or (ii) Notice by Interactive Telephone Communication to the Recordkeeper. Notice to the Committee, the Recordkeeper or to any other person as provided herein shall be deemed to be given when it is actually received (either physically or by Interactive Telephone Communication, as the case may be) by the party to whom such Notice is given. 2.40 Participant means an Employee who has met the eligibility requirements of the Plan as provided in Article III hereof and who has begun participating in the Plan. 2.41 Plan means the salary reduction and savings retirement plan and trust embodied herein, as the same may be amended from time to time, and shall be known as "Eljer Tax Reduction Investment Plan". 2.42 Plan Year means the twelve (12) month period commencing each January 1 and ending the following December 31; provided, however, that the first Plan Year shall be the short year commencing April 1, 1989 and ending December 31, 1989. 2.43 Prior Plan means the Household International Tax Reduction Investment Plan. -13- 2.44 Qualified Domestic Relations Order means any judgment, decree, or order (including approval of a property settlement agreement) that (i) relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child or other dependent of a Participant or Former Participant, (ii) is made pursuant to a state domestic relations law, (iii) creates or recognizes the existence of an Alternate Payee's right to, or assigns to an Alternate Payee the right to, receive all or a portion of the benefits payable with respect to a Participant or Former Participant under the Plan and (iv) complies with the requirements of Code Section 414(p). 2.45 Quarterly Valuation Date means the last day of each calendar quarter. 2.46 Recordkeeper means any person or entity appointed by the Committee to perform recordkeeping and other administrative services on behalf of the Plan. 2.47 Rollover Account means the portion of the Account maintained by the Trustee or the Recordkeeper for each Employee, each Participant, each Former Participant and each Beneficiary, showing the monetary value of such person's individual interest in the Trust Fund attributable to his Rollover Contribution and amounts contributed as a rollover to the Prior Plan. 2.48 Rollover Contribution means, in addition to a contribu tion described in the last sentence of this Section 2.48, any amount transferred to the Plan that would constitute a rollover contribution within the meaning of Section 402(a)(5), 403(a)(4) or 408(d)(3) of the Code. Any such rollover contribution must consist of either (i) all or a portion of the property (in excess of employee contributions) that the Employee received in a distribution from an employee's trust described in Section 401(a) of the Code which is exempt from tax under Section 501(a) thereof or an annuity plan described in Section 403(a) of the Code and any earnings thereon (whether such contribution is paid directly by the Employee, from such other trust or annuity plan, or from an individual retirement account or individual retirement annuity) or (ii) all or a portion of the proceeds from the sale of property received in such a distribution pursuant to Section 402(a)(6)(D) of the Code. Commencing January 1, 1993, a Rollover Contribution shall include an eligible rollover contribution as described in Code Section 402(c)(4) transferred to the Plan pursuant to an Employee's election as described in Code Section 401(a)(31)(A). 2.49 Tax Reduction Contributions mean contributions paid to the Plan on behalf of a Participant on a before-tax basis in accordance with Section 4.1 of the Plan and contributions which were paid on a before-tax basis pursuant to the terms of the Plan prior to the amendment and restatement of the Plan as set forth herein. -14- 2.50 Tax Reduction Contribution Account means the portion of the individual Account maintained by the Trustee or the Recordkeeper for each Participant, each Former Participant and each Beneficiary, showing the monetary value of that person's individual interest in the Trust Fund attributable to Tax Reduction Contributions, contributions made by an Employer pursuant to Section 4.4 as "qualified non-elective contributions" within the meaning of Section 401(m)(4)(C) of the Code and contributions made on a before-tax basis to the Prior Plan. 2.51 Trust means the fund maintained by the Trustee for the investment of Plan assets in accordance with the terms and conditions of the Trust Agreement. 2.52 Trust Agreement means the agreement between the Company and the Trustee under which the assets of the Plan are held, administered and managed by the Trustee. The provisions of the Trust Agreement shall be considered an integral part of this Plan as if set forth fully herein. 2.53 Trust Fund means all assets of whatsoever kind and nature from time to time held by the Trustee pursuant to the terms of the Trust Agreement without distinction as to income or principal out of which benefits of the Plan are provided. The Trust Fund shall be divided into Investment Funds as provided in Section 9.5. 2.54 Trustee means NationsBank of Texas, N.A. or any successor trustee and any additional trustee or trustees. 2.55 Valuation Date means the close of business on the last day of each month, or such other date or dates as the Committee shall establish from time to time. 2.56 Year of Service has the meaning set forth in Section 3.6. Except as otherwise indicated by the context, any masculine terminology used herein also includes the feminine and neuter, and vice versa, and the definition of any term herein in the singular shall also include the plural, and vice versa. ARTICLE III PARTICIPATION AND YEARS OF SERVICE 3.1 Eligibility to Participate. (a) Prior Plan Participants. An individual who was eligible to participate in the Prior Plan on March 31, 1989 and who is an Employee of an Employer on April 1, 1989 shall be eligible to participate in this Plan as of April 1, 1989. -15- (b) Other Employees. Each other Employee shall be eligible to participate in the Plan on the Entry Date (if he is employed by the Employer on that date) that coincides with or that next follows the earlier of: (i) the date he completes three Years of Service; or (ii) the date he attains age 21 and completes one Year of Service. 3.2 Commencement of Participation. Any Employee eligible to participate in the Plan may elect to become a Participant by executing and filing with his Employer an enrollment form, in such form and manner as the Committee may prescribe, on which he (i) authorizes Tax Reduction Contributions pursuant to a tax reduction agreement as described in Section 4.1(b), or Investment Plan Contributions pursuant to an investment plan agreement as described in Section 4.2(b), or both, (ii) designates a contribution rate, (iii) designates a Beneficiary, and (iv) elects the Investment Funds to which his contributions are to be allocated. Participation in the Plan shall commence on the effective date of the Employee's agreement in accordance with the provisions of Section 4.1(b) or Section 4.2(b), whichever date is earlier, and shall continue in effect until amended or terminated. By signing such an enrollment form, the Employee agrees to be bound by all terms and conditions of the Plan as then in effect or as thereafter amended. 3.3 Waiver of Participation. Any Employee eligible to participate in the Plan who chooses not to participate in the Plan as of the first Entry Date following the date he becomes eligible to participate shall waive his right to participate until any subsequent Entry Date. 3.4 Transfers from Eligible Employment. If a Participant is transferred to a class of employment not eligible for participation in this Plan but continues to be employed by an Affiliated Company, no further contributions to the Trust shall be made by or on behalf of the Participant under the Plan with respect to periods on and after the transfer unless the Participant is subsequently transferred back to eligible employment and a new enrollment form containing a tax reduction agreement is executed in accordance with Section 4.1(b) or a new enrollment form containing an investment plan agreement is executed in accordance with Section 4.2(b). During the period of his employment in such transferred position: (a) vesting shall continue in Matching Company Contributions; and (b) he may make withdrawals, transfer his Account among the Funds, apply for loans pursuant to Article XIII, and change Beneficiaries in accordance with the provisions of the Plan. -16- 3.5 Hour of Service. An "Hour of Service" means: (a) Performance of Duties. Each actual hour for which an individual is paid or entitled to be paid for the performance of duties for an Affiliated Company; (b) Nonworking Paid Time. Each hour for which an individual is paid or entitled to be paid by an Affiliated Company on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity, disability, layoff, jury duty, military duty or leave of absence: provided, however, that no credit shall be given for payments made or due under a plan maintained solely for the purpose of complying with applicable worker's or unemployment compensation or disability insurance laws or for payments which solely reimburse an individual for medical or medically related expenses incurred by the individual; and (c) Back Pay. Each hour for which back pay, irrespective of mitigation or damages, is either awarded or agreed to by an Affiliated Company. Notwithstanding any other provision of this Plan to the contrary, an individual shall not be credited with Hours of Service more than once with respect to the same period of time. 3.6 Year of Service. (a) In General. A "Year of Service" means each 365 day period (disregarding fractional years), measured during the period beginning on the date on which an employee of an Affiliated Company (whether or not in a class of employment eligible to participate in the Plan) first completes an Hour of Service (or the first day of the month in which he is employed and completes an Hour of Service, if his employment commences on the first regularly scheduled work day of a month) and ending on the earlier of (i) the date such employee quits, is discharged, retires or dies or (ii) the first anniversary of the date such employee is absent from active employment for any other reason including, but not limited to, short-term disability, vacation, leave of absence or layoff. The applicable date under (i) or (ii) is such employee's "severance from service date". (b) Service Spanning Rules. Notwithstanding the foregoing, if an employee is severed from service with an Affiliated Company by reason of quitting, discharge or retirement but returns to employment with an Affiliated Company and performs an Hour of Service within the 365 day period ending on the first anniversary of his severance from service date, the interim period shall count towards the computation of Years of Service. If an employee of an Affiliated Company is absent for a reason described in (a)(ii) of this Section 3.6 and then quits, is discharged or retires but -17- subsequently returns to employment and performs an Hour of Service, the interim period of absence shall count towards the computation of Years of Service, provided that the date on which such employee again performs an Hour of Service occurs within the 365 day period ending on the first anniversary of the date the employee was first absent from employment for a reason described in (a)(ii) of this Section 3.6. (c) Leaves of Absence. In accordance with uniform rules, the Committee may, in its sole and absolute discretion, count certain periods of absence from active employment with an Affiliated Company toward the computation of Years of Service, even if not required pursuant to paragraphs (a) or (b) of this Section 3.6. 3.7 Participation and Service Upon Reemployment. If an individual's employment with an Affiliated Company is terminated but he is reemployed as an Employee, the following rules shall apply in determining his eligibility to participate in the Plan and his Years of Service: (a) If the reemployed employee was a Participant in the Plan or had satisfied the service and age requirements of Section 3.1 during his prior period of employment, he shall be entitled upon reemployment to become a Participant in the Plan (if he is then included in a class of employment eligible to participate in the Plan). In order to make contributions, he shall be required to execute a new enrollment form containing a tax reduction agreement in accordance with Section 4.1(b) and/or a new investment plan agreement in accordance with Section 4.2(b). (b) If the reemployed employee was not a Participant in the Plan or had not satisfied the service and age requirements of Section 3.1 during his prior period of employment, such service and age requirements must be satisfied and the employee must be included in a class of employment eligible to participate in the Plan before he becomes a Participant upon reemployment; provided, however, that any Years of Service credited during his prior period of employment shall be automatically reinstated as of the date of his reemployment. 3.8 Predecessor Service. Credit towards Hours and Years of Service shall be given for periods of employment with any corporation that is a predecessor corporation of an Employer, or a corporation merged, consolidated or liquidated into an Employer or a predecessor of an Employer, or a corporation, substantially all of the assets of which have been acquired by an Employer, but only to the extent required by Section 414(a) of the Code; provided, however, that even if not required by the Code, the Committee on a nondiscriminatory basis may, in its sole and absolute discretion, grant credit for Hours and Years of Service with a predecessor corporation. Without limitation of the foregoing, all service credited to an employee of an Affiliated Company as of March 31, -18- 1989 for eligibility and vesting purposes under the terms of the Prior Plan shall be credited as of April 1, 1989 for such purposes hereunder. ARTICLE IV CONTRIBUTIONS 4.1 Tax Reduction Contributions. (a) Amount of Contributions. Any Employee eligible to participate in the Plan may elect to have the Company make Tax Reduction Contributions to the Trust on his behalf by executing an enrollment form containing a tax reduction agreement as described in Section 4.1(b). The amount of Tax Reduction Contributions made on behalf of a Participant for any payday shall equal that whole percentage of his Compensation per payday selected by the Participant, subject to the restrictions and limitations of Section 4.6 and Article V hereof. (b) Tax Reduction Agreement. (i) Nature of Agreement. The tax reduction agreement referred to in Section 4.1(a) shall be a legally binding agreement (on a form prescribed by the Committee) whereby (A) the Participant agrees that, as of the effective date of the agreement, the Compensation otherwise payable to him thereafter shall be reduced by a whole percentage (as selected by the Participant) not to exceed the maximum percentage permitted under Section 4.6, and (B) the Employer agrees to contribute the total amount of such reduction in Compensation to the Trust on behalf of the Participant as a Tax Reduction Contribution under Section 4.1(a). Such contributions may be made by the Employer to the Trust on a monthly basis, provided that in no event shall the Company's aggregate contribution on behalf of the Participant under Section 4.1(a) for any Plan Year be made to the Trust later than 90 days after the close of the Plan Year to which such contribution relates or such later date prescribed by the Code or applicable Treasury or Department of Labor regulations. Subject to the provisions of paragraph (v) of this Section 4.1(b) and Article V hereof, a Participant's tax reduction agreement shall remain in effect until modified or terminated in accordance with paragraphs (iii) or (iv) of this Section 4.1(b). (ii) Effective Date of Agreement. The effective date of a Participant's tax reduction agreement shall be no earlier than the first Entry Date commencing at least 30 days after such agreement is received in executed form by -19- the Committee (provided such effective date is no earlier than the date the Participant first becomes eligible to participate in the Plan). (iii) Amendment of Agreement. (A) A Participant may amend his tax reduction agreement with respect to Compensation not yet paid to provide a new lower whole percentage to be used to determine his reduced Compensation amount; provided, however, the amended tax reduction agreement shall be effective no earlier than the first Entry Date commencing at least 30 days after Notice is received. A Participant may not amend his tax reduction agreement to lower his percentage more often than two times in any Plan Year. (B) A Participant may amend his tax reduction agreement with respect to Compensation not yet paid to provide a new higher percentage (within the limits of Section 4.6) to be used to determine his reduced Compensation amount. A Participant who is a Non- Highly Compensated Employee may increase his Tax Reduction Contributions effective as of any Entry Date, provided that the Committee has received an amended tax reduction agreement at least 30 days prior to such Entry Date. A Participant who is a Highly Compensated Employee may increase his Tax Reduction Contributions effective only as of the first day of a Plan Year, provided that the Committee has received an amended tax reduction agreement at least 30 days prior to the first day of such Plan Year. The Committee may, in its sole and absolute discretion, shorten the 30-day prior notice periods required under this paragraph (iii). (iv) Termination of Agreement. A Participant may terminate his tax reduction agreement at any time with respect to Compensation not yet paid. The effective date of termination shall be as soon as administratively possible after the Participant's notice of termination is received in executed form by the Committee. Any Participant who terminates his tax reduction agreement shall be permitted to execute a new tax reduction agreement and resume having contributions made to the Trust on his behalf under Section 4.1(a), provided that the effective date of such new tax reduction agreement shall be determined in the same manner as the effective date is determined for increased Tax Reduction Contributions under paragraph (iii) of this Section 4.1(b). -20- (v) Transfer to Ineligible Employment or Termination of Employment. A Participant's tax reduction agreement shall terminate automatically if the Participant transfers to a class of employment not eligible for participation in this Plan or if he terminates his employment with the Employer. Upon return of the Participant to eligible employment, the Participant shall be permitted to execute a new tax reduction agreement and resume having contributions made to the Trust on his behalf under Section 4.1(a), provided that the effective date of the new tax reduction agreement shall be no earlier than the later of (A) the first Entry Date commencing at least 30 days after the agreement is received in executed form by the Committee or (B) the date the Participant resumes eligible employment. Transfers of Participants to different payroll systems among the Employers shall be administered by procedures established by the Committee. 4.2 Investment Plan Contributions. (a) Amount of Contributions. Any Employee eligible to participate in the Plan may elect to make Investment Plan Contributions to the Trust by executing an enrollment form containing an investment plan agreement as described in Section 4.2(b). The amount of Investment Plan Contributions made by a Participant for any payday shall equal that whole percentage of his Compensation per payday selected by the Participant, subject to the restrictions and limitations contained in Section 4.6 and Article VI hereof. (b) Investment Plan Agreement. (i) Nature of Agreement. The investment plan agreement referred to in Section 4.2(a) shall be a legally binding agreement (on a form prescribed by the Committee) whereby (A) the Participant agrees that, as of the effective date of the agreement, the Compensation otherwise payable to him thereafter shall be adjusted by a whole percentage (as selected by the Participant) not to exceed the maximum percentage permitted under Section 4.6 and (B) the Participant agrees to contribute the total amount of said adjustment in Compensation upon each payday to the Trust as an Investment Plan Contribution under Section 4.2(a). Each Participant's Investment Plan Contributions shall be paid over to the Trustee for deposit in the Trust Fund at such time or times as may be convenient to the Employer but not later than the end of the month next following the month in which the deduction is made or such later date prescribed under Department of Labor regulations. Subject to the provisions of paragraph (v) of this Section 4.2(b) and Article VI -21- hereof, a Participant's investment plan agreement shall remain in effect until modified or terminated in accordance with paragraphs (iii) or (iv) of this Section 4.2(b). (ii) Effective Date of Agreement. The effective date of a Participant's investment plan agreement shall be no earlier than the first Entry Date commencing at least 30 days after such agreement is received in executed form by the Committee (provided such effective date is no earlier than the date the Participant first becomes eligible to participate in the Plan). (iii) Amendment of Agreement. A Participant may amend his investment plan agreement at any time with respect to Compensation not yet paid to increase or to decrease the whole percentage of his Compensation (within the limits of Section 4.6) to be used to determine his Investment Plan Contribution. The amended investment plan agreement shall be effective no earlier than the first Entry Date commencing at least 30 days after Notice is received. A Participant may not amend his investment plan agreement under this Section 4.2(b)(iii) more often than two times in any Plan Year. (iv) Termination of Agreement. A Participant may terminate his investment plan agreement at any time with respect to Compensation not yet paid. The effective date of termination shall be as soon as administratively possible after the Participant's notice of termination is received in executed form by the Committee. Any Participant who terminates his investment plan agreement shall be permitted to execute a new investment plan agreement and resume making contributions to the Trust under Section 4.2(a), provided that the effective date of such new investment plan agreement shall be no earlier than a subsequent Entry Date (and, in the case of a Highly Compensated Participant, the first Entry Date in the following Plan Year), in any case commencing at least 30 days after the new investment plan agreement is received in executed form by the Committee. (v) Transfer to Ineligible Employment or Termination of Employment. A Participant's investment plan agreement shall terminate automatically if the Participant transfers to a class of employment not eligible for participation in this Plan or if he terminates his employment with the Employer. Upon return of the Participant to eligible employment, the Participant shall be permitted to execute a new investment plan agreement and resume making contributions to the Trust under Section 4.2(a), provided that the effective date of the -22- new investment plan agreement shall be no earlier than the later of (A) first Entry Date commencing at least 30 days after the agreement is received in executed form by the Committee or (B) the date the Participant resumes eligible employment. Transfers of Participants to different payroll systems among the Employers shall be administered by procedures established by the Committee. 4.3 Matching Company Contributions. (a) Contributions. In addition to the contributions described in Sections 4.1, 4.2 and 4.4 hereof, the Employer shall make Matching Company Contributions to the Trust on behalf of each Participant for each calendar quarter in the amount, if any, determined by it, in its sole and absolute discretion, subject to the limitations of Section 6.1; provided, however, that no Matching Company Contributions will be made with respect to Tax Reduction Contributions or Investment Plan Contributions that in the aggregate exceed 6% of a Participant's Compensation. (b) Timing of Matching Company Contributions. The Matching Company Contributions made to the Trust under Section 4.3(a) for any Plan Year generally shall be made quarterly, and in no event later than the date described in Section 4.5. (c) Waiver of Matching Contributions. In accordance with rules prescribed by the Committee, a Participant may waive in advance of any Plan Year or other prescribed period the allocation of Matching Company Contributions to his Matching Company Contri bution Account that otherwise would be made thereto. 4.4 Employer Qualified Non-Elective Contributions. To insure that the Actual Deferral Percentage tests of Section 401(k) of the Code as described in Section 5.2 hereof or the Contribution Percentage tests of Section 401(m) of the Code as described in Section 6.1 hereof are met for any Plan Year, an Employer, under such rules and regulations as the Secretary of the Treasury may prescribe, may make additional contributions that shall constitute "qualified non-elective contributions" within the meaning of Section 401(m)(4)(C) of the Code on behalf of Non-Highly Compensated Employees selected by the Company who are eligible to make Tax Reduction Contributions or Investment Plan Contributions for the Plan Year. Each Plan Year an Employer shall designate the portion, if any, of the qualified non-elective contributions that it made for the Plan Year that shall be considered under Section 5.2 for the Actual Deferral Percentage tests and the portion, if any, that shall be considered under Section 6.1 for the Contribution Percentage test. 4.5 Time of Contributions. In addition to any other require ments hereunder relating to the timing of contributions, contribu tions made by an Employer pursuant to Sections 4.1, 4.3 or 4.4 if -23- any, for any fiscal year of the Employer shall be paid in full not later than the time prescribed by law to enable the Employer to obtain a deduction therefor on its Federal income tax return for said year. Contributions made after the last day of the Plan Year but within the time for filing an Employer's Federal income tax return (including extensions thereof) for the fiscal year that ends with or within the last day of the Plan Year shall be deemed made as of the last day of that Plan Year if so directed by the Employer, except such contributions shall not share in increases, decreases, or income to the Trust Fund prior to the date actually made. Notwithstanding the foregoing, upon an Employer's request, a contribution that was made upon a mistake of fact or upon deductibility of the contribution shall be returned to the Employer within one year after the payment of the contribution or disallowance of the deduction (to the extent disallowed), as the case may be; provided, however, the amount returned to an Employer due to mistake of fact or denial of deductibility shall not be increased by any earnings thereon and shall be reduced by any losses attributable to such amount. 4.6 Maximum Combined Tax Reduction and Investment Plan Contributions. Notwithstanding any provision of Sections 4.1 and 4.2 to the contrary, no Participant may make Tax Reduction Contributions and/or Investment Plan Contributions in an amount, when combined for any Plan Year, in excess of 15% of such Participant's Compensation or such other percentage as the Committee shall determine for purposes of complying with any restriction or limitation imposed by the Code. 4.7 Manner of Making Contributions. All contributions to the Trust shall be paid directly to the Trustee. In connection with each contribution, the Employer shall provide the Recordkeeper with the following information: (a) the identity of each Participant on whose behalf the contribution is being made and the amount thereof; and (b) whether the amount contributed on behalf of the Participant is a Tax Reduction Contribution, an Investment Plan Contribution ,or a Rollover Contribution. The Recordkeeper shall provide the Trustee with any of the information received by it which is necessary for the Trustee to perform its duties and obligations with respect to the Trust. 4.8 Reduction of Employer Contributions. The aggregate contributions of each Employer pursuant to Sections 4.3 and 4.4 in any Plan Year shall be reduced by the value of Accounts forfeited under the provisions of Sections 5.1, 5.3, 6.2, 8.3, 10.3 and 11.9 after payment of expenses pursuant to Section 14.8. 4.9 Rollover Contributions. Any Participant or Employee (including an Employee who has not satisfied the eligibility -24- requirements of Article III), with the Committee's written consent and after complying with all applicable laws and filing with the Trustee the form prescribed by the Committee, may make or have made on his behalf a Rollover Contribution as described in Section 2.48. The Committee may adopt rollover procedures and, before permitting a Rollover Contribution, may require an Employee to furnish such information regarding the amount proposed to be rolled over as the Committee determines is necessary or appropriate. If a Rollover Contribution is made by or on behalf of an Employee who has not satisfied the eligibility requirements of Article III, the provisions of the Plan shall be generally applicable to such Employee and the Rollover Contribution, unless expressly provided otherwise herein. The Committee shall allocate and credit a Rollover Contribution to the contributing party's Rollover Contribution Account as of the Valuation Date immediately following the date on which the Rollover Contribution is made. A Rollover Contribution shall be nonforfeitable and the value thereof shall be paid to the Participant in the manner the Participant (or, if applicable, the Participant's Beneficiary) elects pursuant to Section 11.4 upon retirement, termination of employment, Disability or death. Rollover Contributions shall be made in cash and not in stock or other property, unless otherwise permitted by the Committee. An investment election on a form prescribed by the Committee shall be submitted with an Employee's Rollover Contribution and shall direct that such contribution be invested in the Investment Funds in multiples described in Section 9.5(d). Thereafter, the Employee may change the investment of his Rollover Contribution in accordance with Section 9.5(d)(ii). 4.10 Transfers from Other Plans. The Committee, in its discretion, may accept a direct transfer to the Plan from another plan qualified under Section 401(a) of the Code of all or a portion of the amount credited under such other plan to an Employee; provided, however, that the Plan shall not accept a transfer from any plan that is subject to the survivor annuity requirements of Sections 401(a)(11) or 417 of the Code. The Committee may adopt rules with respect to any such transfer including, but not limited to, rules with respect to accounting for, and the investment of, amounts transferred. In the event that an amount transferred to the Plan pursuant to this Section 4.10 is attributable to a cash or deferred election that was made pursuant to Section 401(k) of the Code, such amount shall be subject to the same rules that apply under the Plan to Tax Reduction Contributions. ARTICLE V LIMITATIONS AND RESTRICTIONS ON TAX REDUCTION CONTRIBUTIONS 5.1 Dollar Limitation. For any taxable year of a Partici pant, the aggregate amount of (i) contributions made to the Plan -25- pursuant to Section 4.1 on behalf the Participant for that taxable year, and (ii) amounts deferred by the Participant for that taxable year under a salary reduction agreement under any other plan, contract or agreement described in Sections 401(k), 403(b) or 408(k) of the Code sponsored by an Affiliated Company, shall not exceed $7,000 or such other dollar limitation prescribed by Code Section 402(g) for that taxable year as adjusted by the Secretary of the Treasury at the same time and in the same manner as provided under Section 415(d) of the Code for adjusting the dollar limitation in effect under Section 415(b)(1)(A) of the Code (such dollar limitation, as adjusted, shall hereinafter be referred to as the "Annual Deferral Limitation"). If Tax Reduction Contributions made on behalf of a Participant for a taxable year exceed the Annual Deferral Limitation for that year, the amount of such excess shall be referred to as "Excess Elective Deferrals." Excess Elective Deferrals (adjusted for the income or loss attributable to such excess amount) shall be distributed to the Participant not later than the April 15 immediately following the taxable year of the Participant for which the Excess Elective Deferrals were made to the Plan. The Company shall reduce the amount of the Excess Elective Deferrals under this Section 5.1 by the amount of Excess Contributions (as determined under Section 5.3), if any, previously distributed to the Participant for the Plan Year beginning in that taxable year. The Company shall determine the net income or net loss in the same manner as described in Section 5.3 for Excess Contributions, except the numerator of the allocation fraction shall be the amount of the Participant's Excess Elective Deferrals for the taxable year under this Section 5.1 and the denominator of the allocation fraction shall be the balance of the Participant's Tax Reduction Contribution Account attributable to Tax Reduction Contributions as of the end of the taxable year (without regard to the net income or net loss for the taxable year on that portion of the Participant's Tax Reduction Contribution Account); provided, however, if there is a loss attributable to such excess amount, the amount of the distribution adjusted for such loss shall be limited to an amount which does not exceed the lesser of (i) the aggregate balance of the Participant's Tax Reduction Contribution Account or (ii) the Tax Reduction Contributions made on behalf of the Participant for that taxable year. In adjusting a Participant's Excess Elective Deferrals for the income or loss attributable to such Excess Elective Deferrals, the income or loss attributable to such excess contributions for the "gap period" shall not be considered. For purposes of this Section 5.1, "gap period" shall mean the period beginning with the first day of the taxable year next following the taxable year for which the Excess Elective Deferrals were made on behalf of the Participant and ending on the date of the distribu tion. If the Excess Elective Deferrals are distributed to a Participant from the Plan pursuant to this Section 5.1, the Matching Company Contribution, if any, to which such Excess Elective Deferrals relate (plus any income and minus any loss -26- attributable thereto), determined after the application of Section 6.2, shall be forfeited (whether or not vested) at the time the Excess Elective Deferrals are distributed, and the forfeitures shall be applied as set forth in Section 11.12. If the Participant also (i) participates in one or more other qualified cash or deferred arrangements within the meaning of Section 401(k) of the Code, (ii) has employer contributions made on his behalf pursuant to a salary reduction agreement under Section 408(k) of the Code, or (iii) has an employer contribution made on his behalf pursuant to a salary reduction agreement toward the purchase of an annuity contract under Section 403(b) of the Code, and the sum of the elective deferrals [as defined in Section 402(g)(3) of the Code] that are made for the Participant during a taxable year under such other arrangements and this Plan exceeds the Annual Deferral Limitation for that taxable year, the Participant shall, not later than the March 1 following the close of his taxable year for which the Excess Elective Deferrals have been made, notify the Committee in writing of the portion of the Excess Elective Deferrals that he wishes to be allocated to this Plan, if any, and request that the Tax Reduction Contributions made on his behalf under this Plan be reduced by the allocable amount specified by the Participant. If all plans, contracts and agreements described in Sections 401(k), 403(b) and 408(k) of the Code pursuant to which the Participant is able to defer amounts for a taxable year for which Excess Elective Deferrals have been made are sponsored by an Affiliated Company, the Company shall determine to which plan, contract or agreement (including the Plan) the Excess Elective Deferrals shall be allocated for that taxable year and if the Excess Elective Deferrals are to be allocated to the Plan, the Company shall notify the Committee in writing not later than March 1 following the close of that taxable year. Such notification shall be deemed to be a notification by the Partici pant to the Committee. The portion of Excess Elective Deferrals that is allocated to this Plan, if any, shall be adjusted for income and loss in the same manner as described in Section 5.3 and shall then be distributed to the Participant no later than the immediately following April 15. If the Tax Reduction Contributions made on behalf of a Participant for a taxable year do not exceed the Annual Deferral Limitation for that taxable year and the Committee has not received any written Notice from the Participant (or deemed to have received such Notice as described above) by the March 1 immediately following that taxable year notifying the Committee that the Participant allocates a portion of the Excess Elective Deferrals, if any, for that taxable year to the Plan, the Committee may assume that none of the Tax Reduction Contributions made on behalf of the Participant for that taxable year constitute Excess Elective Deferrals and that no distribution is required to be made from the Participant's Tax Reduction Contribution Account pursuant to this Section 5.1. Notwithstanding the fact that Excess Elective Deferrals have been (or will be) distributed to a Highly Compensated Employee as provided above, the excess amount of such Tax Reduction Contributions or the portion of such Tax Reduction -27- Contributions that are deemed to constitute Excess Elective Deferrals by reason of the Company's or Participant's written Notice of allocation hereunder shall still be treated as a Tax Reduction Contribution for purposes of applying the Actual Deferral Percentage test described in Section 5.2 hereof for the Plan Year in which such Excess Elective Deferrals were made, except to the extent provided under rules prescribed by the Secretary of Treasury. 5.2 Actual Deferral Percentage Tests. For each Plan Year, the Employer shall determine whether the aggregate amount allocated to each Participant's Tax Reduction Contribution Account attributable to Tax Reduction Contributions, and qualified nonelective contributions (that are designated under Section 4.4 for consideration under this Section 5.2) made for that Plan Year shall satisfy one of the following tests, in addition to the test set forth in Article VII: (a) the "Actual Deferral Percentage" for the group consisting of all eligible Highly Compensated Employees (as defined below) shall not exceed the "Actual Deferral Percentage" for the group consisting of all eligible Non-Highly Compensated Employees (as defined below) multiplied by 1.25; or (b) the "Actual Deferral Percentage" for the group consisting of all eligible Highly Compensated Employees shall not exceed the lesser of (i) 200% of the "Actual Deferral Percentage" for the group consisting of all eligible Non-Highly Compensated Employees or (ii) the "Actual Deferral Percentage" for the group consisting of all eligible Non-Highly Compensated Employees plus two percentage points or such lesser amount as the Secretary of the Treasury shall prescribe. For purposes of this Article V, the following terms shall have the following meanings: (a) "Actual Deferral Percentage" for a Plan Year means, with respect to the group consisting of the eligible Highly Compensated Employees and the group consisting of the eligible Non-Highly Compensated Employees, the average (expressed as a percentage) of the ratios, calculated separately for each Employee in each such group and rounded to the nearest one-hundredth of one percent, of the amount of Tax Reduction Contributions and qualified non-elective contributions (which are designated under Section 4.4 for consideration under this Section 5.2) allocated to each Employee's Tax Reduction Contribution Account (unreduced in the case of Highly Compensated Employees by distributions made to such Employee pursuant to Section 5.1 hereof) for such Plan Year to such Employee's Compensation as defined in Section 2.13(c) for the Plan Year. -28- For aggregated Family Members treated as a single Highly Compensated Employee under Section 2.22(b)(iv), the ratio of the family unit is the greater of (i) the ratio determined by combining the aggregate Tax Reduction Contributions and qualified nonelective contributions (described above) allocated to each Employee's Tax Reduction Contribution Account (unreduced by distributions made to such Employee pursuant to Section 5.1 hereof) for such Plan Year and dividing such sum by the Compensation for such Plan Year of the Family Members who are Highly Compensated Employees without family aggregation or (ii) the ratio determined by combining the aggregate Tax Reduction Contributions and qualified non-elective contributions (described above) allocated to each Employee's Tax Reduction Contribution Account (unreduced by distributions made to such Employee pursuant to Section 5.1 hereof) for such Plan Year and dividing such sum by the Compensation for such Plan Year of all aggregated Family Members. Each Family Member aggregated with a Highly Compensated Employee for purposes of the preceding sentence shall not be considered a separate Employee in determining the Actual Deferral Percentage for either eligible Highly Compensated Employees or eligible Non-Highly Compensated Employees. (b) "Actual Deferral Ratio" means each separately calculated ratio under subparagraph (a) above. An Employee who is considered a Highly Compensated Employee under Section 2.22 or a Non-Highly Compensated Employee under Section 2.35 shall be considered an "eligible Highly Compensated Employee" or an "eligible Non-Highly Compensated Employee" for purposes of this Section 5.2 for each Plan Year he is employed by an Employer if he has satisfied the eligibility requirements of Article III and reached an Entry Date on which he could have become a Participant, regardless of (i) whether he has elected to have an Employer make a Tax Reduction Contribution to the Plan on his behalf under Section 4.1 for that Plan Year, (ii) whether his right to make Tax Reduction Contributions to the Plan for that Plan Year has been suspended under Section 11.1 due to his receipt of a hardship distribution, or (iii) he is suspended from further contributions during the Plan Year due to the limitations of Section 415 of the Code as described in Article VIII. Consequently, for purposes of this Section 5.2, the Actual Deferral Ratio for each Highly Compensated Employee and Non-Highly Compensated Employee who is eligible to, but does not elect to have an Employer make an Employee Tax Reduction Contribution on his behalf to the Plan for a Plan Year, shall be zero for that Plan Year, unless the Employer makes a qualified nonelective contribution to the Plan for a Plan Year to satisfy the Actual Deferral Percentage tests, in which case the Actual Deferral Ratio for each such Non-Highly Compensated Employee shall be the ratio of that portion of the qualified non-elective contribution attributable to contributions made by the Employer to satisfy the Actual Deferral Percentage tests that is allocated to his Tax -29- Reduction Contribution Account for the Plan Year to his Compensa tion as defined in Section 2.13(c) for the Plan Year. If any Employee who is an eligible Highly Compensated Employee is a participant in two or more cash or deferred arrangements described in Section 401(k) of the Code that are maintained by an Affiliated Company, excluding any such arrangement that is part of an employee stock ownership plan [as defined in Section 4975(e)(7) of the Code] for purposes of determining his ratio under this Section 5.2, all such cash or deferred arrangements shall be treated as one cash or deferred arrangement to the extent required under Section 401(k) of the Code. For purposes of this Section 5.2, if two or more plans or arrangements described in Section 401(k) of the Code are considered one plan for the purposes of Sections 401(a)(4) or 410(b) of the Code, such arrangements shall be treated as a single arrangement, and if the plans use different plan years, the Company shall determine the combined cash or deferred contributions and ratios on the basis of the plan years ending in the same calendar year. The Committee shall maintain records to demonstrate compliance with the tests under this Section 5.2, including the extent to which the Plan used qualified nonelective contributions pursuant to Section 4.4 to satisfy a test. 5.3 Adjustments Required to Satisfy an Actual Deferral Percentage Test. If Tax Reduction Contributions made for any Plan Year do not satisfy one of the tests set forth in Section 5.2, the excess amount that would result in a test being satisfied for that Plan Year if it had not been made to the Plan shall be referred to as an "Excess Contribution" and the Committee shall, in its sole and absolute discretion and notwithstanding any other provision of the Plan to the contrary (but subject to the provisions of Sections 5.4, 5.5 and 5.6), make appropriate adjustments pursuant to one or more of the following provisions: (a) Within 2-1/2 months following the close of the Plan Year for which an Excess Contribution was made, Tax Reduction Contribu tions representing the Excess Contribution may be recharacterized as Investment Plan Contributions, subject to the conditions set forth in this Section 5.3; (b) Within 2-1/2 months following the close of the Plan Year for which an Excess Contribution was made, if administratively possible, and within 12 months after the close of such Plan Year at the latest, the Excess Contribution (plus any income and minus any loss attributable thereto) shall be distributed to the Highly Compensated Employees to whose Tax Reduction Contribution Account all or a portion of such Excess Contribution was made first from such Highly Compensated Employees' unmatched Tax Reduction Contributions, and then if necessary, from the such Highly Compensated Employees' matched Tax Reduction Contributions; provided, however, that if matched Tax Reduction Contributions are distributed to correct an Excess Contribution, the Matching Company -30- Contributions to which such Excess Contribution relates (plus any income and minus any loss attributable thereto) shall be forfeited (whether or not vested) at the time the Excess Contribution is distributed and the forfeiture shall be applied as set forth in Section 11.12; or (c) Within the time prescribed by law to enable an Employer to obtain a deduction for a contribution on its federal income tax return for the Plan Year for which an Excess Contribution was made, the Employer shall, if the conditions applicable to qualified nonelective contributions under final Treasury Regulations issued by the Secretary of the Treasury are satisfied, make a qualified nonelective contribution pursuant to Section 4.4 on behalf of the eligible Non-Highly Compensated Employees (as defined in Section 5.2) who meet the requirements of Section 4.4 in an amount sufficient to satisfy one of the tests set forth in Section 5.2 [before or after the application of subsections (a) and/or (b) above]. Tax Reduction Contributions that are recharacterized as Investment Plan Contributions pursuant to subsection (a) hereof shall be reported to the Internal Revenue Service and to the affected Highly Compensated Employee as income for the taxable year in which the Highly Compensated Employee would have received the recharacterized Tax Reduction Contributions in cash, had he not elected to have such amounts contributed to the Plan. The recharacterized amounts shall be treated as Investment Plan Contributions for purposes of Sections 72, 401(a)(4) and 6047 of the Code and for purposes of applying the Contribution Percentage tests of Section 6.1 (for the Plan Year when included as income by the Highly Compensated Employee), but such amounts shall be treated for all other purposes under the Plan as Tax Reduction Contributions. The Employer shall notify each affected Highly Compensated Employee of the recharacterization within 2-1/2 months following the Plan Year to which the recharacterization occurs. The amount of the Excess Contributions to be distributed pursuant to subsection (b) hereof shall be determined by a leveling method, under which the Actual Deferral Ratio of the Highly Compensated Employee with the highest Actual Deferral Ratio is reduced to the extent required (i) to enable the Plan to satisfy one of the Actual Deferral Percentage tests set forth in Section 5.2 or (ii) to cause such Highly Compensated Employee's Actual Deferral Ratio to equal the Actual Deferral Ratio of the Highly Compensated Employee with the next highest Actual Deferral Ratio. This procedure shall be repeated until the Plan satisfies one of the Actual Deferral Percentage tests set forth in Section 5.2. Once the Plan satisfies one of the Actual Deferral Percentage tests, the amount of the Excess Contributions for each Highly Compensated Employee who had his Actual Deferral Ratio reduced under the preceding sentences shall be determined for each such Employee by first subtracting from the total Tax Reduction Contributions made on his behalf (without regard to this -31- Section 5.3) the product of such Employee's Actual Deferral Ratio (as reduced under this Section 5.3) and his Compensation and then subtracting the amount of Excess Deferrals for the Plan Year, if any, that have been previously distributed under Section 5.1 to the Employee for the taxable year ending in that Plan Year. Excess Contributions of each Highly Compensated Employee subject to the family member aggregation rules under Section 2.22(b)(iv) shall be allocated among the Highly Compensated Employee and his aggregated Family Members in proportion to the Tax Reduction Contributions and qualified non-elective contributions that are considered under Section 5.2 of the Highly Compensated Employee and each such Family Member aggregated with him to determine the combined Actual Deferral Ratio. The income or loss attributable to the portion of the Excess Contributions for a Plan Year that are to be distributed to a Highly Compensated Employee hereunder shall be determined by multiplying the amount of the income or loss allocable to the Participant's Tax Reduction Contribution Account for the Plan Year by a fraction, the numerator of which is the portion of the Excess Contributions for the Plan Year that is to be distributed to that Participant and the denominator of which is the balance of the Participant's Tax Reduction Contribution Account on the last day of the Plan Year after adjustment as of such date under Section 9.4. In adjusting a Participant's Excess Contributions for the income or loss attributable to such Excess Contributions, the income or loss attributable to such Excess Contributions for the "gap period" shall not be considered. For purposes of this Section 5.3, "gap period" shall mean the period beginning with the fist day of the Plan Year next following the Plan Year for which the Excess Contributions were made on behalf of the Participant and ending on the date of the distribution. 5.4 Election of Applicable Correction Methods By Highly Compensated Employees. For purposes of satisfying the Actual Deferral Percentage tests, the Committee, in its sole discretion, may permit a Highly Compensated Employee to elect whether the appropriate method of correcting Excess Contributions shall be recharacterization pursuant to Section 5.3(a), distribution pursuant to Section 5.3(b) or a combination of both. 5.5 Additional Adjustments of Tax Reduction Contributions. For purposes of assuring compliance with the Actual Deferral Percentage tests of Section 5.2 hereof, the Committee may, in its sole and absolute discretion, make such adjustments, reductions or suspensions to Tax Reduction Contribution rates of Participants who are Highly Compensated Employees at such times and in such amounts as the Committee shall reasonably deem necessary, including prospective reductions of Tax Reduction Contributions at any time prior to or within a Plan Year. The Committee shall make such adjustments, reductions or suspensions based upon periodic reviews of the Tax Reduction Contribution rates of Highly Compensated -32- Employees during the Plan Year and may make such adjustments, reductions or suspensions in any amount notwithstanding any other provisions hereof. In addition, the Committee shall take any other action to assure compliance with the Actual Deferral Percentage tests as shall be prescribed by the Secretary of the Treasury. 5.6 Other Permissible Methods of Testing and Correction. The provisions of this Article V are intended to conform with Sections 401(k) and 402(g) of the Code. In the event that the Committee determines, based on changes to the Code or interpretations or guidance issued by the Internal Revenue Service, that the requirements of such Code sections may be applied in a manner different from that prescribed in this Article V, the Committee may make appropriate adjustments to the administration of the Plan to incorporate such changes to the Code or interpretations or guidance. If a change to the Code or interpretations or guidance issued by the Internal Revenue Service results in more than one additional option in the manner in which this Article V may be administered, the Committee shall have the limited discretion to select the option to be used, provided that such option, when compared to the other option or options, results in the smallest adjustment to Participant's Accounts. ARTICLE VI LIMITATIONS AND RESTRICTIONS ON INVESTMENT PLAN CONTRIBUTIONS AND MATCHING COMPANY CONTRIBUTIONS 6.1 Contribution Percentage Tests. Subject to the provisions of this Section 6.1, for each Plan Year, the Employer shall determine, after first applying the provisions of Section 5.3(b), whether the sum of (i) the amounts allocated to each Participant's Investment Plan Contribution Account attributable to Investment Plan Contributions [including Tax Reduction Contributions recharacterized as Investment Plan Contributions pursuant to Section 5.3(a)] for that Plan Year, (ii) amounts allocated to each Participant's Matching Company Contribution Account attributable to Matching Company Contributions (including Tax Reduction Contributions treated as Matching Company Contributions pursuant to Section 6.5) for that Plan Year, and (iii) the amount allocated to each Participant's Tax Reduction Contribution Account attributable to qualified non-elective contributions (that are designated under Section 4.4 for consideration under this Section 6.1) for that Plan Year shall satisfy one of the following tests, in addition to the test set forth in Article VII: (a) the "Contribution Percentage" for the group consisting of all eligible Highly Compensated Employees (as defined below) shall not exceed the "Contribution Percentage" for the group consisting of all eligible Non-Highly Compensated Employees (as defined below) multiplied by 1.25; or -33- (b) the "Contribution Percentage" for the group consisting of all eligible Highly Compensated Employees shall not exceed the lesser of (i) 200% of the "Contribution Percentage" for the group consisting of all eligible Non-Highly Compensated Employees or (ii) the "Contribution Percentage" for the group consisting of all eligible Non-Highly Compensated Employees plus two percentage points or such lesser amount as the Secretary of the Treasury shall prescribe. For purposes of this Article VI, the following terms shall have the following meanings: (a) "Contribution Percentage" for a Plan Year means, with respect to the group consisting of the eligible Highly Compensated Employees and the group consisting of the eligible Non-Highly Compensated Employees, the average (expressed as a percentage) of the ratios, calculated separately for each Employee in each such group, of the sum of (i) the amount of Investment Plan Contribu tions allocated to each Investment Plan Contribution Account for such Plan Year, (ii) the amount of Matching Company Contributions allocated to each Employee's Matching Company Contribution Account for such Plan Year, after reduction for forfeited matching contributions, if any, under Section 5.3(b) and (iii) the amount allocated to each Employee's Tax Reduction Contribution Account attributable to qualified non-elective contributions (which are designated under Section 4.4 for consideration under this Section 6.1) for such Plan Year to such Employee's Compensation as defined in Section 2.13(c) for the Plan Year in which the Employee was an eligible Highly Compensated Employee or eligible Non-Highly Compensated Employee. For aggregated Family Members treated as a single Highly Compensated Employee under Section 2.22(b)(iv), the ratio of the family unit is the greater of (i) the ratio determined by combining the aggregate Investment Plan Contributions allocated to each Employee's Investment Plan Contribution Account for such Plan Year, Matching Company Contributions allocated to each Employee's Matching Company Contribution Account for such Plan Year and qualified non-elective contributions (described above) allocated to his Tax Reduction Contribution Account for such Plan Year and dividing such sum by the Compensation for such Plan Year of the Family Members who are Highly Compensated Employees without family aggregation or (ii) the ratio determined by combining the aggregate Investment Plan Contributions allocated to each Employee's Investment Plan Contribution Account for such Plan Year, Matching Company Contributions allocated to each Employee's Matching Company Contribution Account for such Plan Year and qualified non-elective contributions (described above) allocated to his Tax Reduction Contribution Account for such Plan Year and dividing such sum by the Compensation considered in the preceding sentence for such Plan Year of all aggregated Family Members. Each Family Member aggregated with a Highly Compensated Employee for purposes of the -34- preceding sentence shall not be considered a separate Employee in determining the Contribution Percentage for either eligible Highly Compensated Employees or eligible Non-Highly Compensated Employees. (b) "Actual Contribution Ratio" means each such separately calculated ratio under paragraph (a) above. An Employee who is considered a Highly Compensated Employee under Section 2.22 or a Non-Highly Compensated Employee under Section 2.35 shall be considered an "eligible Highly Compensated Employee" or an "eligible Non-Highly Compensated Employee" for purposes of this Section 6.1 for each Plan Year he is employed by an Employer if he has satisfied the eligibility requirements of Article III and reached an Entry Date on which he could have become a Participant, regardless of whether he elected to have an Employer make an Investment Plan Contribution to the Plan on his behalf under Section 4.2 and is eligible to receive an allocation of an Investment Plan Contribution or a Matching Company Contribution for that Plan Year. Consequently, for purposes of this Section 6.1, the Actual Contribution Ratio for each Highly Compensated Employee and Non-Highly Compensated Employee who is eligible to, but does not elect to have an Employer make an Investment Plan Contribution on his behalf to the Plan for a Plan Year and who does not receive an allocation of a Matching Company Contribution for the Plan Year, shall be zero for that Plan Year, unless an Employer makes a qualified non-elective contribution to the Plan for a Plan Year to satisfy the Contribution Percentage tests, in which case the Actual Contribution Ratio for each such Non-Highly Compensated Employee shall be the ratio of that portion of the qualified non-elective contribution attributable to contributions made by an Employer to satisfy the Contribution Percentage tests that is allocated to his Tax Reduction Contribution Account for the Plan Year to his Compensation as defined in Section 2.13(c) for the Plan Year. For purposes of this Section 6.1, if two or more plans of an Employer to which matching contributions within the meaning of Section 401(m)(4)(A) of the Code, employee voluntary after-tax contributions or elective deferrals within the meaning of Section 401(m)(4)(B) of the Code are made are treated as one plan for purposes of Section 410(b) of the Code [other than the average benefit test, and excluding allocations under an employee stock ownership plan described in Section 4975(e)(7) or 409 of the Code, or the portion of a plan that constitutes an employee stock ownership plan], such plans shall be treated as one plan for purposes of this Section 6.1, and, if the plans use different plan years, the Committee shall determine such combined contributions and the Actual Contribution Ratios of Highly Compensated Employees eligible to participate in the Plan on the basis of the plan years ending in the same calendar year. The Committee shall maintain records to demonstrate compliance with the tests under this Section 6.1, including the extent to which the Plan used qualified non-elective contributions pursuant to Section 4.4 to satisfy a -35- test. In addition, if any Employee who is an eligible Highly Compensated Employee participates in two or more plans described in Section 401(a) of the Code that are maintained by an Affiliated Company to which such contributions are made, all such contributions shall be aggregated for purposes of this Section 6.1 to the extent required under Section 401(m) of the Code. 6.2 Adjustments Required to Satisfy a Contribution Percentage Test. If Investment Plan Contributions and Matching Company Contributions made for any Plan Year do not satisfy one of the tests set forth in Section 6.1, the excess amount that would result in a test being satisfied for the Year if it had not been made to the Plan shall be referred to as an "Excess Aggregate Contribution" and the Committee shall, in its sole and absolute discretion and notwithstanding any other provision hereof, make appropriate adjustments in accordance with Sections 401(a)(4) and 401(m) of the Code (and Treasury regulations thereunder) pursuant to one or more of the following provisions in the following order, provided that adjustments under subsection (c) may be made without any adjustments first being made under subsections (a) or (b): (a) Any Investment Plan Contributions made by Highly Compensated Employees during the Plan Year that are not matched by Matching Company Contributions in accordance with Section 4.3 (plus any income and minus any loss attributable thereto) shall be distributed (according to the method specified in this Section 6.2 below) to the Highly Compensated Employees to whose Investment Plan Contribution Accounts all or a portion of Excess Aggregate Contribution was made within 2-1/2 months following the close of the Plan Year, if administratively possible, and within 12 months after the close of such Plan Year, at the latest until either (i) the limits of Section 6.1 are satisfied or (ii) all such contributions are distributed. (b) To the extent that the portion of the Excess Aggregate Contribution for the Plan Year is allocable to a Matching Company Contribution and Investment Plan Contributions that are matched in accordance with Section 4.3, the Committee shall eliminate the Excess Aggregate Contribution by alternately applying paragraphs (i) and (ii) below [beginning with paragraph (i)], on a pro rata basis. (i) If the Matching Company Contribution is fully vested, such vested portion, plus any income and minus any loss attributable thereto, shall be distributed to the applicable Highly Compensated Employees within 2-1/2 months following the close of that Plan Year, if administratively possible, and within 12 months after the close of such Plan Year, at the latest, and if such Matching Company Contribution is not fully vested, within 2-1/2 months following the close of that Plan Year, if administratively possible, and within 12-months after the close of such Plan Year, at the latest, (A) the non-vested -36- portion of such Matching Company Contribution, plus any income and minus any loss attributable thereto, shall be forfeited from the Matching Company Contribution Accounts of the applicable Highly Compensated Employees at the time the Excess Aggregate Contribution is distributed and the forfeitures shall be applied as set forth in Section 11.12 and (B) the vested portion of such Matching Company Contribution, plus any income and minus any loss attributable thereto, shall be distributed to the applicable Highly Compensated Employees. (ii) Any Investment Plan Contributions that were matched or would have been matched but for the application of this Section 6.2 (plus any income and minus any loss attributable thereto) shall be distributed (according to the method specified in this Section 6.2 below) to the applicable Highly Compensated Employees, within 2-1/2 months following the close of that Plan Year, if administratively possible, and within 12 months after the close of such Plan Year, at the latest. (c) Within the time prescribed by law to enable an Employer to obtain a deduction for a contribution on its federal income tax return for the Plan Year for which an Excess Aggregate Contribution was made, the Employer shall, if the conditions applicable to qualified non-elective contributions under final Treasury Regulations issued by the Secretary of the Treasury are satisfied, make a qualified nonelective contribution pursuant to Section 4.4 on behalf of the eligible Non-Highly Compensated Employees (as defined in Section 6.1) who meet the requirements of Section 4.4 in an amount sufficient to satisfy one of the tests set forth in Section 6.1 [before or after the application of subsections (a) and/or (b) above]. The amount of the Excess Aggregate Contributions to be distributed or forfeited pursuant to subsections (a) and (b) hereof shall be determined by a leveling method under which the Actual Contribution Ratio of the Highly Compensated Employee with the highest Actual Contribution Ratio is reduced to the extent required (i) to enable the Plan to satisfy one of the Contribution Percentage tests set forth in Section 6.1 or (ii) to cause such Highly Compensated Employee's Actual Contribution Ratio to equal the Actual Contribution Ratio of the Highly Compensated Employee with the next highest Actual Contribution Ratio. This procedure shall be repeated until the Plan satisfies one of the Contribution Percentage tests set forth in Section 6.1. Once the Plan satisfies one of the Contribution Percentage tests, the amount of the Excess Aggregate Contributions for each such Highly Compensated Employee who had his Actual Contribution Ratio reduced under the preceding sentences shall be determined for each such Employee by subtracting from the total Investment Plan Contributions and Matching Company Contributions made on his behalf (without regard to this Section -37- 6.2) the product of such Employee's Actual Contribution Ratio (as reduced under this Section 6.2) and his Compensation. Excess Aggregate Contributions of each Highly Compensated Employee subject to the family member aggregation rules of Section 2.22(b)(iv) shall be allocated among the Highly Compensated Employee and his aggregated Family Members in proportion to the Investment Plan Contributions and Matching Company Contributions (and qualified non-elective contributions that are considered under Section 6.1) of the Highly Compensated Employee and each such Family Member aggregated with him to determine the combined Actual Contribution Ratio. The income or loss attributable to the portion of the Excess Aggregate Contributions for a Plan Year that are to be distributed to a Highly Compensated Employee or forfeited from his Account shall be determined by multiplying the amount of the income or loss allocable to the Participant's Matching Company Contribution Account and his Investment Plan Contribution Account for the Plan Year by a fraction, the numerator of which is the portion of the Excess Aggregate Contributions for the Plan Year that are to be distributed to that Participant and the denominator of which is the balance of the Participant's Matching Company Contribution Account and Investment Plan Contribution Account on the last day of the Plan Year after adjustment as of such date under Section 9.4. In adjusting a Participant's Excess Aggregate Contributions for the income or loss attributable to such excess contributions, the income or loss attributable to such excess contributions for the "gap period" shall not be considered. For purposes of this Section 6.2, "gap period" shall mean the period beginning with the first day of the Plan Year next following the Plan Year for which the Excess Aggregate Contributions were made on behalf of the Participant and ending on the date of the distribution. 6.3 Procedures Applicable to Tax Reduction Contributions Recharacterized As Investment Plan Contributions. The determination of the amount of Excess Aggregate Contributions with respect to a Plan Year shall be made after determining the Excess Contributions, if any, to be treated as Investment Plan Contributions due to recharacterization pursuant to Section 5.3(a). The income allocable to Excess Aggregate Contributions resulting from the recharacterization of Tax Reduction Contributions shall be determined and distributed as if such recharacterized Tax Reduction Contributions had been distributed pursuant to Section 5.3(b) instead of recharacterized pursuant to Section 5.3(a). 6.4 Additional Adjustments and Prospective Reductions of Investment Plan Contributions. In the event that it is determined at any time prior to or within a Plan Year that the Contribution Percentage tests of Section 6.1 hereof could be exceeded with respect to such Plan Year, the Committee, in its sole and absolute -38- discretion, may make such adjustments, reductions or suspensions to Investment Plan Contribution rates of Highly Compensated Participants at such times and in such amounts as the Committee shall reasonably deem necessary, including prospective reductions of Investment Plan Contributions at any time prior to or within a Plan Year. The Committee shall make such adjustments, reductions or suspensions based upon periodic reviews of the Investment Plan Contribution rates of Highly Compensated Participants during the Plan Year and may make such adjustments, reductions or suspensions in any amount notwithstanding any other provisions hereof. In addition, the Committee shall take any other action to assure compliance with the Contribution Percentage tests as shall be prescribed by the Secretary of the Treasury. If the Investment Plan Contributions of Highly Compensated Participants are reduced, the amount of such reduction shall be determined by (i) reducing the maximum allowable Investment Plan Contributions under Section 4.2 to such percentage which will, when applied to all Highly Compensated Participants (and taking into account any reduction in Matching Company Contributions as a consequence of a reduction in Tax Reduction Contributions under Section 5.5 and a reduction in Investment Plan Contributions hereunder) result in the maximum contribution percentage set forth in Section 6.1 not being exceeded, and (ii) reducing accordingly the Investment Plan Contributions that may be made in the remainder of the Plan Year in the case of each Highly Compensated Participant with respect to whom such reduced maximum percentage is exceeded. Notwithstanding the foregoing, the Committee may round off or estimate the prospective reductions hereunder. Once a reduction has been made hereunder, it shall remain in effect unless the Committee determines that it is no longer necessary in order for the maximum contribution percentage to be met. 6.5 Testing of Tax Reduction Contributions Under Contribution Percentage Test. Notwithstanding the foregoing provisions of this Article VI or of Article V, all or a portion of the Tax Reduction Contributions made on behalf of eligible Non-Highly Compensated Employees may be treated as Matching Company Contributions made on behalf of such eligible Non-Highly Compensated Employees for the purpose of meeting the Contribution Percentage test set forth in Section 6.1, provided that the Actual Deferral Percentage test of Section 5.2 can be met, both when the Tax Reduction Contributions treated as Matching Company Contributions hereunder are included in performing such Actual Deferral Percentage test and when such Tax Reduction Contributions are excluded in performing such Actual Deferral Percentage test. Except for purposes of meeting the Contribution Percentage test of Section 6.1 to the extent described hereunder, any such Tax Reduction Contributions shall continue to be treated as Tax Reduction Contributions for all other purposes of the Plan. 6.6 Other Permissible Methods of Testing and Corrections. The provisions of this Article VI are intended to conform with -39- Section 401(m) of the Code. In the event that the Committee determines, based on changes to the Code or interpretations or guidance issued by the Internal Revenue Service, that the requirements of such Code section may be applied in a manner different from that prescribed in this Article VI, the Committee may make appropriate adjustments to the administration of the Plan to incorporate such changes to the Code or interpretations or guidance. If a change to the Code or interpretations or guidance issued by the Internal Revenue Service results in more than one additional option in the manner in which this Article VI may be administered, the Committee shall have the limited discretion to select the option to be used, provided that such option, when compared to the other option or options, results in the smallest adjustment to Participant's Accounts. ARTICLE VII AGGREGATE LIMIT ON ACTUAL DEFERRAL AND CONTRIBUTION PERCENTAGES 7.1 General Rules. If at least one Highly Compensated Employee is included in the Actual Deferral Percentage test under Section 5.2 and in the Contribution Percentage test under Section 6.1, in addition to satisfaction of the Actual Deferral Percentage test and the Contribution Percentage test, the sum of the Highly Compensated Group's Actual Deferral Percentage under Section 5.2 and Contribution Percentage under Section 6.1 may not exceed the aggregate limit (the "multiple use limitation") of this Article VII. The multiple use limitation of this Article VII does not apply, however, unless prior to the application of the multiple use limitation, the Actual Deferral Percentage and the Contribution Percentage of the Highly Compensated Group each exceeds 125% of the respective percentages for the Non-Highly Compensated Group. 7.2 Multiple Use Limitation. The multiple use limitation is the greater of: (a) the sum of (i) and (ii), where: (i) is 1.25 times the greater of: (A) the Actual Deferral Percentage of the Non-Highly Compensated Group under Section 5.2 for the Plan Year or (B) the Contribution Percentage of the Non-Highly Compensated Group under Section 6.1 for the Plan Year and (ii) is equal to two percentage points plus the lesser of the percentage in subsection (i)(A) or (i)(B) above, but not more than twice the lesser of the percentage in subsection (i)(A) or (i)(B); or -40- (b) the sum of (i) and (ii), where: (i) is equal to 1.25 times the lesser of: (A) the Actual Deferral Percentage of the Non-Highly Compensated Group under Section 5.2 for the Plan Year or (B) the Contribution Percentage of the Non-Highly Compensated Group under Section 6.1 for the Plan Year and (ii) is equal to two percentage points plus the greater of the percentage in subsection (i)(A) or (i)(B) above, but not more than twice the greater of the percentage in subsection (i)(A) or (i)(B). The Committee shall determine whether the Plan satisfies the multiple use limitation after applying the Actual Deferral Percentage test under Section 5.2 and the Contribution Percentage test under Section 6.1 and after any corrective distributions, the use of qualified non-elective contributions, any recharacterization of Excess Contributions, or any other adjustments required or permitted by Articles V and VI. If after applying this Section 7.2, the Committee determines that the Plan has failed to satisfy the multiple use limitation, the Committee will correct the failure (i) for Plan Years beginning before January 1, 1994, by alternately reducing the Investment Plan Contributions and the Tax Reduction Contributions of Highly Compensated Employees in whole percentages (or fractional percentages, if applicable) to the extent necessary to satisfy the multiple use limitation and (ii) for Plan Years beginning on and after January 1, 1994, by treating the excess amount as Excess Aggregate Contributions under Section 6.2. For purposes of this Article VII, "Highly Compensated Group" and "Non- Highly Compensated Group" mean the group of Employees who are eligible Highly Compensated Employees and eligible Non-Highly Compensated Employees, respectively, for the year as defined in Sections 5.2 and 6.1. 7.3 Prospective Reduction of Contributions. In the event that it is determined by the Committee at any time prior to or within a Plan Year that the aggregate limit prescribed in Section 7.2 could be exceeded with respect to such Plan Year, then the amount of Tax Reduction Contributions, Investment Plan Contributions or both (as determined by the Committee in its sole and absolute discretion) made on behalf of Participants who are Highly Compensated Employees may be reduced in a manner similar to the procedures described in Sections 5.5 and 6.4. -41- ARTICLE VIII LIMITATION ON ALLOCATIONS 8.1 Limitation on Allocations. Notwithstanding any other provision of the Plan, the following provisions shall be applicable to the Plan: (a) If this Plan is the only plan maintained by an Employer that covers the class of Employees eligible to participate hereunder and the Participant does not participate in and has never participated in a Related Plan or a welfare benefit fund, as defined in Section 419(e) of the Code, maintained by the Employer, or an individual medical account, as defined in Section 415(l)(2) of the Code, maintained by the Employer, which provides an Annual Addition as defined in Section 8.2(a), the Annual Additions that may be allocated under this Plan to a Participant's Account for a Limitation Year shall not exceed the lesser of: (i) the Maximum Permissible Amount; or (ii) any other limitation contained in this Plan. (b) If an Employer maintains, in addition to this Plan, (i) a Related Plan that covers the same class of Employees eligible to participate hereunder, (ii) a welfare benefit fund, as defined in Section 419(e) of the Code, or (iii) an individual medical account, as defined in Section 415(l)(2) of the Code, which provides an Annual Addition, the Annual Additions that may be allocated under this Plan to a Participant's Account for a Limitation Year shall not exceed the lesser of: (A) the Maximum Permissible Amount, reduced by the sum of any Annual Additions allocated to the Participant's accounts for the same Limitation Year under this Plan and such other Related Plan and the welfare plans described in clauses (ii) and (iii) above; or (B) any other limitation contained in this Plan. 8.2 Definitions. For purposes of this Article VIII, the following terms shall have the meanings set forth below: (a) "Annual Additions" means the sum of the following amounts allocated to a Participant's Account for a Limitation Year: (i) all Employer contributions (including contributions described in Sections 4.1, 4.3 and 4.4, and forfeitures treated as Matching Company Contributions); (ii) all forfeitures; -42- (iii) all Employee contributions (including contributions described in Section 4.2); and (iv) amounts described in Sections 415(l)(1) and 419A(d)(2) of the Code. In addition, Annual Additions shall include Excess Elective Deferrals under Section 5.1 that are not distributed to the Participant before April 15 following the taxable year of deferral, Excess Contributions within the meaning of Section 5.3 and Excess Aggregate Contributions within the meaning of Section 6.2. For purposes of this Article VIII, Employee contributions shall be determined without regard to any (i) rollover contributions within the meaning of Section 402(a)(5), 403(a)(4) or 408(d)(3) of the Code [or, on or after January 1, 1993, an eligible rollover contribution as described in Section 402(c)(4) of the Code], (ii) contribution by the Employee to a simplified employee pension, (iii) contribution to an individual retirement account or individual retirement annuity, (iv) repayments of loans made to the Participant from the Plan and (v) direct transfers of Employee contributions from a plan described in Section 401(a) of the Code to the Plan. (b) "Maximum Permissible Amount" means for a Limitation Year with respect to any Participant the lesser of: (i) $30,000 [or, if greater, one-fourth of the dollar limitation in effect under Section 415(b)(1)(A) of the Code as it may be adjusted under Section 415(d)(1) of the Code by the Secretary of the Treasury for the Limitation Year]; or (ii) 25% of the Participant's Compensation for the Limitation Year. (c) "Excess Amount" means the excess of the Annual Additions allocated to a Participant's Account for the Limitation Year over the Maximum Permissible Amount, less administrative charges allocable to such excess. (d) "Employer" means for purposes of this Article VIII, any Employer and any Affiliated Company that adopts this Plan; provided, however, the determination under Sections 414(b) and (c) of the Code shall be made as if the phrase "more than 50 percent" were substituted for the phrase "at least 80 percent" each place it is incorporated into Sections 414(b) and (c) of the Code. (e) "Related Plan" means any other defined contribution plan [as defined in Section 415(k) of the Code] maintained by any Employer as defined in subparagraph (d) above. -43- (f) "Defined Contribution Plan Fraction" means for any Limitation Year: (i) the sum of the Annual Additions to the Participant's Account under this Plan and his accounts under any Related Plan and welfare plans [as described in Section 8.1(b)(ii) and (iii)] as of the close of the Limitation Year, divided by: (ii) the sum of the lesser of the following amounts determined for the Limitation Year and for each prior year of his service for an Employer: (A) the product of 1.25, multiplied by the dollar limitation in effect under Section 415(c)(1)(A) of the Code for the Limitation Year [determined without regard to Section 415(c)(6) of the Code], or (B) the product of 1.4, multiplied by an amount equal to 25% of the Participant's Compensation for the Limitation Year. If the Plan satisfied the applicable requirements of Section 415 of the Code as in effect for all Plan Years beginning before January 1, 1987, an amount shall be subtracted from the numerator of the Defined Contribution Plan Fraction (not exceeding such numerator) as prescribed by the Secretary of Treasury so that the sum of the Defined Benefit Plan Fraction and Defined Contribution Plan Fraction computed under Section 415(e)(1) of the Code (as revised by this Article VIII) does not exceed 1.0 for such Plan Year. (g) "Defined Benefit Plan Fraction" means for any Limitation Year: (i) the projected Annual Benefit of the Participant under the defined benefit plans maintained by an Employer determined as of the close of the Limitation Year, divided by: (ii) the lesser of: (A) the product of 1.25, multiplied by the dollar limitation in effect under Section 415(b)(1)(A) of the Code for the Limitation Year, or (B) the product of 1.4, multiplied by 100% of the Participant's Average Compensation. If the Employee was a Participant as of the first day of the first Limitation Year beginning after December 31, 1986, in one or more defined benefit plans maintained by an Employer which were in existence on May 6, 1986, the denominator of this fraction will not -44- be less than 125% of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last Limitation Year beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plans after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Section 415 of the Code for all Limitation Years beginning before January 1, 1987. (h) "Average Compensation" means the average Compensation during a Participant's high three years of service, which period is the three consecutive calendar years (or, the actual number of consecutive years of employment for those Employees who are employed for less than three consecutive years with an Employer) during which the Employee had the greatest aggregate Annual Compensation from the Employer, including any adjustments under Section 415(d) of the Code. (i) "Annual Benefit" means a benefit payable annually in the form of a straight life annuity (with no ancillary benefits) under a plan to which Employees do not contribute and under which no Rollover Contributions are made. (j) "Compensation" means compensation as defined in Section 2.13(c). 8.3 Excess Annual Additions. In the event that, notwith standing Section 8.5(a) hereof, the limitations with respect to Annual Additions prescribed hereunder are exceeded with respect to any Participant for a Limitation Year and such excess arises as a result of the allocation of forfeitures, a reasonable error in estimating a Participant's Compensation for the Plan Year, a reasonable error in determining the amount of Tax Reduction Contributions that may be made by a Participant under the limits of Section 415 of the Code, or as a result of other facts and circumstances as established by the Commissioner of the Internal Revenue Service, the Excess Amounts shall not be deemed Annual Additions in that Limitation Year, to the extent such Excess Amounts are treated in accordance with any of the following: (a) Either Tax Reduction Contributions or Investment Plan Contributions, or both, and earnings thereon shall be distributed to the Participant to the extent necessary to reduce the Excess Amount as soon as practicable after the close of the Plan Year. The amounts distributed are disregarded for purposes of applying Code Section 402(g) and the tests set forth in Sections 5.2 and 6.1. (b) The Excess Amounts in the Participant's Account are allocated and reallocated to other Participants in the Plan. However, if the allocation or reallocation of the Excess Amounts pursuant to the provisions of the Plan causes the limitations of -45- Section 415 to be exceeded with respect to each Plan Participant for the Limitation Year, then these amounts must be held unallocated in a suspense account. If a suspense account is in existence at any time during a particular Limitation Year, other than the Limitation Year described in the preceding sentence, all amounts in the suspense account must be allocated and reallocated to Participants' Accounts (subject to the limitation of Code Section 415) before any Employer contributions and Employee contributions that would constitute Annual Additions may be made to the Plan for that Limitation Year. (c) The Excess Amounts in the Participant's Account are used to reduce Employer contributions for the next Limitation Year (and succeeding Limitation Years, as necessary) for that Participant if that Participant is covered by the Plan as of the end of the Limitation Year. However, if that Participant is not covered by the Plan as of the end of the Limitation Year, then the Excess Amounts must be held unallocated in a suspense account for the Limitation Year and allocated and reallocated in the next Limitation Year to all of the remaining Participants in the Plan in accordance with the rules set forth in Section 8.3(b). Furthermore, the Excess Amounts must be used to reduce Employer contributions for the next Limitation Year (and succeeding Limitation Years, as necessary) for all of the remaining Participants in the Plan. 8.4 Combined Plan Limits. (a) If an Employer maintains, or has ever maintained, one or more defined benefit plans covering an Employee who is also a Participant in this Plan, the sum of the Defined Contribution Plan Fraction and the Defined Benefit Plan Fraction, cannot exceed 1.0 for any Limitation Year. The Annual Addition for any Limitation Year beginning before January 1, 1987 shall not be recomputed to treat all Employee contributions as an Annual Addition. If the Plan satisfied the applicable requirements of Section 415 of the Code as in effect for all Limitation Years beginning before January 1, 1987, an amount shall be subtracted from the numerator of the Defined Contribution Plan Fraction (not exceeding such numerator) as prescribed by the Secretary of Treasury so that the sum of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction computed under Section 415(e)(1) of the Code [as revised by this Section 8.4] does not exceed 1.0 for such Limitation Year. (b) For the purpose of this Section 8.4, Employee contri butions to a defined benefit plan are treated as a separate defined contribution plan. In addition, any contributions paid or accrued after December 31, 1985 that are attributable to medical benefits allocated under a welfare benefit fund [as defined in Section 419(e) of the Code] during Limitation Years ending after December 31, 1985 to a separate account established for any -46- post-retirement medical benefits provided with respect to a Participant, who, at any time, during the Limitation Year or any preceding Limitation Year, is or was a Key Employee, shall be treated as Annual Additions to a defined contribution plan. Further, all defined contribution plans of an Employer are to be treated as one defined contribution plan and all defined benefit plans of an Employer are to be treated as one defined benefit plan, whether or not such plans have been terminated. (c) If the sum of the Defined Contribution Plan Fraction and the Defined Benefit Plan Fraction exceeds 1.0, the sum of the fractions will be reduced to 1.0 as follows: (i) voluntary nondeductible Employee contributions made by a Participant to the defined benefit plan that constitute an Annual Addition to a defined contribution plan, to the extent they would reduce the sum of the fractions to 1.0, will be returned to the Participant; (ii) if additional reductions are required for the sum of the fractions to equal 1.0, Investment Plan Contributions made by a Participant to this Plan which constitute an Annual Addition to this Plan, to the extent they would reduce the sum of the fractions to 1.0, will be returned to the Participant; (iii) if additional reductions are required for the sum of the fractions to equal 1.0, the Annual Benefit of a Participant under the defined benefit plan will be reduced (but not below zero and not below the amount of the Participant's accrued benefit to date) to the extent necessary to prevent the sum of the fractions, computed as of the close of the Limitation Year from exceeding 1.0; and (iv) if additional reductions are required for the sum of the fractions to equal 1.0, the reductions will then be made to the Annual Additions of this Plan. 8.5 Special Rules. (a) Notwithstanding any other provision of this Article VIII, an Employer shall not contribute any amount that would cause an allocation to the suspense account as of the date the contribution is allocated. In the event the making of any Investment Plan Contribution, Tax Reduction Contribution or Matching Company Contribution, or any part thereof, would result in the limitations set forth in this Article VIII being exceeded, the Committee shall cause such contributions not to be made. If the contribution is made prior to the date as of which it is to be allocated, then such contribution shall not exceed an amount that would cause an allocation to the suspense account if the date of the contribution were an Allocation Date. The Committee shall maintain records, showing the contributions to be allocated to the Account of each -47- Participant in any Limitation Year. In the event that it is determined prior to or within any Limitation Year that the foregoing limitations would be exceeded if the full amount of contributions otherwise allocable would be allocated, the Annual Additions to this Plan for the remainder of the Limitation Year shall be adjusted by reducing (i) first, any unmatched Investment Plan Contributions, (ii) second, any unmatched Tax Reduction Contributions, (iii) third, matched Investment Plan Contributions and a corresponding share of Matching Company Contributions, and (iv) fourth, matched Tax Reduction Contributions and a corres ponding share of Matching Company Contributions but, in each case, only to the extent necessary to satisfy the limitations. (b) If the Annual Additions with respect to the Participant under other Related Plans and welfare plans described in Section 8.1(b)(ii) and (iii) are less than the Maximum Permissible Amount and the Matching Company Contribution that otherwise would be contributed or allocated to the Participant's Account under this Plan would cause the Annual Additions for the Limitation Year to exceed the limitation of Section 8.1(b), the amount contributed or allocated will be reduced so that the Annual Additions under all such plans for the Limitation Year will equal the Maximum Permissible Amount. If the Annual Additions with respect to the Participant under the Related Plans and welfare plans described in Section 8.1(b)(ii) and (iii) in the aggregate are equal to or greater than the Maximum Permissible Amount, no amount will be contributed or allocated to the Participant's Account under this Plan for the Limitation Year. If a Participant's Annual Additions under this Plan and all Related Plans result in an Excess Amount, such Excess Amount shall be deemed to consist of the amounts last allocated, except that Annual Additions attributable to a welfare plan described in Section 8.1(b)(ii) or (iii) will be deemed to have been allocated first regardless of the actual allocation date. (c) If an Excess Amount was allocated to a Participant on an allocation date of a Related Plan, the Excess Amount attributed to this Plan will be the product of: (i) the total Excess Amount allocated as of such date [including any amount that would have been allocated but for the limitations of Section 8.1(b)], multiplied by: (ii) the ratio of: (A) the amount allocated to the Participant as of such date under this Plan, -48- divided by: (B) the total amount allocated as of such date under this Plan and all Related Plans [determined without regard to Section 8.1(b)]. (d) Prior to the determination of the Participant's actual Compensation for a Limitation Year, the Maximum Permissible Amount may be determined on the basis of the Participant's estimated Compensation for such Limitation Year. Such estimated Compensation shall be determined on a reasonable basis and shall be uniformly determined for all Participants similarly situated. Any Employer contributions (including allocation of forfeitures) based on estimated Compensation shall be reduced by any Excess Amounts carried over from prior Years. (e) As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for such Limitation Year shall be determined on the basis of the Participant's actual Compensation for such Limitation Year. ARTICLE IX PARTICIPANT'S ACCOUNTS 9.1 Establishment of Accounts. The Recordkeeper shall establish and maintain a separate account as a record of each Participant's and Former Participant's interest in the Trust Fund with respect to each Account in which a Participant or Former Participant has an interest, including, as appropriate, sub- accounts for the Participant's Tax Reduction Contributions, his Investment Plan Contributions, his Matching Company Contributions and his Rollover Contributions. Within each such Account, one or more subaccounts shall be maintained to reflect the Participant's investment elections among the Investment Funds. 9.2 Allocation of Contributions to Participant's Accounts. Subject to the limitations of Article VIII, contributions shall be allocated to the Accounts of Participants as follows: (a) As of each Allocation Date, but after adjustment of each Participant's Accounts as provided in Section 9.4, each Participant's Tax Reduction Contributions and Investment Plan Contributions deposited with the Trustee since the last Allocation Date shall be allocated, as applicable, to the Participant's Tax Reduction Contribution Account and Investment Plan Contribution Account in the amount by which the Participant has elected, in accordance with Sections 4.1 and 4.2, to defer and/or to contribute a portion of his Compensation to the Plan during the period since the last Allocation Date; provided,however, that the amount allocated to the Tax Reduction Contribution Account and the Investment Plan Contribution Account of a Highly Compensated -49- Employee for a Plan Year shall be subject to the limitations of Sections 5.1, 5.2 and 6.1. (b) As of each Allocation Date, but after adjustment of each Participant's Accounts as provided in Section 9.4, each Partici pant's Rollover Contributions deposited with the Trustee since the last Allocation Date shall be allocated to the Participant's Rollover Account. (c) As of each Allocation Date ending on the last day of a calendar quarter, but after adjustment of each Participant's Accounts as provided in Section 9.4, Matching Company Contributions made on behalf of a Participant who has authorized Tax Reduction Contributions and/or Investment Plan Contributions for the period since the last Allocation Date shall be allocated to such Participant's Matching Company Contribution Account in an amount equal to the percentage of such Participant's Tax Reduction Contributions and/or Investment Plan Contributions specified for that Plan Year by the Board of Directors; provided, however, that the amount allocated to the Matching Company Contribution Account of a Highly Compensated Employee for a Plan Year shall be subject to the limitations of Section 6.1 and Article VII. Notwithstanding the preceding sentence, a Participant who makes an election to receive an early distribution under Section 11.3(d) in connection with his termination of employment shall not receive an allocation of a Matching Company Contribution for the quarterly Allocation Date following his termination of employment. (d) As of the last day of each Plan Year, but after adjust ment of Participant's Accounts as provided in Section 9.4, if an Employer made qualified non-elective contributions for a Plan Year under Section 4.4 on behalf of Participants who are Non-Highly Compensated Employees in order to insure that one of the Actual Deferral Percentage tests described in Section 5.2 are met for such Plan Year or that one of the Contribution Percentage tests described in Section 6.1 are met for such Plan Year, such qualified non-elective contributions shall be allocated to the Tax Reduction Contribution Account of each Non-Highly Compensated Employee eligible to participate in such contribution pursuant to Section 4.4 in the ratio that such Employee's Compensation for the Plan Year bears to the Compensation for such Plan Year of all Employees eligible to participate in such contribution. Notwithstanding the preceding sentence, for any Plan Year, the Company may designate a specific dollar amount to be allocated as a qualified non-elective contribution to the Tax Reduction Contribution Account of each Non-Highly Compensated Employee eligible to participate in such contribution pursuant to Section 4.4 for such Plan Year. 9.3 Trust Fund Valuation. The value of each Investment Fund and of the Trust Fund shall be determined by the Trustee as of the close of business on each Valuation Date, or as soon thereafter as -50- practicable, and shall be the fair market value of all securities or other property held in the Investment Funds, plus cash and the fair market value of any other assets held by the Trust Fund, with equitable adjustments for pending trades. While it is contemplated that the Trust Fund will be valued by the Trustee and allocations made only on the Valuation Date, should it be necessary to make distributions under the provisions hereof, and the Committee, in good faith determines that, because of: (i) an extraordinary change in general economic conditions, (ii) the occurrence of some casualty materially affecting the value of the Trust Fund or a substantial part thereof, or (iii) a significant fluctuation in the value of the Trust Fund has occurred since the immediately preceding Allocation Date, the Committee may, in its sole discretion, to prevent the payee from receiving a substantially greater or lesser amount than what he would be entitled to, based on current values, cause a re-valuation of the Trust Fund to be made and a reallocation of the interests therein as of the date the payee's right of distribution becomes fixed. The Committee's determination to make such special valuation and the valuation of the Trust Fund as determined by the Trustee shall be conclusive and binding on all persons ever interested hereunder. If the Committee in good faith determines that certain expenses of administration paid by the Trustee during the Plan Year under consideration are not general, ordinary, and usual and should not equitably be borne by all Participants, but should be borne only by one or more Participants, for whom or because of whom such specific expenses were incurred, the net earnings and adjustments in value of the Accounts shall be increased by the amounts of such expenses, and the Committee shall make suitable adjustments by debiting the particular Account or Accounts of such one or more Participants, Former Participants, or Beneficiaries; provided, however, that any such adjustment must be nondiscriminatory and consistent with the provisions of Section 401(a) of the Code. 9.4 Adjustments to Participant's Accounts. Each Investment Fund shall be valued at fair market value as of the close of business on each Valuation Date. As of such Valuation Date, each Participant's interest in an Investment Fund shall be adjusted for the net earnings, losses, appreciation and depreciation in such Investment Fund since the immediately preceding Valuation Date. The portion of the total net earnings, losses, appreciation or depreciation of an Investment Fund allocated to a Participant's interest in such Investment Fund shall be the same ratio that the value of the Participant's interest in such Investment Fund as of the immediately preceding Valuation Date bears to the total value of all Participants' interests in such Investment Fund as of the immediately preceding Valuation Date; provided, however, that for this purpose, the value of a Participant's interest as of the immediately preceding Valuation Date shall be increased by any transfers to the Investment Fund from another Investment Fund -51- during the period for which the valuation is being made and shall be decreased by any loans, withdrawals or other distributions to the Participant paid to the Participant during the period for which the valuation is being made; provided, however, that for purposes of Section 11.2, distributions other than loans and withdrawals shall not be taken into account. All contributions and loan repayments shall be credited as of the last day of the month during which such contributions and loan repayments are made and shall not be credited until the foregoing adjustments for earnings, losses, appreciation and depreciation have been made. 9.5 Participant-Directed Investments. (a) Investment Funds. Except as provided in Sections 9.6 and 9.7, all contributions to the Trust that are allocated to the Tax Reduction Contribution Account, Investment Plan Account, Rollover Account and effective July 1, 1993, Matching Company Contribution Account of each Participant, Former Participant or Beneficiary shall be invested in one or more of the Investment Funds (other than the Household International, Inc. Common Stock Fund and any other Investment Fund designated by the Committee from time to time as a Fund in which additional participation is frozen) as directed by the Participant, Former Participant or Beneficiary by Notice to the Committee or to the Recordkeeper (in the form and manner prescribed by the Committee) in the minimum percentages set forth in Section 9.5(d) or in such other minimum percentages or amounts as may be prescribed by the Committee from time to time. The Committee may change the Investment Funds set forth in Section 2.25 at such time as it may determine in its sole and absolute discretion; provided, however, that the Committee shall maintain, at a minimum, and in addition to the Eljer Industries, Inc. Common Stock Fund, at least three investment funds representing a broad range of investment alternatives which provide Participants, Former Participants and Beneficiaries with a reasonable opportunity to materially affect the potential return on amounts in their Accounts. (b) Funding Arrangements. The Committee may use registered mutual funds, bank-maintained collective investment funds or similar arrangements as funding vehicles for the Investment Funds, provided that the underlying investments of any such arrangement are consistent with the investment objectives of the particular Investment Fund, as established by the Committee. The Committee, in its sole and absolute discretion, may at any time establish new Investment Funds or discontinue existing Investment Funds and may at any time increase or decrease the number of Investment Funds that are offered to Participants, Former Participants and Beneficiaries under the Plan. (c) Loan Repayments. A loan to a Participant pursuant to Article XIII shall be treated as a separate investment option with respect to such Participant; provided, however, the transfer of -52- assets from one Investment Fund to another in order to facilitate a Plan loan to a Participant shall not constitute an investment election change pursuant to Section 9.5(d). A loan subaccount shall be established and maintained by the Recordkeeper and the Participant's balance in the other Investment Funds shall be reduced in the percentages and from such Funds designated by the Participant in accordance with rules adopted by the Committee to account for the funding of the loan or, if the Participant fails to designate which Investment Funds shall be used to fund his loan, the Participant's balance in the other Investment Funds shall be reduced on a pro rata basis to account for the funding of the loan. The Participant's loan subaccount shall be credited with interest at the loan repayment rate. As the Participant repays the loan, the balance in the loan subaccount shall be reduced and the Participant's balance in the Investment Funds then selected by the Participant shall be increased by allocating the Participant's loan repayments to such Investment Funds. Loan repayments shall be allocated to Investment Funds in the same proportion as the Participant's current investment direction election with respect to contributions. If the Participant is not making current contributions, then loan repayments shall be allocated to the Investment Funds in the same proportion as the Participant's most recent investment direction election. (d) Change of Future Investment Elections and Transfer of Past Investment Elections. Except as provided in Sections 9.6, 9.8 and 9.10, and subject to any special rules adopted by the Committee with respect to certain Investment Funds which, by their nature, require special treatment or are subject to particular restrictions, a Participant shall be permitted to change the investment of any future contributions made to the Plan on his behalf (including loan repayments pursuant to Article XIII) and to transfer contributions to the Trust Fund previously invested in one Investment Fund and earnings thereon to one or more other Investment Funds (other than the Household International, Inc. Common Stock Fund or any other Investment Fund designated by the Committee from time to time as a frozen Fund) in accordance with the provisions of this Section 9.5(d). A change of future investment elections or a transfer of past investment elections from one Investment Fund to another Investment Fund shall be made in multiples of 25%, or commencing on and after January 1, 1993, multiples of 10%, or in such other minimum percentages or amounts as may be prescribed by the Committee from time to time. (i) Change of Future Investment Elections. A Participant may elect to change his investment elections for future payroll periods with respect to his Investment Plan Contributions, his Tax Reduction Contributions, his Rollover Contributions, his loan repayments pursuant to Article XIII and effective July 1, 1993, his Matching Company Contribution Account, effective no earlier than the first payroll period occurring on or after the first day of the calendar quarter commencing at least 30 days after Notice of such -53- change is received by the Committee or the Recordkeeper, or commencing on and after January 1, 1993, effective as of the first payroll period occurring on or after the first day of any month designated by the Participant following Notice to the Committee or the Recordkeeper provided that such Notice is received by the Committee or the Recordkeeper on or before the 25th day of the month preceding the month for which the change is to be effective or such other date as may be prescribed by the Committee from time to time. A Participant may change his future investment elections (i) twice per Plan Year for periods prior to April 1, 1991, (ii) four times per Plan Year for periods after March 31, 1991 and prior to January 1, 1993 and (iii) for periods commencing on and after January 1, 1993, monthly, or such other frequency as may be adopted by the Committee from time to time. (ii) Transfer of Past Investment Elections. (A) Contributions Other than Matching Company Contributions. A Participant, or if applicable, a Former Participant, Beneficiary or Alternate Payee under a Qualified Domestic Relations Order, may elect to transfer amounts attributable to his past investment elections with respect to contributions made to the Plan on his behalf (other than Matching Company Contributions), effective no earlier than as soon as administratively practicable after the first day of the calendar quarter commencing at least 30 days after Notice of such change is received by the Committee or the Recordkeeper, or commencing on and after January 1, 1993, effective as soon as administratively practicable after the first day of any month designated by the Participant (or the Former Participant or Beneficiary, if applicable) following Notice to the Committee or the Recordkeeper provided that such Notice is received by the Committee or the Recordkeeper on or before the 25th day of the month preceding the month for which the transfer is to be effective or such other date as may be prescribed by the Committee from time to time. A Participant and, if applicable, a Former Participant or Beneficiary may transfer their past investment elections (i) twice per Plan Year for periods prior to April 1, 1991, (ii) four times per Plan Year for periods after March 31, 1991 and prior to January 1, 1993 and (iii) for periods commencing on and after January 1, 1993, monthly, or such other frequency as may be adopted by the Committee from time to time. (B) Matching Company Contributions. Subject to the rules set forth in Section 9.5(d)(ii)(A) above as to increments, timing and frequency of investment elections, for periods prior to July 1, 1993, a Participant, or if applicable, a Former Participant, Beneficiary or Alternate Payee -54- under a Qualified Domestic Relations Order may elect to transfer to the Eljer Industries, Inc. Common Stock Fund amounts invested in the Household International, Inc. Common Stock Fund that are attributable to Matching Company Contributions made to the Prior Plan on his behalf and for periods commencing on and after July 1, 1993, a Participant, or if applicable, a Former Participant or Beneficiary may elect to transfer among the Investment Funds amounts attributable to Matching Company Contributions made to the Plan and/or the Prior Plan on his behalf; provided, however that no such amounts may be transferred into the Household Fund. (e) Failure to Provide Investment Instructions. If a Participant or Former Participant fails to provide instructions to the Committee directing the investment of any contribution to the Trust or amount held by the Trust for which the Participant or Former Participant may direct the investment, such contribution or other amount, pending the Committee's receipt of proper investment instructions from the Participant or Former Participant, shall be invested in such Investment Fund or Funds as may be designated by the Committee from time to time for such purpose. If a Beneficiary of a deceased Participant or an Alternate Payee under a Qualified Domestic Relations Order fails to provide instructions to the Committee directing the investment of any amount held by the Trust for which such Beneficiary or Alternate Payee may direct the investment, such amount, pending the Committee's receipt of proper investment instructions from the Beneficiary or Alternate Payee, shall continue to be invested in the manner last elected by the Participant from whose Account such amount arose. (f) Participant Investment Directions. It is intended that the rights given to Participants to direct the investment of their Accounts, as set forth in this Section 9.5, satisfy the provisions of Section 404(c)(2) of ERISA and Department of Labor regulations promulgated thereunder. Accordingly, notwithstanding any other provisions of the Plan, in no event shall any person who is otherwise a fiduciary under this Plan be liable for any loss, or by reason of any breach under ERISA, which results from a Participant's direction of the investment of his Account. 9.6 Investment of Matching Company Contributions. Except as elected otherwise by a Participant pursuant to Section 9.7, for periods prior to July 1, 1993, Matching Company Contributions shall be invested in the Eljer Industries, Inc. Common Stock Fund and may be made in the form of shares of Company Stock or cash. Although the Trustee shall have the sole discretion to purchase Company Stock at such times, in such amounts and at such prices as the Trustee deems appropriate, it is the intent of the Company that all Matching Company Contributions made to the Plan prior to July 1, 1993 shall be invested in the Eljer Industries, Inc. Common Stock Fund as soon as administratively practicable following the date -55- such contributions are made. Effective July 1, 1993, Participants may direct the investment of Matching Company Contributions among the Investment Funds in accordance with Section 9.5. 9.7 Age 50 Diversification Election. Notwithstanding the provisions of Section 9.6, effective July 1, 1992, any Participant who has attained age 50 may elect to transfer all or a portion of his Matching Company Contribution Account and to change the investment of future Matching Company Contributions from the Eljer Industries, Inc. Common Stock Fund and, if applicable, the Household International, Inc. Common Stock Fund to one or more other Investment Funds (except the Household International, Inc. Common Stock Fund or any other Investment Fund designated by the Committee from time to time as a frozen Fund) in accordance with the provisions of this Section 9.7. (a) Change of Investment of Future Matching Company Contributions. An election to change the investment of future Matching Company Contributions pursuant to this Section 9.7 shall be in multiples of 25% of future Matching Company Contributions made to the Plan on the Participant's behalf, or commencing on and after January 1, 1993, in multiples of 10% or 25% (or such other minimum percentages or amounts as may be prescribed by the Committee from time to time) of future Matching Company Contributions made to the Plan on the Participant's behalf, and may be made at the time or times authorized by Section 9.5(d)(i) with respect to a change of the Participant's other future investment elections. Any change of future investment elections with respect to Matching Company Contributions may be made by a Participant effective no earlier than the first payroll period occurring on or after the first day of the calendar quarter commencing at least 30 days after Notice of such change is received by the Committee or the Recordkeeper, or commencing on and after January 1, 1993, effective as of the first payroll period occurring on or after the first day of any month designated by the Participant following Notice to the Committee or the Recordkeeper provided that such Notice is received by the Committee or the Recordkeeper on or before the 25th day of the month preceding the month for which the change is to be effective or such other date as may be prescribed by the Committee from time to time. (b) Transfer of Past Matching Contributions. An election to transfer the investment of past Matching Company Contributions pursuant to this Section 9.7 shall be made in multiples of 25% of the value of the Participant's Matching Company Contribution Account invested in the Eljer Industries, Inc. Common Stock Fund and the Household International, Inc. Common Stock Fund, or commencing on and after January 1, 1993, in multiples of 10% or 25% (or such other minimum percentages or amounts as may be prescribed by the Committee from time to time) of the value of the Participant's Matching Company Contribution Account invested in such Funds, and may be made at the time or times authorized by -56- Section 9.5(d)(ii) with respect to a change of the Participant's other past investment elections. A transfer of the investment of amounts held in a Participant's Matching Company Contribution Account may be made by a Participant effective no earlier than as soon as administratively practicable after the first day of the calendar quarter commencing at least 30 days after Notice of such change is received by the Committee or the Recordkeeper, or commencing on and after January 1, 1993, effective as soon as administratively practicable after the first day of any month designated by the Participant following Notice to the Committee or the Recordkeeper provided that such Notice is received by the Committee or the Recordkeeper on or before the 25th day of the month preceding the month for which the transfer is to be effective or such other date as may be prescribed by the Committee from time to time. 9.8 Special Investment Rules for 1989 Plan Year. (a) Notwithstanding any provision of the Plan, the Committee shall adopt special rules with respect to the investment of Participants' Tax Reduction Contributions and Investment Plan Contributions for the short Plan Year that commenced on April 1, 1989. Such special rules shall include, but shall not be limited to, a rule that precludes the investment of Participants' contributions made in the 1989 short Plan Year in Company Stock until a registration statement has been filed with the Securities and Exchange Commission and such registration statement has become effective with respect to the Plan. (b) Within such time period as the Committee deems appropriate, the Committee shall direct that shares of stock in Schwitzer, Inc. and Scotsman Industries, Inc. received by the Plan as a consequence of the spinoff of such companies by Household International, Inc. in April, 1989 be sold or exchanged and that shares of Company Stock be substituted therefor. Any such sale or exchange may be made with the Schwitzer Tax Reduction Investment Plan or the Scotsman Tax Reduction Investment Plan or in the open market but, in all events, shall be made at fair market value. 9.9 Qualified Domestic Relations Orders. The Committee shall establish policies and procedures for reviewing domestic relations orders relating to a Participant's interest in the Plan. The Committee or its delegate shall determine whether any such domestic relations order is a Qualified Domestic Relations Order. If an Alternate Payee does not receive an immediate distribution pursuant to Section 11.10, the Committee shall direct the Recordkeeper to identify the Alternate Payee's interest in the Trust Fund pending a distribution to Alternate Payee. 9.10 Special Rules Relating to Transactions By Certain Officers, Directors and Shareholders. Notwithstanding the foregoing provisions of this Article IX or any other provision of -57- the Plan, the administration of the Plan's provisions regarding investment elections, investment transfers, contributions and withdrawals, are subject to all restrictions of any applicable securities laws, including restrictions on certain officers, directors and shareholders of Affiliated Companies (such individuals hereinafter referred to as "insiders") with respect to the purchase and sale of Company Stock or other Employer securities. The Board of Directors, or if permitted pursuant to applicable securities laws, the Committee, shall adopt written procedures which shall form a part of the Plan establishing such rules, restrictions and limitations on insiders' transactions in Employer securities under the Plan as may be necessary to comply with applicable securities laws. ARTICLE X PARTICIPANT VESTING 10.1 Vesting of Accounts. A Participant shall at all times be fully vested in all amounts credited to his Tax Reduction Contribution Account, Investment Plan Contribution Account and his Rollover Account, including any such contributions made for the Plan Year of the Participant's termination of employment but not yet allocated. Amounts credited to a Participant's Matching Company Contribution Account shall become fully vested upon the occurrence, while employed by an Affiliated Company, of (i) a Participant's attainment of his Normal Retirement Date, (ii) a Participant's Disability or (iii) a Participant's death. In addition, the Committee may, in its sole and absolute discretion, fully vest the Matching Company Contribution Accounts of similarly situated Participants in special circumstances including, but not limited to, a sale of stock or assets of an Employer. 10.2 Termination of Service Prior to Normal Retirement Date, Disability or Death. If a Participant's employment terminates prior to his Normal Retirement Date for any reason other than Disability, death, or an event referred to in Section 10.1, the portion of such Participant's Matching Company Contribution Account, if any, that shall be vested shall be determined according to the following schedule:
Years of Matching Vested Forfeited Company Account Percentage Percentage - ------------------ ---------- ---------- less than 1 0% 100% 1 but less than 2 20% 80% 2 but less than 3 40% 60% 3 but less than 4 60% 40% 4 or more 100% 0%
-58- For purposes of this Section 10.2, "Years of Matching Company Account" will be measured in calendar quarters beginning with the calendar quarter with respect to which the Participant first has Matching Company Contributions allocated to his account (or, if he was a Participant in the Prior Plan, had such contributions allocated to his account in the Prior Plan) and ending with the calendar quarter in which the Participant's employment is terminated. Notwithstanding the foregoing vesting schedule, a Participant shall be 100% vested in amounts allocated to his Matching Company Contribution Account after 5 Years of Service, determined in accordance with Article III hereof. The value of a Participant's vested benefit shall be determined as of the Valuation Date immediately preceding the Participant's Annuity Starting Date. Such payment shall be made at such times and in such manner as provided in Article XI. 10.3 Forfeiture of Non-Vested Portion of Account. The portion of a Participant's Account attributable to Matching Company Contributions in which he is not vested when his employment with the Company or an Affiliated Company is terminated shall be forfeited upon the earlier of (i) the date he receives a distribution of his entire vested interest (including for this purpose, an annuity contract that represents his right to such vested interest), or (ii) the fifth anniversary of the Participant's severance from service date, as defined in Section 3.6. A Participant who does not have any vested interest in the portion of his Account attributable to Matching Company Contributions as of his severance from service date shall be deemed to have received a distribution for purposes of this Section 10.3 as of his severance from service date. The non-vested portion of a Participant's Account shall be forfeited in accordance with this Section 10.3 and Section 11.9, and the forfeitures shall be applied as set forth in Section 11.12. 10.4 Restoration of Non-Vested Interest. If, following his termination of employment, a Participant received a distribution, or was deemed to have received a distribution pursuant to Section 10.3, of his entire vested interest under the Plan and then is re-employed and performs an Hour of Service prior to the fifth anniversary of the date on which he received (or was deemed to have received) a distribution, the entire amount forfeited, unadjusted for gains and losses following the distribution, shall be restored to his Account. At any time thereafter, the amount in which he is vested shall be determined by applying his vested percentage against the sum of the distribution and the amount restored; provided, however, that the amount actually distributed to him upon his subsequent termination of employment shall be offset by the amount previously distributed. The amount to be restored shall be credited first against forfeitures arising for the Plan Year, and if such forfeitures are not sufficient to satisfy the amount to be -59- restored in full, such amount shall be satisfied out of Employer contributions for the Plan Year, which contributions shall be supplemented for the Plan Year by an amount equal to such remainder. The amount restored shall not be deemed an Annual Addition or portion thereof for any Limitation Year. ARTICLE XI PAYMENT OF BENEFITS 11.1 Withdrawals During Employment. (a) A Participant, upon Notice, may, during his employment, elect to withdraw amounts from his Account pursuant to this Section 11.1 to the extent vested under Article X; provided, however, that with respect to each withdrawal, a minimum of $500 (or, if less, the balance of the Participant's Account) must be withdrawn and a Participant may receive no more than two non-hardship withdrawals during any Plan Year. The provisions of Category A and Category B below shall be effective January 1, 1991. A Participant must withdraw all amounts eligible for withdrawal, if any, in each category below (listed in descending order) before amounts in the next lower category may be withdrawn: Category A: All of his Investment Plan Contributions made prior to 1987 under the Prior Plan excluding earnings attributable to such contributions. A Participant may withdraw amounts from this category no more often than twice in any Plan Year. Category B: All of his other Investment Plan Contributions and earnings attributable to Investment Plan Contributions (including earnings attributable to pre-1987 Investment Plan Contributions); provided, however, that the most recent twenty-four months of Investment Plan Contributions that were matched by Matching Company Contributions and the earnings attributable to such contributions may not be withdrawn unless a Participant has participated in the Plan (or the Plan and the Prior Plan) for at least five years. A Participant may withdraw amounts from this category no more often than twice in any Plan Year. Category C: In the case of a Participant who has been a Participant in the Plan (including participation in the Prior Plan) for five or more years, all or any portion of his Matching Company Contributions (plus earnings thereon) and all or any portion of the earnings on his Investment Plan Contributions. A Participant may withdraw amounts from this category no more often than once in any Plan Year. Category D: All or any portion of his Rollover Contribution (plus earnings thereon). A Participant may withdraw amounts from this category no more often than twice in any Plan Year. -60- Category E: All or any portion of his Tax Reduction Contributions (but only to the extent of the value of the Participant's Tax Reduction Contribution subaccount in the Prior Plan as of December 31, 1988 plus the amount of his Tax Reduction Contributions to the Prior Plan and to this Plan thereafter) that is needed to satisfy a hardship created by an immediate and heavy financial need, subject to the following rules and procedures: (i) A withdrawal for hardship may be made only if the Participant has: (A) withdrawn the maximum amount available under the foregoing Categories A-D; (B) withdrawn the maximum amount available to him under any other qualified plan maintained by an Affiliated Company; and (C) taken out the maximum loan amount pursuant to the provisions of Article XIII. (ii) A withdrawal for a hardship may be made only for the following reasons: (A) medical expenses described in Section 231(d) of the Code incurred by the Participant, his spouse or any dependents (as defined in Section 152 of the Code) or necessary for such persons to obtain medical care as described in Section 213(d) of the Code; (B) costs directly related to the purchase (excluding mortgage payments) of a principal residence of the Participant; (C) payment of tuition and related educational fees for the next 12 months of post-secondary education for the Participant or his spouse, children or dependents (as defined in Section 152 of the Code); or (D) payments necessary to prevent eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence. (iii) A withdrawal for a hardship may be made only once during any Plan Year and may be made only under the following terms and conditions: (A) the withdrawal shall not exceed the amount of the hardship; (B) the Participant may not make any Tax Reduction Contributions or Investment Plan Contributions under this -61- Plan or before-tax or after-tax contributions to any other pension, profit sharing, deferred compensation or stock purchase plan maintained by an Affiliated Company (whether such plan is qualified or nonqualified) but excluding any health or welfare plan (including a cafete ria plan within the meaning of Section 125 of the Code) for a period beginning with the payroll period next following the date he receives the hardship withdrawal and ending with the last day of the calendar quarter that is at least 12 months following the receipt of the hardship withdrawal; and (C) the Participant may not make Tax Reduction Contributions to this Plan or before-tax contributions any other pen sion or profit sharing plan maintained by an Affiliated Company for the Participant's taxable year immediately following the taxable year of a hardship distribution in excess of the applicable limits under Section 402(g) of the Code for such taxable year less the amount of such Participant's Tax Reduction Contributions for the taxable year of the hardship withdrawal. (iv) The determination of the amount of an immediate and heavy financial need for purposes of this subsection shall, at the Participant's election, include any amounts necessary to pay any federal, state or local income taxes, based on applicable supplemental withholding tables, and penalties resulting from the withdrawal for a hardship under this Section 11.1(a). (b) Any participant who has attained age 59-1/2 may elect once each Plan Year to withdraw all or a portion of his Tax Reduction Contributions and the earnings thereon, regardless of whether he meets the hardship requirements hereof, provided he has first exhausted all amounts eligible for withdrawal in Categories A through D of Section 11.1(a). All withdrawals under this Section 11.1 shall be made as soon as administratively practicable after the first day of any month, as elected by the Participant, following the date the Participant's Notice of withdrawal is received by the Recordkeeper with respect to withdrawals under Categories A through D of Section 11.1(a) and Section 11.1(b) or the Committee with respect to withdrawals under Category E of Section 11.1(a) specifying the category of the withdrawal and the amount requested to be withdrawn, if the Recordkeeper or, if applicable, the Committee receives such Notice on or before the 25th day of the preceding month; provided, however, that hardship withdrawals shall be made as soon as administratively practicable following the date Notice is received by the Committee and the Committee approves the withdrawal. All withdrawals under this Section 11.1 shall be based on the value of the Participant's Investment Plan Contribution Account, his Tax Reduction Contribution Account, his Matching Company Contribution Account and his Rollover Account, as the case might be, as of the Valuation -62- Date immediately preceding receipt of the Participant's Notice by the Recordkeeper or, if applicable, the Committee. Upon approving the amount of any withdrawal, the Recordkeeper shall furnish the Trustee with written instructions directing the Trustee to make a single sum payment of the withdrawal. Except as provided in the following sentence, payments from the Investment Funds shall be in cash. Payments from the Eljer Industries, Inc. Common Stock Fund and the Household International, Inc. Common Stock Fund shall be in cash or stock or a combination of both, as elected by the Participant; provided, however, that (i) a hardship withdrawal only may be made in cash, (ii) no distribution of less than twenty (20) shares will be made from either the Eljer Industries, Inc. Common Stock Fund or the Household International, Inc. Common Stock Fund, and (iii) partial shares of stock held in the Funds described in (ii) above will be paid in cash. Withdrawals under this Section 11.1 shall, to the extent required by the Code, be subject to the provisions of Section 11.11. A Participant may, subject to any restrictions and limitations imposed on a particular Investment Fund, direct withdrawals under this Section 11.1 which are less than the full value of any Account from which an amount is withdrawn to be charged to any one or more of the Investment Funds in which such Account is invested. Such direction shall be given by the Participant with his Notice to withdraw and shall specify the manner in which the withdrawal will be allocated among the Investment Funds. If a Participant does not specify the manner in which a withdrawal shall be allocated among Investment Funds, the Committee shall allocate the withdrawal on a pro rata basis among the Participant's Investment Fund elections, subject to any restrictions or limitations applicable to a particular Investment Fund. The Committee or its delegate from time to time may establish procedures that govern the tax treatment of withdrawals from the Plan, which procedures shall not necessarily be consistent with the categories of withdrawals provided under this Article XI. Unless the Committee or its delegate determines otherwise, however, Categories A and B of Section 11.1(a) shall be treated as a single contract for Federal income tax purposes. 11.2 Amounts Payable Following Termination of Service. Upon a Participant's termination of employment, distributions from the Plan shall be made, to the extent vested under Article X, at the time specified in Section 11.3 (subject to the provisions of Section 11.6) and in the form specified in Section 11.4. 11.3 Time of Payment. (a) Retirement. In the event a Participant terminates employment with the Employer after (i) attaining his Normal Retirement Date or (ii) satisfying the requirements for early retirement under any defined benefit pension plan maintained by the Employer in which he participates, unless the Participant elects to defer payment pursuant to this Section 11.3(a), payment of the Participant's entire Account shall commence as soon as administratively -63- practicable after the Quarterly Valuation Date coinciding with or next following the Participant's severance from service date, provided that the Committee has received at least 30 days advance written notice of the Participant's severance from service date. The amount distributable shall be valued as of such Quarterly Valuation Date, or such later Valuation Date selected by the Participant in the event the Participant elects to defer payment as provided herein. A Participant described in this Section 11.3(a) may, regardless of the value of his Account, elect to defer payment of his Account to any Valuation Date after his severance from service date specified by him, but no later than December 31 of the Plan Year immediately following the later of (i) the Plan Year in which he terminates employment with the Employer or (ii) the Plan Year in which he attains age 65. An election of a Participant to defer payment of benefits shall be made by submitting to the Committee a written statement signed by the Participant, describing the benefits and the Valuation Date on which the Participant requests that the payments commence; provided, however, a Participant may not elect to defer receipt or commencement of receipt of benefits beyond the date required pursuant to Section 401(a)(9) of the Code. The value of the Participant's Account shall be determined as of the Valuation Date selected by the Participant pursuant to his deferral election and payment shall commence as soon as administratively practicable following such Valuation Date. (b) Death or Disability. In the case of the death or Disability of a Participant (whether before or after a Participant's severance from service date with the Employer), except in the case of a distribution deferred pursuant this Section 11.3(b) or Section 11.3(e), payment of the Participant's entire Account shall commence as soon as administratively practicable after the Quarterly Valuation Date that coincides with or next follows 30 days advance written notice to the Committee of proof of the Participant's death or, if applicable, 30 days following the determination by the Committee of the Participant's Disability. The amount distributable shall be valued as of such Quarterly Valuation Date, or such later Valuation Date in the event the Participant (or Beneficiary) elects to defer payment as provided herein. Subject to the provisions of Section 11.6, a Beneficiary of a Participant who was eligible to receive a distribution pursuant to Section 11.3(a) as of the date of his death, may elect to defer payment of the Participant's Account to any Valuation Date specified by the Beneficiary, but not later than December 31 of the Plan Year immediately following the Plan Year in which the Participant died. An election by a Beneficiary to defer payment of benefits shall be made by submitting written notice to the Committee in the same manner described for a Participant in Section 11.3(a). The value of the Participant's Account shall be determined as of the Valuation Date selected by the Beneficiary pursuant to his deferral election and payment shall commence as soon as administratively practicable following such Valuation Date. -64- (c) Other Severance from Service. Subject to the provisions of Sections 11.3(d) and 11.3(e), upon a Participant's termination of employment with the Employer for any reason other than the Participant's attainment of his Normal Retirement Date, his death or his Disability, the Participant's vested Account shall become distributable to him as soon as administratively practicable after the Quarterly Valuation Date next following the Participant's severance from service date, provided that the Committee has received at least 30 days advance written notice of the Participant's severance from service. The amount payable shall be valued as of such Quarterly Valuation Date. Pending distribution pursuant to this Section 11.3(c), the Participant's Account shall continue to share in the earnings and losses of the Trust until the Valuation Date for which such deferred distribution is made and the Participant's rights with respect to his Account shall be subject to the provisions of Section 11.3(f). (d) Earlier Distribution; Waiver of Matching Company Contributions. A Participant (or Beneficiary) may elect to receive his vested Account as soon as administratively practicable following a monthly Valuation Date after his severance from service date (or death) but earlier than the Quarterly Valuation Date set forth in Sections 11.3(a), (b) and (c) hereof, provided that the Committee has received at least 30 days advance written notice of the Participant's severance from service date (or death). The amount distributable shall be valued as of such earlier monthly Valuation Date. Notwithstanding any other provision of the Plan, a Participant (or Beneficiary) who makes an election under this Section 11.3(d) shall not be entitled to any Matching Company Contributions with respect to the calendar quarter in which the Valuation Date described hereunder occurs. (e) Limitation on Involuntary Payment of Benefits and Lump Sum Cashouts. Notwithstanding any provision of this Article XI to the contrary, subject to the provisions of Section 11.3(d), if upon termination of a Participant's employment with an Employer the value of the Participant's vested Account does not exceed $3,500, the Committee shall direct the Trustee to distribute the value of the Participant's vested Account to the Participant (or, in the event of the Participant's death, to the Participant's Beneficiary) or to an eligible retirement plan as defined in Section 402(c)(8)(B) of the Code pursuant to the Participant's (or, if applicable, the Participant's spouse's or former spouse's) direct rollover election described in Section 11.11, in a single lump sum as soon as administratively practicable after the Quarterly Valuation Date next following the Participant's severance from service date. If upon termination of a Participant's employment with an Employer for any reason other than death the then value of the Participant's vested Account exceeds $3,500, no distribution of the Participant's vested Account to the Participant may occur prior to the Participant's Normal Retirement Date unless the Participant files with the Committee a written request for the payment of his -65- vested Account, such request expressly to consent to the payment. If the Participant files such a request, the Committee shall direct the Trustee to pay such amount to the Participant as soon as administratively practicable after the later of (i) the Quarterly Valuation Date following the Participant's separation from service date or (ii) the Valuation Date next following receipt of said request. If such a Participant does not consent to a distribution, the Trustee shall continue to hold the Participant's vested Account in trust and shall distribute the Participant's vested Account in a single lump sum payment as soon as administratively practicable following the Valuation Date coinciding with or next following the date the Participant attains his Normal Retirement Date. In accordance with rules prescribed by the Committee, a Participant who does not consent may elect to defer his distribution until a date which is as soon as administratively practicable following any Valuation Date thereafter, but not later than the Valuation Date coinciding with or next following the Participant's Normal Retirement Date, valued as of such later Valuation Date. Except as provided otherwise herein, no consent to a distribution shall be valid unless the Participant has received a notice describing the material features, and an explanation of the relative values, of the forms of benefit available under the Plan with respect to the distribution and a notice describing the Participant's direct rollover rights described in Section 11.11 hereof, no less than 30 days and no more than 90 days before the Annuity Starting Date. If the distribution is one to which sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after the notice required under section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that (i) the Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (ii) the Participant, after receiving the notice, affirmatively elects a distribution. (f) Treatment of Accounts in the Case of Deferred Distribution. If a Participant or Beneficiary elects to defer distribution of the Participant's vested interest pursuant to Sections 11.3(a), (b), (c) or (e) hereof, the Participant's Account shall continue to share in the earnings and losses of the Trust until the applicable Valuation Date under Sections 11.3(a), (b), (c) or (e). Transfers among Investment Funds shall be permitted until the applicable Valuation Date. However, except as provided in Section 13.7, loans granted under Article XIII shall be immediately due and payable upon the Participant's severance from service date. (g) Forfeiture of Non-Vested Account Upon Distribution. As of the date of the distribution of a Participant's vested Account pursuant to this Section 11.3, the non-vested portion of the -66- Participant's Account shall be forfeited, subject to restoration as provided in Section 10.4. 11.4 Method of Payments. (a) Except as provided in Section 11.4(b), payments to a Participant, Former Participant or Beneficiary shall be made in the form of a single lump sum payment in cash of the total amount due; provided, however, that a Participant or Former Participant may elect to receive a portion of his lump sum payment attributable to (i) his interest in the Eljer Industries, Inc. Common Stock Fund, in the form of shares of Company Stock, (ii) his interest, if any, in the Household International, Inc. Common Stock Fund, in shares of common stock of Household International, Inc. and (iii) for a Participant, Former Participant or Beneficiary who receives a distribution on or before June 30, 1993, his interest, if any, in the Equity Securities Fund, in shares of the Fidelity Equity-Income Fund. Notwithstanding the preceding sentence, no distribution of less than twenty (20) shares shall be made from either the Eljer Industries, Inc. Common Stock Fund or the Household International, Inc. Common Stock Fund and partial shares in each such fund will be paid in cash. (b) Notwithstanding the provisions of Section 11.4(a), subject to Section 11.6, a Participant, Former Participant or Beneficiary may elect to have the value of his Accounts paid in one or more of the following manners: (i) A Participant or Former Participant who became a Participant prior to July 1, 1989 and who does not have a loan outstanding may elect to receive his distribution in a single sum, as an immediate annuity purchased under the group annuity contract or contracts, or as a combination of both, or in any other form available through a group annuity contract issued to the Plan by a legal reserve life insurance company authorized to do business in the State of Texas; provided, however, that if an annuity form of payment is chosen, then unless otherwise elected pursuant to Section 11.4(c), a married Participant's vested Account shall be paid in the form of a Qualified Joint and Survivor Annuity (as long as the Participant does not die before his annuity starting date, in which case the Participant's vested Account shall be paid in the form of a Qualified Preretirement Survivor Annuity to his surviving spouse. The forms of immediate annuity available under the group annuity contract or contracts shall include the following: (A) Qualified Joint and Survivor Annuity. An annuity for the life of the Participant or Former Participant with a survivor annuity for the life of such Participant's spouse which is not less than one-half, or greater than, -67- the amount of the annuity payable during the joint lives of the Participant and such Participant's spouse; and (B) Annuity Certain and Life. An annuity for the life of the Participant or Former Participant with a guaranteed minimum number of monthly payments as specified by the Participant or Former Participant. (ii) A Participant, Former Participant or eligible Beneficiary may elect a direct rollover to an eligible retirement plan as described in Section 402(c)(8)(B) of the Code pursuant to the provisions of Section 11.11. Notwithstanding the foregoing provisions, no Participant or Former Participant may elect to distribution in the form of an annuity unless the annuity payments will equal or exceed $30 per month. (c) A Qualified Joint and Survivor Annuity (herein so called) is an annuity for the life of the Participant with a survivor annuity for the life of the spouse equal to not less than 50 percent of the amount of the annuity which is payable during the joint lives of the Participant and his spouse, and which is the actuarial equivalent of a single life annuity for the life of the Participant. A Qualified Preretirement Survivor Annuity (herein so called) is an annuity for the life of the surviving spouse that is actuarially equivalent to 100 percent of the vested Account of the Participant (as of his date of death). A Participant may elect at any time during the applicable election period to waive the Qualified Joint and Survivor Annuity in favor of a single life annuity or another form of distribution available under the Plan, and may revoke such election at any time during the applicable election period, provided that, for the election to be effective, (i) the Participant's spouse must consent in writing to such election, such spouse's consent must acknowledge the effect of such election, and her signature must be witnessed by a Plan representative or notary public (or it must be established to the satisfaction of a Plan representative that the consent may not be obtained because there is no spouse, because the spouse cannot be located, or because of such other circumstances as the Secretary of the Treasury may by regulations prescribe); and (ii) the Plan must provide to each Participant, within a reasonable period of time before the Annuity Starting Date (and consistent with such regulations as the Secretary of Treasury may prescribe), a written explanation of the terms and conditions of the Qualified Joint and Survivor Annuity, the Participant's right to make, and the effect of, an election to waive the same, the rights of the Participant's spouse, and the right to make, and the effect of, a revocation of such election. For purposes of this Section 11.4(c), the "application election period" is the 90 day period ending on the Annuity Starting Date. -68- In the case of a married Participant who elects a life annuity form of benefit and dies prior to his Annuity Starting Date, such that the Participant's surviving spouse shall receive a Qualified Preretirement Survivor Annuity pursuant to Section 11.4(b), the spouse may elect in writing to waive such survivor annuity in favor of a single lump sum payment equal to the Participant's vested Account as of his date of death. (d) Notwithstanding the foregoing provisions of this Section 11.4, the phrase "single lump sum payment" as used herein shall not include the distribution of an insurance contract providing for (i) a life annuity to a Participant, (ii) a joint and survivor annuity to a Participant and his Beneficiary, or (iii) any other form of payment having the effect of (i) or (ii) above. 11.5 Minority or Legal Disability of Distributee. During the minority or legal disability of a person entitled to receive benefits hereunder, the Committee may, in its sole discretion, direct payment of all or any portion of such benefits due such person directly to him or to his spouse or a relative or to any individual or institution having custody of such person. Neither an Employer, the Committee nor the Trustee shall be required to see to the application of any payments so made and the receipt of the payee (including the endorsement of a check or checks) shall be final, binding and conclusive as to all interested parties. Any payment made pursuant to the power herein conferred upon the Committee shall operate as a complete discharge of all obligations of the Trustee and the Committee, to the extent of the distributions so made. 11.6 Additional Requirements Relating to Benefit Payments. Unless a Participant otherwise elects, payment of benefits under the Plan to the Participant will begin not later than the 60th day after the end of the Plan Year in which the latest of the following events occur: (a) the date on which the Participant attains his Normal Retirement Age; (b) the tenth anniversary of the year in which the Participant commenced participation in the Plan; or (c) the Participant terminates employment with the Employer. Notwithstanding any other provisions of the Plan, all distributions required under this Article XI shall be determined and made in accordance with Section 401(a)(9) of the Code and the Treasury Regulations thereunder, including the minimum distribution incidental benefit requirements of Treasury Regulation Section 1.401(a)(9)-2. 11.7 Claims Procedure. The Committee shall make all determinations as to the right of any person to receive a benefit -69- from the Plan. The denial by the Committee of a claim for benefits under the Plan, including but not limited to, a claim for distribution, loan or withdrawal, shall be stated in a written instrument signed by the Committee and delivered to or mailed to the claimant within 60 days after receipt of the claim by the Committee, unless special circumstances require an extension of time for processing the claim, in which case a determination shall be made as soon as possible, but in no event later than 120 days after receipt of the claim. Written notice of the extension shall be furnished to the claimant prior to the termination of the initial 60-day period and shall indicate the circumstances requiring the extension and the date by which the Committee expects to render its decision. The written decision shall set forth: (a) the specific reason or reasons for the denial; (b) a specific reference to the pertinent provisions of the Plan on which the denial is based; (c) a description of any additional material or information necessary for the claimant to perfect a claim and an explanation of why such material or information is necessary; and (d) a statement that the claimant may: (i) request a review upon written application to the Committee; (ii) review pertinent plan documents; and (iii) submit issues and comments in writing. If notice of the denial is not furnished in accordance with the above procedure, the claim shall be deemed denied and the claimant shall be permitted to proceed with the review procedure. A request by the claimant for a review of the denied claim must be delivered to the Committee within 60 days after receipt by such claimant of written notification of the denial of such claim. The Committee shall, not later than 60 days after receipt of a request for a review, make a determination concerning the claim. If special circumstances require, the Committee shall notify the claimant that an extension of time for processing, not in excess of 120 days after receipt of the request for review, is necessary. A written statement stating the decision on review, the specific reasons for the decision, and the specific provisions of the Plan on which the decision is based shall be mailed or delivered to the claimant within such 60 (or 120) day period. If the decision on review is not furnished within the appropriate time, the claim shall be deemed denied on review. All communications from the Committee to the claimant shall be written in a manner calculated to be understood by the claimant. All interpretations, determinations and decisions by the Committee in respect of any matter hereunder -70- will be final, conclusive, and binding upon the Employer, Participants, Former Participants, Beneficiaries, and all other persons claiming an interest in the Plan. 11.8 Committee's Duty to Trustee. The Committee will notify the Trustee at the appropriate time of all facts which may be necessary hereunder for the proper allocation of increases, decreases, expenses, and contributions for Participants, the proper payment or distribution of benefits, or the proper performance of any other act required of the Trustee hereunder. The Committee will notify the Trustee of such facts as are needed by the Trustee to perform its functions under the Plan. The Committee will secure appropriate elections, directions, and designations for Participants, Former Participants, and Beneficiaries provided for in the Plan. 11.9 Duty to Keep Committee Informed of Distributee's Current Address. Each Participant, Former Participant and Beneficiary must file with the Committee from time to time in writing his mailing address and each change of mailing address. Any communication, statement or Notice addressed to a Participant, Former Participant or Beneficiary at his last mailing address filed with the Committee or if no address is filed with the Committee then at the last mailing address as shown on an Employer's records, will be binding on the Participant, Former Participant and their Beneficiaries for all purposes of the Plan. Neither the Committee nor the Trustee shall be required to search for or locate a Participant, Former Participant or Beneficiary. In connection with the payment of any benefits, the Committee shall mail by registered or certified mail to the Participant, Former Participant or Beneficiary at his last known address his distribution under the Plan. If the distribution is returned to the Committee, the unpaid amounts will be invested in an Investment Fund consisting primarily of fixed income investments. If the Participant, Former Participant or Beneficiary fails to claim his benefits under the Plan within three years after the date of the distribution, the Committee will direct that all unpaid amounts which would have been payable to such Participant, Former Participant or Beneficiary will be forfeited as of the next Valuation Date and applied to reduce Matching Company Contributions as provided in Section 4.8. In the event that the Participant, Former Participant or Beneficiary is subsequently located, the unpaid amounts as of the date of the forfeiture will be paid to such Participant, Former Participant or Beneficiary. The funds used to make such distribution will be paid from forfeitures. In the event the forfeitures are not adequate to effect the distribution, the Employer shall make such additional contribution to the Plan as is necessary to make such distribution. 11.10 Distribution Pursuant to Qualified Domestic Rela- tions Orders. Notwithstanding any other provision of the Plan to the contrary, if the provisions of a Qualified Domestic Relations Order provide that distributions shall be made to an Alternate -71- Payee prior to the time that the Participant with respect to whom the Alternate Payee's benefits are derived attains age 50 or would be entitled to a distribution of assets from the Plan, the Trustee shall commence payments to the Alternate Payee as soon as administratively practicable following the later of (i) the receipt of such Qualified Domestic Relations Order by the Committee or (ii) the date the Committee receives the Alternate Payee's written consent to such distribution. Unless specified otherwise in a Qualified Domestic Relations Order, a distribution to an Alternate Payee who is the former spouse of the Participant shall be based on a pro rata allocation of the Participant's Investment Plan Contributions as provided in Section 72(m)(10) of the Code and amounts awarded to the Alternate Payee shall be paid on a pro rata basis from the Investment Funds in which the Participant is invested at the time of the distribution to the Alternate Payee. Until such time as payment is made to an Alternate Payee pursuant to this Section 11.10, the Alternate Payee shall have no rights under the Plan other than the rights of a Beneficiary and the right to direct the investment of amounts awarded to Alternate Payee pursuant to the provisions of Article IX. 11.11 Tax Withholding and Participant's Direct Rollover Election. Unless provided otherwise in regulations promulgated by the Secretary of the Treasury, to the extent required under Section 3405 of the Code, the Trustee shall withhold 20% of the taxable portion of the Plan distribution or withdrawal made to a Partici pant, Former Participant or Beneficiary after December 31, 1992 which constitutes an eligible rollover distribution within the meaning of Section 402(c)(4) of the Code. Any amount withheld shall be deposited by the Trustee with the Internal Revenue Service for the purpose of paying the distributee's federal income tax liability associated with the distribution or withdrawal. Notwith standing the foregoing provisions, commencing on and after January 1, 1993, each Participant, each Former Participant and each spouse (or former spouse under a Qualified Domestic Relations Order) of a Participant or Former Participant shall be provided with a notice described in Section 11.3(e) hereof and given the right to elect [pursuant to Section 401(a)(31) of the Code and applicable Treasury regulations promulgated thereunder] during the period described in Section 11.3(e) hereof to rollover all or any portion of the taxable amount of such person's distribution or withdrawal (subject to limitations and restrictions, if any, adopted by the Committee in accordance with applicable Treasury regulations) directly to an eligible retirement plan as defined in Section 402(c)(8)(B) of the Code as limited by Section 402(c)(9) of the Code and, to the extent a direct rollover is elected by any such person, the tax withholding requirements of this Section 11.11 will not apply. If permitted by the Code or applicable Treasury regulations, a direct rollover as described in the preceding sentence may be accomplished by delivering a check from the Plan to the distributee payable to the trustee or custodian of the eligible retirement plan. Each direct rollover election shall be in writing -72- on a form prescribed by the Committee for such purpose and given to the Participant, Former Participant or spouse within a reasonable period of time prior to the distribution or withdrawal. 11.12 Application of Forfeitures. As of each Valuation Date forfeitures under Sections 5.1, 5.3, 6.2, 8.3, 10.3 and 11.9, less any restorations under Sections 10.4 and 11.9, shall be placed in a Plan forfeiture account and applied as provided in Section 4.8. 11.13 Restrictions on Distributions. Notwithstanding anything to the contrary contained in the Plan, a Participant's Tax Reduction Contribution Account and any earnings thereon, shall not be distributed before the first to occur of the following events: (a) the Participant's retirement; (b) his death; (c) his permanent disability; (d) his termination of employment; (e) his attainment of age 59-1/2; (f) the termination of the Plan, provided that neither the Employer nor an Affiliated Company maintains a successor plan; (g) the disposition, to a corporation that is not an Affiliated Company of substantially all of the assets [within the meaning of Code section 409(d)(2)] used by the Employer in the trade or business in which the Participant is employed, provided that the Participant continues employment with the transferee corporation and the Employer continues to maintain the Plan; or (h) the disposition, to a corporation that is not an Affiliated Company of the Employer's interest in a subsidiary in which the Participant is employed, provided that the Participant continues employment with the subsidiary and the Employer continues to maintain the Plan. A distribution may be made under (f), (g) or (h) above only if it constitutes a total distribution of the Participant's entire balance in all Accounts and the account balances under any other profit-sharing plans of the Employer or an Affiliated Company. ARTICLE XII NOTICES 12.1 Notice. As soon as practicable after a Participant or Former Participant makes a request for payment or a benefit becomes -73- payable to a Beneficiary, the Committee shall notify the Trustee of the following information and give such directions as are necessary or advisable under the circumstances: (a) name and address of the Participant, Former Participant or Beneficiary, and (b) amount to be distributed. In addition to the information described above, for distribu tions and withdrawals occurring after December 31, 1992, the Committee shall notify the Trustee, if applicable, as to the identity, address and other pertinent information of eligible retirement plans as described in Section 402(c)(8)(B) of the Code to which the payee has elected to rollover directly such distribution or withdrawal pursuant to Section 11.11 of the Plan. 12.2 Modification of Notice. At any time and from time to time after giving the notice as provided for in Section 12.1, the Committee may modify such original notice or any subsequent notice by means of a further notice or notices to the Trustee but any action taken or payments made by the Trustee pursuant to a prior notice shall not be affected by a subsequent notice. 12.3 Reliance on Notice. Upon receipt of any notice as provided in this Article XII, the Trustee shall promptly take whatever action and make whatever payments are called for therein, it being intended that the Trustee may rely upon the information and directions in such notice absolutely and without question. ARTICLE XIII LOANS 13.1 General Provisions Regarding Loans. At any time prior to the date a Participant's benefits are paid, the Committee, in its sole discretion and in accordance with the policies and procedures set forth in this Article XIII, may direct the Trustee to make a loan to a Participant (as defined below) if such loans (a) are made on a reasonably equivalent basis, (b) are not made available to Highly Compensated Employees, in an amount greater than the amount made available to other Employees, (c) are adequately secured and (d) bear a reasonable interest rate. Solely for purposes of this Article XIII, the term "Participant" shall mean an active Participant, a Former Participant or a Beneficiary who is a "party in interest" [within the meaning of Section 3(14) of ERISA]. 13.2 Amount and Limitations Applicable to Loans. A Partici pant may request a loan in an amount which does not exceed (i) 50% of the present value of the Participant's vested interest in the Plan determined in accordance with Section 13.8 hereof or, if less, (ii) $50,000 reduced by the highest outstanding loan balance -74- applicable to the Participant from this Plan and any other qualified plan of the Company or an Affiliated Company during the one year period ending on the day before the loan date. The minimum amount that may be borrowed from the Plan is $1,000 and only two loans may be outstanding under the Plan at any one time. It is intended that loans granted to a Participant under this Article XIII will not place other Participants at risk with respect to their Accounts. Therefore, each loan shall be made from the borrower's Account and the income or loss associated with the loan shall be allocated to the borrower's Account. A loan to a Participant (and interest thereon) shall be considered a Plan investment, and repayments shall be credited to an Investment Fund or Funds in accordance with Article IX as if such repayments were future Tax Reduction Contributions, Investment Plan Contributions, Matching Company Contributions and/or Rollover Contributions, as the case might be, made to the Plan on behalf of the Participant. 13.3 Security for Loans. Any loan to a Participant under this Article XIII shall be secured by the irrevocable pledge and assign ment of 50% of the present value, determined at the time the loan is granted based on the most recently completed Valuation Date, of Participant's vested interest in the Trust, supported by the execution of a promissory note for the amount of the loan, including interest, payable to the order of the Trustee. If the loan will be used to acquire or construct a dwelling unit which is within a reasonable period of time to be used as the principal residence of the Participant the Committee may permit or require the Participant to secure such loan with assets in addition to 50% of the Participant's interest in the Trust. 13.4 Interest Rate for Loans. Each loan shall bear interest at a rate fixed by the Committee based on rates charged by the financial institutions in the same geographic location for similar secured personal loans. The loan rate shall remain fixed for the term of the loan (or the remaining term of a renegotiated loan). The Committee shall not discriminate among Participants in the manner of interest rates; but loans granted at different times may bear different interest rates if, in the opinion of the Committee, the difference in rates is justified by a change in general economic conditions. 13.5 Repayment of Loans. (a) Any loan to a Participant under this Article XIII shall be repaid within five years of the date on which the loan is made, except that loans used to acquire or construct any dwelling unit which is within a reasonable time to be used as a principal residence of the Participant may be repaid over a longer period of time (not to exceed 25 years) as determined by the Committee; provided, however, that any loan shall be repaid (or offset against the Participant's Account) on or before the date the Participant receives his final distribution from the Plan. Loans -75- shall be amortized on a level basis and repaid in regular, substantially equal installments by payroll deduction (or, if the Participant is not receiving pay from the Employer at any time while a loan is outstanding, by direct payment from the Participant to the Employer for deposit in the Trust Fund) on a schedule prescribed by the Committee (with payments made at least as often as quarterly), which installments shall be applied to reduce the principal as well as the accrued interest of the loan. Notwithstanding the preceding provisions of this Section 13.5(a), for periods commencing on and after the date this Plan document is executed, a Participant shall not be required to make payments on a level amortization basis during any period the Participant is on leave of absence from the Employer without pay for up to one year. (b) Each loan repayment shall be paid to the Trustee, and the Committee shall provide written instructions to the Recordkeeper regarding such repayment that: (i) identify the Participant on whose behalf the repayment is being made; and (ii) direct the investment of the loan repayment to the Investment Fund account in the same proportion as elected by the Participant in Section 9.5 as if the repayment were future contributions. 13.6 Default on Loans. In the event of a default by a Participant on a loan repayment, all remaining repayments on the loan shall be immediately due and payable, and the entire amount of the unpaid balance of such loan and accrued interest thereon shall be considered and treated as having been distributed in cash under Article XI as of the date of default, and an appropriate adjustment of his Account shall be made therefor. Notwithstanding the foregoing, the Committee may use alternative means to pursue payment of a loan in default if such alternative means are necessary to prevent an actual distribution from the portion of the Participant's Account that is attributable to Tax Reduction Contributions and that would contravene Section 401(k) of the Code; provided, however, that a taxable distribution for purposes of Section 72(p) of the Code shall occur in the event of any default by a Participant on a loan made under this Article XIII. 13.7 Acceleration of Loans Upon Termination of Employment. All loans shall be accelerated and immediately due and payable upon a Participant's termination of employment with the Employer [unless such Participant is a "party in interest" as defined in Section 3(14) of ERISA or is otherwise mandatorily eligible for Plan loans under ERISA, the Code or regulations and rulings promulgated thereunder]. If a Participant does not repay the loan at the time of acceleration, the Committee shall direct the Recordkeeper to offset the nonforfeitable portion of the Participant's Accounts by -76- the outstanding amount of the loan and such offset shall reduce the amount payable to the Participant from the Trust Fund. 13.8 Manner of Making Loans. All requests by a Participant for loans from the Trust shall be made in writing to the Committee and if the request is received on or before the 25th day of a month, the loan amount shall be paid to the Participant as soon as administratively practicable after the first day of the next month, based on the value of the Participant's Account as of the preceding Valuation Date, adjusted to reflect the value of the Participant's interest, if any, in the Eljer Industries, Inc. Common Stock Fund and the Household International, Inc. Common Stock Fund as of the 25th day of the month immediately following such Valuation Date. Notwithstanding the foregoing provisions of this Section 13.8, if a Participant repays a loan made to him pursuant to this Article XIII, he may not apply for another loan from the Trust prior to the expiration of two months from the date of such repayment. The Committee shall apply its standards for the approval of loans in a uniform and consistent manner with respect to all participants and shall approve a loan if the requirements of this Article XIII are satisfied. If a Participant's request for a loan is approved by the Committee, the Committee shall furnish the Trustee with written instructions directing the Trustee to make the loan in a single sum payment in cash to the Participant. Such payment shall be made by withdrawing as of the Valuation Date for which the loan is made amounts from the Investment Funds as designated by the Participant in accordance with rules established by the Committee from time to time or if the Participant fails to designate Investment Funds to be used to fund the loan, by withdrawing as of the Valuation Date for which the loan is made a proportionate amount from the separate Investment Funds of the Participant under the Plan. No loan shall be granted hereunder if at the time the loan is to be granted it would be treated as a distribution under Section 72(p) of the Code. 13.9 Additional Loan Procedures. For purposes of satisfying the requirements of Section 2550.408b-1(d) of the Labor Regulations, the Committee may adopt written loan policies and procedures to supplement or, if appropriate, modify the provisions of this Article XIII. Such policies and procedures, upon adoption by the Committee, shall be incorporated in the Plan by this reference as if fully set forth herein. The Committee shall have the power to amend and modify such policies and procedures at any time in the Committee's sole discretion. ARTICLE XIV ADMINISTRATION OF THE PLAN 14.1 Allocation of Responsibilities Among Fiduciaries. A fiduciary with respect to the Plan, as described in Section 3(21) of ERISA, shall have only those specific powers, duties, responsibilities -77- and obligations as are explicitly given such fiduciary under the terms of the Plan and the Trust Agreement or allocated to such fiduciary pursuant to the procedures set forth herein. In general, Eljer Manufacturing, Inc., shall have the sole authority to establish the Plan and Trust and to amend or terminate, in whole or in part the Plan or the Trust Agreement, subject to the provisions of Article XVI. The Chief Executive Officer of Eljer Manufacturing, Inc. shall have the sole authority to appoint and remove the members of the Committee. The Employer shall have the sole responsibility for making contributions to the Plan. The Company shall be the administrator of the Plan as described in Section 3(16)(A) of ERISA and, except as otherwise provided herein, the Company shall have all the duties and responsibilities of an administrator for purposes of ERISA. Except as otherwise provided herein or subsequently delegated to other persons pursuant to the provisions hereof, the Committee shall possess general authority to manage the operation and administration of the Plan. The Committee may designate one or more individuals or committees of individuals to carry out any of its fiduciary responsibilities in connection with the Plan. Any such designation may be made by action of the Committee or by a member or members duly authorized by the Committee to make such designation on behalf of the Committee. Any designation, or revocation thereof, made by the Committee or by such authorized Committee member shall be made in writing, shall specify the responsibilities which the designee is to carry out and shall be filed with the Secretary of the Committee, from whom the names and Committee assignments, if any, of all individuals so designated and of any Committee member authorized to make such designations shall be available. Subject to Participants' investment directions under Section 9.5, and subject to Committee directions under Section 14.3, the Trustee shall have the sole responsibility for the administration of the Trust and the management of the assets held thereunder, as provided in the Trust Agreement. It is intended that each fiduciary shall be responsible only for the proper exercise of his own powers, duties, responsi bilities and obligations under the Plan and shall not be responsi ble for any act or failure to act of another fiduciary. A fiduciary may serve in more than one fiduciary capacity with respect to the Plan and any fiduciary to the Plan may also be an Employee. The Committee may employ one or more persons to render advice to any director, officer or Employee with respect to such individual's responsibilities under the Plan. No fiduciary of the Plan guarantees the Trust Fund in any manner against investment loss or depreciation in asset value. 14.2 Management of Plan Assets. The amounts allocated under this Plan shall be held in trust pursuant to the terms of the Trust Agreement by a Trustee or Trustees appointed by the Committee, provided that a portion of such amounts may be held directly by one or more insurance companies appointed by the Committee under one or more individual or group insurance contracts. The aggregate of the amounts so contributed to the Plan and held by the Trustee and such -78- insurance companies as may be acting at any time, together with any income, gains and profits thereon, less losses, distributions and other permissible payments therefrom, shall constitute a Trust Fund for the payment of benefits under the Plan. The Committee shall review the performance of the Trustee from time to time and the Committee shall determine the form and terms of any insurance company contract to accomplish the purposes of the Plan. The Committee may remove any Trustee and may terminate any insurance contract, to the extent permitted by the terms hereof, the terms of the Trust Agreement and the terms of the insurance contract. The Trustee shall have exclusive responsibility for the management and control of the portion of the Trust Fund held in trust by it, except as provided in Section 14.3 and except to the extent that the Committee delegates such responsibility to one or more persons who are "investment managers"[within the meaning of Section 3(38) of ERISA], each of whom shall be either: (a) registered as an investment adviser under the Investment Advisers Act of 1940 (the "Act"); (b) a bank, as defined in the Act; or (c) an insurance company qualified to perform investment management services under the laws of more than one state. Any insurance company which holds a portion of the Trust Fund directly shall have exclusive responsibility for the management and control of such portion of the Trust Fund. The names of each Trustee, insurance company and investment manager acting at any time hereunder shall be available from the Committee. 14.3 Powers and Responsibilities of the Committee. In addition to any other powers and responsibilities allocated to the Committee pursuant to the terms of this Plan, the following powers and responsibilities shall be exercised by the Committee, the members of which shall be appointed by, and serve at the pleasure of, the Chief Executive Officer of the Company: (a) To administer the Plan, including but not limited to, the power to resolve any and all disputes which may arise involving Participants, Former Participants, Beneficiaries and/or the Trustee. The Committee shall have the exclusive discretionary authority to interpret and construe the terms of the Plan and the Trust Agreement and the exclusive discretionary authority to determine eligibility for all benefits hereunder. Any such determinations or interpretations of the Plan adopted by the Committee shall be final and conclusive and shall bind all parties. The Trustee may rely upon the decision of the Committee with respect to any question concerning the meaning, interpretation, or application of any provision of the Plan and the Trust Agreement. The Committee's interpretations and determinations with respect to the Plan and the Trust Agreement shall be based on such information -79- as is reasonably available to the Committee at the time a decision is made. In addition, in administering the Plan, the Committee may rely conclusively upon an Affiliated Company's payroll and personnel records maintained in the ordinary course of business. (b) To administer the Plan's claims procedure pursuant to Section 11.7 in a uniform and nondiscriminatory manner. (c) To adopt such rules, forms and procedures as it shall deem necessary for the efficient administration of the Plan in accordance with its terms and the terms of any applicable law. (d) To prepare and submit to governmental agencies, Participants, Former Participants and Beneficiaries such Plan descriptions, reports and other documents, or summaries thereof, as may be required by applicable law or necessary in the administration of the Plan. (e) To remedy possible ambiguities, inconsistencies or omissions in connection with its power to interpret the Plan; provided, however, that all such actions and decisions shall be applied in a uniform manner to all Employees similarly situated. (f) To authorize disbursements from the Trust, including refunds of contributions permitted by the Plan (any instructions of the Committee to the Trustee shall be evidenced in writing and signed by a member of the Committee delegated with such authority by a majority of the Committee). (g) To employ such advisors (including but not limited to attorneys, independent public accountants and investment advisors) and such other technical and clerical personnel as may be required in the Committee's discretion for the proper administration of the Plan, and to pay the reasonable expenses of such persons from the Trust Fund. (h) To establish and to instruct the Trustee and any investment manager with respect to asset administration objectives and policies consistent with Plan requirements and establish Investment Funds in accordance with such objectives and policies. (i) To review from time to time, but at least as often as annually, the investment performance of the Trustee and any insurance company or investment manager acting with respect to any portion of the Trust Fund. The Committee may engage the services of such persons it deems appropriate including, investment managers, to review investments held by the Plan and the financial condition of insurance companies issuing insurance contracts to the Plan. (j) To supervise at least one audit of the Plan's assets for each Plan Year and review the Trustee's annual accounting. -80- (k) To exclude Affiliated Companies from participation in the Plan. Each of the members of the Committee is hereby authorized to sign documents relating to the Plan required by the Department of Labor, Internal Revenue Service or other governmental agencies on behalf of the Company; provided, however, that the Company shall have the responsibility and duty to file reports required by any governmental agency with respect to the Plan and to comply with all other filing and disclosure requirements required by ERISA in connection with the administration of the Plan. Notwithstanding any other provisions of this Section 14.3, no member of the Committee shall vote or act upon any matter involving his own rights, benefits, or participation in the Plan. 14.4 Operation of Committee. The Committee may act by a majority of its members present at a meeting at which at least half the members are present or by a unanimous written decision taken without a meeting. The Chief Executive Officer of the Company may remove any member of the Committee at any time and a member may resign by written notice to the Chief Executive Officer of the Company. If at any time the minimum number of Committee members has not been designated by the Chief Executive Officer of the Company, then the Committee member or members designated and acting at such time shall be deemed to constitute the full membership of the Committee. The Committee may appoint a chairman, a secretary and such other agents and representatives (who may, but need not, be members thereof) as it may deem advisable to keep its records or otherwise to assist it in the performance of its responsibilities. The Committee may engage agents to assist it and may engage legal counsel who may be legal counsel for the Company. All reasonable expenses incurred by the Committee may be paid from the Trust Fund to the extent not paid by the Employer. 14.5 Compensation and Expenses of Employees and Directors Serving as Fiduciaries. The members of the Committee and employees, officers and directors of Affiliated Companies who are designated as fiduciaries with respect to the Plan shall serve without compensation for their services, but all reasonable expenses of the Committee, the members thereof and such other individuals incurred in the performance of their duties and responsibilities under the Plan shall be paid out of the Trust Fund unless paid by the Employer. 14.6 Indemnification of Employees and Directors. The Company hereby indemnifies each member of the Committee and each employee, officer and director of an Affiliated Company who are delegated responsibilities under or pursuant to the Plan against any and all liabilities and expenses, including attorney's fees, actually and reasonably incurred by them in connection with any threatened, pending or completed legal action or judicial or administrative proceeding to which they may be a party, or may be threatened to be -81- made a party, by reason of membership on the Committee or other delegation of responsibilities, except with regard to any matters as to which they shall be adjudged in such action or proceeding to be liable for gross negligence or willful misconduct in connection therewith. In addition, the Company may provide appropriate insurance coverage for the members of the Committee or each such other individual indemnified pursuant to this Section 14.6 who is not otherwise appropriately insured. 14.7 Action Taken in Good Faith. To the extent permitted by ERISA, the members of the Committee and each employee, officer and director of an Affiliated Company who are fiduciaries with respect to the Plan shall be entitled to rely upon, and be fully protected with respect to any action taken or suffered by them in good faith in reliance upon, all tables, valuations, certificates, reports and opinions furnished by the Recordkeeper, the Trustee, or any accountant, attorney, insurance company or investment manager acting at any time hereunder. 14.8 Expenses of the Plan. The expenses of administering the Plan, other than the compensation of persons on the payroll of an Affiliated Company, but including fees of the Trustee, counsel, accountants or other experts appointed under the Plan, at the direction of the Committee may be paid from any forfeitures which arise under the Plan, and to the extent expenses are not paid from forfeitures, they shall be paid out of the Trust Fund to the extent not paid by the Employer. ARTICLE XV TRUST FUND 15.1 Establishment of Trust Fund. The Trustee appointed by the Company shall accept and receipt for all assets transferred to it as Trustee. All assets so received, together with the income therefrom and any other increment thereon, as well as assets held in the Trust as of the Effective Date, shall constitute the Trust Fund and shall be held, managed and administered by the Trustee, pursuant to the terms of the Trust Agreement. The Trustee shall not be responsible for the collection of any contributions pursuant to the terms of the Plan but shall be accountable only for cash or other property actually received by the Trustee and for the administration thereof in accordance with the terms of the Trust Agreement. 15.2 Investments in Company Stock. All investments by the Trustee in shares of Company Stock shall be made in such a manner to comply with all applicable federal and state securities laws and the provisions of ERISA and the Code. Up to 100% of the assets of the Trust Fund may be invested in shares of Company Stock. -82- 15.3 Title of Trust Assets. The legal and equitable title and ownership of all assets at any time constituting a part of the Trust Fund shall be and remain with the Trustee, and neither the Company, or any Employer nor any Participant, Former Participant or Beneficiary shall ever have any legal or equitable estate therein, save and except that each Participant, Former Participant and Beneficiary shall be entitled to receive distributions as and when lawfully made under the terms of the Plan. ARTICLE XVI AMENDMENT AND TERMINATION 16.1 Amendment. The Company, acting through its Board of Directors, may at any time, and from time to time, modify or amend this Plan in whole or in part, or discontinue or modify Employer contributions to the Plan; provided, however, that except to the extent required or permitted by the Code or other applicable law, the accrued benefit of any Participant, Former Participant or Beneficiary shall not be affected retroactively by any such action. No amendment of the Plan shall authorize or permit any part of the Trust Fund to be used for or diverted to purposes other than for the exclusive benefit of the Participants or their Beneficiaries, and no amendment shall be made or shall be valid if it would result in the Plan's disqualification under the applicable provisions of the Code. 16.2 Termination or Discontinuance of Contributions. The Board of Directors may at any time terminate or partially terminate this Plan or permanently discontinue contributions hereunder. Upon termination or partial termination of the Plan with respect to a group of Participants or complete discontinuance of contributions to the Plan, any amount of the Trust Fund previously unallocated, including any amounts in a suspense account established under Section 8.3, shall be allocated (unless such allocation would violate Section 8.1), and the Accounts of all affected Participants shall thereupon be and become fully vested and nonforfeitable to the extent then funded. The Trustee shall deduct from the Trust Fund all unpaid charges and expenses including those relating to said termination, except as the same may be paid by an Employer. The Trustee shall then adjust the balance of all Accounts on the basis of the net value of the Trust Fund. The Trustee shall distribute the amount to the credit of each Participant, Former Participant, and Beneficiary when all appropriate administrative procedures have been completed. If any amount in a suspense account shall not be allocable because of the provisions of Section 8.1, such amount shall be returned to the Employer. Upon any complete discontinuance of contributions by an Employer, the assets of the Trust Fund shall be held and administered by the Trustee for the benefit of the Participants employed by such Employer discontinuing contributions in the same manner and with -83- the same powers, rights, duties and privileges herein described until the Trust Fund with respect to such Employer has been fully distributed. 16.3 Distribution on Plan Termination. Except as provided in the next sentence, if no other defined contribution plan [other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code or a simplified employee pension plan as defined in Section 408(k) of the Code] is maintained by the Company or any other Affiliated Company as of the Plan termination date, the Trustee shall distribute each Participant's entire Account in a single lump sum distribution to him, or to an eligible retirement plan as defined in Section 402(c)(8)(B) of the Code pursuant to the Participant's direct rollover election described in Section 11.11, as soon as administratively practicable after the later of (i) the termination date of the Plan or (ii) the receipt following application of a favorable determination letter from the Internal Revenue Service with respect to the termination of the Plan. If the Participant either fails or refuses to consent in writing to the distribution upon termination of the Plan, the Trustee shall use the balance of the Participant's Account to purchase a deferred annuity satisfying the requirements of Article XI and providing for commencement of the Participant's benefits at age 65 and distribute such annuity contract to the Participant. If, however, the Company or any Affiliated Company maintains another defined contribution plan [other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code or a simplified employee pension plan as defined in Section 408(k) of the Code] as of the Plan termination date, then except as provided in the next sentence, each Participant's entire Account shall either (i) be transferred by the Trustee, without the Participant's consent, to such other defined contribution plan; provided, however, that no such transfer may result in the elimination or reduction of a Plan benefit of the Participant protected under Section 411(d)(6) of the Code, unless the transfer satisfies the requirements of Q&A-3(b) of the Treasury Regulations, or (ii) be used to purchase a deferred annuity satisfying the requirements of Article XI and providing for commencement of benefits at age 65 and such annuity contract shall be distributed to the Participant. A Participant may request in writing that the Trustee distribute his Account, excluding the balance attributable to his Tax Reduction Contribution Account, unless distribution of such account would be permitted under Section 401(k)(2)(B) of the Code and the applicable Treasury regulations thereunder, in a single lump sum distribution to him, or to an eligible retirement plan as defined in Section 402(c)(8)(B) of the Code pursuant to the Participant's direct rollover election described in Section 11.11, as soon as administratively practicable after the later of (i) the termination date of the Plan or (ii) the receipt following application of a favorable determination letter from the Internal Revenue Service with respect to the termination of the Plan. -84- 16.4 Distributions upon Certain Sales. A single sum distribu tion may be made from the Plan to any Participant, or to an eligible retirement plan as defined in Section 402(c)(8)(B) of the Code pursuant to the Participant's direct rollover election described in Section 11.11, affected by (i) a disposition by an Employer of substantially all of the assets used by the Employer in a trade or business, but only if the Participant continues employment with the corporation acquiring such assets or (ii) a disposition by an Employer of its interest in a subsidiary, but only if the Participant continues employment with such subsidiary. 16.5 Merger or Consolidation of Plan. In the event of any merger or consolidation of the Plan with, or transfer in whole or in part of the assets and liabilities of the Trust Fund to, another trust fund held under any other plan of deferred compensation maintained or to be established for the benefit of all or some of the Participants in this Plan, the assets of the Trust Fund applicable to such Participants shall be transferred to the other trust fund only if: (a) each Participant would (if either this Plan or the other plan had then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if this Plan had then terminated); and (b) such other plan and trust fund are qualified under Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code. 16.6 Merger and Other Reorganization of Employer. A merger, consolidation, similar corporation change, or sale which results in the transfer of substantially all the assets and Employees of the Company or an Employer to a successor corporation shall constitute a total or partial termination of the Plan unless, and except to the extent that the Board of Directors shall adopt a resolution consenting to the continuance of the Plan and specifying appropriate amendments and conditions applicable to such continuance. ARTICLE XVII MISCELLANEOUS 17.1 No Employment or Compensation Agreement. Nothing contained in the Plan shall be construed as giving any person or entity any legal or equitable right against the Company, any Employer, any Affiliated Company, their stockholders or partners, officers or directors, the Named Fiduciary, or the Trustee, except as the same shall be specifically provided in the Plan. Nor shall anything in -85- the Plan give any Participant or other Employee the right to be retained in the service of an Employer. The employment of all persons by an Employer shall remain subject to termination by such Employer to the same extent as if the Plan had never been executed. 17.2 Spendthrift Provision. Except as provided under Article XIII with respect to participant loans, by the terms of a Qualified Domestic Relations Order, or as permitted pursuant to Section 401(a)(13) of the Code, no Participant, Former Participant, or Beneficiary shall have the right to assign, alienate or transfer his interest hereunder, nor shall his interest be subject to claims of his creditors or others, it being understood that all provisions of the Plan shall be for the exclusive benefit of those designated herein. 17.3 Construction. It is the intention of each Employer that the Plan be qualified under Section 401 of the Code and comply with the applicable provisions of ERISA, and all provisions hereof shall be construed to that result. 17.4 Titles. Titles of Articles and Sections hereof are for convenience only and shall not be considered in construing the Plan. 17.5 Texas Law Applicable. The Plan and each of its provi sions shall be construed and their validity determined by the laws of the State of Texas to the extend not preempted by ERISA or other applicable federal law. 17.6 Successors and Assigns. The Plan shall be binding upon the successors and assigns of the Company and each Employer and the Trustee and upon the heirs and personal representatives of those individuals who become Participants hereunder. 17.7 Payments Only from Trust Fund. All benefits of the Plan shall be payable solely from the Trust Fund and neither the Employer, the Committee, nor the Trustee shall have any liability or responsibility therefor except as expressly provided herein. 17.8 Plan Controls. The Trust Agreement is a part of the Plan. In case of any inconsistency between the terms of the Plan and the Trust Agreement, the provisions of the Plan shall control. In the event of any conflict between the terms of the Plan and any summary thereof or other document relating thereto, from whatever source, the terms of the Plan shall govern. 17.9 Effect of Mistakes. In the event of a mistake or misstatement as to the age or eligibility of any person, or the amount of any kind of contributions, withdrawals or distributions made or to be made to a Participant, or other person, the Committee shall, to the extent it deems possible, make such adjustment as will in its judgment afford to such person the credits, -86- distributions or other rights to which he is properly entitled under the Plan. ARTICLE XVIII TOP HEAVY PROVISIONS 18.1 Application and Purpose. The following special provisions shall apply to determine if the Plan is a Top Heavy Plan in accordance with Section 416 of the Code and special rules that will apply based on the Plan's status as a Top Heavy Plan. In the event that the provisions contained in this Article are inconsis tent with the terms contained in the remainder of the Plan, the provisions of this Article shall take precedence over such other terms of the Plan. 18.2 Minimum Allocation Requirements. For any Plan Year in which the Plan is a Top Heavy Plan, each Employee who on the last day of such Plan Year (i) is a Non-Key Employee who has satisfied the eligibility requirements of Section 3.1 (regardless of whether he will have Tax Reduction Contributions or Investment Plan Contributions made on his behalf to the Plan for the Plan Year) and (ii) does not participate in a defined benefit plan maintained by an Employer or an Affiliated Company that provides that the minimum benefit applicable to top heavy plans will be satisfied in such other plan, shall receive a minimum allocation of Employer contributions (excluding, for Plan Years beginning after December 31, 1988, Tax Reduction Contributions and Matching Company Contributions that are used to satisfy the Contribution Percentage tests of Section 6.1) equal to the lesser of (x) three percent of such Participant's Compensation or (y) the largest percentage of Employer contributions (including, for Plan Years beginning after December 31, 1988, Tax Reduction Contributions and Matching Company Contributions) made to the Plan for the Plan Year, as a percentage of the first $200,000 (or such other amount equal to the Compensation Limitation as defined in Section 2.13) of the Compensation of Participants who are Key Employees allocated to any such Participant who is a Key Employee for that Plan Year; provided, however that if the Plan is part of a Required Aggregation Group and the Plan enables a defined benefit plan that is included in the same Required Aggregation Group to meet the requirements of Sections 401(a)(4) or 410 of the Code, clause (y) above shall not apply. 18.3 Adjustment to Limitation on Allocations. For any Plan Year in which the Plan is a Top Heavy Plan, the provisions of Article VIII hereof shall be adjusted in accordance with the provisions of Section 416(h) of the Code which are by this reference incorporated herein. -87- 18.4 Vesting Schedule. For any Plan Year in which the Plan is a Top Heavy Plan, the following provisions shall be applicable to the Plan: (a) Except as provided in Section 18.4(b) below, each Participant shall be entitled (as a vested interest) to receive the greater of the vested interest calculated pursuant to any other provision of the Plan or a percentage of the then combined balance to his credit in his Accounts and determined in accordance with the following schedule:
Years of Service Vested Interest ---------------- --------------- Less than 3 0% 3 or more 100%
(b) The schedule in Section 18.4(a) above shall not apply to the Account of any Participant who does not perform an Hour of Service after the Determination Date on which the Plan first becomes a Top Heavy Plan. 18.5 Definitions. (a) "Top Heavy Plan" means the Plan for a Plan Year if the Plan is the only plan maintained by an Employer and the top heavy ratio as of the Determination Date exceeds 60%. The top heavy ratio is a fraction, the numerator of which is the sum of the present value of the Accounts of all Key Employees as of the Determination Date, the contributions due as of the Determination Date, and distributions made within the five-year period immediately preceding the Determination Date (including distributions under a terminated plan which if it had not been terminated would have been required to be included in an aggrega tion group), and the denominator of which is a similar sum determined for all Employees. The top heavy ratio shall be calculated without regard to (i) the Account of a Participant who is not a Key Employee but who was a Key Employee in a prior Plan Year, (ii) the Account of any individual who has not performed any services for an Employer at any time during the five-year period ending on the Determination Date, and (iii) voluntary deductible Employee contributions, if any. The top heavy ratio, including distributions, rollovers and transfers, to the extent such items must be taken into account, shall be calculated in accordance with Section 416 of the Code and the regulations thereunder. If an Employer maintains other qualified plans (including a simplified employee pension plan) or has ever maintained one or more defined benefit plans which have covered or could cover a Participant in this Plan, this Plan is top heavy for a Plan Year only if it is part of the Required Aggregation Group, and the top heavy ratio for both the Required Aggregation Group and the Permissive Aggregation Group exceeds 60%. The top heavy ratio shall be calculated as described above, taking into account all plans within the -88- aggregation group and with reference to Determination Dates that fall within the same calendar year; provided that if a defined benefit plan is included in the aggregation group, the present value of accrued benefits (instead of account balances) of participants in that plan shall be computed for purposes of calculating the top heavy ratio. The accrued benefit under a defined benefit plan in both the numerator and the denominator of the top heavy ratio are increased for any distribution of an accrued benefit made in the five-year period ending on the Determination Date. The accrued benefit of a Participant other than a Key Employee shall be determined under (i) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Employer, or (ii) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Section 411(b)(1)(C) of the Code. The value of account balances and the present value of accrued benefits will be determined as of the most recent Allocation Date that falls within or ends with the 12-month period ending on the Determination Date, except as provided in Section 416 of the Code and the Treasury Regulations thereunder for the first and second plan years of a defined benefit plan. The actuarial assumptions (interest rate and mortality only) used by the actuary under the defined benefit plan shall be used to calculate the present value of accrued benefits from the defined benefit plan. (b) "Determination Date" means for any Plan Year the last day of the preceding Plan Year, or in the case of the first Plan Year of the Plan, the last day of that Plan Year. (c) "Required Aggregation Group" means (i) each qualified plan of an Employer in which at least one Key Employee partici pates, and (ii) any other qualified plan of an Employer which enables a plan described in (i) to meet the requirements of Sections 401(a)(4) and 410 of the Code. (d) "Permissive Aggregation Group" means the Required Aggregation Group plus any other qualified plans maintained by an Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code. -89- IN WITNESS WHEREOF, Eljer Manufacturing, Inc. has caused this Agreement to be executed this 9th day of September, 1994, effective as set forth herein. ELJER MANUFACTURING, INC. By: /s/Charles R. Wackenhuth -------------------------- Title: Vice President-Human Resources 97525.12;64349/3; 8/94 -90- EX-10.R 8 1995 LONG-TERM INCENTIVE PLAN 1995 Long-Term Incentive Plan Eljer Industries, Inc. May 1995 Contents - ----------------------------------------------------------------------------- Page Article 1. Establishment, Purpose, and Duration 1 Article 2. Definitions 1 Article 3. Administration 4 Article 4. Eligibility and Participation 5 Article 5. Establishment of Phantom Stock Units 6 Article 6. Grant of Phantom Stock Units 6 Article 7. Termination of Employment 7 Article 8. Change in Control 8 Article 9. Payout of Phantom Stock Units 8 Article 10. Rights of Participants 8 Article 11. Miscellaneous Provisions 9 Article 12. Requirements of Law 10 Eljer Industries, Inc. 1995 Long-Term Incentive Plan Article 1. Establishment, Purpose, and Duration 1.1 Establishment of the Plan. Eljer Industries, Inc., a Delaware corporation (hereinafter referred to as the "Company"), hereby establishes an incentive compensation plan to be known as the "Eljer Industries, Inc. 1995 Long-Term Incentive Plan" (hereinafter referred to as the "Plan"), as set forth in this document. The Plan shall become effective as of April 18, 1995 (the "Effective Date"), and shall remain in effect as provided in Section 1.3 herein. 1.2 Purposes. The purposes of the Plan are to promote the achievement of long-term financial objectives by linking the long-term incentive compensation of key executives to increases in value of the Company; to attract and retain executives of outstanding competence; and to encourage teamwork among key executives. 1.3 Duration of the Plan. The Plan shall commence on the Effective Date, as described in Section 1.1 herein, and shall remain in effect until terminated by the Board of Directors pursuant to Section 3.3 herein. Notwithstanding the foregoing, no Award may be granted under the Plan after December 31, 2005. Article 2. Definitions Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized: 2.1 "Accrued Value" means the appreciation in the worth of a Phantom Stock Unit from the date of grant up to and including the Valuation Date, as determined by the Committee pursuant to a Valuation. The Accrued Value of Phantom Stock Units shall not include the Initial Value of such Units. 2.2 "Award" means, individually or collectively, a grant of Phantom Stock Units under the Plan. 2.3 "Award Agreement" means an agreement entered into by and between the Company and each Participant, setting forth the terms and provisions applicable to Phantom Stock Units granted under the Plan. 2.4 "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. 1 2.5 "Board of Directors" or "Board" means the Board of Directors of the Company. 2.6 "Change in Control" of the Company means and shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied: (a) Any Person (other than those Persons in control of the Company as of the Effective Date, or other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (b) During any period of two (2) consecutive years (not including any period prior to the Effective Date of this Plan), individuals who at the beginning of such period constitute the Board (and any new Director, whose election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was so approved), cease for any reason to constitute a majority thereof; or (c) The stockholders of the Company approve: (i) a plan of complete liquidation of the Company; or (ii) an agreement for the sale or disposition of all or substantially all the Company's assets; or (iii) a merger, consolidation, or reorganization of the Company with or involving any other corporation, other than a merger, consolidation, or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization. However, in no event shall a Change in Control be deemed to have occurred, with respect to a Participant, if such Participant is part of a purchasing group which consummates the Change-in-Control transaction. A Participant shall be deemed "part of a purchasing group" for purposes of the preceding sentence if such Participant is an equity participant in the purchasing company or group (except for: 2 (i) passive ownership of less than three percent (3%) of the stock of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not significant, as determined prior to the Change in Control by a majority of the nonemployee continuing Directors). Further, notwithstanding any other provision of this Plan, in no event shall a Change in Control be deemed to have occurred as a direct result of the contribution by the Company of common stock of the Company in the United States Brass Corporation ("U.S. Brass") Chapter 11 bankruptcy case to settle, defend, release, or otherwise resolve any liability of or claim against the Company arising in connection with the manuyfacture, marketing or sale of polybutylene plumbing systems by U.S. Brass, as determined by the Committee in its sole discretion. 2.7 "Committee" shall mean the Compensation Committee of the Board. 2.8 "Company" means Eljer Industries, Inc., a Delaware corporation (including any and all subsidiaries), and any successor thereto, as provided in Section 11.5 hereof. 2.9 "Director" means an individual who is a member of the Board of Directors of the Company. 2.10 "Disability" means permanent and total disability, within the meaning of Code Section 22(e)(3), as determined by the Committee in the exercise of good faith and reasonable judgment, upon receipt of and in reliance on sufficient competent medical advice from one or more individuals, selected by the Committee, who are qualified to give professional medical advice. 2.11 "Initial Value" means the value of a Phantom Stock Unit on the date of grant, as determined by the Committee pursuant to Section 5.2 hereof. 2.12 "Key Employee" means a key officer or selected manager of the Company who is in a position to directly or indirectly make or influence policy decisions which materially impact the Company's continued growth and development and its long-term financial success, as determined by the Committee. 2.13 "Normal Retirement" shall mean the date a Participant attains age 65. 2.14 "Participant" means a Key Employee of the Company who has received an Award under this Plan. 3 2.15 "Performance Period" means the time period beginning on the date of grant of Phantom Stock Units and ending three years following the date of grant, or such other period specified by the Committee for each Award. 2.16 "Phantom Stock Unit" or "Unit" means an Award granted to a Participant as a measure of participation under the Plan, and having a value which changes in direct relation to changes in the value of the Company's common stock, as determined pursuant to a Valuation. 2.17 "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended, and used in Section 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). 2.18 "Plan" means the Eljer Industries, Inc. 1995 Long-Term Incentive Plan, as set forth herein. 2.19 "Plan Year" means the Company's fiscal year. 2.20 "Valuation" means an appraisal of the worth of a Phantom Stock Unit based on changes in the value of the Company's common stock, as determined by the Committee pursuant to Article 5 hereof; provided, however, that for purposes of conducting a Valuation hereunder, the Value of the Company's common stock shall be based on the average of the high and the low selling price of shares of common stock of the Company on the principal securities exchange on which such shares are publicly traded for the ten (10) trading days immediately preceding and following the Valuation Date. 2.21 "Valuation Date" means the last day of the Performance Period or such other date on which the Committee authorizes the Valuation of a Phantom Stock Unit pursuant to the terms and conditions of this Plan. Article 3. Administration 3.1 The Committee. The Plan shall be administered by the Committee. 3.2 Authority of the Committee. Subject to the provisions herein, except as limited by law or by the Company's Articles of Incorporation or Bylaws, the Committee shall have full power to: (i) select Key Employees to participate in the Plan; (ii) determine the size and frequency of grants (which need not be the same for each Participant); (iii) determine the terms and conditions of each grant in a manner consistent with the provisions of the Plan; (iv) construe and interpret the Plan and any agreement or instrument entered into under the Plan; (v) establish, amend, rescind, or waive rules and regulations for the 4 Plan's administration; and (vi) (subject to the provisions of Section 3.3 herein) amend, modify, and/or terminate the Plan. Further, the Committee shall have the full power to make all other determinations which may be necessary or advisable for the administration of the Plan to the extent consistent with the Plan. Except as limited by applicable law, the Committee, at its discretion, has the right to delegate any or all of its administrative duties to any employee or employees of the Company; and to rely on outside counsel, independent accountants, or other consultants to render advice and/or assistance in fulfilling any of its administrative duties hereunder. 3.3 Amendment, Modification, and Termination. The Committee, at its discretion, without prior notice, at any time and from time to time, may modify, or amend, in whole or in part, any or all of the provisions of the Plan, or may suspend or terminate the Plan at any time. Notwithstanding the foregoing, other than as permitted by the Plan, no such amendment, modification, suspension, or termination by the Committee or the Board may materially adversely affect any outstanding Phantom Stock Unit or the rights attached thereto, without the written consent of the Participant (or a Participant's beneficiary, as appropriate). 3.4 Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders or resolutions of the Board of Directors shall be final, conclusive, and binding on all persons, including the Company, its employees, Participants, and any other person claiming an interest under the Plan. Article 4. Eligibility and Participation 4.1 Eligibility. Eligibility for participation in the Plan shall be limited to Key Employees, as determined by the Committee, at its sole discretion. 4.2 Participation. Subject to the provisions of the Plan, the Chief Executive Officer of the Company will identify and the Committee shall approve which, if any, Key Employees shall receive a grant of Phantom Stock Units hereunder. The Chief Executive Officer may be nominated for participation only by the Committee Chairperson or a majority of the members of the Committee. As soon as practicable following selection and approval for participation, each Participant shall execute an Award Agreement with the Company, as provided in Section 6.3 herein, which shall contain a description of the number of Phantom Stock Units granted, and all material terms and conditions to which the Phantom Stock Units are subject. 5 Article 5. Establishment of Phantom Stock Units 5.1 Number of Phantom Stock Units Available. The number of Phantom Stock Units which may be granted in the aggregate under this Plan is four hundred thousand (400,000). Phantom Stock Units which lapse, expire or terminate for any reason without payment shall once again become available for grant under the Plan. 5.2 Value of Phantom Stock Units. Each Phantom Stock Unit shall have an Initial Value that is equal to the average of the high and the low selling price of one share of common stock of the Company on the principal securities exchange on which such Company shares are publicly traded as of the date such Units are deemed to be granted, or if there is no such sale on the relevant date, then on the last previous day on which a sale was reported. Subsequent to such date of grant, the value of each Phantom Stock Unit shall change in direct relationship to changes in the value of a share of the Company's common stock as determined by the Committee pursuant to a Valuation. The Committee, subject to the terms of the Plan, shall establish rules and procedures which shall govern the determination of the Initial Value and Accrued Value of Phantom Stock Units granted hereunder. 5.3 Adjustments. In the event of any change in corporate capitalization, such as a stock split or a corporate transaction such as any merger, consolidation, separation, including a spin-off or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Code Section 368) or any partial or complete liquidation of the Company, such adjustment shall be made in the number of Phantom Stock Units subject to outstanding Awards granted under the Plan, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; provided, however, that the Committee, in its sole discretion, may refrain from making any such adjustment (or may make any adjustment it deems advisable) in the event such change in corporate capitalization is a direct result of the contribution by the Company of common stock of the Company in the U.S. Brass Chapter 11 bankruptcy case to settle, defend, release, or otherwise resolve any liability of or claim against the Company arising in connection with the manufacture, marketing or sale of polybutylene plumbing systems by U.S. Brass. Article 6. Grant of Phantom Stock Units 6.1 Grant of Phantom Stock Units. Subject to the terms of the Plan, Phantom Stock Units may be granted to eligible key Employees at any time and from time to time, as shall be determined by the Committee. The Committee shall have complete discretion in determining the number and frequency of Phantom Stock Units granted to each Participant. 6 6.2 Vesting of Phantom Stock Units. Subject to the terms of Articles 7 and 8 herein, a Participant's Phantom Stock Units shall become vested at the end of the applicable Performance Period or on such other date or dates as determined by the Committee in its sole discretion. 6.3 Award Agreement. Each grant under the Plan shall be evidenced by an Award Agreement. Each Award Agreement shall be signed by an officer of the Company and by the Participant, and shall contain the terms and conditions that apply to the grant, which shall include, but shall not be limited to, the number of Phantom Stock Units granted, the Initial Value assigned to each Phantom Stock Unit, the vesting period of the Phantom Stock Units, and the timing, calculation of, and conditions to payout of Phantom Stock Units. Except as otherwise provided by the Plan, the included terms and conditions need not be the same for each Participant, nor for each grant. 6.4 Phantom Stock Unit Account. A Phantom Stock Unit Account ("the Account") shall be established and maintained by the Company for each Participant that receives an Award under the Plan. As the value of each Phantom Stock Unit changes, the Account established on behalf of each Participant shall be adjusted accordingly. Each Account shall be the record of the Phantom Stock Units granted to the Participant under the Plan on each applicable grant date, is maintained solely for accounting purposes, and shall not require a segregation of any Company assets. Article 7. Termination of Employment 7.1 Termination of Employment Due to Death, Disability, or Normal Retirement. In the event the employment of a Participant is terminated by reason of death, Disability, or Normal Retirement prior to the end of the Performance Period, the Participant's Phantom Stock Units shall vest, and shall be paid, in cash, as soon as practicable following the effective date of such termination of employment. In such event, the amount of payout of such Phantom Stock Units shall be determined by the Committee on the terms set forth in the Participant's Award Agreement and in the Plan. Such terms may include, but are not limited to, the proration of the amount of payout based on the number of months during the applicable Performance Period in which the Participant was employed by the Company. 7.2 Termination of Employment for Other Reasons. In the event the employment of a Participant is terminated prior to the end of a Performance Period for any reason other than those reasons set forth in Section 7.1 herein, all Phantom Stock Units shall be forfeited by the Participant to the Company, without payment to the Participant, unless provided otherwise by the Committee. 7 Article 8. Change in Control In the event of a Change in Control of the Company, the Participant's Phantom Stock Units shall become immediately vested as of the effective date of such Change in Control. The Accrued Value of all of a Participant's Phantom Stock Units shall be paid, in cash, as soon as practicable thereafter, but in no event later than thirty (30) days following the effective date of the Change in Control. Article 9. Payout of Phantom Stock Units 9.1 Amount of Payout. Except as provided otherwise in this Plan, the total amount payable to a Participant shall be the aggregate Accrued Value of the Participant's vested Phantom Stock Units, if any, at the end of the Performance Period, or at such other Valuation Date established by the Committee. The Accrued Value shall not include the Initial Value of such Phantom Stock Units. 9.2 Timing of Payout. Except as otherwise provided herein, the Accrued Value of Phantom Stock Units determined pursuant to the terms of the Plan shall be paid to Participants, in cash, as soon as practicable following the end of the Performance Period, but in no event later than thirty (30) days following the end of the Performance Period, as provided herein. 9.3 Deferral of Payout. The Committee may permit a Participant to defer his or her receipt of cash that would otherwise be due with respect to Phantom Stock Units granted under the Plan. If such deferral election is permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals. Article 10. Rights of Participants 10.1 Employment. Nothing in this Plan shall interfere with, or limit in any way, the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company. 10.2 Participation. No Participant or other employee shall, at any time, have a right to be selected for participation in the Plan. 10.3 Nontransferability. No Phantom Stock Unit, right, or interest granted to a Participant under this Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. 10.4 Beneficiary Designation. Each Participant under this Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any amount under the Plan is to be paid in case of the Participant's death before receipt of any or all of such amounts. Each designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during his or her lifetime. In the absence of any such 8 designation, amounts remaining unpaid at the Participant's death shall be paid to the Participant's estate. 10.5 Employee Benefit Plans. Phantom Stock Units and any amounts payable hereunder shall not be considered part of covered compensation for purposes of any of the Company's qualified or non-qualified employee benefit plans. Article 11. Miscellaneous Provisions 11.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 11.2 Severability. In the event that any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 11.3 Costs of the Plan. All costs of the Plan including, but not limited to, payout of Phantom Stock Units and administrative expenses, shall be incurred by the Company out of the Company's general assets. Although not prohibited from doing so, the Company is not required in any way to segregate assets in any manner or to specifically fund the benefits provided under this Plan. 11.4 Tax Withholding. The Company shall have the right to deduct from any payments under this Plan any federal, state, or local taxes required by law to be withheld with respect to such payments. 11.5 Successors. All obligations of the Company under this Plan with respect to Phantom Stock Units, and the corresponding rights granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise of all or substantially all of the voting interests, the business and/or the assets of the Company. 11.6 Indemnification. Each person who is or shall have been a member of the Committee, or the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or 9 paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled through any authority that the Company may have to indemnify them or hold them harmless, or by operation of law. Article 12. Requirements of Law 12.1 Requirements of Law. The granting, administration, and payout of Phantom Stock Units under this Plan shall be subject to all applicable laws, rules, and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required. 12.2 Governing Law. To the extent not preempted by federal law, this Plan and all agreements hereunder shall be construed in accordance with and governed by the laws of the state of Texas. 10 EX-10.W 9 SEVERANCE AGRMNT. WITH DURICIC AND MORRIS EXECUTIVE SEVERANCE AGREEMENT Eljer Industries, Inc. July, 1995 Eljer Industries, Inc. Executive Severance Agreement TABLE OF CONTENTS
Article Section Page 1 Definitions 2 ----------- 2 Severance Benefits 2.1 Right to Severance Benefits 9 2.2 Services During Certain Events 9 2.3 Qualifying Termination 10 2.4 Description of Severance Benefits 10 2.5 Termination for Total and Permanent Disability 11 2.6 Termination for Retirement or Death 12 2.7 Termination for Cause or by the Executive Other Than for Good Reason 12 2.8 Notice of Termination 12 3 Form and Timing of Severance Benefits ------------------------------------- 3.1 Form and Timing of Severance Benefits 13 3.2 Withholding of Taxes 13 4 Tax Indemnity 4.1 Limitation on Termination Payment 13 4.2 Subsequent Imposition of Excise Tax 15 5 The Company's Payment Obligation 5.1 Payment Obligations Absolute 16 5.2 Contractual Rights to Benefits 17 6 Term of Agreement 17 ----------------- 7 Legal Remedies 7.1 Payment of Legal Fees 17 7.2 Arbitration 18 8 Successors 18 ----------
Article Section Page 9 Miscellaneous 9.1 Employment Status 19 9.2 Beneficiaries 20 9.3 Entire Agreement 20 9.4 Gender and Number 20 9.5 Severability 20 9.6 Modification 20 9.7 Applicable Law 21
Eljer Industries, Inc. Executive Severance Agreement THIS AGREEMENT is made and entered into as of this 1st day of July, 1995, by and between Eljer Industries, Inc., a Delaware corporation (hereinafter referred to as the "Company") and [NAME OF OFFICER] (hereinafter referred to as the "Executive"). W I T N E S S E T H: WHEREAS, the Board of Directors of the Company has approved the Company entering into severance agreements with certain key executives of the Company; WHEREAS, the Executive is a key executive of the Company; WHEREAS, should the possibility of a Change-in-Control of the Company arise, the Board believes it imperative that the Company and the Board should be able to rely upon the Executive to continue in his position, and that the Company should be able to receive and rely upon his advice, if it requests it, as to the best interests of the Company and its shareholders without concern that he might be distracted by the personal uncertainties and risks created by the possibility of a Change-in-Control; WHEREAS, should the possibility of a Change-in-Control arise, in addition to the Executive's regular duties, he may be called upon to assist in the assessment of such possible Change-in-Control, advise management and the Board as to whether such Change-in-Control would be in the best interests of the Company and its shareholders, and to take such other actions as the Board might determine to be appropriate; and WHEREAS, the Executive and the Company desire that the terms of this Agreement, with the terms of the Eljer Industries, Inc. Long-Term Executive Incentive Compensation Plan and the Eljer Industries 1991 Long-Term Incentive Plan, to the extent - 1 - that the Executive has an award under either or both of such plans, shall constitute the entire understanding of the parties regarding the Executive's entitlement to payment and benefits following a Change in Control of the Company; NOW THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of his advice and counsel notwithstanding the possibility, threat, or occurrence of a Change-in-Control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive agree as follows: Article 1. Definitions Whenever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized: (a) "Agreement" means this Executive Severance Agreement. (b) "Base Salary" means the salary of record paid to the Executive as annual salary, excluding amounts received under incentive or other bonus plans, whether or not deferred. (c) "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. (d) "Beneficiary" means the persons or entities designated or deemed designated by the Executive pursuant to Section 9.2 herein. (e) "Board" means the Board of Directors of the Company. - 2 - (f) "Cause" shall be determined by the Committee, in exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following: (i.) The willful and continued failure by the Executive to substantially perform his duties (other than any such failure resulting from the Executive's Disability), after a written demand for substantial performance is delivered by the Committee to the Executive that specifically identifies the manner in which the Committee believes that the Executive has not substantially performed his duties, and the Executive has failed to remedy the situation within thirty (30) calendar days of receiving such notice; or (ii.) The Executive's conviction for committing an act of fraud, embezzlement, theft, or other act constituting a felony; or (iii.) The willful engaging by the Executive in gross misconduct materially and demonstrably injurious to the Company, as determined by the Committee. However, no act or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. (g) "Change-in-Control" of the Company shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied: - 3 - (i.) Any Person (other than those Persons in control of the Company as of the Effective Date, or other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (ii.) During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board (and any new Director, whose election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was so approved), cease for any reason to constitute a majority thereof; or (iii.) The stockholders of the Company approve: (A) a plan of complete liquidation of the Company; or (B) an agreement for the sale or disposition of all or substantially all the Company's assets; or (C) a merger, consolidation, or reorganization of the Company with or involving any other corporation, other than a merger, consolidation, or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the - 4 - surviving entity), at least fifty percent (50%) of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization. However, in no event shall a Change-in-Control be deemed to have occurred, with respect to the Executive, if the Executive is part of a purchasing group which consummates the Change-in-Control transaction. The Executive shall be deemed "part of a purchasing group" for purposes of the preceding sentence if the Executive is an equity participant in the purchasing company or group (except for: (i) passive ownership of less than three percent (3%) of the stock of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not significant, as determined prior to the Change-in-Control by a majority of the nonemployee continuing Directors). (h) "Code" means the Internal Revenue Code of 1986, as amended. (i) "Committee" means the Compensation Committee of the Board, or any other committee appointed by the Board to perform the functions of the Compensation Committee. (j) "Company" means Eljer Industries, Inc., a Delaware corporation (including any and all subsidiaries), or any successor thereto as provided in Article 8 herein. (k) "Disability" means permanent and total disability, within the meaning of Code Section 22(e)(3), as determined by the Committee in the exercise of good faith and reasonable judgment, upon receipt of and in reliance on sufficient - 5 - competent medical advice from one or more individuals, selected by the Committee, who are qualified to give professional medical advice. (l) "Effective Date" means the date this Agreement is approved by the Board, or such other date as the Board shall designate in its resolution approving this Agreement. (m) "Effective Date of Termination" means the date on which a Qualifying Termination occurs which triggers the payment of Severance Benefits hereunder. (n) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (o) "Executive" means [NAME OF OFFICER]. (p) "Good Reason" means, without the Executive's express written consent, the occurrence after a Change-in-Control of the Company of any one or more of the following: (i.) The assignment of the Executive to duties materially inconsistent with the Executive's authorities, duties, responsibilities, and status (including offices, titles, and reporting requirements) as an officer of the Company, or a reduction or alteration in the nature or status of the Executive's authorities, duties, or responsibilities from those in effect as of ninety (90) days prior to the Change-in-Control, other than an insubstantial and inadvertent act that is remedied by the Company promptly after receipt of notice thereof given by the Executive, and other than any such alteration primarily - 6 - attributable to the fact that the Company may no longer be a public company; (ii.) The Company's requiring the Executive to be based at a location in excess of thirty-five (35) miles from the location of the Executive's principal job location or office immediately prior to the Change-in-Control; except for required travel on the Company's business to an extent substantially consistent with the Executive's present business obligations; (iii.) A reduction by the Company of the Executive's Base Salary as in effect on the Effective Date, or as the same shall be increased from time to time. (iv.) The failure of the Company to continue in effect any of the Company's short- and/or long-term incentive compensation plans, or employee benefit or retirement plans, policies, practices, or arrangements in which the Executive participates, or the failure by the Company to continue the Executive's participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, as existed immediately prior to the Change-in- Control of the Company; (v.) The failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform the Company's obligations under this Agreement, as contemplated in Article 8 herein; and - 7 - (vi.) Any purported termination by the Company of the Executive's employment that is not affected pursuant to a Notice of Termination satisfying the requirements of Section 2.8 herein, and for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason herein. (q) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). (r) "Qualifying Termination" means any of the events described in Section 2.3 herein, the occurrence of which triggers the payment of Severance Benefits hereunder. (s) "Severance Benefits" means the payment of severance compensation as provided in Section 2.4 herein. Article 2. Severance Benefits 2.1 Right to Severance Benefits. The Executive shall be entitled to receive from the Company Severance Benefits as described in Section 2.4 herein, if there has been a Change-in-Control of the Company and if, within twenty-four (24) calendar months thereafter, the Executive's employment with the Company shall end for any reason specified in Section 2.3 herein as being a Qualifying Termination. - 8 - The Executive shall not be entitled to receive Severance Benefits if he is terminated for Cause, or if his employment with the Company ends due to death, Disability, retirement (as defined under the then established rules of the Company's tax-qualified retirement plan), or due to a voluntary termination of employment by the Executive without Good Reason. 2.2. Services During Certain Events. In the event a Person begins tender or exchange offer, circulates a proxy to shareholders of the Company, or takes other steps seeking to effect a Change-in-Control, the Executive agrees that he will not voluntarily leave the employ of the Company and will render services until such Person has abandoned or terminated his or its efforts to effect a Change-in-Control, or until six (6) months after a Change-in-Control has occurred; provided, however, that the Company may terminate the Executive for Cause at any time, and the Executive may terminate his employment any time after the Change-in-Control for Good Reason. 2.3. Qualifying Termination. The occurrence of any one or more of the following events within twenty-four (24) calendar months after a Change-in- Control of the Company shall trigger the payment of Severance Benefits to the Executive under this Agreement: (a) A termination of the Executive's employment with the Company for reasons other than death, Disability, normal retirement (as such term is defined under the then established rules of the Company's tax-qualified retirement plan), a voluntary termination of employment by the Executive without Good Reason, or termination of the Executive's employment by the Company for Cause; (b) A successor company fails or refuses to assume the Company's obligations under this Agreement, as required by Article 8 herein; or - 9 - (c) The Company or any successor company breaches any of the provisions of this Agreement. 2.4. Description of Severance Benefits. In the event that the Executive becomes entitled to receive Severance Benefits, as provided in Sections 2.1 and 2.3 herein, and subject to the limits set forth in Article 4 herein, the Company shall pay to the Executive and provide him with the following: (a) An amount equal to two (2) times the highest rate of the Executive's annual Base Salary in effect at any time up to and including the Effective Date of Termination. (b) An amount equal to two (2) times the greater of: (i) the Executive's average annual bonus earned over the last three (3) years; or (ii) the Executive's target bonus established for the bonus plan year in which the Executive's Effective Date of Termination occurs. (c) An amount equal to the Executive's unpaid Base Salary and accrued vacation pay through the Effective Date of Termination. (d) A continuation of all benefits pursuant to any and all welfare benefit plans under which the Executive and/or the Executive's family is eligible to receive benefits and/or coverage as of the effective date of the Change-in-Control, including, but not limited to, group life insurance, hospitalization, disability, medical, dental, pension, and profit sharing. These benefits shall be provided by the Company to the Executive immediately upon the Effective Date of Termination and shall continue to be provided for two (2) full calendar years from the Effective Date of Termination. Such benefits shall be provided to the Executive at the same premium cost, and at the same - 10 - coverage level, as in effect as of the Executive's Effective Date of Termination. The welfare benefits described in this Subsection 2.4(d) shall continue for two (2) full years following the Effective Date of Termination; provided, however, that such benefits shall be discontinued prior to the end of the two (2) year period in the event the Executive receives substantially similar benefits from a subsequent employer, as determined by the Committee. 2.5. Termination for Total and Permanent Disability. Following a Change-in- Control of the Company, if the Executive's employment is terminated due to Disability, the Executive shall receive his Base Salary through the Effective Date of Termination, at which point in time the Executive's benefits shall be determined in accordance with the Company's retirement, insurance, and other applicable plans and programs then in effect. 2.6. Termination for Retirement or Death. Following a Change-in-Control of the Company, if the Executive's employment is terminated by reason of his retirement (as defined under the then established rules of the Company's tax-qualified retirement plan), or death, the Executive's benefits shall be determined in accordance with the Company's retirement, survivor's benefits, insurance, and other applicable programs of the Company then in effect. 2.7. Termination for Cause or by the Executive Other Than for Good Reason. Following a Change-in-Control of the Company, if the Executive's employment is terminated either: (i) by the Company for Cause; or (ii) by the Executive other than for Good Reason, the Company shall pay the Executive his full Base Salary and accrued vacation through the Effective Date of Termination, at the rate then in effect, plus all other amounts to which the Executive is entitled under any compensation plans of the Company, at the time such payments are due, and the Company shall have no further obligations to the Executive under this Agreement. - 11 - 2.8. Notice of Termination. Any termination by the Company for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. - 12 - Article 3. Form and Timing of Severance Benefits 3.1. Form and Timing of Severance Benefits. The Severance Benefits described in Sections 2.4(a), 2.4(b), and 2.4(c) herein shall be paid in cash to the Executive in a single lump sum as soon as practicable following the Effective Date of Termination, but in no event beyond thirty (30) days from such date. 3.2. Withholding of Taxes. The Company shall withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as legally shall be required. Article 4. Tax Indemnity 4.1. Limitation on Termination Payment. (a) Determination of Termination Payment Limit. ------------------------------------------ Notwithstanding any other provision of this Agreement, if any portion of the Severance Benefits Benefits or any other payment under this Agreement, or under any other agreement with or plan of the Company (in the aggregate "Total Payments") would constitute an "excess parachute payment," then the payments to be made to the Executive under this Agreement shall be reduced such that the value of the aggregate Total Payments that the Executive is entitled to receive shall be one dollar ($1) less than the maximum amount which the Executive may receive without becoming subject to the tax imposed by Section 4999 of the Code, or which the Company may pay without loss of deduction under Section 280G(a) of the Code. However, the payments to be made to the Executive under this Agreement shall be reduced if and only if so reducing the payments - 13 - results in the Executive receiving a greater net benefit than he would have received had a reduction not occurred and an excise tax been paid pursuant to Code Section 4999. For purposes of this Agreement, the terms "excess parachute payment" and "parachute payments" shall have the meanings assigned to them in Section 280G of the Code, and such "parachute payments" shall be valued as provided therein. (b) Procedure for Establishing Limitation on Termination ---------------------------------------------------- Payment. -------- Within sixty (60) days following delivery of the Notice of Termination (as described in Section 2.8 herein) or notice by the Company to the Executive of its belief that there is a payment or benefit due the Executive which will result in an "excess parachute payment" as defined in Section 280G of the Code, the Executive and the Company, at the Company's expense, shall obtain the opinion of such legal counsel, which need not be unqualified, as the Executive may choose, which sets forth: (i) the amount of the Executive's "annualized includible compensation for the base period" (as defined in Code Section 280G(d)(1)); (ii) the present value of the Total Payments; and (iii) the amount and present value of any "excess parachute payment." The opinion of such legal counsel shall be supported by the opinion of a certified public accounting firm and, if necessary, a firm of recognized executive compensation consultants. Such opinion shall be binding upon the Company and the Executive. In the event that such opinion determines that there would be an "excess parachute payment," the Severance Benefits hereunder or any other payment determined by such counsel to be includible in Total Payments shall be reduced or eliminated as specified by the - 14 - Executive in writing delivered to the Company within thirty (30) days of his receipt of such opinion, or, if the Executive fails to so notify the Company, then as the Company shall reasonably determine, so that under the basis of calculations set forth in such opinion, there will be no "excess parachute payment." The provisions of this Section 4.1(b), including the calculations, notices, and opinion provided for herein shall be based upon the conclusive presumption that: (i) the compensation and benefits provided for in Section 2.4 herein; and (ii) any other compensation earned prior to the Effective Date of Termination by the Executive pursuant to the Company's compensation programs (if such payments would have been made in the future in any event, even though the timing of such payment is triggered by the Change-in- Control), are reasonable. 4.2. Subsequent Imposition of Excise Tax. If, notwithstanding compliance with the provisions of Sections 4.1(a), and 4.1(b) herein, it is ultimately determined by a court or pursuant to a final determination by the Internal Revenue Service that any portion of the Total Payments is considered to be a "parachute payment," subject to excise tax under Section 4999 of the Code, which was not contemplated to be a "parachute payment" at the time of payment (so as to accurately determine whether a limitation should have been applied to the Total Payments to maximize the net benefit to the Executive, as provided in Section 4.1(b) hereof), the Executive shall be entitled to receive a lump sum cash payment sufficient to place the Executive in the same net after-tax position, computed by using the "Special Tax Rate" as such term is defined below, that the Executive would have been in had such payment not been subject to such excise tax, and had the Executive not incurred any interest charges or penalties with respect to the imposition of such excise tax. For purposes of this Agreement, the "Special Tax Rate" shall be the highest effective - 15 - federal and state marginal tax rates applicable to the Executive in the year in which the payment contemplated under this Section 4.2 is made. Article 5. The Company's Payment Obligation 5.1. Payment Obligations Absolute. The Company's obligation to make the payments and the arrangements provided for herein shall be absolute and unconditional, and shall not be affected by any circumstances, including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company may have against the Executive or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final, and the Company shall not seek to recover all or any part of such payment from the Executive or from whomsoever may be entitled thereto, for any reasons whatsoever. The Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Company's obligations to make the payments and arrangements required to be made under this Agreement, except to the extent provided in Section 2.4(d) herein. 5.2. Contractual Rights to Benefits. This Agreement establishes and vests in the Executive a contractual right to the benefits to which he is entitled hereunder. However, nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Company to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder. Article 6. Term of Agreement - 16 - This Agreement will commence on the Effective Date and shall continue in effect for two (2) full calendar years, the last day of which shall be the "Expiration Date." However, at the end of such two-year period and, if extended, at the end of each additional year thereafter, the term of this Agreement shall be extended automatically for one (1) additional year, unless the Committee delivers written notice three (3) months prior to the end of such term, or extended term, to the Executive, that the Agreement will not be extended. In such case, the Agreement will terminate at the end of the term, or extended term, then in progress. However, in the event a Change-in-Control occurs during the original or any extended term, this Agreement will remain in effect for the longer of: (i) twenty-four (24) months beyond the month in which such Change-in-Control occurred; or (ii) until all obligations of the Company hereunder have been fulfilled, and until all benefits required hereunder have been paid to the Executive. Article 7. Legal Remedies 7.1. Payment of Legal Fees. To the extent permitted by law, the Company shall pay all legal fees, costs of litigation, prejudgment interest, and other expenses incurred in good faith by the Executive as a result of the Company's refusal to provide the Severance Benefits to which the Executive becomes entitled under this Agreement, or as a result of the Company's contesting the validity, enforceability, or interpretation of this Agreement, or as a result of any conflict between the parties pertaining to this Agreement. 7.2. Arbitration. The Executive shall have the right and option to elect (in lieu of litigation) to have any dispute or controversy arising under or in connection with this Agreement settled by arbitration, conducted before a panel of three (3) arbitrators sitting in a location selected by the Executive within fifty (50) miles from the location of his job with the Company, in accordance with the rules of the American Arbitration Association then in effect. - 17 - Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel for the Executive, shall be borne by the Company. Article 8. Successors The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) of all or substantially all of the business and/or assets of the Company or of any division or subsidiary thereof to expressly assume and agree to perform the Company's obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform them if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effective date of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as he would be entitled to hereunder if he had terminated his employment with the Company voluntarily for Good Reason. Except for the purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Effective Date of Termination. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Executive should die while any amount would still be payable to him hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement, to the Executive's Beneficiary. If the Executive has not named a Beneficiary, then such amounts shall be paid to the Executive's devisee, legatee, or other designee, or if there is no such designee, to the Executive's estate. Article 9. Miscellaneous - 18 - 9.1. Employment Status. The Executive and the Company acknowledge that, except as may be provided under any other agreement between the Executive and the Company, the employment of the Executive by the Company is "at will," and, prior to the effective date of a Change-in-Control, may be terminated by either the Executive or the Company at any time. Upon a termination of the Executive's employment by the Company or the Executive or by reason of the Executive's death before the occurrence of a Change in Control, there shall be no further rights under this Agreement; provided, however, that if the Company terminates the Executive's employment for any reason other than Disability or Cause in connection with, or in anticipation of, a proposed Change in Control, then the Executive's rights under this Agreement shall be the same as if the termination had occurred within twenty-four (24) calendar months after a Change in Control. 9.2. Beneficiaries. The Executive may designate one or more persons or entities as the primary and/or contingent Beneficiaries of any Severance Benefits owing to the Executive under this Agreement. Such designation must be in the form of a signed writing acceptable to the Committee. The Executive may make or change such designation at any time. 9.3. Entire Agreement. Except as described in the following sentence of this Section 9.3, this Agreement contains the entire understanding of the Company and the Executive with respect to the Executive's entitlement to payments and benefits arising as a result of a Change in Control of the Company. Nothing in this Agreement shall, however, negate or impair any rights that the Executive may have under the Eljer Industries, Inc. Long-Term Executive Incentive Compensation Plan or the Eljer Industries 1991 Long-Term Incentive Plan, or both, upon the occurrence of a Change in Control of the Company. 9.4. Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular, and the singular shall include the plural. - 19 - 9.5. Severability. In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. Further, the captions of this Agreement are not part of the provisions hereof and shall have no force and effect. 9.6. Modification. No provision of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to in writing and signed by the Executive and by an authorized member of the Committee, or by the respective parties' legal representatives and successors. 9.7. Applicable Law. To the extent not preempted by the laws of the United States, the laws of the state of Texas shall be the controlling law in all matters relating to this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement on this ______ day of August, 1995. ------------------------ Signature ATTEST: Eljer Industries, Inc. (Corporate Seal) By: - 20 - EX-21 10 SUBSIDIARIES OF ELJER INDUSTRIES, INC. EXHIBIT 21 SUBSIDIARIES OF ELJER INDUSTRIES, INC.
Percentage State/Country of Ownership Incorporation -------------- ----------------- Design Plus, Inc. 100% Pennsylvania Eljer FSC Ltd. 100% Virgin Islands Eljer Industries Limited 100% United Kingdom Eljer Manufacturing Canada, Inc. 100% Canada Eljer Manufacturing, Inc. 100% Delaware Eljer Plumbingware 100% Delaware Eljer Services Corp. 100% Delaware GlasTec, Inc. 100% Delaware Industrias Eljer de Mexico, S.A. de C.V. 100% Mexico Selkirk Canada U.S.A., Inc. 100% Delaware Selkirk Europe U.S.A., Inc. 100% Delaware Selkirk Manufacturing France S.A.R.L. 99.95% France Selkirk Manufacturing Limited 100% United Kingdom Selkirk Schornsteintechnik GmbH 100% Germany Selkirk S.R.L. 100% Italy Selkirk UK, U.S.A. No. 1, Inc. 100% Delaware Selkirk/Dry, Inc. 100% Delaware United States Brass Corporation 100% Delaware Indirect, wholly-owned subsidiary of Eljer Industries, Inc. 99.95% indirectly owned subsidiary of Eljer Industries, Inc.
EX-23 11 CONSENT OF ARTHUR ANDERSEN, LLP EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (registration nos.33-29009; 33-31885, as amended by 33-51525; and 33-51527). ARTHUR ANDERSEN LLP Dallas, Texas, March 6, 1996 EX-27 12 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1995 JAN-02-1995 DEC-31-1995 22,957 0 75,946 6,908 64,565 171,353 173,060 (108,777) 248,959 145,155 81,696 0 0 7,186 (41,644) 248,959 397,386 397,386 295,180 295,180 80,944 0 0 6,755 724 4,889 0 0 0 4,889 .69 .69
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