Exhibit 10.14

 

 

 

 

 

 

 

ESI 401(k) PLAN

 

 

 

 

 

 

 

 

 

 

January 1, 2006 Restatement

ESI 401(k) PLAN

TABLE OF CONTENTS

Page

 

ARTICLE ONE

INTRODUCTION AND PURPOSE

1

 

 

 

ARTICLE TWO

DEFINITIONS

1

 

 

 

ARTICLE THREE

MEMBERSHIP

12

3.1

Membership

12

3.2

Rehired Member

13

3.3

Transferred Members

13

3.4

Termination of Membership

14

 

 

 

ARTICLE FOUR

MEMBER CONTRIBUTIONS

14

4.1

Member Pre-Tax Savings

14

4.2

Change in Contributions

16

4.3

Suspension and Resumption of Member Pre-Tax Savings

16

4.4

No After-Tax Contributions

16

4.5

Vesting of Member's and Deferred Member's Contributions

16

4.6

Rollover Contributions

17

4.7

Contributions During Period of Military Leave

17

 

 

 

ARTICLE FIVE

COMPANY CONTRIBUTIONS

18

5.1

Matching Company Contributions

18

5.2

Retirement Contributions

18

5.3

Mode of Payment and Valuation of ESI Stock Contributed

18

5.4

Vesting

19

5.5

Forfeitures

20

 

 

 

ARTICLE SIX

LIMITATIONS ON CONTRIBUTIONS

20

6.1

Actual Deferral Percentage Test

20

6.2

Actual Contribution Percentage Test

22

6.3

Aggregate Contribution Limitation

23

6.4

Additional Discrimination Testing Provisions

23

6.5

Maximum Annual Additions

24

 

 

 

ARTICLE SEVEN

INVESTMENT OF CONTRIBUTIONS

26

7.1

Investment Funds

26

7.2

Investment of Contributions

26

7.3

Change in Future Contribution Investment Election

26

7.4

Redistribution of Accounts Among the Funds

26

7.5

Voting of ESI Stock

27

7.6

Limitations Imposed by Contract

27

7.7

Responsibility for Investments

27

 

 

 

 

 

 

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ARTICLE EIGHT

CREDITS TO MEMBERS' ACCOUNTS, VALUATION, AND ALLOCATION OF ASSETS

28

8.1

Pre-Tax Savings and Rollover Contributions

28

8.2

Matching Company Contributions

28

8.3

Retirement Contributions

28

8.4

Credits to Members' Accounts

28

8.5

Valuation of Assets

28

8.6

Allocation of Assets

28

8.7

Annual Statements

28

8.8

Valuation Dates

29

 

 

 

ARTICLE NINE

WITHDRAWALS PRIOR TO TERMINATION OF EMPLOYMENT

29

9.1

General Conditions for Withdrawals

29

9.2

Non-Hardship Withdrawal Prior to Age 59½

29

9.3

Hardship Withdrawal Prior to Age 59½

29

9.4

Withdrawals After Age 59½

31

9.5

Ordering of Withdrawals

31

9.6

Death After Withdrawal Election

32

9.7

Direct Rollover

32

9.8

Retirement Contribution Account

32

 

 

 

ARTICLE TEN

LOANS

32

10.1

General Conditions for Loans

32

10.2

Amounts Available for Loans

33

10.3

Account Ordering for Loans

33

10.4

Interest Rate for Loans

33

10.5

Term and Repayment of Loan

33

10.6

Frequency of Loan Requests

34

10.7

Prepayment of Loans

34

10.8

Outstanding Loan Balance at Termination of Employment

34

10.9

Loan Default During Employment

34

10.10

Incorporation by Reference

34

10.11

Death after Loan Application

35

10.12

Military Leave

35

 

 

 

ARTICLE ELEVEN

DISTRIBUTIONS

35

11.1

Commencement of Payments

35

11.2

Forms and Methods of Distribution

36

11.3

Small Benefits

38

11.4

Death of Beneficiary

38

11.5

Proof of Death and Right of Beneficiary or Other Person

38

11.6

Restoration of Prior Forfeiture

39

11.7

Direct Rollover of Certain Distributions

39

11.8

Elective Transfers From Plan

40

11.9

Elective Transfer to Plan

41

11.10

Waiver of Notice Period

41

 

 

 

 

 

 

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ARTICLE TWELVE

MANAGEMENT OF FUNDS

42

12.1

ESI Employee Benefit Plan Administration and Investment Committee

 

42

12.2

Trust Fund

42

12.3

Reports to Members and Deferred Members

42

12.4

Fiscal Year

43

 

 

 

ARTICLE THIRTEEN

ADMINISTRATION OF PLAN

43

13.1

Appointment of Committee

43

13.2

Powers of Committee

43

13.3

Committee Action

44

13.4

Compensation

44

13.5

Committee Liability

44

 

 

 

ARTICLE FOURTEEN

AMENDMENT AND TERMINATION

45

14.1

Amendment

45

14.2

Termination of Plan

45

14.3

Merger or Consolidation of Plan

46

14.4

Transfer from ITT Plan

46

 

 

 

ARTICLE FIFTEEN

TENDER OFFER

46

15.1

Applicability

46

15.2

Instructions to Trustee

47

15.3

Trustee Action on Member Instructions

47

15.4

Action With Respect to Members Not Instructing the Trustee or not Issuing Valid
Instructions

47

15.5

Investment of Plan Assets after Tender Offer

47

 

 

 

ARTICLE SIXTEEN

GENERAL AND ADMINISTRATIVE PROVISIONS

48

16.1

Relief from Liability

48

16.2

Payment of Expenses

48

16.3

Source of Payment

48

16.4

Inalienability of Benefits

48

16.5

Prevention of Escheat

49

16.6

Return of Contributions

49

16.7

Facility of Payment

50

16.8

Information

50

16.9

Exclusive Benefit Rule

50

16.10

No Right to Employment

50

16.11

Uniform Action

50

16.12

Headings

50

16.13

Construction

50

 

 

 

ARTICLE SEVENTEEN

TOP-HEAVY PROVISIONS

50

17.1

Definitions

50

17.2

Determination of Top-Heavy Status

51

17.3

Minimum Requirements

51

 

 

 

 

 

 

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ARTICLE EIGHTEEN

AMENDMENT OF THE PLAN FOR EGTRRA

52

18.1

Adoption and Effective Date of Amendment

52

18.2

Supersession of Inconsistent Provisions

52

18.3

Limitation on Contributions

52

18.4

Increase in Compensation Limit

52

18.5

Modification of Top-Heavy Rules

52

18.6

Direct Rollovers of Plan Distributions

54

18.7

Rollovers From Other Plans

54

18.8

Rollovers Disregarded in Involuntary Cash-Outs

55

18.9

Repeal of Multiple Use Test

55

18.10

Elective Deferrals: Contribution Limitation

55

18.11

Catch-Up Contributions

55

18.12

Suspension Period Following Hardship Distribution

56

18.13

Distribution Upon Severance from Employment

56

 

 

 

ARTICLE NINETEEN

MINIMUM DISTRIBUTION REQUIREMENTS

56

19.1

General Rules

56

19.2

Time and Manner of Distribution

56

19.3

Required Minimum Distributions During Member's Lifetime

57

19.4

Required Minimum Distributions After Member's Death

58

19.5

Election to Use Five-Year Rule

59

19.6

Definitions

59

 

 

 

 

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ESI 401(k) PLAN

 

ARTICLE ONE

INTRODUCTION AND PURPOSE

The name of this Plan is the ESI 401(k) Plan (the "Plan"). The Plan is a
continuation and complete restatement of the Plan originally established
effective May 16, 1998. Except as otherwise provided in the Plan, the effective
date of the Plan, as restated, is January 1, 2006. The Plan was established to
benefit employees of ITT Educational Services, Inc. ("ESI"). Benefits under the
Plan are comprised of benefits accrued under the Plan and benefits transferred
from the ITT 401(k) Retirement Savings Plan (the "ITT Plan") to the Plan.

 

Participation in the Plan is available, as set forth in this Plan, to eligible
employees of ESI and of such associated companies of ESI as may become
participating companies under the Plan.

 

The Plan is a defined contribution plan under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and as such, is subject to the
provisions of Titles I, II, and III, but not Title IV, of ERISA. Titles I, II,
and III of ERISA include requirements for covered plans governing reporting,
disclosure, participation, vesting, fiduciary responsibility, and enforcement.
Title IV provides for plan termination insurance by the Federal government's
Pension Benefit Guaranty Corporation. This insurance does not apply to defined
contribution plans such as this Plan.

 

Purpose of the Plan:

 

The Plan is designed to:

 

•

supplement retirement income by encouraging employees to save on a regular and
long-term basis;

•

provide additional financial resources for emergencies and financial hardships;
and

•

provide employees additional incentives to continue their careers with ESI.

The Company may make contributions without regard to the existence or the amount
of current and accumulated earnings and profits. Notwithstanding the foregoing,
however, this Plan is designed to qualify as a profit sharing plan for all
purposes of the Code.

 

ARTICLE TWO

DEFINITIONS

2.1

"Accounts" shall mean, with respect to any Member or Deferred Member, his or her
Pre-Tax Investment Account, his or her After-Tax Investment Account, his or her
Rollover Account, his or her Matching Contribution Account, his or her
Retirement Contribution Account, his or her ESOP Account, and his or her ITT
Floor Contribution Account.

 

2.2

"Actual Contribution Percentage" shall mean, with respect to a specified group
of Employees referred to in Sections 6.2 and 6.3, the average of the ratios,
calculated separately for each Employee in that group, of (a) the Matching
Company Contributions made for a Plan Year (excluding any Matching Company
Contributions forfeited under the provisions of Sections 4.1 and 6.1), to (b)
the Employee's Statutory Compensation for that Plan Year provided that, upon the
direction of the Plan Committee, Statutory Compensation for a Plan Year shall
only be counted

 

if received during the period an Employee is a Member. The Actual Contribution
Percentage shall be computed to the nearest one one-hundredth of one percent.

 

2.3

"Actual Deferral Percentage" shall mean, with respect to a specified group of
Employees referred to in Sections 6.1 and 6.3, the average of the ratios,
calculated separately for each Employee in that group, of (a) the sum of the
Pre-Tax Savings made on the Employee's behalf for a Plan Year (including Pre-Tax
Savings returned to a Highly-Compensated Employee under Section 4.1(c) and
Pre-Tax Savings returned to any Employee pursuant to Section 4.1(d), (b) the
Employee's Statutory Compensation for that Plan Year. Upon the direction of the
Committee, Statutory Compensation for a Plan Year shall only be counted if
received during the period an Employee is a Member. Such Actual Deferral
Percentage shall be computed to the nearest one one-hundredth of one percent of
the Employee's Statutory Compensation.

 

2.4

"Adjustment Factor" shall mean the cost-of-living adjustment factor prescribed
by the Secretary of the Treasury under Section 415(d) of the Code for calendar
years beginning on or after January 1, 1988, and applied to such items and in
such manner as the Secretary shall provide.

 

2.5

"Annual Dollar Limit" shall mean $150,000, as adjusted by the Secretary of the
Treasury to reflect cost of living adjustments in accordance with Section
401(a)(17)(B) of the Code.

 

2.6

"Associated Company" shall mean any subsidiary or other affiliate of ESI that is
(a) a component member of a controlled group of corporations (as defined in
Section 414(b) of the Code) that includes ESI as a component member, (ii) any
trade or business under common control (as defined in Section 414(c) of the
Code) with ESI, (iii) any organization (whether or not incorporated) that is a
member of an affiliated service group (as defined in Section 414(m) of the Code)
that includes ESI, or (iv) any other entity required to be aggregated with ESI
pursuant to regulations under Section 414(o) of the Code. Notwithstanding the
foregoing, for purposes of the preceding sentence and Section 6.5 of the Plan,
the definitions of Section 414(b) and (c) of the Code shall be modified as
provided in Section 415(h) of the Code.

 

2.7

"After-Tax Investment Account" shall mean that portion of the Trust Fund that,
with respect to any Member or Deferred Member, is attributable to (i) basic and
supplemental after-tax contributions made to the ITT Plan prior to October 1,
1996, and transferred to the Trust Fund pursuant to Section 14.4, (ii) any
amounts transferred from the ITT Plan to the Trust Fund attributable to any
after-tax contributions made by the Member or Deferred Member to a qualified
Plan and transferred to the ITT Plan pursuant to a Prior Plan Transfer, and
(iii) any investment earnings and gains or losses on any of the aforementioned
amounts.

 

2.8

"Basic Pre-Tax Savings" shall mean the contributions made on a Member's behalf
that are credited to his Pre-Tax Investment Account in accordance with
Section 4.1(a)(iv)(1).

 

2.9

"Beneficiary" shall mean the beneficiary or beneficiaries designated from time
to time by the Member or Deferred Member, on a form made available by the
Committee for such purpose, to receive, in the event of the Member's or Deferred
Member's death, the value of his or her Accounts at the time of his or her
death. Except as hereinafter provided, in the case of a Member or Deferred
Member who is married, the sole Beneficiary shall be the Member's or Deferred

 

 

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Member's spouse unless the spouse consents in writing on a form witnessed by a
notary public to the designation of another person as Beneficiary. In the case
of a Member or Deferred Member who incurs a divorce under applicable state law,
the Member's or Deferred Member's designation of Beneficiary shall remain valid
unless otherwise provided in a Qualified Domestic Relations Order or unless the
Member or Deferred Member changes his or her Beneficiary or is subsequently
remarried.

 

If no valid beneficiary designation is in effect at the time of death of the
Member, or if no person, persons, or entity so designated survives the Member,
the Member's surviving spouse, if any, shall be the Beneficiary; otherwise the
Beneficiary shall be the personal representative of the estate of the Member.

 

2.10

"Board of Directors" shall mean the Board of Directors of ESI or of any
successor to ESI by merger, purchase or otherwise.

 

2.11

"Break in Service" shall mean an event that shall occur as of the Member's
Severance Date, if he or she is not reemployed by the Company or an Associated
Company within one year after his or her Severance Date. However, if an Employee
is absent from work immediately following his or her active employment,
irrespective of whether the Employee's employment is terminated, because of a
Parental Leave, or a FMLA Leave, a Break in Service shall occur only if the
Member does not return to work within two years of his or her Severance Date. A
Break in Service shall not occur during an approved leave of absence or during a
period of military service that is included in the Employee's Service pursuant
to Section 2.57. Notwithstanding the foregoing, solely for purposes of
determining service for eligibility purposes, a Break in Service of one year
shall occur if an employee who is employed on a temporary or less than full time
basis does not complete more than 500 Hours of Service in the 12 month period
beginning on the date on which he or she first completes an Hour of Service or
any Plan Year beginning thereafter.

 

2.12

"Code" means the Internal Revenue Code of 1986, as amended from time to time,
and interpretive regulations. References to any section of the Code shall
include any successor provision thereto.

 

2.13

"Committee" shall mean the committee established hereunder for the purposes of
administering the Plan as provided in Article 13.

 

2.14

"Company" shall mean:

 

 

(a)

ESI and any other entity succeeding to the business of ESI that assumes the
obligations of the Company as specified in the Plan, with respect to its
employees; and

 

 

(b)

any Participating Employer with respect to its Employees.

 

When used herein, the term Company shall collectively include ESI and any
Participating Employer.

 

2.15

"Company Matching Contribution Account" shall mean that portion of the Trust
Fund that, with respect to any Member or Deferred Member, is attributable to (i)
any Matching Company

 

 

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Contributions made on his or her behalf under this Plan, (ii) any amounts
attributable to matching contributions made on his or her behalf and transferred
to the Trust Fund from the ITT Plan, and (iii) any investment earnings and gains
or losses on any of the aforementioned amounts.

 

2.16

"Continuous Service" shall mean the aggregate period of time during which the
employment relationship exists between an Employee and ESI or an Associated
Company, determined as follows:

 

 

(a)

The period of time beginning on the date an Employee first performs an Hour of
Service and ending on the Employee's Severance from Service date.

 

 

(b)

Any Period of Severance by reason of a quit, discharge or retirement, of less
than 12 months; provided, however, that if an Employee is absent from service
for a reason other than a quit, discharge, or retirement and subsequently incurs
a Severance from Service as a result of a quit, discharge, or retirement, the
Period of Severance shall be credited only if the Employee returns to ESI's or
the Associated Company's service on or before the first anniversary of the date
the Employee was first absent from service.

 

 

(c)

Any period of time beginning on the date the Employee first performs an Hour of
Service after a Period of Severance and ending on the date the Employee again
incurs a Severance from Service.

 

 

(d)

For purposes of aggregating periods of Continuous Service, 12 months of
completed service shall equal one year of Continuous Service, and 30 days of
completed service shall equal one month of Continuous Service.

 

2.17

"Deferred Member" shall mean (i) a Member who has terminated employment with the
Company and all Associated Companies and whose Vested Share will be deferred in
accordance with Section 11.1, (ii) the spouse Beneficiary of a deceased Member
or Deferred Member, or (iii) an alternate payee designated as such pursuant to a
Qualified Domestic Relations Order.

 

2.18

"Disability" shall mean, with respect to a Member, the total disability of the
Member that would result in the Member qualifying for benefits under the LTD
Plan had the Member been a participant in the LTD Plan. If a Member participates
in the LTD Plan, then he or she shall be deemed totally disabled as determined
by the insurance company that administers the LTD Plan. If a Member does not
participate in the LTD Plan, then he or she shall be deemed to be totally
disabled if he or she would have been deemed totally disabled had he or she
participated in the LTD Plan, as determined by the Committee. For purposes of
this Plan, the effective date of disability shall be the later of the date of
disability as defined in the LTD Plan or the date on which the applicable
insurance company or Committee issues its determination of total disability.

 

2.19

"Effective Date" shall mean May 16, 1998.

 

2.20

"Employee" shall mean an employee of the Company who is classified as a U.S.
salaried payroll employee of the Company, who is paid from a payroll maintained
in the continental United States, and who receives regular and stated
compensation, other than a pension or a retainer. An

 

 

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Employee shall also mean a Non-U.S. Citizen Employee. However, except as the
Board of Directors or the Committee, pursuant to authority delegated to it by
the Board of Directors, may otherwise provide on a basis uniformly applicable to
all persons similarly situated, and, except as specified in Section 2.39, no
person shall be an Employee for purposes of the Plan:

 

 

(a)

who is covered for current service under a non-U.S. pension or savings plan of
the Company or any Associated Company, or any other plan specified by the Board
of Directors from time to time;

 

 

(b)

whose terms and conditions of employment are determined by a collective
bargaining agreement with the Company that does not make this Plan applicable to
him or her;

 

 

(c)

who is a "leased employee";

 

 

(d)

who is a non-resident alien employed by the Company and who does not receive
earned income that constitutes income from sources within the United States;

 

 

(e)

who is classified as an "independent contractor" or "consultant" by the Company,
regardless of his or her classification by the IRS for tax withholding purposes;

 

 

(f)

effective for Plan Years ending before January 1, 2000, who is a college work
study student; or

 

 

(g)

effective January 1, 2000, who is a federal work study student.

 

For purposes of (c) a "leased employee" is any person who performs services for
another person, the "recipient," but who is not an employee of the recipient if
(1) the services are provided pursuant to an agreement between the recipient and
any other person, (2) the person has performed the services for the recipient
(or for the recipient and related persons) on a substantially full-time basis
for a period of at least one year, and (3) the services are performed under the
primary direction and control of the recipient. A leased employee will not be
considered an employee of the recipient if (1) the employee is covered by a
money purchase pension plan providing a non-integrated employer contribution
rate of at least 10% of Statutory Compensation, immediate participation, and
full and immediate vesting and (2) leased employees do not constitute more than
20% of the recipient's non-highly compensated workforce.

 

2.21

"Enrollment Date" shall mean the first day of the first payroll period
coincident with or next following the Effective Date with respect to a Member
described in Section 3.1(a) or the first day of the first payroll period of the
first complete month following the date a Member completes the eligibility
requirements described in Section 3.1(b).

 

2.22

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and interpretive regulations.

 

2.23

"ESI" shall mean ITT Educational Services, Inc., a Delaware corporation

 

 

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2.24

"ESI Stock" shall mean common stock of ESI.

 

2.25

"ESOP Account" shall mean that portion of the Trust Fund that, with respect to
any Member or Deferred Member, is attributable to allocations made under the
employee stock ownership plan portion of the Pre-Distribution ITT Plan.

 

2.26

"FMLA Leave" shall mean an Employee's absence from work to care for a spouse or
an immediate family member with a serious illness or for the Employee's own
illness pursuant to the Family and Medical Leave Act of 1993, as amended, and
interpretive regulations.

 

2.27

"Fund" shall mean each separate investment fund in which contributions to the
Plan are invested in accordance with Article Seven.

 

2.28

"Hardship" shall mean an immediate and heavy financial need that is determined
by the Committee to satisfy all of the conditions specified in Section 9.3(c)
and (d).

 

2.29

"Highly-Compensated Employee" shall mean:

 

 

(a)

With respect to a Plan Year, any employee of the Company or an Associated
Company (whether or not eligible for membership in the Plan) who

 

 

(i)

was a five percent owner for that Plan Year or the prior Plan Year, or

 

 

(ii)

for the preceding Plan Year received Statutory Compensation in excess of $80,000
multiplied by the Adjustment Factor.

 

 

(b)

Notwithstanding the foregoing, employees who are nonresident aliens and who
receive no earned income from the Company or an Associated Company that
constitutes income from sources within the United States shall be disregarded
for all purposes of this Section 2.29.

 

 

(c)

The provisions of this Section shall be further subject to such additional
requirements as described in Section 414(q) of the Code and its applicable
regulations, which shall override any aspects of this Section inconsistent
therewith.

 

2.30

"Hour of Service" shall mean, with respect to any applicable computation period,

 

 

(a)

each hour for which the employee is paid or entitled to payment for the
performance of duties for the Company or an Associated Company,

 

 

(b)

each hour for which an employee is paid or entitled to payment by the Company or
an Associated Company on account of a period during which no duties are
performed, whether or not the employment relationship has terminated, due to
vacation, holiday, illness, incapacity (including disability), layoff, jury
duty, military duty or leave of absence, but not more than 501 hours for any
single continuous period;

 

 

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(c)

each hour for which back pay, irrespective of mitigation of damages, is either
awarded or agreed to by the Company or an Associated Company, excluding any hour
credited under (a) or (b), which shall be credited to the computation period or
periods to which the award, agreement, or payment pertains, rather than to the
computation period in which the award, agreement, or payment is made; and

 

 

(d)

solely for purposes of determining whether an employee has incurred a Break in
Service, each hour for which the employee would normally be credited under
paragraph (a) or (b) during a Parental Leave or FMLA Leave. However, the number
of hours credited under this paragraph (d) during a Parental Leave shall not
exceed 501 hours in any single continuous period,

 

No hours shall be credited on account of any period during which the employee
performs no duties and receives payment solely for the purpose of complying with
unemployment compensation, workers' compensation or disability insurance laws.
The Hours of Service credited shall be determined as required by Title 29 of the
Code of Federal Regulations, Section 2530.200b-2.

 

2.31

"ITT Floor Contribution Account" shall mean that portion of the Trust Fund that,
with respect to any Member or Deferred Member, is attributable to (i) any
employer contributions other than matching contributions made to the ITT Plan
before October 1, 1996, and transferred to the Trust Fund pursuant to
Section 14.4; (ii) any amounts transferred from the ITT Plan to the Trust Fund
attributable to certain employer contributions other than matching contributions
made on his or her behalf and transferred to the ITT Plan pursuant to a Prior
Plan Transfer; and (iii) any investment earnings and gains or losses on any of
the aforementioned amounts.

 

2.32

"ITT Plan" shall mean the ITT 401(k) Retirement Savings Plan, formerly known as
the ITT Corporation Investment and Savings Plan for Salaried Employees.

 

2.33

"LTD Plan" shall mean the ESI Long-Term Disability Plan.

 

2.34

"Matching Company Contributions" shall mean a contribution made pursuant to
Section 5.1.

 

2.35

"Member" shall mean (1) any person who has become a Member as provided in
Article Three, and (2) for purposes of Sections 2.52, 2.53 and 4.6, and
Article X, any other person who has made a Rollover Contribution pursuant to
Section 4.6(a)(i) but has not yet met the eligibility requirements for
membership.

 

2.36

"Non-Highly-Compensated Employee" means for any Plan Year an employee of the
Company or an Associated Company who is not a Highly-Compensated Employee for
that Plan Year.

 

2.37

"Non-U.S. Citizen Employee" shall mean any person who is classified as a
salaried corporate payroll Employee by the Company and who is:

 

 

(a)

not a citizen of the United States,

 

 

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(b)

paid from a payroll maintained in the continental United States, and

 

 

(c)

employed by the Company in a permanent position (as distinguished from a
temporary assignment) in the continental United States, even though such person
may be covered under a retirement plan of the Company other than those
enumerated in Section 2.19(a), provided that upon such person's reassignment
outside the continental U.S., the participation under this Plan of such person
shall cease.

 

2.38

"Offering Date" shall mean the date of the underwritten public offering by ESI
pursuant to a registration statement on Form S-3 filed with the Securities
Exchange Commission on February 13, 1998.

 

2.39

"Parental Leave" shall mean an Employee's absence from work because of the
Employee's pregnancy, the birth of the Employee's child, the placement of a
child with the Employee in connection with the adoption of that child by the
Employee, or for purposes of caring for that child for a period beginning
immediately following that birth or placement.

 

2.40

"Participating Employer" shall mean, in addition to ESI, any Associated Employer
that has, by appropriate written action of the Board of Directors or by a
designated officer of ESI pursuant to authorization delegated to him or her by
the Board of Directors, has been designated as a Participating Employer, and the
board of directors of any such subsidiary or affiliated company shall have taken
appropriate action to adopt the Plan.

 

To the extent that the Board of Directors or designated officer of ESI, as
appropriate, shall have authorized and established in writing the basis for
recognition under the Plan of service with a predecessor corporation(s), if any,
reference in this Plan to service with a Participating Employer shall include
service with the predecessor corporation(s) of the Participating Employer,
provided that all or part of the business and assets of any such corporation
shall have been acquired by ESI or by a Participating Employer.

 

2.41

"Period of Severance" shall mean a period of time that begins on the Severance
from Service date and ends on the date on which an Employee again performs an
Hour of Service.

 

2.42

"Plan" shall mean the ESI 401(k) Plan, set forth herein or as amended from time
to time.

 

2.43

"Plan Year" shall mean the calendar year.

 

2.44

"Pre-Distribution ITT" shall mean ITT Corporation (a Delaware corporation), as
constituted.

 

2.45

"Pre-Distribution ITT Plan" shall mean the ITT Corporation Investment and
Savings Plan for Salaried Employees, as in effect on the date immediately
preceding the effective date of the ITT Plan.

 

2.46

"Pre-Tax Investment Account" shall mean that portion of the Trust Fund that,
with respect to any Member or Deferred Member, is attributable to (i) Basic
Pre-Tax Savings, (ii) Supplemental Pre-Tax Savings, (iii) any amounts
attributable to any pre-tax contributions made on his or her

 

 

-8-

behalf to a qualified plan and transferred to the Trust Fund from the ITT Plan
pursuant to Section 14.4, and (iv) earnings and gains or losses on any of the
aforementioned amounts.

 

2.47

"Pre-Tax Savings" shall mean those contributions made on a Member's behalf
pursuant to Section 4.1.

 

2.48

"Prior Plan Transfer" shall mean that portion of the After-Tax Investment
Account, Pre-Tax Investment Account, Company Matching Contribution Account,
Company Retirement Account, ITT Floor Contribution Account, or Rollover Account
of any Member or Deferred Member that is attributable to amounts transferred on
his or her behalf to the ITT Plan from the trust of another qualified profit
sharing or other defined contribution plan.

 

2.49

"Qualified Domestic Relations Order" shall mean a qualified domestic relations
order as defined in Code Section 414(p).

 

2.50

"Retirement Contribution Account" shall mean that portion of the Trust Fund
that, with respect to any Member or Deferred Member is attributable to (i) any
Floor Contributions (ii) any contributions and investment earnings thereon to
the extent such amounts were attributable to company contributions other than
matching contributions made on his or her behalf on or after October 1, 1996,
and transferred to the Trust Fund from the ITT Plan pursuant to Section 14.4,
and (iii) any investment earnings and gains or losses on any of the
aforementioned amounts.

 

2.51

"Retirement Contributions" shall mean a contribution made pursuant to
Section 5.2.

 

2.52

"Rollover Account" shall mean that portion of the Trust Fund that, with respect
to any Member or Deferred Member, is attributable to (i) Rollover Contributions,
(ii) any rollover contributions and investment earnings thereon transferred to
the Trust Fund from the ITT Plan, and (iii) any investment earnings and gains or
losses on any of the aforementioned amounts.

 

2.53

"Rollover Contributions" shall mean those contributions made by an Employee or a
Member pursuant to Section 4.6.

 

2.54

"Salary" shall mean, with respect to an Employee for a Plan Year, the Employee's
wages, salaries, fees for professional services, and other amounts received for
personal services actually rendered in the course of employment with the Company
to the extent that the amounts are included in gross income, but excluding
bonuses (other than retention bonuses). "Salary" specifically includes retention
bonuses and lump sum vacation pay, and specifically excludes curriculum
development pay, settlement agreement pay, lieu of notice pay, short term
disability pay and severance pay. "Salary" also includes amounts contributed by
the Company pursuant to a salary reduction agreement that are not includible in
the gross income of the Member under section 125, 457, 402(h), 403(b),
or 402(e)(3) of the Code, and Employee contributions described in
section 414(h)(2) of the Code that are treated as Employer contributions. Salary
does not include, whether or not included in gross income, reimbursements or
other expense allowances, fringe benefits (cash and non-cash), moving expenses
(including settling in allowances), nonqualified deferred compensation, welfare
benefits, or amounts realized from the exercise of a nonqualified stock option,
or when restricted stock (or property) held by an employee either

 

 

-9-

becomes freely transferable or is no longer subject to a substantial risk of
forfeiture. Salary shall not exceed the limit described at Section 18.4.

 

2.55

"Severance Date" shall mean the date an Employee is considered by the Company to
have severed his or her employment with the Company and all Associated Companies
as defined pursuant to the provisions of Section 2.57.

 

2.56

"Severance from Service" occurs on the earlier of the following two dates:

 

 

(a)

The date the Employee quits, is discharged, retires or dies; or

 

 

(b)

The later of:

 

 

(i)

the first anniversary of the first day the Employee is absent from the service
of ESI or an Associated Company for a reason not enumerated in paragraph (a);

 

 

(ii)

the expiration of an authorized leave of absence, provided the Employee does not
return to the service of ESI or an Associated Company following the expiration
of the leave of absence;

 

 

(iii)

in the case of an absence due to maternity or paternity leave for reason of the
birth of a child of the Employee, the placement of a child with the Employee in
connection with the adoption of the child by the Employee, or the caring for a
child for a period immediately following birth or placement, the second
anniversary of the date the absence commences; or

 

 

(iv)

any period of military service in the Armed Forces of the United States required
to be credited by law; provided, however, that the Employee does not return to
the service of ESI or an Associated Company within the period the Employee's
reemployment rights are protected by law.

 

2.57

"Service" shall mean the period of elapsed time beginning on the date an
Employee commences employment with the Company or any Associated Company or
predecessor company, subsidiary, or affiliate of ESI, and ending on his or her
most recent Severance Date, which shall be the earlier of (a) the date he or she
quits, is discharged, retires, or dies or (b) the first anniversary of the date
on which he or she is first absent from service, with or without pay, for any
reason such as vacation, sickness, disability, layoff, or leave of absence. If
an Employee terminates employment and is later reemployed within 12 months of
the earlier of (i) his or her date of termination or (ii) the first day of an
absence from service immediately preceding his or her date of termination, the
period of Service between his or her Severance Date and his or her reemployment
date shall be included in his or her Service. With respect to service for
purposes of the vesting schedule in Section 5.4, if an Employee terminates and
is later reemployed after incurring a Break in Service, his or her period of
Service prior to his or her Break in Service shall be included in his or her
Service.

 

 

-10-

Under the circumstances hereinafter stated and upon such conditions as the
Committee shall determine on a basis uniformly applicable to all Employees
similarly situated, the period of Service of an Employee shall be deemed not to
be interrupted by an absence of the type hereinafter stated, and the period of
such absence shall be included in determining the length of an Employee's
Service:

 

 

(i)

if a leave of absence has been authorized by the Company or any Associated
Company, for the period of such authorized leave of absence only; or

 

 

(ii)

if an Employee enters service in the armed forces of the United States and if
the Employee's right to reemployment is protected by the Selective Service Act
or any similar law then in effect and if the Employee returns to regular
employment within the period during which the right to reemployment is protected
by any such law.

 

Notwithstanding the foregoing, the period of an Employee's employment rendered
prior to the Effective Date that was recognized or would have been recognized
under the ITT Plan as in effect on the Effective Date as eligibility service or
vesting service shall be recognized as service under this Plan for purposes of
vesting and eligibility purposes, whichever is applicable.

 

Notwithstanding the foregoing, for purposes of eligibility for membership in the
Plan provided in Article Three, an Employee whose employment with the Company or
an Associated Company is on a temporary or less than full-time basis shall be
credited with a year of Service if he or she completes at least 1,000 Hours of
Service in a twelve consecutive month period of employment measured from the
date on which the Employee's Service commences or from the beginning of any
subsequent Plan Year. After such an Employee has become a Member of the Plan as
provided in Article Three, Service for purposes of meeting the requirements for
vesting shall be determined in accordance with the preceding paragraphs of this
Section 2.57.

 

Notwithstanding any Plan provision to the contrary, in the case of any person
who is a leased employee, as defined in Code Section 414(n), before or after a
period of service as an Employee, the entire period during which he or she has
performed services for the Company or an Associated Company as a leased Employee
shall be counted as service as an employee for all purposes of the Plan except
that he or she shall not by reason of that status become a Member of the Plan.

 

2.58

"Statutory Compensation" shall mean the wages, salaries, and other amounts paid
in respect of an employee for services actually rendered to the Company or an
Associated Company, including by way of example, overtime, bonuses, and
commissions, but excluding deferred compensation, stock options and other
distributions that receive special tax benefits under the Code. For purposes of
determining Highly-Compensated Employees under Section 2.29, key employees under
Section 17.1, and minimum benefits under Section 17.3, Statutory Compensation
shall include Pre-Tax Savings and amounts contributed on a Member's behalf on a
salary reduction basis that are not includible in the gross income of the
employee under Section 125, 402(h), 132(f)(4), 457 or 403(b) of the Code. For
all other purposes, Statutory Compensation shall also include the amounts
referred to in the preceding sentence, unless the Committee directs otherwise
for a particular Plan Year. Statutory Compensation shall not exceed the Annual
Dollar Limit, provided that the Annual

 

 

-11-

Dollar Limit shall not be applied in determining Highly-Compensated Employees
under Section 2.29.

 

2.59

"Supplemental Pre-Tax Savings" shall mean the contributions made on a Member's
behalf that are credited to his or her Pre-Tax Investment Account in accordance
with Section 4.1(a)(iv)(2).

 

2.60

"Termination of Employment" shall mean separation from employment with the
Company and all Associated Companies, as determined by the Company, for any
reason, including, but not limited to, retirement, death, Disability,
resignation, or dismissal; provided, however, that a transfer in employment
between the Company and any Associated Company shall not be deemed to be
Termination of Employment. With respect to any leave of absence and any period
of service in the armed forces of the United States, Section 2.57 shall govern.

 

2.61

"Trust Fund" shall mean the aggregate funds held by the Trustee under the trust
agreement or agreements established for the purposes of this Plan and consisting
of the Funds as described in Article Seven.

 

2.62

"Trustee" shall mean the Trustee or Trustees at any time acting as such under
the trust agreement or agreements established for the purposes of this Plan.

 

2.63

"Valuation Date" shall mean the date or dates in each calendar month on which
any valuation is made, as determined under Committee procedures established
pursuant to Section 8.8.

 

2.64

"Vested Share" shall mean, with respect to a Member or Deferred Member, that
portion of his or her Accounts vested in accordance with the terms of
Sections 4.5 and 5.4.

 

ARTICLE THREE

MEMBERSHIP

3.1

Membership.

 

(a)

Each Employee who is a member or deferred member under the ITT Plan on the
Effective Date shall become a Member or Deferred Member, whichever is
applicable, under the Plan on the Effective Date.

 

 

(b)

Every other Employee shall become a Member as of the first Enrollment Date
following the date in which he or she has completed a year of Service, provided
he or she is then an Employee.

 

 

(c)

Effective with respect to each Employee who completes an Hour of Service on or
after January 1, 2002, but who has not become a Member pursuant to
Section 3.1(a) or (b) before January 1, 2002, the Employee shall become a Member
as of the first day of the month following the date he or she has completed
three months of Continuous Service. If an Employee incurs a Severance from
Service before completing three months of Continuous Service, thereafter incurs
at least a 12-month Period of Severance and is then reemployed, his Period of
Severance will not be counted as Continuous Service in determining the date he
completes three months of Continuous Service after his

 

 

-12-

reemployment. If an Employee incurs a Severance from Service before completing
three months of Continuous Service, thereafter incurs a Period of Severance of
less than 12 months and is then reemployed, his Period of Severance will be
counted as Continuous Service in determining the date he completes three months
of Continuous Service after his reemployment. A former Employee who has
previously completed three months of Continuous Service but who has not become a
Member will become a Member as of the first day of the month on or after the
date he has completed an Hour of Service upon his reemployment. An Employee who
becomes a Member and incurs a 12-month Period of Severance will again become a
Member on the date he first completes an Hour of Service after his reemployment.
Notwithstanding the preceding provisions, the period of an Employee's employment
prior to January 1, 2002 that was recognized as eligibility service under the
terms of the Plan then in effect will be recognized as eligibility service on
January 1, 2002. Recognition of service will be in accordance with the
transition rules set forth in Treasury Regulation § 1.410(a)-7.

 

 

(d)

Notwithstanding Sections 3.1(a), (b) and (c), if, due to an error, a
non-Highly-Compensated Employee begins membership in the Plan on a date before
the date prescribed in Sections 3.1(a), (b) or (c), whichever is applicable
("early date"), the Employee will become a Member as of the early date. Each
Employee who becomes a Member on an early date shall be identified in Schedule A
to the Plan. Schedule A, as amended from time to time, is a part of the Plan.

 

3.2

Rehired Member. Any rehired Employee who at the time of his or her Termination
of Employment was a Member of this Plan will again become a Member as soon as
practicable after the Employee's reemployment date but no later than the first
day of the first payroll period of the first complete month following the date
of the Employee's rehire (his or her "reenrollment date").

 

Such a rehired Employee shall once again become a Member hereunder entitled to
Floor Contributions under Section 5.2 as of his or her reenrollment date and
shall be eligible to have Pre-Tax Savings made on his or her behalf pursuant to
the provisions of Section 4.1 as soon as administratively practicable following
his or her reenrollment date.

 

3.3

Transferred Members.

 

 

(a)

Notwithstanding any Plan provision to the contrary, a Member who remains in the
employ of the Company or an Associated Company but ceases to be an Employee
shall continue to be a Member of the Plan but shall not be eligible to receive
allocations of Pre-Tax Savings, Matching Contributions, or Retirement
Contributions while his employment status is other than as an Employee.

 

 

(b)

An individual who transfers from the status of an employee ineligible for Plan
membership to an Employee eligible for membership shall become a Member on the
later of (i) on the first Enrollment Date following the month in which he or she
completes the requirements set forth in Section 3.1(b), or (ii) as soon as
practicable after the date the individual becomes an Employee, but no later than
the first day of the first payroll period of the first

 

 

-13-

complete month following the date he or she becomes an Employee (his or her
"reenrollment date").

 

3.4

Termination of Membership. A Member's membership shall terminate on his or her
Severance Date. A Deferred Member's membership shall terminate when all benefits
to which he or she is entitled under the Plan are distributed to him or her.

 

ARTICLE FOUR

MEMBER CONTRIBUTIONS

4.1

Member Pre-Tax Savings.

 

 

(a)

(i)            Except as otherwise provided in Section 3.3, each Member shall
have his or her Salary reduced by 2%, and that amount shall be contributed on
his or her behalf to the Plan by the Company as Pre-Tax Savings until and unless
the Member elects in accordance with the procedures and within the time period
prescribed by the Committee, to receive that Salary directly from the Company in
cash. This reduction in Salary shall commence as soon as administratively
practicable following (1) the Member's Enrollment Date or (2) the Member's
reenrollment date, as defined in Article Three, and shall be applied to Salary
that could have been subsequently received by the Member. With respect to Salary
for Plan Years beginning prior to January 1, 2002, the Member may elect, subject
to the provisions of paragraphs (b) through (d) below, to increase the reduction
of his or her subsequent Salary, in increments of 1%, up to a total of 16%, and
have that amount contributed on his or her behalf to the Plan by the Company as
Pre-Tax Savings. With respect to Salary for Plan Years beginning on or after
January 1, 2002, the Member may elect, subject to the provisions of
paragraphs (b) through (d) below, to increase or decrease the reduction of his
or her subsequent Salary, in increments of 1%, down to a total of 1%, or up to
an unlimited total percent, and have that amount contributed on his or her
behalf to the Plan by the Company as Pre-Tax Savings. An election shall be
effective with the first payroll period on or after the date as of which the
election is to apply or as soon as administratively practicable thereafter.

 

 

(ii)

Prior to January 1, 2002, a Member who elects to receive the 2% of Salary
described in the above paragraph (i) directly from the Company in cash, may
elect at a later date, subject to the provisions of paragraphs (b) and (d)
below, to have his or her subsequent Salary reduced by at least 2%, but no more
than 16%, in increments of 1%, and have that amount contributed to the Plan by
the Company that employs the Member. Effective January 1, 2002, a Member who
elects to receive the 2% of Salary described in the above paragraph (i) directly
from the Company in cash, may elect at a later date, subject to the provisions
of paragraphs (b) and (d) below, to have his or her subsequent Salary reduced by
at least 1%, or up to an unlimited total percent, in increments of 1%, and have
that amount contributed to the Plan by the Company that employs the Member. The
election shall be effective with the first payroll period on or after the date
as of which the election is to apply or as soon as administratively practicable
thereafter.

 

 

-14-

 

(iii)

From time to time and in order to comply with Section 401(k)(3) of the Code, the
Committee may impose a limitation on the extent to which a Member who is a
Highly-Compensated Employee may reduce his or her Salary in accordance with this
Section, based on the Committee's reasonable projection of savings rates of
Members who are not Highly-Compensated Employees.

 

 

(iv)

A Member's Pre-Tax Savings shall consist of the following.

 

 

(1)

Basic Pre-Tax Savings – Contributions under this Section that are not in excess
of 5% of the Member's Salary for the payroll processing period for which the
contributions are made shall be known as Basic Pre-Tax Savings and shall be
credited to his or her Pre-Tax Investment Account; and

 

 

(2)

Supplemental Pre-Tax Savings – Contributions under this Section, that are in
excess of the maximum allowed under the preceding subparagraph (1) shall be
known as Supplemental Pre-Tax Savings and shall be credited to a Member's
Pre-Tax Investment Account. Supplemental Pre-Tax Savings may also include
amounts credited on a Member's behalf under the ITT Plan and transferred to this
Plan pursuant to Section 14.4.

 

Any Pre-Tax Savings shall be paid to the Trustee as soon as practicable but no
later than the 15th business day of the month following the month in which the
amounts would otherwise have been payable to the Member in cash.

 

 

(b)

In no event shall the Member's Pre-Tax Savings and similar contributions made on
his or her behalf by the Company or an Associated Company to all plans,
contracts, or arrangements subject to the provisions of Section 401(a)(30) of
the Code in any calendar year exceed $7,000 multiplied by the Adjustment Factor.
If a Member's Pre-Tax Savings in a calendar year reach that dollar limitation,
his or her election of Pre-Tax Savings for the remainder of the calendar year
will be canceled. As of the first payroll period of the calendar year following
that cancellation, the Member's election of Pre-Tax Savings shall again become
effective in accordance with his or her previous election.

 

 

(c)

In the event that the sum of the Pre-Tax Savings and similar contributions to
any other qualified defined contribution plan maintained by the Company or an
Associated Company exceeds the dollar limitation in Section 4.1(b) for any
calendar year, the Member shall be deemed to have elected a return of Pre-Tax
Savings in excess of that limit ("excess deferrals") from this Plan. The excess
deferrals, together with investment income, shall be returned to the Member no
later than the April 15 following the end of the calendar year in which the
excess deferrals were made. The amount of excess deferrals to be returned for
any calendar year shall be reduced by any Pre-Tax Savings previously returned to
the Member under Section 6.1 for that calendar year. In the event any Pre-Tax
Savings returned under this paragraph (c) were matched by Matching Company
Contributions under Section 5.1, those Matching Company Contributions, together
with investment income, shall be forfeited and used to reduce Company
contributions.

 

 

-15-

 

 

(d)

If a Member makes tax-deferred contributions under another qualified defined
contribution plan maintained by an employer other than the Company or an
Associated Company for any calendar year and those contributions when added to
his or her Pre-Tax Savings exceed the dollar limitation under Section 4.1(b) for
that calendar year, the Member may allocate all or a portion of those excess
deferrals to this Plan. In that event, the excess deferrals, together with
investment income, shall be returned to the Member no later than the April 15
following the end of the calendar year in which the excess deferrals were made.
However, the Plan shall not be required to return excess deferrals unless the
Member notifies the Plan Committee, in writing, by March 1 of that following
calendar year, of the amount of the excess deferrals allocated to this Plan. The
amount of any such excess deferrals to be returned for any calendar year shall
be reduced by any Pre-Tax Savings previously returned to the Member under
Section 6.1 for that calendar year. In the event any Pre-Tax Savings returned
under this paragraph (d) were matched by Matching Company Contributions under
Section 5.1, those Matching Company Contributions, together with investment
income, shall be forfeited and used to reduce Company contributions.

 

4.2

Change in Contributions. The percentage of Salary designated under Section 4.1
shall automatically apply to increases and decreases in a Member's Salary. A
Member may elect to change the rate of his or her Salary reduction in accordance
with the administrative procedures and within the time period prescribed by the
Committee. The change shall be effective as of the first payroll period of the
month following the expiration of the notice period or as soon as
administratively practicable thereafter.

 

4.3

Suspension and Resumption of Member Pre-Tax Savings.

 

 

(a)

A Member may suspend his or her deferrals under Section 4.1 at any time in
accordance with the administrative procedures and within the time period
prescribed by the Committee. The suspension will become effective as of the
later of the immediately succeeding payroll period or as soon as
administratively practicable following the date notice is received by the
Committee.

 

 

(b)

A Member who suspends his or her savings in accordance with paragraph (a) may
resume his or her deferrals under Section 4.1, in accordance with the
administrative procedures and within the time period prescribed by the
Committee, as of the first payroll period following the expiration of the notice
period or as soon as administratively practicable thereafter.

4.4

No After-Tax Contributions. No after-tax contributions shall be required or
permitted under the Plan. After-tax contributions made or held under the ITT
Plan and transferred to this Plan pursuant to Section 14.4 shall be held in the
Member's or Deferred Member's After-Tax Investment Account.

 

4.5

Vesting of Member's and Deferred Member's Contributions. Each Member's and
Deferred Member's Pre-Tax Investment Account and After-Tax Investment Account
shall at all times be fully vested.

 

 

-16-

 

4.6

Rollover Contributions.

 

 

(a)

(i)         With the permission of the Committee and without regard to any
limitations on contributions set forth in this Article Four, the Plan may
receive from a Member, or an Employee who has not yet met the eligibility
requirements for membership, in cash, any amount previously received (or deemed
to be received) by him or her from another qualified plan.

 

 

(ii)

If a Member terminates employment and is subsequently rehired by the Company,
with the permission of the Committee, the Plan may receive from the Member any
amount previously received (or deem to be received) by him or her from this Plan
as a result of his or her termination of employment.

 

 

(iii)

The Plan may receive such amounts either directly from the Member or Employee or
from an individual retirement account or a qualified plan in the form of a
direct rollover.

 

 

(b)

Notwithstanding the foregoing, the Plan shall not accept any amount unless the
amount is eligible to be rolled over to a qualified trust in accordance with
applicable law, and the Member or Employee provides evidence satisfactory to the
Committee that the amount qualifies for rollover treatment. Unless received by
the Plan in the form of a direct rollover, the Rollover Contribution must be
paid to the Trustee on or before the 60th day after the day it was received by
the Member or Employee.

 

 

(c)

A Member's and Deferred Member's Rollover Account shall at all times be fully
vested.

 

4.7

Contributions During Period of Military Leave.

 

 

(a)

Notwithstanding any provision of this Plan to the contrary, contributions and
service credit with respect to qualified military service will be provided in
accordance with Section 414(u) of the Code.

 

 

(b)

Without regard to any limitations on contributions set forth in this Plan, a
Member who is credited with Service because of a period of service in the
uniformed services of the United States may elect to contribute to the Plan the
Pre-Tax Savings that could have been contributed to the Plan in accordance with
the provisions of the Plan had he or she remained continuously employed by the
Company throughout that period of absence ("make-up contributions"). The amount
of make-up contributions shall be determined on the basis of the Member's Salary
in effect immediately prior to the period of absence and the terms of the Plan
at that time. Any Pre-Tax Savings so determined shall be limited as provided in
Sections 4.1 and 5.1 with respect to the Plan Year or Plan Years to which the
contributions relate rather than the Plan Year or Plan Years in which payment is
made. Any payment to the Plan described in this paragraph shall be made during
the period, beginning with the date of reemployment, the duration of which is
the lesser of three times the period of absence or five (5) years. Earnings (or
losses) on make-up contributions

 

 

-17-

shall be credited commencing with the date the make-up contribution is made in
accordance with the provisions of Articles 3 and 4.

 

 

(c)

All contributions under this Section 4.7 are considered "annual additions," as
defined in Section 415(c)(2) of the Code and shall be limited in accordance with
the provisions of Section 6.5 with respect to the Plan Year or Plan Years to
which the contributions relate rather than the Plan Year in which payment is
made.

 

ARTICLE FIVE

COMPANY CONTRIBUTIONS

5.1

Matching Company Contributions. The Company shall contribute to the Plan on
behalf of each of its Members who elects to make Basic Pre-Tax Savings, a
Matching Company Contribution each payroll processing period. Effective for
payroll processing periods prior to January 1, 2002, the Matching Company
Contribution amount is equal to 50 percent of the first 5 percent of the
Member's Salary contributed to the Plan as Basic Pre-Tax Savings on behalf of
the Member during each payroll processing period. Effective for payroll
processing periods on or after January 1, 2002, the Matching Company
Contribution amount is equal to 100 percent of the first 1 percent, and
50 percent of the next 4 percent, of the Member's Salary contributed to the Plan
as Basic Pre-Tax Savings on behalf of the Member during each payroll processing
period. In no event, however, shall the Matching Company Contributions pursuant
to this Section exceed 2.5 percent, or effective January 1, 2002, 3.0 percent of
the Member's Salary while a Member with respect to any Plan Year. The Matching
Company Contributions with respect to a Member shall be paid into the Trust Fund
and credited to the Member's Company Matching Contribution Account as soon as
practicable. No Matching Company Contributions shall be made with respect to a
Member's Supplemental Pre-Tax Savings. Notwithstanding the foregoing, Matching
Company Contributions shall not be made in respect of a Member's Basic Pre-Tax
Savings that are made during a suspension period following a withdrawal prior to
Termination of Employment as provided in Sections 9.2 or 9.3. Matching Company
Contributions are made expressly conditional on the Plan satisfying the
provisions of Section 4.1, 6.1, 6.2, and 6.3. If any portion of the Basic
Pre-Tax Savings to which the Matching Company Contribution relates is returned
to the Member under Section 4.1, 6.1, or 6.3, the corresponding Matching Company
Contribution shall be forfeited, and if the amount of the Matching Company
Contribution is deemed an excess aggregate contribution under Section 6.2 or
6.3, the amount shall be forfeited in accordance with that Section.

 

5.2

Retirement Contributions. Effective January 1, 2002, Retirement Contributions
shall be eliminated. For payroll processing periods prior to January 1, 2002,
except as otherwise provided in Section 3.3, each payroll processing period, the
Company shall contribute to the Trust Fund, with respect to each Member, a
Retirement Contribution in an amount equal to 1% of the Member's Salary for the
corresponding payroll processing period. Retirement Contributions shall be
credited to the Member’s Retirement Contribution Account and paid to the Trustee
as soon as practicable.

 

5.3

Mode of Payment and Valuation of ESI Stock Contributed.

 

 

(a)

Company contributions under Section 5.1 shall be made in cash.

 

 

-18-

 

(b)

Company contributions made in cash shall be invested in accordance with
Section 7.2.

 

 

(c)

For the purpose of determining the value of ESI Stock under the Plan, in the
event the stock is traded on a national securities exchange, the stock shall be
valued at the average of the highest and lowest quoted selling price of ESI
Stock on the New York Stock Exchange composite tape on the day the stock is
delivered to the Trustee, provided that at least one sale of the stock took
place on the exchange on that date, but if there was no sale on that date, then
on the basis of the average of the highest and lowest quoted price on the
nearest day before the delivery date upon which at least one sale of the stock
took place on the exchange. In the event that ESI Stock is not traded on a
national securities exchange, the shares shall be valued in good faith by an
independent appraiser selected by the Trustee and meeting requirements similar
to those in the regulations prescribed under Section 170(a)(1) of the Code.

 

5.4

Vesting. A Member who does not complete an Hour of Service on or after
January 1, 2002 shall be vested in, and have a nonforfeitable right to, his or
her Company Matching Contribution Account in accordance with the following
schedule:

 

Years of Service

 

Nonforfeitable Percentage

 

Less than 1 year

0%

1 but less than 2 years

20%

2 but less than 3 years

40%

3 but less than 4 years

60%

4 but less than 5 years

80%

5 or more years

100%

 

A Member who completes an Hour of Service on or after January 1, 2002 shall be
vested in, and have a nonforfeitable right to, his or her Company Matching
Contribution Account in accordance with the following schedule, except that if
the Member also completed an Hour of Service before January 1, 2002, the Member
shall be vested in, and have a nonforfeitable right to his or her
Company Matching Contribution Account in accordance with the  preceding
schedule, or the following schedule, whichever results in the greater
nonforfeitable percentage for the Member:

 

Years of Service

 

Nonforfeitable Percentage

 

Less than 3 years

0%

3 or more years

100%

 

Notwithstanding the foregoing schedules, a Member shall immediately be fully
vested in his or her Company Matching Contribution Account if, while employed by
the Company or an Associated Company, the Member dies, incurs a Disability, or
attains age 65, or in the event of Plan termination or complete discontinuance
of Company contributions.

 

A Member who shall have performed services for Pre-Distribution ITT at any time
between June 30, 1995 and December 19, 1995, shall be fully vested in the
balance (determined at the later

 

 

-19-

date), of his or her ESOP Account and his or her Company Matching Contribution
Account, except with respect to the portion of his or her Company Matching
Contribution Account that is attributable to matching contributions made for
periods after the date immediately preceding December 19, 1995.

 

In the case of a Member or Deferred Member who shall not have performed services
for Pre-Distribution ITT between June 30, 1995 and December 19, 1995, balances
in his or her ESOP Account and Company Matching Contribution Account that were
forfeited under Section 5.5(a) of the Pre-Distribution ITT Plan shall remain
forfeited, except to the extent restored pursuant to Section 11.6 of this Plan
on account of subsequent employment with the Company or an Associated Company.

 

Each Member and Deferred Member shall, at all times, be fully vested in his or
her Retirement Contribution Account and his or her ITT Floor Contribution
Account.

 

5.5

Forfeitures.

 

 

(a)

In the event of Termination of Employment of a Member, the portion of the
Member's Company Matching Contribution Account in which he or she is not vested
in accordance with Section 5.4 shall not be forfeited until the Member has a
Break in Service of five years or receives a distribution of the entire Vested
Share of his or her Accounts, if earlier. However, if he or she is reemployed by
the Company or Associated Company prior to the expiration of a period of Break
in Service of five years, the provisions of Section 11.6 shall apply. If the
amount of the Vested Share of a Member's Company Matching Contribution Account
at the time of his or her Termination of Employment is zero, the Member shall be
deemed to have received a distribution of that zero vested benefit.

 

 

(b)

As soon as practicable after an event giving rise to a forfeiture has occurred,
the amount of any forfeiture under the foregoing subdivision of this
Section 5.5, reduced by any forfeited amounts restored to a Member's Accounts,
shall be applied to reduce future Company contributions under the Plan and/or to
pay Plan expenses pursuant to the provisions of Section 16.2.

 

 

(c)

In the event of the termination of the Plan, any forfeitures not previously
applied in accordance with the foregoing provisions of this Section shall be
credited proportionately to the Accounts of all Members as provided in
Section 14.2(b).

 

ARTICLE SIX

LIMITATIONS ON CONTRIBUTIONS

6.1

Actual Deferral Percentage Test.

 

 

(a)

With respect to each Plan Year, the Actual Deferral Percentage for that Plan
Year for Highly-Compensated Employees who are Members for that Plan Year shall
not exceed the Actual Deferral Percentage for that Plan Year for all
Non-Highly-Compensated Employees who are Members for that Plan Year multiplied
by 1.25. If the Actual Deferral Percentage for those Highly-Compensated
Employees does not meet the foregoing test,

 

 

-20-

the Actual Deferral Percentage for such Highly-Compensated Employees for that
Plan Year may not exceed the Actual Deferral Percentage for that Plan Year for
all Non-Highly-Compensated Employees who are Members for that Plan Year by more
than two percentage points, and the Actual Deferral Percentage for those
Highly-Compensated Employees for the Plan Year may not be more than 2.0 times
the Actual Deferral Percentage for that Plan Year for all Non-Highly-Compensated
Employees who are Members for that Plan Year (or such lesser amount as the
Committee shall determine to satisfy the provisions of Section 6.3).

 

If the Committee determines that the foregoing limitation has been exceeded in
any Plan Year, the following provisions shall apply:

 

The actual deferral ratio of the Highly-Compensated Employee with the highest
actual deferral ratio shall be reduced to the extent necessary to meet the
Actual Deferral Percentage test or to cause that ratio to equal the actual
deferral ratio of the Highly-Compensated Employee with the next highest ratio.
This process will be repeated until the Actual Deferral Percentage test is
passed. Each ratio shall be rounded to the nearest one one-hundredth of 1% of
the Member's Statutory Compensation. The amount of Pre-Tax Savings Contributions
made by each Highly-Compensated Employee in excess of the amount permitted under
his or her revised deferral ratio shall be added together. This total dollar
amount of excess contributions ("excess contributions") shall then be allocated
to some or all Highly-Compensated Employees by reducing the Pre-Tax Savings of
the Highly-Compensated Employee with the highest dollar amount of Pre-Tax
Savings by the lesser of (i) the amount required to cause that Employee's
Pre-Tax Savings to equal the dollar amount of the Pre-Tax Savings of the
Highly-Compensated Employee with the next highest dollar amount, or (ii) an
amount equal to the total excess contributions. This procedure is repeated until
all excess contributions are allocated. The amount of excess contributions
allocated to a Highly-Compensated Employee (adjusted to reflect earnings or
losses attributable thereto) shall be distributed to him or her in accordance
with the provisions of paragraph (c).

 

 

(b)

The Committee may implement rules limiting the Pre-Tax Savings that may be made
on behalf of some or all Highly-Compensated Employees so that the limitation
under this Section 6.1 is satisfied.

 

 

(c)

Pre-Tax Savings subject to reduction under this Section, together with
investment income thereon, ("excess contributions") shall be paid to the Member
before the close of the Plan Year following the Plan Year in which the excess
contributions were made and, to the extent practicable, within 2½ months of the
close of the Plan Year in which the excess contributions were made. However, any
excess contributions for any Plan Year shall be reduced by any Pre-Tax Savings
previously returned to the Member under Section 4.1 for that Plan Year. In the
event any Pre-Tax Savings returned under this Section 6.1 were matched by
Matching Company Contributions, the corresponding Matching Company
Contributions, with investment income thereon, shall be forfeited and used to
reduce Company contributions.

 

 

-21-

6.2

Actual Contribution Percentage Test.

 

 

(a)

With respect to each Plan Year, the Actual Contribution Percentage for that Plan
Year for Highly-Compensated Employees who are Members for that Plan Year shall
not exceed the Actual Contribution Percentage for that Plan Year for all
Non-Highly-Compensated Employees who were Members for that Plan Year multiplied
by 1.25. If the Actual Contribution Percentage for a Plan Year for those
Highly-Compensated Employees does not meet the foregoing test, the Actual
Contribution Percentage for the Highly-Compensated Employees for the Plan Year
may not exceed the Actual Contribution Percentage for that Plan Year for all
Non-Highly-Compensated Employees who were Members for that Plan Year by more
than two percentage points, and the Contribution Percentage for those
Highly-Compensated Employees for the Plan Year may not be more than 2.0 times
the Actual Contribution Percentage for that Plan Year for all
Non-Highly-Compensated Employees who were Members for that Plan Year (or such
lesser amount as the Committee shall determine to satisfy the provisions of
Section 6.3).

 

If the Committee determines that the limitation under this Section 6.2 has been
exceeded in any Plan Year, the following provisions shall apply:

 

 

(i)

The actual contribution ratio of the Highly-Compensated Employee with the
highest actual contribution ratio shall be reduced to the extent necessary to
meet the Actual Contribution Percentage test or to cause that ratio to equal the
actual contribution ratio of the Highly-Compensated Employee with the next
highest actual contribution ratio. This process will be repeated until the
Actual Contribution Percentage test is passed. Each ratio shall be rounded to
the nearest one one-hundredth of 1% of a Member's Statutory Compensation. The
amount of Matching Company Contributions made by or on behalf of each
Highly-Compensated Employee in excess of the amount permitted under his revised
actual contribution ratio shall be added together. This total dollar amount of
excess contributions ("excess aggregate contributions") shall then be allocated
to some or all Highly-Compensated Employees in accordance with the provisions of
subparagraph (ii) of this paragraph (a).

 

 

(ii)

The Matching Company Contributions of the Highly-Compensated Employee with the
highest dollar amount of those contributions shall be reduced by the lesser of
(i) the amount required to cause that Employee's Matching Company Contributions
to equal the dollar amount of those contributions of the Highly-Compensated
Employee with the next highest dollar amount of those contributions, or (ii) an
amount equal to the total excess aggregate contributions. This procedure is
repeated until all excess aggregate contributions are allocated. The amount of
excess aggregate contributions allocated to each Highly-Compensated Employee,
(adjusted to reflect earnings or losses attributable thereto), shall be
distributed or forfeited in accordance with the provisions of paragraph (b)
below.

 

 

(b)

To the extent contributions must be paid or returned to a Member under
paragraph (a) above, so much of the Matching Company Contributions, together
with investment

 

 

-22-

income thereon, as shall be necessary to equal the balance of the excess
aggregate contributions shall be reduced with the vested Matching Company
Contributions being paid to the Member and the Matching Company Contributions
that are forfeitable under the Plan being forfeited and applied to reduce
Company contributions.

 

 

(c)

Any repayment or forfeiture of excess aggregate contributions shall be made
before the close of the Plan Year following the Plan Year for which the excess
aggregate contributions were made and, to the extent practicable, any repayment
or forfeiture shall be made within 2½ months of the close of the Plan Year in
which the excess aggregate contributions were made.

 

6.3

Aggregate Contribution Limitation. Notwithstanding the provisions of
Sections 6.1 and 6.2, in no event shall the sum of the Actual Deferral
Percentage of the group of eligible Highly-Compensated Employees and the Actual
Contribution Percentage of that group, after applying the provisions of
Sections 6.1 and 6.2, exceed the "aggregate limit" as provided in
Section 401(m)(9) of the Code and the regulations issued thereunder. In the
event the aggregate limit is exceeded for any Plan Year, the Actual Contribution
Percentages of the Highly-Compensated Employees shall be reduced to the extent
necessary to satisfy the aggregate limit in accordance with the procedure set
forth in Section 6.2.

 

6.4

Additional Discrimination Testing Provisions.

 

 

(a)

If any Highly-Compensated Employee is a member of another qualified plan of the
Company or an Associated Company, other than an employee stock ownership plan
described in Section 4975(e)(7) of the Code or any other qualified plan that
must be mandatorily disaggregated under Section 410(b) of the Code, under which
pre-tax contributions or matching contributions are made on behalf of the
Highly-Compensated Employee, the Committee shall implement rules, which shall be
uniformly applicable to all employees similarly situated, to take into account
all such contributions for the Highly-Compensated Employee under all such plans
in applying the limitations of Sections 6.1, 6.2, and 6.3. If any other such
qualified plan has a plan year other than the Plan Year, the contributions to be
taken into account in applying the limitations of Sections 6.1, 6.2, and 6.3
will be those made in the same year as the Plan Year.

 

 

(b)

In the event that this Plan is aggregated with one or more other plans to
satisfy the requirements of Sections 401(a)(4) and 410(b) of the Code (other
than for purposes of the average benefit percentage test) or if one or more
other plans is aggregated with this Plan to satisfy the requirements of
Sections 401(a)(4) and 410(b) of the Code, then the provisions of Sections 6.1,
6.2, and 6.3 shall be applied by determining the Actual Deferral Percentage and
Actual Contribution Percentage of employees as if all such plans were a single
plan. If this Plan is permissively aggregated with any other plan or plans for
purposes of satisfying the provisions of Section 401(k)(3) of the Code, the
aggregated plans must also satisfy the provisions of Sections 401(a)(4) and
410(b) of the Code as though they were a single plan. Plans may be aggregated
under this paragraph (b) only if they have the same plan year.

 

 

-23-

 

(c)

The Committee may elect to use Pre-Tax Savings or Retirement Contributions to
satisfy the tests described in Sections 6.2 and 6.3, provided that the test
described in Section 6.1 is met prior to that election, and continues to be met
following the Company’s election to shift the application of those Pre-Tax
Savings or Retirement Contributions from Section 6.1 to Section 6.2.

 

 

(d)

The Company may authorize that special "qualified nonelective contributions"
shall be made for a Plan Year, which shall be allocated in such amounts and to
such Members, who are not Highly Compensated Employees, as the Committee shall
determine. The Committee shall establish such separate accounts as may be
necessary. Qualified nonelective contributions shall be 100% nonforfeitable when
made, and any earnings credited on any qualified nonelective contributions shall
not be available for withdrawal prior to a Member's Termination of Employment.
Qualified nonelective contributions made for the Plan Year may be used to
satisfy the tests described in Sections 6.1, 6.2 and 6.3, where necessary.

 

 

(e)

For purposes of calculating investment income under Sections 6.1 and 6.2,
investment income earned on amounts within 7 days of the return or forfeiture of
those amounts may be disregarded.

 

6.5

Maximum Annual Additions.

 

 

(a)

Notwithstanding any other provision of the Plan, except as otherwise provided in
this Section 6.5(a), the annual addition to a Member's Accounts for any Plan
Year, which shall be considered the limitation year for purposes of Section 415
of the Code, when added to the Member's annual addition for that Plan Year under
any other qualified defined contribution plan of the Company or Associated
Company, shall not exceed an amount that is equal to the lesser of (i) 25% of
his or her aggregate remuneration for the year or (ii) $30,000, as adjusted to
reflect increases in the limitation pursuant to Code subsection 415(d).

 

 

(b)

For purposes of this Section 6.5, the "annual addition" to a Member's Accounts
under this Plan for any Plan Year shall be the sum of (i) the total
contributions, including Pre-Tax Savings, made on the Member's behalf by the
Company and all Associated Companies for the Plan Year, (ii) all Member
contributions (exclusive of any Rollover Contributions) for the Plan Year, and
(iii) the amount of any forfeiture that is credited to the Member's Account for
the Plan Year pursuant to Section 5.5(c).

 

 

(c)

If the annual additions to a Member's Accounts for any Plan Year, prior to the
application of the limitations set forth in paragraph (a) above, exceeds that
limitation due to a reasonable error in estimating a Member's annual
compensation or in determining the amount of Pre-Tax Savings that may be made
with respect to a Member under Section 415 of the Code, or as the result of the
allocation of forfeitures, the amount of contributions credited to the Member's
Accounts in that Plan Year shall be adjusted to the extent necessary to satisfy
that limitation, in accordance with the following order of priority:

 

 

-24-

 

(i)

The Member's Supplemental Pre-Tax Savings under Section 3.1 shall be reduced to
the extent necessary. The amount of the reduction shall be returned to the
Member, together with earnings on the contributions to be returned.

 

 

(ii)

The Member's Basic Pre-Tax Savings and corresponding Matching Company
Contributions shall be reduced to the extent necessary. The amount of the
reduction attributable to the Member's Basic Pre-Tax Savings shall be returned
to the Member, together with any earnings on those contributions to be returned,
and the amount attributable to Matching Company Contributions shall be forfeited
and used to reduce subsequent contributions payable by the Company.

 

 

(iii)

The Member's Retirement Contributions under Section 5.2 to the extent necessary
shall be held unallocated in a suspense account and shall be used to reduce
future Company contributions for all remaining Members in the next limitation
year. If a suspense account is in existence at any time during a limitation
year, it will not participate in the allocation of the investment gains and
losses of the Trust Fund and all assets in the suspense account must be
allocated to Members before any contributions may be made for that Plan Year.

 

Any Pre-Tax Savings returned to a Member under this subparagraph (c) shall be
disregarded in applying the dollar limitation on Pre-Tax Savings under Section
4.1 and in performing the Actual Deferral Percentage test under Section 6.1.

 

 

(d)

In the event that any Member of this Plan is a participant in any other defined
contribution plan (whether or not terminated) maintained by the Company or any
Associated Company, the total amount of annual additions to the Member's
Accounts under all such defined contribution plans shall not exceed the
limitations set forth in this Section 6.5. If it is determined that as a result
of the limitations set forth in this subparagraph (d), the annual additions to
the Member's Accounts must be reduced:

 

 

(i)

first, the annual additions to the Member's Accounts under the other defined
contribution plans shall be reduced to the extent necessary and to the extent
permitted by law so that the limitations described in Section 6.5(a) are not
exceeded; and

 

 

(ii)

second, if after application of clause (i) the annual additions to the Member's
Accounts are still in excess of the permissible amount, the annual additions to
the Member's Accounts under this Plan shall be reduced.

 

With respect to Plan Years commencing prior to January 1, 2000, in the event
that any Member of the Plan is also a participant in any defined benefit plan
maintained by the Company or any Associated Company, it is intended that the
benefits under the defined benefit plan shall be reduced prior to the
application of the limitations contained in Section 6.5(a) to the annual
additions to the Member's Accounts under this Plan, to the extent necessary to
satisfy the requirements of Section 415(e) of the Code.

 

 

-25-

 

(e)

For purposes of this Section, the term "remuneration" with respect to any Member
shall mean the wages, salaries, and other amounts paid in respect of the Member
by the Company or an Associated Company for personal services actually rendered,
and shall include amounts contributed by the Company or an Associated Company
pursuant to a salary reduction agreement that are not includible in gross income
of the employee under Sections 125, 402(g)(3), or 457 of the Code, but shall
exclude deferred compensation.

 

ARTICLE SEVEN

INVESTMENT OF CONTRIBUTIONS

7.1

Investment Funds.

 

 

(a)

Contributions to the Plan and amounts transferred to the Plan from the ITT Plan
shall be invested in one or more Funds, as authorized by the Committee, which
from time to time may include such guaranteed investment contract funds, bond
funds, balanced funds, equity index funds, growth equity funds, international
stock funds, company stock funds (including an ESI Stock Fund), and other funds
as the Committee elects to offer. A Fund selected by the Committee shall be
communicated to Members and Deferred Members in a timely fashion.

 

 

(b)

In any Fund, the Trustee in its sole discretion temporarily may hold cash or
make short-term investments in obligations of the United States Government,
commercial paper, or an interim investment fund for tax-qualified employee
benefit plans established by the Trustee, unless otherwise provided by
applicable law, or other investments of a short-term nature.

 

 

(c)

Dividends, interest, and other distributions received on the assets held by the
Trustee in respect to each of the Funds shall be reinvested in the respective
Fund.

 

7.2

Investment of Contributions. Contributions under the Plan made by or on behalf
of a Member (or an Employee who made a Rollover Contribution prior to meeting
the eligibility requirements for membership), including Matching Company
Contributions made on behalf of a Member, shall be invested, in multiples of 1%,
in any one or more of the Funds as designated by the Member (or Employee)
pursuant to rules and procedures established by the Committee, except that,
effective March 19, 2004, new contributions shall not be invested in the ESI
Stock Fund.

 

7.3

Change in Future Contribution Investment Election. A Member (or an Employee who
made a Rollover Contribution prior to meeting the eligibility requirements for
membership, with respect to future Rollover Contributions) may change his or her
investment election with respect to future contributions made by or on his or
her behalf at any time within the limitations set forth in Section 7.2. Such a
change shall be made in 1% multiples, in accordance with the administrative
procedures and within the time period prescribed by the Committee and shall be
effective as soon as practicable thereafter.

 

7.4

Redistribution of Accounts Among the Funds. A Member or Deferred Member (or
Beneficiary in the event of the death of a Member or Deferred Member) may elect
at any time to reallocate on any Valuation Date all or part, in multiples of 1%,
of his or her Pre-Tax Investment Account and

 

 

-26-

Matching Contribution Account and, if applicable, his or her Retirement
Contribution Account, After-Tax Investment Account, Rollover Account, and ESOP
Account, among the Funds, other than the ESI Stock Fund. An Employee who has
made a Rollover Contribution prior to meeting the eligibility requirements for
membership may elect at any time to reallocate on any Valuation Date all or
part, in multiples of 1%, of his or her Rollover Account among the Funds, other
than the ESI Stock Fund. A Member, Deferred Member, Beneficiary, or Employee may
cause all or part of his or her Accounts that are invested in the ESI Stock Fund
to be transferred to another Fund, but he or she may not cause any part of any
Account to be transferred into the ESI Stock Fund on or after March 19, 2004.
Reallocations made pursuant to this Section shall be made in accordance with the
administrative procedures and within the time limits prescribed by the Committee
and shall be effective as soon as practicable thereafter.

 

7.5

Voting of ESI Stock. Each Member and Employee is, for the purposes of this
Section 7.5, hereby designated a named fiduciary within the meaning of
Section 402(a)(2) of ERISA with respect to the shares of ESI Stock allocated to
his or her Accounts. Each Member, Deferred Member, and Employee (or Beneficiary
in the event of the death of the Member, Deferred Member or Employee) may direct
the Trustee as to the manner in which the ESI Stock allocated to his or her
Accounts is to be voted. Before each annual or special meeting of shareholders
of ESI, there shall be sent to each Member, Deferred Member, Beneficiary, and
Employee who has made a Rollover Contribution a copy of the proxy solicitation
material for the meeting, together with a form requesting instructions to the
Trustee on how to vote the ESI Stock allocated to the Member's, Deferred
Member's, Employee's, or Beneficiary's Accounts. Upon receipt of the
instructions, the Trustee shall vote the shares as instructed. In lieu of voting
fractional shares as instructed by Members, Deferred Members, Employees, or
Beneficiaries, the Trustee may vote the combined fractional shares of ESI Stock
to the extent possible to reflect the directions of Members, Deferred Members,
Employees, or Beneficiaries with allocated fractional shares of each class of
stock. Except as otherwise provided in Article Seventeen, the Trustee shall
vote, or abstain from voting, shares of ESI Stock allocated to Accounts under
the Plan but for which the Trustee received no valid voting instructions in the
manner determined by the Trustee, in its discretion. Instructions to the Trustee
shall be in the form and pursuant to the procedures prescribed by the Committee.

 

Any instructions received by the Trustee from Members, Deferred Members,
Employees, and Beneficiaries regarding the voting of ESI Stock shall be
confidential and shall not be divulged by the Trustee to the Company or to any
director, officer, employee, or agent of the Company, it being the intent of
this provision of Section 7.5 to ensure that the Company (and its directors,
officers, employees, and agents) cannot determine the voting instructions given
by any Member, Deferred Member, Employee, or Beneficiary.

 

7.6

Limitations Imposed by Contract. Notwithstanding anything in this Article to the
contrary, any contributions invested in a fund of guaranteed investment
contracts shall be subject to any and all terms of those contracts, including
any limitations placed on the exercise of any rights otherwise granted to a
Member under any other provisions of this Plan with respect to those
contributions.

 

7.7

Responsibility for Investments. Each Member, Deferred Member, or Employee (or
Beneficiary in the event of the death of a Member, Deferred Member, or Employee)
is solely responsible for the selection of his or her investment options made
pursuant to Section 7.2, 7.3, or 7.4. The

 

 

-27-

Trustee, the Committee, the Company, and the officers, supervisors, and other
employees of the Company are not empowered to advise a Member, or Deferred
Member as to the manner in which his or her Accounts shall be invested. The fact
that a Fund is available to Members or Deferred Members (or Employees who have
made a Rollover Contribution prior to meeting the eligibility requirements for
membership) for investment under the Plan shall not be construed as a
recommendation for investment in the Fund.

 

ARTICLE EIGHT

CREDITS TO MEMBERS' ACCOUNTS, VALUATION, AND ALLOCATION OF ASSETS

8.1

Pre-Tax Savings and Rollover Contributions. Pre-Tax Savings made on behalf of a
Member, and Rollover Contributions contributed by a Member or an Employee, shall
be allocated to the Pre-Tax Investment Account or Rollover Account of that
Member or Employee as appropriate, as soon as practicable after those
contributions are transferred to the Trust Fund.

 

8.2

Matching Company Contributions. Matching Company Contributions made on behalf of
a Member shall be allocated to the Company Matching Contribution Account of the
Member, as soon as practicable after those contributions are made to the Trust
Fund.

 

8.3

Retirement Contributions. Retirement Contributions made for a Member shall be
allocated to the Retirement Contribution Account of the Member, as soon as
practicable after those contributions are made to the Trust Fund.

 

8.4

Credits to Members' Accounts. At each Valuation Date on which the Plan is in
effect and operation, the amount of each Member's credit in each of the Funds
shall be expressed and credited in dollars of contributions by the Member and
Company contributions and ESI Stock allocated to a Member's Accounts for that
payroll processing period. For the purposes of Section 7.5 and Article Fifteen,
a Member's interest in the ESI Stock Fund shall be converted into shares of ESI
Stock at any time of determination by dividing the value of all shares of ESI
Stock in the ESI Stock Fund by the value of that Member's interest in the ESI
Stock Fund at the time. The resulting number of shares of ESI Stock shall be
deemed allocated to the Member.

 

8.5

Valuation of Assets. On each Valuation Date, the Trustee shall determine the
total fair market value of all assets then held by it in each Fund.

 

8.6

Allocation of Assets. On each Valuation Date when the value of all assets in
each Fund has been determined pursuant to Section 8.5, the Trustee shall
determine the gain or loss in the value of the assets in each of the Funds. The
gain or loss shall be allocated pro rata by Fund to the balances credited to the
Accounts of all Members and Deferred Members immediately prior to the Valuation
Date, not including new contributions to that Fund on the Valuation Date for
that Valuation Date.

 

8.7

Annual Statements. At least once a year, each Member and Deferred Member shall
be furnished with a statement setting forth the value of his or her Accounts and
the vested portion of his or her Accounts.

 

 

-28-

8.8

Valuation Dates. The Committee shall establish procedures for determining the
Valuation Dates that shall apply for withdrawals, distributions, or other
relevant purposes. Valuation Dates need not be the same for all purposes. The
Funds shall be revalued on each business day.

 

ARTICLE NINE

WITHDRAWALS PRIOR TO TERMINATION OF EMPLOYMENT

9.1

General Conditions for Withdrawals. Subject to the restrictions set forth below,
at any time before Termination of Employment, a Member may request a withdrawal
from his or her Accounts in accordance with the administrative procedures and
within the time period prescribed by the Committee. Any such withdrawal shall be
payable only in cash and shall be in accordance with the conditions of
Section 9.2, 9.3, or 9.4. All withdrawals (other than hardship withdrawals)
shall be a minimum of $500. No more than two withdrawal requests of any kind,
including hardship, shall be permitted each calendar year. For purposes of this
Article Nine, a Member's Accounts shall be valued as of the applicable Valuation
Date. Amounts to be withdrawn and distributed to Members will not participate in
the investment experience of the Plan after that Valuation Date. Withdrawn
amounts generally shall be paid as soon as practicable following the Valuation
Date. If a Member has Accounts in more than one Fund, the amount withdrawn shall
be prorated among the Funds based on their respective values.

 

9.2

Non-Hardship Withdrawal Prior to Age 59½. A Member who has not yet reached
age 59½ as of the date of his or her withdrawal request may elect, subject to
Section 9.1, to withdraw from his or her Accounts in the following order:

 

 

(a)

all or part of his or her After-Tax Investment Account;

 

 

(b)

all or part of his or her Rollover Account:

 

 

(c)

all or part of his or her ESOP Account;

 

 

(d)

all or part of his or her ITT Floor Contributions Account;

 

 

(e)

all or part of his or her Company Matching Contribution Account attributable to
vested amounts contributed to (1) the Pre-Distribution ITT Plan before 1990 or
(2) the ITT Plan prior to October 1, 1996.

 

9.3

Hardship Withdrawal Prior to Age 59½.

 

 

(a)

A Member who has withdrawn the total amount available for withdrawal under
Section 9.2 may, subject to Section 9.1, elect to withdraw all or part of his or
her Pre-Tax Savings made on his or her behalf under this Plan or under the ITT
Plan and transferred to his or her Pre-Tax Investment Account, and earnings
credited on that Account prior to January 1, 1989 under the Pre-Distribution ITT
Plan, upon furnishing proof of Hardship satisfactory to the Committee.

 

 

(b)

A Member shall be considered to have incurred a Hardship if, and only if, he or
she meets the requirements of paragraphs (c) and (d) below.

 

 

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(c)

As a condition for Hardship, the Member must have an immediate and heavy need to
draw upon his or her Pre-Tax Investment Account. The Committee shall presume the
existence of an immediate and heavy need if the requested withdrawal is on
account of any of the following:

 

 

(A)

expenses for medical care described in Section 213(d) of the Code previously
incurred by the Member, his or her spouse or any of his or her dependents (as
defined in Section 152 of the Code) or necessary for those persons to obtain
that medical care, to the extent those expenses are not paid or reimbursed by
insurance;

 

 

(B)

costs directly related to the purchase of a principal residence of the Member
(excluding mortgage payments);

 

 

(C)

payment of tuition and related educational fees, including room and board
expenses, for the next 12 months of post-secondary education of the Member, or
his or her spouse or dependents (as defined in Section 152 of the Code and, for
taxable years beginning on or after January 1, 2005, without regard to
Section 152(b)(1), (b)(2) and (d)(1)(B) of the Code);

 

 

(D)

payment of amounts necessary to prevent eviction of the Member from his or her
principal residence or to avoid foreclosure on the mortgage of his or her
principal residence;

 

 

(E)

payments for burial or funeral expenses for the Member's deceased parent,
spouse, children or dependents (as defined in Section 152 of the Code without
regard to Section 152(d)(1)(B));

 

 

(F)

expenses for the repair of damage to the Member's principal residence that would
qualify for a casualty deduction under Section 165 of the Code (determined
without regard to whether the loss exceeds 10% of adjusted gross income); or

 

 

(G)

the inability of the Member to meet such other expenses, debts, or other
obligations recognized by the Internal Revenue Service as giving rise to
immediate and heavy financial need for purposes of Section 401(k) of the Code.

 

The amount of withdrawal may not exceed the amount of the immediate and heavy
financial need of the Member, including any amounts necessary to pay any
federal, state, or local income taxes on the amount withdrawn and any amounts
necessary to pay any penalties reasonably anticipated to result from the
distribution.

 

In evaluating the relevant facts and circumstances, the Committee and any
delegate thereof shall act in a nondiscriminatory fashion and shall treat
uniformly those Members who are similarly situated. The Member shall furnish to
the Committee or its delegate such supporting documents as the Committee or its
delegate may request in accordance with uniform and nondiscriminatory rules
prescribed by the Committee.

 

 

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(d)

As a condition for Hardship, the Member must demonstrate that the requested
withdrawal is necessary to satisfy the financial need described in
paragraph (c). The Committee shall deem the Member to have demonstrated such
necessity, provided all of the following requirements are met: (A) the Member
has obtained all distributions, other than distributions available only on
account of hardship, and all nontaxable loans currently available under the Plan
and all other plans of the Company and Associated Companies; (B) the Member is
prohibited from making Pre-Tax Savings to the Plan and all other plans of the
Company and Associated Companies under the terms of those plans or by means of
an otherwise legally enforceable agreement for at least 12 months after receipt
of the distribution; and (C) the limitation described in Section 4.1(b) under
all plans of the Company and Associated Companies for the calendar year
following the year in which the withdrawal is made must be reduced by the
Member's elective deferrals made in the calendar year of the distribution for
Hardship. For purposes of clause (B), "all other plans of the Company and
Associated Companies" shall include stock option plans, stock purchase plans,
qualified and non-qualified deferred compensation plans, and such other plans as
may be designated under regulations issued under Section 401(k) of the Code, but
shall not include health and welfare benefit plans or the mandatory employee
contribution portion of a defined benefit plan.

 

9.4

Withdrawals After age 59½. A Member who has reached age 59½ as of the date of
his or her withdrawal request may elect, subject to Section 9.1, to withdraw
from his or her Accounts in the following order:

 

 

(a)

the total amount available for withdrawal under Section 9.2,

 

 

(b)

all or part of his or her Company Matching Contribution Account, and

 

 

(c)

all or part of his or her Pre-Tax Investment Account.

 

9.5

Ordering of Withdrawals. For purposes of processing a withdrawal, basic
after-tax savings made by a Member under the ITT Plan, and investment earnings
and gains thereon, and supplemental after-tax savings made by a Member under the
ITT Plan, and investment earnings and gains thereon, shall constitute a separate
contract (Contract II), and all remaining amounts in the Plan with respect to a
Member shall constitute another contract (Contract I), for purposes of Section
72(e) of the Code. The Committee shall maintain records of withdrawals,
contributions, earnings, and other additions and subtractions attributable to
each separate contract and shall credit or charge the appropriate contract, and
adjust the non-taxable basis of each contract, for transactions properly
allocable to that contract.

 

For purposes of processing a withdrawal under Section 9.2(a)(i), the withdrawals
will be deducted from the Member's Accounts in Contract I and Contract II in the
following order: (i) the value of the Member's After-Tax Investment Account in
Contract I attributable to supplemental after-tax savings, (ii) the value of the
Member's After-Tax Investment Account in Contract II attributable to
supplemental after-tax savings, (iii) the value of the Member's After-Tax
Investment Account in

 

 

-31-

Contract I attributable to basic after-tax savings and (iv) the value of the
Member's After-Tax Investment Account in Contract II attributable to basic
after-tax savings.

 

9.6

Death After Withdrawal Election. If a Member elects a withdrawal and dies after
the issuance of the check(s) comprising the withdrawal but prior to negotiation
of the check(s), then any unpaid portion of the withdrawal as represented by the
non-negotiated check(s) shall be paid to his or her estate. If more than one
check comprises a withdrawal and the Member negotiates the first check but dies
prior to the issuance of the subsequent check, then the subsequent check shall
be paid to his or her estate. If a Member elects a withdrawal and dies prior to
the issuance of any check(s) comprising the withdrawal, then the withdrawal
election shall be voided. For purposes of this Section 9.6, the issuance of a
check shall occur on the earlier of the date of issuance shown on the check or
the withdrawal Valuation Date.

 

9.7

Direct Rollover. Certain withdrawals or portions thereof paid pursuant to this
Article Nine may be "eligible rollover distributions" as defined and discussed
in Section 11.7 and are governed thereby.

 

9.8

Retirement Contribution Account. A Member's Retirement Contribution Account is
not available for distribution or withdrawal prior to a Member's Termination of
Employment.

 

ARTICLE TEN

LOANS

10.1

General Conditions for Loans. Subject to the restrictions set forth in the
following provisions of this Article Ten, at any time before Termination of
Employment, a Member who is an employee of the Company or an Associated Company
may request a loan from his or her Accounts in accordance with the
administrative procedures and within the time period prescribed by the
Committee. By filing the loan request forms, the Member:

 

 

(a)

specifies the amount and the term of the loan,

 

 

(b)

agrees to the annual percentage rate of interest,

 

 

(c)

agrees to the finance charge,

 

 

(d)

promises to repay the loan, and

 

 

(e)

authorizes the Company to make regular payroll deductions to repay the loan.

 

The amount of the loan is to be transferred from the Funds in which the Member's
Accounts are invested to a special "Loan Fund" for the Member under the Plan.
The Loan Fund consists solely of the amount transferred to the Loan Fund and is
invested solely in the loan made to the Member. The amount transferred to the
Loan Fund shall be pledged as security for the loan. Payments of principal on
the loan will reduce the amount held in the Member's Loan Fund. Those payments,
together with the attendant interest payment, will be reinvested in the Funds in
accordance with the Member's then effective investment election.

 

 

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10.2

Amounts Available for Loans. An eligible Member may request a loan in any
specified whole dollar amount that, when added to the outstanding balance of any
other loans to the Member from this Plan or any other qualified plan of the
Company or an Associated Company, may not exceed the lesser of (a) 50% of the
Member's Vested Share, or (b) $50,000 reduced by the excess, if any of (i) the
highest outstanding balance of loans during the one year period ending on the
day before the loan is made over (ii) the outstanding balance of loans to the
Member from such plans on the date on which the loan is made. For purposes of
determining amounts available for loans, as described in the foregoing
provisions of this Section 10.2, a Member's Vested Share shall be determined
based on the latest information available to the Committee at the time he or she
files his or her loan request with the Committee.

 

10.3

Account Ordering for Loans. For purposes of processing a loan, the amount of the
loan will be deducted from the Member's Accounts in the following order:

 

 

(a)

Retirement Contribution Account

 

 

(b)

Pre-Tax Investment Account;

 

 

(c)

Company Matching Contribution Account;

 

 

(d)

ITT Floor Contribution Account

 

 

(e)

ESOP Account;

 

 

(f)

Rollover Account;

 

 

(g)

After-Tax Account.

 

A loan is deducted from a Member's Accounts as of the applicable Valuation Date.
Amounts so deducted and distributed to a Member as a Plan loan will not
participate in the investment experience of the Plan except as those amounts are
repaid to the Member's Accounts.

 

10.4

Interest Rate for Loans. The Committee shall establish and communicate to
Members a reasonable rate of interest for loans commensurate with the interest
rates charged by persons in the business of lending money for loans that would
be made under similar circumstances, as determined by the Committee, which
interest rate shall remain in effect for the term of the loan.

 

10.5

Term and Repayment of Loan. In addition to such rules and regulations as the
Committee may adopt, all loans shall comply with the following terms and
conditions:

 

 

(i)

An application for a loan by a Member shall be made in writing to the Committee
in the manner prescribed by the Committee, whose action in approving or
disapproving the application shall be final;

 

 

(ii)

Each loan shall be evidenced by a promissory note payable to the Plan;

 

 

-33-

 

 

(iii)

The period of repayment for any loan shall be arrived at by mutual agreement
between the Committee and the Member, but that period shall not exceed five
years unless the loan is to be used in conjunction with the purchase of the
principal residence of the Member.

 

 

(iv)

Payments of principal and interest will be made by payroll deductions, or in a
manner agreed to by the Member and the Committee, in substantially level
amounts, but no less frequently than quarterly, in an amount sufficient to
amortize the loan over the repayment period;

 

 

(v)

Repayment of the loan is made to the Member's Accounts from which the loan
amount was deducted in inverse order to the Account ordering described in
Section 10.3. Repayments are invested in the Member's Accounts in accordance
with his or her current investment election.

 

10.6

Frequency of Loan Requests. A Member may have only one loan outstanding at any
time. Unless the Committee determines otherwise on a basis uniformly applicable
to all persons similarly situated, a Member who fully repays a loan may not
apply for another loan until one month following the effective date of the final
repayment. Effective January 1, 2002, a Member who fully repays a loan may apply
for another loan immediately after the effective date of the final repayment.

 

10.7

Prepayment of Loans. A Member may prepay the entire outstanding balance of a
loan, with interest to date of repayment, in the manner and under the procedures
established by the Committee. No partial prepayments shall be permitted.

 

10.8

Outstanding Loan Balance at Termination of Employment. In addition to such rules
and regulations as the Committee shall adopt, upon the Member's Termination of
Employment, the outstanding balance of any loan shall become due and payable. If
the Member does not elect to prepay within the time period prescribed by the
Committee, the outstanding loan balance and any accrued interest shall be
treated as a taxable distribution.

 

10.9

Loan Default During Employment. Under certain circumstances, including, but not
limited to, the Member's failure to make repayment or the bankruptcy of the
Member, the Committee may declare a Member's loan to be in default. In the event
default is declared for a Member who has not reached age 59½, the outstanding
balance shall become due and payable, and the outstanding loan balance and any
accrued interest shall be deemed a taxable distribution. In the event default is
declared for a Member who has reached age 59½, the outstanding loan balance and
any accrued interest shall be treated as a withdrawal prior to Termination of
Employment subject to the provisions of Article Nine. A Member who has defaulted
on a loan shall be prohibited from applying for any future loans.

 

10.10

Incorporation by Reference. Any additional rules or restrictions as may be
necessary to implement and administer Plan loans shall be established by the
Committee in written guidelines and shall be communicated to Members who apply
for loans. The written guidelines are hereby

 

 

-34-

incorporated into the Plan by reference, and pursuant to Section 13.2(b), the
Committee is hereby authorized to make such revisions to these guidelines as it
deems necessary or appropriate on the advice of counsel.

 

10.11

Death after Loan Application. If a Member applies for a loan and dies after a
check for the loan amount has been issued but prior to negotiation of the check,
then the loan shall be paid to his or her estate. If a Member applies for a loan
and dies before the check for the loan amount is issued, then the loan
application shall be voided. For purposes of this Section 10.11, the check will
be deemed to have been issued on the earlier of the date of issuance shown on
the check or the loan Valuation Date.

 

10.12

Military Leave. Notwithstanding any Plan provisions to the contrary, in the
event a Member enters the uniformed services of the United States and retains
reemployment rights under the law, repayment of a loan shall be suspended during
the period of leave, and the period of repayments shall be extended by the
number of months of the period of service in the uniformed services; provided,
however, if the Member incurs a Termination of Employment and requests a
distribution pursuant to Article Eleven, the loan shall be canceled, and the
outstanding loan balance shall be distributed pursuant to Article Eleven.

 

ARTICLE ELEVEN

DISTRIBUTIONS

11.1

Commencement of Payments.

 

 

(a)

Except as otherwise provided in this Article, distribution of the Vested Share
of a Member's Accounts shall commence as soon as administratively practicable
following the later of (i) the Member's Termination of Employment or (ii) the
date the Member attains age 70½, but not later than 60 days after the close of
the Plan Year in which the later of (i) or (ii) occurs.

 

 

(b)

In lieu of a distribution as described in paragraph (a) above, a Member or
Deferred Member whose Vested Share exceeds $1,000, may, in accordance with
procedures prescribed by the Committee, elect to have the distribution of his or
her Vested Share commence as of any Valuation Date coincident with or following
his or her Termination of Employment that is before the date described in
paragraph (a) above.

 

 

(c)

In the case of the death of a Member or Deferred Member before payment of his or
her Accounts commences, the Vested Share of his or her Accounts shall be
distributed to his or her Beneficiary as soon as administratively practicable
following the Member's or Deferred Member's date of death. Notwithstanding the
foregoing, the Beneficiary of a Member or Deferred Member whose Vested Share of
his or her Accounts, as of the Valuation Date coincident with or next following
the Member's or Deferred Member's date of death, exceeds $1,000 may elect to
defer receipt of the Member's or Deferred Member's Vested Share for a period not
to exceed 12 months from the Member's or Deferred Member's date of death.

 

 

-35-

 

(d)

A Member who attained age 70½ before January 1, 1997 must commence distribution
of his or her Vested Share by no later than the April 1 following the year in
which he or she attained age 70½. If a Member attains age 70½ after January 1,
1997, but before January 1, 1999, distribution of the Vested Share of his
Accounts shall begin by April of the calendar year following the calendar year
in which the Member attains age 70½ unless the Member elects to defer
commencement of his Plan benefits until a date no later than April of the
calendar year following the calendar year in which the Member's Termination of
Employment occurs. A Member described in this paragraph (d) may elect that his
or her Vested Share be paid under the payment method described in
Section 11.2(b)(i) below, if permissible under the terms of that payment method,
or in an immediate lump sum. Payment of the Vested Share of a Member who has
attained age 70½ pursuant to this paragraph (d) shall be made no less frequently
than annually, and once payment has commenced, the Member may not elect an
alternate method for payment of his or her Vested Share while the Member is
still an Employee.

 

 

(e)

A Deferred Member or a Member who is a "5-percent owner" as defined in Code
Section 414(q)(1) must commence distribution of his or her Vested Share by no
later than the April 1 following the year in which he or she attains age 70½.
Notwithstanding the foregoing, a Member who attains 70½ on or after January 1,
1996, and who is not a "5-percent owner" may elect to receive payments while in
Service. In either case, the Member may elect that his or her Vested Share be
paid in accordance with options (i) or (ii) below:

 

 

(i)

one lump sum payment on or before the April 1 of the calendar year following the
calendar year in which he or she attains age 70½ equal to his or her entire
Vested Share and annual lump sum payments thereafter of amounts accrued during
each calendar year; or

 

 

(ii)

payments in annual installments over a period designated by the Member not to
exceed 20 years. In the event that the Member dies before all installments have
been paid, the remaining balance of his or her Vested Share shall be paid in an
immediate cash lump sum to his or her Beneficiary.

 

Once payment has commenced, the Member may not elect an alternate method for
payment, except as otherwise provided in Section 11.2.

 

 

(f)

With respect to distributions under the Plan made for Plan Years beginning on or
after January 1, 2002, the Plan will apply the minimum distribution requirements
of Code paragraph 401(a)(9) in accordance with the regulations under that
paragraph that were proposed on January 17, 2001, notwithstanding any provision
of the Plan to the contrary. This provision will continue in effect until the
end of the last calendar year beginning before the effective date of final
regulations under paragraph 401(a)(9) or such other date as may be specified in
guidance published by the Internal Revenue Service.

 

11.2

Forms and Methods of Distribution.

 

 

(a)

After Termination of Employment occurs, and as soon as practicable following
application by the Member, Deferred Member or Beneficiary, distribution under
the Plan shall be made

 

 

-36-

in a lump sum, unless an election is made by a Member or Deferred Member
pursuant to paragraph (b) below.

 

 

(b)

A Member or Deferred Member whose Vested Share, as of the Valuation Date
corresponding to his or her application for distribution, exceeds $1,000 but
does not exceed $5,000, may elect, in accordance with the administrative
procedures and within the time period prescribed by the Committee, to receive
his or her Vested Share in a lump sum payment. A Member or Deferred Member whose
Vested Share, as of the Valuation Date corresponding to his or her application
for distribution, exceeds $5,000, may elect, in accordance with the
administrative procedures and within the time period prescribed by the
Committee, to receive his or her Vested Share in one of the following optional
forms:

 

 

(i)

payments in approximately equal monthly or annual cash installments over a
period, designated by the Member or Deferred Member, not to exceed 20 years, or

 

 

(ii)

with respect to elections made that result in annuity starting dates that occur
before April 1, 2002, the purchase of a nonforfeitable fixed annuity, provided
that if the Member or Deferred Member is married, the benefit shall be in the
form of a qualified joint and survivor annuity. For these purposes, a qualified
joint and survivor annuity is a monthly annuity for the life of the Member, with
monthly payments continuing after the Member's death to the Member's surviving
spouse in a monthly amount equal to 50% of the monthly amount the Member
received during his or her lifetime. The Member or Deferred Member may elect,
during the 90-day period preceding his or her annuity starting date, not to take
the qualified joint and survivor annuity and to take instead another form of
annuity, provided that he or she obtains his or her spouse’s written, notarized
consent. Elections under clause (ii) shall be subject to receipt by the
Committee of the Member's or Deferred Member's written spousal consent to that
election. The spousal consent must be witnessed by a notary public and must
acknowledge the effect on the spouse of the Member's or Deferred Member's
election. The Committee shall furnish each Member or Deferred Member no less
than 30 days nor more than 90 days before the benefit commencement date a
written explanation of the qualified joint and survivor annuity in accordance
with applicable law. A Member or Deferred Member may revoke his or her election
and make a new election from time to time and at any time during the aforesaid
election period. If the annuity form selected is not a qualified joint and
survivor annuity with the Member's or Deferred Member's spouse as the
Beneficiary, the annuity payable to the Member or Deferred Member and thereafter
to his Beneficiary shall be subject to the incidental death benefit rule as
described in Section 401(a)(9)(G) of the Code and its applicable regulations.

 

In the event that the Member or Deferred Member elects installments and dies
before all installments have been paid, the remaining balance of his or her
Vested Share shall be paid in an immediate cash lump sum to his or her
Beneficiary; provided, however the Beneficiary may elect in accordance with the
administrative procedures and within such time period as the Committee shall
prescribe to continue payment of the deceased Member's or Deferred Member's
Account pursuant to the same method of distribution elected by the Member or the
Deferred Member.

 

 

-37-

 

Any Member or Deferred Member who elects annual or monthly installment payments
may, at any time thereafter, elect by filing a request with the Committee to
receive in a lump sum the remaining value of any unpaid installments.

 

 

(c)

Alternative methods of distribution may apply to that portion of a Member's or a
Deferred Member's Accounts attributable to a Prior Plan Transfer.

 

 

(d)

If a Member or a Deferred Member dies before his or her benefits commence, the
Vested Share of his or her Accounts shall be paid to his or her Beneficiary in a
lump sum. However, if a Member or a Deferred Member who has elected an annuity
under Section 11.2(a)(ii) dies before his or her benefit commences, and his or
her spouse is his or her Beneficiary, payment shall be made to the spouse in the
form of a life annuity unless the spouse elects a lump sum.

 

 

(e)

All distributions shall be made in cash; provided, however, that a Member,
Deferred Member, or Beneficiary may elect to receive a distribution from the ESI
Stock Fund in ESI Stock, with any fractional interest in a share of ESI Stock
paid in cash.

 

 

(f)

Notwithstanding any other provision of this Article Eleven, all distributions
from the Plan shall conform to the regulations issued under Section 401(a)(9) of
the Code, including the incidental death benefit provisions of Section
401(a)(9)(G) of the Code. Further, those regulations shall override any Plan
provision that is inconsistent with Section 401(a)(9) of the Code.

 

11.3

Small Benefits. Notwithstanding any provision of the Plan to the contrary, a
lump sum payment shall be made in lieu of all vested benefits if the value of
the Vested Share of the Member's Accounts as of the time the benefits are
distributed amounts to $1,000 or less. The lump sum payment shall automatically
be made as soon as administratively practicable following the Member's
Termination of Employment.

 

11.4

Death of Beneficiary. Upon the death of a Beneficiary with Accounts remaining in
the Plan, the remaining value of all such Accounts shall be paid in a lump sum
distribution as soon as practicable to the Beneficiary, if any, selected by the
deceased Beneficiary, or if no Beneficiary has been named by the deceased
Beneficiary, the remaining value of all such Accounts shall be paid in a lump
sum distribution as soon as practicable to the estate of the deceased
Beneficiary.

 

11.5

Proof of Death and Right of Beneficiary or Other Person. The Committee may
require and rely on such proof of death and such evidence of the right of any
Beneficiary or other person to receive the undistributed value of the Accounts
of a deceased Member, Deferred Member, or Beneficiary as the Committee deems
proper, and the Committee's determination of death and of the right of a
Beneficiary or other person to receive payment shall be conclusive. Payment to
any Beneficiary shall be final and fully satisfy and discharge the obligation of
the Plan with respect to any and all Accounts of a deceased Member or deceased
Deferred Member. In the event of a dispute regarding the account of a deceased
Member or Deferred Member, the Committee may make a final determination or
initiate or participate in any action or proceeding as may be necessary or

 

 

-38-

appropriate to determine any Beneficiary under the Plan. During the pendency of
any action or proceeding, the Committee may deposit an amount equal to the
disputed payment with the court, and such deposit shall relieve the Plan of all
of its obligation with respect to any such disputed Accounts.

 

11.6

Restoration of Prior Forfeiture. If a Member's employment is terminated
otherwise than by retirement or Disability, and as a result of the termination
an amount to his or her credit is forfeited in accordance with the provisions of
Section 5.5, that amount shall be subsequently restored to his or her Accounts,
provided he or she is reemployed by the Company or an Associated Company prior
to the expiration of a Break in Service of five years, and, after giving any
prior written notice required by the Committee, he or she repays to the Trust
Fund an amount in cash equal to the full amounts of his or her Pre-Tax
Investment Account attributable to Basic Pre-Tax contributions, his or her
vested Company Matching Contribution Account, Retirement Contribution Account,
ITT Floor Contribution Account, and his or her ESOP Account distributed to him
or her from the Trust Fund on account of his or her Termination of Employment.
(At his or her option, the Member may repay the amount of his or her Pre-Tax
Investment Account attributable to Supplemental Pre-Tax Savings and Rollover
Account.) The repayment must be made within five years of the date he or she is
reemployed by the Company or an Associated Company and shall be made in one lump
sum. Repaid amounts shall be invested in the Funds in accordance with Member's
then current investment election.

 

11.7

Direct Rollover of Certain Distributions. Notwithstanding any other provision of
this Plan, with respect to any withdrawal or distribution from this Plan
pursuant to Article Nine or this Article Eleven that is determined by the
Committee to be an "eligible rollover distribution," the distributee may elect,
at the time and in a manner prescribed by the Committee for that purpose, to
have the Plan make a "direct rollover" of all or part of the withdrawal or
distribution to an "eligible retirement plan" that accepts such rollovers. The
following definitions apply to the terms used in this Section 11.7:

 

 

(a)

"Distributee" means a Member or Deferred Member. In addition, the Member's or
Deferred Member's spouse Beneficiary and the Member's or Deferred Member's
spouse or former spouse who is the alternate payee under a Qualified Domestic
Relations Order, are distributees with regard to the interest of the spouse or
former spouse.

 

 

(b)

"Eligible rollover distribution" is any withdrawal or distribution of all or any
portion of a Member's or Deferred Member's Vested Share owing to the credit of a
distributee, except that the following distributions shall not be eligible
rollover distributions: (i) any distribution that is one of a series of
substantially equal periodic payments made for the life or life expectancy of
the distributee, or for a specified period of ten years or more, (ii) any
distribution required under Section 401(a)(9) of the Code, (iii) the portion of
a distribution not includible in gross income, (iv) any other distribution that
is not an eligible rollover distribution under the Code or regulations
thereunder and (v) effective January 1, 1999, any hardship distribution
described in Code subclause 401(k)(2)(B)(i)(IV).

 

 

(c)

"Eligible retirement plan" means an individual retirement account described in
Section 408(a) of the Code, an individual retirement annuity described in
Section 408(b) of

 

 

-39-

the Code, an annuity plan described in Section 403(a) of the Code, or a
qualified plan described in Section 401(a) of the Code that accepts the eligible
rollover distribution. However, in the case of an eligible rollover distribution
to the spouse Beneficiary of the Member or Deferred Member, an eligible
retirement plan is an individual retirement account or individual retirement
annuity only.

 

 

(d)

"Direct rollover" means a payment by the Plan directly to the eligible
retirement plan specified by the distributee.

 

In the event that the provisions of this Section 11.7 or any part thereof cease
to be required by law as a result of subsequent legislation or otherwise, this
Section 11.7 or applicable part thereof shall be of no further force or effect
without necessity of further amendment of the Plan.

 

11.8

Elective Transfers From Plan. Notwithstanding any other provision of this Plan,
a distribution from this Plan pursuant to Article Nine or this Article Eleven
that is payable proximate to, and solely on account of, either a disposition of
assets or a subsidiary, as described in Code Section 401(k)(10), shall be
eligible for an elective transfer to a transferee employee plan as set forth
herein.

 

 

(a)

Elective Transfer. An elective transfer of a Member's benefits between this Plan
and another qualified plan maintained by a transferee shall be available only if
the transfer meets the requirements of Code Section 414(1) and each of the
following requirements have been met:

 

 

(i)

Voluntary Election

 

 

(A)

Member Election. The transfer must have been conditioned upon a voluntary, fully
informed election by the Member to transfer that Member's Accounts to the
transferee plan.

 

 

(B)

Benefit Retention Alternative. In making the voluntary election provided for in
this Section, the Member shall have had the option of retaining the Member's
Account benefits (including all optional forms of benefit) under this Plan.

 

 

(C)

Spousal Election. If Code Sections 401(a)(11) and 417 otherwise apply to the
Account, the spousal consent requirements of that section must have been met
with respect to the transfer of benefits.

 

 

(D)

Notice Requirement. The notice requirement under Code Section 417, if
applicable, must have been met with respect to the Member and spousal transfer
election.

 

 

(ii)

Distributability of Benefits. The Member whose Account is transferred must have
been eligible, under the terms of Article Ten and this Article Eleven, to
receive an immediate distribution from the Plan.

 

 

-40-

 

 

(iii)

Amount of Benefit Transferred. The amount of the benefit transferred must have
equaled the entire nonforfeitable Account balance under the Plan of the Member
whose benefit is being transferred.

 

 

(iv)

Benefit Under the Transferee Plan. The Member must have been fully vested in the
transferred benefit in the transferee plan.

 

 

(b)

Status of Elective Transfer as Distribution. The transfer of benefits pursuant
to the elective transfer rules of this Section 11.8 generally is to be treated
as a distribution of a Member's accrued benefit under the Plan. However, the
transfer is not to be treated as a distribution for purposes of the minimum
distribution requirements of Section 401(a)(9).

 

11.9

Elective Transfer to Plan. With the permission of the Committee, the Plan shall
accept elective transfers from plans qualified under Code Section 401(a) that
result from an acquisition of assets or a subsidiary by the Company, within the
meaning of Code Section 401(k)(10), provided that the elective transfer meets
the requirements of Code Section 414(1) and Treasury Regulation 1.411(d)(4),
Q&A-3(b).

 

11.10

Waiver of Notice Period. Except as provided in the following sentence, if the
value of the Vested Share of a Member's Accounts exceeds $5,000, an election by
the Member or Deferred Member to receive a distribution shall not be valid
unless the written election is made (a) after the Member has received the notice
required under Section 1.411(a)-11(c) of the Income Tax Regulations and (b)
within a reasonable time before the effective date of the commencement of the
distribution as prescribed by those regulations. If a distribution is one to
which Sections 401(a)(11) and 417 of the Code do not apply, the distribution may
commence less than 30 days after the notice required under Section
1.411(a)-11(c) of the Income Tax Regulations is given, provided that:

 

 

(i)

the Committee clearly informs the Member or Deferred Member that he or she has a
right to a period of at least 30 days after receiving the notice to consider the
decision of whether or not to elect a distribution (and, if applicable, a
particular distribution option), and

 

 

(ii)

the Member or Deferred Member, after receiving the notice under Sections 411 and
417, affirmatively elects a distribution.

 

If the distribution is one to which Sections 401(a)(11) and 417 of the Code do
apply, a Member may, after receiving the notice required under Sections 411 and
417 of the Code, affirmatively elect to have his or her benefit commence sooner
than 30 days following his or her receipt of the required notice, provided all
of the following requirements are met:

 

 

(i)

the Committee clearly informs the Member that he or she has a period of at least
30 days after receiving the notice to decide when to have distribution of his or
her benefit begin, and if applicable, to choose a particular optional form of
payment;

 

 

-41-

 

(ii)

the Member or Deferred Member affirmatively elects a date for benefits to begin,
and, if applicable, an optional form of payment, after receiving the notice;

 

 

(iii)

the Member or Deferred Member is permitted to revoke his or her election until
the later of his or her annuity starting date or seven days following the day he
or she received the notice;

 

 

(iv)

the Member’s or Deferred Member's annuity starting date is after the date the
notice is provided; and

 

 

(v)

payment does not commence less than seven days following the day after the
notice is received by the Member or Deferred Member.

 

ARTICLE TWELVE

MANAGEMENT OF FUNDS

12.1

ESI Employee Benefit Plan Administration and Investment Committee. The ESI
Employee Benefit Plan Administration and Investment Committee, as appointed
pursuant to Section 13.1, shall be responsible, except as otherwise herein
expressly provided, for the management of the assets of the Plan.

 

The Committee is designated a named fiduciary of the Plan within the meaning of
Section 402(a) of ERISA and shall have the authority, powers, and
responsibilities delegated and allocated to it from time to time by resolutions
of the Board of Directors, including, but not by way of limitation, the
authority to establish one or more trusts for the Plan pursuant to trust
instrument(s) approved or authorized by the Committee and subject to the
provisions of the trust instrument(s) to:

 

 

(a)

provide, consistent with the provisions of the Plan, direction to the Trustee
thereunder, which may involve but need not be limited to direction of investment
of Plan assets and the establishment of investment criteria, and

 

 

(b)

appoint and provide for use of investment advisors and investment managers
(within the meaning of Section 3(38)) of ERISA.

 

In discharging its responsibility, the Committee shall evaluate and monitor the
investment performances of the Trustee and investment managers, if any.

 

12.2

Trust Fund. All the funds of the Plan shall be held by a Trustee appointed from
time to time by the Committee in one or more trusts under a trust instrument or
instruments approved or authorized by the Committee for use in providing the
benefits of the Plan; provided that no part of the corpus or income of the Trust
Fund shall be used for, or diverted to, purposes other than for the exclusive
benefit of Members, Deferred Members, and Beneficiaries.

 

12.3

Reports to Members and Deferred Members. Each quarter, at a time to be
determined by the Committee, each Member and Deferred Member shall be furnished
a written statement setting forth the value of each of his or her Accounts,
together with a statement of the amounts contributed to each such Account by
himself or herself and by the Company on his or her behalf and the vested

 

 

-42-

amount of the Company Matching Contribution Account or the earliest time a
portion of the Company Matching Contribution Account will become vested.

 

12.4

Fiscal Year. The fiscal year of the Plan and the Trust shall end on December 31
of each year or at such other date as may be designated by the Committee.

 

ARTICLE THIRTEEN

ADMINISTRATION OF PLAN

13.1

Appointment of Committee. From time to time, the Board of Directors or an
officer of ESI to whom authority has been delegated by the Board of Directors
shall appoint not less than five persons to serve as the ESI Employee Benefit
Plan Administration and Investment Committee during the pleasure of the
appointing Board of Directors or officer and shall designate a chairman of the
Committee from among the members and a secretary who may be, but need not be,
one of the members of the Committee. Any person so appointed may resign at any
time by delivering his or her written resignation to the secretary of ESI and
the chairman or secretary of the Committee. Notwithstanding any vacancies, the
Committee may act so long as there are at least three members of the Committee.

 

13.2

Powers of Committee.

 

 

(a)

The Committee is designated a named fiduciary within the meaning of
Section 402(a) of the ERISA, and shall have authority and responsibility for
general supervision of the administration of the Plan. For purposes of the
regulations under Section 404(c) of ERISA, the Committee shall be the designated
fiduciary responsible for safeguarding the confidentiality of all information
relating to the purchase, sale and holding of employer securities and the
exercise of shareholder rights appurtenant thereto. In addition, for purposes of
avoiding any situation for undue employer influence in the exercise of any
shareholder rights, the Committee shall appoint an independent fiduciary, who
shall not be affiliated with any sponsor of the Plan, to ensure the maintenance
of confidentiality pursuant to the regulations under Section 404(c) of ERISA.

 

 

(b)

The Committee shall establish such policies, rules, and regulations as it may
deem necessary to carry out the provisions of the Plan and transactions of its
business, including, without limitation, such rules and regulations that may
become necessary with respect to loans and any defaults thereof.

 

 

(c)

Except as to matters that are required by law to be determined or performed by
the Board of Directors, or that from time to time the Board may reserve to
itself or allocate or delegate to officers of ESI or to another committee, the
Committee shall determine with discretionary authority any question arising in
the administration, interpretation, and application of the Plan, including the
right to remedy possible ambiguities, inconsistencies, or commissions. Such
determinations shall be final, conclusive, and binding on all parties affected
thereby.

 

 

(d)

The Committee shall have the right to exercise powers reserved to the Board of
Directors hereunder to the extent that the right to exercise those powers may
from time to time be

 

 

-43-

allocated or delegated to the Committee by the Board of Directors and to such
further extent that, in the judgment of the Committee, the exercise of such
powers does not involve any material cost to the Company.

 

 

(e)

The Committee may retain counsel, employ agents, and provide for such clerical,
accounting, and other services as it may require in carrying out the provisions
of the Plan.

 

 

(f)

The Committee may appoint from its number such committees with such powers as it
shall determine and may authorize one or more of its number or any agent to
execute or deliver any instrument or make any payment on its behalf.

 

 

(g)

The Committee may delegate to an administrator the responsibility of
administering and operating the details of the Plan in accordance with the
provisions of the Plan and any policies that, from time to time, may be
established by the Committee.

 

13.3

Committee Action. Action by the Committee may be taken by majority vote at a
meeting upon such notice, or upon waiver of notice, and at such time and place
as it may determine from time to time; or action may be taken by written consent
of a majority of the members without a meeting with the same effect for all
purposes as if assented to at a meeting.

 

13.4

Compensation. No member of the Committee shall receive any compensation for his
or her services as such and, except as required by law, no bond or other
security shall be required of him or her in such capacity in any jurisdiction.

 

13.5

Committee Liability. The members of the Committee shall use that degree of care,
skill, prudence, and diligence in carrying out their duties that a prudent man,
acting in a like capacity and familiar with such matters, would use in his or
her conduct of a similar situation. A member of the Committee shall not be
liable for the breach of fiduciary responsibility of another fiduciary unless:

 

 

(a)

he or she participates knowingly in, or knowingly undertakes to conceal, an act
or omission of the fiduciary, knowing that the act or omission is a breach; or

 

 

(b)

by his or her failure to discharge his or her duties solely in the interest of
the Members and other persons entitled to benefits under the Plan, for the
exclusive purpose of providing benefits and defraying reasonable expenses of
administering the Plan not met by the Company, he or she has enabled the other
fiduciary to commit a breach; or

 

 

(c)

he or she has knowledge of a breach by the other fiduciary and does not make
reasonable efforts to remedy the breach; or

 

 

(d)

the Committee improperly allocates responsibilities among its members or to
others and he or she fails prudently to review such allocation.

 

 

-44-

ARTICLE FOURTEEN

AMENDMENT AND TERMINATION

14.1

Amendment. The Board of Directors or its delegate reserves the right at any time
and from time to time, and retroactively if deemed necessary or appropriate to
conform with governmental regulations or other policies, to modify or amend in
whole or in part any or all of the provisions of the Plan; provided that no such
modification or amendment (i) shall make it possible for any part of the funds
of the Plan to be used for, or diverted to, purposes other than for the
exclusive benefit of Members, Deferred Members, and Beneficiaries; or (ii) shall
increase the duties of the Trustee without its consent thereto in writing.
Except as may be required to conform with governmental regulations, no such
amendment shall adversely affect the rights of any Member or Deferred Member
with respect to contributions made on his or her behalf prior to the date of the
amendment.

 

14.2

Termination of Plan.

 

 

(a)

The Plan is entirely voluntary on the part of the Company. The Board of
Directors reserves the right at any time to terminate the Plan, the trust
agreement, and the trust hereunder, or to suspend, reduce, or partially or
completely discontinue contributions to the Plan. In the event of a termination
or partial termination of the Plan or complete discontinuance of contributions,
the interests of Members and Deferred Members shall automatically become
nonforfeitable.

 

 

(b)

In the event of a termination or partial termination or complete discontinuance,
any forfeitures not previously applied in accordance with Section 5.5 shall be
credited ratably to the Accounts of all Members and Deferred Members in
proportion to the amounts of Matching Company Contributions made pursuant to
Section 5.1 credited during the current calendar year or, if no Matching Company
Contributions have been made during the current calendar year, then in
proportion to the Matching Company Contributions during the last previous
calendar year during which Matching Company Contributions were made.

 

 

(c)

Upon termination of the Plan, Pre-Tax Savings, with earnings thereon, shall be
distributed to Members only if (i) neither the Company nor an Associated Company
establishes or maintains a successor defined contribution plan, and (ii) payment
is made to the Members in the form of a lump sum distribution (as defined in
Section 402(d)(4) of the Code, without regard to clauses (i) through (iv) of
subparagraph (A), subparagraph (B), or subparagraph (F) thereof). For purposes
of this paragraph, a "successor defined contribution plan" is a defined
contribution plan (other than an employee stock ownership plan as defined in
Section 4975(e)(7) of the Code ("ESOP") or a simplified employee pension as
defined in Section 408(k) of the Code ("SEP")) that exists at the time the Plan
is terminated or within the 12 month period beginning on the date all assets are
distributed. However, in no event shall a defined contribution plan be deemed a
successor plan if fewer than 2% of the employees who are eligible to participate
in the Plan at the time of its termination are or were eligible to participate
under another defined contribution plan of the Company or an Associated Company
(other than an ESOP or a SEP) at any time during the period beginning 12 months
before and ending 12 months after the date of the Plan's termination.

 

 

-45-

 

14.3

Merger or Consolidation of Plan. The Plan may not be merged or consolidated
with, nor may its assets or liabilities be transferred to, any other plan unless
each Member, Deferred Member, or Beneficiary under the Plan would, if the
resulting plan were then terminated, receive a benefit immediately after the
merger, consolidation, or transfer that is equal to or greater than the benefit
he or she would have been entitled to receive immediately before the merger,
consolidation, or transfer if the Plan had then terminated.

 

14.4

Transfer from ITT Plan. On the Offering Date, the Trustee shall accept from the
trustee of the ITT Plan a transfer of the assets of the ITT Plan attributable to
the accounts in that plan of individuals who are Employees as of the Effective
Date. Amounts received with respect to a Member or Deferred Member from the ITT
Plan shall be credited under the Plan as follows:

 

 

(a)

Amounts credited to a Member's or Deferred Member's pre-tax investment account
in the ITT Plan shall be credited to his or her Pre-Tax Investment Account.

 

 

(b)

Amounts credited to a Member's or Deferred Member's after-tax investment account
in the ITT Plan shall be credited to his or her ITT After-Tax Investment
Account.

 

 

(c)

Amounts credited to a Member's or Deferred Member's ITT Floor Contribution
Account in the ITT Plan shall be credited to his or her ITT Floor Contribution
Account.

 

 

(d)

Amounts credited to a Member's or Deferred Member's rollover account in the ITT
Plan shall be credited to his or her Rollover Account.

 

 

(e)

Amounts credited to a Member's or Deferred Member's ESOP account in the ITT Plan
shall be credited to his or her ESOP Account.

 

 

(f)

Amounts credited to a Member's or Deferred Member's company retirement
contribution account in the ITT Plan shall be credited to his or her Retirement
Contribution Account.

 

 

(g)

Amounts credited to a Member's or Deferred Member's company matching
contribution account in the ITT Plan shall be credited to his or her Company
Matching Contribution Account.

 

ARTICLE FIFTEEN

TENDER OFFER

15.1

Applicability. Notwithstanding any other Plan provision to the contrary, the
provisions of this Article Fifteen shall apply in the event any person, either
alone or in conjunction with others, makes a tender offer, or exchange offer or
otherwise offers to purchase or solicits an offer to sell to that person 10% or
more of the outstanding shares of a class of ESI Stock held by a Trustee (herein
jointly and severally referred to as a "tender offer"). As to any tender offer,
each Member and Deferred Member (or Beneficiary in the event of the death of the
Member or Deferred Member) shall have the right to determine confidentially
whether shares held subject to the Plan will be tendered.

 

 

-46-

15.2

Instructions to Trustee. In the event a tender offer for ESI Stock is commenced,
the Committee, promptly after receiving notice of the commencement of the tender
offer, shall transfer certain of its recordkeeping functions to an independent
recordkeeper. The functions so transferred shall be those necessary to preserve
the confidentiality of any directions given by the Members and Deferred Members
(or Beneficiary in the event of the death of the Member or Deferred Member) in
connection with the tender offer. A Trustee may not take any action in response
to a tender offer except as otherwise provided in this Article Fifteen. Each
Member is, for all purposes of this Article Fifteen, hereby designated a named
fiduciary within the meaning of Section 402(a)(2) of ERISA, with respect to the
shares of ESI Stock allocated to his or her Accounts. Each Member and Deferred
Member (or Beneficiary in the event of the death of the Member or Deferred
Member) may direct the Trustee to sell, offer to sell, exchange, or otherwise
dispose of the ESI Stock allocated to any such individual's Accounts in
accordance with the provisions, conditions, and terms of the tender offer and
the provisions of this Article Fifteen, provided, however, that such directions
shall be confidential and shall not be divulged by the Trustee or independent
recordkeeper to the Company or to any director, officer, employee, or agent of
the Company, it being the intent of this provision of Section 15.2 to ensure
that the Company (and its directors, officers, employees, and agents) cannot
determine the direction given by any Member, Deferred Member, or Beneficiary.
The instructions shall be in the form and shall be filed in the manner and at
the time prescribed by the Trustee.

 

15.3

Trustee Action on Member Instructions. The Trustee shall sell, offer to sell,
exchange, or otherwise dispose of the ESI Stock allocated to a Member's,
Deferred Member's, or Beneficiary's Accounts with respect to which it has
received directions to do so under this Article Fifteen. The proceeds of a
disposition directed by a Member, Deferred Member, or Beneficiary from his or
her Accounts under this Article Fifteen shall be allocated to the individual's
Accounts and be governed by the provisions of Section 15.5 or other applicable
provisions of the Plan and the trust agreements established under the Plan.

 

15.4

Action With Respect to Members Not Instructing the Trustee or not Issuing Valid
Instructions. To the extent that Members, Deferred Members, and Beneficiaries do
not issue valid directions to the Trustee to sell, offer to sell, exchange, or
otherwise dispose of the ESI Stock allocated to their Accounts, those
individuals shall be deemed to have directed the Trustee that such shares remain
invested in ESI Stock subject to all provisions of the Plan, including
Section 15.5.

 

15.5

Investment of Plan Assets after Tender Offer. To the extent possible, the
proceeds of a disposition of ESI Stock in an individual's Accounts shall be
reinvested in ESI Stock by the Trustee as expeditiously as possible in the
exercise of the Trustee's fiduciary responsibility and shall otherwise be held
by the Trustee subject to the provisions of the trust agreement and the Plan. In
the event that ESI Stock is no longer available to be acquired following a
tender offer, the Company may direct the substitution of new employer securities
for the ESI Stock or for the proceeds of any disposition of ESI Stock. Pending
the substitution of new employer securities or the termination of the Plan and
trust, the Trust Fund shall be invested in such securities as the Trustee shall
determine; provided, however, that, pending such investment, the Trustee shall
invest the cash proceeds in short-term securities issued by the United States of
America or any agency or

 

 

-47-

instrumentality thereof or any other investments of a short-term nature,
including corporate obligations or participations therein and interim collective
or common investment funds.

 

ARTICLE SIXTEEN

GENERAL AND ADMINISTRATIVE PROVISIONS

16.1

Relief from Liability. Except with respect to amounts invested in the ESI Stock
Fund, the Plan is intended to constitute a Plan as described in Section 404(c)
of ERISA and Title 29 of the Code of Federal Regulations Section 2550.404c-1.
The Plan fiduciaries are relieved of any liability for any losses that are the
direct and necessary result of investment instructions given by any Member,
Deferred Member, or Beneficiary.

 

16.2

Payment of Expenses.

 

 

(a)

Direct charges and expenses arising out of the purchase or sale of securities
and taxes levied on or measured by such transactions, and any investment
management fees, with respect to any Fund, may be paid in whole or in part by
the Company. Any such charges, expenses, taxes and fees not paid by the Company
shall be paid from the Fund with respect to which they are incurred.

 

(b)

Expenses incurred in conjunction with Plan administration, including, but not
limited to, investment management, Trustee, recordkeeping, and audit fees shall
be paid from the assets held by the Trust Fund to the extent such expenses are
not paid directly by the Company.

 

16.3

Source of Payment. Benefits under the Plan shall be payable only out of the
Trust Fund, and the Company shall not have any legal obligation, responsibility,
or liability to make any direct payment of benefits under the Plan. Neither the
Company nor the Trustee guarantees the Trust Fund against any loss or
depreciation or guarantees the payment of any benefit under the Plan. No person
shall have any rights under the Plan with respect to the Trust Fund, or against
the Company, except as specifically provided for the Plan.

 

16.4

Inalienability of Benefits.

 

 

(a)

Except as specifically provided in the Plan or as applicable law may otherwise
require or as may be required under the terms of a Qualified Domestic Relations
Order, no benefit under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any
attempts to do so shall be void, and no Plan benefit shall be in any manner
liable for or subject to debts, contracts, liabilities, engagements, or torts of
the person entitled to the benefit. In the event that the Committee finds that
any Member, Deferred Member, or Beneficiary who is or may become entitled to
benefits hereunder has become bankrupt or that any attempt has been made to
anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge any of
his or her benefits under the Plan, except as specifically provided in the Plan
or as otherwise required by applicable law, then the benefit shall cease and
terminate, and in that event the Committee shall hold or apply the same to or
for the benefit of the Member, Deferred Member, or Beneficiary who is or may
become entitled to benefits hereunder, his or her spouse, children, parents or
other relatives, or any of them.

 

 

-48-

 

 

(b)

Notwithstanding the foregoing, payment shall be made in accordance with the
provisions of a Qualified Domestic Relations Order.

 

Notwithstanding anything herein to the contrary, if the amount payable to an
alternate payee under a Qualified Domestic Relations Order is $1,000 or less,
the amount shall be paid in one lump sum as soon as practicable following the
qualification of the order. If the amount exceeds $1,000, it may be paid as soon
as practicable following the qualification of the order if the Qualified
Domestic Relations Order so provides and the alternate payee consents thereto;
otherwise it may not be payable before the earliest of (i) the Member's
Termination of Employment, (ii) the time the amount could be withdrawn under
Article Ten, or (iii) the Member's attainment of age 50.

 

16.5

Prevention of Escheat. If the Committee cannot ascertain the whereabouts of any
person to whom a payment is due under the Plan, the Committee may, no earlier
than three years from the date the payment is due, mail a notice of the due and
owing payment to the last known address of the person, as shown on the records
of the Committee or the Company. If the person has not made written claim for
the benefit within three months of the date of the mailing, the Committee may,
if it so elects and upon receiving advice from counsel to the Plan, direct that
the payment and all remaining payments otherwise due such person be canceled on
the records of the Plan and the amount thereof applied to reduce the
contributions to the Company. Upon the cancellation, the Plan and the Trust
shall have no further liability therefor except that, in the event the person or
his beneficiary later notifies the Committee of his or her whereabouts and
requests the payment or payments due to him under the Plan, the amount so
applied shall be paid to him or her in accordance with the provisions of the
Plan.

 

16.6

Return of Contributions.

 

 

(a)

If all or part of the Company's deductions for contributions to the Plan are
disallowed by the Internal Revenue Service, the portion of the contributions to
which that disallowance applies shall be returned to the Company without
interest but reduced by any investment loss attributable to those contributions,
provided that the contribution is returned within one year after the
disallowance of deduction. For this purpose, all contributions made by the
Employer are expressly declared to be conditioned upon their deductibility under
Section 404 of the Code.

 

 

(b)

The Company may recover without interest the amount of its contributions to the
Plan made on account of a mistake of fact, reduced by any investment loss
attributable to those contributions, if recovery is made within one year after
the date of those contributions.

 

 

(c)

In the event that Pre-Tax Savings made under Section 4.1 are returned to the
Company in accordance with the provisions of this Section 16.6, the elections to
reduce Salary that were made by Members on whose behalf those contributions were
made shall be void retroactively to the beginning of the period for which those
contributions were made. The Pre-Tax Savings so returned shall be distributed in
cash to those Members for whom those contributions were made.

 

 

-49-

16.7

Facility of Payment. If the Committee shall find that a Member or other person
entitled to a benefit is unable to care for his or her affairs because of
illness or accident or is a minor, the Committee may direct that any benefit due
him or her, unless claim shall have been made for the benefit by a duly
appointed legal representative, be paid to his or her spouse, a child, a parent
or other relative, or to a person with whom he or she resides. Any payment so
made shall be a complete discharge of the liabilities of the Plan for that
benefit.

 

16.8

Information. Each Member, Deferred Member, Beneficiary, or other person entitled
to a benefit, before any benefit shall be payable to him or her or on his or her
account under the Plan, shall file with the Committee the information that it
shall require to establish his or her rights and benefits under the Plan.

 

16.9

Exclusive Benefit Rule. Except as otherwise provided in the Plan, no part of the
corpus or income of the funds of the Plan shall be used for, or diverted to,
purposes other than for the exclusive benefit of Members and other persons
entitled to benefits under the Plan and paying the expenses of the Plan not paid
directly by the Company. No person shall have any interest in, or right to, any
part of the earnings of the funds of the Plan, or any right in, or to, any part
of the assets held under the Plan, except as and to the extent expressly
provided in the Plan.

 

16.10

No Right to Employment. Nothing herein contained nor any action taken under the
provisions hereof shall be construed as giving any Employee or Member the right
to be retained in the employ of the Company.

 

16.11

Uniform Action. Action by the Committee shall be uniform in nature as applied to
all persons similarly situated, and no such action shall be taken that will
discriminate in favor of any Members who are Highly-Compensated Employees.

 

16.12

Headings. The headings of the sections in this Plan are placed herein for
convenience of reference and in the case of any conflict, the text of the Plan
rather than the headings, shall control.

 

16.13

Construction. The Plan shall be construed, regulated and administered in
accordance with the internal laws of the state of Indiana, subject to the
provisions of applicable federal laws.

 

ARTICLE SEVENTEEN

TOP-HEAVY PROVISIONS

17.1

Definitions. The following definitions apply to the terms used in this Section:

 

 

(a)

"applicable determination date" means the last day of the later of the first
Plan Year or the preceding Plan Year;

 

 

(b)

"top-heavy ratio" means the ratio of (A) the value of the aggregate of the
Accounts under the Plan for key employees to (B) the value of the aggregate of
the Accounts under the Plan for all key employees and non-key employees;

 

 

(c)

"key employee" means an employee who is in a category of employees determined in
accordance with the provisions of Sections 416(i)(1) and (5) of the Code and any

 

 

-50-

regulations thereunder, and where applicable, on the basis of the Employee's
Statutory Compensation from the Company or an Associated Company;

 

 

(d)

"non-key employee" means any Employee who is not a key employee;

 

 

(e)

"applicable Valuation Date" means the Valuation Date coincident with or
immediately preceding the last day of the first Plan Year or the preceding Plan
Year, whichever is applicable;

 

 

(f)

"required aggregation group" means any other qualified plan(s) of the Company or
an Associated Company in which there are members who are key employees or that
enable(s) the Plan to meet the requirements of Section 401(a)(4) or 410 of the
Code; and

 

 

(g)

"permissive aggregation group" means each plan in the required aggregation group
and any other qualified plan(s) of the Company or an Associated Company in which
all members are non-key employees, if the resulting aggregation group continues
to meet the requirements of Sections 401(a)(4) and 410 of the Code.

 

17.2

Determination of Top-Heavy Status. For purposes of this Section, the Plan shall
be "top-heavy" with respect to any Plan Year if as of the applicable
determination date the top-heavy ratio exceeds 60 percent. The top-heavy ratio
shall be determined as of the applicable Valuation Date in accordance with
Sections 416(g)(3) and (4) of the Code and Article Eight of this Plan, and shall
take into account any contributions made after the applicable Valuation Date but
before the last day of the Plan Year in which the applicable Valuation Date
occurs. For purposes of determining whether the Plan is top-heavy, the account
balances under the Plan will be combined with the account balances or the
present value of accrued benefits under each other plan in the required
aggregation group and, in the Company's discretion, may be combined with the
account balances or the present value of accrued benefits under any other
qualified plan in the permissive aggregation group. Distributions made with
respect to a Member under the Plan during the five-year period ending on the
applicable determination date shall be taken into account for purposes of
determining the top-heavy ratio; distributions under plans that terminated
within that five-year period shall also be taken into account, if any such plan
contained key employees and therefore would have been part of the required
aggregation group.

 

17.3

Minimum Requirements. For any Plan Year with respect to which the Plan is
top-heavy, an additional Company contribution shall be allocated on behalf of
each Member (or each Employee eligible to become a Member) who is not a "key
employee," and who has not separated from service as of the last day of the Plan
Year, to the extent that the amounts allocated to his or her Accounts as a
result of contributions made on his or her behalf under Sections 5.1 and 5.2 for
the Plan Year would otherwise be less than 3 percent of his or her Statutory
Compensation. However, if the greatest percentage of Statutory Compensation
contributed on behalf of a "key employee" under Section 4.1 or allocated to his
or her Accounts as a result of contributions made pursuant to Section 5.1 for
the Plan Year would be less than 3%, that lesser percentage shall be substituted
for "3%" in the preceding sentence. Notwithstanding the foregoing provisions of
this Section 17.3, no minimum contribution shall be made with respect to a
Member if the required minimum benefit under Section 416(c)(1) of the Code is
provided by the ESI Pension Plan.

 

 

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ARTICLE EIGHTEEN

AMENDMENT OF THE PLAN FOR EGTRRA

18.1

Adoption and Effective Date of Amendment. This Article of the Plan is adopted to
reflect certain provisions of the Economic Growth and Tax Relief Reconciliation
Act of 2001 (EGTRRA). This Article is intended as good faith compliance with the
requirements of EGTRRA and is to be construed in accordance with EGTRRA and
guidance issued under it. Except as otherwise provided, this Article shall be
effective as of the first day of the first Plan Year beginning after
December 31, 2001.

 

18.2

Supersession of Inconsistent Provisions. This Article shall supersede the
provisions of the Plan to the extent those provisions are inconsistent with the
provisions of this Article.

 

18.3

Limitation on Contributions.

 

 

(a)

This Section shall be effective for limitation years beginning after
December 31, 2001.

 

 

(b)

Except to the extent permitted under Section 18.11 and Section 414(v) of the
Code, the annual addition that may be contributed or allocated to a Member's
Accounts under the Plan for any limitation year shall not exceed the lesser of:

 

 

(i)

$40,000, as adjusted for increases in the cost-of-living under Section 415(d) of
the Code, or

 

 

(ii)

100 percent of the Member's compensation, within the meaning of Section 415(c)
of the Code for the limitation year.

 

The compensation limit referred to in (ii) shall not apply to any contribution
for medical benefits after separation from service (within the meaning of
Sections 401(h) or 419A(f)(2) of the Code), which is otherwise treated as an
annual addition.

 

18.4

Increase in Compensation Limit. The annual compensation of each Member taken
into account in determining allocations for any Plan Year beginning after
December 31, 2001, shall not exceed $200,000, as adjusted for cost-of-living
increases in accordance with Section 401(a)(17)(B) of the Code. Annual
compensation means compensation during the Plan Year or such other consecutive
12-month period over which compensation is otherwise determined under the Plan
(the determination period). The cost-of-living adjustment in effect for a
calendar year applies to annual compensation for the determination period that
begins with or within such calendar year.

 

18.5

Modification of Top-Heavy Rules.

 

 

(a)

This Section shall apply for purposes of determining whether the Plan is a
top-heavy Plan under Section 416(g) of the Code for Plan Years beginning after
December 31, 2001, and whether the Plan satisfies the minimum benefits
requirements of Section 416(c) of the Code for such years. This Section amends
Article Seventeen of the Plan.

 

 

-52-

 

(b)

In determining the Plan's top-heavy status, the following rules shall apply:

 

 

(i)

"Key employee" means any Employee or former Employee (including any deceased
Employee) who at any time during the Plan Year that includes the determination
date was an officer of the Company having annual compensation greater than
$130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years
beginning after December 31, 2002), a 5-percent owner of the Company, or a
1-percent owner of the Company having annual compensation of more than $150,000.
For this purpose, annual compensation means compensation within the meaning of
Section 415(c)(3) of the Code. The determination of who is a key employee will
be made in accordance with Section 416(i)(1) of the Code and the applicable
regulations and other guidance of general applicability issued hereunder.

 

 

(ii)

This paragraph (ii) shall apply for purposes of determining the present values
of accrued benefits and the amounts of account balances of Employees as of the
determination date.

 

 

(A)

The present values of accrued benefits and the amounts of Account balances of an
Employee as of the determination date shall be increased by the distributions
made with respect to the Employee under the Plan and any plan aggregated with
the Plan under Section 416(g)(2) of the Code during the 1-year period ending on
the determination date. The preceding sentence shall also apply to distributions
under a terminated plan which, had it not terminated, would have been aggregated
with the Plan under Section 416(g)(2)(A)(i) of the Code. In the case of a
distribution made for a reason other than separation from service, death, or
disability, this provision shall be applied by substituting 5-year period for
1-year period.

 

 

(B)

The accrued benefits and accounts of any individual who has not performed
services for the employer during the 1-year period ending on the determination
date shall not be taken into account.

 

 

(c)

In determining minimum benefits under the Plan, the following rules shall apply:

 

 

(i)

Company matching contributions shall be taken into account for purposes of
satisfying the minimum contribution requirements of Section 416(c)(2) of the
Code and the Plan. The preceding sentence shall apply with respect to matching
contributions under the Plan or, if the Plan provides that the minimum
contribution requirement shall be met in another plan, such other plan. Company
matching contributions that are used to satisfy the minimum contribution
requirements shall be treated as matching contributions for purposes of the
actual contribution percentage test and other requirements of Section 401(m) of
the Code.

 

 

(ii)

Pursuant to Section 17.3, no minimum contribution shall be made with respect to
a Member if the required minimum benefit under Section 416(c)(1) of the Code is
provided by the ESI Pension Plan.

 

 

-53-

 

18.6

Direct Rollovers of Plan Distributions.

 

 

(a)

This Section shall apply to distributions made after December 31, 2001.

 

 

(b)

For purposes of the direct rollover provisions in Section 11.7 of the Plan, an
eligible retirement plan shall also mean an annuity contract described in
Section 403(b) of the Code and an eligible plan under Section 457(b) of the
Code, which is maintained by a state, political subdivision of a state, or any
agency or instrumentality of a state or political subdivision of a state and
which agrees to separately account for amounts transferred into such plan from
this Plan. The definition of eligible retirement plan shall also apply in the
case of a distribution to a surviving spouse, or to a spouse or former spouse
who is the alternate payee under a Qualified Domestic Relations Order.

 

 

(c)

For purposes of the direct rollover provisions in Section 11.7 of the Plan, any
amount that is distributed on account of hardship shall not be an eligible
rollover distribution and the distributee may not elect to have any portion of
such distribution paid directly to an eligible retirement plan.

 

 

(d)

For purposes of the direct rollover provisions in Section 11.7 of the Plan, a
portion of a distribution shall not fail to be an eligible rollover distribution
merely because the portion consists of after-tax employee contributions that are
not includible in gross income. However, such portion may be transferred only to
an individual retirement account or annuity described in Sections 408(a) or (b)
of the Code, or to a qualified defined contribution plan described in
Section 401(a) or 403(a) of the Code that agrees to separately account for
amounts so transferred, including separately accounting for the portion of such
distribution that is includible in gross income and the portion of such
distribution that is not so includible.

 

18.7

Rollovers From Other Plans. The Plan will accept Member rollover contributions
and/or direct rollovers of distributions made after December 31, 2001, as
directed below.

 

 

(a)

The Plan will accept a direct rollover of an eligible rollover distribution
from:

 

 

(i)

A qualified plan described in Section 401(a) or 403(a) of the Code, excluding
after-tax employee contributions.

 

 

(ii)

An annuity contract described in Section 403(b) of the Code, excluding after-tax
employee contributions.

 

 

(iii)

An eligible plan under Section 457(b) of the Code, which is maintained by a
state, political subdivision of a state, or any agency or instrumentality of a
state or political subdivision of a state.

 

 

(b)

The Plan will accept a Member contribution of an eligible rollover distribution
from:

 

 

-54-

 

(i)

A qualified plan described in Section 401(a) or 403(a) of the Code.

 

 

(ii)

An annuity contract described in Section 403(b) of the Code.

 

 

(iii)

An eligible plan under Section 457(b) of the Code, which is maintained by a
state, political subdivision of a state, or any agency or instrumentality of a
state or political subdivision of a state.

 

 

(c)

The Plan will accept a Member rollover contribution of the portion of a
distribution from an individual retirement account or annuity described in
Section 408(a) or 408(b) of the Code that is eligible to be rolled over and
would otherwise be includible in gross income.

 

 

(d)

Rollovers from other plans under this Section shall be effective January 1,
2002.

 

18.8

Rollovers Disregarded in Involuntary Cash-Outs.

 

 

(a)

This Section shall apply to distributions made after December 31, 2001 with
respect to Members who separated from service at any time.

 

 

(b)

For purposes of determining whether a Member's nonforfeitable account balance
exceeds $1,000 under Sections 11.1(b), 11.1(c), 11.2(b), 11.3 and 16.4 of the
Plan, the value of a Member's nonforfeitable account balance shall be determined
with regard to that portion of the account balance that is attributable to
rollover distributions (and earnings allocable thereto) within the meaning of
Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the
Code. If the value of the Participant's nonforfeitable account balance as so
determined is $1,000 or less, the Plan shall immediately distribute the
Participant's entire nonforfeitable account balance. For purposes of determining
whether a Member's nonforfeitable account balance exceeds $5,000 under
Sections 11.2(b) and 11.10 of the Plan, the value of a Member's nonforfeitable
account balance shall be determined without regard to that portion of the
account balance that is attributable to rollover distributions (and earnings
allocable thereto), as described in the first sentence of this Section.

 

18.9

Repeal of Multiple Use Test. The multiple use test described in Treasury
Regulation section 1.401(m)-2 and Section 6.3 of the Plan shall not apply for
Plan Years beginning after December 31, 2001.

 

18.10

Elective Deferrals: Contribution Limitation. No Member shall be permitted to
have elective deferrals made under this Plan, or any other qualified plan
maintained by the employer during any taxable year, in excess of the dollar
limitation contained in Section 402(g) of the Code in effect for such taxable
year, except to the extent permitted under Section 18.11 and Section 414(v) of
the Code.

 

18.11

Catch-Up Contributions. All Employees who are eligible to make elective
deferrals under this Plan and who have attained age 50 before the close of the
Plan Year shall be eligible to make catch-up contributions in accordance with,
and subject to the limitations of, Section 414(v) of the Code. Such catch-up
contributions shall not be taken into account for purposes of the provisions

 

 

-55-

of the Plan implementing the required limitations of Sections 402(g) and 415 of
the Code. The Plan shall not be treated as failing to satisfy the provisions of
the Plan implementing the requirements of Sections 401(k)(3), 401(k)(11),
401(k)(12), 410(b), or 416 of the Code, as applicable, by reason of the making
of such catch-up contributions. Catch-up contributions shall apply to
contributions after December 31, 2001. The Company shall not make a Matching
Company Contribution with respect to any catch-up contributions.

 

18.12

Suspension Period Following Hardship Distribution. A Member who receives a
distribution of elective deferrals after December 31, 2001, on account of
hardship shall be prohibited from making elective deferrals and employee
contributions under this and all other plans of the employer for 6 months after
receipt of the distribution. A Participant who receives a distribution of
elective deferrals in calendar year 2001 on account of hardship shall be
prohibited from making elective deferrals and employee contributions under this
and all other plans of the employer for the period specified in the provisions
of the Plan relating to suspension of elective deferrals that were in effect
prior to this amendment.

 

18.13

Distribution Upon Severance from Employment.

 

 

(a)

This Section shall apply for distributions and severances from employment
occurring after January 1, 2002.

 

 

(b)

A Member's elective deferrals, qualified nonelective contributions, qualified
matching contributions, and earnings attributable to these contributions shall
be distributed on account of the Member's severance from employment. However,
such a distribution shall be subject to the other provisions of the Plan
regarding distributions, other than provisions that require a separation from
service before such amounts may be distributed.

 

ARTICLE NINETEEN

MINIMUM DISTRIBUTION REQUIREMENTS

19.1

General Rules.

 

 

(a)

Effective Date. The provisions of this Article will apply for purposes of
determining required minimum distributions for calendar years beginning with the
2003 calendar year.

 

 

(b)

Precedence. The requirements of this Article will take precedence over any
inconsistent provision of the Plan. For required minimum distributions made for
calendars years beginning with the 2003 calendar year, the requirements of this
Article will replace the rules described in Section 11.1(f).

 

 

(c)

Requirements of Treasury Regulations Incorporated. All distributions required
under this Article will be determined and made in accordance with the Treasury
Regulations under Code Section 401(a)(9).

 

19.2

Time and Manner of Distribution.

 

 

(a)

Required Beginning Date. The Member's entire interest will be distributed, or
begin to be distributed, to the Member no later than the Member's required
beginning date.

 

 

-56-

 

 

(b)

Death of Member Before Distributions Begin. Unless the Member or Beneficiary
elects to apply the Five-Year Rule as provided in Section 19.5, if the Member
dies before distributions begin, the Member's entire interest will be
distributed, or begin to be distributed, no later than as follows:

 

 

(i)

If the Member's surviving spouse is the Member's sole designated Beneficiary,
then distributions to the surviving spouse will begin by December 31 of the
calendar year immediately following the calendar year in which the Member died,
or by December 31 of the calendar year in which the Member would have attained
age 70½, if later.

 

 

(ii)

If the Member's surviving spouse is not the Member's sole designated
Beneficiary, then distributions to the Beneficiary will begin by December 31 of
the calendar year immediately following the calendar year in which the Member
died.

 

 

(iii)

If there is no designated Beneficiary as of September 30 of the year following
the year of the Member's death, the Member's entire interest will be distributed
by December 31 of the calendar year containing the fifth anniversary of the
Member's death.

 

 

(iv)

If the Member's surviving spouse is the Member's sole designated Beneficiary and
the surviving spouse dies after the Member but before distributions to the
surviving spouse begin, this paragraph (b), other than paragraph (b)(i), will
apply as if the surviving spouse were the Member.

 

For purposes of this Section 19.2(b) and Section 19.4, unless Section
19.2(b)(iv) applies, distributions are considered to begin on the Member's
required beginning date. If Section 19.2(b)(iv) applies, distributions are
considered to begin on the date distributions are required to begin to the
surviving spouse under Section 19.2(b)(i). If distributions under an annuity
purchased from an insurance company irrevocably commence to the Member before
the Member's required beginning date (or to the Member's surviving spouse before
the date distributions are required to begin to the surviving spouse under
Section 19.2(b)(i)), the date distributions are considered to begin is the date
distributions actually commence.

 

 

(c)

Forms of Distribution. Unless the Member's interest is distributed in the form
of an annuity purchased from an insurance company or in a single sum on or
before the required beginning date, as of the first distribution calendar year,
distributions will be made in accordance with Sections 19.3 and 19.4. If the
Member's interest is distributed in the form of an annuity purchased from an
insurance company, distributions thereunder will be made in accordance with the
requirements of Code Section 401(a)(9) and the Treasury Regulations.

 

19.3

Required Minimum Distributions During Member's Lifetime.

 

 

(a)

Amount of Required Minimum Distribution For Each Distribution Calendar Year.
During the Member's lifetime, the minimum amount that will be distributed for
each distribution calendar year is the lesser of:

 

 

-57-

 

 

(i)

The quotient obtained by dividing the Member's Account balance by the
distribution period in the Uniform Lifetime Table set forth in Section
1.401(a)(9)-9 of the Treasury Regulations, using the Member's age as of the
Member's birthday in the distribution calendar year; or

 

 

(ii)

If the Member's sole designated Beneficiary for the distribution calendar year
is the Member's spouse, the quotient obtained by dividing the Member's Account
balance by the number in the Joint and Last Survivor Table set forth in Section
1.401(a)(9)-9 of the Treasury Regulations, using the Member's and spouse's
attained ages as of the Member's and spouse's birthdays in the distribution
calendar year.

 

 

(b)

Lifetime Required Minimum Distributions Continue Through Year of Member's Death.
Required minimum distributions will be determined under this Section 19.3
beginning with the first distribution calendar year and up to and including the
distribution calendar year that includes the Member's date of death.

 

19.4

Required Minimum Distributions After Member's Death.

 

 

(a)

Death On or After Date Distributions Begin.

 

 

(i)

Member Survived by Designated Beneficiary. If the Member dies on or after the
date distributions begin and there is a designated Beneficiary, the minimum
amount that will be distributed for each distribution calendar year after the
year of the Member's death is the quotient obtained by dividing the Member's
Account balance by the longer of the remaining life expectancy of the Member or
the remaining life expectancy of the Member's designated Beneficiary, determined
as follows:

 

 

(1)

The Member's remaining life expectancy is calculated using the age of the Member
in the year of death, reduced by one for each subsequent year.

 

 

(2)

If the Member's surviving spouse is the Member's sole designated Beneficiary,
the remaining life expectancy of the surviving spouse is calculated for each
distribution calendar year after the year of the Member's death using the
surviving spouse's age as of the spouse's birthday in that year. For
distribution calendar years after the year of the surviving spouse's death, the
remaining life expectancy of the surviving spouse is calculated using the age of
the surviving spouse as of the spouse's birthday in the calendar year of the
spouse's death, reduced by one for each subsequent calendar year.

 

 

(3)

If the Member's surviving spouse is not the Member's sole designated
Beneficiary, the Beneficiary's remaining life expectancy is calculated using the
age of the Beneficiary in the year following the year of the Member's death,
reduced by one for each subsequent year.

 

 

-58-

 

(ii)

No Designated Beneficiary. If the Member dies on or after the date distributions
begin and there is no designated Beneficiary as of September 30 of the year
after the year of the Member's death, the minimum amount that will be
distributed for each distribution calendar year after the year of the Member's
death is the quotient obtained by dividing the Member's Account balance by the
Member's remaining life expectancy calculated using the age of the Member in the
year of death, reduced by one for each subsequent year.

 

 

(b)

Death Before Date Distributions Begin. Unless the Member or Beneficiary elects
to apply the Five-Year Rule as provided in Section 19.5, if the Member dies
before distributions begin, the Member's entire interest will be distributed, or
begin to be distributed, no later than as follows:

 

 

(i)

Member Survived by Designated Beneficiary. If the Member dies before the date
distributions begin and there is a designated Beneficiary, the minimum amount
that will be distributed for each distribution calendar year after the year of
the Member's death is the quotient obtained by dividing the Member's Account
balance by the remaining life expectancy of the Member's designated Beneficiary,
determined as provided in paragraph (a).

 

 

(ii)

No Designated Beneficiary. If the Member dies before the date distributions
begin and there is no designated Beneficiary as of September 30 of the year
following the year of the Member's death, distribution of the Member's entire
interest will be completed by December 31 of the calendar year containing the
fifth anniversary of the Member's death.

 

 

(iii)

Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required
to Begin. If the Member dies before the date distributions begin, the Member's
surviving spouse is the Member's sole designated Beneficiary, and the surviving
spouse dies before distributions are required to begin to the surviving spouse
under Section 19.2(b)(i), this paragraph (b) will apply as if the surviving
spouse were the Member.

 

19.5

Election to Use Five-Year Rule. A Member or Beneficiary may elect to apply the
Five-Year Rule or the life expectancy rule of Sections 19.2(b) or 19.4(b). The
Member's or Beneficiary's election must be made no later than the earlier of
September 30 of the calendar year in which distribution would be required to
begin under Section 19.2(b), or by September 30 of the calendar year which
contains the fifth anniversary of the Member's (or, if applicable, surviving
spouse's) death.

 

19.6

Definitions.

 

 

(a)

Designated Beneficiary. A "designated Beneficiary" is an individual who is
designated as the Beneficiary under Section 2.9 of the Plan and is the
designated Beneficiary under Code Section 401(a)(9) and Treasury Regulation
1.401(a)(9)-1, Q&A-4.

 

 

-59-

 

(b)

Distribution Calendar Year. A "distribution calendar year" is the calendar year
for which a minimum distribution is required. For distributions beginning before
the Member's death, the first distribution calendar year is the calendar year
immediately preceding the calendar year which contains the Member's required
beginning date. For distributions beginning after the Member's death, the first
distribution calendar year is the calendar year in which distributions are
required to begin under Section 19.2(b). The required minimum distribution for
the Member's first distribution calendar year will be made on or before the
Member's required beginning date. The required minimum distribution for other
distribution calendar years, including the required minimum distribution for the
distribution calendar year in which the Member's required beginning date occurs,
will be made on or before December 31 of that distribution calendar year.

 

 

(c)

Five-Year Rule. The "Five-Year Rule" requires that a Member's entire interest be
distributed by December 31 of the calendar year containing the fifth anniversary
of the Member's death.

 

 

(d)

Life Expectancy. "Life expectancy" is the life expectancy computed by use of the
Single Life Table in Treasury Regulation 1.401(a)(9)-9.

 

 

(e)

Member. For purposes of Article 19 of the Plan, the term "Member" includes any
Member and, where applicable, any Deferred Member.

 

 

(f)

Member's Account Balance. A Member's "Account balance" is the Account balance as
of the last Valuation Date in the calendar year immediately preceding the
distribution calendar year (valuation calendar year) increased by the amount of
any contributions made and allocated or forfeitures allocated to the Account
balance as of dates in the valuation calendar year after the Valuation Date and
decreased by distributions made in the valuation calendar year after the
Valuation Date. The Account balance for the valuation calendar year includes any
amounts rolled over or transferred to the Plan either in the valuation calendar
year or in the distribution calendar year if distributed or transferred in the
valuation calendar year.

 

 

(g)

Required Beginning Date. "Required beginning date" is the first day of April
following the calendar year in which occurs the later of (i) the date the Member
attains age 70½, or (ii) the date the Member terminates employment.

 

This ESI 401(k) Plan, as restated effective January 1, 2006, is executed on
behalf of ITT Educational Services, Inc. by its duly authorized officer as of
the 16th day of April, 2007.

 

ITT EDUCATIONAL SERVICES, INC.

 

 

By

/s/ Nina F. Esbin

 

Signature

 

 

Nina F. Esbin

 

Printed Name

 

 

Senior Vice President, Human Resources

 

Office

 

 

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