BRUSH ENGINEERED MATERIALS INC.
2005 DEFERRED COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
(EFFECTIVE JANUARY 1, 2005)
1. Brush Engineered Materials Inc. (the Company) has suspended the 1992 Brush Engineered Materials Inc. Deferred Compensation Plan for Nonemployee Directors (As Amended as of May 16, 2000) and as further amended by Amendments No. 1, No. 2, and No. 3.
2. The American Jobs Creation Act of 2004, P.L. 108-357 (the AJCA) added a new Section 409A to the Internal Revenue Code of 1986, as amended (the Code), which significantly changed the Federal tax law applicable to amounts deferred under nonqualified deferred compensation plans after December 31, 2004;
3. Pursuant to the AJCA, the Secretary of the Treasury and the Internal Revenue Service will issue proposed, temporary or final regulations and/or other guidance with respect to the provisions of new Section 409A of the Code (collectively, the AJCA Guidance);
4. The AJCA Guidance has not yet been issued; and
5. The Company now desires to adopt a new deferred compensation plan for nonemployee directors, effective January 1, 2005.
1.1. Purpose of the Plan. The purpose of the Brush Engineered Materials Inc. 2005 Deferred Compensation Plan for Nonemployee Directors is to provide the nonemployee Directors of the Company with the opportunity to defer receipt of compensation payable for services as a Director and to help solidify the common interest of Directors and shareholders in enhancing the value of the Companys Common Shares.
1.2. American Jobs Creation Act (AJCA).
(a) It is intended that the Plan (including any amendments thereto) comply with the provisions of Section 409A of the Code, as enacted by the AJCA, so as to prevent the inclusion in gross income of any amount credited to a Directors Deferred Compensation Account hereunder in a taxable year that is prior to the taxable year or years in which such amounts would otherwise be actually distributed or made available to the Director. The Plan shall be administered in a manner that will comply with Section 409A of the Code, including proposed, temporary or final regulations or any other guidance issued by the Secretary of the Treasury and the Internal Revenue Service with respect thereto (collectively with the AJCA, the AJCA Guidance). Any Plan provision that would cause the Plan to fail to satisfy Section 409A of the Code (including, without limitation, any provisions of this Amendment No. 3) shall have no force and effect until amended to comply with Code Section 409A (which amendment may be retroactive to the extent permitted by the AJCA Guidance).
(b) The effective date of the Plan is January 1, 2005.
As used herein, the following words shall have the meanings stated after them unless otherwise specifically provided:
2.1. Change in Control shall have the meaning assigned thereto in Section 5.5 hereof.
2.2. Committee shall mean the Governance Committee of the Board of Directors.
2.3. Common Shares shall mean the Common Shares, without par value, of the Company.
2.4. Company shall mean Brush Engineered Materials Inc.
2.5. Deferred Compensation Account shall have the meaning assigned thereto in Section 3.1 hereof.
2.6. Director shall mean any nonemployee director of the Company.
2.7. Insolvent shall have the meaning assigned thereto in Section 6.2 hereof.
2.8. Plan shall mean the 2005 Brush Engineered Materials Inc. Deferred Compensation Plan for Nonemployee Directors, as amended from time to time.
2.9. Terminated Participant shall have the meaning assigned thereto in Section 8.3 hereof.
2.10. Trust shall have the meaning assigned thereto in Section 4.1 hereof.
2.11. Trust Account shall have the meaning assigned thereto in Section 4.2 hereof.
2.12. Trust Agreement shall mean the Trust Agreement entered into between the Company and the Trustee in connection with the Plan.
2.13. Trust Fund shall have the meaning assigned thereto in Section 4.2 hereof.
2.14. Trustee shall mean such person or entity as may be chosen by the Company from time to time to act as the trustee under the Trust Agreement, together with the successors of such person or entity as may be provided in the Trust Agreement.
ELECTIONS BY DIRECTORS
3.1. Compensation Reduction for 2005 and Later Years. Not later than December 31 of any calendar year, beginning with December 31, 2004 for the calendar year 2005, a Director may, by filing an annual written election with the Committee, direct the Company (a) to reduce the compensation payable to him or her (determined without regard to the provisions of this Section) for services as a Director during the next calendar year in such amount as elected by the Director and (b) to credit the amount of such reduction to the Directors Deferred Compensation Account.
3.2. Partial Years. If a Director first becomes a Director after January 1st of any calendar year, the Director may, by filing a written election with the Committee, direct the Company (a) to reduce the compensation payable to him or her for future services as a Director during the year in such amount as elected by the Director and (b) to credit the amount of such reduction to the Directors Deferred Compensation Account. Any such election shall be made within 30 days after an individual becomes a Director, and shall apply only to compensation for services as a Director performed after the date of such election.
3.3. Elections Irrevocable. All elections described in this Article shall be made on an election form specified by the Committee and filed with the Committee. Once an election becomes effective pursuant to this Article, such election shall be irrevocable and shall remain in effect until the end of the calendar year to which it relates.
3.4. Deferred Compensation Accounts. Each Director who has elected to have his or her compensation reduced pursuant to this Article shall have a nonforfeitable right to the balance from time to time of his or her Deferred Compensation Account. Each Directors Deferred Compensation Account shall be subdivided into separate subaccounts for each year of participation. In addition to the credits to a Directors Deferred Compensation Account described in Sections 3.1, 3.2, and 3.3 hereof, a Directors Deferred Compensation Account (and the appropriate subaccounts) shall be credited or debited with, amounts equal to the income, earnings, gains or losses on the Trust Account maintained with respect to the Director under the Trust Agreement at such times as such items are credited to or debited from such Trust Account and shall be debited for any distributions to the Director under Article V.
ACCOUNTS AND INVESTMENTS
4.1. Contribution. (a) The Company shall from time to time transfer to the Trustee to be held under the Trust Agreement in a trust (the Trust) cash funds equal to the amounts by which Directors elect to have their compensation reduced pursuant to this Plan. All such transfers shall be made within 30 days after such compensation would have been paid to the Director but for the Directors compensation reduction election.
(b) Except as provided with respect to the creditors of the Company in Article VI hereof, all contributions and other transfers by the Company to the Trust pursuant to Section 4.1(a) hereof shall be irrevocable, and (except as so provided) the Company shall have no right to the return of any funds so contributed or transferred to the Trust or any earnings thereon.
4.2. Establishment and Adjustment of Accounts. The Trustee shall establish a separate account under the Trust (a Trust Account) for any Director who defers compensation pursuant to the Plan. As of December 31 of each year and on such other dates as the Committee may direct, the fair market value of the assets of the Trust allocated to all Trust Accounts (the Trust Fund) shall be determined by the Trustee.
4.3. Investment of Assets. The assets of the Trust Fund shall be held by the Trustee in the name of the Trust. As amounts are received by the Trustee, it shall invest the funds pursuant to the Trust Agreement, which shall authorize the Trustee to invest the funds contained in each Trust Account in Common Shares.
4.4. Assets Held in Cash. The Trustee may, in its sole discretion, maintain in cash such amounts as it deems necessary to meet the needs of the Trust from time to time. Amounts maintained in cash by the Trustee shall be kept to a minimum consistent with the duties and obligations of the Trustee as set forth in the Trust Agreement and shall not be required to be invested at interest.
4.5. Trustees Fees. The fees and expenses of the Trustee under the Trust Agreement shall be paid by the Company.
PAYMENT OF ACCOUNTS
5.1. Time of Payment. Distribution of each subaccount included in a Directors Deferred Compensation Account shall commence or be made in the manner described in Section 5.2 hereof as soon as is reasonably practicable, but not later than 60 days, after the earlier of: (i) the date of termination of service as a Director on account of resignation, retirement, death or otherwise, (ii) if so specified on the Directors election form for the particular year (or on the 2005 election form for all current Directors), the date the Director reaches the age of 70 or older, or (iii) the occurrence of a Change in Control of the Company. However, if the aggregate amount credited to any Directors Deferred Compensation Account is less than $17,500, the distribution of the Directors entire Deferred Compensation shall be in a lump sum on the applicable date.
5.2. Method of Distribution. Prior to December 31 of end year, beginning with December 31, 2004, a Director shall file an annual election with the Committee to specify whether amounts credited to his Deferred Compensation Account for the following year shall be distributed to him or her (or his or her beneficiary) in a single lump sum payment at the time described in Section 5.1, or in not more than ten annual installments commencing at such time. The amounts credited to the Directors Deferred Compensation Account for such year shall be distributed or commence to be distributed to the Director or the Directors beneficiary at the time described in Section 5.1 in the manner so specified. The amount of each installment payment shall be calculated by dividing the amount credited to the applicable subaccount in the Directors Deferred Compensation Account at the time of each such payment (as determined by the Committee) by the number of remaining installments (including the current installment). If the Company is not Insolvent at the time of any payment, the payment shall be made from the Trust and charged to the Directors Trust Account. The Common Shares shall be distributed in kind.
5.3. Designation of Beneficiary. Each Director participating in this Plan shall designate a beneficiary or beneficiaries to whom distribution shall be made pursuant to Section 5.2 in the event of the death of the Director before his or her entire Deferred Compensation Account is distributed. If there is no designated beneficiary, or no designated beneficiary surviving at a Directors death the Directors beneficiary shall be his or her estate. Beneficiary designations shall be made in writing. A Director may designate a new beneficiary or beneficiaries at any time by filing a new election with the Committee.
5.4. Taxes. In the event any taxes are required by law to be withheld or paid from any distributions made pursuant to the Plan, the Company or Trustee (as applicable) shall deduct such amounts from such distributions and shall transmit the withheld amounts to the appropriate taxing authority.
5.5. Definition of Change in Control. A Change in Control of the Company shall have occurred if at any time any of the following events shall occur:
(a) The Board of Directors of the Company at any time shall fail to include a majority of directors who are either Original Directors or Approved Directors. An Original Director is a director who is serving on January 1, 1995. An Approved Director is a director who, after such date, is elected to the Board of Directors of Brush Wellman Inc. or the Board of Directors of the Company, or is nominated for election by the shareholders, by a vote of at least two-thirds of the Original Directors and the previously elected Approved Directors, if any;
(b) Any person (as the term person is defined in Section 1701.01(G) of the Ohio Revised Code) shall have made a control share acquisition (as the term control share acquisition is defined in Section 1701.01(Z) of the Ohio Revised Code) of shares of the Company without having first complied with Section 1701.831 of the Ohio Revised Code (dealing with control share acquisitions); or
(c) The Board of Directors shall at any time determine in the good faith exercise of its judgment that (i) any particular actual or proposed accumulation of shares of the Company, tender offer for shares of the Company, merger, consolidation, sale of assets, proxy contest, or other transaction or event or series of transactions or events will, or is likely to, if carried out, result in a Change in Control falling within Sections 5.5(a) or 5.5(b) hereof and (ii) it is in the best interests of the Company and its shareholders, and will serve the intended purposes of this Plan and the Trust, for distributions of Deferred Compensation Accounts to commence immediately as herein provided.
CREDITORS AND INSOLVENCY
6.1. Claims of the Companys Creditors. All assets held in the Trust pursuant to the Plan, and any payment to be made by the Trustee pursuant to the Plan and Trust Agreement, shall be subject to the claims of the general creditors of the Company, including judgment creditors and bankruptcy creditors. The rights of a Director or his or her beneficiaries to any assets of the Trust Fund shall be no greater than the rights of an unsecured creditor of the Company.
6.2. Notification of Insolvency. In the event the Company becomes Insolvent (as hereinafter defined), the Board of Directors of the Company and the chief executive officer of the Company shall immediately notify the Trustee of that fact. The Trustee shall not make any payments from the Trust Fund to any Director or any beneficiary under the Plan after such notification is received or at any time after the Trustee has knowledge of such Insolvency. Under any such circumstance, the Trustee shall deliver any property held in the Trust Fund only as a court of competent jurisdiction may direct to satisfy the claims of the Companys creditors. For purposes of this Plan, the Company shall be deemed to be Insolvent if the Company is subject to a pending voluntary or involuntary proceeding as a debtor under the United States Bankruptcy Code, as amended, or is unable to pay its debts as they mature.
7.1. Powers of the Committee. The Committee shall administer the Plan and resolve all questions of interpretation arising under the Plan. Whenever elections, directions, designations, applications, requests or other notices are to be given or made by a Director under the Plan, they shall be filed with the Committee. Except as provided in Section 8.3 hereof, the Committee shall have no discretion with respect to Plan contributions or distributions, but shall act in an administrative capacity only.
7.2. Indemnity of Committee. The Company shall indemnify the members of the Committee against all claims, losses, damages, expenses and liabilities arising from any action or failure to act with respect to the Plan to the extent provided in the Regulations of the Company and any applicable indemnification agreement between the Company and such member.
8.1. Funding. Neither any Director, nor his or her beneficiaries, nor his or her heirs, successors or assigns, shall have any secured interest in or, claim on any property or assets of the Company or the Trust. The Companys obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Company to pay money in the future. The Company shall create the Trust to hold funds to be used in payment of its obligations under the Plan and to provide a measure of the benefits payable to the Director hereunder, and shall fund such Trust in accordance with the terms of the Plan, but all funds contained therein shall remain subject to the claims of the Companys general creditors as provided in Article VI hereof.
8.2. Term of Plan. The Company reserves the right to amend the Plan or Trust Agreement or terminate the Plan at any time; provided, however, that no amendment or termination shall affect the rights of Directors to amounts previously credited to their Deferred Compensation Accounts or to additional credits to their Deferred Compensation Accounts pursuant to Section 3.4 hereof for additional earnings of the Trust following such termination; and provided further, that no amendment or termination shall apply to the then current plan year, except as permitted under Section 409A of the Code. The Trust shall remain in effect until such time as the entire corpus of the Trust Fund has been distributed pursuant to the terms of the Plan, and the Plan shall remain in effect until such time as all amounts credited to Directors Deferred Compensation Accounts are distributed pursuant to Article V hereof.
8.3. Assignment. No right or interest of any Director or his or her beneficiary (or any person claiming through or under such Director or his or her beneficiary) in any benefit or payment herefrom shall be assignable or transferable in any manner or be subject to alienation, anticipation, sale, pledge, encumbrance or other legal process or in any manner be liable for or subject to the debts or liabilities of such Director.
If any Director or any such person (other than the surviving spouse of such Director after he or she is deceased) shall attempt to or shall transfer, assign, alienate, anticipate, sell, pledge or otherwise encumber his or her benefits hereunder or any part thereof, or if by reason of his or her bankruptcy or other event happening at any time such benefits would devolve upon anyone else or would not be enjoyed by him or her, then the Committee, in its discretion, may terminate his or her interest in any such benefit, to the extent the Committee considers necessary or advisable to prevent or limit the effects of such occurrence, by filing a written termination declaration with the Committee records and making reasonable efforts to deliver a copy to such Director or his or her beneficiary whose interest is adversely affected (the Terminated Participant).
As long as any Terminated Participant is alive, any benefits affected by the termination declaration shall be retained by the Company and, in the Committees sole and absolute judgment, may be paid to or expended for the benefit of such Terminated Participant, his or her spouse, his or her children or any other person or persons in fact dependent upon him or her in such a manner as the Committee shall deem proper. Upon the death of any Terminated Participant, all benefits withheld from him or her and not paid to others in accordance with the preceding sentence shall be distributed to such Terminated Participants surviving spouse or, if there is no surviving spouse, to such Terminated Participants then living descendants, including adopted children, per stirpes, or if there is no surviving spouse and no surviving descendants, to such Terminated Participants estate. Payments described in this paragraph shall be made from the Trust if the Company is not Insolvent at the time for any such payment.
8.4. Tax Effect. This Plan is intended to be treated as an unfunded deferred compensation plan under the Internal Revenue Code. It is the intention of the Company that the amounts by which Directors elect to have their compensation reduced pursuant to this Plan shall not be included in the gross income of the Directors or their beneficiaries until such time as the amounts credited to Directors Deferred Compensation Accounts hereunder are distributed from the Plan. If, at any time, it is determined by the Company that amounts attributable to Directors compensation reduction elections or Deferred Compensation Accounts are includible in the gross income of the Directors or their beneficiaries before distribution pursuant to Article V hereof, all amounts credited to Directors Deferred Compensation Accounts shall be immediately distributed to the respective Directors or, in the case of deceased Directors, their beneficiaries. Distributions described in the preceding sentence shall be made from the Trust if the Company is not Insolvent at the time for such distribution.
8.5. Governing Law. This Plan shall be governed by and construed in accordance with the internal substantive laws of the State of Ohio.
8.6. Successors. The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise, acquire all or substantially all of the business and assets of the Company and successors of any such corporation or other business entity.
8.7. No Right to Continued Service. Nothing contained herein shall be construed to confer upon any Director the right to continue to serve as a Director of the Company or in any other capacity.
IN WITNESS WHEREOF, Brush Engineered Materials, Inc. has executed this Plan this 7th day of December, 2004.
BRUSH ENGINEERED MATERIALS INC.
By: /s/ Michael C. Hasychak
|Name: Michael C. Hasychak
Title: Vice President, Treasurer and Secretary