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KMG CHEMICALS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This Supplemental Executive Retirement Plan for eligible executives of
KMG Chemicals, Inc. and its subsidiaries, has been adopted by the Board to be
applicable on and after August 1, 2001. The purpose of this Plan is to provide
supplemental retirement benefits to certain Employees in addition to the
benefits that may be provided to those Employees under other retirement plans
maintained by an Employer. This Plan is also designed to retain executive level
personnel.
This Plan is intended to constitute a non-qualified, unfunded deferred
compensation plan for a select group of management employees under Title I of
ERISA. All benefits payable under this Plan shall be paid from the general
assets of the Employer.
ARTICLE 1
DEFINITIONS
1.01 "ADMINISTRATIVE COMMITTEE" shall mean the person or persons appointed
by the Board to administer and supervise the Plan as provided in
Article IV. In the absence of such appointment, the Compensation
Committee of the Board shall serve as the Administrative Committee.
1.02 "BENEFICIARY" shall mean the beneficiary designated by a Participant in
the time and manner determined by the Administrative Committee. If the
Participant fails to designate a beneficiary, or if his beneficiary
predeceased him, his beneficiary shall be his spouse or, if none, his
children in equal shares. If no beneficiary survives the Participant,
his beneficiary shall be his estate.
1.03 "BOARD" shall mean the Board of Directors of KMG Chemicals, Inc.
("KMG").
1.04 "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
1.05 "COMPENSATION" shall mean the base salary only of the Employee and,
without limitation, shall not include (i) cash incentive bonuses
payable under any executive or other Employee incentive plan, (ii)
other forms of incentive bonuses (including lump-sum merit, performance
pay, mid-term and long-term incentive, and key employee bonuses); and
(iii) amounts deferred under any deferred compensation plan.
1.06 "COMPENSATION COMMITTEE" shall mean the Compensation Committee of the
Board.
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1.07 "CREDITED SERVICE" shall mean the number of years and months of a
Participant's most recent period of consecutive employment with the
Employer ending on the date the Participant retires or otherwise
terminates his employment with the Employer. Solely for purposes of
determining the amount of a Participant's Supplemental Pension Benefit,
a Participant's Credited Service shall also include, (i) with respect
to Executive Officers, service as the Compensation Committee, in its
sole discretion, shall determine; and (ii) with respect to all other
Participants, service as the Chief Executive Officer, in his sole
discretion, shall determine.
1.08 "EFFECTIVE DATE" shall mean August 1, 2001.
1.09 "EMPLOYEE" shall mean an individual employed by the Employer.
1.10 "EMPLOYER" shall mean KMG Chemicals, Inc. or any predecessor or
successor by merger, purchase or otherwise, and any subsidiary of KMG
Chemicals, Inc.
1.11 "EQUIVALENT ACTUARIAL VALUE" shall mean the equivalent value when
computed on the basis of such rates, tables and factors as the
Compensation Committee shall determine upon the advice of an actuary
appointed by the Compensation Committee.
1.12 "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
1.13 "EXECUTIVE OFFICER" shall mean the officers of KMG as shall be
designated by the Compensation Committee from time to time.
1.14 "FINAL AVERAGE COMPENSATION" shall mean a Participant's average annual
Compensation during the three consecutive calendar years of his
employment with the Employer immediately preceding his retirement or
other termination of employment.
1.15 "NORMAL RETIREMENT DATE" shall mean the first day of the calendar month
coincident with or immediately following the earlier of the date the
Participant: (i) attains age 65 and completes ten years of Credited
Service or (ii) attains age 60 and completes 30 years of Credited
Service.
1.16 "PARTICIPANT" shall mean any person participating in the Plan as
provided in Article II of this Plan.
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1.17 "PARTICIPANT'S BENEFIT PERCENTAGE" shall mean one-twentieth (1/20) of
the percentage established from time to time by the Compensation
Committee.
1.18 "PENSION PLAN" shall mean any defined benefit plans which meet the
requirements of a qualified plan under Section 401(a) of the Code which
may be maintained from time to time by the Employer. The term Pension
Plan shall also include any defined benefit plan which meets the
requirements of a qualified plan under Section 401(a) of the Code which
is (or was) maintained by a Participant's prior employer if any service
with such prior employer is deemed Credited Service under Section 1.06.
1.19 "PLAN" shall mean this Supplemental Executive Retirement Plan of KMG.
1.20 "SAVINGS PLAN" shall mean any defined contribution plans which meet the
requirements of a qualified plan under Section 401(a) of the Code which
may be maintained from time to time by the Employer. The term Savings
Plan shall also include any defined contribution plan which meets the
requirements of a qualified plan under Section 401(a) of the Code which
is (or was) maintained by a Participant's prior employer if any service
with such prior employer is deemed Credited Service under Section 1.06.
1.21 "SOCIAL SECURITY BENEFIT" shall mean the annual old-age insurance
benefit the Participant is entitled to receive under Title II of the
Social Security Act as in effect on the date he retires or otherwise
terminates his employment, or would be entitled to receive if he did
not disqualify himself from receiving a Social Security Benefit by
entering into covered employment or for any other reason. In the case
of a Participant who retires or otherwise terminates employment with
the Employer prior to being eligible for an unreduced old-age benefit
under Title II of the Social Security Act, the Social Security Benefit
shall be computed on the assumption that the Participant will continue
to receive compensation at the same rate as in effect on his retirement
or termination of employment until the date he could first retire with
the right to an unreduced old-age benefit.
1.22 "SUPPLEMENTAL PENSION BENEFIT" shall mean the amount determined under
Section 3.01 of the Plan.
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ARTICLE 2
PARTICIPATION
2.01 PARTICIPATION
An Employee shall become a Participant in this Plan provided that he or
she is: (i) an Executive Officer, or (ii) a United States-based
executive selected by the Chief Executive Officer for participation in
this Plan.
2.02 TERMINATION OF PARTICIPATION
A Participant's participation in the Plan shall terminate on the date
he or she terminates his employment with the Employer unless the
Participant is entitled to a benefit under the Plan. If a Participant
is entitled to a benefit under the Plan, his or her participation in
the Plan shall terminate when the benefit is distributed to him.
ARTICLE 3
AMOUNT AND PAYMENT
OF SUPPLEMENTAL PENSION BENEFITS
3.01 SUPPLEMENTAL PENSION BENEFIT
A Participant who retires or otherwise terminates his employment on or
after his Normal Retirement Date shall receive an annual benefit for
ten years, equal to the excess, if any, of:
(a) the Participant's Benefit Percentage of the Participant's
Final Average Compensation multiplied by his years of Credited
Service up to a maximum of 20 years;
reduced by
(b) the sum of:
(i) the annual amount of a single life annuity payable as
of the Participant's retirement or other termination
of employment which is of Equivalent Actuarial Value
to the Participant's accrued benefit under any
Pension Plan determined as of the Participant's
retirement or other termination of employment;
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(ii) the annual amount of a single life annuity payable as
of the Participant's retirement or other termination
of employment which is of Equivalent Actuarial Value
to the value of the Participant's accounts under the
Savings Plan attributable to contributions made by
the Employer (other than pre-tax contributions to a
qualified cash or deferred arrangement under Section
401(k) of the Code made by the Employer on behalf of
the Participant) determined as of the Participant's
retirement or other termination of employment;
(iii) the Equivalent Actuarial Value determined as of the
Participant's retirement or other termination of
employment of fifty percent (50%) the Participant's
annual Social Security Benefit; and
(iv) the annual amount of a single life annuity payable as
of the Participant's retirement or other termination
of employment which is of Equivalent Actuarial Value
to the Employer-provided portion of any benefit
provided under any other nonqualified retirement plan
or program.
The Participant's accrued benefit under the Pension Plan, the value of
his accounts under the Savings Plan, the amount of his Social Security
Benefit and any determination which may be required under Section
3.01(b)(iv) of the Plan shall be determined as of the first day of the
month coincident with or immediately following the Participant's
retirement or other termination of employment.
3.02 EARLY RETIREMENT
(a) If a Participant who has not reached his Normal Retirement
Date but who, prior to his termination of employment from the
Employer, has reached his 60th birthday and has completed ten
years of Credited Service with the Employer, may, with the
consent of the Administrative Committee, retire from service
and receive an early retirement Supplemental Pension Benefit
following the Administrative Committee's approval of his
retirement.
(b) The early retirement Supplemental Pension Benefit shall be a
deferred Supplemental Pension Benefit beginning on the
Participant's Normal Retirement Date and shall be equal to his
Supplemental Pension Benefit determined under Section 3.01.
However, the Participant may elect to receive an early
retirement Supplemental Pension Benefit beginning on the first
day of any calendar month before his Normal Retirement Date
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and after the Administrative Committee's approval of his
retirement. In that case, the Participant's Supplemental
Pension Benefit shall be determined in accordance with the
provisions of Section 3.01; provided, however, that the amount
determined under Section 3.01(a) shall be reduced by
five-twelfths of one percent for each month by which the date
the Participant's early retirement Supplemental Pension
Benefit precedes his Normal Retirement Date.
3.03 DISABILITY
(a) A Participant who has completed at least ten years of Credited
Service with the Employer and who ceases to be employed by the
Employer on account of disability as defined in the Employer's
long-term disability plan shall continue to be credited with
Credited Service but only if he is eligible for and
continuously receiving disability benefits under the
Employer's long-term disability plan. There shall also be
included in his Credited Service any applicable waiting period
for disability benefits under the Employer's long-term
disability plan; provided that after expiration of such period
the Participant becomes entitled to such disability benefits.
Upon attaining age 65 the Participant shall be entitled to a
disability Supplemental Pension Benefit in an amount provided
in paragraph (b) below. A Participant's disability
Supplemental Pension Benefit shall commence on the
Participant's Normal Retirement Date or, if later, the first
day of the month on or immediately after the date he ceases,
because of retirement or otherwise, to be eligible for
payments under the Employer's long-term disability plan.
(b) The Participant's disability Supplemental Pension Benefit
shall be determined under Section 3.01 as in effect on the
date the Participant's disability Supplemental Pension Benefit
commences, based on his Final Average Compensation at the time
he ceased employment on account of disability, and his
Credited Service as modified by paragraph (a) above.
(c) If the Participant's disability benefits under the Employer's
long-term disability plan are discontinued prior to his Normal
Retirement Date and he is not restored to service with the
Employer, he shall be entitled to retire and receive an early
Supplemental Pension Benefit under Section 3.02 as of the
first day of the calendar month immediately after such
discontinuance if at the date he ceased to be disabled he had
completed ten years of Credited Service with the Employer and
he had attained age 60. The Participant's Supplemental Pension
Benefit shall be computed on the basis of his Final Average
Compensation at the time he ceased
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employment on account of disability, his Credited Service as
modified by paragraph (a) above at the date he ceases to be
disabled, and the benefit formula in effect on the date he
ceases to be disabled.
3.04 DEATH BENEFITS
(a) If a Participant eligible for a Supplemental Pension Benefit
dies prior to his termination of employment with the Employer,
or after he terminates his employment with the Employer but
before payment of his Supplemental Pension Benefit begins, his
Beneficiary shall receive a Supplemental Pension Benefit. The
Supplemental Pension Benefit shall be paid in equal monthly
installments beginning the first day of the month following
the Participant's death and shall be equal to the excess of:
(i) the amount determined under Section 3.01(a) as of the
date of his death, reduced by
(ii) the amount determined under Section 3.01(b) as of the
date of his death.
The Supplemental Pension Benefit shall be paid for a period of
120 months. If the Participant's Beneficiary dies prior to
receiving 120 monthly payments, any remaining payments shall
be made to the Beneficiary's estate.
(b) If a Participant dies after payment of his Supplemental
Pension Benefit begins, his Beneficiary shall receive the
benefit, if any, provided in the event of the Participant's
death under the optional form of benefit in which the
Participant's Supplemental Pension Benefit was paid.
3.05 PAYMENT OF BENEFITS
(a) Unless the Participant elects an optional form of payment
under Section 3.05(b), a Participant's Supplemental Pension
Benefit shall be paid to him in monthly installments ending
with the last monthly payment before his death.
(b) A Participant may elect to convert the Supplemental Pension
Benefit otherwise payable to him into an optional benefit of
Equivalent Actuarial Value as provided in one of the following
optional forms:
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OPTION 1 - JOINT AND 100% SURVIVOR ANNUITY: A modified
Supplemental Pension Benefit payable during the Participant's
life, and after his death payable during the life of, and to,
the Beneficiary named by him when he elects the option.
OPTION 2 - JOINT AND 50% SURVIVOR ANNUITY: A modified
Supplemental Pension Benefit payable during the Participant's
life, and after his death payable at one-half of the rate of
his modified Supplemental Pension Benefit during the life of,
and to, the Beneficiary named by him when he elected the
option.
OPTION 3 - TEN YEAR CERTAIN AND LIFE: A modified Supplemental
Pension Benefit payable during the Participant's life;
provided, however, if the Participant dies before receiving
120 monthly payments, the remaining balance of those 120
monthly payments shall be paid to the Beneficiary named by him
when he elected the option. If the Beneficiary does not
survive to the end of the 120-month period, a lump sum payment
of Equivalent Actuarial Value shall be paid to the estate of
the last to survive of the Participant and the Beneficiary.
OPTION 4 - SINGLE SUM: A single sum payment; provided,
however, that the Administrative Committee, in its sole
discretion and without any obligation to exercise reasonable
discretion, approves of such single sum payment. If the
Administrative Committee does not grant approval of a single
sum payment, the Participant shall make an election to receive
benefits in any one of the forms otherwise permitted in this
Section 3.05.
(c) The Participant shall make his election by filing the
appropriate form with the Administrative Committee no later
than December 31 of the calendar year which is at least one
calendar year prior to the calendar year in which the
Participant terminates his employment with the Employer. Any
election made under this Section may be revoked in writing by
the Participant provided his written revocation is received by
the Administrative Committee no later than December 31 of the
calendar year which is at least one calendar year prior to the
calendar year in which the Participant terminates his
employment with the Employer.
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3.06 CASH OUT OF SMALL BENEFITS
Notwithstanding anything in this Plan to the contrary, if upon
retirement, other termination of employment, or death:
(a) the single sum Equivalent Actuarial Value of the Participant's
Supplemental Pension Benefit is $30,000 or less; or
(b) the monthly Supplemental Pension Benefit payable to the
Participant is $500 or less;
his Supplemental Pension Benefit may, in the discretion of the
Administrative Committee, be paid in a single sum Equivalent Actuarial
Value. Any payments to be made under this Section will be made as soon
as practicable following the Participant's retirement, other
termination of employment or death.
3.07 FORFEITURE
Notwithstanding anything in this Plan to the contrary, if the
Participant's employment with the Employer shall terminate prior to the
attainment of Early Retirement or Normal Retirement Age as described
above, and if such termination is not due to death or disability, all
benefits that would otherwise be payable under this Plan shall be
forfeited. If a Participant's employment with the Employer shall
terminate prior to completion of five years of Credited Service with
the Employer (exclusive of any Credited Service which relates to
service with a prior employer), all benefits that would otherwise be
payable under this Plan shall be forfeited. The application of this
provision may be waived by the Chief Executive Officer; provided,
however, that any waiver on behalf of an Executive Officer is subject
to the consent of the Compensation Committee.
3.08 SOURCE OF BENEFITS
Supplemental Pension Benefits shall be payable only from the general
assets of the Employer.
3.09 RESTORATION TO SERVICE
If a Participant who retired or whose employment was otherwise
terminated is restored to employment with the Employer, any payments of
a Supplemental Pension Benefit under this Plan shall cease. Upon his
subsequent retirement or termination of employment with the Employer
and his again becoming entitled
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to receive a Supplemental Pension Benefit, his Supplemental Pension
Benefit shall be recomputed in accordance with the provisions of this
Article. Any recomputed Supplemental Pension Benefit shall be reduced
by the Equivalent Actuarial Value of any Supplemental Pension Benefit
payments the Participant has previously received.
3.10 RECEIPT AND RELEASE
Any final payment or distribution to a Participant or Beneficiary or
their legal representative shall be in full satisfaction of all claims
against the Plan, the Administrative Committee, the Compensation
Committee, the Board and the Employer. The Administrative Committee
may, in its sole discretion, require a Participant, or Beneficiary or
their legal representative to execute a receipt and release, in such
form as the Administrative Committee may determine, upon final payment
of all claims or distributions under the Plan, or a receipt to the
extent of any partial payment or distribution, as a condition of
receiving such payment or distribution.
ARTICLE 4
GENERAL PROVISIONS
4.01 ADMINISTRATION
The administration of the Plan, the exclusive power to interpret it and
to establish rules and regulations for its administration, and the
responsibility for carrying out its provisions are vested in the
Administrative Committee. Any interpretation of the Plan by the
Administrative Committee or any administrative act by the
Administrative Committee shall be final and binding on all Participants
and Beneficiaries. The expenses of the Administrative Committee
attributable to the administration of the Plan shall be paid directly
by the Employer.
4.02 FUNDING
(a) Nothing contained in this Plan shall require the Employer to
segregate any monies from its general funds, or to create any
trusts, or to make any special deposits for any amounts to be
paid to any Participant, former Participant or Beneficiary.
Neither a Participant, former Participant or Beneficiary or
their heirs or personal representatives shall have any right,
title or interest in or to any of the funds of the Employer on
account of this Plan.
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(b) All Supplemental Pension Benefits payable in accordance with
this Plan, as well as any administrative costs relating to the
Plan, shall constitute a general unsecured obligation of the
Employer and shall be payable only from the general assets of
the Employer.
4.03 NO CONTRACT OF EMPLOYMENT
The establishment of the Plan shall not be construed as conferring any
legal rights upon any person for a continuation of employment, nor
shall it interfere with the rights of the Employer to modify a
Participant's compensation or to discharge any Participant and to treat
him without regard to the effect which such treatment might have upon
him as a Participant in the Plan.
4.04 WITHHOLDING TAXES
The Employer shall have the right to deduct any required federal, state
and local withholding taxes from each payment to be made under the
Plan.
4.05 NONALIENATION
Subject to any applicable law, 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 do
shall be void, nor shall any such benefit be in any manner liable for
or subject to garnishment, attachment, execution or levy, or liable for
or subject to the debts, contracts, liabilities, engagements or torts
of the Participant.
4.06 PAYMENT TO MINORS, OTHERS
If the Administrative Committee finds that a Participant or other
person entitled to a benefit under the Plan is unable to care for his
affairs because of illness or accident or because he is a minor, the
Administrative Committee may direct that any benefit due him be paid to
his spouse, a child, a parent or other blood relative or a person with
whom he resides, unless a claim has been made for the benefit by a duly
appointed legal representative. Any payment made under the provisions
of this Section shall be a complete discharge of the liabilities of the
Plan for that benefit.
4.07 FURNISHING OF INFORMATION
Prior to paying any benefit under this Plan, the Administrative
Committee may require the Participant or Beneficiary to provide such
information or material as
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the Administrative Committee, in its sole discretion, shall deem
necessary for it to make any determination it may be required to make
under this Plan. The Administrative Committee may withhold payment of
any benefit under this Plan until it receives all such information and
material and is reasonably satisfied of its correctness and
genuineness.
4.08 EFFECT ON OTHER PLANS
Nothing in this Plan shall be deemed to affect the provisions of any
Savings Plan or any other employee benefit plan as defined in Section
3(3) of ERISA, or any employment contract maintained by or entered into
by the Employer.
4.09 INDEMNIFICATION
(a) KMG shall indemnify the members of the Administrative
Committee, the Compensation Committee and/or any of their
delegates against the reasonable expenses, including
attorneys' fees, actually and appropriately incurred by them
in connection with the defense of any action, suit or
proceeding, or in connection with any appeal thereto, to which
they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan
(including any action or failure to act constituting
negligence) and against all amounts paid by them in settlement
thereof and against all amounts paid by them in satisfaction
of a judgment in any such action, suit or proceeding, except
in relation to matters as to which it shall be adjudged in a
suit of final adjudication that such member is liable for
gross negligence, fraud, deliberate dishonesty or willful
misconduct in the performance of his duties.
(b) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in
respect of which indemnity may be sought pursuant to this
Section 4.09, such person (the "Indemnified Party") shall
promptly notify KMG in writing. No indemnification provided
for in Section 4.09(a) shall be available to any party who
shall fail to give notice as provided in this Section 4.09(b)
if KMG was unaware of the proceeding to which such notice
would have related and was prejudiced by the failure to give
such notice, but the failure to give such notice shall not
relieve KMG from any liability which it may have to the
Indemnified Party for contribution or otherwise than on
account of the provisions of Section 4.09(a). In case any such
proceeding shall be brought against any Indemnified Party and
it shall notify KMG of the commencement thereof, KMG shall be
entitled to participate therein and, to the extent that it
shall wish, to assume the defense thereof, with counsel
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satisfactory to such Indemnified Party and shall pay as
incurred the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any Indemnified Party
shall have the right to retain its own counsel at its own
expense. Notwithstanding the foregoing, KMG shall pay as
incurred the fees and expenses of the counsel retained by the
Indemnified Party in the event (i) KMG and the Indemnified
Party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both KMG and the
Indemnified Party and representation of both parties by the
same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that KMG
shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses or more than one separate firm
for all such Indemnified Parties. Such firm shall be
designated in writing by KMG. KMG shall not be liable for any
settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a
final judgment for the plaintiff, KMG agrees to indemnify the
Indemnified Party from and against any loss or liability by
reason of such settlement or judgment.
4.10 CLAIMS PROCEDURE
The Administrative Committee shall provide adequate notice in writing
to any Participant, former Participant or Beneficiary whose claim for
benefits under this Plan has been denied, setting forth the specific
reasons for such denial. A reasonable opportunity shall be afforded to
any such Participant, former Participant or Beneficiary for a full and
fair review by the Administrative Committee of its decision denying the
claim. The Administrative Committee's decision on any such review shall
be final and binding on the Participant, former Participant or
Beneficiary and all other interested persons.
4.11 CONSTRUCTION
(a) The Plan is intended to constitute an unfunded deferred
compensation arrangement for a select group of management or
highly compensated employees and therefore exempt from the
requirements of Sections 201, 301 and 401 of ERISA. All rights
hereunder shall be governed by and construed in accordance
with the laws of the State of Texas to the extent such laws
are not pre-empted by ERISA or other federal law.
(b) The masculine pronoun shall mean the feminine wherever
appropriate.
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(c) The titles and headings of the Articles and Sections of the
Plan are for convenience only. In case of ambiguity or
inconsistency, the text, rather than the titles or headings,
shall control.
ARTICLE 5
AMENDMENT OR TERMINATION
The Chief Executive Officer may modify or amend the Plan at any time,
provided, however, that any material modification shall be subject to
Compensation Committee approval. The Board may suspend or terminate this Plan
for any reason at any time. No modification, amendment, suspension or
termination of the Plan shall reduce the right of a Participant or his
Beneficiary to receive benefits accrued under the Plan in respect of such
Participant as of the date of the modification, amendment, suspension or
termination unless the Participant or his Beneficiary, as the case may be,
agrees in writing to such modification, amendment, suspension or termination.
IN WITNESS WHEREOF, the proper officer of KMG Chemicals, Inc. has
executed this instrument this 25th day of June, 2001.
KMG CHEMICALS, INC.
By: /s/ David L. Hatcher
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David L. Hatcher, President
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