-----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, FKOdCT6RjNGeg30221HyEHTXG7rMd1y4qrgWrccJoNdwWlEAnLDK/rFsYRr0bN9x xrql3WUVNG98dOUI3FHEjQ== 0000950137-97-001074.txt : 19970321 0000950137-97-001074.hdr.sgml : 19970321 ACCESSION NUMBER: 0000950137-97-001074 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970320 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FALCON BUILDING PRODUCTS INC CENTRAL INDEX KEY: 0000923286 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED STRUCTURAL METAL PRODUCTS [3440] IRS NUMBER: 363931893 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-13418 FILM NUMBER: 97560012 BUSINESS ADDRESS: STREET 1: TWO NORTH RIVERSIDE PLAZA STREET 2: STE 1100 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3129069700 MAIL ADDRESS: STREET 1: TWO NORTH RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 10-K405 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 1996 Commission file number: 1-13418 FALCON BUILDING PRODUCTS, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 36-3931893 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) TWO NORTH RIVERSIDE PLAZA CHICAGO, ILLINOIS 60606 (Address of Principal Executive Office) (312) 906-9700 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by nonaffiliates of the Registrant. $82,570,131 Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. 20,048,275 shares of Common Stock as of February 7, 1997 Documents Incorporated herein by Reference: None 2 FALCON BUILDING PRODUCTS, INC. TABLE OF CONTENTS PART I. PAGE Item 1. Business ................................................................................ 3 Item 2. Properties .............................................................................. 6 Item 3. Legal Proceedings ....................................................................... 6 Item 4. Submission of Matters to a Vote of Security Holders ..................................... 7 PART II. Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters ................ 8 Item 6. Selected Financial Information .......................................................... 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .. 9 Item 8. Financial Statements and Supplementary Data ............................................. 13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ... 32 PART III. Item 10. Directors and Executive Officers of the Registrant ..................................... 32 Item 11. Executive Compensation ................................................................. 34 Item 12. Security Ownership of Certain Beneficial Owners and Management ......................... 38 Item 13. Certain Relationships and Related Transactions ......................................... 39 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........................ 39
2 3 PART I ITEM 1. BUSINESS GENERAL Falcon Building Products, Inc. ("Falcon" or the "Company") is a leading domestic manufacturer and distributor of products for the residential and commercial construction and home improvement markets. The Company's products include air distribution products; ceramic, enameled steel and acrylic plumbing fixtures; and air compressors, electric generators, power washers and OEM compressors. The products that contributed more than 10% of net sales in 1996, 1995 and 1994 were as follows: residential grilles, registers and diffusers as a group were 9%, 11% and 11%, respectively; ceramic china bathroom fixtures were 17%, 22% and 25%, respectively; and air compressors were 23%, 28% and 27%, respectively. Power washers accounted for 13% of net sales in 1996. The Company believes that its products are well regarded as being innovative, of high-quality and competitively priced. Eagle Industries, Inc. ("Eagle") incorporated the Company in January 1994 as part of a reorganization of all of the entities comprising Eagle's building products segment. Eagle is a wholly-owned subsidiary of Great American Management and Investment, Inc., a Delaware corporation ("GAMI"), which is wholly-owned by Equity Holdings Limited, an Illinois limited partnership ("EHL"). In November 1994, the Company completed an initial public offering of 6,000,000 shares of Class A common stock (the "Offering") (New York Stock Exchange: "FB"). In May 1996, Eagle distributed its ownership of the Company's Class B common stock (14,000,000 shares) to EHL. Accordingly, Eagle and GAMI have no continuing ownership in the Company. Pursuant to provisions in the Company's charter, the transfer of the Class B common stock resulted in its conversion to Class A common stock. Air Distribution Products - The Company is a leading supplier of air distribution products and is the leading manufacturer of residential and light commercial grilles, registers and diffusers for heating, ventilating and air conditioning ("HVAC") applications. These products are marketed under the Hart & Cooley(R), Metlvent(R), Reliable(TM), Tuttle & Bailey(R), Woodwinds(TM) and Valley(TM) brand names. The Company manufactures more than 8,000 air distribution items, including metal grilles, registers and diffusers, gas vent and chimney systems, flexible ducts, louvers, terminal units and electric duct heaters. Products are generally produced on a high-volume, low-cost basis; however, the standard product line is supplemented with custom-engineered products designed to meet specific size or performance requirements. Plumbing Fixtures - The Company is a leading domestic producer of ceramic china bathroom fixtures, including toilets and lavatories. The Company also produces enameled steel bathroom tubs and sinks, and acrylic whirlpool tubs as well as brass and plastic trim and fittings. These products are primarily sold to the residential construction market under the Mansfield(R) and Swirl-way(R) brand names. Air Power Products - The Company is a leading producer of consumer and commercial air compressors for home improvement applications. The Company manufactures a broad line of air compressors in the 3/4 to 10 horsepower range. These air compressors are electric or gasoline-driven with either oil-lubricated or oil-free pumps and are marketed under several brand names, including Air America(R), Charge Air Pro(R), Pro 4000(TM), Pro Air II(TM) and Steel Driver(R). The Company also manufactures air compressors under private-label programs, the most significant of which is the Craftsman label for Sears Roebuck and Co. ("Sears"). In addition, the Company sells a variety of accessory items such as paint spray guns, nailers and staplers, pneumatic tools, sanders and air hoses for use in home improvement applications. In 1995, several new product lines were introduced, including electric generators, power washers and OEM compressors. These new products, as is the case with compressors, are marketed primarily into retail and home center outlets. In January 1996, Falcon completed the acquisition of Ex-Cell Manufacturing Co., Inc. ("Ex-Cell"). Headquartered in Decatur, Arkansas, Ex-Cell is a leading manufacturer of power washers, marketed through the retail/home center distribution channel under the Ex-Cell(R) brand name. BUILDING PRODUCTS INDUSTRY The building products industry depends primarily on the residential and commercial construction markets. The level of activity in the residential construction market depends on new housing starts and residential alteration and repair projects, which are generally a function of mortgage rates, inflation, unemployment, demographic trends, gross 3 4 domestic product growth and consumer confidence. According to the U.S. Department of Commerce, domestic housing starts declined from approximately 1.8 million in 1986 to approximately 1.0 million in 1991, improving to approximately 1.5 million in 1996. Domestic housing starts have fluctuated between 1.3 million and 1.5 million from 1993 to 1996. The decline in residential housing starts from the mid 1980's to the present has resulted in pricing pressures in the industry that have not yet been alleviated. However, according to the U.S. Department of Commerce, residential alteration and repair expenditures have grown over the same period, from $91 billion in 1986 to a high of approximately $113 billion in 1995. The Company estimates, based upon management's industry experience, that the residential alteration and repair market accounts for approximately 40% of the Company's net sales. The level of activity of the commercial construction market depends largely on vacancy rates and general economic conditions. According to the U.S. Department of Commerce, commercial construction activity declined from 1986 to 1992 and since then has generally remained flat. MARKETING AND DISTRIBUTION The Company markets and distributes its products nationwide through a variety of distribution channels. Based on 1996 net sales, approximately 52% of the Company's products are distributed to wholesalers and manufacturers' representatives who sell to contractors serving the residential and commercial construction markets. Approximately 48% of the Company's net sales are made to mass merchandisers and retail chains, which sell to homeowners and contractors. The Company utilizes a combination of internal sales forces and various representatives to market and sell its products. The Company markets its residential and light commercial air distribution products nationwide to HVAC contractors through over 750 wholesale distributors. The Company provides sales support to these distributors through a direct field sales staff and a customer service group. Independent representatives are also used to supplement the field sales coverage. The Company markets its commercial and industrial air distribution products nationwide primarily to HVAC contractors through over 150 commercial representatives. The Company's commercial representative organization is supported by regional sales managers and a customer service group. The Company markets its ceramic china, acrylic whirlpool baths and enameled steel bathroom fixtures and brass fittings primarily through manufacturers' representatives, who sell to wholesale distributors. These distributors sell to plumbers, building contractors and remodelers. The Company also supplies bathroom fixture products to the retail distribution channel, primarily through Home Depot. The Company markets its air compressor products primarily through consumer distribution channels. These consumer distribution channels constitute approximately 95% of the Company's air compressor sales and include mass merchants, warehouse clubs, home centers, hardware cooperatives and farm and fleet cooperatives. The Company services these consumer channels through a direct sales staff and manufacturers' representatives. Sears is the Company's largest customer and in 1996 accounted for approximately 13% of the Company's net sales. The Company is the primary supplier of air compressors to Sears. Under its Craftsman(R) brand, Sears is the largest domestic retailer of air compressors for consumer use. COMPETITION The Company competes with several national and regional suppliers of building products in each of its product areas. In HVAC, the Company competes primarily with one other large HVAC manufacturer and with several national and regional suppliers of HVAC products. In bathroom fixtures, the Company competes with three national manufacturers of plumbing products as well as with several regional producers. In air compressors, the Company is the largest of the three primary suppliers of consumer and commercial air compressors. In power washers, the Company competes primarily with two other large manufacturers and several other smaller producers. Some of the Company's competitors are larger, have greater financial resources and are less leveraged than the Company. The Company believes that it competes successfully in its markets on the basis of quality, service and product differentiation. PATENTS, TRADEMARKS AND LICENSES The Company has been issued several patents worldwide. The Company believes that its patents are important to its business operations; however, the Company does not believe that the expiration or loss of any of its patents would have a material adverse effect on the Company. 4 5 The Company owns a number of trademarks, including Hart & Cooley(R), Metlvent(R), Reliable(TM), Tuttle & Bailey(R), Woodwinds(TM), Valley(TM), Mansfield(R), Swirl-Way(R), Kilgore(TM), Air America(R), Charge Air Pro(R), Ex-Cell(R) and Pro Air II(TM). The Company also has several licenses for various trademarks, including a license to use the DeVilbiss trademark. The DeVilbiss license has a ten-year term (expiring in April 2000) and may be renewed at the Company's option for two successive ten-year renewal periods. The Company believes that its trademarks and its licenses are important to its business operations, but does not believe that the expiration or loss of any trademark or license would have a material adverse effect on the Company. RAW MATERIALS AND SUPPLIERS The raw materials and component parts used in the Company's operations include steel, aluminum, clay, mylar and electric motors. Most of the Company's purchases are sourced domestically and nearly all of the Company's purchases are readily available through multiple sources. During 1995 a world-wide shortage of mylar occurred, restricting availability and increasing cost. By the end of 1995, availability had improved. In the last five years, the Company has not experienced any other shortages that materially affected production. Purchases are typically made through blanket order releases that span a period from several months up to one year. In 1995, double-digit inflation was encountered in certain of the basic raw materials and components used in the manufacturing process. The total raw material cost inflation in 1995 added approximately $18 million to Falcon's 1995 cost of sales. During 1996, raw material costs eased and, in some specific items, have declined below year-end 1995 levels. BACKLOG The Company's backlog at December 31, 1996 and 1995 was $22.0 million and $10.6 million, respectively. The current backlog is expected to be shipped during the first quarter of 1997. EMPLOYEES The Company employed approximately 4,100 persons as of December 31, 1996. Approximately 2,200 hourly employees are covered by six collective bargaining agreements expiring through 1999. The Company believes that its labor relations are satisfactory at all of its facilities. ENVIRONMENTAL MATTERS The Company's operations are subject to federal, state and local laws and regulations governing, among other things, emissions to air, discharge to waters, the generation, handling, storage, transportation, treatment and disposal of waste and other materials and health and safety matters. The Company believes that its business, operations and facilities have been and are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations, many of which provide for substantial fines and criminal sanctions for violations. However, the operation of manufacturing plants entails risks in these areas, and there can be no assurance that the Company will not incur material costs or liabilities in the future. In addition, potentially significant expenditures could be required in order to comply with evolving environmental and health and safety laws, regulations or requirements that may be adopted or imposed in the future. The Company is involved in environmental proceedings initiated by state or local governmental agencies pertaining to two of its facilities. The Company is currently working with the appropriate agencies on a remedial plan for the closure of an on-site landfill at the Company's Holland, Michigan facility that is currently estimated to cost approximately $400,000. The Company is also working with the appropriate agencies on a remedial plan for the closure of one on-site and four off-site landfills at or near the Company's Perrysville, Ohio facility that is currently estimated to cost approximately $1,000,000. In addition, the Company is in the process of making capital alterations at its Perrysville, Ohio foundry, in response to an environmental compliance variance. The Company believes that its reserves are adequate and that its liabilities for these matters will not have a material adverse effect on the Company's financial condition, annual results of operations or competitive position; however, there can be no assurance that the Company will not incur costs or liabilities in the future that will have a material adverse effect on the Company. Capital expenditures and expenses (including ordinary course of business hauling and disposal expenses) in 1996 attributable to environmental matters were not material in relation to the Company's consolidated financial position or results of operations. 5 6 REGULATORY The Company's products are subject to extensive regulation by national, state, local and foreign authorities. For a current matter involving plastic venting systems, see Item 3, Legal Proceedings. ITEM 2. PROPERTIES The Company believes its manufacturing, warehouse and office facilities are suitable, adequate and have sufficient manufacturing capacity for its current requirements. The Company also believes that its facilities are being utilized consistent with the Company's plans and do not have substantial excess capacity. The Company's principal facilities consist of the following:
APPROX. SQUARE LOCATION PRINCIPAL USE FOOTAGE LEASED/OWNED - -------------------------- ------------------------------------ --------------- ------------ Holland, Michigan......... Office, Manufacturing 613,000 Owned Kilgore, Texas............ Office, Manufacturing, Warehouse 544,000 Owned Perrysville, Ohio......... Office, Manufacturing, Warehouse 494,200 Owned Walnut, California........ Office, Manufacturing, Warehouse 414,000 Owned Jackson, Tennessee........ Office, Manufacturing, Warehouse 341,100 Owned Huntsville, Alabama....... Office, Manufacturing 219,000 Owned Memphis, Tennessee........ Office, Manufacturing, Warehouse 204,000 Leased Geneva, Alabama........... Office, Manufacturing 203,000 Owned Jackson, Tennessee........ Manufacturing, Warehouse 103,000 Leased Shelby, Ohio.............. Warehouse 171,500 Leased Sanger, California........ Office, Manufacturing, Warehouse 142,000 Leased Henderson, Texas.......... Manufacturing, Warehouse 124,600 Owned Decatur, Arkansas......... Office, Manufacturing, Warehouse 105,980 Owned Jackson, Tennessee........ Warehouse 90,000 Leased Sparks, Nevada............ Distribution Center 73,000 Leased Big Prairie, Ohio......... Manufacturing 60,000 Owned Gravette, Arkansas........ Warehouse 33,000 Leased
The Company's facility in Memphis, Tennessee is leased pursuant to a lease that expires in October 1997, with renewal options to 1998. The Company's facility in Sparks, Nevada is leased pursuant to a lease that expires in December 2000. One of the Company's Jackson, Tennessee facilities is leased pursuant to a lease that expires in August 1998, with renewal options to 1999. The other leased facility in Jackson, Tennessee is leased pursuant to a lease that expires in August 1997, with an extension option to November 1997. The Company's facility in Shelby, Ohio is leased on a month-to-month basis. The Sanger, California facility is leased through December 1997, with renewal options for an additional five years. The Company's facility in Gravette, Arkansas is leased pursuant to a lease that expires in June 1997. ITEM 3. LEGAL PROCEEDINGS The Company is involved from time to time in various legal proceedings and claims incident to the normal conduct of its business, including the environmental matters described in Item 1 above. Although it is impossible to predict the outcome of any pending legal proceeding, the Company believes that such legal proceedings and claims, individually and in the aggregate, are either without merit, are covered by insurance or are adequately reserved for, and will not have a material adverse effect on its financial condition or results of operations. In addition to the matters covered by the preceding paragraph, in May 1994, Underwriters' Laboratories of Canada ("ULC") suspended its recognition of high temperature plastic venting systems for gas appliances, including the Ultravent system manufactured by the Company. This action resulted from reports of problems with high temperature plastic venting systems, including improper installation, cracking, inadequate joint adhesion, and related safety hazards, including potential for carbon monoxide emission. In June 1994, as a result of the ULC action, the Ontario Ministry of Consumer and Commercial Relations ("MCCR") banned sales of these plastic venting systems in the Province of Ontario. Other provinces of Canada have taken similar action. Pursuant to an MCCR order, high temperature plastic venting systems in Ontario have been corrected. 6 7 The Company is a defendant in a suit that has been filed against 24 entities representing heating appliance manufacturers, plastic vent manufacturers, public utilities and listing agencies by the Ontario New Home Warranty Program, which is responsible for the cost of replacing vent material in new home construction in Ontario. This suit seeks damages of Cdn $125 million from all of the defendants. Most gas appliance manufacturers in Canada and the United States no longer certify these venting systems for use with their products. The Company is also a defendant in a lawsuit filed by Goodman Manufacturing, an appliance manufacturer that is replacing its own installations and has sued three defendants for reimbursement of its costs. The Company has been named as a defendant in a class action lawsuit which has been filed in the United States regarding high temperature plastic venting. The Company is engaged in ongoing discussions with the United States Consumer Product Safety Commission, ("CPSC") which has been advised of the ULC action and the actions taken by the MCCR. The CPSC continues to investigate high temperature plastic venting and has met with all of the manufacturers of high temperature plastic vents, various appliance manufacturers and other entities with technical expertise. CPSC concerns focus on the heating appliance system, the plastic resin used to manufacture the venting, vent sealant compounds and improper installation. While no definitive action has been decided upon, the Company is aware that the CPSC is considering a corrective action program involving plastic venting and it is probable that in the near term the CPSC will mandate a corrective action program which would impact heating appliance manufacturers, plastic resin manufacturers, and plastic venting manufacturers, including the Company. Several appliance manufacturers have announced their intention to replace plastic vent product with alternative systems which have been approved by the CPSC. Company sales of Ultravent products in the United States and Canada in 1995 and 1996 were minimal. While it is impossible at this time to give a firm estimate of the ultimate cost to the Company, management currently believes that the after-tax cost to the Company of resolving the Ultravent matter could range from a non-material amount to $20.0 million, after considering reimbursements and insurance recoveries. With respect to this matter, the Company has filed a lawsuit against its insurance carriers. Although no assurances can be given, the Company believes at this time that the ultimate resolution of these matters will not have a material effect on the Company's financial condition, but may have a material effect on future results of operations in the period recognized. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of 1996 to a vote of security holders of Falcon through a solicitation of proxies or otherwise. 7 8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The following table sets forth for the period indicated the high and low sales price for a share of the Company's Class A common stock on the New York Stock Exchange. The Company's Class A common stock is traded under the symbol "FB".
High Low -------- ------- 1996 - ---- Quarter Ended December 31, 1996........ $14 3/4 $11 1/8 Quarter Ended September 30, 1996....... 13 1/2 10 Quarter Ended June 30, 1996............ 12 7/8 8 3/4 Quarter Ended March 31, 1996........... 10 1/2 8 1/4 1995 - ---- Quarter Ended December 31, 1995........ $ 9 3/4 $ 7 3/8 Quarter Ended September 30, 1995....... 11 3/4 8 5/8 Quarter Ended June 30, 1995............ 10 5/8 8 1/2 Quarter Ended March 31, 1995........... 11 5/8 9 3/4
The number of shareholders of record as of December 31, 1996 was 102. No dividends have been paid to the shareholders since the Offering in November 1994 and no dividends are expected to be declared in the near future. In addition, the Company's Bank Credit Facility contains covenants that may restrict the payment of dividends. 8 9 ITEM 6. SELECTED FINANCIAL INFORMATION The selected financial information presented below has been derived from the Company's audited Consolidated Financial Statements for the five years in the period ended December 31, 1996.
YEAR ENDED DECEMBER 31, --------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (in millions, except per share amounts) INCOME STATEMENT DATA: Net sales............................. $633.2 $471.3 $440.7 $372.3 $345.2 Operating income...................... 59.8 45.8 51.7 45.2 42.4 Net income before cumulative effect of changes in accounting principles.... 30.0 22.1 25.9 22.1 18.7 Net income (a)........................ 30.0 22.1 25.9 18.5 18.7 Per share: Net income before cumulative effect of changes in accounting principles.... $ 1.50 $ 1.10 $1.29 $ 1.10 $ 0.93 Net income............................ 1.50 1.10 1.29 0.92 0.93 BALANCE SHEET DATA: Total assets.......................... $261.7 $210.8 $187.5 $218.9 $212.2 Long-term debt (b).................... 109.1 110.9 103.8 2.7 2.0 Total liabilities (b)................. 233.8 213.0 212.1 145.3 156.6 Stockholders' equity (deficit) (c).... 27.9 (2.2) (24.6) 73.6 55.6
a) Net income for the year ended December 31, 1993 reflects a charge of $3.6 million relating to the cumulative effect of changes in the method of accounting for income taxes and postemployment benefits. b) A Bank Credit Facility was entered into at the time of the Offering in November 1994. Historical comparisons are not meaningful as the debt structure of the Company was altered subsequent to the Offering. c) The Company's equity structure was altered in connection with the Offering in November 1994. As a result, historical comparisons are not meaningful. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RELATIONSHIP TO EAGLE Eagle incorporated the Company in January 1994 as part of a reorganization of all the entities comprising Eagle's building products segment. Eagle is a wholly-owned subsidiary of GAMI, which is wholly-owned by EHL. In May 1996, Eagle distributed its ownership of the Company's Class B common stock to EHL. As a result of the transfer, the Class B shares were automatically converted into Class A shares pursuant to provisions of the Company's charter. EHL beneficially owns approximately 70% of the Company's outstanding Common Stock. Pursuant to a corporate services agreement, Eagle provides certain management, financial and administrative services to the Company. In addition, certain executive officers of the Company are also executive officers of Eagle and spend approximately 50% of their time on the business and affairs of Eagle. Between January 1994 and April 1996, the Company participated in Eagle's asset securitization program. Due to the number of business divestitures at Eagle during the first quarter of 1996, Eagle decided to terminate its asset securitization program. Eagle coordinated the termination of its program with the Company to allow the Company to establish its own asset securitization program, which began in May 1996. 9 10 INDUSTRY INFORMATION Demand for the Company's products depends primarily on the residential construction market and, to a lesser extent, on the commercial construction market. The level of activity in the residential construction market depends on new housing starts and residential alteration and repair projects which are a function of many factors not within the Company's control, including mortgage rates, inflation, unemployment, demographic trends, gross domestic product growth and consumer confidence. The level of activity in the commercial construction market depends largely on vacancy rates and general economic conditions. Because the residential and commercial construction markets are sensitive to cyclical changes in the economy, future downturns in the economy or lack of substantial improvement in the economy could negatively affect the Company's operating results. In addition, the Company's operating results have in the past and could in the future be negatively impacted by increases in raw material costs, which are not within the control of the Company. The Company does not believe that the decline in Ultravent sales, disclosed in Note 13 to the Financial Statements, will have a material adverse effect on the financial condition or operating results of the Company as internal growth plans emphasize other, newly developed product lines. See Item 3 above and Note 13 for additional information. This statement is a "forward looking statement" within the meaning of the safeharbor provisions of the Private Securities Litigation Reform Act of 1995. The actual results of the Ultravent proceedings may differ materially from the Company's expectations as a result of regulatory and legal developments. RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1996 1995 1994 ------------------- -------------------- -------------------- (IN MILLIONS) AMOUNT % OF SALES AMOUNT % OF SALES AMOUNT % OF SALES ------ ---------- ------ ---------- ------ ---------- Net sales.............. $633.2 100.0% $471.3 100.0% $440.7 100.0% Gross earnings......... 112.9 17.8% 86.9 18.4% 90.2 20.5% Operating income....... 59.8 9.4% 45.8 9.7% 51.7 11.7%
YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995 Net sales were $633.2 million, an increase of $161.9 million over 1995 net sales of $471.3 million. In January 1996, the Company acquired Ex-Cell, a manufacturer of power washers. In addition, in May 1996 the Company acquired a product line of decorative metal and wooden grilles and registers. Excluding the impact of acquisitions, net sales increased $54.4 million or 11.5%. This increase was due to increased sales volume in all product categories resulting, in part, from an increase in housing starts as well as market penetration gains. New product sales, primarily electric generators, contributed $16.2 million to the increase. Favorable pricing in air distribution products was offset by strong price competition in plumbing fixtures. Gross earnings of $112.9 million increased $26.0 million from 1995 gross earnings of $86.9 million. This increase was primarily due to increased volume and the impact of acquisitions. Gross margin declined to 17.8% from 18.4% in 1995 due primarily to lower margins realized on the sales contributed by acquired businesses and increased sales of lower margin HVAC products. Operating income of $59.8 million was $14.0 million or 30.3% higher than in 1995. This increase was primarily due to increased sales volume and the impact of acquisitions, partially offset by an increase in securitization expense of $0.8 million and increased selling, general and administrative expenses of $11.2 million. As a percent of sales, selling, general and administrative expenses declined slightly to 7.7% from 8.0% in 1995. Interest expense increased $1.0 million to $11.0 million. This increase was primarily due to the increased average monthly debt levels resulting from acquisitions and the establishment of the Company's securitization program. The income tax provision of 38.4% for the year reflected the effect of state income taxes and non-deductible expenses, including goodwill amortization. 10 11 YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO YEAR ENDED DECEMBER 31, 1994 Net sales were $471.3 million, an increase of 7.0% over 1994 net sales of $440.7 million. This increase in sales resulted primarily from growth in existing product lines, new product introductions in Air Power Products, as well as the acquisition of the acrylic whirlpool bath business, Swirl-way. Further sales growth was restricted by a general softness in housing starts, down 8% from 1994 levels, and inventory destocking programs in both the retail and the wholesale distribution channels. These factors combined to limit the Company's flexibility, precluding additional pricing action during the year, as competitive pressures remained strong. Gross earnings of $86.9 million for 1995 were $3.3 million, or 3.7% below comparable 1994 results. The gains recorded in pricing, volume, new products and acquisitions were not adequate to cover the raw material cost inflation of approximately $18 million encountered in all three businesses, as double digit increases were encountered during the year. The resulting decrease in gross margin was significant, dropping from 20.5% in 1994 to 18.4% in 1995. Operating income fell from $51.7 million to $45.8 million. Excluding securitization expense, selling, general and administrative expenses increased by $1.2 million, or approximately 4% of incremental sales for the year. In addition, securitization expense increased $1.4 million, reflecting the accounts receivable activity associated with the sales increases recorded during the year, as well as higher effective interest rates. The combination of these gross earnings and operating expense items caused operating margins to decline from 11.7% in 1994 to 9.7% in the current year. Interest expense increased $1.7 million in 1995 to $10.0 million. This was a result of the combination of increased debt levels and higher interest rates encountered during the year. The income tax provision of 38.4% for the year reflected the effect of state income taxes and non-deductible expenses, including goodwill amortization. The 1994 provision for income tax was 40.4%. LIQUIDITY AND CAPITAL RESOURCES The Company historically has met its working capital needs and capital expenditure requirements primarily through operating cash flow. Prior to the Company's initial public offering in November of 1994, Eagle provided short-term liquidity to the Company, offered centralized treasury functions and handled substantially all of the Company's investing and borrowing activities. Since the Offering, the Company has established third-party credit facilities and will satisfy its debt service requirements and meet its working capital and capital expenditure needs through a combination of operating cash flow, availability under the revolving portion of the Bank Credit Facility and funds available through the asset securitization program. Prior to the Offering, the Company was included in GAMI's consolidated federal income tax returns. In addition, the Company filed certain combined state tax returns with GAMI until the distribution to EHL in 1996. In December 1996, the Company paid GAMI $4.6 million for a final tax sharing payment for tax liabilities incurred while it was included in GAMI's income tax returns, pursuant to the GAMI-Falcon Disaffiliation Tax Sharing Agreement. Net cash flow from operating activities was $41.1 million for 1996 compared to $19.4 million for 1995. This increase was primarily due to the increase in net income and a decrease in working capital requirements. The Company believes that operating cash flow and availability under the Bank Credit Facility will be adequate to satisfy its debt requirements and to meet working capital, capital expenditures and acquisition needs in 1997. CAPITAL EXPENDITURES Capital expenditures were $20.0 million, $16.4 million and $19.7 million for 1996, 1995, and 1994, respectively. The Company expects to spend approximately $24.8 million in 1997 for various capital projects, including quality enhancement, cost improvement, regulatory compliance, efficiency improvement, increased capacity and normal maintenance projects. The Company's commitments for capital expenditures at the end of 1996 were approximately $1.5 million. Capital expenditures attributable to environmental matters were not material in any of these years, nor does the Company believe that such expenditures will be material in 1997. 11 12 SEASONALITY, WORKING CAPITAL AND CYCLICALITY Sales of certain products of the Company are subject to seasonal variation. Seasonal factors historically have not had a significant effect on working capital requirements as the Company has been able to adjust its production to meet seasonal demands. Due to seasonal factors associated with the construction industry, sales of products are typically higher during the second and third quarters than at other times of the year. The residential and commercial construction markets are sensitive to cyclical changes in the economy. INFLATION Raw material cost inflation had a material impact on 1995 operating income. Increased raw material costs over 1994 totaled approximately $18.2 million. The effect of inflation on 1996 operating results was not material. 12 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PAGE Report of Independent Public Accountants.................... 14 Consolidated Balance Sheets................................. 15 Consolidated Statements of Income........................... 16 Consolidated Statements of Stockholders' Equity............. 17 Consolidated Statements of Cash Flows....................... 18 Notes to Consolidated Financial Statements.................. 19 Supplementary Financial Data (Unaudited).................... 31 13 14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Falcon Building Products, Inc.: We have audited the accompanying Consolidated Balance Sheets for Falcon Building Products, Inc. (a Delaware Corporation) and Subsidiaries as of December 31, 1996 and 1995, and the related Consolidated Statements of Income, Stockholders' Equity and Cash Flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the Consolidated Financial Statements referred to above present fairly, in all material respects, the consolidated financial position of Falcon Building Products, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Chicago, Illinois February 5, 1997 14 15 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, ------------------------- 1996 1995 -------- ------------ (RESTATED) ASSETS Current assets: Cash and cash equivalents................................. $ 3.9 $ 1.1 Accounts receivable, net.................................. -- 5.1 Inventories, net.......................................... 76.2 56.9 Other current assets...................................... 15.6 9.7 ------ ------ Total current assets...................................... 95.7 72.8 Property, plant and equipment, net........................... 97.4 88.7 Goodwill..................................................... 59.1 39.4 Other assets................................................. 9.5 9.9 ------ ------ Total assets.............................................. $261.7 $210.8 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion long-term debt............................ $ 15.2 $ 12.7 Accounts payable.......................................... 50.1 37.5 Accrued liabilities....................................... 30.9 27.2 ------ ------ Total current liabilities................................. 96.2 77.4 Long-term debt............................................... 109.1 110.9 Accrued employee benefit obligations......................... 8.7 9.0 Other long-term liabilities.................................. 19.8 15.7 ------ ------ Total liabilities......................................... 233.8 213.0 ------ ------ Stockholders' equity: Preferred stock, par value $1.00 per share, 10,000,000 shares authorized, none issued and outstanding...... -- -- Class A stock, par value $.01 per share, 30,000,000 shares authorized, 20,070,500 issued and outstanding at December 31, 1996, 6,070,500 shares issued and outstanding at December 31, 1995....................... 0.2 0.1 Class B stock, par value $.01 per share, 14,000,000 shares authorized, none issued and outstanding at December 31, 1996, 14,000,000 shares issued and outstanding at December 31, 1995...................................... -- 0.1 Additional paid-in capital................................ 18.0 18.0 Retained earnings (deficit)............................... 12.8 (17.2) Pension liability adjustment.............................. (0.5) (0.4) Unearned compensation..................................... (0.4) (0.6) Notes receivable arising from stock purchase plan......... (2.2) (2.2) ------ ------ Total stockholders' equity................................ 27.9 (2.2) ------ ------ Total liabilities and stockholders' equity................ $261.7 $210.8 ====== ======
The accompanying notes to consolidated financial statements are an integral part of these statements. 15 16 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, -------------------------- 1996 1995 1994 ------ ------ ------ Net sales...................................... $633.2 $471.3 $440.7 Cost of sales.................................. 520.3 384.4 350.5 ------ ------ ------ Gross earnings.............................. 112.9 86.9 90.2 Selling, general and administrative expenses... 49.0 37.8 36.6 Securitization expense......................... 4.1 3.3 1.9 ------ ------ ------ Operating income............................ 59.8 45.8 51.7 Net interest expense........................... 11.0 10.0 8.3 ------ ------ ------ Income before income taxes..................... 48.8 35.8 43.4 Provision for income taxes..................... 18.8 13.7 17.5 ------ ------ ------ Net income.................................. $ 30.0 $ 22.1 $ 25.9 ====== ====== ====== Earnings per share: Net income.................................. $ 1.50 $ 1.10 $ 1.29 ====== ====== ====== Shares outstanding for all periods: 20,070,500 SUPPLEMENTARY PRO FORMA INCOME DATA-UNAUDITED (NOTE 3) Operating income............................... -- -- $ 50.6 Net income..................................... -- -- $ 26.0 Earnings per share common share: Net income..................................... -- -- $ 1.30
The accompanying notes to consolidated financial statements are an integral part of these statements. 16 17 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN MILLIONS)
NOTES ADDITIONAL PENSION FROM STOCK CLASS A CLASS B PAID-IN RETAINED EARNINGS LIABILITY UNEARNED PURCHASE STOCK STOCK CAPITAL (DEFICIT) ADJUSTMENT COMPENSATION PLAN ------- ------- ---------- ----------------- ---------- ------------ ---------- Balance at December 31, 1993..... $ -- $ -- $ 28.2 $ 45.8 $(0.5) $ -- $ -- Net income...................... -- -- -- 25.9 -- -- -- Sales of Class A Stock.......... 0.1 -- 63.4 -- -- -- -- Conversion of Common Stock to Class B Stock......... -- 0.1 (0.1) -- -- -- -- Stock purchase plan............. -- -- 2.4 -- -- -- (2.2) Unearned compensation restricted stock............... -- -- 0.8 -- -- (0.8) -- Assumption of deferred financing fees from affiliate.. -- -- 3.0 -- -- -- -- Dividends paid to affiliate..... -- -- -- (111.0) -- -- -- Assumption of debt from affiliate...................... -- -- (114.9) -- -- -- -- Forgiveness of advances from affiliate...................... -- -- 35.2 -- -- -- -- ---- ----- ------- ------- ----- ----- ----- Balance at December 31, 1994.... 0.1 0.1 18.0 (39.3) (0.5) (0.8) (2.2) Net income..................... -- -- -- 22.1 -- -- -- Other.......................... -- -- -- -- 0.1 0.2 -- ---- ----- ------- ------- ----- ----- ----- Balance at December 31, 1995.... 0.1 0.1 18.0 (17.2) (0.4) (0.6) (2.2) Net income...................... -- -- -- 30.0 -- -- -- Conversion of Class B Stock to Class A Stock............... 0.1 (0.1) -- -- -- -- -- Other.......................... -- -- -- -- (0.1) 0.2 -- ---- ----- ------- ------- ----- ----- ----- Balance at December 31, 1996.... $0.2 $ -- $ 18.0 $ 12.8 $(0.5) $(0.4) $(2.2) ==== ===== ======= ======= ===== ===== =====
The accompanying notes to consolidated financial statements are an integral part of these statements. 17 18 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS) YEAR ENDED DECEMBER 31, -------------------------------- 1996 1995 1994 ------ ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................................ $ 30.0 $ 22.1 $ 25.9 Adjustments to reconcile net income to net cash from operations: Depreciation........................................................ 13.7 12.9 11.0 Amortization........................................................ 1.8 2.1 1.9 Deferred income tax provision (benefit)............................. (2.9) 0.2 (1.3) Proceeds from the initial sale of accounts receivable............... -- -- 54.3 Cash effects, excluding acquisitions, of changes in: Accounts receivable, net of residual interest................... 6.2 0.3 (4.5) Inventories..................................................... (14.0) (10.2) (5.7) Other current assets............................................ (1.5) 1.4 1.7 Accounts payable................................................ 10.2 (13.0) 19.6 Accrued liabilities and accrued employee benefit obligations.... (2.4) 3.6 6.0 ------ ------ ------- Net cash from operations:........................................... 41.1 19.4 108.9 ------ ------ ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of businesses.............................................. (18.8) (10.4) -- Capital expenditures................................................ (20.0) (16.4) (19.7) Other............................................................... 0.2 (2.2) (0.4) ------ ------ ------- Net cash used in investing activities............................... (38.6) (29.0) (20.1) ------ ------ ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock.......................... -- -- 63.3 Proceeds from bank credit facility.................................. -- -- 115.0 Net payments to affiliate........................................... -- -- (263.7) Net borrowings (repayments) of debt................................. 0.3 8.5 (2.6) ------ ------ ------- Net cash provided by/(used in) financing activities................. 0.3 8.5 (88.0) ------ ------ ------- CHANGE IN CASH AND CASH EQUIVALENTS................................... 2.8 (1.1) 0.8 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................ 1.1 2.2 1.4 ====== ====== ======= CASH AND CASH EQUIVALENTS, END OF PERIOD.............................. $ 3.9 $ 1.1 $ 2.2 ====== ====== ======= NET CASH PAID DURING THE PERIOD FOR: Interest............................................................ $ 11.0 $ 10.3 $ 7.6 Income taxes to affiliate........................................... 4.6 -- 18.8 Income taxes to third parties....................................... 23.5 14.2 1.5 NON-CASH ACTIVITY: Forgiveness of debt by affiliate.................................... $ -- $ -- $ 35.2
The accompanying notes to consolidated financial statements are an integral part of these statements. 18 19 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (1) BASIS OF PRESENTATION Falcon Building Products, Inc. (the "Company") is a manufacturer and distributor of products for the residential and commercial construction and home improvement markets. Pursuant to a reorganization in contemplation of a public offering to sell common stock, the Company was restructured and recapitalized as an indirect wholly-owned subsidiary of Eagle Industries, Inc. ("Eagle"). Eagle is a wholly-owned subsidiary of Great American Management and Investment, Inc. ("GAMI") which is wholly-owned by Equity Holdings Limited, an Illinois limited partnership ("EHL"). In connection therewith, Eagle contributed to the Company the stock and certain assets and liabilities of the companies comprising Eagle's building products segment. This contribution has been accounted for in a manner similar to that utilized in pooling-of-interest accounting. On November 9, 1994, the Company completed an initial public offering of 6,000,000 shares (30%) of its Class A common stock (the "Offering"). In May 1996, Eagle distributed its ownership of the Company's Class B common stock to EHL. Pursuant to provisions in the Company's charter, the transfer of the Class B common stock to EHL resulted in its conversion to Class A common stock. The Company's 1994 financial information included herein is not necessarily indicative of the results that would have been reported if the Company had operated as an unaffiliated enterprise. The Consolidated Statements of Income include a proportional allocation of costs incurred by Eagle that benefited the Company. Such expenses relate to strategic direction, operating oversight, legal, finance and administration of benefit and insurance programs. Management believes that the allocation method is reasonable (see Note 12). If the Company had not operated as a subsidiary of Eagle, but rather had operated as an unaffiliated public company, management believes operating expenses would have been approximately $0.9 million higher in the year ended December 31, 1994. The increased expenses include additional personnel, investor relations, director and officer insurance and director fees and expenses. (2) SIGNIFICANT ACCOUNTING POLICIES: BASIS OF CONSOLIDATION: The accompanying Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain historical data have been restated to conform to the 1996 presentation. USE OF ESTIMATES: These Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles and necessarily include amounts based on estimates and assumptions by management. Actual results could differ from those amounts. INVENTORIES: Inventories are stated at the lower of cost or market. Cost includes raw materials, labor and manufacturing overhead. The last-in, first-out ("LIFO") method of inventory valuation is used for 41.1% and 62.4% of inventory at December 31, 1996 and 1995, respectively. The first-in, first-out ("FIFO") method of inventory valuation is used for the remaining inventory. IMPAIRMENT OF LONG-LIVED ASSETS: Effective January 1, 1996, the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 prescribes that an impairment loss is recognized in the event that facts and circumstances indicate that the carrying amount of an asset may not be recoverable and an estimate of future 19 20 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 1996 undiscounted cash flows is less than the carrying amount of the asset. There was no material effect on the financial statements from the adoption of SFAS No. 121 as the Company's prior impairment recognition practice was consistent with the major provisions of the statement. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost. The straight-line method is generally used to provide for depreciation over the estimated useful lives of the assets, which range from 10 to 40 years for buildings and 3 to 12 years for machinery and equipment. GOODWILL: Goodwill represents the purchase price associated with acquired businesses in excess of the fair value of the net assets acquired. Goodwill is amortized on a straight-line basis, primarily over forty years. Accumulated amortization was $13.6 million and $11.8 million at December 31, 1996 and 1995, respectively. The recoverability of goodwill is reassessed periodically to determine if current operating income is sufficient to recover the current amortization. When events and circumstances indicate that future operating income and cash flow may be negatively affected, the recoverability is evaluated based upon the estimated future operating income and undiscounted cash flow of the related entity during the remaining period of goodwill amortization. REVENUE RECOGNITION: The Company recognizes revenues as products are shipped to customers. INCOME TAXES: The Company was included in GAMI's consolidated U.S. federal income tax return until the consummation of the Offering in November 1994. In addition, the Company filed certain combined state tax returns with GAMI until the distribution to EHL in 1996. Under the terms of the GAMI-Falcon Disaffiliation Tax Sharing Agreement (the "Tax Sharing Agreement"), the Company computed and paid to GAMI its liability for U.S. federal income taxes as if the Company filed a separate U.S. federal income tax return. For periods subsequent to the Offering, a separate U.S. federal income tax return will be filed for the Company. The Company files separate U.S. state income tax returns. EARNINGS PER SHARE: Earnings per share amounts were calculated based on 20,070,500 shares outstanding, the number of shares outstanding as a result of the consummation of the Offering. This does not reflect the Company's historical capital structure. (3) PRO FORMA INFORMATION The supplementary pro forma net income and per share data included in the Consolidated Statements of Income reflects the results of operations for the year ended December 31, 1994 adjusted to reflect (i) the sale of 6,000,000 shares of common stock by the Company in the Offering, (ii) incremental stand-alone costs for operating as a public entity, (iii) costs associated with the Company's participation in Eagle's asset securitization program (see Note 5), (iv) the change in interest expense associated with the new Bank Credit Facility (prior to the amendment and restatement in June, 1995), and (v) the tax effects of these adjustments, as if the Offering (and resulting adjustments) had been consummated at the beginning of the period presented. 20 21 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 1996 (4) ACQUISITIONS On January 2, 1996, the Company acquired the stock of Ex-Cell Manufacturing Company, Inc. ("Ex-Cell"), a manufacturer of cold-water power washers. The Company paid $18.8 million in cash for the stock of Ex-Cell and estimates that it will pay an additional $6.5 million over the next three years beginning in February 1997. The acquisition was accounted for as a purchase and resulted in $19.5 million of goodwill. (5) ACCOUNTS RECEIVABLE Between January 1994 and April 1996, the Company participated in Eagle's securitization program, selling its receivables to Eagle, which in turn sold certain of its receivables, including those acquired from the Company, to a "Master Trust". Due to the number of business divestitures at Eagle during the first quarter of 1996, Eagle decided to terminate its securitization program. Eagle coordinated the termination of its program with the Company to allow the Company to establish it own securitization program. In April 1996, the Company entered into receivable sale agreements with a financial institution and its affiliate (collectively, the "Bank Group") whereby it will sell, with limited recourse, on a continuous basis, an undivided interest in all of its accounts receivable for cash, while maintaining a residual interest in the receivables. Under these agreements, which expire in 1999, the maximum amount of proceeds which may be accessed at any one time is $85 million, subject to change based on the level of eligible receivables. To establish this new securitization program, the Company: (1) acquired a special purpose company from Eagle to facilitate the establishment of the Falcon securitization program; (2) acquired from the Master Trust the receivables it had previously sold to Eagle; (3) immediately sold these re-acquired receivables through the special purpose company to the Bank Group; and (4) sold the receivables of two of its subsidiaries, which were not previously participating in the Eagle securitization program, through the special purpose company to the Bank Group. The Company paid $69 million to acquire its receivables from the Master Trust utilizing the $55 million of proceeds received from selling these receivables to the Bank Group plus a $14 million draw on the Company's revolving credit facility. This $14 million represented the Company's residual interest in the receivables sold to the Bank Group. Additionally, the Company received $11 million in cash and retained a residual interest of $3 million from the initial sale of the receivables from subsidiaries not previously participating in the Eagle securitization program. At December 31, 1996, uncollected receivables sold under the agreement were $75.2 million. Included in the Company's financial statements in other current assets is a net residual interest of $1.9 million. The expense incurred on the sale of the receivables under these programs was $4.1 million, $3.3 million and $1.9 million in years ended December 31, 1996, 1995 and 1994, respectively. (6) DEBT BANK CREDIT FACILITY: In connection with the Offering, the Company entered into a senior credit facility with a group of banks. On June 30, 1995, the Company amended and restated its senior credit facility, increasing it to a $250 million credit facility (the "Bank Credit Facility"). The Bank Credit Facility consists of a six year $100.0 million term loan, maturing in June 2001, due in quarterly installments increasing in amount from $2.5 million at September 30, 1995 to $6.25 million per quarter beginning in September 2000, and a $150.0 million revolving credit facility (the "Revolver") that expires in 2001, which may be extended through 2002. Borrowings under the Bank Credit Facility bear interest, at management's option, at rates equal to London Interbank Offered Rates ("LIBOR") plus a margin, or at the prime rate plus a margin. The Bank Credit Facility is secured by substantially all of the inventory, intangibles, property, plant, equipment and capital stock of the Company's subsidiaries. At December 31, 1996, the term loan and revolver loan portions outstanding under the Bank Credit Facility were $82.5 million and $39.0 million, respectively. The Bank Credit Facility also allows for $25.0 million to be used in the form of letters of credit. The use of letters of credit reduces the availability of funds under the Revolver. 21 22 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 1996 The Bank Credit Facility contains various covenants pertaining to the maintenance of certain cash flow and expense coverage ratios, the incurrence of additional indebtedness and restrictions on the payment of dividends. In May 1995, the Company entered into a five year interest rate swap agreement. This agreement, covering $100.0 million of the Company's floating rate debt, fixed the interest rate at 6.52 percent per annum, plus the then current applicable margin. The effect on net income of this swap was not material. Additional debt of the Company consists of three industrial revenue bonds, two in the amount of $1.0 million each which bear interest at 7.4% and 7.5% and another in the amount of $0.3 million which bears interest ranging from 6.2% to 6.7% and a capital lease obligation of $0.5 million. The average monthly debt during 1996 was $141.2 million, an increase of $13.9 million over the comparable 1995 average debt. This increase is primarily due to increased borrowing to fund acquisitions and the establishment of the Company's securitization program. (7) EMPLOYEE RETIREMENT AND BENEFIT PLANS PENSION: Substantially all hourly employees are covered by Company or union sponsored defined benefit plans. The Company's salaried and certain hourly employees participate in a pension plan which provides benefits that are based on the employee's years of service with the Company and the employee's compensation. Prior to 1996, this plan was sponsored by Eagle and amounts presented in the following tables related to this plan for periods prior to 1996 represent the portion of the plan allocated to the Company as calculated by Eagle's consulting actuary. In January 1996, a separate plan sponsored by the Company, which mirrored the Eagle plan, was established. For other employees, pension benefits are provided based on a stated amount for each year of service. The Company's funding policy for all plans is to make no less than the minimum annual contributions required by applicable governmental regulations. The following table sets forth the funded status for all defined benefit pension plans and related amounts recognized in the Company's Consolidated Financial Statements:
DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------------------- --------------------------------- PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS ACCUMULATED BENEFITS BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS ------------- ------------- ------------- ------------- (IN MILLIONS) Actuarial present value of: Accumulated benefit obligation.......... $ 21.1 $ 6.2 $18.6 $ 5.8 ====== ===== ===== ===== Vested benefits......................... $ 17.7 $ 6.0 $17.5 $ 5.7 ====== ===== ===== ===== Projected benefit obligation.............. $ 21.1 $ 6.2 $18.6 $ 5.8 Plan assets at fair value................. 22.8 5.8 21.2 5.4 ------ ----- ----- ----- Plan assets in excess of (less than) projected benefit obligation............ 1.7 (0.4) 2.6 (0.4) Net unrecognized (gain) loss.............. 2.7 0.7 2.5 0.6 Net unrecognized prior service costs (benefits).............................. (0.3) 0.3 (0.5) 0.3 Unrecognized liability at August 1, 1987 -- 0.2 -- 0.2 Additional minimum liability.............. -- (1.2) -- (1.1) ------ ----- ----- ----- Pension asset (liability) recognized in Consolidated Financial Statements.... $ 4.1 $(0.4) $ 4.6 $(0.4) ====== ===== ===== =====
Plan assets generally consist of common stocks, fixed income instruments, and certain purchased annuities. In accordance with Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," ("SFAS No. 87") the Company has recorded an additional minimum pension liability for underfunded plans 22 23 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 1996 at December 31, 1996 and December 31, 1995, representing the excess of unfunded accumulated benefit obligations over previously recorded pension cost. A corresponding amount is recognized as an intangible asset except to the extent that these additional liabilities exceed related unrecognized prior service costs and net transition obligations, in which case the increase in liabilities is charged directly to stockholders' equity. At December 31, 1996 and 1995, the excess minimum pension liability resulted in a net reduction of equity of $0.5 million and $0.4 million, respectively. Net periodic pension cost for defined benefit pension plans reporting under the provisions of SFAS No. 87 was:
YEAR ENDED DECEMBER 31, ------------------------ 1996 1995 1994 ------ ------ ------ (IN MILLIONS) Service cost................... $ 1.8 $ 1.1 $ 2.1 Interest cost.................. 1.8 1.3 1.9 Actual return on assets........ (2.9) (2.3) (0.5) Net amortization and deferral 0.6 0.6 (2.7) ----- ----- ----- Net periodic pension cost.... $ 1.3 $ 0.7 $ 0.8 ===== ===== =====
The following assumptions were used in determining the actuarial present value of the projected benefit obligation for the Company's defined benefit plans for the years ended December 31, 1996 and 1995: weighted-average discount rate of 7.5%; rate of increase in future compensation levels of 4.0%; and expected long-term rate of return on assets of 9.0%. The Company and its subsidiaries also have several defined contribution plans for certain employees. Prior to 1995, the Company and its subsidiaries participated in an Eagle sponsored defined contribution plan for certain employees. In January 1995, a separate Falcon sponsored plan which mirrored the Eagle sponsored plan was established. Employer contributions to these plans were $1.4 million, $1.0 million and $1.0 million in 1996, 1995 and 1994, respectively. Contributions to this plan by the Company are determined based on a percentage of the contribution made by the employee. OTHER POSTRETIREMENT BENEFITS: The Company provides postretirement life and health-care benefits to certain of its employees. The Company has four plans which provide these benefits to employees retiring from the Company. Benefits are determined on varying formulas based on age at retirement and years of active service. Two of the plans are non-contributory. The Company has not funded any of this postretirement benefits liability. Contributions to the postretirement plans are made by the Company as claims are incurred. The following table sets forth postretirement benefits recognized in the Company's Consolidated Balance Sheet:
DECEMBER 31, ------------------- 1996 1995 ---- ---- (IN MILLIONS) Accumulated postretirement benefit obligation: Retirees...................................... $ 6.4 $ 6.6 Other fully eligible participants............. 2.1 2.2 Other active participants..................... 4.0 3.9 ----- ----- Subtotal.................................... 12.5 12.7 Unrecognized actuarial loss................... (3.4) (4.0) Unrecognized prior service cost............... -- (0.1) ----- ----- Postretirement benefit liability recognized in Consolidated Financial Statements............. $ 9.1 $ 8.6 ===== =====
23 24 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 1996 Net postretirement benefit cost included the following components:
YEAR ENDED DECEMBER 31, ----------------------------- 1996 1995 1994 ---- ---- ---- (IN MILLIONS) Service cost............................ $0.5 $0.4 $0.3 Interest cost........................... 0.9 0.7 0.6 Net amortization and deferral........... 0.2 0.1 -- ---- ---- ---- Net postretirement benefit cost....... $1.6 $1.2 $0.9 ==== ==== ====
The accumulated postretirement benefit obligation was determined using an assumed discount rate of 8.0% and 7.5% for the years ended December 31, 1996 and 1995, and health care cost trend rates of 10.5% in 1996 and 12.0% in 1995, decreasing ratably to 6.0% by the year 1998. The effect of a one percent increase in the health care cost trend rate assumption would increase the accumulated postretirement benefit obligation, resulting in an increase to the aggregate annual service cost and interest expense components by approximately $1.4 million and $0.2 million, respectively. (8) INCOME TAXES As further discussed in Note 1, the Company was included in GAMI's consolidated federal income tax return until the consummation of the Offering in November 1994. In addition, the Company filed certain combined state returns with GAMI until the distribution to EHL in 1996. Pursuant to the Tax Sharing Agreement with GAMI, in December 1996, the Company paid GAMI $4.6 million for tax liabilities it had incurred during these periods. The Company's Consolidated Financial Statements reflect the following deferred tax assets and liabilities:
DECEMBER 31, -------------- 1996 1995 ---- ---- (IN MILLIONS) Deferred tax assets: Inventory and receivable reserves...................... $ 4.5 $ 2.6 Accrued employee benefit obligations................... 2.8 2.8 Insurance reserves..................................... 5.5 4.0 Other.................................................. 5.8 5.4 ----- ----- $18.6 $14.8 ===== ===== Deferred tax liabilities: Property, plant and equipment basis difference....... $ 8.1 $ 7.3 ===== =====
24 25 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 1996 The components of the provision for income taxes are as follows:
YEAR ENDED DECEMBER 31, ------------------------- 1996 1995 1994 ---- ---- ---- (IN MILLIONS) Provision (benefit) for income taxes: Current: U.S. federal......................... $ 18.1 $ 11.8 $ 17.2 U.S. state........................... 3.6 1.7 1.6 ------ ------ ------ Subtotal........................... 21.7 13.5 18.8 ------ ------ ------ Deferred: U.S. federal......................... (2.3) 0.4 (1.4) U.S. state........................... (0.6) (0.2) 0.1 ------ ------ ------ Subtotal........................... (2.9) 0.2 (1.3) ====== ====== ====== Total.............................. $ 18.8 $ 13.7 $ 17.5 ====== ====== ======
Reconciliations of income taxes computed at the U.S. federal statutory rate to the consolidated provision for income taxes are as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1996 1995 1994 ---- ---- ---- (DOLLARS IN MILLIONS) U.S. federal statutory rate......................... 35% 35% 35% Income taxes at U.S. federal statutory rate......... $17.1 $12.5 $15.2 U.S. state income taxes, net of U.S. federal........ 1.9 1.0 1.1 Amortization of intangibles......................... 0.6 0.5 0.5 Other............................................... (0.8) (0.3) 0.7 ----- ----- ----- Provision for income taxes........................ $18.8 $13.7 $17.5 ===== ===== ===== Effective income tax rate......................... 38.4% 38.4% 40.4% ===== ===== =====
(9) STOCKHOLDERS' EQUITY INITIAL PUBLIC OFFERING: In November 1994, the Company completed an initial public offering of 6,000,000 shares of par value $.0l Class A Common Stock. The net proceeds to the Company were approximately $63.4 million. 25 26 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 1996 CAPITAL STOCK: The Company's Restated Certificate of Incorporation authorized 30,000,000 shares of Class A Common Stock, $.0l par value (the "Class A Stock"), 14,000,000 shares of Class B Common Stock, $.0l par value (the "Class B Stock") together, the "Common Stock" and 10,000,000 shares of preferred stock. Upon completion of the Offering, the Company had 6,070,500 shares of Class A Stock outstanding, including (i) 196,500 shares sold to the Company's management in the public offering, (ii) 70,500 restricted shares granted to them pursuant to the Company's 1994 Stock Option and Restricted Share Plan, and 14,000,000 shares of Class B Stock outstanding, which was beneficially owned by Eagle. In May 1996, Eagle transferred its ownership of the Company's Class B Stock to EHL. Pursuant to provisions in the Company's charter, the transfer of the Class B Stock to EHL resulted in its conversion to Class A Stock. Therefore, at December 31, 1996, there were 20,070,500 Shares of Class A Stock outstanding and no shares of Class B Stock outstanding. No shares of preferred stock have been issued. ADDITIONAL PAID-IN CAPITAL: In contemplation of the Offering, the Company assumed $114.9 million of Eagle's outstanding indebtedness in May 1994 through the issuance of unsecured notes at an interest rate of LIBOR plus 1.75%. These notes were repaid using the proceeds from the Offering and the Bank Credit Facility. As part of the Offering, the Company assumed $3.0 million of deferred financing fees of Eagle. The Company's Class A Stock was issued at $12.00 per share resulting in a net contribution to Additional paid-in capital of $66.6 million. In addition, Eagle forgave $35.2 million of advances to affiliate which was treated as additional paid-in capital. NOTES RECEIVABLE: Pursuant to the Company's Senior Executive Stock Purchase Plan (the "Executive Stock Plan"), certain executive officers of the Company purchased a total of 196,500 shares of Class A Stock for cash of $0.2 million and notes of $2.2 million. These notes, which bear interest at 7.5% per annum, are due no later than December 2001 or upon sale of the shares. These notes have been classified as a component of Stockholders' equity in the Company's Consolidated Balance Sheets. The shares cannot be sold prior to November 1997 and have been pledged to the Company pursuant to the terms of the Executive Stock Plan. DIVIDENDS PAID: In May 1994, the Company declared and paid a dividend of $111.0 million through the issuance of unsecured notes at an interest rate of 7% per annum. These notes were repaid, in part, through proceeds from the Offering and the issuance of the Bank Credit Facility. Any remaining obligations under these notes were forgiven by Eagle. (10) STOCK OPTION PLAN In November 1994, the Company adopted the 1994 Stock Option and Restricted Share Plan (the "1994 Plan"). Pursuant to the 1994 Plan, certain directors, employees and officers of the Company are given the opportunity to acquire shares of Class A Stock through the grant of non-qualified and qualified stock options, stock appreciation rights and restricted shares. Options granted pursuant to the 1994 Plan are exercisable at no less than the fair market value of the Class A Stock at the time of grant. Qualified stock options shall expire no more than ten years after the date of grant. Restricted shares awarded pursuant to the 1994 Plan shall generally vest in equal portions over a four year period from the date of award. Upon a change in control, all options shall become immediately exercisable and all restricted shares shall become vested. The 1994 Plan also provides for the annual award of 2,000 nonqualified stock options of Class A Stock to each director who is not an employee of Eagle or its subsidiaries. A total of 1,700,000 shares of Common Stock is reserved for issuance under the 1994 Plan. The 1994 Plan is administered by a committee of the Board of Directors. 26 27 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 1996 Non-Qualified stock option activity is shown below:
OPTIONS OUTSTANDING EXERCISABLE OPTIONS -------------------------- ------------------------------ WEIGHTED WEIGHTED NUMBER OF AVG. EXERCISE NUMBER OF AVG. EXERCISE SHARES PRICE SHARES PRICE --------- ------------- --------- ------------- Balance at December 31, 1993 -- $ -- Granted..................... 196,000 12.00 Exercised................... -- -- Canceled.................... -- -- -------- ------- Balance at December 31, 1994 196,000 12.00 -- $ -- ======= ====== Granted..................... 309,500 9.59 Exercised................... -- -- Canceled.................... (6,000) 11.50 -------- ------- Balance at December 31, 1995 499,500 10.51 48,000 12.00 ======= ====== Granted..................... 305,600 12.29 Exercised................... -- -- Canceled.................... (6,800) 10.53 -------- ------- Balance at December 31, 1996 798,300 $ 11.19 170,426 10.93 ======== ======= ======= ======
At December 31, 1996, the options outstanding and exercisable options outstanding had exercise prices ranging from $8.85 to $12.56 and $9.35 to $12.00, respectively. The weighted average remaining contractual life of the options outstanding was 9 years. The weighted average fair value of options granted in 1996 and 1995 was $12.39 and $9.65, respectively. The Company measures compensation cost using the intrinsic value-based method of accounting pursuant to the provisions of APB Opinion No. 25. Had compensation cost been determined on the fair market value-based accounting method prescribed by Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation" ("SFAS No. 123") for options granted in 1996, pro forma net income would have been $29.8 million. Pro forma earnings per share for 1996 would have been $1.48. There would have been no effect on 1995 results. For purposes of fair market value disclosures, the fair market value of an option grant is estimated using the Black-Scholes option pricing model with the following assumptions:
1996 1995 ---- ---- Risk-Free Interest Rate...................... 6.0% 6.0% Average Life of Options (years).............. 5 5 Volatility................................... 39.1% 39.6% Dividend Yield............................... -- --
As part of the Offering, the Company awarded 70,500 restricted shares of Class A Stock to certain officers, of which 35,250 shares were vested at December 31, 1996. The market value of the shares awarded was $0.8 million. This amount was recorded as unearned compensation and is shown as a separate component of Stockholders' equity. Unearned compensation is being amortized to expense over a four year vesting period. This expense amounted to $0.2 million in 1996 and 1995. 27 28 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 1996 (11) BALANCE SHEET DETAIL
DECEMBER 31, ---------------- 1996 1995 ---- ---- (IN MILLIONS) Inventories: Raw materials and supplies........................... $ 30.9 $ 21.6 Work in process...................................... 12.7 10.0 Finished goods....................................... 32.6 25.3 ------ ------ Total............................................. $ 76.2 $ 56.9 ====== ====== Excess of replacement cost over LIFO inventory cost.. $ 3.0 $ 3.0 ====== ====== Property, plant and equipment: Land................................................. $ 8.8 $ 8.7 Buildings............................................ 48.0 42.1 Machinery and equipment.............................. 117.0 102.8 Construction in progress............................. 13.2 12.2 Less accumulated depreciation........................ (89.6) (77.1) ------ ------ Total............................................. $ 97.4 $ 88.7 ====== ======
(12) RELATED PARTY TRANSACTIONS The Company has in the past entered into agreements or arrangements with affiliates relating to legal services, acquisition services, financing services, and consulting arrangements which are described below. The fairness and reasonableness of any compensation paid to such affiliates and any material transactions between the Company and such affiliates in the future will be approved by a majority of the independent members of the Board of Directors or by an independent firm selected by such Board members. The Company believes that the terms and resulting costs of all related party transactions and agreements are no less favorable than those which could have been obtained from non-affiliated parties. The Company shares management, administrative and other services with Eagle pursuant to a Corporate Services Agreement which renews annually in the absence of termination by either party. The fee under this agreement is intended to cover Eagle's expected costs in providing these services to the Company and is reviewed annually. Total fees paid under this agreement were $2.6 million in 1996, $2.3 million in 1995 and $2.4 million in 1994. Prior to 1996, the Company participated in an Eagle sponsored self-insurance program which included coverage for medical, workers' compensation, product liability and general liability insurance. The Company reimbursed Eagle for amounts paid on behalf of the Company. Payments made either to Eagle or directly to the third party administrator for Falcon's participation in these shared coverages totaled $17.0 million and $12.0 million in the years ended December 31, 1995 and 1994, respectively. Prior to the Offering, the Company was included in GAMI's consolidated federal income tax returns. In addition, the Company filed certain combined state tax returns with GAMI until the distribution to EHL in 1996. Pursuant to the Tax Sharing Agreement, the Company paid GAMI $4.6 million in 1996 for tax liabilities it incurred during the periods it was included in GAMI's federal and certain combined state tax returns. The law firm of Rosenberg & Liebentritt, P.C., of which a Company Director is a member, has rendered legal services to the Company. The Company paid this law firm $0.1 million in 1996 and $0.4 million in 1995. Also see Notes 1, 5 and 8 for other information regarding related party transactions. 28 29 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 1996 (13) COMMITMENTS AND CONTINGENCIES The Company conducts manufacturing operations at various leased facilities and also leases warehouses, manufacturing equipment, office space, computers and office equipment. Most of the realty leases contain renewal options and escalation clauses. Total rent expense, including related real estate taxes, amounted to $4.7 million, $3.9 million and $3.6 million for the years ended December 31, 1996, 1995, and 1994, respectively. Future minimum lease payments required as of December 31, 1996 (in millions): 1997 $1.5 1998 1.1 1999 0.8 2000 0.8 2001 and thereafter 1.8 ---- $6.0 ====
The Company and certain of its subsidiaries are involved in several lawsuits and environmental matters arising in the ordinary course of business. However, it is the opinion of the Company's management, based upon the advice of legal counsel, that these lawsuits are either without merit, are covered by insurance, or are adequately reserved for in the Consolidated Balance Sheets, and the ultimate disposition of pending litigation will not be material in relation to the Company's consolidated financial position or results of operations. In addition to the matters covered by the preceding paragraph, in May 1994, Underwriters' Laboratories of Canada ("ULC") suspended its recognition of high temperature plastic venting systems for gas appliances, including the Ultravent system manufactured by the Company. This action resulted from reports of problems with high temperature plastic venting systems, including improper installation, cracking, inadequate joint adhesion, and related safety hazards, including potential for carbon monoxide emission. In June 1994, as a result of the ULC action, the Ontario Ministry of Consumer and Commercial Relations ("MCCR") banned sales of these plastic venting systems in the Province of Ontario. Other provinces of Canada have taken similar action. Pursuant to an MCCR order, high temperature plastic venting systems in Ontario have been corrected. The Company is a defendant in a suit that has been filed against 24 entities representing heating appliance manufacturers, plastic vent manufacturers, public utilities and listing agencies by the Ontario New Home Warranty Program, which is responsible for the cost of replacing vent material in new home construction in Ontario. This suit seeks damages of Cdn $125 million from all of the defendants. Most gas appliance manufacturers in Canada and the United States no longer certify these venting systems for use with their products. The Company is also a defendant in a lawsuit filed by Goodman Manufacturing, an appliance manufacturer that is replacing its own installations and has sued three defendants for reimbursement of its costs. The Company has been named as a defendant in a class action lawsuit which has been filed in the United States regarding high temperature plastic venting. The Company is engaged in ongoing discussions with the United States Consumer Product Safety Commission, ("CPSC") which has been advised of the ULC action and the actions taken by the MCCR. The CPSC continues to investigate high temperature plastic venting and has met with all of the manufacturers of high temperature plastic vents, various appliance manufacturers and other entities with technical expertise. CPSC concerns focus on the heating appliance system, the plastic resin used to manufacture the venting, vent sealant compounds and improper installation. While no definitive action has been decided upon, the Company is aware that the CPSC is considering a corrective action program involving plastic venting and it is probable that in the near term the CPSC will mandate a corrective action program which would impact heating appliance manufacturers, plastic resin manufacturers, and plastic venting manufacturers, including the Company. Several appliance manufacturers have announced their intention to replace plastic vent product with alternative systems which have been approved by the CPSC. Company sales of Ultravent products in the United States and Canada in 1995 and 1996 were minimal. 29 30 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) DECEMBER 31, 1996 While it is impossible at this time to give a firm estimate of the ultimate cost to the Company, management currently believes that the after-tax cost to the Company of resolving the Ultravent matter could range from a non-material amount to $20.0 million, after considering reimbursements and insurance recoveries. With respect to this matter, the Company has filed a lawsuit against its insurance carriers. Although no assurances can be given, the Company believes at this time that the ultimate resolution of these matters will not have a material effect on the Company's financial condition, but may have a material effect on future results of operations in the period recognized. (14) BUSINESS SEGMENT INFORMATION The Company's current operations are in one industry segment, building and construction related products, serving the residential and commercial construction and home improvement markets. These businesses are influenced primarily by housing starts, construction and remodeling activity and consumer spending. The Company's export sales are less than 10% of total revenues. Sales to Sears, Roebuck and Co. accounted for 13.3%, 17.7% and 19.3% of total net sales for the years ended December 31, 1996, 1995 and 1994, respectively. The Company's revenues and identifiable assets are predominantly related to its U.S. operations and no one other geographic area accounts for more than 10% of total revenue or 10% of total assets. (15) OTHER MATTERS The Company's Board of Directors is exploring a broad range of strategic alternatives to enhance shareholder value in the Company. Alternatives under consideration include the sale of the Company in its entirety. The Company has retained Merrill Lynch & Co. and Smith Barney, Inc. to assist in this effort. 30 31 FALCON BUILDING PRODUCTS, INC. AND SUBSIDIARIES SUPPLEMENTARY FINANCIAL DATA (UNAUDITED) QUARTERLY FINANCIAL DATA The following is a summary of the unaudited interim results of operations for December 31, 1996 and 1995 (in millions).
QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, -------------- ------------- ------------- ------------- 1996 1995 1996 1995 1996 1995 1996 1995 ---- ---- ---- ---- ---- ---- ---- ---- Net sales........ $144.4 $112.9 $168.4 $116.6 $162.7 $120.0 $157.7 $121.8 Gross earnings 25.3 22.7 30.5 23.0 28.8 19.7 28.3 21.5 Net income....... 5.4 6.1 8.1 6.0 8.0 4.4 8.5 5.6 Earnings per common share: Net income....... $ 0.27 $ 0.31 $ 0.40 $ 0.30 $ 0.40 $ 0.22 $ 0.42 $ 0.28
31 32 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT The following table lists the name, age as of February 7, 1997, position, offices and certain information with respect to the executive officers of the Company. The term of office of each executive will expire upon the appointment of his successor by the Board of Directors. William E. Allen, 52....... President of DeVilbiss Air Power Company, a subsidiary of Falcon, since 1989. Gus J. Athas, 60........... Senior Vice President, General Counsel and Secretary of Falcon since 1994; Senior Vice President of GAMI since 1995; Senior Vice President (and prior thereto Vice President), General Counsel, and Secretary (and prior thereto Assistant Secretary) of Eagle. Sam A. Cottone, 56......... Senior Vice President-Finance, Treasurer and Chief Financial Officer of Falcon since 1994; Senior Vice President of GAMI since 1995; Senior Vice President-Finance, Chief Financial Officer and Director of Eagle since 1993; Partner with Arthur Andersen LLP from 1973 to 1993. Rod F. Dammeyer, 56........ Chairman of Falcon since 1996; Director of Falcon since 1994; Director and President since 1985 and Chief Executive Officer since 1993 of Anixter International, Inc., a provider of networking and cabling solutions; President and Chief Executive Officer since 1994 and Director since 1992 of GAMI; Managing Director since 1996 of EGI Corporate Investments, Inc., a diversified management and investment company; a Managing Director since 1995 of the general partner of Zell/Chilmark fund, L.P.; Director of Sealy Corporation, ANTEC Corporation, IMC Global, Inc., Capsure Holdings Corp., Jacor Communications, Inc., Revco D.S., Inc., TeleTech Holdings, Inc. and Lukens, Inc.; Trustee of Van Kampen Merritt closed-end mutual funds and series trusts. Bradbury Dyer, III, 54..... Director of Falcon since 1994; founder and sole general partner of Paragon Associates, a private investment partnership; Director of Capsure Holdings Corp. and Roosevelt Financial Group, Inc. Daniel G. Ellis, 49........ Vice President-Finance of Falcon since January 1995; Vice President-Planning and Development ABT Building Products, Inc., a building products manufacturer from 1992 to 1994; Director of Financial Administration Masonite Corporation, a building products manufacturer from 1987 to 1994. Edward G. Finnegan, Jr., 35 Vice President-Corporate Development of Falcon since January 1996; Served in various non-executive capacities at Eagle, Equity Group Investments, Inc., and EGI Corporate Investments, Inc. since 1988. Paul G. Fischer, 50........ President of Mansfield Plumbing Products, Inc., a subsidiary of Falcon, since 1988. William K. Hall, 53........ Director, President and Chief Executive Officer of Falcon since 1994; President since 1988 and Chief Executive Officer and Director since 1990 of Eagle; Director of GenCorp and A.M. Castle.
32 33 Philip C. Kantz, 53........ Director of Falcon since 1995; President and Chief Executive Officer of TAB Products Co. since 1997; President and Chief Operating Officer from 1995 to 1996 of Trans Ocean Ltd, a cargo container leasing company; President and Chief Executive Officer from 1994 to 1995 of Transcisco Industries, Inc., an industrial services company; interim President and Chief Executive Officer from 1992 to 1993 of Genetrix, Inc., a biotechnology services business; President and Chief Executive Officer from 1988 to 1991 of Itel Container International Corporation, then a subsidiary of Anixter International, Inc. engaged in the leasing of intermodal cargo containers; Director of 3COM Corporation, TAB Products, Co., Parc Place-Digitalk, Inc., Blue Cross of California and Search Systems Corporation. Lawrence B. Lee, 54........ President of Hart & Cooley, Inc., a subsidiary of Falcon, since 1985. Sheli Z. Rosenberg, 55..... Director of Falcon since 1994; Principal of the law firm of Rosenberg & Liebentritt, P.C.; President and Chief Executive Officer since 1994 of Equity Group Investments, Inc. and its subsidiary Equity Financial and Management Company, both real estate investment firms, and Director and executive officer for more than the past five years of these companies; GAMI, Capsure Holdings Corp., Anixter International, Inc., Sealy Corporation, American Classic Voyages Co., Revco D.S., Inc., and Jacor Communications, Inc.; Trustee of Equity Residential Properties Trust and Manufactured Home Communities, Inc.; Executive officer and Director until October 4, 1991 of Madison Management Group, Inc., which filed a petition under the Federal bankruptcy laws in November 1991; Vice President of First Capital Benefit Administrators, Inc., which filed a petition under the Federal bankruptcy laws in January 1995. Richard G. Sim, 52......... Director of Falcon since 1995; Chairman, President and Chief Executive Officer of Applied Power, Inc., a manufacturer and distributor of engineered products, tools and consumables, for more than the past 5 years; Director of IPSCO, Inc. Robert L. Smialek, 53...... Director of Falcon since 1996; Chairman, President and Chief Executive Officer of Insilco Corporation since 1993; Director of Thermalex, Inc. since 1993; Director of Siebe plc from 1992 to 1993; President and Chief Operating Officer of the Temperature & Appliance Controls Group of Siebe plc from 1992 to 1993; President and Chief Operating Officer of Ranco Inc. from 1990 to 1992. B. Joseph White, 49........ Director of Falcon since 1995; Dean since 1991 and Professor since 1987 at the University of Michigan Business School; Trustee of Equity Residential Properties Trust; Director of Union Pump Company and Kelly Services, Inc.
33 34 ITEM 11. EXECUTIVE COMPENSATION The following tables set forth information about the compensation of the chief executive officer and the four other most highly compensated executive officers of the Company (the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ---------------------------------------- RESTRICTED SECURITIES ALL OTHER ANNUAL COMPENSATION STOCK UNDERLYING COMPEN- --------------------------- AWARDS OPTIONS SATION NAME AND PRINCIPAL POSITIONS YEAR SALARY($) BONUS ($) ($)(3) (#) ($)(4) - ---------------------------- ---- --------- -------- ---------- ---------- --------- William K. Hall (1)......................... 1996 250,000 271,200 -- 43,300 6,410 President and Chief Executive Officer 1995 241,551 -- -- 53,300 6,200 1994 234,058 214,500 79,800 40,000 5,938 William E. Allen............................ 1996 186,162 208,157 -- 19,500 11,402 President, DeVilbiss Air Power Co. 1995 171,102 50,117 -- 22,100 12,399 1994 162,537 160,796 198,000 15,000 9,313 Gus J. Athas (1)............................ 1996 144,731 122,040 -- 32,200 6,410 Senior Vice President, General Counsel and 1995 126,174 -- -- 40,000 6,200 Secretary 1994 127,193 91,000 53,400 30,000 5,938 C. Clifford Brake (2)....................... 1996 289,433 235,944 -- -- 12,820 Senior Vice President-Operations 1995 142,164 -- -- -- 6,200 1994 132,500 132,000 53,400 -- 5,938 Sam A. Cottone (1).......................... 1996 144,731 122,040 -- 32,200 6,410 Senior Vice President-Finance, Treasurer 1995 136,048 -- -- 40,000 6,200 and Chief Financial Officer 1994 127,193 91,000 53,400 30,000 5,938 Paul G. Fischer............................. 1996 183,475 82,013 -- 17,350 7,680 President, Mansfield Plumbing Products, Inc. 1995 172,000 -- -- 22,100 13,881 1994 161,250 161,573 198,000 15,000 10,022 Lawrence B. Lee............................. 1996 194,750 73,148 -- 18,450 8,960 President, Hart & Cooley, Inc. 1995 185,562 -- -- 22,100 12,399 1994 173,472 164,764 210,000 15,000 11,876
(1) The annual and all other compensation shown for Messrs. Hall, Cottone and Athas represents 50% of such compensation paid to them by a subsidiary of Eagle and reimbursed by the Company. (2) The annual and all other compensation shown for Mr. Brake in 1995 and 1994 represents 50% of such compensation paid to him by a subsidiary of Eagle and reimbursed by the Company. (3) Value on date of grant, November 3, 1994, of 6,650, 16,500, 4,450, 4,450, 4,450, 16,500 and 17,500 restricted shares of Common Stock granted to the above named officers, respectively. On December 31, 1996, the remaining shares of 3,325, 8,250, 2,225, 2,225, 2,225, 8,250 and 8,750 had a value of $49,044, $121,688, $32,819, $32,819, $32,819, $121,688 and $129,063, respectively. Subject to forfeiture for non-vesting, the grantees would be entitled to any dividends declared on these shares. Shares vest at the rate of 25% over a four year period from date of grant. (4) Amounts contributed to the Eagle Employee Savings Plan and accrued under an unfunded Supplemental Plan for Mr. Hall represent 50% of the actual contributions made by an Eagle subsidiary. Amounts contributed and accrued for Mr. Brake under these plans represents 100% in 1996 and 50% in 1995 and 1994 of actual contributions made by an Eagle subsidiary. 34 35 OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM ----------------------------- ---------------------------- NUMBER OF % OF TOTAL 5% ($) 10% ($) SECURITIES OPTIONS (ASSUMES (ASSUMES UNDERLYING GRANTED TO EXERCISE OR $20.46 PRICE $32.58 PRICE OPTIONS EMPLOYEES IN BASE PRICE DATE OF AT END OF AT END OF GRANTED(#)(1) FISCAL YEAR ($/SH.) EXPIRATION 10 YEARS)(2) 10 YEARS)(2) --------------- ------------ ----------- ---------- ------------- ------------- William K. Hall........... 43,300 14.2% 12.56 11/13/06 342,023 866,754 William E. Allen.......... 19,500 6.4% 12.56 11/13/06 154,029 390,339 Gus J. Athas.............. 32,200 10.5% 12.56 11/13/06 254,345 644,560 Sam A. Cottone............ 32,200 10.5% 12.56 11/13/06 254,345 644,560 Paul G. Fischer........... 17,350 5.7% 12.56 11/13/06 137,046 347,302 Lawrence B. Lee........... 18,450 6.0% 12.56 11/13/06 145,735 369,321
1. Options are for Class A Stock and vest at the rate of 25% per year over a four year period from the date of grant. 2. These numbers are for presentation purposes only and are not predictions of future stock prices. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FISCAL YEAR OPTION VALUE
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT FY-END (#) FY-END ($) SHARES ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE ------------------ ------------ ------------- ------------- William K. Hall............... 0 0 33,325/103,275 126,955/365,692 William E. Allen.............. 0 0 13,025/43,575 50,460/152,835 Gus J. Athas.................. 0 0 25,000/77,200 95,250/273,768 C. Clifford Brake............. 0 0 0/0 0/0 Sam A. Cottone................ 0 0 25,000/77,200 95,250/273,768 Paul G. Fischer............... 0 0 13,025/41,425 50,460/148,126 Lawrence B. Lee............... 0 0 13,350/43,500 52,215/155,800
PENSION PLAN TABLE The Falcon Cash Balance Pension Plan is a qualified "cash balance" defined benefit plan that covers eligible salaried and hourly employees of Falcon and its subsidiaries that adopt the plan. Certain officers of the Company participate in an Eagle sponsored Cash Balance Plan which mirrors the Falcon Cash Balance Plan (collectively the "Pension Plans") The normal form of retirement benefit under the Pension Plans is an annuity payable at age 65 (the normal retirement age), although, in lieu of an annuity, a participant may elect to receive a lump sum payment at retirement or other termination of service. A participant's benefit is based on an account balance, which is the sum of 5% of the participant's compensation for each of the first 15 years of service and 6.5% of compensation for each year of service thereafter. The account balances are further credited with interest. The interest credit is based on the One Year Treasury Constant Maturities as published in the Federal Reserve Statistical Release over the one month period ending on the November 30 immediately preceding the applicable plan year. The interest rate for the plan year ending December 31, 1996 was 5.5%. Covered compensation includes salary, annual bonus, 401(k) deferrals and overtime, but excludes long-term incentive compensation. The estimated annual annuity benefits payable under the Pension Plans at normal retirement are $12,680, $51,541, $5,984, $18,077, $7,714, $53,066 and $39,450 for Messrs. Hall, Allen, Athas, Brake, Cottone, Fischer and Lee, respectively at December 31, 1996. The Company is bearing part of the current costs of these benefits for Messrs. Hall, Cottone, Athas and Brake pursuant to the Service Agreement described below. 35 36 COMPENSATION OF DIRECTORS The Company pays its directors who are not officers or employees of the Company or a subsidiary annual retainers of $20,000 and fees of $1,000 for each board and committee meeting attended. Directors are reimbursed for any expenses they incur in attending meetings. Each director is granted upon initial election and at each annual meeting of stockholders thereafter a ten year option (vesting at the rate of 25% per year) to purchase 2,000 shares of Class A Stock for its fair market value on the date of grant. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS Mr. Ellis has an agreement with the Company which provides certain benefits in the event that his employment with the Company is terminated, other than for cause, within two years following a change in control of ownership of the Company prior to September 30, 1997. Messrs. Allen, Fischer and Lee have similar agreements with the respective subsidiaries of the Company of which they are Presidents in the event that their employment with their respective subsidiaries is terminated, other than for cause, within two years following a change in control of ownership of their respective businesses or the Company prior to September 30, 1997. Upon termination, the affected party would be entitled to receive a payment equal to two times base salary plus par bonus in effect at the time of their termination, plus continuation of certain benefits. It has been agreed that the Company will repurchase shares of Class A Stock purchased by Messrs. Hall (80,000 shares), Cottone (20,000 shares), Brake (20,000 shares), Athas (16,000 shares), Allen (24,000 shares), Fischer (24,000 shares), and Lee (12,500 shares) in the public offering of Common Stock if, prior to November 2, 1997, their employment is terminated coupled with a change in control as defined below. In the event of a change in control coupled with a termination of employment for any reason other than voluntary resignation, the purchase price will be the higher of market value or original purchase price plus accumulated interest on the related loan by the Company, see "Certain Relationships and Related Transactions." less any distributions received on these shares. In the event of a voluntary resignation, the purchase price will be the lower of these two prices. Upon a change in control, all options shall become immediately exercisable and all restricted shares shall become vested. A "change in control" shall be deemed to occur if (i) any person (other than the Company and its subsidiaries) acquires 50% or more of the outstanding Common Stock, or (ii) following a merger or combination of the Company with one or more other entities, 50% or more of the voting stock of the surviving corporation is held by persons other than former stockholders of the Company or (iii) 20% or more of the directors elected by stockholders to the Board of Directors of the Company are persons who were not nominated by the Board of Directors in the Company's most recent proxy statement. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION In 1996, the members of the Compensation Committee were Messrs. Dammeyer, Kantz and White. In 1996, the following relationships existed: Mr. Hall, President and Chief Executive Officer of Falcon was a member of the Board of Directors of GAMI and the Chief Executive Officer and a director of its subsidiary, Eagle; Mr. Dammeyer was the Chief Executive Officer and a director of GAMI and Chairman of the Board of Directors of Eagle. EHL owned approximately 87.9% (now 100%) of the outstanding common stock of GAMI and GAMI's subsidiary Eagle held the 14,000,000 shares of Common Stock of the Company now owned by EHL. EHL's sole general partners were the Samuel Zell Revocable Trust and the Robert H. and Ann Lurie Trust; Mr. Zell was the trustee of the Zell Trust; Mrs. Rosenberg and Ms. Lurie were co-trustees of the Robert H. and Ann Lurie Trust; Messrs. Athas and Cottone were executive officers and directors of the Company and were executive officers of GAMI and Eagle and in the case of Mr. Cottone, a director of Eagle. Mr. Dyer was a director of GAMI and the general partner of partnerships which owned approximately 3.7% of the common stock of GAMI. The Company shares management, administrative and other services with Eagle pursuant to a Corporate Services Agreement which renews annually in the absence of termination by either party. The fee under this agreement is intended to cover Eagle's expected costs in providing these services to the Company and is reviewed by the Audit Committee of the Board of Directors of the Company. The fee paid for 1996 was $2.6 million. 36 37 The law firm of Rosenberg & Liebentritt, P.C., of which Mrs. Rosenberg is Principal, provides legal service to the Company and was paid $0.1 million in 1996 for these services. The Company, until the Offering in November 1994, was included in the consolidated federal income tax returns of GAMI. In addition, the Company filed certain combined state tax returns with GAMI until the distribution to EHL in 1996. The Company has agreed to pay to GAMI amounts equal to the amounts the Company would have paid had it filed its own income tax returns for these periods. In December 1996, the Company paid GAMI $4.6 million pursuant to this agreement. In connection with the public offering of its Common Stock, the Company has agreed with the Pension Benefit Guaranty Corporation that for five years it will remain jointly and severally liable for certain pension liabilities of GAMI, Eagle and their subsidiaries without regard to whether or not the sale of the Common Stock to the public was sufficient to remove the Company from the group having joint and several liability for these pension plan liabilities. GAMI and Eagle have agreed to hold the Company harmless from any pension plan liabilities not attributable to the Company's pension plans and the Company has agreed to hold them harmless from any liabilities attributable to such plans. The Company and Eagle have agreed to hold each other harmless from certain liabilities unrelated to the others' business. The Company and Eagle have entered into a registration rights agreement under which the Company, under certain circumstances, must register under the Securities Act shares held by Eagle's subsidiaries for sale to the public and must indemnify them from certain liabilities in connection therewith. In 1994, the Company loaned $0.9 million to Mr. Hall, Chief Executive Officer and a director; $0.2 million to Mr. Cottone, Senior Vice President - Finance, Treasurer and a director at the time; $0.2 million to Mr. Brake, Senior Vice President - Operations and a director at the time; $0.2 million to Mr. Athas, Senior Vice President, General Counsel, Secretary and a director at the time; $0.3 million to Mr. Allen, President, DeVilbiss Air Power Company, a subsidiary; $0.3 million to Mr. Fischer, President, Mansfield Plumbing Products, Inc., a subsidiary; and $0.1 million to Mr. Lee, President, Hart & Cooley, Inc., a subsidiary. These loans were to enable these officers to purchase Common Stock in the public offering at $12 per share. The loans mature in seven years or earlier in certain circumstances and bear interest at the rate of 7.5% per year, compounded semi-annually payable upon maturity of the loans. At December 31, 1996, the balances of these loans were $1.04 million, $0.26 million, $0.26 million, $0.21 million, $0.31 million, $0.31 million and $0.16 million, respectively. 37 38 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of December 31, 1996, certain information with respect to the beneficial ownership of Common Stock of the Company by (i) each stockholder who is known by the Company to beneficially own more than 5% of the Common Stock, (ii) each director of the Company, (iii) each Named Executive Officer and (iv) all directors and executive officers of the Company as a group. Unless otherwise indicated, each beneficial owner has sole investment power and sole voting power with respect to the securities beneficially owned.
SHARES OPTIONS (1) TOTAL % OF CLASS ------ ----------- ----- ---------- EHL (2)................................................ 14,000,000 -- 14,000,000 69.8% William E. Allen (3)................................... 50,500 13,025 63,525 * Gus J. Athas (4)....................................... 23,450 25,000 48,450 * C. Clifford Brake...................................... 29,450 -- 29,450 * Sam. A. Cottone........................................ 29,450 25,000 54,450 * Rod F. Dammeyer (5).................................... 15,000 1,500 16,500 * Bradbury Dyer III (6).................................. 150,000 1,500 151,500 * Paul G. Fischer (7).................................... 40,600 13,025 53,625 * William K. Hall (8).................................... 91,550 33,325 124,875 * Philip C. Kantz........................................ -- 1,000 1,000 * Lawrence B. Lee (9).................................... 29,325 13,350 42,675 * Sheli Z. Rosenberg (2)................................. 2,000 1,500 3,500 * Richard G. Sim......................................... -- 500 500 B. Joseph White........................................ 1,500 1,000 2,500 * All directors & executive officers as a group, including the above-named persons.................... 472,525 145,475 618,000 3.1%
- -------------------- * Percentage of shares beneficially owned does not exceed one percent. (1) Shares of stock that are subject to options exercisable within 60 days of the date of this table. (2) EHL's general partner are the Samuel Zell Revocable Trust and the Robert H. and Ann Lurie Trust. Samuel Zell is the trustee of the Zell Trust. Mrs. Rosenberg and Ms. Lurie are co-trustees of the Robert H. and Ann Lurie Trust. Mr. Zell and Mesdames Lurie and Rosenberg disclaim beneficial ownership of the shares of Common Stock beneficially owned by EHL. The address of EHL, Mr. Zell and Mesdames Lurie and Rosenberg is Two North Riverside Plaza, Chicago, Illinois, 60606. (3) Includes 10,000 shares held by Mr. Allen's wife and of which Mr. Allen disclaims beneficial ownership. (4) Includes 3,000 shares held by a member of Mr. Athas' family and of which Mr. Athas disclaims beneficial ownership. (5) Includes 5,000 shares held by Mr. Dammeyer's wife and of which Mr. Dammeyer disclaims beneficial ownership. (6) Includes 150,000 shares owned by Paragon Joint Ventures ("Paragon"). Paragon is a joint venture formed by Paragon Associates and Paragon Associates II, both Texas partnerships. Mr. Dyer is the sole general partner of Paragon Associates and Paragon Associates II. Under the terms of the joint venture agreement of Paragon, each partner has beneficial ownership in proportion to its respective account in Paragon. Mr. Dyer does not have full direct ownership; however, as the general partner of the partners of Paragon, he may be deemed to have beneficial ownership. (7) Includes 100 shares held by a member of Mr. Fischer's family and of which Mr. Fischer disclaims beneficial ownership. (8) Includes 750 shares of the Company held by members of Mr. Hall's family and of which Mr. Hall disclaims beneficial ownership. (9) Includes 1,000 shares held by a trust of a member of Mr. Lee's family and of which Mr. Lee disclaims beneficial ownership. 38 39 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For a description of transactions and relationships between the Company and its directors, executive officers and more than 5% stockholders, see "Compensation Committee Interlocks and Insider Participation." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements Report of Independent Public Accountants ......... 14 Consolidated Balance Sheets ...................... 15 Consolidated Statements of Income ................ 16 Consolidated Statements of Stockholders' Equity .. 17 Consolidated Statements of Cash Flows ............ 18 Notes to Consolidated Financial Statements ....... 19
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, or are inapplicable, or the information called for therein is included elsewhere in the financial statements or the notes thereto. Accordingly, such schedules have been omitted. (b) Reports on Form 8-K Current report on Form 8-K dated December 2, 1996 relative to the issuance of a press release announcing the Board of Directors discussion to explore a broad range of strategic alternatives to enhance shareholder value in the Company. (c) Exhibits Exhibits required by Item 601 of Regulation S-K are listed in the Index to Exhibits, which is incorporated herein by reference. 39 40 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. FALCON BUILDING PRODUCTS, INC. By: /s/ WILLIAM K. HALL ------------------------------------- William K. Hall President and Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ WILLIAM K. HALL Director, President and Chief March 20, 1997 - -------------------------- Executive Officer (Principal (William K. Hall) Executive Officer) /s/ GUS J. ATHAS Senior Vice President, General March 20, 1997 - -------------------------- Counsel and Secretary (Gus J. Athas) /s/ SAM A. COTTONE Senior Vice President-Finance, March 20, 1997 - -------------------------- Treasurer and Chief Financial Officer (Sam A. Cottone) (Principal Accounting Officer) /s/ ROD F. DAMMEYER Director and Chairman of the Board March 20, 1997 - -------------------------- of Directors (Rod F. Dammeyer) */s/ BRADBURY DYER III Director March 20, 1997 - -------------------------- (Bradbury Dyer III) */s/ PHILIP C. KANTZ Director March 20, 1997 - -------------------------- (Philip C. Kantz) /s/ SHELI Z. ROSENBERG Director March 20, 1997 - -------------------------- (Sheli Z. Rosenberg) */s/ RICHARD G. SIM Director March 20, 1997 - -------------------------- (Richard G. Sim) */s/ ROBERT L. SMIALEK Director March 20, 1997 - -------------------------- (Robert L. Smialek) */s/ B. JOSEPH WHITE Director March 20, 1997 - -------------------------- (B. Joseph White) by */s/ DANIEL G. ELLIS as attorney in fact for each person indicated. ----------------------- (Daniel G. Ellis)
40 41 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------- 3.1 Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 of Falcon Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.) 3.2 By-Laws, as amended to date (Incorporated by reference to Exhibit 3.2 of Falcon Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.) 4.1 Form of Certificate for Class A Stock (Incorporated by reference to Exhibit 4.1 of Falcon Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.) 4.2 Bank Credit Agreement, between the Company and the lenders thereunder. (Incorporated by reference to Exhibit 4.1 of Falcon Building Products, Inc. Quarterly Report on Form 10-Q filed December 5, 1994.) 10.1 Corporate Services Agreement, dated June 22, 1994, between the Company and Eagle (Incorporated by reference to Exhibit 10.1 of Falcon Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.) 10.2 Disaffiliation Tax Sharing Agreement, dated October 28, 1994, between the Company and GAMI. 10.3 Registration Rights Agreement, between the Company, Eagle and the Selling Stockholders (Incorporated by reference to Exhibit 10.1 of Falcon Building Products, Inc. Quarterly Report on Form 10-Q filed December 5, 1994.) 10.4 Trademark License Agreement, dated April 24, 1990, between Illinois Tool Works, Inc. and DeVilbiss Air Power (Incorporated by reference to Exhibit 10.4 of Falcon Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.) 10.5 Trademark Licensing Agreement, dated September 28, 1990, between Masco Building Products Corp. and Kilgore Plumbing Products, Inc. (Incorporated by reference to Exhibit 10.5 of Falcon Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.) 10.6 Falcon Building Products, Inc. 1994 Stock Option and Restricted Share Plan (Incorporated by reference to Exhibit 10.6 of Falcon Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.) 10.7 Falcon Building Products, Inc. Senior Executive Stock Purchase Plan (Incorporated by reference to Exhibit 10.2 of Falcon Building Products, Inc. Quarterly Report on Form 10-Q filed December 5, 1994.) 10.8 Eagle Industries, Inc. Supplemental Executive Retirement Plan, as adopted September 15, 1992. (Incorporated by reference to Exhibit 10.9 of Falcon Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.) 10.9 Lease, dated December 6, 1991, between The E.T. Hermann and Jane D. Hermann 1978 Living Trust and Hart & Cooley, Inc. (Incorporated by reference to Exhibit 10.11 of Falcon Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.) 10.10 Lease Agreement, dated June 6, 1989, between Belz Investco, L.P. and Hart & Cooley, Inc., as amended November 10, 1989. (Incorporated by reference to Exhibit 10.12 of Falcon Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.) 10.11 Lease Agreement, dated September 3, 1991, between Jack North and Gerry North and Hart & Cooley, Inc., as amended. (Incorporated by reference to Exhibit 10.13 of Falcon Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.) 10.12 Indemnity Agreement, dated as of June 22, 1994, between the Company and Eagle. (Incorporated by reference to Exhibit 10.15 of Falcon Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.) 10.13 ERISA Indemnity Agreement, dated October 10, 1994, between the Company, GAMI and Eagle. (Incorporated by reference to Exhibit 10.16 of Falcon Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.) 10.14 Agreement, dated October 4, 1994, between the Company, EHL, GAMI and Eagle. (Incorporated by reference to Exhibit 10.17 of Falcon Building Products, Inc. Registration Statement of Form S-1. Registration Number 33-79006, filed May 17, 1994, as amended.) 10.15 Receivables Purchase Agreement as of May 2, 1996 among Centrally Held Eagle Receivables Program, Inc., Falcon Building Products, Inc., Market Street Funding Corporation and PNC Bank, National Association. (Incorporated by reference to Exhibit 10.16 of Falcon Building Products, Inc. Quarterly Report on Form 10-Q dated June 30, 1996.)
41 42 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------- 10.16 Receivables Purchase Agreement as of May 2, 1996 among Centrally Held Eagle Receivables Program, Inc., Falcon Building Products, Inc., Certain Commercial Lending Institutions and PNC Bank, National Association. (Incorporated by reference to Exhibit 10.17 of Falcon Building Products, Inc. Quarterly Report on Form 10-Q dated June 30, 1996) 10.17 Falcon Building Products, Inc. Employee Savings Plan as adopted January 1, 1995. 10.18 Falcon Building Products, Inc. Cash Balance Pension Plan as adopted January 1, 1996. 10.19 Termination Benefits Agreement dated December 13, 1996 between Hart & Cooley, Inc. and Lawrence B. Lee. 10.20 Termination Benefits Agreement dated December 18, 1996 between Mansfield Plumbing Products, Inc. and Paul Fischer. 10.21 Termination Benefits Agreement dated December 31, 1996 between DeVilbiss Air Power Company and William E. Allen. 10.22 Termination Benefits Agreement dated December 19, 1996 between Falcon Building Products, Inc. and Daniel G. Ellis. 21.1 Subsidiaries of the Company. 24.1 Power of Attorney of Directors
42 EX-10.2 2 DISAFFILIATION TAX SHARING AGREEMENT, 10/28/94 1 Exhibit 10.2 GAMI-FALCON DISAFFILIATION TAX SHARING AGREEMENT This GAMI-FALCON DISAFFILIATION TAX SHARING AGREEMENT ("Agreement") made as of October 28, 1994, by and among Great American Management and Investment, Inc., a Delaware corporation ("GAMI"); Eagle Industrial Products Corporation, O.D.E. Manufacturing, Inc., and Amerace Corporation, all Delaware corporations (collectively "Eagle"); and Falcon Building Products, Inc., a Delaware corporation ("Falcon"), Witnesseth that: WHEREAS, GAMI is the common parent corporation of the affiliated group (as such terms are defined in Section 1504(a) of the Code) (the "Consolidated Group") of which Eagle is a Member, and of which Falcon is a third tier subsidiary and of which Falcon's direct and indirect subsidiaries (the "Falcon Subsidiaries") are members; and WHEREAS, GAMI, Eagle and Falcon are parties to a Tax Sharing Agreement made as of the 31st day of January, 1994 (the "Existing Tax Sharing Agreement"); and WHEREAS, shares of Falcon common stock will be sold pursuant to a public offering; upon completion of the offering, GAMI and Eagle will not own enough of the outstanding shares of Falcon stock for Falcon to be a member of the Consolidated Group (the "Disaffiliation"); and WHEREAS, upon and after the consummation of the transactions pursuant to the Disaffiliation, and as a result thereof, Falcon and the Falcon Subsidiaries will cease to be members of the Consolidated Group (the date of such cessation being referred to herein as the "Disaffiliation Date"); and WHEREAS, the parties to this Agreement desire to set forth their agreement in relation to liability for taxes (including interest and penalties thereon) that are or may be owed by, or asserted against, Falcon and the Falcon Subsidiaries; NOW, THEREFORE, in consideration of the foregoing and of the mutual promises, covenants and conditions hereinafter contained, the parties hereto agree as follows: 1. General Intent and Third Party Rights-Indemnification (a) It is the general intent of the parties to this Agreement that: (1) GAMI and Eagle shall economically bear the burden of all federal income taxes imposed on the income of the Consolidated Group excluding Falcon and the Falcon Subsidiaries; and that Falcon shall economically bear the burden of all federal income taxes imposed on the income of Falcon or the Falcon Subsidiaries; (2) Falcon shall bear the burden of all taxes imposed on Falcon or the Falcon Subsidiaries by state and local taxing authorities, including, but not limited to, sales, use, occupation, franchise, excise, income, or any other tax, fee or assessment (a "non-Federal tax") imposed on Falcon, it being acknowledged that Falcon and the Falcon Subsidiaries have at all times relevant hereto filed 2 non-Federal tax returns and paid all non-Federal tax amounts computed on a stand-alone basis without regard to any affiliation of Falcon with GAMI; and (3) Falcon shall bear the burden of all foreign income taxes imposed on Falcon and the Falcon Subsidiaries. This Agreement shall be construed accordingly. This Agreement shall not create any rights in any person other than the parties to this Agreement and the Falcon Subsidiaries. (b) GAMI and Eagle shall indemnify and hold Falcon harmless from and against GAMI Taxes, and Falcon shall indemnify and hold GAMI and Eagle harmless from and against Falcon Taxes. 2. Continuation of Existing Tax Sharing Agreement; Termination of All Other Tax Sharing Agreements. The Existing Tax Sharing Agreement shall continue to apply in accordance with its terms, except as modified by this Agreement. To the extent a provision of the Existing Tax Sharing Agreement is inconsistent with a provision of this Agreement, the Provision of this Agreement shall apply. 3. Certain Definitions. Capitalized terms not defined elsewhere in this Agreement or in the Existing Tax Sharing Agreement shall have the following meanings: (a) The term "Tax" means any imposed by subtitle A of the Code. (b) The term "Period" means the period of time under applicable law for which a Tax is imposed. (c) The term "Return" means the return or the report, if any, to be filed with the IRS for a Tax with respect to a Period. (d) "Old Periods" are Periods ending on or before the Disaffiliation Date. (e) The "Stub Period" is the Period of Falcon commencing August 1, 1994 and ending on the date of the interim closing of the books pursuant to the Disaffiliation as set forth in Section 4(b). The Stub Period is an Old Period. (f) "New Periods" are Periods beginning after the Stub Period. (g) "Falcon Taxes" are Taxes for which Falcon is liable under the Existing Tax Sharing Agreement and this Agreement, and the related Periods are "Falcon Periods". (h) "GAMI Taxes" are all taxes imposed on the Consolidated Group excluding Falcon Taxes. (i) "IRS" shall mean the United States Internal Revenue Service. (j) The "Maximum Applicable Corporate Tax Rate" with respect to a Tax shall be the maximum marginal corporate tax rate determined without regard to tax rate or tax benefit make-up provisions such as Section I l(b)(1) (last sentence) of the Code. 3 (k) "Final Computation" means the final computation of amounts owing between the parties with respect to a period as such amount is determined in the ordinary course of the preparation of the Return filed with respect to such Period, and shall be deemed to have occurred on the later of the date on which such Return is filed with the IRS or the Disaffiliation Date. (l) The term "Code" means the Internal Revenue Code of 1986, as amended. 4. Special Rules for Computation and Payment of Taxes for Stub Period. Stub Period. (a) Computation and Payment of Taxes. The amount of the Stand Alone Tax Liability (as such term is defined in Section I of the Existing Tax Sharing Agreement) for the Stub Period of Falcon shall be estimated and the amount of such estimate shall be due and payable on the fifteenth day of the third calendar month following the calendar month in which the Disaffiliation Date occurs. Actual amounts owing between the parties with respect to the Stub Period shall be computed on or before the due date (with extensions) of the GAMI return which includes the Stub Period, and Falcon shall pay to Eagle any remaining amounts owing, or Eagle shall refund to Falcon any excess amount paid by Falcon, as appropriate. Amounts owing between the parties hereunder which are paid after the fifteenth day of the third calendar month following the calendar month in which the Disaffiliation Date occurs shall bear interest from such date until the date paid at an annual rate of 2 percent (2%) per annum over the prime rate in effect from time to time at Bank of America Illinois. (b) Interim Closing of Books. The computation of the Stand Alone Tax Liability for the Stub Period shall be determined on the basis of an interim closing of the books for financial reporting purposes for the month end nearest the Disaffiliation Date. In the event there is not an interim closing of the books for financial reporting purposes, then the computation of the Stand Alone Tax Liability for the Stub Period shall be determined on the basis of the Falcon internal financial statements for the month end nearest the Disaffiliation Date or on any other basis agreed to by the parties. (c) Any item of income or gain included in the income of the Consolidated Group under Reg.1.1502-19, relating to "excess loss accounts", by reason of any transactions or events occurring on the Disaffiliation Date shall not be taken into account in computing the Stand Alone Tax Liability of Falcon but shall be treated as an item entering into the computation of Tax economically borne by GAMI and Eagle. (d) Elections. (1) No options otherwise available under Reg. I. 1502-76(b)(5) for the Stub Period of Falcon shall be exercised without the consent of both GAMI and Falcon. 4 (2) With Respect to Falcon, GAMI shall not, and shall not permit Falcon, to change any existing or adopt any new tax accounting principle, method of accounting, or tax election, except as provided herein or as agreed to by Falcon. 5. Adjustments to Taxes Subsequent to Final Computation. (a) In General. In the event of adjustments to Taxes for an Old Period Subsequent to the Final Computation thereof, whether such adjustments arise pursuant to an IRS audit, a court proceeding, a carryback, an amended Return or otherwise ("Tax Adjustments"), the allocation of liabilities under the existing Tax Sharing Agreement and this Agreement shall be recomputed and payments between the parties shall be made as provided in the existing Tax Sharing Agreement and this Agreement, subject to the following modifications: (1) The amount owing by Falcon to GAMI and Eagle shall be computed within 15 days after the time that GAMI or Eagle has notified Falcon that it has realized a "Tax Detriment" (such Tax Detriment being equal to the excess of: (x) the last made computation of Tax for such Period after taking into account the Tax Adjustments; over (y) the last made computation of Tax for such Period determined without taking into account such Tax Adjustments). GAMI and Eagle are deemed to realize a Tax Detriment by either a payment of such Tax Detriment to the IRS, or by an application by the IRS of such Tax Detriment against a refund, and shall be paid 15 days after the date of such computation. (2) If an adjustment results in additional foreign tax imposed on Falcon, then GAMI and Eagle shall pay Falcon either: (a) 100% of such amount, if such amount gives rise to a credit against tax, or (b) the Maximum Applicable Corporate Tax Rate applied to such amount, if such amount gives rise to a loss or deduction (such payment being referred to as the "Foreign Tax Refund"). Notwithstanding the foregoing, the maximum amount of any Foreign Tax Refund under this Section 5(a)(2) from GAMI and Eagle to Falcon shall not exceed the amount of any tax benefit realized by GAMI and Eagle as a result of the imposition of such foreign tax on Falcon. To the extent GAMI and Eagle have paid to Falcon a Foreign Tax Refund in excess of the maximum amount payable under this Section 5(a)(2), Falcon shall promptly return such excess to GAMI and Eagle, (3) If an adjustment occurs by reason of a carryback of a loss or deduction with respect to a Falcon Tax from a New Period to an Old Period, then GAMI shall pay Falcon 100% of such amount, if such amount is a credit against tax, and the maximum applicable corporate tax rate applied to such amount, if such amount is a loss or deduction (such payment being referred to as the "Carryback Refund"). Notwithstanding the foregoing, the maximum amount of any carryback refund under this Section 5(a)(3) from GAMI to Falcon shall not exceed the amount of any tax benefit realized by GAMI as a result of such carryback. To the extent GAMI has paid to Falcon a Carryback Refund in excess of the maximum amount payable under this Section 5(a)(3), Falcon shall promptly return such excess to GAMI. 5 (4) Interest and penalties imposed by law on the taxpayer or the IRS with respect to any Tax (including with respect to the making and/or filing of the related Return) and reasonable expenses incurred by the parties in connection with seeking a refund of Tax or contesting a proposed deficiency of Tax shall be treated under the principles set forth in this Agreement applicable to the related Tax and shall relate to the Period to which such Tax relates. This Section 5(a)(4) shall not be construed to modify the provisions of the other Sections of this Agreement. (5) Notwithstanding the foregoing, no payment shall be required to be made under this Section 5(a) unless a written claim for such payment, along with all information and documentation reasonably necessary to support such claim, is served on the party requested to make such payment prior to the later of: (x) the fifth anniversary of the date of this Agreement, or (y) the expiration of the applicable Tax statute of limitations (including extensions) with respect to such Period to which such claim relates. (b) Tax refunds and payments of deficiencies in taxes shall be treated under the foregoing principles and payments between the parties shall be made promptly and to the extent necessary to effectuate such principles. 6. Cooperation/Disagreements. (a) The parties shall cooperate fully with each other in all matters relating to Taxes and in the determination of amounts payable hereunder. If the parties are unable to agree as to the amount of any Tax owing between them under this Agreement, then the parties shall select a mutually acceptable "Big 6" accounting firm to determine such amount. The costs of such determination shall be borne equally by both parties. (b) Any party involved in any formal or informal act or proceeding relating to Tax matters which affects the other party shall promptly give such other party notice thereof and keep such other party fully and timely informed of developments. Specifically: (1) Upon receipt by Falcon of a written notice of any pending or threatened Tax audits of or assessments against Falcon for Taxes allocable to GAMI or Eagle, or upon receipt by GAMI or Eagle of a written notice of any Pending or threatened Tax audits of or assessments against GAMI or Eagle for Taxes allocable to Falcon (either, a "Potential Tax Liability"), Falcon (or GAMI or Eagle, as the case may be) shall promptly give notice thereof to GAMI or Eagle (or Falcon, as the case may be) (the "Tax Claim Notice"). The Tax Claim Notice shall contain information (to the extent known to Falcon or GAMI or Eagle, as the case may be) describing the Potential Tax Liability. (2) Subject to subparagraph (3) hereof, GAMI shall have the sole right to represent Falcon's interests in any Tax audit or administrative or court proceeding relating to a Potential Tax Liability, to employ counsel of its choice at its expense and to control the conduct of such audit or proceeding, including settlement or other disposition thereof. If GAMI elects to so represent Falcon's interests, it shall within thirty (30) days of delivery of any Tax Claim Notice (or sooner, if the nature of the Potential Tax Liability so requires) notify Falcon of its intent to do 6 so, and Falcon shall cooperate in the defense against or compromise of any claim in any such proceeding. In that event, GAMI shall reasonably and in good faith consult with Falcon with respect to the defense against or compromise of any such Potential Tax Liability, and GAMI shall use its best efforts to vigorously defend Falcon with respect to such Potential Tax Liability. If GAMI elects not to represent Falcon's interests, Falcon may pay, compromise or contest such Potential Tax Liability in such manner as it deems appropriate (in its sole discretion). (3) Notwithstanding subparagraph (2) hereof, in respect of a Potential Tax Liability relating to Returns other than consolidated, combined or unitary Returns of GAMI or Eagle or their affiliates which include Falcon, neither GAMI nor Eagle may settle, compromise or otherwise dispose of any such liability, without the consent of Falcon (which consent shall not be unreasonably withheld or delayed), if such settlement, compromise or other disposition would have an adverse effect on Falcon for New Periods. In that event, GAMI or Eagle shall permit Falcon, through counsel of its own choosing and at the sole expense of Falcon, to participate in the settlement, compromise or other disposition of such Potential Tax Liability. 7. Miscellaneous Matters (a) If Falcon and/or any of the Falcon Subsidiaries is required to file a consolidated, combined, or unitary state, local or foreign income tax return with GAMI or Eagle, then this Agreement shall apply with respect to such income tax in a manner similar to its application hereunder with respect to the federal income tax, taking into account concepts applicable under the state, local, or foreign tax laws. (b) Notice of any claim under this Agreement must be received by the party against whom such claim is made no later than the expiration of the applicable Tax statute of limitations (if any) with respect to the Tax matter underlying such claims. (c) The representations, warranties, covenants and agreements of the parties set forth in this Agreement shall survive the Disaffiliation Date indefinitely. (d) All notices, requests, demands and other communications which are required or may be given under this Agreement shall be given to GAMI at: Great American Management and Investment, Inc. Two North Riverside Plaza, Suite 600 Chicago, Illinois 60606 ATTN: Arthur A. Greenberg 7 to Eagle at: Eagle Industrial Products Corporation Two North Riverside Plaza, Suite II 00 Chicago, Illinois 60606 ATTN: Sam A. Cottone to Falcon at: Falcon Building Products, Inc. Two North Riverside Plaza, Suite II 00 Chicago, Illinois 60606 ATTN: Sam A. Cottone (e) In the event that disaffiliation of Falcon from the affiliated group of which GAMI is the common parent does not occur as contemplated by this Agreement, then this Agreement shall be void ab initio. (f) This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first above written. 8 GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. By: \s\ Arthur A. Greenberg -------------------------- Name: Arthur A. Greenberg Title: Executive Vice President EAGLE INDUSTRIAL PRODUCTS CORPORATION O.D.E. MANUFACTURING AMERACE CORPORATION By: \s\ Anthony Navitsky --------------------------- Name: Anthony Navitsky Title: Vice President-Treasurer FALCON BUILDING PRODUCTS, INC. By: \s\ Gus J. Athas ------------------------ Name: Gus J. Athas Title: Senior Vice-President EX-10.17 3 FALCON BUILDING PRODS, INC. EMPLOYEE SAVINGS PLAN 1 Exhibit 10.17 FALCON BUILDING PRODUCTS, INC. EMPLOYEE SAVINGS PLAN (EFFECTIVE JANUARY 1, 1995) 2 TABLE OF CONTENTS ARTICLE I - NAME, PURPOSE AND HISTORY OF PLAN 1 ARTICLE II - DEFINITIONS AND CONSTRUCTION 2 Section 2.01. Definitions 2 Section 2.02. Construction 5 ARTICLE III - PARTICIPATION 7 Section 3.01. Eligibility to Participate 7 Section 3.02. Election to Participate 7 ARTICLE IV - CONTRIBUTIONS 8 Section 4.01. Amount of Participant's Contributions 8 Section 4.02. Limitations on Pre-Tax Contributions 8 Section 4.03. Suspension of Contributions 9 Section 4.04. Payment of Elective Contributions to Trustee 9 Section 4.05. Employer Matching Contributions 10 Section 4.06. Limitations on Contributions For Nondiscrimination Testing Purposes 10 Section 4.07. Maximum Annual Additions 15 Section 4.08. Rollover Contributions 18 ARTICLE V - TRUST AGREEMENT; INVESTMENT FUNDS AND PARTICIPANT INVESTMENT ELECTIONS 19 Section 5.01. Trust Agreement 19 Section 5.02. Investment Funds 19 Section 5.03. Allocation and Reallocation of Contributions Among Investment Funds 19 Section 5.04. Fees and Expenses 20 Section 5.05. Exclusive Benefit and Funding Policy 20 ARTICLE VI - PARTICIPANT ACCOUNTS 21 Section 6.01. Establishment of Accounts 21 Section 6.02. Crediting of Accounts 21 Section 6.03. Valuation of Accounts 21
3 ARTICLE VII - VESTING; DISTRIBUTION OF ACCOUNTS 22 Section 7.01. Vesting 22 Section 7.02. Distribution Upon Termination of Employment 22 Section 7.03. Designation of Beneficiary 22 Section 7.04. Manner and Timing of Distributions 22 Section 7.05. Special Rules for Interests Derived from Prior Plans 24 Section 7.06. Disability Retirement Benefit 24 Section 7.07. Direct Rollovers 24 ARTICLE VIII - WITHDRAWALS AND LOANS 26 Section 8.01. Withdrawal of After-Tax Contributions 26 Section 8.02. Withdrawals After Age 59-1/2 26 Section 8.03. Hardship Withdrawals 26 Section 8.05 Payment of Existing Loans from Prior Plans to Participants. 27 Section 8.06 Withdrawals of Prior Plan Amounts 28 ARTICLE IX - THE COMMITTEE 29 Section 9.01. Benefit Plans Committee 29 Section 9.02. Responsibility and Authority of the Committee 29 Section 9.03. Organization and Procedure. 30 Section 9.04. Delegation of Authority and Responsibility 30 Section 9.05. Use of Professional Services 30 Section 9.06. Fees and Expenses 30 Section 9.07. Claims Procedure 31 ARTICLE X - AMENDMENTS AND TERMINATION 32 Section 10.01. Amendments and Termination 32 ARTICLE XI - MISCELLANEOUS 33 Section 11.01. Non-Guarantee of Employment 33 Section 11.02. Rights to Trust Assets 33 Section 11.03. Non-Recommendation of Investment 33 Section 11.04. Indemnification of Committee 33 Section 11.05. Non-Alienation 34 Section 11.06. Facility of Payment 34 Section 11.07. Board Action 34 Section 11.08. Mergers, Consolidations and Transfer of Plan Assets 34 Section 11.09. Fiduciaries 35 Section 11.10. Unclaimed Benefits 35
4 ARTICLE XII - TOP-HEAVY PLAN PROVISIONS 36 Section 12.01. Effect of Top-Heavy Status 36 Section 12.02. Additional Definitions 36 Section 12.03. Minimum Benefits 37 Section 12.04. Maximum Benefit Limits 37
5 FALCON BUILDING PRODUCTS, INC. EMPLOYEE SAVINGS PLAN ARTICLE I NAME, PURPOSE AND HISTORY OF PLAN Falcon Building Products, Inc. (the "Company") hereby establishes the Falcon Building Products, Inc. Employee Savings Plan (the "Plan"), effective January 1, 1995 (the "Effective Date"), for the benefit of employees of the Company and its Affiliates that adopt the Plan (the "Employers") and their beneficiaries. Its purpose is to encourage Employee savings for retirement on a tax-advantaged basis. Employees of an Employer who were participants in the Eagle Industries, Inc. Employee Savings Plan immediately before the Effective Date became Participants under this Plan as of the Effective Date. The Company intends that this Plan and the related Trust qualify under all applicable provisions of the Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 and that each of the terms of this Plan and the Trust Agreement shall be so interpreted. This Plan is intended to be a profit sharing plan with a qualified cash or deferred arrangement meeting the requirements of Code Sections 401(a) and 401(k). 6 ARTICLE II DEFINITIONS AND CONSTRUCTION SECTION 2.01. DEFINITIONS. For purposes of the Plan, unless the context clearly or necessarily indicates otherwise, the following words and phrases shall have the meaning set forth in the definitions below: (a) "Account" shall mean the separate Account or Accounts to be maintained under the Plan for each Participant as provided in Section 6.02. (b) "Affiliate" shall mean (i) each corporation or unincorporated trade or business which is a member of either a controlled group of corporations, a group of trades or businesses under common control, (ii) an affiliated service group within the meaning of Code Sections 414(b), (c) or (m), which includes the Company, or any other entity required to be aggregated with the Company pursuant to regulations under Code Section 414(o), and (iii) Eagle Industries, Inc. (c) "After-Tax Contributions" shall mean after-tax contributions by the Participant pursuant to the Participant's authorization to make regular payroll deductions from his Compensation pursuant to Section 4.01(b). (d) "Beneficiary" shall mean the person or persons designated on Timely Notice by a Participant to receive benefits in the event of the Participant's death, as provided in Section 7.03. (e) "Board" shall mean the Board of Directors of the Company. (f) "Code" shall mean the Internal Revenue Code of 1986, as amended. (g) "Committee" shall mean the Benefit Plans Committee of the Company, which is described in Section 9.01 of the Plan. (h) "Company" shall mean Falcon Building Products, Inc., a Delaware corporation. (i) "Compensation" shall mean the compensation reported for a calendar year on Form W-2 as paid by an Employer to the Participant, exclusive of any severance pay, moving allowance, car allowance, awards or prizes, or imputed income under Code Sections 79 or 132 and such other similar payments under the code and regulations issued thereunder, but inclusive of any before-tax contributions made under this Plan, any other 401(k) plan or any life insurance or medical plan maintained by the Company pursuant to Code Section 125. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, the Compensation of each Employee taken into account under the Plan shall not exceed the Omnibus Budget Reconciliation Act of 1993 ("OBRA '93") annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner of the Internal Revenue Service for increases in the cost of living in accordance with Code Section 401(a)(17)(B). The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over 7 which Compensation is determined (the "determination period") beginning in that calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. Any reference in this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA '93 annual compensation limit set forth in this provision. In determining the Compensation of an Employee for purposes of this limitation, the rules of Code Section 414(q)(6) shall apply, except that, in applying such rules, the term "family" shall include only the spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the Plan Year. If, as a result of the application of these rules, the adjusted dollar limitation of Code Section 4.01(a)(17) applicable to family members is exceeded, then the dollar limitation shall be prorated among the affected individuals in proportion to each such individual's Compensation as determined under this subparagraph (k) before applying the limitation. (j) "Effective Date" shall mean January 1, 1995. (k) "Elective Contributions" shall mean amounts contributed under the Plan by Employers pursuant to a Participant's authorization under Section 401(a). Employee Elective Contributions shall consist of After-Tax Contributions and Pre-Tax Contributions. (l) "Employee" shall mean any individual who is in the employ of an Employer, except (i) individuals in a unit of employees covered by a collective bargaining agreement, unless the collective bargaining agreement specifically provides for such employees to participate in the Plan, (ii) individuals in a group that has been excluded by the Board from participation in the Plan and (iii) leased employees (within the meaning of Code Section 414(n)(2)) of an Employer, unless the participation of leased employees is required as a condition of the Plan's qualification under Code Section 401(a). (m) "Employer" shall mean the Company and each other Affiliate, which, with the approval of the Company (which approval may be given by the President or a Vice President of the Company), adopts this Plan by resolution of its board of directors. As of the Effective date, the participating Employers are those identified on Appendix A to the Plan. (n) "Employer Matching Contributions" shall mean amounts contributed under the Plan by Employers as provided in Article IV. The term shall also be deemed to include forfeitures applied to reduce the amount of an Employer's contributions otherwise due under the Plan. (o) "Employment Commencement Date" shall mean the date on which an Employee first performs an Hour of Service. (p) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. Reference to specific provisions of ERISA shall be deemed to refer to that provision or any successor provision under any amendment to ERISA. (q) "Highly Compensated Employee" shall mean an individual within the meaning of Code Section 414(q), as described in Section 4.06 of this Plan. 8 (r) "Hour of Service" shall mean: (i) Each hour for which an Employee is paid or entitled to payment, for the performance of duties for the Company or an Affiliate, during the applicable computation period. These hours shall be credited to the Employee for the computation period in which the duties were performed; (ii) Each hour for which the Employee is paid or entitled to payment by the Company or an Affiliate, either directly or indirectly, on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence), but excluding payments under a plan maintained solely for the purpose of complying with workmen's compensation, unemployment compensation, or disability insurance laws and also excluding payments for medical or medically related expenses. No more than 501 Hours of Service shall be credited under this paragraph (ii) for any single computation period whether or not such period occurs in a single computation period); and (iii) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Company or an Affiliate. The same hours of service shall not be credited under clause (i) or clause (ii), as the case may be, and under clause (iii). Further, no more than 501 Hours of Service shall be credited for payment of back pay to the extent it is agreed to or awarded for a period of time during which an Employee did not or would not have performed duties. These Hours shall be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. For purposes of determining eligibility to participate, an Employee who is on leave of absence under the Family and Medical Leave Act of 1993 shall be credited with Hours of Service for the hours the Employee would have worked had he not taken the leave. Hours of Service shall be computed and credited in accordance with paragraphs (b) and (c) of Section 2530.200b-2 of the Department of Labor Regulations. (s) "Investment Fund" means an unsegregated fund established at the direction of the Committee pursuant to Section 5.02, and invested in securities, insurance contracts, mutual fund shares or other property of such type and characteristics as the Committee shall determine. (t) "Normal Retirement Age" shall mean the date on which the Participant attains age 65. (u) "Participant" shall mean an Employee who has satisfied the requirements of Section 3.01 and has made Elective Contributions under the Plan. The term shall also include any other person whose interests derived from participation in a prior plan are transferred or rolled over into the Plan. A person who has become a Participant under the Plan shall 9 continue to be a Participant until his entire Account has been distributed or forfeited under the Plan. (v) "Part-Time Employee" shall mean an Employee who is regularly scheduled to perform less than 20 Hours of Service per week or whose work schedule, because of its seasonal or temporary nature, is expected to result in completion of fewer than 1,000 Hours of Service per year. (w) "Plan" shall mean the Falcon Building Products, Inc. Employee Savings Plan. (x) "Plan Year" shall mean the calendar year. (y) "Pre-Tax Contributions" shall mean amounts contributed by the Participant's Employer pursuant to the Participant's authorization and direction under Section 4.01(a) to make such contribution on the Participant's behalf in lieu of payment of an equal amount directly to the Participant. (aa) "Timely Notice" shall mean a notice in writing on a form prescribed by the Committee and filed at such places and at such reasonable times as shall be required by the rules of the Committee. (bb) "Trust" shall mean the trust fund established pursuant to the provisions of this Plan, as it may be amended from time to time. (cc) "Trustee" shall mean the trustee under the Trust. (dd) "Valuation Date" shall mean each business day of the Plan Year. SECTION 2.02. CONSTRUCTION. (a) Where appearing in this Plan, the masculine shall include the feminine and the plural shall include the singular, unless the context clearly indicates otherwise. Titles of articles and sections are for reference purposes only. (b) The Plan is intended to be a qualified profit sharing plan meeting the requirements of Code Section 401(a) and to contain a "qualified cash or deferred arrangement" meeting the requirements of Code Section 401(k). The Plan shall be interpreted so as to comply with the applicable requirements of those sections where the requirements are not clearly contrary to the express terms of the Plan. In all other respects, the Plan shall be construed and its validity determined according to the laws of the State of Illinois to the extent those laws are not preempted by federal law. If any provision of this Plan is held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provisions had not been included in the Plan. 10 ARTICLE III PARTICIPATION SECTION 3.01. ELIGIBILITY TO PARTICIPATE. (a) Any Employee or Part-Time Employee who was a participant in the Eagle Industries, Inc. Employee Savings Plan immediately before the Effective Date shall be eligible to participate in the Plan as of the Effective Date. (b) Any other Employee, other than a Part-Time Employee, shall be eligible to participate in the Plan as of the first January 1 or July 1 that is at least 30 days after his Employment Commencement Date. (c) Any other Part-Time Employee shall be eligible to participate in the Plan as of the last day of his "qualifying period." For purposes of this subsection, the "qualifying period" of a Part-Time Employee is the first 12-consecutive-month period beginning on his Employment Commencement Date, or any anniversary thereof, during which he completes at least 1,000 Hours of Service. (d) A former Participant whose employment has terminated and who is subsequently reemployed shall reenter the Plan as a Participant on the date of his reemployment. If a reemployed Employee was not formerly a Participant in the Plan, he shall be considered a new Employee and required to meet the requirements of this Section 3.01 to be eligible to participate in the Plan. SECTION 3.02. ELECTION TO PARTICIPATE. An Employee may elect to participate in the Plan by filing his election with his Employer on a Timely Notice to make Basic Contributions on the Participant's behalf, as provided in Section 4.01. Elections filed by Employees and Part-Time Employees eligible to participate under Section 3.01(a) of the Plan shall be effective as of the Effective Date. Elections filed by all other Employees and Part-Time Employees shall be effective with the January 1 or July 1 that next follows the later of (i) the filing of the election or (ii) the date as of which he shall have become eligible to participate in the Plan as determined under Section 3.01(b) or (c), as applicable. Any such election shall remain in effect so long as the Participant remains an Employee. 11 ARTICLE IV CONTRIBUTIONS SECTION 4.01. AMOUNT OF PARTICIPANT'S CONTRIBUTIONS. (a) Elective Contributions. Subject to the limitations described in Sections 4.02, 4.06 and 4.07, a Participant may elect to make Elective Contributions at a rate from two to twelve percent of the Participant's Compensation. Such Elective Contributions may be either Pre-Tax Contributions, After-Tax Contributions, or both, in any combination. Pre-Tax Contributions shall be made by the Participant's Employer in lieu of payment of an equal amount directly to the Participant as current compensation, pursuant to authorization by the Participant on a form provided by the Committee. After-Tax Contributions shall be made for the Participant through regular payroll deductions, pursuant to authorization by the Participant on a form provided by the Committee. If during a Plan Year a Participant's Pre-Tax Contributions exceed the limitations of Code Section 402(g), as described in Section 4.02 of this Plan, all further contributions for the year shall automatically be made in the form of After-Tax Contributions. (b) Change in Rate of Contributions. The designated rates of a Participant's Elective Contributions may be changed as of the first day of any month following the Company's receipt of Timely Notice, but shall remain in effect for successive periods of time unless changed. SECTION 4.02. LIMITATIONS ON PRE-TAX CONTRIBUTIONS. (a) No Participant shall be permitted to have Pre-Tax Contributions made under the Plan and any other plan maintained by the Employer during any taxable year in excess of the dollar limitation contained in Code Section 402(g) as in effect at the beginning of such taxable year. (b) Excess Elective Deferrals under this Plan, plus any income and minus any losses allocable thereto, may be distributed to the Participant no later than April 15 of the following year or, as soon as practicable thereafter. (c) Definitions. (i) "Excess Elective Deferrals" shall mean those Pre-Tax Contributions that are includable in a Participant's gross income because the contributions exceed the dollar limitation of Code Section 402(g) for the taxable year. Excess Elective Deferrals shall be treated as Annual Additions under the Plan. (ii) "Elective Deferrals" shall mean, with respect to any taxable year, the sum of all employer contributions (including those of another employer who is not an Employer who has adopted this Plan) made on behalf of a Participant pursuant to an election to defer under any qualified cash or deferred arrangement under Code Section 401(k), any simplified employee pension cash or deferred arrangement under Code Section 402(h)(l)(B), any eligible deferred compensation plan under 12 Code Section 457 and any plan as described under Section 501(c)(18), and any employer contributions made on the behalf of a Participant under a salary reduction agreement for the purchase of an annuity contract under Code Section 403(b). (d) Determination of Income or Loss. Excess Elective Deferrals shall be adjusted for any income or loss up to the date of distribution using the method described in this subsection or any other method permitted under Treasury Regulation Section 1.402(g)-1(e)(5). The income or loss allocable to Excess Elective Deferrals is the sum of: (i) income or loss allocable to the Participant's Pre-Tax Contributions for the taxable year multiplied by a fraction, the numerator of which is the Participant's Excess Elective Deferrals for the year and the denominator of which is the Participant's Account balance attributable to Pre-Tax Contributions without regard to any income or loss occurring during the taxable year; and (ii) ten percent of the amount determined under (i) multiplied by the number of whole calendar months between the end of the Participant's taxable year and the date of distribution, counting the month of distribution if distribution occurs after the 15th of the month. SECTION 4.03. SUSPENSION OF CONTRIBUTIONS. (a) A Participant's Elective Contributions shall be suspended if either of the following occurs: (i) the Participant elects, in the form of a Timely Notice, to suspend all of his Elective Contributions being made under Section 4.01; (ii) the Participant receives a hardship withdrawal under Section 8.03; or (iii) the Participant fails to qualify as an Employee. Suspensions shall be effective as soon as practicable following such occurrence. Participants will not be permitted to make up suspended contributions. A Participant's Elective Contributions shall be suspended for the period described in Section 8.03(d) following his receipt of a hardship withdrawal. (b) A Participant whose contributions have been suspended for reasons other than a hardship withdrawal under Section 8.03 may resume making contributions as of the next January 1 or July 1 following his provision of Timely Notice; provided, that he is then an Employee as defined in the Plan. SECTION 4.04. PAYMENT OF ELECTIVE CONTRIBUTIONS TO TRUSTEE. Each Employer shall periodically (but not less frequently than monthly), remit to the Trustee (or to the Company, if the Company has remitted to the Trustee) the amounts withheld from the Compensation of its Employees as Elective Contributions under the Plan. Such amounts shall be credited to the Accounts of Participants on a monthly basis. 13 SECTION 4.05. EMPLOYER MATCHING CONTRIBUTIONS. (a) Each Employer shall make contributions for each of its eligible Employees in an amount equal to 50 percent of the Employee's Elective Contributions to a maximum of six percent of his Compensation. Amounts forfeited from the Accounts of Employees of the Employer under Section 11.10 shall be applied to reduce the amount of the Employer's Matching Contributions otherwise payable under the Plan. (b) Employer Matching Contributions shall be made in cash on or before the due date of the Employer's tax return for the year. (c) Employer Matching Contributions under the Plan are conditioned upon their deductibility under Code Section 404. Notwithstanding any provision herein to the contrary, to the extent a deduction is disallowed, contributions may be returned to the Employer within one year after the disallowance. (d) Employer Matching Contributions shall be forfeited to the extent they are based on Excess Elective Deferrals under Section 4.02(c), Pre-Tax Contributions that are Excess Contributions or After-Tax Contributions that are Excess Aggregate Contributions distributed under Section 4.06(h). Any forfeitures that occur will be used to reduce Employer Matching Contributions for the next Plan Year. SECTION 4.06. LIMITATIONS ON CONTRIBUTIONS FOR NONDISCRIMINATION TESTING PURPOSES. (a) Employer Matching Contributions, Pre-Tax Contributions and After-Tax Contributions allocated to the Accounts of Highly-Compensated Employees shall not in any Plan Year exceed the limits specified in this Section 4.06. The Committee may make the adjustments authorized in this Section 4.06 to ensure that the limits of Subsections (b) (the "Actual Deferral Percentage test") and (c) (the "Average Contribution Percentage test") are not exceeded, regardless of whether such adjustments affect some Participants more than others. This Section shall be administered and interpreted in accordance with Code Sections 401(k) and 401(m). (b) The Actual Deferral Percentage of the Highly-Compensated Employees shall not exceed, in any Plan Year, the greater of: (i) The Actual Deferral Percentage of all other Participants for the Plan Year multiplied by 1.25; or (ii) The lesser of the (A) Actual Deferral Percentage of all other Participants for the Plan Year multiplied by two (2) and (B) the Actual Deferral Percentage of all other Participants for the Plan Year plus two (2) percentage points, or such lesser amount as the Secretary of the Treasury shall prescribe to prevent the multiple use of this alternative limitation with respect to any Highly-Compensated Employee. (c) The Average Contribution Percentage of the Highly Compensated Employee shall not exceed, in any Plan Year, the greater of: 14 (i) The Average Contribution Percentage of all other Participants for the Plan Year multiplied by 1.25; or (ii) The lesser of (A) the Average Contribution Percentage of all other Participants for the Plan Year multiplied by two (2) and (B) the Average Contribution Percentage of all other Participants for the Plan Year plus two (2) percentage points, or such lesser amounts as the Secretary of the Treasury shall prescribe to prevent the multiple use of this alternative limitation with respect to any Highly-Compensated Employee. (d) The following terms shall have the meanings specified herein for purposes of this Section 4.06. (i) Actual Deferral Percentage. The average, for a specified group of Participants for a Plan Year, of the ratios (calculated separately for each Participant in the group) of (1) the amount of Employer contributions actually paid over to the Trust on behalf of a Participant for the Plan Year to (2) the Participant's compensation for the Plan Year, as determined under Treasury Regulation Section 1.401(k)-1(g)(2). For this purpose, Employer contributions on behalf of any Participant shall include Pre-Tax Contributions, including amounts in excess of the dollar limitation contained in Section 4.02(g) of the Code described in Section 4.02, but excluding Pre-Tax Contributions that are taken into account in the Average Contribution Percentage test (provided that the Actual Deferral Percentage test is satisfied both with and without exclusion of these Pre-Tax Contributions). For purposes of computing Actual Deferral Percentages, an Employee who would be a Participant but for the failure to make Pre-Tax Contributions shall be treated as a Participant on whose behalf no Pre-Tax Contributions are made. (ii) Average Contribution Percentage. The average for a designated group of Employees of the ratios (calculated separately for each Employee in the group) of (1) the sum of (A) the Employer Matching Contributions paid and credited to the Account of an Employee for a Plan Year, (B) After-Tax Contributions credited to the Account of the Employee for a Plan Year and (C) any Pre-Tax Contributions which are to be taken into account for purposes of the Average Contribution Percentage Test, to (2) the Employee's compensation for the Plan Year, as determined under Treasury Regulation Section 1.401(k)-1(g)(2). Participant Pre-Tax Contributions may be used in the Average Contribution Percentage test provided that the Actual Deferral Percentage test is met before the Pre-Tax Contributions are used in the Average Contribution Percentage test and continues to be met following the exclusion of those contributions that are used to meet the Average Contribution Percentage test. 15 (iii) Highly-Compensated Employee. The term Highly Compensated Employee shall mean Highly Compensated Active Employees and Highly Compensated Former Employees. A Highly Compensated Active Employee includes any Employee who performs service for the Employer during the determination year and who, during the look-back year: (i) received compensation from the Employer in excess of $75,000 (as adjusted under Code Section 415(d)); (ii) received compensation from the Employer in excess of $50,000 (as adjusted under Code Section 415(d)) and was a member of the top paid group for the year; or (iii) was an officer of the Employer and received compensation during the year that is greater than 50 percent of the dollar limitation in effect under Code Section 415(b)(1)(A). The term Highly Compensated Employee also includes: (i) Employees who are both described in the preceding sentence if the term "determination year" is substituted for the term "look-back year" and the Employee is one of the 100 employees who received the most compensation from the Employer during the determination year; and (ii) employees who are five percent owners at any time during the look-back year or determination year. If no officer has satisfied the compensation requirement of (iii) above during either a determination year or look-back year, the highest paid officer for the year shall be treated as a Highly Compensated Employee. For purposes of this Section, the determination year shall be the Plan Year. The look-back year shall be the twelve-month period immediately preceding the determination year. A Highly Compensated Former Employee includes any Employee who separated from service (or was deemed to have separated) prior to the determination year, performs no service for the Employer during the determination year, and was a Highly Compensated Active Employee for either the separation year or any determination year ending on or after the Employee's 55th birthday. If an Employee is, during a determination year or look-back year, a family member of either a five percent owner who is an active or former Employee or a Highly Compensated Employee who is one of the ten most Highly Compensated Employees ranked on the basis of compensation paid by the Employer during the year, then the family member and the five percent owner or top-ten Highly Compensated Employee shall be aggregated. In such case, the family member and five percent owner or top-ten Highly Compensated Employee shall be treated as a single employee receiving compensation and plan contributions or benefits equal to the sum of such compensation and contributions or benefits of the family member and five percent owner or top-ten Highly Compensated Employee. For 16 purposes of this Section, family member includes the spouse, lineal ascendants and descendants of the Employee or former Employee and the spouses of such lineal ascendants and descendants. The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of Employees in the top-paid group, the top ten Employees, the number of Employees treated as officers and the compensation that is considered, will be made in accordance with Code Section 414(q) and the regulations thereunder. (e) For purposes of determining compliance with the Actual Deferral Percentage Test and the Average Contribution Percentage test, Pre-Tax Contributions and Employer Matching Contributions must be made before the last day of the twelve-month period immediately following the Plan Year to which the contributions relate. (f) The Committee shall maintain records sufficient to demonstrate satisfaction of the Actual Deferral Percentage test and the Average Contribution Percentage test and the amount of Pre-Tax Contributions, After-Tax Contributions and Employer Matching Contributions used in the test. (g) For purposes of determining the Actual Deferral Percentage or Average Contribution Percentage of a Participant who is a five percent owner or one of the ten most highly paid Highly Compensated Employees, the Pre-Tax Contributions, After-Tax Contributions, Employer Matching Contributions and Compensation of the Participant shall include the Pre-Tax Contributions, After-Tax Contributions, Employer Matching Contributions and Compensation for the Plan Year of family members (as defined in Code Section 414(q)(6)). Family members, with respect to Highly Compensated Employees, shall be disregarded as separate employees in determining the Actual Deferral Percentages and Average Contribution Percentages of Participants who are Highly Compensated Employees and Participants who are not Highly Compensated Employees. (h) Treatment of Excess Contributions. If Employer Matching Contributions, After-Tax Contributions or Pre-Tax Contributions exceed any of the limits specified in Subsections 4.06(b) and (c) for a Plan Year, then the Plan Administrator shall correct the excess in accordance with the provisions of this Subsection (h). (i) Notwithstanding any other provision of this Plan, unless Pre-Tax Contributions are recharacterized as After-Tax Contributions under Subsection (iv) below, or Employer Matching Contributions are treated as Qualified Matching Contributions as provided under Subsection (v) below, excess contributions and excess aggregate contributions (as defined in subsections (ii) and (iii) below), attributable to Pre-Tax Contributions and After-Tax Contributions plus any income and minus any loss allocable thereto, such income or loss determined and allocated in accordance with Treasury Regulation Section 1.401(k)-1(f)(4)(ii), shall be distributed no later than the last day of each Plan Year to Participants to whose accounts such excess contributions and excess aggregate contributions were allocated for the 17 preceding Plan Year. Employer Matching Contributions based on the Pre-Tax Contributions and After-Tax Contributions distributed as excess contributions and excess aggregate contributions shall be forfeited as provided under Section 4.05(d). Excess contributions and excess aggregate contributions shall be allocated to Participants who are subject to the family member aggregation rules of Code Section 414(q)(6) in the manner prescribed by the regulations. If the excess contributions and excess aggregate contributions are distributed more than 2-1/2 months after the last day of the Plan Year in which the excess amounts arose, a ten percent excise tax will be imposed on the Employer maintaining the Plan with respect to those amounts. Excess contributions and excess aggregate contributions shall be treated as Annual Additions under the plan. (ii) "Excess contributions" shall mean, with respect to any Plan Year, the excess of: (A) The aggregate amount of Employer contributions actually taken into account in computing the Actual Deferral Percentage of Highly Compensated Employees for the Plan Year, over (B) The maximum amount of the contributions permitted by the Actual Deferral Percentage test (determined by reducing contributions made on behalf of Highly Compensated Employees in order of the Actual Deferral Percentages, beginning with the highest of such percentages). (iii) "Excess aggregate contributions" shall mean, with respect to any Plan Year, the excess of: (A) The aggregate amount of Employer contributions taken into account in computing the numerator of the Average Contribution Percentage actually made on behalf of Highly Compensated Employees for the Plan Year, over (B) The maximum amount of Employer contributions permitted by the Average Contribution Percentage test (determined by reducing contributions made on behalf of Highly Compensated Employees in order of their Contribution Percentages beginning with the highest of such percentages). (iv) A Participant may treat his or her excess contributions as an amount distributed to the Participant and then contributed by the Participant to the Plan. Recharacterized amounts will remain nonforfeitable and subject to the same distribution rules as Pre-Tax Contributions. Amounts may not be recharacterized by a Highly Compensated Employee to the extent that the amount, in combination with an After-Tax Contribution made by that Employee, would exceed 18 any stated limit under the Plan as After-Tax Contributions. Recharacterization must occur no later than 2-1/2 months after the last day of the Plan Year in which the excess contributions arose, and is deemed to occur no earlier than the date the last Highly Compensated Employee is informed in writing of the amount recharacterized and the consequences thereof. Recharacterized amounts will be taxable to the Participant for the Participant's tax year in which the Participant would have received them in cash. (v) The Plan Administrator may, in its sole discretion, elect to treat any portion of the Employer Matching Contributions as Qualified Matching Contributions to be taken into account for the Actual Deferral Percentage test to the extent necessary to satisfy the requirements of this Section 4.06. To the extent Employer Matching Contributions are treated as Qualified Matching Contributions and taken into account for the Actual Deferral Percentage test, they may not be taken into account for the Average Contribution Percentage test. To the extent Employer Matching Contributions are treated as Qualified Matching Contributions they shall be allocated to Participants' Accounts within the Plan Year to which they relate and shall be paid to the Trust no later than 12 months after the end of the Plan Year to which they relate. SECTION 4.07. MAXIMUM ANNUAL ADDITIONS. (a) The Annual Addition to the Accounts of any Participant for a Limitation Year, when added to the Annual Additions to his accounts under all other defined contribution plans (if any) maintained by the Employer, may not exceed the Maximum Permissible Amount. In addition, in the case of a Participant who also participates in a defined benefit plan maintained by the Employer, the Annual Addition for a Limitation Year will, if necessary, be further limited so that the sum of the Defined Contribution Plan Fraction and the Defined Benefit Plan Fraction for the Limitation Year does not exceed 1.0. (b) Definitions. For purposes of this Article, the following definitions and rules of interpretation shall apply: (i) Annual Additions. The sum of the following amounts credited to a Participant's Account for the Limitation Year: (A) Employer contributions; (B) Employee contributions; and (C) Forfeitures. Annual additions shall also include (i) any amounts allocated to an individual medical account, as defined in Code Section 415(l)(2), which is part of a pension or annuity plan maintained by an Employer, and (ii) amounts derived from contributions for post-retirement medical benefits allocated to the separate account of a 19 key employee (as defined in Code Section 419A(d)) under a welfare benefit plan (as defined in Code Section 419(e)) maintained by an Employer. (ii) Compensation. A Participant's earned income, wages, salaries and fees for professional services and other amounts received for personal service actually rendered in the course of employment with the Employer maintaining the Plan (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses), and excluding the following: (A) Employer contributions to a plan of deferred compensation that are not includable in the Employee's gross income for the taxable year in which contributed, Employer contributions under a simplified employee pension to the extent the contributions are deductible by the Employee, or any distributions from a plan of deferred compensation; (B) Amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (C) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (D) Other amounts that receive special tax benefits, or contributions made by the Employer (whether or not under a compensation reduction agreement) towards the purchase of an annuity described in Code Section 403(b) (whether or not the amounts are actually excludable from the gross income of the Employee). For purposes of applying the limitations of this Article, Compensation for a Limitation Year is the Compensation actually paid or includable in gross income during the year. (iii) Defined Benefit Fraction. A fraction, the numerator of which is the projected annual benefit of the Participant under all defined benefit plans (whether or not terminated) maintained by the Employer, and the denominator of which is the lesser of (i) the product of 1.25 multiplied by the dollar limitation in effect under Code Section 415(b)(1)(A) for the Plan Year, or (ii) the product of 1.4 multiplied by the amount which may be taken into account under Code Section 415(b)(1)(B) with respect to the Participant under the Plan for the Plan Year. 20 (iv) Defined Contribution Fraction. A fraction, the numerator of which is the sum of the Annual Additions to the Participant's accounts under defined contribution plans (whether or not terminated) maintained by the Employer for the current and all prior Limitation Years, and the denominator of which is the sum of the lesser of the following amounts determined for the limitation Year and all prior Limitation Years of service with the Employer: (i) the product of 1.25 multiplied by the dollar limitation in effect under Code Section 415(c)(1)(A) for the Plan Year (determined without regard to Code Section 415(c)(6)), or (ii) the product under Code Section 415(c)(1)(B) (or Code Section 415(c)(7), if applicable) with respect to the Participant under the Plan for the Plan Year. (v) Maximum Permissible Amount. The lesser of thirty thousand dollars ($30,000) (or, if larger, one-fourth of the dollar limitation in effect under Code Section 415(b)(1)(A)) or 25 percent of the Participant's Compensation for the Limitation Year. (vi) Limitation Year. The Plan Year. (c) If the rules set forth in Subsections (a) or (b) would otherwise be violated after making all possible adjustments under the terms of any defined benefit plans, then the Participant's benefits under this Plan shall be reduced by returning the Participant's After-Tax Contributions, if any, together with the earnings thereon, and by forfeiting a pro rata portion of Employer Matching Contributions made with respect thereto. If the return and forfeiture is not sufficient to eliminate the violation, then the participant's benefits shall be further reduced by returning the Participant's After-Tax Contributions, if any, together with the earnings thereon, and by forfeiting a pro-rata portion of Employer Matching Contributions made with respect thereto. SECTION 4.08. ROLLOVER CONTRIBUTIONS. An Employee may roll over a cash distribution from a qualified plan or conduit individual retirement account to this Plan, provided that (a) the distribution is (i) received from a qualified plan as an Eligible Rollover Distribution (as defined in Section 7.07(b)) and (ii) rolled over directly from the qualified plan or within the 60 days following the date the Employee received the distribution, or (b) the distribution is (i) received from a conduit individual retirement account that has no assets other than assets attributable to an Eligible Rollover Distribution or a "qualified total distribution," within the meaning of Code Section 402 as in effect before January 1, 1993, and had been deposited in the conduit individual retirement account within 60 days of the date the Employee received the distribution, plus earnings, (ii) eligible for tax free rollover to a qualified plan, and (iii) rolled over within 60 days following the date the Employee received the distribution. Before accepting a rollover contribution, the Trustee may require the Employee to furnish satisfactory evidence that the proposed transfer is in fact a rollover contribution that the Code permits an Employee to make to a qualified plan. The foregoing contributions, which shall be Rollover Contributions, shall be accounted for separately and shall be credited to an Employee's Rollover Account. An Employee shall not be permitted to withdraw any portion of his Rollover Account until such time as the Employee is otherwise eligible to make a withdrawal from or receive a distribution of his Account except as otherwise provided in Section 8.06. An Employee who has made a Rollover Contribution 21 shall be deemed to be a Participant with respect to his Rollover Account even if he is not otherwise a Participant. Notwithstanding the foregoing, no rollover contribution shall be accepted by the Trustee that would obligate this Plan to offer or provide a qualified joint and survivor annuity or qualified preretirement survivor annuity form of benefit to any Participant. 22 ARTICLE V TRUST AGREEMENT; INVESTMENT FUNDS AND PARTICIPANT INVESTMENT ELECTIONS SECTION 5.01. TRUST AGREEMENT. The Company shall enter into a trust agreement with a corporate trustee selected by the Board to act as Trustee. The Trustee shall receive all Elective Contributions and all Employer Matching Contributions and shall hold, manage, administer and invest the contributions, reinvest any income, and make distributions in accordance with the provisions of the Plan and the trust agreement. The trust agreement shall be in such form and contain such provisions as the Board may deem necessary and appropriate to effectuate the purposes of the Plan and to qualify the Plan and the Trust under the Code. SECTION 5.02. INVESTMENT FUNDS. The Committee shall establish two or more Investment Funds and shall advise the Trustee in writing of the types of investments to be made for each Investment Fund. The Committee may direct that any such Investment Fund will be invested in one or more insurance contracts or mutual funds selected by the Committee or may appoint one or more investment managers to direct the investment of any Investment Fund. The Committee may at any time add, delete or change the investment medium or investment manager of any Investment Fund; provided, that if the change substantially changes the characteristics of any Investment Fund, Participants utilizing the Fund shall be notified and given an opportunity to reallocate their Account balances. SECTION 5.03. ALLOCATION AND REALLOCATION OF CONTRIBUTIONS AMONG INVESTMENT FUNDS. (a) Allocation. On Timely Notice a Participant shall elect to allocate all of his Elective Contributions and Employer Matching Contributions among the Investment Funds established under Section 5.02 in whole multiples of one percent of such Contributions. An election under this subsection may be changed up to four times in any Plan Year, as of any Valuation Date, but shall remain in effect for successive periods of time unless changed on Timely Notice. If a Participant fails to direct the investment of contributions subject to his direction or fails to replace any directions that may have been suspended or revoked, then the contributions shall be invested in an Investment Fund designated by the Committee that invests primarily in securities or other property providing a fixed or guaranteed rate of return. (b) Investment Fund Transfers. A Participant may on Timely Notice elect to transfer his interests in any one or more Investment Funds to other Investment Funds. Except to the extent that the conditions governing any Investment Fund (such as a fund investing in guaranteed investment contracts issued by an insurance company) may limit or prohibit the transfers, the transfers may be made up to four times in any Plan Year, as of any Valuation Date. The election shall be in such form as the Committee shall determine. Any participant who terminates employment with the Company and/or any of its Affiliates that have adopted the Plan and who has elected to defer distribution of his Account under the Plan under Section 7.04, shall have his entire Account invested in a money market fund designated by the Company for that purpose. SECTION 5.04. FEES AND EXPENSES. Brokerage fees and other direct costs of investment shall be paid by the Trustee out of that fund of the Trust to which the cost is 23 attributable. All other costs and expenses of the Plan including without limitation the Trustee's fees and transfer taxes shall be paid by the Company. SECTION 5.05. EXCLUSIVE BENEFIT AND FUNDING POLICY. (a) All contributions under the Plan shall be paid to the Trust and all property and funds of the Trust allocable to the Plan, including income from investments and from all other sources, shall be managed solely in the interest of Participants and their Beneficiaries and for the exclusive purpose of: (i) providing benefits to Participants and their Beneficiaries; and (ii) defraying the reasonable expenses of administering the Plan. (b) To the extent not specifically set forth in the Plan or Trust, the Trustee shall, after consultation with the Committee, establish the funding policy for the Plan. 24 ARTICLE VI PARTICIPANT ACCOUNTS SECTION 6.01. ESTABLISHMENT OF ACCOUNTS. A separate Account shall be established and maintained in the name of each Participant. To the extent necessary or appropriate to provide for the proper administration of the Plan, the Account shall include separate balances for interests derived from Pre-tax and After-tax Contributions and Employer Matching Contributions and such other separate balances as the Committee shall determine. As soon as practicable following the end of each Plan Year quarter, each Participant shall be provided with a statement of his Account. SECTION 6.02. CREDITING OF ACCOUNTS. The appropriate Account balances shall be credited with the amounts of the Participant's Contributions as such Contributions are received by the Trustee. The reallocation of a Participant's Account among Investment Funds shall be appropriately credited as of the date immediately following the effective date of the reallocation. SECTION 6.03. VALUATION OF ACCOUNTS. Each Participant's Account shall be valued and adjusted on each Valuation Date to preserve each Participant's proportionate interest in the Investment Funds. As of each Valuation Date and at the time of any reallocation among Investment Funds, under Section 5.03, the Account balances of each Participant shall be adjusted to reflect the effect of income, collected and accrued, realized and unrealized gains and losses, expenses and all other transactions since the valuation preceding adjustment, in such manner as the Committee shall determine. 25 ARTICLE VII VESTING; DISTRIBUTION OF ACCOUNTS SECTION 7.01. VESTING. A Participant's right to the balances credited to his Account shall at all times be fully vested and nonforfeitable. SECTION 7.02. DISTRIBUTION UPON TERMINATION OF EMPLOYMENT. When a Participant's employment with the Company and any Affiliates is terminated for any reason (except an intercompany transfer between the Company or any Affiliate and another Affiliate), including death, disability or retirement, the entire balance in the Participant's Account shall be paid at the time and in the manner specified in Section 7.04. If the termination occurs by reason of the death of the Participant, or if the Participant dies before the distribution is completed, distribution shall be made to the Participant's Beneficiary. SECTION 7.03. DESIGNATION OF BENEFICIARY. A Participant may designate any person, trust and/or other entity as Beneficiary. Any such designation shall be in writing and filed with the Committee on the form and in the manner prescribed by the Committee, and may be revoked or changed at any time by the Participant. Notwithstanding the foregoing, if the Participant has a spouse at the time of his death, the spouse shall be the Participant's Beneficiary unless (i) the spouse has consented in writing to the Participant's designation of a different Beneficiary, (ii) the consent acknowledges the effect of the election and is witnessed by a plan representative appointed by the Committee or by a notary public, and (iii) the Participant is survived by the designated Beneficiary designated. Any such consent shall be irrevocable, but shall be effective only with respect to the specific Beneficiary designation, unless the consent expressly permits designations by the Participant without any requirement of further consent. If the Participant is not married at the time of death and either no valid designation of Beneficiary is on file with the Committee at the date of death or no designated Beneficiary survives the Participant, the Participant's estate shall be the Beneficiary. SECTION 7.04. MANNER AND TIMING OF DISTRIBUTIONS. (a) All amounts becoming payable under Section 7.02 or Section 7.06 shall be paid in the form of a lump sum cash distribution. (b) Distributions under this Section 7.04 and under Section 7.06 shall be made as soon as practicable after the Valuation Date that next follows the Participant's termination of employment or date of Total and Permanent Disability, whichever applies. (c) Notwithstanding the foregoing, if the value of the Participant's interests exceeds $3,500, no distribution shall be made before the Participant's Normal Retirement Age, unless the prior written consent of the Participant and his spouse, if any (or if either the Participant or the spouse has died, the survivor) to the distribution has been obtained by the Plan Administrator within the 90-day period ending on the date payments are to be made or begin. The Plan Administrator shall notify the Participant of the right to defer any distribution until the Participant's Normal Retirement Age. The notification shall include a general description of the material features of, and an explanation of the relative values of, the optional forms of benefit under the Plan in a manner that would satisfy the notice requirements of Code Section 417(a)(3). If the distribution is subject to the requirements of Code Section 401(a)(11) and 417, the notice shall be provided no less than 30 days and no 26 more than 90 days before the date that benefit payments are to be made or begin. If the distribution is one to which Code Section 401(a)(11) and 417 do not apply, the distribution may begin less than 30 days after the notice is given; provided, that (i) the Committee clearly informs the Participant that he has a right to a period of at least 30 days after receiving the notice to consider the decision of whether to elect a distribution and a particular distribution option, and (ii) the Participant, after receiving the notice, affirmatively elects a distribution. If the Participant or Beneficiary do not consent, distribution shall be made as soon as practicable after the Participant attains Normal Retirement Age; provided, that distribution shall in all events be completed not later than five years after the date of the Participant's death. The Participant may elect to defer distribution past Normal Retirement Age, but may not defer distribution past the time required by Section 7.04(d). If the distribution is deferred beyond a Participant's termination of employment, the Participant's entire Account shall be invested in the Investment Fund designated by the Company for that purpose under Section 5.03(b). (d) Notwithstanding any election to the contrary, payment of benefits to a Participant shall begin no later than the April 1 next following the close of the calendar year in which he attains age 70-1/2, whether or not the Participant has retired. (e) All distributions required under this Section 7.04 shall be determined and made in accordance with the provisions of Code Section 401(a)(9) and the regulations issued thereunder, including the minimum distribution incidental benefit requirement of Section 1.401(a)(9)-2 of the Treasury Regulations. (f) Pre-Tax Contributions and income allocable thereto shall not be distributed to Participants or Beneficiaries earlier than upon separation from service, death or disability, or upon the occurrence of one of the following events: (i) The termination of the Plan without the establishment of a successor defined contribution plan, as defined in Section 1.401(k)-l(d)(3) of the Treasury Regulations. (ii) The disposition by the Company of substantially all of the assets (within the meaning of Section 401(k)-l(d)(4)(iv)(A) of the Treasury Regulations) used in the trade or business of the Company if the Company continues to maintain this Plan after the disposition, but only with respect to Employees who continue employment with the corporation acquiring the assets. (iii) The disposition by the Company of its interest in a subsidiary (within the meaning of Section 409(d)(3) of the Code) to an unrelated entity if the Company continues to maintain this Plan, but only with respect to Employees who continue employment with the subsidiary. (iv) The attainment of age 59-1/2 or, in the case of Pre-Tax Contributions only, the hardship of the Participant, as described in Section 8.03. SECTION 7.05. SPECIAL RULES FOR INTERESTS DERIVED FROM PRIOR PLANS. Notwithstanding the foregoing, any Participant whose Account includes amounts derived 27 from benefits that were ultimately transferred from any predecessor plan to this Plan may elect to receive a distribution of the benefits derived from such prior plan (or if separate records showing the amount are not maintained, then the election may apply to the Participant's entire Account) in any form of distribution that was available under the prior plan. Further, if the provisions of this Plan would otherwise result in a reduction of any Participant's accrued benefits, then the provisions shall not be applied, and the Participant's benefits accrued under the prior plan shall be preserved. SECTION 7.06. DISABILITY RETIREMENT BENEFIT. If a Participant becomes Totally and Permanently Disabled while employed with the Company or any Affiliate, the Participant may elect to have the entire balance in the Participant's Account paid at the time and in the manner specified in Section 7.04. The term "Total and Permanent Disability" means a physical or mental condition resulting from a bodily injury or disease that entitles the Participant to receive disability insurance benefits under Title II of the Federal Social Security Act; provided, that in no event will a Participant be deemed to be Totally and Permanently Disabled after his attainment of his Normal Retirement Age. If a Participant who is Totally and Permanently Disabled ceases to be Totally and Permanently Disabled before his Normal Retirement Age, his employment will be deemed to be terminated as of the date he ceases to be Totally and Permanently Disabled, unless he returns to employment with the Company or an Affiliate within such period as the Committee may prescribe. SECTION 7.07. DIRECT ROLLOVERS. (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section 7.07, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. (b) An Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: (i) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated beneficiary, or for a specified period of ten years or more, (ii) any distribution to the extent the distribution is required under Code Section 401(a)(9) and (iii) the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (c) An Eligible Retirement Plan is (i) an individual retirement account described in Code Section 408(a), (ii) an individual retirement annuity described in Code Section 408(b), (iii) an annuity plan described in Code Section 403(a) or (iv) a qualified trust described in Section 401(a) of the Code, which accepts the Distributee's Eligible Rollover Distribution. However, if an Eligible Rollover Distribution is to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. 28 (d) A Distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are Distributees with regard to the interest of the spouse or former spouse. (e) A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 29 ARTICLE VIII WITHDRAWALS AND LOANS SECTION 8.01. WITHDRAWAL OF AFTER-TAX CONTRIBUTIONS. A Participant may elect to withdraw, as of any Valuation Date, all or part of any balances credited to the Participant's Account attributable to After-Tax Contributions. The minimum withdrawal under this Section shall be $500. SECTION 8.02. WITHDRAWALS AFTER AGE 59-1/2. A Participant who has attained age 59-1/2 may elect to withdraw, as of any Valuation Date, all or part of the balances credited to the Participant's Account. The minimum withdrawal under this Section shall be $500. SECTION 8.03. HARDSHIP WITHDRAWALS. (a) Before the termination of the Participant's employment, upon a demonstration by the Participant of an immediate and heavy financial need that cannot be met from other resources that are reasonably available to the Participant, a Participant shall be permitted, on Timely Notice, to make a withdrawal of an amount not exceeding the lesser of (i) the amount needed to satisfy the need, or (ii) 100 percent of all balances in the Participant's Account that are derived from the Participant's Pre-Tax Contributions. Notwithstanding the foregoing, (i) amounts derived from Employer Matching Contributions may not be withdrawn under this Section, and (ii) distributions may not include any earnings credited on or after January 1, 1989 to the balance in the Participant's Account derived from Pre-Tax Contributions under this Plan or any prior plan. (b) For purposes of this Section, "an immediate and heavy financial need" shall be deemed to exist if the distribution is on account of: (i) Unreimbursed medical expenses described in Code Section 213(d) incurred by the Participant, the Participant's spouse or any dependent of the Participant (as defined in Code Section 152) or an amount necessary for these persons to obtain medical care described in Code Section 213(d); (ii) Costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments); (iii) Payment of tuition and related fees for the next 12 months of post-secondary education for the Participant, his or her spouse, children or dependents; (iv) The need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage on the Participant's principal residence; or (v) Other events provided for in rulings, notices or other documents published by the Commissioner of Internal Revenue. The amount of an immediate and heavy financial need may include amounts 30 necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution. (c) To demonstrate that a need cannot be met from other resources, the Participant may be required to provide such documents or information as the Committee may require and to certify that the need cannot be relieved (i) through reimbursement from insurance, (ii) by reasonable liquidation of assets, (iii) by cessation of Elective Contributions under the Plan or (iv) by other withdrawals or loans from this or any other plan or a loan from a commercial lender, on reasonable terms. (d) Withdrawals under this Section 8.03 shall be permitted only if the Participant has first withdrawn all amounts available to him under this or any other Employer plan and borrowed all amounts available to him under any other Employer plan. All of the Participant's contributions to this Plan and contributions to all other plans maintained by the Employer (except contributions to welfare benefit plans and mandatory employee contributions to defined benefit plans) shall be suspended for a period of 12 months following the withdrawal, and the amount which the Participant may contribute as Pre-Tax Contributions for the Plan Year following the withdrawal shall not exceed the amount described in Section 4.02(g), reduced by the amount of the Participant's actual Pre-Tax Contributions for the Plan Year in which the withdrawal occurred. (e) Distributions under this Section shall be made as soon as administratively feasible after the withdrawal is approved. SECTION 8.04 SOURCE OF FUNDS FOR WITHDRAWALS. A Participant may specify which of his Accounts should be charged for any withdrawal under this Article. Distribution will be made out of the Participant's interests in each of the Investment Funds in accordance with the proportion of the Participant's Account then invested in such Fund. SECTION 8.05 PAYMENT OF EXISTING LOANS FROM PRIOR PLANS TO PARTICIPANTS. (a) This Plan does not permit any Participant to elect to borrow from the balances in his Account. However, in the case of any Participant whose Account includes amounts derived from benefits which were ultimately transferred from any predecessor plan to this Plan and who has an existing loan outstanding from such amounts, the Participant shall be required to make payments on the loan in accordance with this Section 8.05. (b) The Committee may adopt such rules regarding the investment of principal and interest paid by Participants on outstanding loans as may be appropriate for the orderly administration of the Plan. (c) Each loan shall require payments of principal and interest at least as often as required under the predecessor plan and shall be subject to such other terms and conditions as the Committee may determine. The terms and conditions of each loan shall be as incorporated in the promissory note executed by the borrower, and shall be secured by the borrower's Account. (d) Outstanding loans under this Section shall not share in the allocations of Investment Fund earnings under Section 6.02, but shall be investments solely for the 31 borrower's Account and shall be treated as a segregated account of the Trust for the sole benefit of the borrower. All loans shall be secured by the borrower's segregated loan account which shall consist of the borrower's indebtedness, including accrued interest. In the event that any payment is more than ninety (90) days overdue, the loan shall be in default. The Committee shall notify the borrower in writing of the default. If the borrower fails to cure the default by making all necessary payments within fifteen days of the written notice, the Committee may direct the Trustee to debit the total amount from the vested portion of the borrower's Account, at such time as will not risk disqualification of the Plan. (e) Notwithstanding Sections 8.01 through 8.03 hereof, a Participant shall not be entitled to make any withdrawal under the Plan to the extent the withdrawal requires the distribution of Account balances then outstanding in the form of loans. However, on the termination of the Participant's employment, the note evidencing an outstanding loan may be distributed to the Participant or Beneficiary in full satisfaction of any remaining indebtedness. (f) The Committee shall be responsible for the administration of this loan payment program, and may impose such other rules, requirements or restrictions relating to loans under this Section as it shall determine to be necessary or appropriate, including, without limitation, requirements as to the execution of loan documents and/or payroll deduction authorization. Expenses incurred in connection with the servicing of a Plan loan shall be charged to the Account of the borrower. 8.06 WITHDRAWALS OF PRIOR PLAN AMOUNTS. Notwithstanding any provision of this Article VIII to the contrary, if any tax-qualified retirement plan maintained by an Affiliate is merged into this Plan, a Participant who previously participated in the Affiliate's plan shall be entitled to make withdrawals from that portion of his Account attributable to participation in the Affiliate's plan to the extent that such withdrawals were permitted under the terms of the Affiliate's plan immediately before the merger. The withdrawal provisions of the Affiliate's plan, as in effect immediately before the merger of the Affiliate's plan into this Plan, are hereby incorporated by reference. 32 ARTICLE IX THE COMMITTEE SECTION 9.01. BENEFIT PLANS COMMITTEE. The Benefit Plans Committee ("Committee") shall be established by the Company and shall be the plan administrator of the Plan for purposes of ERISA. The Committee shall have the responsibility for carrying out the provisions of the Plan, except to the extent such responsibilities are specifically allocated to others under the Plan. The Committee shall consist of not less than three employees appointed by the Board and serving at the pleasure of the Board. Members of the Committee may resign or be removed by the Board, and new members may be appointed by the Board. SECTION 9.02. RESPONSIBILITY AND AUTHORITY OF THE COMMITTEE. (a) The Committee shall be the administrator of the Plan for all purposes of ERISA and, subject to the direction of the Board and the provisions of the Plan and Trust, shall have all authority necessary and appropriate to carry out its duties as such. The duties and authority of the Committee shall include, but shall not be limited to, the following: (i) To interpret and apply the provisions of the Plan; (ii) To prescribe and require the use of appropriate forms; (iii) To formulate, issue and apply rules and regulations; (iv) To make appropriate determinations or calculations; (v) To authorize and direct benefit payments; (vi) To prepare and file reports, notices and any other documents relating to the Plan which may be required by law; (vii) To adopt rules relating to the giving of Timely Notice; and (viii) To establish the Investment Funds and either select the appropriate investment vehicle(s) for the Investment Fund or select an investment manager to manage the Investment Fund. In addition to the other duties of the Committee, it shall periodically review the performance of the Trustee and any insurance company or investment manager in the investment and reinvestment of the assets in the Investment Funds. (b) The Committee shall have discretionary authority to determine eligibility for benefits and to construe the terms of the Plan. Any such determination or construction shall be final and binding on all parties. SECTION 9.03. ORGANIZATION AND PROCEDURE. The Committee shall select from its respective members a chairman, a secretary, and such other officers as may be deemed appropriate. Committee action on any matter shall be taken on the vote of at least a majority of all members of the Committee at any meeting or upon unanimous written consent of all members without a meeting. Minutes of Committee meetings shall be kept and all major 33 actions of the Committee shall be recorded in the minutes or other appropriate written form. The Committee shall adopt in writing such bylaws, procedures and operating rules as it may deem appropriate. SECTION 9.04. DELEGATION OF AUTHORITY AND RESPONSIBILITY. (a) The Committee may delegate to any one or more of its members the authority to execute documents on behalf of the Committee and to represent the Committee in any matters or dealings involving the Committee. Any such delegation of authority shall be set forth in writing. (b) The Committee may delegate certain of its powers to persons who are not members under such terms and conditions as may be specified by the Committee. Any such delegation of powers shall be set forth in writing. (c) Employees of the Company or any Affiliate who are not members of the Committee may perform such duties and functions relating to the Plan as the Committee shall direct and supervise. It is expressly provided, however, that the Committee shall retain full and exclusive authority and responsibility for and respecting any such activities by other employees, and nothing contained in this subsection 9.04(c) shall be construed to confer upon any such employee any discretionary authority or control respecting the administration or operation of the Plan. SECTION 9.05. USE OF PROFESSIONAL SERVICES. The Committee may obtain the services of such attorneys, actuaries, accountants or other persons it may deem appropriate, any of whom may be the same persons who are providing services to an Employer. In any case in which the Committee utilizes the services, it shall retain exclusive discretionary authority and control respecting the administration and operation of the Plan. SECTION 9.06. FEES AND EXPENSES. Committee members who are employees of an Employer shall serve without compensation but shall be reimbursed for all reasonable expenses incurred in their capacity as Committee members. No members of the Committee or persons performing services under Section 9.05 who are employed by an Employer shall receive compensation for their services with respect to the Plan, but shall be reimbursed for their expenses. All compensation for services and expenses shall be paid in whole or in part by the Employers. To the extent that they are not paid by the Employers, such compensation shall be paid by the Trustee out of the principal or income of the Trust. 34 SECTION 9.07. CLAIMS PROCEDURE. (a) Any Employee or Beneficiary under this Plan who believes he is entitled to benefits under the Plan in an amount greater than he is receiving may file a claim with the Committee under this Section. Any such claim shall be filed in writing stating the nature of the claim, the facts supporting the claim, the amount claimed and the name and address of the claimant. The Committee or its designee shall consider the claim and answer it in writing stating whether the claim is granted or denied. If the claim is denied in whole or in part, the secretary of the Committee or his designee shall furnish the claimant a written notice of the denial containing (i) the specific reason(s) for the denial, (ii) a specific reference to the Plan provisions on which the denial is based, (iii) a description of any additional material or information which it is necessary for the claimant to submit and an explanation of why the material or information is necessary, and (iv) an explanation of the Plan's review procedure. (b) If a claimant wishes to appeal the denial of his claim, he must mail a written notice of appeal to the Committee, certified, return receipt requested, within 60 days of his receipt of the written denial. In order that the full Committee may expeditiously decide the appeal, the written notice of appeal should contain (i) a statement of the grounds for the appeal, (ii) a specific reference to the Plan provisions on which the appeal is based, (iii) a statement of the arguments and authority (if any), supporting the grounds for appeal, and (iv) any other pertinent documents or comments that the appellant desires to submit in support of his appeal. The Committee will meet and decide the appellant's appeal within 60 days of its receipt of the appeal. The Committee's written decision shall contain the reasons for the decision and the Plan provisions on which the decision is based. A copy of the Committee's decision shall be mailed promptly to the appellant. 35 ARTICLE X AMENDMENTS AND TERMINATION SECTION 10.01. AMENDMENTS AND TERMINATION. While it is intended that the Plan shall continue in effect indefinitely, the Company, by action of its President or any Vice President, may from time to time modify, alter or amend the Plan or Trust; provided, that any amendments that increase benefits provided under the Plan must be approved by the Compensation Committee of the Board. The Board may at any time suspend or discontinue Employer contributions under the Plan, or may terminate in whole or in part the Plan and Trust. Any such suspension, discontinuance or termination shall be made effective by the Board, or any duly authorized Board committee, by formal resolution in a regularly or specially constituted meeting of the Board or such committee, or by resolution without a meeting. Notwithstanding the foregoing, the following shall apply: (i) No such action shall make it possible for any part of the Trust assets (except such part as is used for the payment of expenses) to be used for or diverted to any purpose other than for the exclusive benefit of Participants or their Beneficiaries and the defraying of the reasonable expenses of administering and winding up the Plan; (ii) No such action will adversely affect the rights or interests of Participants that have vested under the Plan, decrease a Participant's accrued benefits or vesting percentage in accrued benefits or eliminate an optional form of distribution for a previously accrued benefit; (iii) In the event of termination of the Plan or complete discontinuance of employer contributions under the Plan, all rights and interests of Participants that have not vested shall become vested as of the date of the termination or complete discontinuance. In the event of a partial termination of the Plan, the rights and interests of the Participants affected thereby shall become vested as of the date of the partial termination. However, nothing in the Plan shall be construed to prevent any modification, alteration or amendment of the Plan or of the Trust that is required to comply with the provision of any law or regulation relating to the establishment or maintenance of this Plan and Trust, including, but not limited to, the establishment and maintenance of the Plan or Trust as a qualified employee plan or trust under the Code, even though such modification, alteration or amendment, if made retroactively, adversely affects the rights or interests of a Participant under the Plan. 36 ARTICLE XI MISCELLANEOUS SECTION 11.01. NON-GUARANTEE OF EMPLOYMENT. Nothing contained in this Plan shall be construed as a contract of employment between an Employer and a Participant, or as creating a right of any Participant to be continued in the employment of any Employer, or as a limitation of the right of an Employer to discharge any Participant with or without cause. SECTION 11.02. RIGHTS TO TRUST ASSETS. (a) No Participant or any other person shall have any right to, or interest in, any part of the Trust assets upon termination of employment or otherwise, except as provided from time to time under this Plan, and then only to the extent of the amounts due and payable to such person out of the assets of the Trust. All payments as provided for in this Plan shall be made solely out of the assets of the Trust and neither the Employers, the Trustee, nor any member of the Committee shall be liable therefor in any manner. (b) The effectiveness of this Plan is expressly subject to the condition that the Company shall initially receive a favorable determination letter from the Internal Revenue Service that the Plan meets the requirements for qualification under Section 401(a) of the Code and all Employer contributions under the Plan are conditioned on the continued qualification of the Plan under that Code Section and the deductibility of the contributions under Code Section 404. If the Internal Revenue Service initially fails to issue a favorable determination letter, the Company may, at its option, terminate the Plan, in which case all amounts in the Trust attributable to Employer contributions shall be refunded to the Employers and all amounts attributable to Participant contributions shall be distributed to Participants. If the Committee determines that a contribution has been made as the result of a good faith mistake of fact, then the Committee may direct that any nondeductible Employer contribution, or any other contribution made as the result of a mistake of fact, shall be refunded to the Employer or Participant in accordance with applicable provisions of ERISA. (c) Except as provided in subsection (b) of this Section, the Employers shall have no beneficial interest of any nature whatsoever in any Employer Matching Contributions after the contributions have been received by the Trustee, or in the assets, income or profits of any part of the Trust. SECTION 11.03. NON-RECOMMENDATION OF INVESTMENT. The decision as to the choice of Investment Funds under the Plan must be made solely by each Participant, and no officer or employee of any Employer or the Trustee is authorized to make any recommendation to any Participant concerning the allocation or reallocation of contributions among the Investment Funds. SECTION 11.04. INDEMNIFICATION OF COMMITTEE. The Company shall indemnify each member of the Committee and the Board and any employee who is a fiduciary with respect to the Plan and hold each of them harmless from the consequences of acts or conduct in an official capacity with respect to the Plan, if he acted in good faith, and with respect to any criminal action or proceeding, if such person had no reasonable cause to believe his conduct was unlawful. Such indemnification shall cover any and all attorneys' fees and expenses, judgments, fines and amounts paid in settlement, but only to the extent that the amounts are 37 not paid to such person(s) under the Company's fiduciary insurance policy and to the extent that the amounts are actually and reasonably incurred by such person(s). SECTION 11.05. NON-ALIENATION. Except as otherwise provided in the Plan, no right or interest of any Participant or Beneficiary in the Plan and the Trust shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, attachment, garnishment, execution, levy, bankruptcy or any other disposition of any kind, either voluntary or involuntary, before actual receipt of payment by the person entitled to such right or interest under the provisions of the Plan, and any such disposition or attempted disposition shall be void. Notwithstanding the foregoing, a qualified domestic relations order relating to child support, alimony payments or marital property rights shall be recognized and given effect if the order contains sufficient information to permit the Committee to determine that it meets the requirements of Code Section 414(p). Except as otherwise provided by a domestic relations order, the distribution of benefits to an alternate payee shall be paid or shall begin as soon as is administratively feasible upon a determination that the domestic relations order meets the requirements of Code Section 414(q). SECTION 11.06. FACILITY OF PAYMENT. If the Committee determines that a Participant or Beneficiary entitled to a distribution under the Plan is incapable of caring for his own affairs, because of illness or otherwise, it may direct that any distribution from the Participant's Account may be made, in such shares as it shall determine, to the spouse, child, parent or other blood relative of the Participant or his Beneficiary, or any of them, or to such other persons or persons as the Committee may determine. The Committee shall be under no obligation to see to the proper application of the distributions so made to such person or persons and any such distribution shall be a complete discharge of any liability under the Plan to the Participant or Beneficiary, to the extent of the distribution. SECTION 11.07. BOARD ACTION. Any action that is required or permitted to be taken by the Board under the Plan may be taken by the Executive Committee of the Board or any other authorized committee of the Board. SECTION 11.08. MERGERS, CONSOLIDATIONS AND TRANSFER OF PLAN ASSETS. The Company's President or Vice President of Administration may approve and implement, in their discretion, any mergers or consolidations of or transfers of assets and liabilities between the Plan and tax-qualified retirement plans maintained by the Company and its Affiliates. (a) In the case of any merger or consolidation with, or transfer of assets or liabilities to or from any other plan, each Participant in the Plan must be entitled (if the Plan then terminated) to receive a benefit immediately after the merger, consolidation or transfer that is equal to or greater than the benefit the Participant would have been entitled to receive immediately before the merger, consolidation or transfer (if the Plan had then terminated). (b) The Company may enter into merger agreements or direct transfer of assets agreements (or may direct the Trustee to do so) with the trustees of other retirement plans qualified under Code Section 401(a) and may direct the Trustee to transfer plan assets under such agreement. The Company may direct the Trustee to accept the direct transfer of plan assets. Unless a transfer of assets to this Plan is an elective transfer as defined in Treas. Reg. Section 1.411(d)-4, Q&A-3(b), the Plan will preserve all Code Section 411(d)(6) protected benefits with respect to those transferred assets. 38 (c) If the Plan receives a direct transfer (by merger or otherwise) of elective contributions (or amounts treated as elective contributions) under a Plan with a Code Section 401(k) arrangement, the distribution restrictions of Code Section 401(k) will continue to apply to those transferred elective contributions, unless the transfer was an elective transfer as defined in Treas. Reg. Section 1.411(d)-4, Q&A-3(b). (d) Subject to the authority of the Company provided in paragraph (b) above, an Employee who transfers from a position with an Employer or an Affiliate that does not permit participation in the Plan to a position that permits participation in the Plan may elect to transfer his account under any other defined contribution plan maintained by such Employer or Affiliate (other than an account in an employer stock ownership plan or a plan that provides for an annuity form of distribution) to this Plan in a trustee to trustee transfer. SECTION 11.09. FIDUCIARIES. Any person may serve in more than one fiduciary capacity with respect to the Plan. Any fiduciary under the Plan, as an individual, may employ such legal, actuarial, accounting or other assistant he may deem necessary to fulfill his obligations under the Plan, which assistants may be those consulted by an Employer, the Trustee, the Plan or other fiduciaries. SECTION 11.10. UNCLAIMED BENEFITS. If the Committee is unable to locate any person who is entitled to benefits under the Plan despite reasonable and diligent efforts to do so, then the person's benefits shall be automatically forfeited as of the last day of the Plan Year next following the year in which the benefits became payable; provided, that if the person subsequently makes a claim for the forfeited benefits before the termination of the Plan, the benefits shall be reinstated by means of a special Employer contribution equal to the amount of the forfeiture or by direct payment by the Company to the person, as determined by the Committee. 39 ARTICLE XII TOP-HEAVY PLAN PROVISIONS SECTION 12.01. EFFECT OF TOP-HEAVY STATUS. The Plan shall be a "Top-Heavy Plan" for any Plan Year if either of the following conditions applies: (i) The Top-Heavy Ratio for the Plan exceeds 60 percent and the Plan is not part of any Required Aggregation Group or Permissive Aggregation Group having a Top-Heavy Ratio of 60 percent or less. (ii) The Plan is part of a Required Aggregation Group Having a Top-Heavy Ratio which exceeds 60 percent and is not part of a Permissive Aggregation Group having a Top-Heavy Ratio of 60 percent or less. If the Plan is a Top-Heavy Plan in any Plan Year, the provisions of Article 12.03 through 12.05 shall supersede any conflicting provisions of the Plan. SECTION 12.02. ADDITIONAL DEFINITIONS. Solely for purposes of this Article, the following terms shall have the meanings set forth below. (a) "Key Employee" means any employee or former employee (and the beneficiary of the employee) whose status as an officer or owner of the Employer makes him a "key employee" as determined in accordance with Code Section 416(i)(l) and the regulations thereunder. (b) "Determination Date" means the last day of the preceding Plan Year. (c) "Top-Heavy Ratio" means a fraction, the numerator of which is the sum of account balances under any defined contribution plans maintained by the Employer for all Key Employees and the present value of accrued benefits under any defined benefit plans maintained by the Employer for all Key Employees, and the denominator of which is the sum of the account balances under the defined contribution plans for all employees and the present value of accrued benefits under the defined benefit plans for all employees disregarding in either case accrued benefits attributable to employees who have not been employed within the five year period preceding the Determination Date. Both the numerator and denominator of the Top-Heavy Ratio shall be adjusted for any distribution of an account balance on an accrued benefit made in the five year period ending on the Determination Date and any contribution due but unpaid as of the Determination Date. For purposes of calculating the Top-Heavy Ratio, (i) the value of account balances and the present value of accrued benefits shall be determined as of the most recent Valuation Date that falls within or ends with the 12 month period ending on the Determination Date, and (ii) the account balances and present values of accrued benefits of any employees who are not Key Employees but who were Key Employees in a prior year shall be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers and transfers are taken into account will be made in accordance with Code Section 416 and the regulations thereunder. When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. The present value of accrued benefits shall be determined under Code Section 416(g) using a five percent interest 40 assumption and the UP-1984 Mortality Table. Solely for the purpose of determining if the Plan, or any other plan included in an aggregation group of which this Plan is a part, is top-heavy, the accrued benefit of an Employee other than a Key Employee shall be determined under (i) the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Affiliates, or (ii) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional accrual rate of Code Section 411(b)(1)(C). (d) "Permissive Aggregation Group" means the Required Aggregation Group of plans plus any other plan or plans of the Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Code Section 401(a)(4) and 410. (e) "Required Aggregation Group" means (i) each qualified plan of the Employer in which at least one Key Employee participates, and (ii) any other qualified plan of the Employer which enables a plan described in (i) to meet the requirements of Code Sections 401(a)(4) and 410. (f) "Valuation Date" means (i) in the case of a defined contribution plan, the Determination Date, and (ii) in the case of a defined benefit plan, the date as of which funding calculations are generally made within the 12 month period ending on the Determination Date. (g) "Employer" means the employer or employers whose employees are covered by this Plan and any other employer which must be aggregated with any such employer under Code Sections 414(b), (c), (m) and (o). SECTION 12.03. MINIMUM BENEFITS. For any year in which the Plan is a Top-Heavy Plan, the employer contributions on behalf of each Employee who is not Key Employee shall at least be equal to three percent of the Employee's compensation (as defined in Code Section 415) for the Plan Year or the percentage of compensation allocated on behalf of the Key Employee for which the allocation was highest, whichever is less, reduced by the amounts allocated to the Employee under any other defined contribution plans. If the Employee is also covered under a defined benefit plan of the Affiliates, the Employee will only be entitled to the defined benefit minimum. SECTION 12.04. MAXIMUM BENEFIT LIMITS. If the Employer maintains a defined benefit plan and a defined contribution plan that both cover one or more of the same Key Employees, and if the Plans are Top-Heavy, then the limitation stated in a separate provision of this Plan with respect to the Code Section 415(e) maximum benefit limitations shall be deemed to refer to a 1.0 adjustment on the dollar limitation rather than a 1.25 adjustment. This provision shall not apply if the Top-Heavy Ratio is less than 90 percent and if the minimum benefit requirements of Section 12.03 are met when 3 percent is changed to 4 percent. 41 IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officers this 12th day of August, 1995. FALCON BUILDING PRODUCTS, INC. By: /s/ Gus J. Athas --------------------------- Name: Gus J. Athas Title: Senior Vice-President ATTEST: By: /s/ Kari L. Yunker ---------------------------- Name: Kari L. Yunker Title: Assistant Secretary 42 FALCON BUILDING PRODUCTS, INC. EMPLOYEE SAVINGS PLAN APPENDIX A The Falcon Building Products, Inc. Employee Savings Plan is effective for the following adopting Employers as of the Effective Date: 1. Devilbiss Air Power Company 2. Hart & Cooley, Inc. 3. Mansfield Plumbing Products, Inc. EX-10.18 4 FALCON BLDG. PROD., INC. CASH BALANCE PENSION PLAN 1 Exhibit 10.18 FALCON BUILDING PRODUCTS, INC. CASH BALANCE PENSION PLAN Effective January 1, 1996 2
TABLE OF CONTENTS Page SECTION 1 - DEFINITIONS 1 SECTION 2 - ELIGIBILITY AND PARTICIPATION 6 SECTION 3 - ACCOUNTS AND CREDITS TO ACCOUNTS 8 SECTION 4 - RETIREMENT BENEFITS 10 SECTION 5 - BENEFITS UPON TERMINATION OF EMPLOYMENT 12 SECTION 6 - DEATH BENEFITS 14 SECTION 7 - PAYMENT OF BENEFITS 16 SECTION 8 - CONTRIBUTIONS 20 SECTION 9 - AMENDMENT AND TERMINATION 21 SECTION 10 - LIMITATIONS ON BENEFITS 23 SECTION 11 - ADMINISTRATION 27 SECTION 12 - ADOPTION OF PLAN BY EMPLOYING UNITS 31 SECTION 13 - SUCCESSOR COMPANY 32 SECTION 14 - GENERAL PROVISIONS 33 SECTION 15 - IN EVENT PLAN BECOMES TOP-HEAVY 35 APPENDIX A: Pay Credit Dates of Employing Units APPENDIX B: Specified Basis for Determination of Actuarial Equivalents APPENDIX C: Pay-Based Credits to Accounts
3 FOREWORD Falcon Building Products, Inc. (the "Company") hereby establishes the Falcon Building Products, Inc. Cash Balance Pension Plan (the "Plan") effective January 1, 1996, (the "Effective Date") for the benefit of eligible employees of the Company and its affiliates which adopt the Plan (the "Employees") and their beneficiaries. Eligible employees who were participants in the Eagle Industries Products Corporation Cash Balance Pension Plan (the "Eagle Cash Balance Plan") immediately before the Effective Date became Participants under this Plan as of the Effective Date. The Company intends that this Plan and the related Trust qualify under all applicable provisions of the Internal Revenue Code of 1986 and meet the requirements of the Employee Retirement Income Security Act of 1974, and each of the terms of this Plan and the related Trust Agreement shall be so interpreted. 4 SECTION 1 DEFINITIONS As used herein, unless otherwise defined or required by the context, the following words and phrases shall have the meanings indicated. Some of the words and phrases used in the Plan are not defined in this Section 1, but, for convenience are defined as they are introduced into the text. 1.1 "Account" means the Account established and maintained for each Participant pursuant to the provisions of Section 3. Such Accounts are intended to be only bookkeeping accounts and neither the maintenance nor the making of credits thereto shall be construed as an allocation of assets of the Plan to, or a segregation of such assets in, any such Account, or otherwise as creating a right in any person to receive specified assets of the Plan. Benefits provided under the Plan shall be paid from the general assets of the Fund in the amounts, in the forms and at the times provided under the terms of the Plan. 1.2 "Accrued Benefit" means, as of the time of reference, an annual amount of benefit, payable in the form of a single life annuity, commencing on a Participant's Normal Retirement Date (or, if later, his Late Retirement Date), which such single life annuity is the Actuarial Equivalent of the then current value of his Account. 1.3 "Actuarial Equivalent" with respect to any specified annuity or benefit means another annuity or benefit, commencing at a different date and/or payable in a different form than the specified annuity or benefit, but which has the same present value as the specified annuity or benefit, when measured on the basis of the interest rate, mortality table and other factors, if any, applicable to such other annuity or benefit, as specified in Appendix B as in effect at the date of commencement of such other annuity or benefit, which Appendix B is attached hereto and made a part hereof. In its approval of any other actuarially equivalent option to be made available under the Plan, the Committee shall specify the mortality basis, interest basis, and the basis of any other factors applicable in the determination of actuarial equivalence under such options; and such specification shall constitute an addendum to Appendix B of the Plan. 1.4 "Actuary" means one or more actuaries chosen by the Company to provide actuarial services in connection with the administration of the Plan and who shall be enrolled under Subtitle C of Title III of ERISA. 1.5 "Authorized Leave of Absence" means any absence authorized by an Employing Unit following standard personnel practices applied in a nondiscriminatory manner, and provided that the Participant returns within the period specified in the Authorized Leave of Absence. 1.6 "Beneficiary" means the person or persons, or other legal entity, who has been designated in accordance with Section 6.2 hereof to receive any benefits payable upon the death of a Participant. 5 1.7 "Benefit Commencement Date" means, in the case of an annuity form of distribution, the first day of the first period with respect to which an amount is received as a benefit pursuant to the Plan; in the case of a lump sum payment, the date as of which payment is to be made pursuant to the Plan. 1.8 "Board" means the Board of Directors of the Company or its successor corporation. 1.9 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 1.10 "Committee" means the Falcon Benefit Plans Committee, which is described in Section 11.1 of the Plan. 1.11 "Company" means Falcon Building Products, Inc. or any successor corporation which assumes the obligations of the Company hereunder. 1.12 "Compensation" means the compensation reported for a calendar year on Form W-2 as paid by an Employing Unit to the Participant, exclusive of any severance pay, moving allowance, car allowance, awards or prizes, or imputed income under Code Sections 79 and 132 and such other similar payments under the Code and regulations thereunder, but inclusive of any before-tax contributions made under any 401(k) plan or any life insurance or medical plan maintained by the Company pursuant to Code Section 125. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, the annual Compensation of each Employee taken into account under the Plan shall not exceed the Omnibus Budget Reconciliation Act of 1993 ("OBRA '93") annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner of the Internal Revenue Service for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding twelve (12) months, over which compensation is determined (the "determination period") beginning in that calendar year. If a determination period consists of fewer than twelve (12) months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is twelve (12). Any reference in this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA '93 annual compensation limit set forth in this provision. If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the OBRA '93 annual Compensation limit in effect for that prior determination period. If Compensation for any prior Plan Year is taken into account in determining an Employee's benefits for the current year, the Compensation for such prior year is subject to the applicable annual Compensation limit in effect for that prior year. 6 A Participant who is Totally and Permanently Disabled pursuant to Section 4.3(a) shall be deemed for purposes of Section 3.2 to receive Compensation during such period of Total and Permanent Disability prior to attaining age sixty-five (65) at the same rate of Compensation as was in effect immediately prior to the commencement of such Total and Permanent Disability. 1.13 "Eligible Employee" means an Employee of an Employing Unit (other than a leased employee within the meaning of section 414(n) of the Code) who is compensated on a salaried basis or any other Employee at a location and/or in a classification specifically designated by the Board and who is described in Appendix A attached hereto; provided that in either case such Employee is not currently an active participant in any other defined benefit pension plan to which the Employing Unit contributes. 1.14 "Employee" with respect to the Group, means an individual who is employed by a member of the Group (including a leased employee within the meaning of section 414(n) of the Code), but shall not include a person employed at a rate of less than one thousand (1,000) "hours of employment" (as hereinafter defined) per year unless such person shall have accumulated one thousand (1,000) or more hours of employment with a member of the Group during the period from the date such person was first employed by a member of the Group to the first anniversary of such date, or during any Plan Year commencing after such date, in which case such person shall be deemed to have first become an Employee on the last day of such period or calendar year, as applicable, or on the date such person's regular rate of employment was increased to a rate of one thousand (1,000) or more hours per year, whichever is the earlier. For purposes of this Section l.l4, an hour of employment shall be determined in accordance with Department of Labor Regulations Section 2530.200b-2 and shall mean an hour for which a person was directly or indirectly paid (including any back pay award) or entitled to payment by the Group for the performance of duties, or pursuant to a vacation or sick leave or other plan or pay practice maintained by a member of the Group to provide compensation for certain hours in which no duties were performed, provided that no more than five hundred and one (501) hours are credited for any year in which no duty is performed. 1.15 "Employing Unit" means the Company or any subsidiary or affiliate of the Company which is a member of the Group and which, with the consent of the Company, adopts the Plan for the benefit of some or all of its employees. A list of such Employing Units is set forth in Appendix A, attached hereto. 1.16 "ERISA" means Public Law No. 93-406, the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.17 "Fiduciary" means the Company, the Committee and the Funding Agent, but only with respect to the specific responsibilities of each for Plan and Fund administration, all as described in Section 11. 1.18 "Fund" means all sums of money, insurance or annuity contracts, and all other property of every kind, from time to time held by the Funding Agent from which the benefits provided by this Plan will be paid. 7 1.19 "Funding Agent" means the trustee or trustees and/or insurance company or companies selected by the Board to hold the funds of the Plan pursuant to a trust agreement or agreements or an insurance contract or contracts. 1.20 "Group" means the Company and any other company which is related to the Company as (i) a member of a controlled group of corporations in accordance with Section 414(b) of the Code, (ii) a trade or business under common control in accordance with Section 414(c) of the Code, (iii) an affiliated service group within the meaning of section 414(m) of the Code, or (iv) entities required to be aggregated with the Company under Section 414(o) of the code. For the purposes under the Plan of determining whether or not a person is an Employee and the period of employment of such person, each such other company shall be included in the "Group" only for such period or periods during which such other company is also a member of a controlled group, affiliated service group or under common control. 1.21 "Late Retirement Date" means the first day of the month coincident with or next following the date the Participant actually retires after his Normal Retirement Date pursuant to Section 4.2. 1.22 "Normal Retirement Date" means the first day of the month coincident with or next following the date on which a Participant attains his sixty-fifth (65th) birthday. 1.23 "Participant" means an Eligible Employee who has qualified for participation in accordance with the terms of Section 2 hereof. 1.24 "Pay Credit Date" means January 1, 1996, or, if later, the date of the Employing Unit's inclusion in the Plan as set forth in Appendix A, attached. 1.25 "Plan" means the Falcon Building Products, Inc. Cash Balance Pension Plan as set forth herein or as amended from time to time. 1.26 "Plan Year" means the calendar year. 1.27 "Retirement Benefit" means a lump sum payment or a series of monthly payments which are payable to an individual who is entitled to receive benefits under the Plan. 1.28 "Service" means the aggregate of all periods of employment as an Employee with the Company or any other member of the Group. Service shall include (i) a period of up to twelve (12) months of absence from employment for any reason other than because of quit, retirement or discharge, (ii) the period from the date an Employee quits, retires or is discharged to the date of his reemployment if he again becomes employed with the Company or other member of the Group within twelve (12) months of such quit, retirement or discharge and (iii) for periods on or before January 1, 1996, the aggregate of all "Service" earned under the Eagle Cash Balance Plan. 8 For purposes of determining Service, an Employee who is on leave of absence under the Family and Medical Leave Act of 1993 shall be credited Service for the hours of employment that the Employee would have worked had he not taken the leave. Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. 1.29 "Total and Permanent Disability" means a physical or mental condition resulting from a bodily injury or disease which entitles the Participant to receive disability insurance benefits under Title II of the Federal Social Security Act; provided, however, that in no event will a Participant be deemed to be Totally and Permanently Disabled after his attainment of his Normal Retirement Date. If a Participant who is Totally and Permanently Disabled ceases to be such prior to his Normal Retirement Date, his employment shall be deemed to be terminated as of the date he so ceases to be Totally and Permanently Disabled, unless he returns to employment with an Employing Unit within such period as the Committee shall prescribe. 1.30 "Vested Terminated Participant" means a Participant whose employment has terminated but who is entitled to a benefit under the Plan in accordance with the provisions of Section 5.1. 9 SECTION 2 ELIGIBILITY AND PARTICIPATION 2.1 Participants in the Eagle Cash Balance Plan. Any Employee who was a participant in the Eagle Cash Balance Plan immediately before the Effective Date shall be eligible to participate in the Plan as of the Effective Date. 2.2 Eligible Employees on Pay Credit Date. Each Eligible Employee in the active employment of an Employing Unit on its Pay Credit Date shall become a Participant in the Plan on such Pay Credit Date. 2.3 Other Eligible Employees. Each other person who becomes an Eligible Employee after the Pay Credit Date shall become a Participant in the Plan on the date he becomes an Eligible Employee. 2.4 Authorized Leave of Absence. Any person who is absent from the active employment of an Employing Unit on the date he would otherwise become a Participant, by reason of an Authorized Leave of Absence granted by the Employing Unit or by reason of military service, shall automatically become a Participant as of the date of his return to active employment as an Eligible Employee. 2.5 Reemployment. If a Participant who previously terminated his employment is subsequently reemployed, the following additional rules shall be applicable. (a) Such Participant's Service to the date he ceased employment shall be reinstated upon reemployment. (b) If the Participant forfeited any percentage of his Accrued Benefit under Section 5.1, there shall be credited to his Account upon reemployment an amount equal to the amount of such forfeiture increased by the interest credits under Section 3.3 from the date he ceased employment to the date of reemployment. (c) If the Participant received a lump sum payment under Section 5.2(b) in connection with his prior termination and the Participant forfeited any percentage of his Accrued Benefit under Section 5.1, there shall be credited to his Account upon reemployment an amount equal to the sum of the amount of such lump sum payment plus interest credits thereon under Section 3.3 from the date such lump sum payment was made to the date of reemployment. (d) If the Participant is receiving periodic payments of his benefit and the Participant forfeited any percentage of his Accrued Benefit under Section 5.1, such periodic payments shall cease unless (1) he is reemployed on or after the April 1 of the 10 calendar year after the calendar year in which he attained age seventy and one-half (70-1/2) or (2) he elects not to have his periodic payments suspended. In either event, there shall be credited to his Account upon reemployment the amount necessary to restore his Account to the amount that would have been in such Account at the date of reemployment had he not received any periodic payments (i.e., to the amount that was in such Account at such termination of employment (after any forfeiture pursuant to Section 5.1) increased by interest credits under Section 3.3 from the date he ceased employment to the date of his reemployment). (e) When the Participant subsequently terminates employment, there shall be deducted from his Account (after any forfeiture under Section 5.1) an amount equal to (i) that portion of his Account that is attributable to the amount credited to his Account at his reemployment under paragraph (c) or (d), whichever is applicable, increased by the interest credits thereon under Section 3.3 after his reemployment, and (ii) the Actuarial Equivalent amount, if any, of any periodic benefit payments made to the Participant after reemployment increased by interest credits under Section 3.3 from the date of payment. 11 SECTION 3 ACCOUNTS AND CREDITS TO ACCOUNTS 3.1 Accounts. An Account shall be established and maintained for each Participant to which credits shall be made pursuant to the provisions of this Section 3, subject to the limitations of Section 10. Such Accounts are intended to be only bookkeeping accounts and neither the maintenance nor the making of credits thereto shall be construed as an allocation of assets of the Plan to, or a segregation of such assets in, any such Account, or otherwise as creating a right in any person to receive specific assets of the Plan. Benefits provided under this Plan shall be paid from the general assets of the Fund in the amounts, in the forms and at the times provided under the terms of the Plan. 3.2 Pay-Based Credits To Accounts. Except as is provided in Section 3.1 or Section 3.4, for each calendar month that an individual is both a Participant and an Eligible Employee on and after the Pay Credit Date and prior to the Benefit Commencement Date, there shall be credited to his Account an amount equal to a percentage of his Compensation for such month. The amount of such percentage, which shall vary depending on the Participant's Employing Unit and on the number of years of Service standing to the Participant's credit as of the last day of such month, is set forth in Appendix C, attached. 3.3 Interest Credits to Accounts. Except as is provided in Section 3.1 or Section 3.4, as of the first day of each "Plan Year Month" (as hereinafter defined) after the Pay Credit Date and prior to the Benefit Commencement Date, each Participant's Account shall be increased by a factor equal to one twelfth of the interest credit percentage for the applicable Plan Year. Interest credits granted during a Plan Year Month shall be based on a Participant's Account balance as of the end of the previous Plan Year Month. The interest credit percentage for the applicable Plan Year shall, except as is hereafter provided, be equal to the greater of (a) or (b) below: (a) such percentage with respect to such Plan Year as the Company may prospectively prescribe and which shall be specified in the Plan, or (b) the one (1) month average of One-Year Treasury Constant Maturities as published in the Federal Reserve Statistical Release H.15(519) of the Board of Governors of the Federal Reserve System, over the period from (A) November 1 of the year immediately preceding the applicable Plan Year to (B) November 30 of the year immediately preceding the applicable Plan Year. If the average is not a multiple of 1/4 percent, the closest higher interest rate which is a multiple of 1/4 percent shall be used. "Plan Year Month" means each calendar month of the Plan Year. 12 3.4 Limitation on Credits. Notwithstanding the foregoing provisions of this Section 3, except as is hereinafter provided, no credits pursuant to the foregoing provisions of this Section 3 shall be made to the Account of any Participant on and after the Benefit Commencement Date applicable to such Participant. However, with respect to any Plan Year that a Participant who is still employed by an Employing Unit receives benefits by reason of having attained his "required beginning date" within the meaning of Section 401(a)(9) of the Code, such Participant shall continue to have amounts credited to his Account pursuant to Sections 3.2 and 3.3. The additional benefit that otherwise would have accrued during any such Plan Year by reason of his continued employment during such Plan Year shall be reduced (but not below zero) by the Actuarial Equivalent value of the total benefit payments made to such individual during such Plan Year. 13 SECTION 4 RETIREMENT BENEFITS 4.1 Normal Retirement Benefit. Each Participant who retires from employment on his Normal Retirement Date shall be entitled to receive a Retirement Benefit, commencing on his Normal Retirement Date, equal to his Accrued Benefit as of his Normal Retirement Date, payable as provided in Section 7. 4.2 Late Retirement Benefit. If a Participant remains employed beyond his Normal Retirement Date, he shall be entitled to receive a Retirement Benefit equal to his Accrued Benefit as of his Late Retirement Date, commencing on his Late Retirement Date, payable as provided in Section 7. 4.3 Disability Retirement Benefit. In the event a Participant becomes Totally and Permanently Disabled while in the employ of an Employing Unit prior to his attainment of his Normal Retirement Date, he may elect either (a) or (b) below: (a) he may elect to be deemed for purposes of Section 3.2 to continue to receive Compensation for the duration of the period during which he remains Totally and Permanently Disabled (but in no event after his attainment of his Normal Retirement Date) at the same rate of Compensation he was receiving immediately prior to becoming Totally and Permanently Disabled. Accordingly, an Account shall continue to be maintained under the Plan on his behalf during such period of Total and Permanent Disability, and credits to such Account shall continue to be made for the duration of his Total and Permanent Disability in accordance with the applicable provisions of Section 3. Upon such Participant's attainment of his Normal Retirement Date, he shall be entitled to receive a Retirement Benefit in accordance with the provisions of Section 4.1. (b) he may elect (i) to have his Benefit Commencement Date occur as soon as practicable after the date on which he becomes Totally and Permanently Disabled, in which case he shall commence to receive a benefit as of such date, payable as provided in Section 7, which such benefit shall be the Actuarial Equivalent of his Accrued Benefit as of the date on which he so became Totally and Permanently Disabled, or (ii) to receive the value of his Account as of such Benefit Commencement Date. Notwithstanding the foregoing, no such election pursuant to this subsection 4.3(b)(ii) may be made by a married Participant unless the Participant's 14 spouse consents to such election, the spousal consent acknowledges the effect of such election, and the consent is witnessed by a Plan representative or a notary public. If he elects (b), there will be no further pay credits. 4.4 Early Retirement Benefit. An actively employed Participant who has attained his fifty-fifth (55th) birthday may elect to retire prior to his Normal Retirement Date. In such case, he shall receive a Retirement Benefit, commencing on his Normal Retirement Date, equal to his vested Accrued Benefit, if any, as of his Normal Retirement Date, payable as provided in Section 7. In lieu of such Retirement Benefit commencing on his Normal Retirement Date, the Participant may, at any time on or after his termination of employment, elect a reduced Retirement Benefit to commence as of the first day of any month thereafter which is prior to his Normal Retirement Date. In such case the Participant shall receive a Retirement Benefit which is the Actuarial Equivalent of his vested Accrued Benefit as of such Benefit Commencement Date, payable as provided in Section 7. 4.5 Nonduplication of Benefits. The amount of a Participant's Retirement Benefits shall be reduced by that portion of any retirement income, payable from any source other than the Fund, to which he is entitled under any tax-qualified retirement plan maintained by a member of the Group (other than a profit sharing plan which is qualified under Section 401(a) of the Code) which is attributable to a period of employment for which he receives a benefit from this Plan, except that no such reduction shall be made with respect to that part of such retirement income which is attributable to contributions made by him. For the purpose of computing the amount of such reduction, any such retirement income, payment of which is to commence other than at the Employee's Normal Retirement Date under this Plan, or payment of which is to be made on a basis other than a retirement income for life, shall be recomputed to its Actuarial Equivalent value on the basis of a retirement income for life commencing on such Normal Retirement Date. 15 SECTION 5 BENEFITS UPON TERMINATION OF EMPLOYMENT 5.1 Benefit on Termination of Employment Prior to Retirement. Except as is otherwise hereinafter provided, in the event of the termination of employment of a Participant, for any reason other than death under the Plan, after completion of three (3) or more years of Service, he shall have a nonforfeitable right to a percentage of his Accrued Benefit. The percentage of the Accrued Benefit to which such a Participant shall have a nonforfeitable right shall be determined from the following table by reference to the completed years of Service at the date of termination of employment:
Percentage of Completed Years of Service Accrued Benefit - ------------------------------------------- Less than 3 0% - ------------------------------------------- 3 20% - ------------------------------------------- 4 40% - ------------------------------------------- 5 60% - ------------------------------------------- 6 80% - ------------------------------------------- 7 or more 100% - -------------------------------------------
Notwithstanding the foregoing, the Accrued Benefit of a Participant shall be one hundred percent (100%) vested and non-forfeitable upon the first to occur of his (i) his attainment of age sixty-five (65) while still employed by an Employing Unit (or other member of the Group), or (ii) his termination of employment by reason of Total and Permanent Disability. In addition, a Participant whose termination of employment is by reason of death shall be treated as being one hundred percent (100%) vested for purposes of Section 6. 5.2 Commencement of Benefits to Vested Terminated Participants. A Participant whose employment terminates and who is entitled to the benefit specified in the first paragraph of Section 5.1 above shall hereinafter be referred to as a "Vested Terminated Participant." Except as is otherwise hereinafter provided, if a Vested Terminated Participant survives to his Normal Retirement Date, he shall be entitled to receive a Retirement Benefit, commencing on his Normal Retirement Date, equal to his vested Accrued Benefit as of his Normal Retirement Date, payable as provided in Section 7. Notwithstanding the foregoing, (a) A Vested Terminated Participant may elect to commence receiving benefits as of the first day of any month following the attainment of age fifty-five (55) and prior to his Normal Retirement Date, in 16 which event he shall be entitled to a Retirement Benefit which is the Actuarial Equivalent of his vested Accrued Benefit as of such Benefit Commencement Date, payable as provided in Section 7. (b) (i) If the Actuarial Equivalent present value of a Vested Terminated Participant's Accrued Benefit (or, if greater, the vested value of the Vested Terminated Participant's Account) as of the date of his termination of employment exceeds three thousand, five hundred dollars ($3,500), the Participant may elect that such benefit shall be paid to him, commencing as soon as practicable thereafter in the form provided for in Section 7.2 or Section 7.4, as applicable, or, subject to the spousal consent requirements of Section 7.4(c), in a cash lump sum; and (ii) If the Actuarial Equivalent present value of a Vested Terminated Participant's Accrued Benefit (or, if greater, the vested value of a Vested Terminated Participant's Account) as of the date of his termination of employment does not exceed three thousand, five hundred dollars ($3,500), such benefit shall be paid to him as soon as practicable thereafter in a cash lump sum. 17 SECTION 6 DEATH BENEFITS 6.1 Benefit Payable in the Event of Death Before Retirement Benefit Commencement Date. If a Participant (other than a Vested Terminated Participant) dies before the date on which Retirement Benefit payments commence to be paid to him, a benefit shall be payable to his Beneficiary as follows: (a) If the Participant's Beneficiary is any person other than his spouse, there shall be paid to such Beneficiary as of the first day of the month following the month in which the Participant's death occurs an amount equal to the value of his Account as of the last day of the month in which the death of the Participant occurs. (b) If the Participant's Beneficiary is his spouse, such spouse shall be entitled to receive a Retirement Benefit for her life commencing on the date the Participant would have attained his Normal Retirement Date if he had survived to such date. Such benefit to the spouse shall be a single life annuity, payable monthly, where such annuity is the Actuarial Equivalent of the Accrued Benefit to which such Participant would have been entitled had he terminated employment on his date of death, survived to his Normal Retirement Date, and commenced to receive a Retirement Benefit as of such date. Notwithstanding the foregoing, the spouse of a Participant may elect to commence receiving a Retirement Benefit for her life in the form of a single life annuity commencing on the first day of any month on or after the date the Participant would have attained age fifty-five if he had survived to such date. The monthly amount of such benefit to the spouse shall equal the monthly amount payable under a single life annuity where such single life annuity is the Actuarial Equivalent of the Retirement Benefit to which such Participant would have been entitled had he terminated employment on his date of death, survived to such commencement date, and commenced to receive a Retirement Benefit as of such date. Alternatively, the spouse may request to receive, in lieu of any other benefits under the Plan to which she would otherwise be entitled, a distribution of the value of the Participant's Account as of his date of death, payable as soon as practicable after the Participant's death. (c) The foregoing provisions of this Section 6.1 shall apply in the case of the death of a Vested Terminated Participant who was less than one hundred percent (100%) vested on his termination of employment only with respect to that portion of his Account (or Accrued Benefit) in which he is so vested on his date of death. 18 6.2 Beneficiary. (a) A Participant who has a spouse at the date of his death shall automatically be deemed to have designated such spouse as his Beneficiary unless (i) the Participant designates a different Beneficiary and the spouse of such Participant consents to such designation in writing, which consent acknowledges the effect of such designation and which is witnessed by a notary public or plan representative, or (ii) it is established to the satisfaction of the Committee that the consent of the spouse cannot be obtained because the spouse cannot be located or because of other special circumstances. For purposes of this Paragraph (a), the term spouse shall also include an individual to whom the Participant was previously married to the extent so required under the terms of a qualified domestic relations order (within the meaning of Section 414(p) of the Code). (b) Subject to the provisions of Paragraph (a) above, a Participant may designate a Beneficiary or Beneficiaries to receive any death benefit payable under the Plan (other than amounts which are required to be paid to a surviving spouse). Any such designation shall be made, and may be changed or revoked, by filing the appropriate form with the Committee. If more than one person is designated each shall have an equal share unless the designation directs otherwise. Any designation, change or revocation by a Participant shall be effective only if it is received by the Committee before the death of such Participant. For purposes of this Paragraph (b), the term "person" includes an individual, a trust or an estate. If no Beneficiary designation is on file with the Committee at the Participant's death, or if any designation is not effective for any reason as determined by the Committee the benefit payable under the Plan shall be paid to such Participant's executor or administrator. 19 SECTION 7 PAYMENT OF BENEFITS 7.1 Time of Payment. Payment of any benefit to which a Participant is entitled pursuant to the Plan shall commence as of such Participant's Benefit Commencement Date. In no event shall payment of any benefit commence later than sixty days after the close of the Plan Year during which such Participant attains, or would have attained, his Normal Retirement Date or, if later, terminates his employment with the Company or other member of the Group, provided however, payment must commence no later than April 1st of the calendar year following the calendar year in which he attains age seventy and one-half (70-1/2). 7.2 Standard Benefit. Except as is otherwise hereinafter provided in this Section 7, the normal form of benefit payable to a Participant shall be an annuity for the life of the Participant. 7.3 Claim for Benefit. (a) A Participant must file a claim for benefits before payment of benefits shall commence. The claim for benefits shall be in writing, in such form as the Committee shall designate. (b) The claim for benefits shall specify the date on which pension payments are to commence, consistent with the provisions of the Plan with respect to commencement of benefits in case of normal, early or late retirement, as the case may be. (c) The claim for benefits shall include a certification by the Participant either (i) that the Participant is not married or (ii) that the Participant is married and the name and date of birth of the individual to whom the Participant is married. The certification by the Participant as to the Participant's marital status shall be binding upon the Participant. 7.4 Qualified Joint and Survivor Annuity Form (a) In general Subject to the conditions set forth in this Section 7.4, if a Participant is married on the Benefit Commencement Date, the amount of each pension payment which otherwise would be payable to the Participant, shall be reduced on an Actuarial Equivalent basis; and if the Participant's spouse shall survive the Participant, pension payments shall be payable under the Plan to the Participant's surviving spouse during the surviving spouse's remaining lifetime after the Participant's death, in an amount equal to fifty percent (50%), or, if the Participant shall so elect, one hundred percent (100%), of the Participant's reduced pension payment. 20 (b) Election to Waive the Qualified Joint and Survivor Annuity Form. A Participant may elect, during the election period specified below, to waive the qualified joint and survivor annuity form, in which case pension payments shall be made in the normal form as provided in Section 7.2 or under the optional form as the Participant shall elect in accordance with Section 7.5. An election to waive shall not take effect unless the Participant's spouse gives written consent on a form provided by the Committee for such purpose, which consent acknowledges the effect of the election to waive, and which written consent is witnessed by a notary public (or an individual designated by the Committee). The Committee, in its sole discretion, may waive the requirement for consent of the spouse if the Participant establishes to the Committee's satisfaction that the spouse cannot be located, or because of other special circumstances. An election to waive the qualified joint and survivor annuity form may be made at any time within the election period beginning on the date which is the ninetieth (90th) day preceding the Participant's Benefit Commencement Date and ending on such Benefit Commencement Date. A Participant may revoke a waiver of the qualified joint and survivor annuity form at any time during the election period. There is no limit on the number of times during the election period that a Participant may elect to waive the qualified joint and survivor annuity form or revoke a waiver. (c) Explanation No earlier than ninety (90) days, and no later than thirty (30) days, before the Participant's Benefit Commencement Date, the Committee shall furnish the Participant with a written explanation of (i) the terms and conditions of the qualified joint and survivor annuity form, (ii) the Participant's right to make, and the effect of, an election to waive the joint and survivor annuity form of benefit, (iii) the rights of the Participant's spouse to consent, or refuse to consent, to such waiver, and (iv) the Participant's right to make, and the effect of, a revocation of an election to waive. (d) Termination of Marriage The spouse to whom the Participant was married at the Participant's Benefit Commencement Date is entitled to the survivor annuity upon the death of the Participant after the Benefit Commencement Date, whether or 21 not the Participant and such spouse were married at the date of the Participant's death. 7.5 Optional Forms of Benefit. (a) The optional forms of benefit provided in this Section 7.5 (which shall be the Actuarial Equivalent of the standard form of benefit set forth in Section 7.2 and which in all cases shall, as a precondition to being available as optional forms of benefit under the Plan, comply with the requirements of Section 401(a)(9) of the Code) shall be available only to (i) a Participant who is not married on the Benefit Commencement Date and (ii) a Participant who is married on the Benefit Commencement Date if an election to waive the qualified joint and survivor annuity form, made in accordance with Section 7.4(b), is in effect on such Benefit Commencement Date. (b) The other optional forms of benefit are: (i) a single lump sum payment, and (ii) a reduced lifetime retirement income, and in the event of the Participant's death prior to receiving one hundred and twenty (120) monthly payments, the same amount of retirement income is continued to his Beneficiary, until a combined total of one hundred and twenty (120) monthly payments have been made. If both the Participant and his Beneficiary shall have died before a total of one hundred and twenty (120) monthly payments have been made, the monthly retirement income payments will continue to the Beneficiary of the last payee for the remainder of the one hundred and twenty (120) month period. 7.6 Cash-out of Accrued Benefit. Any other provision of the Plan to the contrary notwithstanding, if the vested value of a Participant's Account as of the date of his termination of employment does not exceed three thousand, five hundred dollars ($3,500), such vested Account value shall be paid to him as soon as practicable thereafter in a cash lump sum. 7.7 Required Distributions. Subject to Section 1121(d)(4) of the Tax Reform Act of 1986 and Proposed Treasury Regulation Section 1.401(a)(9)-1, a Participant who attains age seventy and one-half (70-1/2) after December 31, 1987, or who is a five percent (5%) owner (as defined in Section 416(i) of the Code) at any time after the attainment of age sixty-six and one-half (66-1/2), shall commence to receive payment of his retirement income no later than the April 1 of the calendar year following the calendar year in which such Participant attains age seventy and one-half (70-1/2). Any payments under this Plan shall be adjusted to meet the requirements of Section 401(a)(9) of the Code and the regulations thereunder. Thus, the entire interest of each Participant shall be distributed, beginning not later than the required beginning date, in accordance with regulations, over the life of the Participant or over the life of the Participant and Beneficiary (or 22 over a period not extending beyond the life expectancy of the Participant or the life expectancy of the Participant and Beneficiary). A Participant may make an irrevocable election as to the form of benefit payment, with spousal consent if applicable, in accordance with the provisions of this Plan, within the ninety (90) day period ending on the Benefit Commencement Date. A Participant who fails to make an election, within such ninety (90) day period, shall have the amount, timing and duration of his benefit payment determined in accordance with regulations promulgated under Sections 401(a)(9) and 411(b)(1)(H) of the Code, in the form of benefit payment described in Section 7. A Participant who begins to receive benefit payments in accordance with this Section 7.7, while remaining an Eligible Employee, shall continue to accrue benefits in accordance with the applicable provisions of the Plan. In addition, any distribution required under the incidental death benefit rule of Section 401(a)(9)(G) of the Code shall be treated as a distribution required under this Section. 7.8. Direct Rollovers. (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section 7.8, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. (b) An Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: (i) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designed beneficiary, or for a specified period of ten (10) years or more, (ii) any distribution to the extent the distribution is required under Code Section 401(a)(9) and (iii) the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (c) An Eligible Retirement Plan is (i) an individual retirement account described in Code Section 408(a), (ii) an individual retirement annuity described in Code Section 408(b), (iii) an annuity plan described in Code Section 403(a) or (iv) a qualified trust described in Section 401(a) of the Code, which accepts the Distributee's Eligible Rollover Distribution. However, if an Eligible Rollover Distribution is to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. (d) A Distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are Distributees with regard to the interest of the spouse or former spouse. (e) A Director Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 23 7.9 Rollover Contributions. An Employee may roll over a cash distribution from a qualified plan or conduit individual retirement account to this Plan, provided that (a) the distribution is (i) received from a qualified plan as an Eligible Rollover Distribution (as defined in Section 7.8(b)) and (ii) rolled over directly from the qualified plan or within the sixty (60) days following the date the Employee received the distribution, or (b) the distribution is (i) received from a conduit individual retirement account that has no assets other than assets attributable to an Eligible Rollover Distribution or a "qualified total distribution," within the meaning of Code Section 402 as in effect before January 1, 1993, and had been deposited in the conduit individual retirement account within sixty (60) days of the date the Employee received the distribution, plus earnings, (ii) eligible for tax free rollover to a qualified plan, and (iii) rolled over within sixty (60) days following the date the Employee received the distribution. Before accepting a rollover contribution, the Trustee may require the Employee to furnish satisfactory evidence that the proposed transfer is in fact a rollover contribution that the Code permits an Employee to make to a qualified plan. The foregoing contributions, which shall be Rollover Contributions, shall be accounted for separately and shall be credited to an Employee's Rollover Account. An Employee shall not be permitted to withdraw any portion of his or her Rollover Account until such time as the Employee is otherwise eligible to make a withdrawal from or receive a distribution of his or her Account. An Employee who has made a Rollover Contribution shall be deemed to be a Participant with respect to his or her Rollover Account even if he or she is not otherwise a Participant. 24 SECTION 8 CONTRIBUTIONS 8.1 Contributions by Participants. The entire cost of this Plan shall be borne by the Company and the Employing Units and no contributions shall be required or permitted of Participants. 8.2 Contributions by Employing Units. The Company and the Employing Units intend, but do not guarantee, to make such contributions as are required to maintain the Fund, established for the purposes of the Plan, on a sound actuarial basis. Contributions will be in such amounts and made at such times as determined by their respective boards of directors in accordance with the funding policy established by the Board and consistent with Plan objectives. Neither the Company, the Employing Units, nor any of their officers or Employees, nor any Participant of their boards of directors or agents, nor any member of the Committee, nor the Funding Agent guarantees, in any manner, the payments of the benefits hereunder. All contributions made by the Company and each Employing Unit shall become a part of the Fund and shall be held by the Funding Agent subject to the terms and provisions of the Plan. Forfeitures arising under the Plan because of termination of employment before a Participant becomes eligible for a Retirement Benefit, or for any other reason, shall be applied to reduce the cost of the Plan and shall not be used to increase the benefits otherwise payable hereunder. No part of the Fund shall be used for, or diverted to, purposes other than for the exclusive benefit of Employees (and their Beneficiaries), except that such part of the Fund, if any, which remains therein after the satisfaction of all liabilities to persons entitled to benefits under the Plan, as described in Section 9.2 hereof with respect to termination of the Plan, shall be returned to the Company. Notwithstanding anything herein to the contrary, upon the request of the Company or an Employing Unit, a contribution which was made by a mistake of fact, or conditioned upon qualification of the Plan or any amendment thereof or upon the deductibility of the contribution under Section 404 of the Code, shall be returned to the Company or the Employing Unit within one (1) year after the payment of the contribution, the denial of the qualification or the disallowance of the deduction (to the extent disallowed), whichever is applicable. Any obligation of the Company or the Employing Units to make contributions to the Fund hereby is conditioned upon the continued qualification of the Plan under Section 401(a) of the Code, the exempt status of the Fund under Section 501(a) of the Code, and each contribution made by the Company or an Employing Unit hereby is conditioned upon its deductibility under Section 404(a)(1) of the Code. 25 SECTION 9 AMENDMENT AND TERMINATION 9.1 Amendment. While it is intended that the Plan shall continue in effect indefinitely, the Company may at any time and from time to time modify, alter or amend the Plan or Trust. Any such modification, alteration or amendment shall be adopted by the Board, or by any duly authorized Board committee, by formal resolution in a regularly or specially constituted meeting of the Board or such committee, or by resolution without a meeting, provided that no part of the assets of the Plan shall, by reason of any amendment, be used for or diverted to purposes other than for the exclusive benefit of Participants and Beneficiaries; and further provided that any amendment adopted by the Board, or any duly authorized Board committee, that would cause the Plan and the Fund established under the Plan to cease to meet the requirements of Section 401(a) of the Code (unless such result shall have been specifically intended as evidenced by an express statement of such intention in the resolution of such Board adopting such amendment) shall be null and void; and any actions taken under the Plan pursuant to such amendment, any benefit increases (or decreases) accruing under the Plan as a result of such amendment or any increases (or decreases) in benefit payments under the Plan made as a result of such amendment, during the period from the date of adoption of such amendment to the date it is determined that such amendment would so cause the Plan and the Fund under the Plan to cease to meet such requirements, shall be, respectively, rectified, nullified, and restored as soon as possible to the extent necessary to permit the Plan and Fund under the Plan to continue to meet the requirements of Section 401(a) of the Code. Notwithstanding the foregoing, any amendment that increases benefits provided under the Plan must be approved by the Compensation Committee of the Board. Notwithstanding anything in the Plan to the contrary and subject to the limitations in the previous paragraph, the Committee may amend the Plan in such respects as may be necessary or appropriate to maintain the qualified status of the Plan under Section 401(a) of the Code or to satisfy the requirements of other applicable laws. 9.2 Right to Terminate. The Company shall have the right, at any time, to suspend or discontinue its contributions under the Plan, and to terminate at any time, in whole or in part, this Plan and the Trust. Any such suspension, discontinuance or termination shall made effective by the Board of Directors of the Company, or by any duly authorized Committee, by formal resolution in a regularly or specially constituted meeting of the Board or such Committee or by formal resolution without a meeting. Written notice of such suspension, discontinuance or termination shall be given to the Committee and to the Funding Agent, but only upon condition that such action is taken as shall render it impossible at any time prior to the satisfaction of all liabilities with respect to Participants, surviving spouses and Beneficiaries and with respect to the expenses of the Fund, for any part of the corpus or income of the Fund to be used for or diverted to purposes other than for the exclusive benefit of Participants, surviving spouses and Beneficiaries under the Plan and for the payment of expenses. 9.3 Effect of Termination. Upon termination of the Plan pursuant to Section 9.2 each Participant's accrued benefit shall become nonforfeitable to the extent then funded and the Committee shall cause the Fund to be allocated in a manner approved by the Internal Revenue 26 Service in accordance with the provisions of, and regulations issued pursuant to, Section 4044 of the Employee Retirement Income Security Act of 1974. The total amount so allocated shall be applied either by a cash payment, by insurance company contract or by the continuance of the Fund and the payment of retirement income therefrom in such amounts as may be provided by the funds so allocated, all as the Committee shall determine, subject to the requirements of applicable law. However, in the event that the assets available for allocation are less than the value of insured vested benefits, the Pension Benefit Guaranty Corporation may direct how the allocated amounts are to be applied. If any of the assets of the Fund remain after the satisfaction of all liabilities of the Plan the remaining funds shall be paid by the Funding Agent to the Company. 9.4 Continuation of Fund. If the Plan is terminated but the Board of Directors determines that the Fund shall be continued pursuant to its terms and the provisions of this Section, no further contributions will thereafter be made by the Company, the rights of each affected Participant to benefits accrued to the date of termination of the Plan, to the extent then funded, shall be nonforfeitable but the Fund shall be administered as though the Plan were otherwise in full force and effect, except that no further benefits will accrue after the date of termination. If the trust is subsequently terminated, the Fund shall then be allocated and disbursed in accordance with procedures set forth in Section 9.3. 9.5 Mergers, Etc.. In the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each Participant in the Plan shall in all cases, if the Plan then terminated, receive a benefit immediately after the merger or consolidation or transfer of assets which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer, if the Plan had then terminated. 9.6 Partial Termination. Upon a partial termination of the Plan, the rights of all affected Participants to benefits accrued to the date of such partial termination, to the extent then funded, shall be nonforfeitable. If a partial termination of the plan shall occur, a terminated group's share of the Fund shall equal (i) the sum of that part of the fair market value of the Fund on the Plan's partial termination date which would have been allocated to each person in the terminated group in accordance with Section 9.3 if the Plan had been terminated on such date as to all Participants in the Plan minus (ii) the expenses of the Plan and the Fund incurred in connection with the termination of the Plan as to such group. 27 SECTION 10 LIMITATIONS ON BENEFITS 10.1 Maximum Limitation. In addition to other limitations set forth in the Plan and notwithstanding any other provisions of the Plan, the accrued benefit, including the right to any optional benefits provided in the Plan (and all other defined benefit plans required to be aggregated with this Plan under the provisions of section 415 of the Code), shall not increase to an amount in excess of the amount permitted under section 415 of such Code at any time. Notwithstanding any provision of this Plan to the contrary, for purposes of the preceding sentence and for purposes of determining whether benefits of this Plan exceed the limitations of section 415 of such Code, the term "annual addition" shall include all employee contributions to the Plan. For purposes of this paragraph and determining compliance with section 415 of the Code, compensation shall mean compensation as defined in section 415(b)(3) and the regulations thereunder. 10.2 Early Termination Provisions. (a) The purpose of this Section 10.2 is to conform the Plan to the requirements of Treasury Regulation Section 1.401(c)-1 and Treasury Regulation Section 1.401(a)(4)-5(b). (i) In the event of the termination of the Plan, the benefit of any highly compensated employee (within the meaning of Section 414(q) of the Code) shall in no event exceed an amount that is nondiscriminatory under Section 401(a)(4) of the Code. (ii) The annual payments to an Employee described in Section 10.2(a)(iii) may not exceed an amount equal in each year to the payments that would be made on behalf of the Employee under a straight life annuity that is the Actuarial Equivalent value of the Employee's accrued benefit and the other benefits to which the Employee is entitled under the Plan (other than a social security supplement), and the amount of the payments that the Employee is entitled to receive under a social security supplement. Notwithstanding the foregoing, the restrictions of this subparagraph (ii) do not apply if any one of the following requirements is satisfied: (A) after payment to an Employee described in Section 10.2(a)(iii) of all "benefits" described in Section 10.2(a)(iv), the value of Plan assets equals or exceeds 110 percent of the value of current liabilities, as defined in Section 412(l)(7) of the Code, 28 (B) the value of the benefits described in Section 10.2(a)(iv) for an Employee described in Section 10.2(a)(iii) is less than one (1) percent of the value of current liabilities of the Plan, or (C) the value of the benefits described in Section 10.2(a)(iv) for an Employee described in Section 10.2(a)(iii) does not exceed three thousand, five hundred dollars ($3,500). Furthermore, this subparagraph (ii) and Treasury Regulation Section 401(a)(4)-5(b)(3) shall not restrict any distribution to a Participant who agrees, by an adequately secured written agreement with the Committee as prescribed by Section 10.2(b) (an "Agreement") to repay to the Plan and Fund any amount necessary for the distribution of assets upon Plan termination to satisfy Section 401(a)(4) of the Code. (iii) The Employees whose benefits are restricted on distribution consist of the twenty-five (25) highly compensated employees (including former Employees who were highly compensated employees when they separated from service and Employees who were highly compensated employees at any time after attaining age fifty-five (55)) whose compensation, within the meaning of Section 414(g) of the Code, was the highest in the current or any prior Plan Year. (iv) For purposes of Section 10.2(a)(ii)(A) the term "benefits" includes, in addition to other benefits payable under the Plan, loans in excess of the amounts set forth in Section (72)(p)(2)(A) of the Code, any periodic income, any withdrawal values payable to a living Employee, and any death benefits not provided for by insurance on the Employee's life. (b) Terms of Agreement (i) During any Plan Year, the amount that may be required to be repaid to the Trust Fund pursuant to an Agreement is the Restricted Amount. (A) The "Restricted Amount" is the excess of the Accumulated Amount of distributions made to the Employee over the Accumulated Amount of the Employee's Nonrestricted Limit. (B) The Employee's "Nonrestricted Limit" is equal to the payments that could 29 have been distributed to the Employee, commencing when distribution commenced to the Employee, had the Employee received payments in the form described in Treasury Regulations Sections 1.401(a)(4)-5(b)(3)(i)(A) and (B). (C) An "Accumulated Amount" is the amount of a payment, increased by a reasonable amount of interest from the date the payment was made (or would have been made) until the date for the determination of the Restricted Amount. (ii) Prior to receipt of a distribution under the terms of an Agreement, an Employee must (A) agree that upon such distribution the Employee will promptly deposit in an escrow account (an "Escrow Account") with a depository acceptable to the Committee property having a fair market value equal to at least one hundred and twenty-five percent (125%) of the Restricted Amount, or (B) post as collateral a bond or bank letter of credit equal to at least one hundred percent (100%) of the Restricted Amount, which bond is furnished by an insurance company, bonding company, or other surety approved by the U.S. Treasury Department as an acceptable surety for federal bonds. (iii) Amounts in the Escrow Account in excess of one hundred and twenty-five percent (125%) of the Restricted Amount may be withdrawn by the Employee. The Employee's liability under a bond or letter of credit in excess of one hundred percent (100%) of the Restricted Amount may be released, where the Agreement has been secured by a bond or a letter of credit. If the market value of the property in the Escrow Account falls below one hundred and ten percent (110%) of the Restricted Amount, the Employee is obligated to deposit additional property to bring the value of the property held by the depository up to one hundred and twenty-five percent (125%) of the Restricted Amount. An Employee has the right to receive any income from the property placed in the Escrow Account, subject to the foregoing obligation to maintain the value of the property. (iv) A depository may not redeliver to an Employee any property held under an Agreement, other than amounts in excess of one hundred and twenty-five percent (125%) of the Restricted Amount, and a surety or bank may not release any liability on a bond or letter of credit unless the Committee certifies to the depository, surety or bank that the Employee (or the Employee's estate) is no longer obligated to repay any amount under the Agreement. The Committee will make such a certification if, any time after the distribution commences, either 30 (A) the value of Plan assets equals or exceeds one hundred and ten percent (110%) of the value of current liabilities, (B) the value of the Employee's future Nonrestricted Limit constitutes less than one percent of the value of current liabilities, (C) the value of the Employee's future Nonrestricted Limit does not exceed three thousand, five hundred dollars ($3,500), or (D) the Plan has terminated and the benefit received by the Employee is nondiscriminatory. Such a certification by the Committee shall terminate the Agreement. (c) In the event that Congress should provide by statute, or the Internal Revenue Service should provide by regulation or ruling, that any or all of the conditions set forth in Sections 10.2(a) and 10.2(b) are no longer necessary for the Plan to meet the requirements of Section 401 or other applicable provisions of the Code then in effect, such conditions shall immediately become void and shall no longer apply, without the necessity of further amendment to the Plan. 31 SECTION 11 ADMINISTRATION 11.1 Appointment and Term of Office. The Board shall appoint a committee of at least three (3) persons to be known as the Benefit Plans Committee ("Committee"), the members of which shall hold office during the pleasure of the Board. Any person shall be eligible to be appointed a member of the Committee. Any member may resign at any time by notice in writing filed with the Board and with the Chairman or Secretary of the Committee. Vacancies shall be filled promptly by the Board in such manner that the composition shall be as herein prescribed. The Committee shall be the "administrator" within the meaning of Section 3(16)(A) of ERISA. 11.2 Organization of the Committee. The Committee shall appoint a Chairman, who must be a member, and a Secretary, who need not be a member. It may appoint such agents, who need not be members of the Committee, as it may deem necessary for the effective performance of its duties, whether ministerial or discretionary, as the Committee may deem expedient or appropriate. The compensation of such agents may be fixed by the Committee within limits set by the Board. The action of the Committee shall be determined by the vote or other expression of a majority of its members. The Committee shall hold meetings upon such notice, at such place or places and at such time or times as the Committee may from time to time determine. Meetings may be called by the Chairman or any two (2) members. A majority of the members of the Committee at the time in office shall constitute a quorum for the transaction of business. Members of the Committee shall serve without compensation for services as such, but the Company shall pay or reimburse the Committee for all expenses reasonably incurred by it or its members. 11.3 Powers of the Committee. The Committee shall have complete control of the administration of the Plan, subject to the provisions hereof, with all powers necessary to enable it to properly carry out its duties in that respect. Not in limitation, but in amplification of the foregoing, the Committee shall have the uncontrolled discretionary authority and power to interpret and construe this Plan and to determine all questions that may arise thereunder, including all questions relating to the eligibility of Employees to participate in this Plan, and the amount of Retirement Benefit or other benefits to which any Participant or Beneficiary may become entitled hereunder. The decisions of the Committee upon all matters within the scope of its authority shall be final. No member of the Committee shall take part in any action or any matter solely concerning his own participation in the Plan. The Committee shall approve forms and establish rules and procedures to be followed by the Participants or Beneficiaries in filing applications for benefits and in furnishing and verifying proofs necessary to establish age, service, and any other matter required in order to establish the right to benefits in accordance with the Plan. The Committee shall receive all applications for benefits. Upon receipt by the Committee of such an application, it shall determine all facts which are necessary to establish the right of the applicant to benefits under the provisions of the Plan and shall approve the amount thereof as herein provided. The Committee shall afford a reasonable opportunity, to any 32 applicant who gives written notice to the Committee of his request for a review, for a reconsideration of any finding of fact or determination affecting his benefits. The Committee may authorize one or more of its members or any agent, to execute any instrument or make any payment on its behalf, and all persons having dealings with the Committee may rely upon the signature of any person so authorized. The Committee shall prepare and distribute to the Employees, at the expense of the Company and in such manner as it shall deem appropriate, information concerning the Plan. To enable the Committee to perform its functions, the various Employing Units shall supply full and timely information to it of all matters relating to the length of service of all Participants, their retirement, death or other cause of termination of employment, and such other pertinent facts as the Committee may require. The Board shall notify the Funding Agent in writing of the members of the Committee and any changes therein, and shall certify to the Funding Agent the signatures of said members. From time to time and as necessary, the Committee shall advise the Funding Agent of such facts and issue to the Funding Agent such instructions as may be required by the Funding Agent in the administration of the Plan. The Committee shall from time to time adopt the actuarial, financial and other tables and procedures which shall be used in the various actuarial calculations required in connection with the Plan, and may modify, change or revoke any thereof, and substitute a new table or procedure therefor, as it may see fit. As an aid to the Committee in adopting tables and in determining the level of contributions to the Fund, the Actuary shall make annual actuarial valuations of the Plan and shall present to the Committee the tables and contributions which he recommends. 11.4 Records of the Committee. All acts and determinations of the Committee shall be duly recorded by the Secretary thereof, or under his supervision, and all such records, together with such other documents as may be necessary for the administration of the Plan shall be preserved in the custody of such Secretary. Such records and documents shall, during normal business hours, be open for inspection and for the purpose of making copies by any person designated by the Board. 11.5 Limitation of Fiduciary Liability. A Fiduciary shall be liable for a breach of fiduciary responsibility of another Fiduciary only in the following circumstances: (a) If he participates knowingly in, or knowingly undertakes to conceal, an act or omission of such other Fiduciary, knowing such act or omission is a breach; (b) If, by his failure to comply with Section 11.6 in the administration of his specific responsibilities which give rise to his status as a Fiduciary, he has enabled such other Fiduciary to commit a breach; or 33 (c) If he has knowledge of a breach by such other Fiduciary, unless he makes reasonable effort under the circumstances to remedy the breach. The Fiduciaries shall be entitled to rely upon all tables, valuations, certificates and reports furnished by the Actuary, and upon all certificates and reports made by an accountant selected by the Committee, and upon all opinions given by any counsel selected by the Committee; and the Fiduciaries shall be fully protected in respect to any action taken or suffered by them in good faith in reliance upon the advice or opinion of any such Actuary, accountant or counsel, and all actions so taken or suffered shall be conclusive upon each of them and upon all other persons interested in the Plan. A Fiduciary may designate persons other than named Fiduciaries to carry out Fiduciary responsibilities under the Plan. Such Fiduciary shall not be liable for an act or omission of such person in carrying out such responsibility except to the extent that: (a) The Fiduciary violated Section 11.6 in making or continuing such allocation or designation, or (b) The Fiduciary would otherwise be liable in accordance with Section 11.6. 11.6 Allocation of Responsibility Among Fiduciaries for Plan and Fund Administration. The Fiduciaries shall have only those specific powers, duties, responsibilities and obligations as are specifically given them under this Plan or the Fund. The Company shall have the sole authority to appoint and remove the Funding Agent and any investment manager which may be provided for under the Fund, and to amend or terminate, in whole or in part, this Plan or the Fund. The Committee shall have the sole responsibility for the administration of this Plan, which responsibility is specifically described in this Plan and the Fund. The Funding Agent shall have the sole responsibility for the administration of the Fund and the management of the assets held under the Fund, all as specifically provided in the Fund. Each Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan or the Fund, as the case may be, authorizing or providing for such direction, information or action. Furthermore, each Fiduciary may rely upon any such direction, information or action of another Fiduciary as being proper under this Plan or the Fund, and is not required under this Plan or the Fund to inquire into the propriety of any such direction, information or action. It is intended under this Plan and the Fund that each Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under this Plan and the Fund and shall not be responsible for any act or failure to act of another Fiduciary. No Fiduciary guarantees the Fund in any manner against investment loss or depreciation in asset value. 11.7 Claims Procedure. The Committee shall make all determinations as to the right of any person to a benefit. Any denial by the Committee of the claim for benefits under the Plan by a Participant or Beneficiary shall be stated in writing by the Committee and delivered or mailed to the Participant or Beneficiary; and such notice shall set forth the specific reasons for the denial, written in a manner that may be understood by the average Participant. In addition, the 34 Committee shall afford a reasonable opportunity to any Participant or Beneficiary whose claim for benefits has been denied for a review of the decision denying the claim. 11.8 Indemnification of Certain Persons. Each individual who has been designated to carry out any Fiduciary or administrative responsibility, whether an Employee, officer or director of the Company shall be indemnified by the Company against all expenses (including costs and attorney's fees) actually and necessarily incurred or paid by him in connection with the defense of any action, suit or proceeding in any ways relating to or arising from the Plan to which he may be made a part by reason of his being or having been so designated, or by reason of any action or omission or alleged action or omission by him in such capacity, and against any amount or amounts which may be paid by him (other than to the Company) in reasonable settlement of any such action, suit or proceeding, where it is in the interest of the Company that such settlement be made. In cases where such action, suit or proceeding shall proceed to final adjudication, such indemnification shall not extend to matters as to which it shall be adjudged that such Employee, officer or director is liable for gross negligence or willful misconduct in the performance of his duties as such. The right of indemnification herein provided shall not be exclusive of other rights to which any such Employee, officer or director may now or hereafter be entitled, shall continue as to a person who has ceased to be so designated and shall inure to the benefit of the heirs, executors and administrators of such Employee, officer or director. 35 SECTION 12 ADOPTION OF PLAN BY EMPLOYING UNITS 12.1 Procedure. Any Employing Unit may adopt this Plan for the benefit of its Employees, with the consent of the Company, which consent may be given by the President or a Vice President of the Company. In adopting this Plan the Employing Unit may, with the consent of the Company, elect to provide for some benefits to be under a special formula for some or all of its employees. Such benefit variations will be detailed in addenda which are deemed a part of this Plan with respect to such Employees. The Employing Unit desiring to adopt the Plan shall submit a certified copy of the resolution of its board of directors to the Company, stating its desire to adopt said Plan for its Employees and the effective date thereof. All contributions made by the Company and each Employing Unit shall become a part of the Fund and shall be held by the Funding Agent subject to the terms and provisions of the Plan. 12.2 Effect. In addition to subjecting it to the provisions of this Plan, the adoption of the Plan and Fund by the Employing Unit's board of directors shall also constitute the automatic delegation by it to the Company of full authority to amend, alter or modify the Plan, and any such amendment, alteration or modification made by the Company shall be binding upon and effective with respect to each Employing Unit. 12.3 Withdrawal of an Employing Unit. Any Employing Unit shall, upon ceasing to be an Employing Unit, or may without ceasing to be an Employing Unit, through the action of its board of directors, withdraw from the Plan. 36 SECTION 13 SUCCESSOR COMPANY 13.1 Successor Company. In the event of the dissolution, merger, consolidation or reorganization of the Company, provision may be made by which the Plan and Fund will be continued by the successor; and, in that event, such successor shall be substituted for the Company under the Plan. The substitution of the successor shall constitute an assumption of Plan liabilities by the successor and the successor shall have all of the powers, duties and responsibilities of the Company under the Plan. 37 SECTION 14 GENERAL PROVISIONS 14.1 Construction. In the construction of the Plan the masculine shall include the feminine and the singular the plural in all cases where such meanings would be appropriate. The headings and sub-headings in this Plan (other than in Section 1) have been inserted for convenience of reference only, and are to be ignored in any construction of the provisions hereof. All references to specific sections of the Code are references to such sections as contained in the Internal Revenue Code of 1986 (Title 26 of the United States Code), and shall be deemed to be references to such sections as they may be amended or superseded, and to the corresponding sections or provisions, if any, of any subsequent United States Code, as appropriate at the time of reference. Except as required by ERISA or any other applicable law of the United States of America, the Plan and Fund shall be construed, governed, regulated and administered according to the laws of the State of Illinois. 14.2 Employment. Participation in the Plan shall not give any Employee the right to be retained in the employ of an Employing Unit, or upon dismissal or upon his voluntary termination of employment, to have any right, legal or equitable, under this Plan or in the Fund or any portion thereof, except as expressly granted by this Plan. 14.3 Benefits Supported Only by Fund. Except as may be otherwise provided under Title IV of ERISA, any person having any claim under the Plan will look solely to the assets of the Fund for the satisfaction thereof and the Company, the Employing Units, the Committee, the Funding Agent, or any of their stockholders, officers, members of their boards of directors, or agents, shall not be liable in their individual capacities to any person whomsoever. 14.4 Spendthrift Clause. No benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void, and no such benefit shall in any manner be liable for or subject to the debts, liabilities, engagements or torts of the person entitled to such benefit, except as specifically provided in the Plan. Any other provision of the Plan to the contrary notwithstanding, however, the creation, assignment, or recognition of a right to any benefit payable with respect to an Employee pursuant to a "qualified domestic relations order" (as defined in subsection 414(p) of the Code) shall not be treated as an assignment or alienation prohibited by this Section 14.4, and if a qualified domestic relations order requires the distribution of all or part of an Employee's benefits under the Plan, the establishment or acknowledgment of the alternate payee's right to benefits under the Plan in accordance with the terms of such qualified domestic relations order shall in all events be deemed to be consistent with the terms of the Plan. 14.5 Benefits Payable to Incompetents. If any recipient of benefits is, in the judgment of the Committee, legally incapable of personally receiving and giving a valid receipt for any payment due him under the Plan, the Committee may, unless and until claims shall have been made by a duly appointed guardian or committee of such person, make such payment or any part thereof to such person's spouse, children, or other legal entity deemed by the Committee to have incurred expenses or assumed responsibility for the expenses of such person. Any payment so made shall be a complete discharge of any liability under the Plan for such payment. 38 14.6 Expenses of Administration. The Company and/or the Employing Units may pay all expenses incurred in the administration of the Plan, including expenses and fees of the Funding Agent, but they shall not be obligated to do so. Any such expenses and fees not so paid by the Company and/or the Employing Units shall be paid from the Fund. 14.7 Non-Discrimination. The Committee shall administer the Plan and Fund in a uniform and consistent manner with respect to all persons similarly situated and shall not permit discrimination in favor of highly compensated employees (within the meaning of section 414(q) of the Code). 14.8 Purchase of Annuity Contracts. Notwithstanding any provision of the Plan to the contrary, any benefit specified herein may be provided, by direction from the Committee to the Funding Agent, through the means of an annuity contract purchased from such life insurance company as the Committee may direct. 14.9 Failure of Plan to Qualify. No right or interests under the Plan shall come into existence for an Employing Unit unless and until the Plan is initially determined by the Internal Revenue Service to be a qualified plan with respect to such Employing Unit under Section 401(a) of the Code, and that the Fund is exempt from tax under Section 501(a) thereof, provided however, that until the Internal Revenue Service reaches a determination respecting the status of this Plan and Fund with respect to an Employing Unit, persons who retire, or whose service is otherwise terminated subsequent to the Effective Date, shall receive their benefits as if the Plan and Fund had been the subject of a favorable determination. 39 SECTION 15 IN EVENT PLAN BECOMES TOP-HEAVY 15.1 Special Definitions. For purposes of this Section 15, the following terms shall have the following meanings: (a) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (b) "Key Employee" means a Participant or former Participant who is a "key employee" as defined in Section 416(i) of the Code. (c) "Determination Date" means, with respect to any Plan Year, the last day of the preceding Plan Year, except that the Determination Date with respect to the first Plan Year shall be the last day of that Plan Year. (d) "Plan Year" has the meaning set forth in Section 1.26. (e) "Present Value of Accrued Benefits" means, as of a given Determination Date, the present value, as of the most recent Valuation Date which is within a twelve (12) month period ending on the Determination Date, of the benefits accrued under the Plan as of such Valuation Date with respect to a Participant determined as if such Participant terminated service as of such Valuation Date. The determination of the Present Value of Accrued Benefits shall be based on the actuarial assumptions used by the Plan's actuary in the actuarial valuation as of such Valuation Date. (f) "Required Aggregation Group" means with respect to a given Plan Year, this Plan and all other plans of the Group which, in the aggregate, meet the requirements of the definition contained in Section 416(g)(2)(A)(i) of the Code. (g) "Valuation Date" means, with respect to a given Plan Year, the same valuation date used for computing Plan costs for minimum funding purposes, regardless of whether a valuation is performed that year. (h) "Permissive Aggregation Group" means, with respect to a given Plan Year, this Plan and all other plans of the Group which may be aggregated in accordance with Section 416(g)(2)(A)(ii) of the Code. (i) "Top-Heavy" means, with respect to the Plan for a Plan Year (1) that the Present Value of Accrued Benefits of Key Employees exceeds sixty percent (60%) of the Present Value of Accrued Benefits of all Participants, or (2) the Plan is part of a Required Aggregation Group 40 and such Required Aggregation Group is a Top-Heavy Group, unless the Plan or such Top-Heavy Group is itself part of the Permissive Aggregation Group which is not a Top-Heavy Group. (j) "Top-Heavy Group" means, with respect to a given Plan Year, a group of Plans of the Group which, in the aggregate, meet the requirements of the definition contained in Section 416(g)(2)(B) of the Code. 15.2 Special Top-Heavy Rules. Notwithstanding any other provisions of the Plan to the contrary, the following provisions of this Section 15.2 shall automatically become operative and shall supersede any conflicting provisions of the Plan, if, in any Plan Year, the Plan is Top-Heavy. (a) The minimum monthly normal retirement income for a Participant who is not a Key Employee, commencing at his Normal Retirement Date, shall equal the lesser of (i) product of (1) two percent (2%) of his average monthly earnings during his five (5) highest-paid consecutive calendar years of Service, multiplied by (2) the number of his years of Service (to a maximum of ten (10) such years), disregarding for this purpose any such years during which the Plan is not Top-Heavy. (b) In the event of the termination of employment (other than by death or retirement) of a Participant who had completed at least three (3) years of Service, such Participant shall be one hundred percent (100%) vested and shall be entitled to retirement income commencing on his Normal Retirement Date, determined in accordance with Section 4.1 (or, if greater subsection (a) above). (c) For any Plan Year in which the Plan is Top-Heavy, Compensation shall in no event exceed one hundred and fifty thousand dollars ($150,000) or such higher amount in effect in accordance with such applicable provisions of the Code. (d) If the Plan becomes Top-Heavy and subsequently ceases to be such, the vesting schedule in subsection (b) above shall continue to apply in determining the rights to benefits of any Participant who had at least three (3) years of Service as of the last day of the last Plan Year in which the Plan was Top-Heavy. For other Participants, said schedule shall apply only to their accrued benefits as of such last day of such Plan Year. (e) In order to comply with the requirements of Section 416(h) of the Code, in the case of a Participant who is or has also participated in a defined contribution plan of the Company (or any other company required to be aggregated with the Company in accordance with Section 415(h) of the Code) in any Plan Year in which the Plan is Top-Heavy there shall be imposed the following limitation in addition to any limitation which may be imposed in accordance with Section 10. In any such year, for purposes 41 of satisfying the aggregate limit on contributions and benefits imposed by Section 415(e) of the Code, benefits payable from the Plan shall, except as hereinafter provided, be reduced so as to comply with a limit determined in accordance with Section 415(e) of the Code, but based on the assumption that the number 1.0 is substituted for the number 1.25 in the definition of the "defined benefit plan fraction" (as defined in Section 415(e)(2) of the Code) and in the "defined contribution plan fraction" (as defined in Section 415(e)(3) of the Code). Notwithstanding the foregoing, if the application of the additional limitation set forth in this subsection (e) would result in the reduction of accrued benefits of any Participant under this Plan, such additional limitation shall not become operative, so long as (1) no additional Company contributions, forfeitures or voluntary nondeductible contributions are allocated to such Participant's accounts under any defined contribution plan maintained by the Company and (2) no additional benefits accrue to such Participant under any defined benefit plan maintained by the Company, including this Plan. Accordingly, in any Plan Year that the Plan is Top-Heavy, no additional benefits shall accrued under this Plan on behalf of any Participant whose overall benefits under this Plan would otherwise be reduced in accordance with the limitation imposed by this subsection (e). (f) In the event that Congress should provide by statute, or the Treasury Department should provide by regulation or ruling, that the limitations provided in this Section 15 are no longer necessary for the Plan to meet the requirements of Section 401 or other applicable provisions of the Internal Revenue Code in effect, such limitations shall become void and shall no longer apply, without the necessity of further amendment to the Plan. 42 IN WITNESS WHEREOF, Falcon Building Products, Inc. has caused this duly amended and restated Plan to be executed below by its duly authorized officer or representative on this 2nd day of December 1996 to be effective as of the Effective Date stated herein. FALCON BUILDING PRODUCTS, INC. By: /s/ Sam Cottone --------------------------- Name: Sam Cottone Title: Sr. V.P. Finance/CFO ATTEST: By: /s/ Gus J. Athas ----------------------------- Name: Gus J. Athas Title: Secretary 43 APPENDIX A Pay Credit Dates of Employing Units
Pay Credit Employing Unit Date Mansfield Plumbing Products, Inc. 1/1/96 Hart & Cooley, Inc. 1/1/96 Kilgore Plumbing Products, Inc. 1/1/96 Norris Plumbing Products, Inc. 1/1/96 DeVilbiss Air Power Company 1/1/96
44 APPENDIX B Specified Basis for Determination of Actuarial Equivalents Except as otherwise specified in the Plan, Actuarial Equivalents shall be determined on the following basis: 1. Mortality Table -- UP 1984. 2. Interest Rate -- the interest rate or rates which would be used by the Pension Benefit Guaranty Corporation for single-employer plans terminating as of the beginning of the Plan Year in which such lump sum is payable to determine the value of the Participant's benefit. 3. Other Factors -- None. For the purpose of calculating the forms of benefits described in Sections 7.4 and 7.5, the tables attached to the end of this document shall be used. 45 APPENDIX C Pay-Based Credits to Accounts
Percentage of Percentage of Compensation of a Compensation of a Participant who has Participant who has less than 15 years 15 or more years of Employing Unit of Service Service - --------------------------------------------------------------------------- Mansfield Plumbing 5 6-1/2 - --------------------------------------------------------------------------- Hart & Cooley, Inc. 5 6-1/2 - --------------------------------------------------------------------------- Kilgore Plumbing Products, Inc. 5 6-1/2 - --------------------------------------------------------------------------- Norris Plumbing Products, Inc. 5 6-1/2 - --------------------------------------------------------------------------- DeVilbiss Air Power Company 5 6-1/2 - ---------------------------------------------------------------------------
46 TEN-YEAR CERTAIN AND LIFE ANNUITY FACTOR Mortality basis - UP1984. Interest rate basis - 8.0%. The Ten-Year Certain and Life Annuity Factor will be based on the participant's age on date of annuity commencement (linear interpolation required) as follows:
Age Factor Age Factor 20 0.997 50 0.980 21 0.997 51 0.978 22 0.998 52 0.976 23 0.998 53 0.973 24 0.998 54 0.970 25 0.998 55 0.967 26 0.998 56 0.964 27 0.998 57 0.960 28 0.997 58 0.956 29 0.997 59 0.951 30 0.997 60 0.946 31 0.997 61 0.940 32 0.997 62 0.934 33 0.997 63 0.927 34 0.996 64 0.919 35 0.996 65 0.911 36 0.995 66 0.902 37 0.995 67 0.893 38 0.994 68 0.883 39 0.994 69 0.872 40 0.993 70 0.860 41 0.992 71 0.847 42 0.992 72 0.833 43 0.991 73 0.818 44 0.990 74 0.801 45 0.988 75 0.784 46 0.987 76 0.766 47 0.986 77 0.746 48 0.984 78 0.726 49 0.982 79 0.705
EX-10.19 5 TERMINATION BENEFIT AGREEMENT, 12/31/96 1 Exhibit 10.19 TERMINATION BENEFITS AGREEMENT This Termination Benefits Agreement ("Agreement") is entered into as of the 13th day of December, 1996, by and between Hart & Cooley, Inc., a Delaware corporation ("Company") and Lawrence B. Lee ("Employee"). WITNESSETH: WHEREAS, Employee is a key employee of the Company; WHEREAS, the Company considers that providing Employee with certain employment termination benefits will operate as an incentive for Employee to remain employed by the Company during the period that the Company is negotiating a change in control or ownership of the Company or its parent, Falcon Building Products, Inc. (Falcon); WHEREAS, this Agreement is intended to provide benefits only in the event of a change in control or ownership of the Company or Falcon prior to September 30, 1997 (the "Expiration Date"); NOW THEREFORE, to induce Employee to remain employed by the Company through the Expiration Date, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and Employee agree as follows: 1. Definitions. (a) "Change in Control" shall mean the sale by the Company or Falcon of all or substantially all of their assets and business to a person or entity other than a Related Person or the sale of fifty-one percent (51%) or more of the voting securities and capital stock of the Company or Falcon to a person or entity other than a Related Person. "Related Person" shall mean any person or entity directly or indirectly owned and controlled by Samuel Zell or Equity Holdings Limited ("EHL"). (b) "Termination Date" shall mean the date of termination of Employee's employment relationship with the Company. (c) "Termination Payments" shall mean any payment or distribution of compensation or benefits made pursuant to Section 3 of this Agreement. (d) "Termination With Cause" shall mean termination of Employee by the Company for any of the following reasons: (i) the failure of Employee to render services to the Company in substantial accordance with the terms of his employment, which failure amounts to gross neglect of his duties to the Company; (ii) any violation of Section 6 of this Agreement or any employment agreement which Employee may have with the Company; 1 2 (iii) taking any role in any buy-out of the Company or Falcon without the approval of the Company's majority shareholder; or (iv) Employee's commission of any act of fraud, theft or embezzlement against the Company. (e) "Voluntary Termination" shall mean the voluntary resignation by Employee of his employment with the Company other than a voluntary resignation following either: (i) any reduction in compensation consisting of base salary and incentive bonus; (ii) a substantial diminution of his responsibilities; or (iii) a relocation by the Company of Employee's place of employment outside a twenty (20) mile radius of Employee's current place of employment. 2. Termination of Employee. In the event of Employee's termination of employment with the Company within two (2) years immediately following the date on which there was a Change in Control or ownership of the Company or Falcon, the Company shall provide Employee with the Termination Payments outlined in Section 3, unless the termination is for any of the following reasons: (a) Termination With Cause; (b) Voluntary Termination; (c) The death of the Employee. Nothing in this section shall affect any entitlement of Employee's heirs to the benefits of any life insurance plan; or (d) Termination as a result of Employee's incapacity (i.e., if in the reasonable opinion of the Company, Employee is prevented from properly performing his duties by reason of any physical or mental incapacity for a period of more than one hundred twenty (120) days, in the aggregate, in any twelve (12) month period). Nothing in this section shall affect Employee's rights under any disability plan in which he is a participant. 3. Termination Payments. In the event that Employee is entitled to Termination Payments pursuant to the terms of Section 2: (a) Compensation. The Company shall pay Employee an amount equal to two (2) years base salary plus par bonus as of the Termination Date, without giving effect to any reduction in base salary or incentive bonus prior to the Termination Date; payable within thirty (30) days of the Termination Date following the Change in Control. (b) Employee Benefits: (i) Vacation. Any accrued vacation pay due but not yet taken at the Termination Date shall be paid to Employee within thirty (30) days following the Termination Date. (ii) Health Benefits. If Employee participated in any health benefit plan in effect immediately prior to the Termination Date, and if Employee elects 2 3 to continue participating in such plan pursuant to the terms of said plan and the Comprehensive Omnibus Budget Reconciliation Act ("COBRA"), the Company shall pay for the costs of Employee's participation in such plan from the Termination Date until the earlier of: (a) the date which is twenty-four (24) months following the Termination Date; or (b) the date of Employee's eligibility in any health benefit plan offered by Employee's new employer, if any. Employee shall notify the Company in writing within thirty (30) days of any new employment. (iii) Retirement And Profit-Sharing Plans. Notwithstanding anything in this Agreement to the contrary, Employee's rights in any retirement, pension or profit-sharing plans offered by the Company shall be governed by the rules of such plans as well as by applicable law; provided, however, that on the Termination Date, Employee shall become fully vested in all pension and 401(k) account balances. (iv) Outplacement Assistance. The Company will provide Employee up to one year of employment outplacement services with a nationally recognized executive placement company. 4. At-Will Employment. The Company and Employee have, and will continue to have, an at-will employment relationship. That is, either party can terminate the employment relationship for any reason at any time. Nothing contained in this Agreement shall be interpreted to amend or alter this at-will employment relationship. 5. Limitation of Payment. Notwithstanding anything in this Agreement to the contrary, if receipt of the Termination Payments would subject Employee to tax under Section 4999 of the Internal Revenue Code of 1986, as amended, the Termination Payments shall be "grossed up" to an amount that would allow the Employee to receive the net after-tax amount he would have received but for the application of said Section 4999. 6. Continuing Obligations. In order to induce the Company to enter into this Agreement, Employee hereby agrees that all documents, records, techniques, business secrets and other information which have come into his possession from time to time during his continued employment by the Company or which may come into his possession during his employment hereunder, shall be deemed to be confidential and proprietary to the Company, and Employee further agrees to retain in confidence any confidential information known to him concerning the Company and its respective businesses so long as such information is not publicly disclosed. Employee further agrees to cooperate fully as requested from time to time by the controlling shareholder of the Company, the Company's Board of Directors, or Company Management in connection with any transaction involving the possible sale of the Company or Falcon. Employee further agrees not to speak about a possible sale of the Company or Falcon with or otherwise respond to requests to or from any third parties involving the possible sale of the Company or Falcon, unless specifically authorized to do so by the Company or the controlling shareholder of the Company. The obligations of Employee under this Section 6 shall be in addition to, and shall not limit, any other obligation of Employee to the Company with respect to the matters set forth herein or otherwise. 7. Assignments and Transfers. Employee agrees that he will not assign, sell, transfer, delegate or otherwise dispose of, whether voluntarily or involuntarily, or by operation of law, any rights or obligations under this Agreement, nor shall Employee's rights be subject to encumbrance or the claims of creditors. Any purported assignment shall be null and void. This Agreement shall inure to the benefit of and be enforceable by Employee's 3 4 personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. This Agreement shall be binding upon and shall inure to the benefit of the Company and its successors and assigns, and the Company shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place, except no assumption shall be required if this Agreement is automatically assumed by operation of law. The term "the Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall include a corporation or other entity acquiring at least 51% of the outstanding shares of the Company or Falcon or all or substantially all of the assets and business of the Company or Falcon. 8. Notices. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given and received when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the Company at: Hart & Cooley, Inc. 500 East Eighth Street Holland, Michigan 49423 Attn: President and to Employee at: Lawrence B. Lee 3155 N. 168th Avenue Holland, MI 49424 or such address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 9. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Michigan. 10. Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to Employee's termination benefits and may not be contradicted by evidence of any prior or contemporaneous Agreement. 11. Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by Employee and by a duly authorized representative of the Company other than Employee. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, or power hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, or power provided herein or by law or in equity. 12. Severability; Enforcement. If any provision of this Agreement, or the application thereof to any person, place or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable, or void, the remainder of this Agreement and such provisions as applied to other persons, places, and circumstances shall remain in full force and effect. 13. Arbitration. The parties agree to submit any dispute arising under this Agreement to arbitration. Arbitration shall be by a single arbitrator in the Holland, Michigan area 4 5 experienced in the matters at issue selected by the Company and Employee in accordance with the commercial arbitration rules of the American Arbitration Association. The decision of the arbitrator shall be final and binding as to any manner submitted to him under this Agreement. All costs and expenses incurred in connection with any such arbitration proceeding shall be borne by the party against whom the decision is rendered as provided by the arbitrator. 14. Release. (a) Employee, on behalf of himself, his heirs, executors, legal representative, successors and assigns, hereby fully and forever releases and discharges EHL, Falcon, the Company, and their respective affiliates, subsidiaries, parents, predecessors and successors, and each of their officers, directors, trustees, employees, agents and attorneys, past and present (the "Releasees"), from any and all claims, demands or causes of action, whether now known or unknown, which have existed, which do exist, or which may exist in the future, arising out of or relating in any way to Employee's employment with the Company, his employment compensation, his termination of employment or his employment arrangement, the sale of the stock or assets of the Company or Falcon and/or any other occurrence up to and including the effective date of this Agreement, except those claims statutorily precluded from waiver or release by private parties and except those alleging breach of this Agreement. Without in any way limiting the generality of the foregoing language, this release includes any claims for relief or causes of action under the Age Discrimination in Employment Act, as amended, 29 U.S.C. Section 621, et seq., and any other federal, state or local statute, ordinance or regulation dealing in any respect with discrimination in employment, and in addition thereto, any claims under any Company severance policy, practice or procedure, and any claims, demands or actions brought on the basis of alleged wrongful or retaliatory discharge and/or alleged breach of an implied or explicit, written or oral employment or other contract or covenant under the common law of any state, including, but not limited to, Michigan. (b) Employee further agrees not to directly or indirectly pursue or initiate any action or legal proceeding of any kind against the Releasees arising out of or related to the claims released in Section 15(a) above, or the sale of the stock or assets of the Company or Falcon and also waives any right to recover any relief as a result of any such proceedings initiated on his behalf. 15. Termination Date. This Agreement shall be null and void in the event that a Change in Control does not occur on or before the Expiration Date. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year set forth above. HART & COOLEY, INC., Lawrence B. Lee a Delaware corporation /s/ Lawrence B. Lee ------------------- By: /s/ Gus J. Athas signature ---------------------- Gus J. Athas Its: Vice-President 5 EX-10.20 6 TERMINATION BENEFITS AGREEMENT, 12/18/96 1 Exhibit 10.20 TERMINATION BENEFITS AGREEMENT This Termination Benefits Agreement ("Agreement") is entered into as of the 18th day of December, 1996, by and between Mansfield Plumbing Products, Inc., a Delaware corporation ("Company") and Paul Fischer ("Employee"). WITNESSETH: WHEREAS, Employee is a key employee of the Company; WHEREAS, the Company considers that providing Employee with certain employment termination benefits will operate as an incentive for Employee to remain employed by the Company during the period that the Company is negotiating a change in control or ownership of the Company or its parent, Falcon Building Products, Inc. (Falcon); WHEREAS, this Agreement is intended to provide benefits only in the event of a change in control or ownership of the Company or Falcon prior to September 30, 1997 (the "Expiration Date"); NOW THEREFORE, to induce Employee to remain employed by the Company through the Expiration Date, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and Employee agree as follows: 1. Definitions. (a) "Change in Control" shall mean the sale by the Company or Falcon of all or substantially all of their assets and business to a person or entity other than a Related Person or the sale of fifty-one percent (51%) or more of the voting securities and capital stock of the Company or Falcon to a person or entity other than a Related Person. "Related Person" shall mean any person or entity directly or indirectly owned and controlled by Samuel Zell or Equity Holdings Limited ("EHL"). (b) "Termination Date" shall mean the date of termination of Employee's employment relationship with the Company. (c) "Termination Payments" shall mean any payment or distribution of compensation or benefits made pursuant to Section 3 of this Agreement. (d) "Termination With Cause" shall mean termination of Employee by the Company for any of the following reasons: (i) the failure of Employee to render services to the Company in substantial accordance with the terms of his employment, which failure amounts to gross neglect of his duties to the Company; (ii) any violation of Section 6 of this Agreement or any employment agreement which Employee may have with the Company; (iii) taking any role in any buy-out of the Company or Falcon without the approval of the Company's majority shareholder; or 1 2 (iv) Employee's commission of any act of fraud, theft or embezzlement against the Company. (e) "Voluntary Termination" shall mean the voluntary resignation by Employee of his employment with the Company other than a voluntary resignation following either: (i) any reduction in compensation consisting of base salary and incentive bonus; (ii) a substantial diminution of his responsibilities; or (iii) a relocation by the Company of Employee's place of employment outside a twenty (20) mile radius of Employee's current place of employment. 2. Termination of Employee. In the event of Employee's termination of employment with the Company within two (2) years immediately following the date on which there was a Change in Control or ownership of the Company or Falcon, the Company shall provide Employee with the Termination Payments outlined in Section 3, unless the termination is for any of the following reasons: (a) Termination With Cause; (b) Voluntary Termination; (c) The death of the Employee. Nothing in this section shall affect any entitlement of Employee's heirs to the benefits of any life insurance plan; or (d) Termination as a result of Employee's incapacity (i.e., if in the reasonable opinion of the Company, Employee is prevented from properly performing his duties by reason of any physical or mental incapacity for a period of more than one hundred twenty (120) days, in the aggregate, in any twelve (12) month period). Nothing in this section shall affect Employee's rights under any disability plan in which he is a participant. 3. Termination Payments. In the event that Employee is entitled to Termination Payments pursuant to the terms of Section 2: (a) Compensation. The Company shall pay Employee an amount equal to two (2) years base salary plus par bonus as of the Termination Date, without giving effect to any reduction in base salary or incentive bonus prior to the Termination Date; payable within thirty (30) days of the Termination Date following the Change in Control. (b) Employee Benefits: (i) Vacation. Any accrued vacation pay due but not yet taken at the Termination Date shall be paid to Employee within thirty (30) days following the Termination Date. (ii) Health Benefits. If Employee participated in any health benefit plan in effect immediately prior to the Termination Date, and if Employee elects to continue participating in such plan pursuant to the terms of said plan and the Comprehensive Omnibus Budget Reconciliation Act ("COBRA"), 2 3 the Company shall pay for the costs of Employee's participation in such plan from the Termination Date until the earlier of: (a) the date which is twenty-four (24) months following the Termination Date; or (b) the date of Employee's eligibility in any health benefit plan offered by Employee's new employer, if any. Employee shall notify the Company in writing within thirty (30) days of any new employment. (iii) Retirement And Profit-Sharing Plans. Notwithstanding anything in this Agreement to the contrary, Employee's rights in any retirement, pension or profit-sharing plans offered by the Company shall be governed by the rules of such plans as well as by applicable law; provided, however, that on the Termination Date, Employee shall become fully vested in all pension and 401(k) account balances. (iv) Outplacement Assistance. The Company will provide Employee up to one year of employment outplacement services with a nationally recognized executive placement company. 4. At-Will Employment. The Company and Employee have, and will continue to have, an at-will employment relationship. That is, either party can terminate the employment relationship for any reason at any time. Nothing contained in this Agreement shall be interpreted to amend or alter this at-will employment relationship. 5. Limitation of Payment. Notwithstanding anything in this Agreement to the contrary, if receipt of the Termination Payments would subject Employee to tax under Section 4999 of the Internal Revenue Code of 1986, as amended, the Termination Payments shall be "grossed up" to an amount that would allow the Employee to receive the net after-tax amount he would have received but for the application of said Section 4999. 6. Continuing Obligations. In order to induce the Company to enter into this Agreement, Employee hereby agrees that all documents, records, techniques, business secrets and other information which have come into his possession from time to time during his continued employment by the Company or which may come into his possession during his employment hereunder, shall be deemed to be confidential and proprietary to the Company, and Employee further agrees to retain in confidence any confidential information known to him concerning the Company and its subsidiaries and their respective businesses so long as such information is not publicly disclosed. Employee further agrees to cooperate fully as requested from time to time by the controlling shareholder of the Company, the Company's Board of Directors, or Company Management in connection with any transaction involving the possible sale of the Company or Falcon. Employee further agrees not to speak about a possible sale of the Company or Falcon with or otherwise respond to requests to or from any third parties involving the possible sale of the Company or Falcon, unless specifically authorized to do so by the Company or the controlling shareholder of the Company. The obligations of Employee under this Section 6 shall be in addition to, and shall not limit, any other obligation of Employee to the Company with respect to the matters set forth herein or otherwise. 7. Assignments and Transfers. Employee agrees that he will not assign, sell, transfer, delegate or otherwise dispose of, whether voluntarily or involuntarily, or by operation of law, any rights or obligations under this Agreement, nor shall Employee's rights be subject to encumbrance or the claims of creditors. Any purported assignment shall be null and void. This Agreement shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. This Agreement shall be binding upon and shall inure to the benefit 3 4 of the Company and its successors and assigns, and the Company shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place, except no assumption shall be required if this Agreement is automatically assumed by operation of law. The term "the Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall include a corporation or other entity acquiring at least 51% of the outstanding shares of the Company or Falcon or all or substantially all of the assets and business of the Company or Falcon. 8. Notices. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given and received when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the Company at: Mansfield Plumbing Products, Inc. 150 East First Street Perrysville, Ohio 44864 Attn: President and to Employee at: Paul Fischer 5686 Medallion Dr. - East Westerville, OH 43082 or such address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 9. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio. 10. Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to Employee's termination benefits and may not be contradicted by evidence of any prior or contemporaneous Agreement. 11. Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by Employee and by a duly authorized representative of the Company other than Employee. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, or power hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, or power provided herein or by law or in equity. 12. Severability; Enforcement. If any provision of this Agreement, or the application thereof to any person, place or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable, or void, the remainder of this Agreement and such provisions as applied to other persons, places, and circumstances shall remain in full force and effect. 13. Arbitration. The parties agree to submit any dispute arising under this Agreement to arbitration. Arbitration shall be by a single arbitrator in the Columbus, Ohio area experienced in the matters at issue selected by the Company and Employee in accordance with the commercial arbitration rules of the American Arbitration Association. The 4 5 decision of the arbitrator shall be final and binding as to any manner submitted to him under this Agreement. All costs and expenses incurred in connection with any such arbitration proceeding shall be borne by the party against whom the decision is rendered as provided by the arbitrator. 14. Release. (a) Employee, on behalf of himself, his heirs, executors, legal representative, successors and assigns, hereby fully and forever releases and discharges EHL, Falcon, the Company, and their respective affiliates, subsidiaries, parents, predecessors and successors, and each of their officers, directors, trustees, employees, agents and attorneys, past and present (the "Releasees"), from any and all claims, demands or causes of action, whether now known or unknown, which have existed, which do exist, or which may exist in the future, arising out of or relating in any way to Employee's employment with the Company, his employment compensation, his termination of employment or his employment arrangement, the sale of the stock or assets of the Company or Falcon and/or any other occurrence up to and including the effective date of this Agreement, except those claims statutorily precluded from waiver or release by private parties and except those alleging breach of this Agreement. Without in any way limiting the generality of the foregoing language, this release includes any claims for relief or causes of action under the Age Discrimination in Employment Act, as amended, 29 U.S.C. Section 621, et seq., and any other federal, state or local statute, ordinance or regulation dealing in any respect with discrimination in employment, and in addition thereto, any claims under any Company severance policy, practice or procedure, and any claims, demands or actions brought on the basis of alleged wrongful or retaliatory discharge and/or alleged breach of an implied or explicit, written or oral employment or other contract or covenant under the common law of any state, including, but not limited to, Ohio. (b) Employee further agrees not to directly or indirectly pursue or initiate any action or legal proceeding of any kind against the Releasees arising out of or related to the claims released in Section 15(a) above, or the sale of the stock or assets of the Company or Falcon and also waives any right to recover any relief as a result of any such proceedings initiated on his behalf. 15. Termination Date. This Agreement shall be null and void in the event that a Change in Control does not occur on or before the Expiration Date. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year set forth above. MANSFIELD PLUMBING PRODUCTS, INC. Paul Fischer a Delaware corporation /s/ Paul Fischer ------------------ By: /s/ Gus J. Athas signature --------------------------------- Gus J. Athas Its: Vice-President 5 EX-10.21 7 TERMINATION BENEFITS AGREEMENT, 12/31/96 1 Exhibit 10.21 TERMINATION BENEFITS AGREEMENT This Termination Benefits Agreement ("Agreement") is entered into as of the 31st day of December, 1996, by and between DeVilbiss Air Power Company, a Delaware corporation ("Company") and William E. Allen ("Employee"). WITNESSETH: WHEREAS, Employee is a key employee of the Company; WHEREAS, the Company considers that providing Employee with certain employment termination benefits will operate as an incentive for Employee to remain employed by the Company during the period that the Company is negotiating a change in control or ownership of the Company or its parent, Falcon Building Products, Inc. (Falcon); WHEREAS, this Agreement is intended to provide benefits only in the event of a change in control or ownership of the Company or Falcon prior to September 30, 1997 (the "Expiration Date"); NOW THEREFORE, to induce Employee to remain employed by the Company through the Expiration Date, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and Employee agree as follows: 1. Definitions. (a) "Change in Control" shall mean the sale by the Company or Falcon of all or substantially all of their assets and business to a person or entity other than a Related Person or the sale of fifty-one percent (51%) or more of the voting securities and capital stock of the Company or Falcon to a person or entity other than a Related Person. "Related Person" shall mean any person or entity directly or indirectly owned and controlled by Samuel Zell or Equity Holdings Limited ("EHL"). (b) "Termination Date" shall mean the date of termination of Employee's employment relationship with the Company. (c) "Termination Payments" shall mean any payment or distribution of compensation or benefits made pursuant to Section 3 of this Agreement. (d) "Termination With Cause" shall mean termination of Employee by the Company for any of the following reasons: (i) the failure of Employee to render services to the Company in substantial accordance with the terms of his employment, which failure amounts to gross neglect of his duties to the Company; (ii) any violation of Section 6 of this Agreement or any employment agreement which Employee may have with the Company; 2 (iii) taking any role in any buy-out of the Company or Falcon without the approval of the Company's majority shareholder; or (iv) Employee's commission of any act of fraud, theft or embezzlement against the Company. (e) "Voluntary Termination" shall mean the voluntary resignation by Employee of his employment with the Company other than a voluntary resignation following either: (i) any reduction in compensation consisting of base salary and incentive bonus; (ii) a substantial diminution of his responsibilities; or (iii) a relocation by the Company of Employee's place of employment outside a twenty (20) mile radius of Employee's current place of employment. 2. Termination of Employee. In the event of Employee's termination of employment with the Company within two (2) years immediately following the date on which there was a Change in Control or ownership of the Company or Falcon, the Company shall provide Employee with the Termination Payments outlined in Section 3, unless the termination is for any of the following reasons: (a) Termination With Cause; (b) Voluntary Termination; (c) The death of the Employee. Nothing in this section shall affect any entitlement of Employee's heirs to the benefits of any life insurance plan; or (d) Termination as a result of Employee's incapacity (i.e., if in the reasonable opinion of the Company, Employee is prevented from properly performing his duties by reason of any physical or mental incapacity for a period of more than one hundred twenty (120) days, in the aggregate, in any twelve (12) month period). Nothing in this section shall affect Employee's rights under any disability plan in which he is a participant. 3. Termination Payments. In the event that Employee is entitled to Termination Payments pursuant to the terms of Section 2: (a) Compensation. The Company shall pay Employee an amount equal to two (2) years base salary plus par bonus as of the Termination Date, without giving effect to any reduction in base salary or incentive bonus prior to the Termination Date; payable within thirty (30) days of the Termination Date following the Change in Control. (b) Employee Benefits: (i) Vacation. Any accrued vacation pay due but not yet taken at the Termination Date shall be paid to Employee within thirty (30) days following the Termination Date. (ii) Health Benefits. If Employee participated in any health benefit plan in effect immediately prior to the Termination Date, and if Employee elects to continue participating in such plan pursuant to the terms of said plan 2 3 and the Comprehensive Omnibus Budget Reconciliation Act ("COBRA"), the Company shall pay for the costs of Employee's participation in such plan from the Termination Date until the earlier of: (a) the date which is twenty-four (24) months following the Termination Date; or (b) the date of Employee's eligibility in any health benefit plan offered by Employee's new employer, if any. Employee shall notify the Company in writing within thirty (30) days of any new employment. (iii) Retirement And Profit-Sharing Plans. Notwithstanding anything in this Agreement to the contrary, Employee's rights in any retirement, pension or profit-sharing plans offered by the Company shall be governed by the rules of such plans as well as by applicable law; provided, however, that on the Termination Date, Employee shall become fully vested in all pension and 401(k) account balances. (iv) Outplacement Assistance. The Company will provide Employee up to one year of employment outplacement services with a nationally recognized executive placement company. 4. At-Will Employment. The Company and Employee have, and will continue to have, an at-will employment relationship. That is, either party can terminate the employment relationship for any reason at any time. Nothing contained in this Agreement shall be interpreted to amend or alter this at-will employment relationship. 5. Limitation of Payment. Notwithstanding anything in this Agreement to the contrary, if receipt of the Termination Payments would subject Employee to tax under Section 4999 of the Internal Revenue Code of 1986, as amended, the Termination Payments shall be "grossed up" to an amount that would allow the Employee to receive the net after-tax amount he would have received but for the application of said Section 4999. 6. Continuing Obligations. In order to induce the Company to enter into this Agreement, Employee hereby agrees that all documents, records, techniques, business secrets and other information which have come into his possession from time to time during his continued employment by the Company or which may come into his possession during his employment hereunder, shall be deemed to be confidential and proprietary to the Company, and Employee further agrees to retain in confidence any confidential information known to him concerning the Company and its subsidiaries and their respective businesses so long as such information is not publicly disclosed. Employee further agrees to cooperate fully as requested from time to time by the controlling shareholder of the Company, the Company's Board of Directors, or Company Management in connection with any transaction involving the possible sale of the Company or Falcon. Employee further agrees not to speak about a possible sale of the Company or Falcon with or otherwise respond to requests to or from any third parties involving the possible sale of the Company or Falcon, unless specifically authorized to do so by the Company or the controlling shareholder of the Company. The obligations of Employee under this Section 6 shall be in addition to, and shall not limit, any other obligation of Employee to the Company with respect to the matters set forth herein or otherwise. 7. Assignments and Transfers. Employee agrees that he will not assign, sell, transfer, delegate or otherwise dispose of, whether voluntarily or involuntarily, or by operation of law, any rights or obligations under this Agreement, nor shall Employee's rights be subject to encumbrance or the claims of creditors. Any purported assignment shall be null and void. This Agreement shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. This Agreement shall be binding upon and shall inure to the benefit 3 4 of the Company and its successors and assigns, and the Company shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place, except no assumption shall be required if this Agreement is automatically assumed by operation of law. The term "the Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall include a corporation or other entity acquiring at least 51% of the outstanding shares of the Company or Falcon or all or substantially all of the assets and business of the Company or Falcon. 8. Notices. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given and received when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the Company at: DeVilbiss Air Power Company 213 Industrial Drive Jackson, Tennessee 38301 Attn: President and to Employee at: William E. Allen 14 Deepwood Jackson, TN 38305 or such address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 9. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Tennessee. 10. Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to Employee's termination benefits and may not be contradicted by evidence of any prior or contemporaneous Agreement. 11. Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by Employee and by a duly authorized representative of the Company other than Employee. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, or power hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, or power provided herein or by law or in equity. 12. Severability; Enforcement. If any provision of this Agreement, or the application thereof to any person, place or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable, or void, the remainder of this Agreement and such provisions as applied to other persons, places, and circumstances shall remain in full force and effect. 13. Arbitration. The parties agree to submit any dispute arising under this Agreement to arbitration. Arbitration shall be by a single arbitrator in the Jackson, Tennessee area experienced in the matters at issue selected by the Company and Employee in accordance with the commercial arbitration rules of the American Arbitration Association. The decision of the arbitrator shall be final and binding as to any manner submitted to him 4 5 under this Agreement. All costs and expenses incurred in connection with any such arbitration proceeding shall be borne by the party against whom the decision is rendered as provided by the arbitrator. 14. Release. (a) Employee, on behalf of himself, his heirs, executors, legal representative, successors and assigns, hereby fully and forever releases and discharges EHL, Falcon, the Company, and their respective affiliates, subsidiaries, parents, predecessors and successors, and each of their officers, directors, trustees, employees, agents and attorneys, past and present (the "Releasees"), from any and all claims, demands or causes of action, whether now known or unknown, which have existed, which do exist, or which may exist in the future, arising out of or relating in any way to Employee's employment with the Company, his employment compensation, his termination of employment or his employment arrangement, the sale of the stock or assets of the Company or Falcon and/or any other occurrence up to and including the effective date of this Agreement, except those claims statutorily precluded from waiver or release by private parties and except those alleging breach of this Agreement. Without in any way limiting the generality of the foregoing language, this release includes any claims for relief or causes of action under the Age Discrimination in Employment Act, as amended, 29 U.S.C. Section 621, et seq., and any other federal, state or local statute, ordinance or regulation dealing in any respect with discrimination in employment, and in addition thereto, any claims under any Company severance policy, practice or procedure, and any claims, demands or actions brought on the basis of alleged wrongful or retaliatory discharge and/or alleged breach of an implied or explicit, written or oral employment or other contract or covenant under the common law of any state, including, but not limited to, Tennessee. (b) Employee further agrees not to directly or indirectly pursue or initiate any action or legal proceeding of any kind against the Releasees arising out of or related to the claims released in Section 15(a) above, or the sale of the stock or assets of the Company or Falcon and also waives any right to recover any relief as a result of any such proceedings initiated on his behalf. 15. Termination Date. This Agreement shall be null and void in the event that a Change in Control does not occur on or before the Expiration Date. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year set forth above. DEVILBISS AIR POWER COMPANY, William E. Allen a Delaware corporation /s/ William E. Allen ---------------------- By: /s/ Gus J. Athas signature ---------------------------- Gus J. Athas Its: Vice-President 5 EX-10.22 8 TERMINATION BENEFITS AGREEMENT, 12/19/96 1 Exhibit 10.22 TERMINATION BENEFITS AGREEMENT This Termination Benefits Agreement ("Agreement") is entered into as of the 19th day of December, 1996, by and between Falcon Building Products, Inc., a Delaware corporation ("Company") and Daniel G. Ellis ("Ellis"). WITNESSETH: WHEREAS, Ellis is a key member of the Company's management team; WHEREAS, the Company considers that providing Ellis with certain termination benefits will operate as an incentive for Ellis to continue furnishing services to the Company during the period that the Company is negotiating a change in control or ownership of the Company or any of its subsidiaries; WHEREAS, this Agreement is intended to provide benefits only in the event of a change in control or ownership of the Company or any of its subsidiaries prior to September 30, 1997 (the "Expiration Date"); NOW THEREFORE, to induce Ellis to continue furnishing services to the Company through the Expiration Date, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and Ellis agree as follows: 1. Definitions. (a) "Change in Control" shall mean the sale by the Company of all or substantially all of its, or any of its subsidiaries, assets and business to a person or entity other than a Related Person or the sale of fifty-one percent (51%) or more of the voting securities and capital stock of the Company or any of its subsidiaries to a person or entity other than a Related Person. "Related Person" shall mean any person or entity directly or indirectly owned and controlled by Samuel Zell or Equity Holdings Limited ("EHL"). (b) "Termination Date" shall mean the date of termination of Ellis' relationship with the Company. (c) "Termination Payments" shall mean any payment or distribution of compensation or benefits made pursuant to Section 3 of this Agreement. (d) "Termination With Cause" shall mean termination of Ellis by the Company for any of the following reasons: (i) the failure of Ellis to render services to the Company in substantial accordance with the terms under which he was retained, which failure amounts to gross neglect of his duties to the Company; (ii) any violation of Section 6 of this Agreement or any other agreement which Ellis may have with the Company; (iii) taking any role in any buy-out of the Company or any of its subsidiaries without the approval of the Company's majority shareholder; or 1 2 (iv) Ellis' commission of any act of fraud, theft or embezzlement against the Company. (e) "Voluntary Termination" shall mean the voluntary termination by Ellis of his relationship with the Company other than a voluntary termination following either: (i) any reduction in compensation consisting of base salary and incentive bonus; (ii) a substantial diminution of his responsibilities; or (iii) a relocation by the Company of Ellis outside a twenty (20) mile radius of the place where Ellis currently perform his services for the Company. 2. Termination of Ellis. In the event of the termination of Ellis' services arrangement with the Company within two (2) years immediately following the date on which there was a Change in Control or ownership of the Company or any of its subsidiaries, the Company shall provide Ellis with the Termination Payments outlined in Section 3, unless the termination is for any of the following reasons: (a) Termination With Cause; (b) Voluntary Termination; (c) The death of Ellis. Nothing in this section shall affect any entitlement of Ellis' heirs to the benefits of any life insurance plan; or (d) Termination as a result of Ellis' incapacity (i.e., if in the reasonable opinion of the Company, Ellis is prevented from properly performing his duties by reason of any physical or mental incapacity for a period of more than one hundred twenty (120) days, in the aggregate, in any twelve (12) month period). Nothing in this section shall affect Ellis' rights under any disability plan in which he is a participant. 3. Termination Payments. In the event that Ellis is entitled to Termination Payments pursuant to the terms of Section 2: (a) Compensation. The Company shall pay Ellis an amount equal to two (2) years base salary plus par bonus as of the Termination Date, without giving effect to any reduction in base salary or incentive bonus prior to the Termination Date; payable within thirty (30) days of the Termination Date following the Change in Control. (b) Ellis Benefits: (i) Vacation. Any accrued vacation pay due but not yet taken at the Termination Date shall be paid to Ellis within thirty (30) days following the Termination Date. (ii) Health Benefits. If Ellis participated in any health benefit Plan in effect immediately prior to the Termination Date, and if Ellis elects to continue participating in such plan pursuant to the terms of said plan and the Comprehensive Omnibus Budget Reconciliation Act ("COBRA"), the Company shall pay for the costs of Ellis' participation in such plan from the Termination Date until the earlier of: (a) the date which is twenty-four (24) months following the Termination Date; or (b) the date of Ellis' eligibility in any health benefit plan offered by Ellis' new employer, if any. 2 3 Ellis shall notify the Company in writing within thirty (30) days of any new employment. (iii) Retirement And Profit-Sharing Plans. Notwithstanding anything in this Agreement to the contrary, Ellis' rights in any retirement, pension or profit-sharing plans offered by the Company shall be governed by the rules of such plans as well as by applicable law; provided, however, that on the Termination Date, Ellis shall become fully vested in all pension and 401(k) account balances. (iv) Outplacement Assistance. The Company will provide Ellis up to one year of outplacement services with a nationally recognized executive placement company. 4. Limitation of Payment. Notwithstanding anything in this Agreement to the contrary, if receipt of the Termination Payments would subject Ellis to tax under Section 4999 of the Internal Revenue Code of 1986, as amended, the Termination Payments shall be "grossed up" to an amount that would allow the Ellis to receive the net after-tax amount he would have received but for the application of said Section 4999. 5. Continuing Obligations. In order to induce the Company to enter into this Agreement, Ellis hereby agrees that all documents, records, techniques, business secrets and other information which have come into his possession from time to time during his performance of services for the Company or which may come into his possession during his performance hereunder, shall be deemed to be confidential and proprietary to the Company, and Ellis further agrees to retain in confidence any confidential information known to him concerning the Company and its subsidiaries and their respective businesses so long as such information is not publicly disclosed. Ellis further agrees to cooperate fully as requested from time to time by the controlling shareholder of the Company, the Company's Board of Directors, or Company Management in connection with any transaction involving the possible sale of the Company or any of its subsidiaries. Ellis further agrees not to speak about a possible sale of the Company or any of its subsidiaries with or otherwise respond to requests to or from any third parties involving the possible sale of the Company or any of its subsidiaries, unless specifically authorized to do so by the Company or the controlling shareholder of the Company. The obligations of Ellis under this Section 5 shall be in addition to, and shall not limit, any other obligation of Ellis to the Company with respect to the matters set forth herein or otherwise. 6. Assignments and Transfers. Ellis agrees that he will not assign, sell, transfer, delegate or otherwise dispose of, whether voluntarily or involuntarily, or by operation of law, any rights or obligations under this Agreement, nor shall Ellis' rights be subject to encumbrance or the claims of creditors. Any purported assignment shall be null and void. This Agreement shall inure to the benefit of and be enforceable by Ellis' personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. This Agreement shall be binding upon and shall inure to the benefit of the Company and its successors and assigns, and the Company shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place, except no assumption shall be required if this Agreement is automatically assumed by operation of law. The term "the Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall include a corporation or other entity acquiring at least 51% of the outstanding shares of the Company or any of its subsidiaries or all or substantially all of the assets and business of the Company or any of its subsidiaries. 3 4 7. Notices. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given and received when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the Company at: Falcon Building Products, Inc. 2 North Riverside Plaza, Suite 1100 Chicago, Illinois 60606 Attn: President and to: Daniel G. Ellis 21030 Creekside Dr. Kildeer, IL 60047 or such address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 8. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Illinois. 9. Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to Ellis' termination benefits and may not be contradicted by evidence of any prior or contemporaneous Agreement. 10. Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by Ellis and by a duly authorized representative of the Company other than Ellis. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, or power hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, or power provided herein or by law or in equity. 11. Severability; Enforcement. If any provision of this Agreement, or the application thereof to any person, place or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable, or void, the remainder of this Agreement and such provisions as applied to other persons, places, and circumstances shall remain in full force and effect. 12. Arbitration. The parties agree to submit any dispute arising under this Agreement to arbitration. Arbitration shall be by a single arbitrator in the Chicago, Illinois area experienced in the matters at issue selected by the Company and Ellis in accordance with the commercial arbitration rules of the American Arbitration Association. The decision of the arbitrator shall be final and binding as to any manner submitted to him under this Agreement. All costs and expenses incurred in connection with any such arbitration proceeding shall be borne by the party against whom the decision is rendered as provided by the arbitrator. 13. Release. (a) Ellis, on behalf of himself, his heirs, executors, legal representative, successors and assigns, hereby fully and forever releases and discharges EHL, Company, and their respective affiliates, subsidiaries, parents, predecessors and successors, and each of their officers, directors, trustees, employees, agents and attorneys, past and present 4 5 (the "Releasees"), from any and all claims, demands or causes of action, whether now known or unknown, which have existed, which do exist, or which may exist in the future, arising out of or relating in any way to Ellis' furnishing of services to the Company, his compensation, the termination of his relationship with the Company, the sale of the stock or assets of the Company or any of its subsidiaries and/or any other occurrence up to and including the effective date of this Agreement, except those claims statutorily precluded from waiver or release by private parties and except those alleging breach of this Agreement. Without in any way limiting the generality of the foregoing language, this release includes any claims for relief or causes of action under the Age Discrimination in Employment Act, as amended, 29 U.S.C. Section 621, et seq., and any other federal, state or local statute, ordinance or regulation dealing in any respect with discrimination in employment, and in addition thereto, any claims under any Company severance policy, practice or procedure, and any claims, demands or actions brought on the basis of alleged wrongful or retaliatory discharge and/or alleged breach of an implied or explicit, written or oral employment or other contract or covenant under the common law of any state, including, but not limited to, Illinois. (b) Ellis further agrees not to directly or indirectly pursue or initiate any action or legal proceeding of any kind against the Releasees arising out of or related to the claims released in Section 13(a) above, or the sale of the stock or assets of the Company or any of its subsidiaries and also waives any right to recover any relief as a result of any such proceedings initiated on his behalf. 14. Termination Date. This Agreement shall be null and void in the event that a Change in Control does not occur on or before the Expiration Date. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year set forth above. FALCON BUILDING PRODUCTS, INC. Daniel G. Ellis a Delaware corporation /s/ Daniel G. Ellis ------------------- By: /s/ Gus J. Athas signature ------------------------------ Gus J. Athas Its: Vice-President 5 EX-21.1 9 SUBSIDIARIES OF THE COMPANIES 1 Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT Hart & Cooley, Inc. Mansfield Plumbing Products, Inc. Falcon Manufacturing, Inc. DeVilbiss Air Power Company SWC Industries, Inc. Ex-Cell Manufacturing Company, Inc. Centrally Held Eagle Receivable Program, Inc. EX-24.1 10 POWER OF ATTORNEY OF DIRECTORS 1 Exhibit 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Falcon Building Products, Inc., a Delaware corporation (the "Corporation"), which is about to file an annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, on Form 10-K hereby constitutes and appoints Sam A. Cottone, Daniel G. Ellis and Gus J. Athas, and each of them, his or her true and lawful attorney-in-fact and agents, with full power and all capacities, to sign the Corporation's Form 10-K and any or all amendments thereto, and any other documents in connection therewith, to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as she or he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned hereunto set her or his hand and seal as of the 12th day of February 1997. /s/ Bradbury Dyer III ----------------------- (Bradbury Dyer III) 2 Exhibit 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Falcon Building Products, Inc., a Delaware corporation (the "Corporation"), which is about to file an annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, on Form 10-K hereby constitutes and appoints Sam A. Cottone, Daniel G. Ellis and Gus J. Athas, and each of them, his or her true and lawful attorney-in-fact and agents, with full power and all capacities, to sign the Corporation's Form 10-K and any or all amendments thereto, and any other documents in connection therewith, to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as she or he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned hereunto set her or his hand and seal as of the 12th day of February 1997. /s/ Philip C. Kantz ----------------------- (Philip C. Kantz) 3 Exhibit 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Falcon Building Products, Inc., a Delaware corporation (the "Corporation"), which is about to file an annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, on Form 10-K hereby constitutes and appoints Sam A. Cottone, Daniel G. Ellis and Gus J. Athas, and each of them, his or her true and lawful attorney-in-fact and agents, with full power and all capacities, to sign the Corporation's Form 10-K and any or all amendments thereto, and any other documents in connection therewith, to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as she or he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned hereunto set her or his hand and seal as of the 12th day of February 1997. /s/ Richard G. Sim ----------------------- (Richard G. Sim) 4 Exhibit 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Falcon Building Products, Inc., a Delaware corporation (the "Corporation"), which is about to file an annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, on Form 10-K hereby constitutes and appoints Sam A. Cottone, Daniel G. Ellis and Gus J. Athas, and each of them, his or her true and lawful attorney-in-fact and agents, with full power and all capacities, to sign the Corporation's Form 10-K and any or all amendments thereto, and any other documents in connection therewith, to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as she or he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned hereunto set her or his hand and seal as of the 12th day of February 1997. /s/ Robert L. Smialek ----------------------- (Robert L. Smialek) 5 Exhibit 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Falcon Building Products, Inc., a Delaware corporation (the "Corporation"), which is about to file an annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, on Form 10-K hereby constitutes and appoints Sam A. Cottone, Daniel G. Ellis and Gus J. Athas, and each of them, his or her true and lawful attorney-in-fact and agents, with full power and all capacities, to sign the Corporation's Form 10-K and any or all amendments thereto, and any other documents in connection therewith, to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as she or he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned hereunto set her or his hand and seal as of the 12th day of February 1997. /s/ B. Joseph White ----------------------- (B. Joseph White) EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1996 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 4 0 0 0 76 96 187 (90) 262 96 109 0 0 0 28 262 633 633 520 520 0 0 11 49 19 30 0 0 0 30 1.50 0
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